Aware Inc (AWRE) 2024 Q3 法說會逐字稿

Good afternoon and welcome to Aware third quarter, 2024 conference call earnings. Today are the company's CEO and President Bob Eckel and CFO David Traverse.

On the remarks, we'll open the call to questions.

If you'd like to submit a question, you can do so at any time using the built in ask a question feature in the webcast player.

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 awareness 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 harbour 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.

We wish to caution you that there are factors that could cause actual results to different materially from those results indicated by such statements.

These risks and uncertainties are also outlined in the company's SEC filings including its annual report on form 10-K 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, but we undertakes no commitment to update or revise the forward-looking statements whether because of new information, future events or otherwise, except as required by applicable securities laws.

Additionally, during this call, we will discuss certain Non-GAAP financial measures as the term is defined by the SEC and regulation G. Non-GAAP financial measures should not 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'd like to remind everyone that the presentation will be recorded and made available for replay via link available in the investor relations section of the company's website. I would like to turn the call over to the CEO and President. All that. Cool Bob.

Thank you, Matt and good afternoon, everyone. I appreciate you joining us today after the market closed, we reported our third quarter results for the period ending September 30, 2024. The full press release is available in the investor relations section of our website. on today's call, I'll start with a review of our financial and operational performance and provide updates on our product developments and growing global traction.

David will then take you through a detailed breakdown of our financials and then I'll wrap things up with our strategic outlook before we open the floor for questions.

In Quarter three, we continue to execute our long term growth strategy, focus on expanding annual recurring revenue or ARR while also improving our bottom line, we made strong progress in reducing operating expenses leading to a $1.3 million decrease in the first nine months of the year compared to 2023.

Although total revenue for the quarter was lower year over year, this was mainly due to the timing of a couple contract closures and the impact of a significant one time license sale in Quarter three of last year. The real highlight of the quarter was the 29% year over year growth in recurring revenue which strengthens our foundation for sustainable long-term growth. This builds upon the progress made since 2020 where recurring revenue has grown at a rate of 20% as we continue transitioning from a book and ship organization to a recurring revenue business model.

While we encountered delays with some of our larger deals, pushing them to Quarter four or early Quarter one of next year, we secured a $1 million booking in mid-October just after Quarter three ended. This deal is expected to contribute to a strong Quarter four in a solid close to 2024. Both in terms of top line growth and recurring revenue. Although we are initially optimistic about the timing, these delays represent extended time lines not lost opportunities.

The $1 million booking we recently secured with the European government is a testament to the impactful 2024 enhancement of (inaudible) our biometric orchestration and identity management platform, we've diligently improved its usability and multimodal biometric data orchestration capabilities, adding features like offline biometric enrolment things that are essential for regions with limited internet connectivity or frequent power outages.

These updates have not only positioned aware as a leader in addressing complex infrastructure needs but also demonstrate our proactive approach to anticipating customer demands. This strategic advancement continues to expand our global footprint in a diverse range of use cases. We support additionally, we expanded our [Apus] portfolio by securing two new term contracts and recently added another [Apus] account in Quarter four, bringing the total number of [Apus] accounts to five. as part of our long-term strategy. We are actively working to bring all of these accounts to full production.

We expect these projects to generate a steady revenue stream over the next five years and beyond this consistent growth in our [Apus] contract reinforces our commitment to delivering cutting edge solutions and driving value for our clients in access control encompassing both physical and digital solutions remains a key growth area for us with a significant traction in stadium access control in Brazil and increasing adoption of aware ID and digital test taking environments.

This demand is especially strong in regions like the Middle East and Latin America, where organizations are prioritizing enhanced security across both physical venues such as stadiums and online platforms. Our partnerships including those with organizations like people cert are addressing the rising need for secure identity verification in our high stakes testing, helping us acquire new customers in the education sector and expand our reach through a broad partner network.

Our SASS model is gaining momentum with the recent launch of Aware ID as a no code plug in on WordPress marketplace. Significantly expanding our reach. This integration enables companies across industries like online gaming, retail, and e-commerce to adopt secure cloud based biometric authentication without requiring a deep technical bench.

For example, WooCommerce users on WordPress can now implement facial recognition for fraud prevention and password free checkout. As we continue to navigate this dynamic market, we are observing a growing demand for biometric based KYC solutions driven by stricter identity verification regulations with WordPress powering over 40% of the web. This development is transformative offering businesses fast, secure KYC and authentication capabilities with minimal upfront infrastructure costs.

This has led to momentum in the gaming industry bolstered by key partnerships that have driven strong customer engagement. A testament to our team's dedication and hard work. The aware I plug in complements our broader technology stack which includes SDKs, APIs and the standard industry open ID connect integrations providing customers with a flexible scalable solution tailored to their available IT resources and specific needs.

