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spk01: Good afternoon, and welcome to AWARE's third quarter 2022 conference call. Joining us today is the company's CEO and President, Robert Echol, CFO Dave Barcelo, and CRO Craig Herman. Following their remarks, we'll open the call for questions. If you'd like to submit a question, you can do so anytime 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 ORS 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 risk inherent in forward-looking statements that management will be making today. or wishes to caution you that there are factors that could cause actual results to differ materially from those 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, where it undertakes no commitment to update or revise the forelooking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws. Additionally, the call contains certain non-GAAP financial measures, as the term is defined by the SEC in 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 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 Aware's CEO and President, Bob Echol. Bob?
spk04: Thanks, Matt. Good afternoon, everyone, and thank you for joining us today. After the market closed, we issued a press release announcing our results for the third quarter ended September 30th, 2022. A copy of the press release is available in the Investor Relations section of our website. We're pleased that you could join us for this quarterly update on AWARE. On today's call, I will first discuss our financial and operational performance for the third quarter. Then I'll review the progress we're making solidifying our organizational foundation to drive scale and sustainable growth. Afterwards, our CFO, Dave Barcelo, will provide further details on our third quarter and nine-month financial performance. Following Dave's remarks, our new CRO, Craig Herman, will discuss his initial observations since joining AWARE in August, as well as share his strategic initiatives that are advancing the company's go-to-market efforts. Finally, I'll review our business drivers and outlook before we open a call for questions. In the third quarter, we delivered $3 million of revenue, $2.6 million of net income, and negative 2.5 million of adjusted EBITDA loss. The strong net income we delivered in Q3 was benefited by the 5.7 million gain we recorded in July of 2022 from the 8.9 million sale of our building located in Bedford, Mass. From a top-line perspective, our Q3 revenue results continue to be impacted by the challenging macroeconomic environment as we saw several customers elect to delay their purchases to Q4. Transitioning to a new business model is rarely a simple or straightforward endeavor. Nevertheless, despite significant headwinds and a strategic realignment in our sales team, we are very encouraged by our ability to continually increase our recurring revenue, which has increased $0.3 million in comparison to the first nine months of last year to $7.1 million year-to-date. And subsequent to the close of the quarter, we've seen a couple government customers receive approved to operate status after extended pilot phases and, in one case, a sizable delay. As many of you know, in early August, we appointed Craig Herman to the new role of Chief Revenue Officer to position AWARE for accelerated scale and to achieve sustainable and profitable growth. Craig has significant industry experience in SaaS and enterprise sales that we are leveraging to bolster our recurring revenue base and further optimize our go-to-market strategy and execution. As a proven sales leader, Craig has a strong track record of success in accelerating sales cycles, opening new markets, building partnerships, and strengthening customer success. With Craig on the team, we're confident that we can accelerate adoption of our new SaaS offering, AwareID, optimize our focus on expanding recurring revenue of our existing portfolio, and complete our business model transformation. To support these and other organic growth initiatives, we're fortunate to be backed by a strong balance sheet with $31 million in cash, cash equivalents, and marketable securities. Having ample cash enables us to continue to withstand this current market volatility and allows us to evaluate high ROI opportunities that support recurring revenue growth, whether those opportunities are organic or inorganic. Part of that strong balance sheet is the income from the sale of our Bedford building earlier this year. A few weeks ago, we officially relocated our corporate headquarters to Burlington, Massachusetts. Moving to a smaller but more modern facility that is better suited to our current business needs allows us to be more collaborative for customers, maximize value for shareholders, and increase employee satisfaction. Lastly, to close out my financial and operational summary, I'm delighted to share that earlier this week at Money 2020 Fintech Show in Las Vegas, we unveiled our highly anticipated SaaS platform, AwareID. We are thrilled to bring this offering to the market, and I would like to commend the entire Aware team who have been working tirelessly to achieve this milestone. From what we see, AwareID is the most comprehensive platform in the market, offering lightning-fast identity verification, multi-factor authentication, and biometrics on a single low code platform. We've pre-configured it for the most common use cases and positioned it at an affordable price point so we can tackle onboarding and authentication in a manner that helps organization of all sizes improve their security posture and compliance needs while enhancing the end user experience. To summarize, we recognize the continued challenging macroeconomic environment has resulted in customers deferring their purchases for longer than originally anticipated. Nevertheless, we have a robust pipeline of business and continue to increase our recurring revenue generation. We developed our disruptive AwareID platform to expand accessibility of best in class security without sacrificing the user experience. In fact, in many cases, AwareID enhances the user experience. We have high expectations for its market adoption. We've realigned our revenue team around an updated strategy focused on customer success and led by SAS industry veteran, CRO, Craig Herman. Despite the macro headwinds, we are confident that our growth roadmap is on track for even greater success in the years ahead. Now, before discussing our near-term business drivers and outlook, I'll turn over the call to Dave Barcelo to walk us through our financials and results for the third quarter. Dave, over to you.
