Aware Inc (AWRE) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth quarter 2007 Aware Inc. earnings conference call. My name is Karen, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's call, Mr. Keith Farris, Chief Financial Officer. Please proceed.

Thank you, operator. Good afternoon, and welcome to Aware's fourth quarter 2007 earnings conference call. With me today is Michael Tzannes, Aware's Chief Executive Officer. Thank you for joining us today. I'll review the financial results for the quarter, then Michael will talk about the business and then we'll take questions. A recording of this call will be available on our website at www.aware.com after the call is completed.

First I'd like to point out various remarks we may make about future expectations, plans and prospects for the company and the DSL and biometrics markets constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the section titled factors that may affect future results in our annual report on Form 10K for the year ended December 31st, 2006, which is on file with the SEC.

Turning now to the financial results for the quarter. Revenue for the quarter increased 5% to $6.8 million from $6.4 million in the fourth quarter of 2006. For the year ended December 31st, 2007, our revenue increased 10% to $26.4 million, compared to $24.1 million in 2006. We report net income and basic and diluted net income per share in accordance with U.S. generally accepted accounting principles, or GAAP, and additionally on a nonGAAP basis. NonGAAP net income where applicable excludes the effect of stock-based compensation expense. The company used the nonGAAP information internally to evaluate its operating performance and believes those nonGAAP measures are useful to investors as they provide additional insight to the underlying operating results. However nonGAAP measures are not stated in accordance with, should not be considered in isolation from, and are not a substitute for, GAAP measures. A reconciliation of GAAP to nonGAAP results has been included in today's earnings release.

Our GAAP net income for the fourth quarter of 2007 was $193,000 or $0.01 per diluted share which includes $346,000 of stock-based compensation charges under the provisions of FAS 123(R). This compared to GAAP net income of $882,000 or $0.04 per diluted share for the fourth quarter of 2006. Our GAAP net income for the year ended December 31st, 2007, was $160,000 or $0.01 per share, compared to net income of $1 million or $0.04 per diluted share in 2006. Our nonGAAP net income for the fourth quarter of 2007, which excludes the effect of stock-based compensation, was $539,000 or $0.02 per diluted share. For the year ended December 31st, 2007, we had nonGAAP net income, excluding the effect of stock-based compensation, of $1.3 million or $0.05 per share.

Product revenue for the fourth quarter was $5.2 million, up 1% from $5.1 million in the third quarter of '07, and up 96% from $2.6 million a year ago. Product revenue in the fourth and third quarters reflects a similar mix of software sales and DSL test and diagnostic hardware sales. Compared to the fourth quarter of 2006, the increase of $2.6 million in product revenue reflects increased DSL test and diagnostic hardware and software sales and increased biometric software revenues. Contract revenue, which includes license and engineering service fees, was $1.1 million for the quarter, compared to $1.9 million last quarter and $2.6 million in the fourth quarter of 2006. The sequential and year-over-year decrease in contract revenue is the result of lower license fee revenues associated with the delivery of licensed technology and engineering services.

Royalty revenue of $500,000 was unchanged from Q3 '07 and decreased by approximately $650,000 from the fourth quarter of '06. The decrease in royalty reflects decreased chipset sales reported by our customers. Fourth quarter spending was $7.1 million which includes $346,000 of stock-based compensation compared to $6.9 million in the third quarter of '07 and $6 million in Q4 '06. The $126,000 spending increase from the third quarter of 2007 was primarily due to third party contractors for a customer project. Higher spending in this quarter compared to last year's fourth quarter was primarily due to higher cost of goods related to growth in hardware product revenues and compression increases -- compensation increases. We had interest income for the quarter of $496,000. Our available cash and short-term investments were $38.5 million at the end of December. Receivables were $7.7 million at quarter end, but taking into account collections since December 31st, the receivables balance is consistent with previous quarters with a majority of open balances less than 30 days old.

