Aware, Inc. (NASDAQ:AWRE) Q3 2023 Earnings Call Transcript

Aware, Inc. (NASDAQ:AWRE) Q3 2023 Earnings Call Transcript November 1, 2023

Matt Glover: Good afternoon and welcome to Aware’s Third Quarter 2023 Conference Call. [Operator Instructions] Before we begin today’s call, I would like to remind everyone that the presentation today contains forward-looking statements that are based on the current expectations of Aware’s management and involve inherent risks and uncertainties that could cause actual results to differ materially from those described. Listeners should please take note of the Safe Harbor paragraph that is included at the end of today’s press release. This paragraph emphasizes the major uncertainties and risks inherent in forward-looking statements that management will be making today. Aware wishes to caution you that there are factors that could cause actual results to differ materially from those results indicated such statements.

These risks and uncertainties are also outlined in the company’s SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements should be considered in light of these factors. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time-our-time, Aware undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Additionally, this call contains certain non-GAAP financial measures that are defined by the SEC and Regulation G. Non-GAAP financial measures should be considered in isolation from or a substitute for information presented in compliance with GAAP.

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Accordingly, Aware has provided reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in the company’s earnings release issued today. I would like to remind everyone that this presentation will be recorded and made available for replay via a link available in the Investor Relations section of the company’s website. Now, I’d like to turn the call over to our CEO and President, Bob Eckel. Bob?

Bob Eckel: Thanks, Matt. Good afternoon, everyone and thank you for joining us today. I am excited to talk to you about our exciting things that have been going on at Aware. After the market closed, we announced our results for the third quarter ended September 30, 2023. A copy of the press release is available on the Investor Relations section of our website. Before reviewing our financial and operational highlights from the third quarter, I want to give you a quick overview of Aware and what makes us different. That way, those of you who are new to us have a better understanding of Aware. Aware is a global biometric platform company that uses data science, machine learning and artificial intelligence to tackle everyday business and identity challenges through biometrics.

We’re working to enhance trust in an increasingly connected world through our mission of balancing security and user experience through our technology. Our offerings facilitate digital onboarding, authentication and life cycle management of the user’s biometric identity through proven, responsible and trusted multimodal adaptive biometrics. Over the last 30 years, Aware has proven the value of our offerings by continuing to be chosen by governments and commercial organizations alike for our experience and our hardened portfolio. Our reputation in the biometric industry has earned us trusted spots with core government agencies in the United States, Canada, the UK, Germany, Australia and more. In fact, we are a worldwide leader in biometric data orchestration for immigration and border management.

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Q&A Session

We’re also trusted by industry leaders like the largest banks in Brazil and Turkey, among others, for onboarding and authentication. Further, we have championed the responsible use of technology, specifically leveraging artificial intelligence and machine learning to create software that ethically achieves demographic neutrality and equity, meaning we have purposely emphasized the need for treating all individuals equitably. During research, design, development, testing and refinement, we train our algorithms on some of the largest and most diverse data sets in the world. This has given us the number one position in minimizing, practically eliminating, bias based on age, gender or race as independently tested and confirmed by NIST. Also, we believe in consent-based biometric technology, meaning outside of specific forensic applications and law enforcement and defense and intelligence, only people who consent to leverage biometrics are users of our technology.

Additionally, our agnostic approach allows customers the flexibility they need to build on past investments rather than rip and replace, a common industry practice that promotes waste. Third, we’ve earned our trusted status through a portfolio that mitigates threats and asserts the integrity of identity in a future-proof way. Since Aware doesn’t outsource any biometric technology, we are the only biometric provider our customers need to work with. And if a new attack vector emerges, we are able to work directly to address it without needing to wait on a third party to upgrade their algorithms first or get recertified. Further, we set the bar for liveness in the industry. In a recent independent NIST benchmarking study, Aware took the top spot in security for both impersonation and evasion detection for one of the presentation attack types, the only provider to do so.

Ranking top 5 in security and top 10 in convenience across the strong majority of presentation attack types for evasion, Aware is the only provider who has successfully found the balance of security and user experience with the ability to configure solutions appropriately for every use case. And lastly, before I discuss the progress we’ve made to accelerate growth and drive greater scale for Aware, I want to point out how important it is for us to offer future-proof solutions. An organization’s business requirements will evolve over time as well the external landscape. Our offerings and platform can scale with customers, adapt to changing environmental conditions, risk profiles or consumer demands and anticipate and/or respond to future attack vectors.

This positions us well to maintain the customer satisfaction needed to retain and expand the recurring revenue we’ve been building. In fact, since I joined the company at the end of 2019, we’ve grown recurring revenue 83% or 16% annually from $5.4 million in 2019 to nearly $10 million over the trailing 12-month period ended September 30, 2023. We expect to end 2023 with more than $11 million in recurring revenue, providing solid visibility going into the new year. Now with that background and context, I’d like to discuss our operational and financial achievements for the third quarter of 2023. In Q3, we expanded our recurring customer base through our continuous efforts to enhance our market-leading technology and develop our partner ecosystem.

Q3 was a very strong quarter for Aware and reflects the tremendous progress we’ve made driving profitable and more predictable growth. This quarter, we generated $2.5 million in operating cash flow and continued building upon the foundation for future recurring revenue. After working through several deals that were delayed over the past few quarters and months, we secured a $3.4 million contract that along with annual maintenance options, has a 5-year value of up to $5.1 million, which expands our footprint in the U.S. government as well as us beginning to recognize revenue from the 5-year $5 million contract we secured with our largest BioSP customer in Q2. Both contracts reflect the trust leading government agencies place in us and when combined with our new AwareABIS contracts are expected to contribute more than $1.5 million to our annual recurring revenue.