Aware, Inc. (NASDAQ:AWRE) Q4 2023 Earnings Call Transcript

Aware, Inc. (NASDAQ:AWRE) Q4 2023 Earnings Call Transcript March 12, 2024

Aware, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Matt Glover: Good afternoon, and welcome to Aware’s Fourth Quarter and Full Year 2023 Conference Call. Joining us today is the company’s CEO and President, Robert Eckel; Principal Financial Officer, David Traverse; and CRO, Craig Herman. Following their remarks we’ll open the call for questions. [Operator Instructions] Before we begin today’s call, I’d 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.

The 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 indicated by such statements. These results 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 to 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 references recurring revenue, annual recurring revenue and adjusted EBITDA, which are non-GAAP financial measures as the term is defined by the SEC in Regulation G. Non-GAAP financial measures should be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, Aware has provided a 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 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?

Robert Eckel: Thanks, Matt. Good afternoon everyone and thank you for joining us today. After the market close we reported our results for the fourth quarter and full year ended December 31, 2023. A copy of the press release is available in the Investor Relations section of our website. 2023 marked a record-breaking year for Aware as we began to see the impact of our successful transformation to a recurring revenue and subscription-first business model. Our financial performance reflects our continued efforts to drive sustainable growth by prioritizing annual recurring revenue, focusing our go-to-market strategy, enabling our partner ecosystem, accelerating product market fit and optimizing our organizational structure. Our strategic execution yielded markedly improved results in line with our expectations for 2023.

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Q&A Session

Headlining our success was 23% growth in Annual Recurring Revenue or ARR bringing our ARR to $12 million, an impressive level especially when you consider where it was generating approximately $12 million in total revenue in my first year of this transformational journey 2020. Our total revenue now after 14% year-over-year growth to $18.2 million marks the highest level since 2016. Furthermore, we have momentum. In Q4, we generated $3.7 million in recurring revenue reflecting a 40% year-over-year growth. These achievements propelled us to achieve the highest level of annual recurring revenue in the company’s history and establish a strong recurring revenue base for 2024. Moreover our focus on cost optimization and operational efficiency has not only strengthened our financial position, but it also positions us for sustainable growth.

We do still continue to see long sales cycles and did have net income negatively impacted in the quarter by a $2.7 million write-off related to a March 2022 $2.5 million investment in Omlis Limited. Overall, we did see a significant reduction in cash burn in the year underscoring our commitment to financial prudence and sustainable growth. Craig and his team have demonstrated their ability this year in securing valuable clients and strategic partners, laying a solid foundation for future scalability. While I’ll defer to Craig to dive deeper into our go-to-market strategy and key customer wins for Q4 and 2023, I’d like to highlight a few recent wins. Notably, in Q4, we onboarded several new clients in our core geographies, including a prominent technology provider in Argentina, a leading tech company in Dubai and a Turkish bank.

These successes emphasize our commitment to expanding our global footprint and forging impactful partnerships across diverse markets. Furthermore, our dedication and focus on enhancing our partner program, which was officially launched in the third quarter, remains unwavering. In recent months, we have successfully integrated Avanza Solutions and Serban Group into our partner ecosystem. These strategic alliance, are poised to bolster whereas market presence in our target verticals spanning North America, LatAm, Europe, Northern Africa and the Middle East. In fact, our collaboration with Serban Group is already yielding promising results with three potential opportunities emerging as a direct outcome. This underscores our commitment to fostering mutually beneficial partnerships that drive growth and expansion across our focused verticals and markets.

As previously noted in our quarterly updates, it’s important to acknowledge that we do not intend to announce every contract secured or currently in progress. It’s worth highlighting that the world’s leading technology and resilient partnerships continue to identify additional opportunities in highly competitive markets. Although, there may be some fluctuations from quarter-to-quarter, we maintain a robust pipeline of opportunities in our backlog. Moreover, our solid foundation of recurring revenue serves as a stabilizing force mitigating the impact of these fluctuations and providing a strong basis for future growth. Before discussing 2024, I’ll turn the call over to David to take us through our financial results for the fourth quarter and the full year, and Craig to review our go-to-market.

David, over to you.

David Traverse: Thank you, Bob, and good afternoon, everyone. Turning to our financial results for the fourth quarter and full year ended December 31, 2023. Total revenue for the fourth quarter was $4.4 million, compared to $4.1 million in the same year ago period. The year-over-year improvement was largely due to higher software maintenance revenue. For the 12 months ended December 31, 2023, total revenue was $18.2 million, increased compared to $16 million in 2022. The increase in total revenue was primarily due to higher software license revenue. Annual recurring revenue or ARR as of December 31, 2023 increased to $12 million compared to $9.7 million as of December 31, 2022. For Q4 2023, recurring revenue was $3.7 million or 82% of total revenue to $3.7 million in recurring revenue representing a 40% year-over-year increase.

For the 12 months ended December 31, 2023 recurring revenue was $11 million, an increase of 13% compared to $9.7 million in 2022. Looking at operating expenses and operating loss, which include one-time actions in 2023 and 2022 related to the $2.7 million write-off of our investment in Omlis Limited in the fourth quarter of 2023, the $800,000 one-time gain in Q3 of 2023, related to the closeout of our contingent consideration related to our FortressID acquisition, as well as the $5.7 million one-time gain related to the sale of the company’s building in July of 2022. Our fourth quarter operating expenses were $8.9 million, up from $6.1 million in Q4 of last year. Operating expenses for the 12 months ended December 31, 2023 were $26.8 million, up from $18.2 million in 2022, which as mentioned earlier, included the one-time actions in 2023 and 2022.

Operating loss for the fourth quarter of 2023 was $4.4 million, compared to an operating loss of $2 million in the same year ago period. Operating loss for the 12 months ended December 31, 2023 was $8.5 million, compared to $2.2 million in 2022. Now, turning to GAAP net loss, which also includes the one-time transactions mentioned earlier. For the fourth quarter of 2023, GAAP net loss totaled $4.2 million or $0.20 per diluted share, compared to a GAAP net loss of $1.8 million or $0.08 per diluted share in Q4 of last year. For the full year of 2023, GAAP net loss totaled $7.3 million or $0.35 per diluted share, compared to GAAP net loss of $1.7 million or $0.08 per diluted share in the prior year. Our adjusted EBITDA loss for the quarter totaled $1.3 million, which compares to a loss of $1.5 million in the same year ago period.

The year-over-year improvement in adjusted EBITDA was primarily due to higher revenue. For the 12 months ended December 31, 2023, adjusted EBITDA loss totaled $4.6 million, an improvement compared to an adjusted EBITDA loss of $5.2 million in the prior year ago period. Looking at our balance sheet, we ended the quarter with $30.9 million in cash, cash equivalents and marketable securities, compared to $29 million at the end of the prior year, as we were able to collect on our IRS carry back claim of $1.5 million, and close out a long-term services project that was previously an unbilled revenue. As part of our previously announced share buyback program, which we extended to December 31, 2025, we repurchased 299,780 common shares of stock at a cost of $500,000 during the year.