Inventory was $1.4 million at quarter end this. This inventory level reflects the growth in our test and diagnostic hardware revenues and supports firm customer orders and long lead time requirements. We have $743,000 of deferred revenue, which is a slight increase from Q3 '07. Deferred revenue relates to contract and maintenance agreements. We have no debt. During the fourth quarter we did not repurchase any shares of common stock under our stock repurchase program and as of December 31st, there were 23,854,708 shares outstanding. At the end of the fourth quarter we had 126 full time employees, 93 of those were engineers. This completes my financial comment commentary and now I would like to turn the call over to Michael.

Thank you, Keith. 2007 was a very successful growth year for Aware. Annual revenues were at the second highest level in the history of the company and we've now been profitable for two years in a row for the first time since 2000. Biometrics business was up 50% year-over-year. Nearly 30% of overall revenues were from biometrics and medical imaging. This exceeds our plans for these product lines internally.

In 2007 we made good progress executing our core strategy of participating in new biometrics markets such as secure credentials and border control while expanding our product footprint to include a strong back end middleware service component. An important development in 2007 was the rollout of the mandated issuance of biometric PIV ID cards by federal agencies, and they're use towards controlling access to U.S. government facilities and information systems. Our publicly announced win at NASA involved both biometric enrollment and middleware products which enabled a rapid deployment of a cost-effective PIV compliant upgrade of their existing credentialing system. In addition the U.S. Department of State Bureau of Consulate Affairs has deployed our CaptureSuite product in its Consulate office as part of its biovisa program. CaptureSuite is used to quickly and easily capture 10 fingerprints from visa applications, ensure their quality and compliance and format them for search. This program is a good example of the growing use of biometrics in border control applications and Aware's participation in this market.

We see additional opportunities in enterprise and corporate adoption secured by metric credentials similar to PIV for use in identity applications including physical and logical access control. We have several partnerships with leading system integrators who are actively marketing identity management solutions that include Aware enrollment and middleware products. Test and diagnostics had a very strong year based upon the sale of hardware and software products through our OEM customers. In 2007 revenue from these products contributed more than 35% to the top line. This significantly exceeded our internal plans as our strategy of deploying a comprehensive suite of hardware and software for this market began playing out.

The roll out of ADSL2+ and VDSL2 networks for video services was an important catalyst for our success this year. We participated in test head infrastructure deployments at Tellus, and had several other international deployments. We participated in hand held deployments at Deutsche Telecom. Looking forward, we see opportunities in 2008 for additional deployments at Tellus as well as the potential for participation in rollouts of test infrastructure at AT&T. We also see opportunities in the hand-held market in North America and Europe. In addition to automated test head and hand-held OEMs, our tested diagnostic software products are used by DSL access equipment suppliers. Alcatel uses our Dr. DSL software in their network monitoring and provisioning products. Alcatel is one of the market leaders in DSL network solutions and was a significant customer for us in 2007.

Our server-based line diagnostics platform has seen initial success at several independent telephone companies. We see the potential for growth for this platform through our relationship with Occam and other DSLAM vendors. In general, in DSL tested diagnostics we have a strong portfolio of hardware and software products giving us broad exposure to multiple opportunities across hand helds, automated test heads and DSL access equipment. Overall product revenue hit another record this quarter at $5.2 million and another record for the year at $17.5 million. Product revenue was up 130% year-over-year which reflects the success of our biometric software products and our tested diagnostics hardware and software products.

Gross margins on product revenue this quarter were basically the same as last quarter, once again reflecting a healthy mix of hardware and software sales in product revenues. The gross margin on hardware products was also within our target range of 35% to 45%. Our overall product margin target range is 75% to 85%. We believe that revenues in our DSL licensing product line will improve in 2008. DSL subscriber growth continues to be strong and is clearly transitioning to ADSL2+ and VDSL2, areas where our IP is very strong. In 2007 we achieved an industry-leading VDSL interoperability footprint with both VDSL2 base systems as well as older VDSL1 base systems. We believe that such VDSL2 interoperability is strongly desired by service providers seeking to deploy standard compliant VDSL systems. Our VDSL interoperability achievements coupled with service provider driven IPTV investments are important elements of our overall value proposition to our target vendor market. In addition we continue to improve our patent portfolio and ended 2007 with over 50 United States and over 100 foreign patents.