Additionally, we made further enhancements to our war partnership program this quarter, adding new layers to help grow support and better incentivize our partners. This included the introduction of new program pillars, focus on collaborative business planning, persona-based enablement, and investment incentivization initiatives for our key partner relationships to complement these enhancements. We hosted a partnership summit in conjunction with GCH Global in the Middle East. This event was a strategic opportunity to reinforce our partner framework.

The summit featured a comprehensive agenda covering thought leadership, the state of biometrics, partner insights and aware, strategic initiatives across sales, marketing, product engineering and solutions. Additionally, it marked the launch of our new Park partner ecosystem site and we received enthusiastic feedback from partners on the value of the content and the collaborative sessions offered.

While a few deals expected in Quarter three were delayed, we remain optimistic about our performance in Quarter four which is shaping up to be strong in terms of recurring revenue, ARR and overall top line revenue. Our pipeline is robust and we are confident in our ability to capture these opportunities. Thanks in large part to our enhanced product offerings and the deepening partnerships. We fostered driven by our focus on customer feedback. This year, we have made significant strides in expanding our recurring revenue streams while continuing to optimize our operations. We believe these efforts will set the stage for sustained growth in our recurring revenue in the coming quarters. And we're excited about the opportunities ahead as we continue to execute our strategic vision with that, I'll hand it over to David for a closer look at our Quarter three and nine month financial results over to you David.

Thank you, Bob and good afternoon everyone. Let's dive into our financial results for the third quarter which ended on September 30 2024 total revenue came in at $3.8 million compared to $6.4 million in Quarter three of last year.

This decrease was primarily driven by lower software license revenue including the impact of a $2.9 million onetime license sale to a federal agency in the year ago period, recurring revenue increased 29% year over year to $2.8 million. Up from $2.2 million in the prior year.

This growth underscores our continued focus on building predictable long term revenue streams as well as reinforcing the success of our partners and enhanced product portfolio and driving recurring revenues.

Moving down the income statement, operating expenses were reduced to $5.3 million down 6% from $5.6 million in Quarter three of 2023. Reflecting our commitment to cost management.

Operating loss was $1.2 million compared to operating income of $1.1 million in the same period of last year.

Our GAAP net loss of $1.2 million or five¢ per diluted share. A GAAP net income of $1.1 million in Quarter three of 2023.

Please note that operating expenses, operating income, and net income for Quarter three of 2023 including 800,000. one time gain related to our adjustment to the fair value of contingent acquisition payment from 2021 acquisition of (inaudible).

Our adjusted (inaudible) a loss for the quarter which we reconcile the GAAP earnings in our earnings release was $1.1 million compared to adjusted even a gain of 400,000 in the prior year.

This decline is largely attributed to lower revenue including the impact of the $2.9 million onetime license sale to a federal agency in the year ago period for the nine months ended September 30 of 2024 total revenue was $12.6 million down from $13.9 million in the same period of last year. Again, due to a lower software license revenue including the prior year $2.9 million. Onetime federal license sale, recurring revenue grew 19% year over year to $8.7 million making up 69% of total revenue.

This increase highlights the strength of our business model and our ongoing efforts to build steady predictable revenue streams.

Operating expenses decreased 7% or $1.3 million to $16.7 million compared to $17.9 million in the prior year.

Operating losses for the period was $4.1 million in both the nine months. Ended September 30 2024 and 2023.

Net loss to $3.2 million or 15¢ per diluted share compared to a net loss of $3.1 million or 15¢ per dude share in the year ago period.

Please note that operating expenses, operating income and net income for the nine months ended September 30, 2023 also included the impact of the 800,00 onetime gain related to our adjustment to the fair value of contingent acquisition payment for a 2021 acquisition of Fortress ID adjusted (inaudible) a loss for the nine months was $3 million fair trade loss of $3.3 million in the prior year. This improvement is largely attributed to lower operating expenses which is partially offset by lower revenue.

Now turn to the balance sheet as of September 30, 2024 we had cash, cash equivalents and marketable securities totalling $27.4 million compared to $30.9 million at the end of 2023 with a solid balance sheet. We're well positioned to pursue growth opportunities and make strategic investments that align with our long term vision.

Our focus remains on advancing our technology, expanding our market presence and carefully evaluating initiatives that support sustainable growth.

This strategic approach allows us to stay agile in a dynamic market, capitalize on emerging trends and drive long term value.

We pursue a disciplined capital management strategy designed to ensure that we continue making smart investments while maintaining financial flexibility.

This positions us to drive innovation, enhance market reach and deliver returns for our shareholders. We are prioritizing initiatives that not only complement our current offerings but also have the potential to accelerate growth and strengthen our competitive advantage.