spk06: Thank you, Bob. Good afternoon to everyone on the call. Turning to our financial results for the third quarter ended September 30th, 2022. Total revenue was 3 million compared to 4.2 million for both the second quarter of 2022 and the same year ago period. For the nine months ended September 30th, our total revenue was 11.9 million compared to 12.9 million in the same year ago period. As Bob mentioned, The sequential and year-over-year decrease in our third quarter revenue was primarily the result of unfavorable macroeconomic conditions that led to customers deferring their purchases of our solutions. Now looking at our operating expenses. Our third quarter of 2022 operating expenses decreased to $0.6 million from $5.8 million in Q3 of last year, largely as a result of the one-time $5.7 million gain in the sale of our Bedford building, which was partially offset by higher sales and marketing spend as we revamped the revenue team and launched AwareID, coupled with additional general and administrative costs related to our relocation and an increased bad debt reserve. Operating expenses for the nine months ended September 30, 2022, which includes the impact of the one-time $5.7 million gain from the sale of our Bedford building, were $12.1 million compared to $17.4 million in the prior year period. Operating income for the third quarter of 2022 was $2.4 million, which includes the impact of the one-time $5.7 million gain from the sale of our Bedford building, compared to an operating loss of negative $1.6 million in the same year-ago period. Operating loss for the nine months ended September 30, 2022, was negative $0.2 million, compared to an operating loss of negative $4.6 million in the prior year period. For the third quarter of 2022, gap net income totaled $2.6 million, or $0.12 per diluted share, compared to gap net loss of negative $1.6 million, or negative $0.07 per diluted share in the same year ago period. As Bob mentioned, gap net income for Q3 2022 included a $5.7 million loss, one-time gain related to the sale of our Bedford building. Gap net income for the nine months ended September 30, 2022, totaled $31,000, or 0 cents per diluted share, compared to a gap net loss of negative 4.6 million, or negative 21 cents per diluted share, in the same year-ago period. Our adjusted EBITDA loss for the quarter, which we reconciled to gap net loss in our earnings release, totaled $2.5 million, which compares to adjusted EBITDA loss of $1 million in the same year-ago period. For the nine months ended September 30, 2022, adjusted EBITDA loss totaled $3.9 million, compared to an adjusted EBITDA loss of $3 million in the prior year period. Looking at our balance sheet, we had $31 million in cash, cash equivalents in marketable securities, at the end of the quarter. compared to $25 million at the end of the prior quarter. The increase in cash, cash equivalents, and marketable securities was due to proceeds from the building sale and partially offset by cash used in operating activities. Additionally, during the quarter, we repurchased 75,000 shares of stock at a cost of $155,000 as part of our previously announced share buyback program. As Bob mentioned, in this challenging macro environment, we consider our strong cash position to be a valuable asset. During the quarter, we shifted some of our cash to marketable securities to take advantage of higher interest rates while also maintaining our financial flexibility. We strive to maintain a robust cash position that provides us with the flexibility to judiciously allocate capital to opportunities with high ROI potential that align with our long-term growth plan and product roadmap. We continue to actively evaluate strategic opportunities that would enable us to drive scale as an organization and to maximize shareholder value. This completes my financial summary. Now, I'd like to turn the call over to Craig to discuss our enterprise sales strategy.