Looking forward, we expect to capitalize on demand from customers who desire to gain access to our IP. We see a number of opportunities to add customers interested in leveraging our IP. Our StratiPHY product line, our analog front-end intellectual property and our patent portfolio are viewed by our target customer base as cost effective and rapid means to participate in the DSL industry. We also see potential for our customers to gain share in their respective ADSL2+ and VDSL2 markets. DSL deployments involving our customer chipsets are expected in 2008 at Qwest, Deutsche Telecom, France Telecom and in other parts of Europe, as well as in China and India. In addition we're also optimistic about growing our IP footprint into areas other than DSL. These will leverage our strong technology foundations in digital communications, our chip development expertise and our focus on applications supported by industry standards. Before I move to guidance, I would like to reiterate that based on our strong IP portfolio, and the level of interest we're seeing with customers, we expect contract revenues to improve significantly over last year.

Turning now to guidance for 2008. We expect revenues to be in the $31 million to $36 million range and earnings to be in the $0.05 to $0.20 per share on a GAAP basis. We expect to be able to refine our guidance as the year progresses. The range reflects significant revenue growth from our DSL products as well as from our biometrics products. The revenue and EPS range also reflects variations in terms of revenue mix between DSL and biometrics products as well as revenue mix between hardware and software products. We're very pleased with Aware's position in the DSL and biometrics products. Each of our product lines: DSL licensing, DSL test and diagnostics, and biometrics are poised to deliver strong revenue and earnings in 2008. We expect to see a balanced contribution from each of these product lines in 2008. We believe that each of these product lines can grow to be profitable, $15 million to $20 million a year revenue contributors, over the next several years. At this point, I would like to open the call up for your questions.

(OPERATOR INSTRUCTIONS) All questions must be submitted at this time in order for it to be registered. Questions will be taken in the order received. (OPERATOR INSTRUCTIONS) And your first question comes from the line of Stanley Cohen with Atrium Advisors, please proceed.

Hi, Michael, how are you.

Hi, Stanley.

First of all, in the quarter there's been reports in the press about this large contract with Lockhead has received for -- from the FBI. Are any of your customers participating in that? Are you indirectly?

Generally, that's a market we participate in. I think it's too early for us to comment on any details, partially because we do not really know too many details.

Okay. And could you repeat what you said Alcatel is using you for?

They're a customer of our Dr. DSL software and they use it in a network provisioning, network maintenance software product they have.

So similar to the Occam product.

Yes, it's a similar -- the Occam product is more of a service based complete soft test head whereas Alcatel is using more of a software components of Aware's.

Do you know if they'll be using it in the AT&T deployment at all?

I don't know. I don't think there's been any announcement as to who has won that deployment or whether there's actually -- what the size of it or what the timing of it is.

Okay. Thanks a lot.

And your next question comes from the line of Mike Easson with Merriman. Please proceed.

Hi, guys.

Hi, Mike.

So a quick question about some of your licensing IPs, names like Thomson and PMC that have been announced earlier mid last year, and specifically the VDSL2 implementations of those chipsets. Can you give me an idea of where they are with their development process and when we may see CTEs around that silicon?