That's my financial summary. I will now turn it back over to Bob.

Thanks David. As we move through the fourth quarter and beyond, we will continue to secure and expand the use cases for our biometric solutions by enhancing their ease of integration to grow our recurring revenue base. A couple of key accomplishments that have positioned us to achieve these future objectives, starting with the transformation and implementation of our scalable business operations, scalable infrastructure and product offering consolidations through these offerings including our enhanced biometric components.

We can leverage our build ones, deploy many recurring revenue model with the reusability and configurability of our flagship products, Knomi (inaudible) AwareID, AwareABIS and Afix largely complete. We are now firmly in the expansion and execution phase of the company's journey.

Additionally, we have established proven configurable products with rich functionality, competitive pricing and excellent customer support team.

Highlighting the key strategic initiatives outlined last quarter, we continue to focus on one driving and identifying the key verticals and market areas and customer driven product market fit adjustments through the voice of the customer to support our recurring revenue engine.

Two, expanding and leveraging our global partner ecosystem to capitalize on opportunities with technology integrators and OEM partners.

Three penetrating new commercial markets, targeting specific use cases and encouraging enabling and supporting our partners to diversify their revenue streams.

Four continue to improve revenue predictability by focusing on recurring revenue and SAAS models.

Five accelerating growth by cross selling, up selling and expansion of our existing customers with strong support from our dedicated customer success team and,

Six sustaining our technological leadership through continued R&D innovation using operational data AI and machine learning to meet evolving security threats.

With these initiatives in motion leveraging our business model and strong momentum, we are well positioned for a strong finish to the year and to build lasting momentum as we move into 2025. And we believe we are well positioned to achieve double digit recurring revenue growth and sustainable positive cash flow in the future.

Before we open the call to questions, I want to share an important update regarding aware CEO succession plan. Over the past year, the board and I have worked closely on this plan carefully considering the future of aware alongside my own personal goals. After thoughtful reflection, we've developed a strategy that ensures aware continues its strong growth trajectory while allowing me to focus more on quality time with my family and friends, I believe now is the right moment to transition from my day to day role as CEO and President of aware.

Reflecting on my time with aware, I remember when I first encountered the company in my previous role where we relied on Aware's robust biometric and middleware components.

Since joining in 2019, my focus has been on transforming aware into a company driven by a recurring revenue model.

The shift has not only improved our top line revenue but also built a strong, predictable foundation for the future growth. We have successfully transitioned from a project-based model to one Centred on annual recurring revenue, providing greater stability and predictability. From 2020 to 2023 we achieved 20% increase in ARR and recurring revenue along with 15% top line growth all while maintaining gross margins above 90%. Our flagship products, Knomi (inaudible) AwareID, AwareABIS and Afix have played a key role in the success positioning where well for the next phase of expansion, given the company's strong momentum and the promising path towards sustained profitability.

This is the ideal time to pass the leadership on to a proven expert who can accelerate Aware's growth and further expand our commercial footprint with the recent departure of our (inaudible) the timing is right to bring in a new CEO will not only sustain the progress we've made but also help strengthen our team to take full advantage of the abundant market opportunities to ensure a smooth transition. The board has engaged an executive search firm to identify my successor with a transition period extending through December 31, 2024.

Additionally, the board has appointed an experienced executive strategic adviser who will work closely with me the board and leadership team to refine our market position, product road map and growth strategy. This adviser will provide strategic guidance to help aware, remain competitive without taking on any direct operational responsibilities.

It has been an incredible privilege to serve Aware over the past five years and I am confident the company is well positioned for continued success. Here is to a bright future with Aware's intelligent biometrics, delivering security convenience and a seamless biometric experience. We will now open the call for questions, Matt. Please provide the instructions.

Thank you, Bob.

(Operator instructions).

First question, what do you anticipate your run rate revenue will be by year end?

Thanks man, I can take that one.

So we're, on track to achieve double digit revenue growth in 2024.

This along with like the seven new contracts including expanding partnerships across sectors like access control and digital education sets us up for a strong recurring base in 2025 that we're excited about.

Thanks David. Our next question. Can you provide more details about the $1 million European government booking secured in October specifically? What were the key factors that led to winning this deal? And how do you see it contributing to future recurring revenue?

Yeah, I will take that Matt. So just the $1 million booking we secured with the European government in in October of this year, we you know it was pushed out from September. It is a key highlight for Aware. I mean this deal was one is a direct result of the enhancements we made to our BioSP solution.

Also including in this solution is multimodal biometric data orchestration capabilities, we enhance the user interface and we introduce an offline biometric enrolment mode.