Yes. I can tell you what I know which is generally going to be limited, but Thomson has a product -- they actually have two products with us, they have a ADSL2+ product and VDSL2 product. They were demonstrating the VDSL2 product in a -- at a trade show in Europe earlier this year, and it's a very high-end integrated platform that it's part of that supports IPTV, HD versions of TV, voice and data. So it's targeted at a very high-end residential gateway solution. I can tell you we're not seeing any royalty revenue from that yet but it's also I think a very well-positioned product in the market. PMC also has a very high-end VDSL2 product. They were also demonstrating this at the same show. I can also tell you that we're not seeing any royalties at this point from that product either. In general this year, out of sort of the new customers, so the existing royalty bearing customers would be Ikanos and Infineon. New customer prospects would be Thomson and PMC. We do expect to see some business out of the newer -- the new guys in this year and it's targeted at European opportunities and some opportunities in the far east, where we expect that they're going to actually see some deployments.

So you mentioned opportunities at DT in advanced telecom. Those may be --

Those would be more with the traditional. At this point we're envisioning those as more of the traditional base. So Ikanos clearly has a strong position at France Telecom. We'd expect that to continue, hopefully they can expand beyond France Telecom into some other and can expand. We know they've won some business in other markets as well. And then Germany is the Infineon deployment at Deutsche Telecom, which has a very strong start in '06. Didn't do a whole lot of -- didn't generate a whole lot of revenue for us in '07, at least the VDSL portion of it, but we do expect that VDSL portion to be a -- to rebound in '08. And the ADSL portion of Infineon sales have continued to be strong. In general, though, I'll just make a comment on royalties, we gave some guidance for the year here, and we are expecting royalty revenues to improve over last year. But we're not expecting them to show a, I don't know, unnatural type of growth. You've got a situation where Ikanos and Infineon have had a steady share of the market for some time.

We expect that will improve but we do not think over that time frame it's going to improve by multiple factors. And we do expect some of the new guys to enter the market, but we think that will have a modest impact on the financials during the year of '08. We do, as I pointed out, expect the business to do very well this year. And the reason I'm saying this is it's not based on royalties making some miraculous increase. We do think over time royalties are going to be a very healthy contributor to the business, and it's going to be based on those folks and other folks getting into the market and increased share participation from our customers. But this year, the primary rebound in the licensing business is going to come from contract revenues. That's what we think. That's what our internal plans are showing.

Okay. If I can ask what the OpEx in '08. What's your projection for head count? Are you ramping up or is it going to maintain fairly flat?

I think we're ramping up modestly, Mike. Not a whole lot. Let's dig up that number. Do you have another question?

Yes. Just a quick one. Do you have any 10% customers in the quarter or on the year that you can comment on?

Yes we do. We have Spirent is a 10% customer. They're on the test and diagnostics side. Alcatel is a 10% customer. They were also on the test and diagnostic side. I just spoke about them, that they're a Dr. DSL software customer. Infineon is a 10% customer. I believe those are the three.

Great. I'll leave it there for now, then.

And I'll get the head count number. It's a -- we are continuing to add heads both in engineering and sales and marketing. We pretty much did what we expected this year. We hit our plan. We wanted to add this year and we did. And we're continuing to add next year. I don't think it's quite as dramatic a percentage increase, but there is some increase in head count. Hang on one second, I'll tell you the number. Alright. Well, I'll answer it in a few minutes, Mike.

All right. Thanks, guys.

Sorry.

And your next question comes from the line of Joel Achramowicz with MDB Capital Group. Please proceed.

Thank you very much. Good afternoon, gentlemen.

Hi, Joel.

Hi, Michael. Question, just any thoughts on -- Michael, on how this Centillium merger with Ikanos might effect you, either --

We do not really know. First of all, there is a rumor that Centillium is a customer or some people believe that Centillium is a customer. I don't think neither Aware nor Centillium has ever confirmed that. But whatever impact that deal with Ikanos might have, Ikanos is a customer, obviously, we cannot discuss any details frankly because we do not really know any details. So at this point, we had some aspirations about getting access or seeing some market share improvements in the Japanese market, and I would say there is some uncertainty around that given this transaction, but we don't know the specifics just yet.

Fair enough. Moving on. What are your thoughts on -- you had mentioned some interesting new research directions.

Yes.