This feature is particularly valuable for customers and regions or situations with limited internet connectivity and it proved to be a differentiating factor in securing this deal.

The deal is expected to contribute to our Quarter four results and will help us build the foundation for future recurring revenue as the government rolls it out to multiple additional use cases and government deals are often multi-phase and we anticipate this deal will lead to further opportunities in the region as we deepen our relationship with the client and enhance their biometric infrastructure.

And additionally, I'm going to add to this that this product is can also provide a fundamental function and stable platform for border and immigration management and control as well.

Thanks Bob another one for you. Can you discuss the impact of the launch of AwareID as a plug in on the WordPress marketplace? How significant do you expect this to be in terms of customer acquisition and market penetration particularly in sectors like online gaming and e-commerce.

Yeah, that is a great question. I mean the launch of AwareID is a plug in on WordPress marketplace is a key strategic move. It opened up the door to new customer acquisitions in sectors such as online gaming, e-commerce, and retail and I think we know or it's known that WordPress powers over 40% of the internet and by offering a no code biometric solution, we are enabling businesses of all sizes, especially those with very limited technical resources to integrate secure biometric authentication.

We've already onboarded several new customers through this initiative with many of them already live. The simplicity and affordability of the plug in makes it accessible to a wide range of businesses. And as this market matures, we expect where adoption to accelerate our recurring revenue growth particularly in high risk industries like the online gaming and gambling where fraud prevention and secure identity verification are critical.

Our next question with the delays in contract closure, shifting some deals to Quarter four early Quarter one. What is your level of confidence in closing these deals within that time frame? Can you elaborate on the nature of the deal, the delays and how they impact your overall revenue forecast?

Yeah, I mean while some of the deals we expected to close in Quarter three were delayed, we remain confident that they will close in Quarter four or early 2025 these delays were largely due to additional or new scope discussions and expansions requested by the customers. So, these extended timelines do not reflect the loss of the business but rather an enhancement of the project scope.

And we believe this will ultimately result in a greater long-term value. And in some other cases, the delay was with a pending customer award.

Furthermore, we continue to meticulously review our pipeline and working out with David as we, as we speak continuously and working to minimize unpredicted timeline changes and their impact on our long term expectations.

Thanks. next question. What will be the focus areas for the executive strategic adviser?

I'll take that as I stated in my remarks, the board is tasked the adviser with enhancing where's market position, refining its product road map and providing strategic guidance to drive the growth and competitiveness. So, serving in an adviser, capacity adviser will support the executive team on high level decisions. Prepare aware for sustainable growth and a smooth CEO transition without any direct operational responsibilities which I will still maintain.

What is the board's plan? If the new CEO has not been appointed by your end.

I can take that one matt. So, the board along with the executive search firm, they are, focused on finding the right candidate for the position and ensuring a seamless transition.

It is exactly part of the reason of hiring the strategic advisor. It's also to ensure, to ensure the smooth transition.

I also want to point out from a financial statement perspective, we do estimate that we will recognize approximately $900,000 of onetime expenses in the fourth quarter related to the search for the new CEO the transition as well as the hiring of the executive strategic adviser.

Thanks David. At this time, this concludes our question-and-answer session. If your question was not answered, please email Aware's IR team at we are at gateway dash GRP dotcom and now I turn the call.

Oh Matt one more. Sorry. Go ahead.

David.

Yeah, thanks, Matt. I, I just wanted to take a minute to personally thank Bob for his unwavering support over the years. Both to me and to aware Bob's guidance and encouragement have been valuable in my own journey and we would not be positioned for success and growth we are set to achieve without his leadership and steadfast dedication over the past five years, his impact on the company in future. And really, I want to say on my own personal growth cannot be overstated. We are deeply grateful for the path he has helped us pave for where is continued progress.

Thank you, David. That is very nice of you. It has been a pleasure working with you on that stuff and you got me for a couple more months. Thank you.

So, yes, so I just want to thank all of you for joining us and your thoughtful questions. This will be my last time addressing you as CEO. And I wanted to take a moment to express my deepest gratitude to our shareholders partners. Most importantly, the talented team at Aware, together we've achieved meaningful growth, push boundaries in biometric technology and really set a solid foundation for the future.

I have to say it's been an honour to lead this company and, work alongside such a great, dedicated innovative team.

And I'm very confident that we is in a strong, capable hands, good team, David and so forth and we'll continue delivering value, innovation and growth.

Thank you once again for your trust and support. I look forward to following Aware's journey as it reaches new heights and that I will hand it back over to you.

Thanks Bob. I would like to remind everyone that a recording of today's call will be available for replay via link in the investor section of the company's website. Thank you all for joining us today for Aware's third quarter, 2024 conference call. You may now disconnect.