And I've often speculated with your strong focus in spread spectrum technology, and -- have you thought at all about looking at the wireless base with some of the emerging standards.

Yes, we have. I'll talk -- I can talk sort of in generalities about the kind of things we look at. In general we think that our strengths are certainly in signal processing technologies, in multimedia technologies and in communications technologies. We tend to do pretty well where a dedicated chip is part of a solution, because we have a very strong chip development team which we've put together over a number of years, and it's one of the real R&D jewels of the company. And we also understand the importance and I think know how to leverage standard spaced industries.

So industries that are dictated by standards have a certain nature to them, which is different than other industries, and we know how to participate in those. So there are certainly opportunities on the wireless side, on the wireline side, other things that we're looking into on that side. And in general what we're interested in doing is leveraging all of those assets I just described to you into some new areas, and I think we'll be able to talk -- hopefully to be able to show some business from these things in '08. But we have had some R&D going on in some of those areas for some time, but I'd rather not talk about any specific application just yet.

I'm very encouraged the way you've really leveraged into this biometrics market and really shown some great run rate growth.

It's been terrific. And it's been a combination of a healthy growth inside a core business that we've had for years, as well as the addition of new products, targeting new areas that have gotten some traction this year. 50% growth in a business and its a very healthy margin software business is something we're very happy about, very proud of.

And of course we know inevitably, at least from my perspective, that the VDSL business will kick in in a big way eventually.

Yes, we don't have too much -- it was not -- I completely agree with you, Joel. It was not a real successful 2007. It was sort of a lackluster 2007 on the licensing side. But you look back at 2006 and it was a pretty good year in licensing. We're pretty confident that the macro trends that we're seeing are still very healthy, and then all of the things we know about ourselves, which are strong asset base of technology -- of core technology that has just improved, continues to improve over time. And also the interest that we're seeing with specific customers that we've been discussing doing the developments with and doing deals with. So from all angles right now, it does look like that business is going to recover or rebound or improve significantly in '08.

Well, we'll look forward to watching your progress. One more question, Michael. Some companies I'm seeing are printing their intellectual property portfolio and selling off patents in piecemeal on a deliberate basis to raise cash. Not that you really need a lot of cash, but have you considered dressing that area of your business at all?

Well like you said, we do not need cash. So if we were to get involved in something like that, it wouldn't be to raise cash. Our patents are one of the strong assets we have and looking to get shareholder value and monetize those is always something we're looking to do. Typically we license those patents as part of the IP that we license to our customer base, but other types of transactions that leverage those patents and bring shareholder value and do not change the future of the company or the prospects that we see in some of the market that's we're pursuing, would certainly be fair game.

Very good. Looking forward to watching your progress. Thanks.

Thank you, Joel. Before you go there, I'll answer Mike's question real quick. Our plan is to show about 15 new heads this year -- new employees. So growing from where we are at the end of the year, 126, plus about 15. Next question, please.

Your next question comes from the line of Tom [Curdo] with Pacific Asset Partners. Please proceed.

Hi, Mike.

Hi, Tom.

You seem pretty cautious regarding royalty revenues, yet you seem very optimistic regarding contract revenues. Can you explain the contract revenue optimism?

Well, the contract revenue optimism is based on the fact that we know we've got a strong base of core assets that we've developed over many years, that are just getting more valuable as time goes on. There is going to be a new standard by the end of this year which won't be called VDSL3, but it basically will be the subsequent standard to VDSL2, which we believe is another opportunity for us to license technology into both the existing customer base and to potentially new customers. There's -- it's also a consequence of just the direct interactions we're having with prospective customers. And you -- we are -- we have a sales pipeline in effect that we know is very healthy, and we believe is going to generate revenue and we'll be able to capitalize on that this year. The royalty side of things, as I know many of you guys appreciate, we don't have a lot of instrumentality over it. If a customer sells a lot of chip into a specific deployment, we do well and if they don't, we don't.

And while I do think royalties will improve, the reason I was trying to make that point with Mike, I think it was, was that it's -- to a large extent it's out of our hands, and we do think things will improve, but we're not basing our optimism for 2008 on some miraculous event taking place with our customers, where they're market share doubles or triples in a short period of time. Hopefully that happens over a time and hopefully -- and if it does we'll certainly benefit from it, but our internal plans are showing sort of a modest growth on the royalty line because I think that's a little bit -- that more accurately represents the nature of the opportunities we're seeing. On the contract side, the nature of the opportunities we're seeing are that we're going to see some improvement on that line.

Okay. Thank you. The royalty issue continues to bother me regarding your -- the last question on your patent position.

Okay.

Broadcom, I guess, is going to be a very viable competitor against Infineon.

Yes. They are.

So if you have the -- this patent portfolio, why isn't Broadcom a customer? Sorry. It's kind of a --

They're not a customer because they didn't license our StratiPHY technology and they haven't come to Aware and said, I would like to license your patents. And we haven't gone to Broadcom and said, you have to license our patents, because that's a -- an engagement we've elected so far not to go forward with, because that's not a -- it's probably going to end up in a lengthy legal battle.

Right. I know Landis did -- that was kind of --

So, we've elected to look for ways to capitalize on our IP without going down the various legal routes that certainly are options to us and we've never foreclosed on those, but we're not -- I can tell you right now, we're not planning on doing that in the near term.

Okay. And then my last question, I'll get back in the queue and let others -- you mentioned AT&T as being a -- I think you said potential test and diagnostic customer.

Right.

Can you get -- go into that a little more?

Sure.

To my knowledge this is the first time you mentioned AT&T. And I've always wondered whether they could eventually, eventually be a customer in some way.

Yes. Well, I think -- I do think by the way they could eventually be a licensing customer through one of our chipset suppliers, but in the near term it looks like most of the AT&T deployment is conexant-based Alcatel equipment. But over time that could change. A new CPE device could enter the market based on one of our customers chipsets and I think there's plenty of opportunity for that. What I was talking about in the prepared -- in the opening remarks was that it does look like AT&T is going to be deploying a test infrastructure for their U-verse network, and we have relationships with OEMs on the test head side, and in general, we have relationships with OEMs across the various aspects of the test and diagnostics industry. And some of those OEMs are pursuing business at AT&T, and if they were to win that business we would participate in the deployment. So the sequence of events is AT&T actually does install the infrastructure, one of our customers gains share in that deployment, and then our customers purchase a combination of hardware and/or software products from us into it, and that's how we would participate.

Okay. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of [Todd Coin] with MTC Advisors. Please proceed.

Thanks for taking the call. I am somewhat new to the Aware story, and I think I've got a handle on everything, except I'm a little bit confused on the contract revenue -- on the contract revenues. I was wondering if you could take just a brief moment to highlight the dynamics of that business, and then specifically I had a question regarding the margins in that business. It looks like this most recent quarter you had revenues of $1.07 million and then cost of revenues of about $1.1 million. I know you did refer to some third party issues previously. I'm assuming that has something to do with that issue there, but what is going on there specifically? because it looks like, based on your three months, a year-ago versus your year numbers that -- it seems to me that in a contract business, you should be making money.

Yes. And I think if you look over a broader time window, we do make money. So I'll try to answer your question. You started with, a what is the contract revenue. Contract revenue is revenue that we generate based upon licensing and development contracts that we enter with customers. So those contracts involve a customer gaining access to certain IP assets from Aware --

Okay.

-- doing a development project with Aware -- and/or doing a development project with Aware and gaining support for their products from Aware. The -- and I think if you go through and read our financial statements you'll see that we talk about technology being delivered or technology being licensed and that become a contract of a new item, and also engineering services being providing which is the support thing I was talking about, and that also is a revenue item. So this quarter had more service-oriented contract revenue than technology license-oriented contract revenue. Technology licensing oriented and contract revenue typically doesn't have as large a cost associated with it. In many cases we're delivering technology that's been developed previously, so there is no cost at that point in time for that delivery. This quarter, most of the revenue itself was services oriented.

And we still have activities that go on towards developing and delivering technology under contracts, but you don't necessarily hit a revenue milestone in a 90-day period that lines up with the calendar. So we were doing developments that still show up as an expense, because that's how we've always accounted for these types of developments, they show up as an expense, but the revenue associated with that would not show up until a future period when we actually accomplish a certain milestone in a contract.

Okay. Thank you. And then one other question. As it relates to a question asked earlier about ways to monetize the IP, you indicated that if you could keep it -- it would enhance shareholder value, you would do it. I'm not sure if you've actually -- were you saying you've done that in the past, and if so, when did that occur?

No, say we -- I did say that our patents are a part of what we do with our customers. But licenses to our patents are a big part of what is currently involved. So my point was that the idea that Aware has a strong patent portfolio is already to a large extent leveraged, but in the event that there was some type of transaction that made sense for us to enter into that was different than a traditional transaction we may have been in, I don't like the idea -- I think the question was would you sell your patents for -- in order to raise cash. We don't -- we would not go down that path, I don't think.

I guess it's a good question because when you look -- as I begun to study the company, as you look at the enterprise value when you back out kind of your cash, NOL and maybe the value of your property, that you're not being given much value at all for your IP in the marketplace. So I guess that's why that question was asked.

Yes, I'm not sure why. I think Joel asked the question. I think it was -- I'm not sure why he asked the question.

Right. Right. So -- all right. Thank you.

Okay. Thanks.

And your next question is a follow-up from the line of Tom Curdo with Pacific Asset Partners. Please proceed.

This is just kind of a fun question. There has been these various questions about your IP portfolio, you call yourselves the intellectual property company, and I knew Landis pretty well in its early years, and they were actually very aggressive in protecting their patents. Why don't you go private, so then you could be as aggressive as you want? That's my fun question. I'm interested in your response. Go private.

I don't think it makes sense for us to do that. I see the potential that we have as a business to grow the business this year, and I -- we have looked at that avenue over the past. It's been a while since we've gone down that path. It's not -- it's not a trivial thing to do to go private. And it's -- I think the way management looks at the company and I think I can speak for the board, we think we have a pretty healthy set of opportunities in front of us in the licensing for DSL, the test and diags for DSL and the biometrics markets, and a lot of companies work very hard to become public. We are public, and I think we can capitalize on those opportunities and benefit from the liquidity of being a public company. But certainly we have to -- we have to execute on those businesses. I think if we didn't feel like we were executing in the areas where we've spent a tremendous amount of time on product developments and market developments, it might be something that would be a good question to ponder. But when you look at the test and diag business starting to take off going from virtually zero in 12 months ago or 18 months ago to over a third of our revenues this year, the biometrics market, a very healthy gross margin business growing at 50%, the -- I just don't see the reason to give up being a public company.

Okay. I -- as I said, it was a fun question. I appreciate the answer. I think we all just kind of wish the royalties were higher than they've been, and that's probably been frustrating to a lot of people.

Yes. I can't disagree with that. It's been disappointing for me as well. I don't think it's the whole story of what Aware is about, and I do not think it's the end of the story of what will happen with the royalties necessarily, but it has been a disappointing year for sure in that regard.

Okay.

And very encouraging in other regards.

Okay. Thanks, Michael.

Thank you.

There are no additional questions at this time. I would like to turn the call over to Michael Tzannes for closing remarks.

Alright. Thank you, everybody. In closing the call today I wanted to extend my thanks to Keith Farris for his contributions at Aware. As I think most of you know, he's leaving us. I know I speak on everyone's behalf here that we all wish him the best for the future, and I also want to welcome Rick Moberg back as CFO, and I know again I speak for everyone here when we say we look forward to working with him again. So, thanks again. We'll talk to you next quarter. Bye-bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.