spk03: Craig? Thanks, Dave.
spk05: Hello, everyone. I'm happy to be here with you on today's call. Before I jump into my focus areas as CRO, I want to touch on what drew me to the biometrics industry in the first place, and specifically to AWARE. My prior experience at ExactTarget, I saw people's initial hesitation to have their personal information on the internet. Once people became more familiar and comfortable with the concept, in particular, how they could benefit from a personalized experience, there was much less customer hesitation. I believe the biometrics industry is at an inflection point similar to the inflection point marketing technology had 20 years ago. It's not a matter of if biometrics will become mainstream. It's a matter of how and when. Which brings me to Aware as an industry leader. I was excited for the CRO opportunity with Aware because the company has an outstanding track record of innovating in the space, sizable and recognizable reference accounts, and a strong growth strategy that, in my view, had the right focus while still having areas where we could improve our execution and I could provide value and make an impact. Some of the largest financial institutions and government entities around the world work with Aware and use the company's leading biometric solutions to protect their users. Customers quickly recognize the added value and increased security that comes with biometrics once they deploy Aware's top-of-the-line technology. In the two months since I've joined Aware, my excitement has only increased as I've been getting to see firsthand the customers we work with and what's happening in the identity space. And just this week, the launch of Aware ID, which solidifies our transition into a SaaS-based platform company. Aware is extremely well-positioned for sustainable growth, and I am highly confident in the company's ability to outperform the broader biometric industry growth rates. For example... Let me describe to you why AWARE is so successful in Latin America. Our financial institution customers are under significant pressure to fight identity fraud as the region's digital economy thrives. AWARE's Nomi platform is a key component of their customer onboarding strategy to detect and reject fraudulent applications and transactions using novel applications of biometrics to thwart a barrage of threats, including deepfakes, video replays, and hacking attacks with device emulators. The team's success in this region has led to strong referrals and a robust pipeline, which will be part of my focus over the upcoming months. My efforts as CRO center around continuing AWARE's track record of success by building up our recurring revenue base and pipeline, while also maximizing our impact in the transformation to a subscription-based business model. In order to achieve higher levels of recurring revenue and subscription revenue in particular, We are focusing our efforts on three key initiatives. First is expediting customer adoption. Awareness technology is leading the way in adaptive authentication, and there's a tremendous market for us to capitalize on, making it critical that we accelerate the onboarding process and provide enhanced customer services. Through the further development of a team dedicated to customer success, we're applying intentional focus on two critical areas, one, helping first-time users or those using authentication technologies in a new way, deploy faster, and drive adoption sooner. And two, cultivating value-based relationships with existing customers to ensure their continued success and to drive expansion revenue. Additionally, by having a team focused on these two items, it frees up the bandwidth of our sales team to focus on acquiring new customers and driving new revenue. Our second initiative is to evolve and strengthen our partner program. Our current program focuses almost exclusively on integrated resellers, which makes sense as a way to expand the reach of the sales team. Our refined program will continue this approach and will add to it with integrated partners. Not to be confused with integrated resellers, integrated partners are those partners who don't resell our offerings but who work with us to integrate AWARE's technology with their own offering and then team with us to collectively expand our reach. For example, an integrated reseller is Intercede, a partner of ours who has integrated AWARE's technology directly into their technical offering and therefore resells it when they sell their product. An example of an integrated partner could be working with an ERP provider to streamline the connection between AWARE Tech and their product, thus increasing the accessibility of AWARE's tech to the partner's customer base. This expanded partner program will help us scale sales more rapidly, domestically, and abroad. Finally, the third key initiative we are focused on is realigning and scaling the revenue organization to ultimately meet and exceed our growth objectives. We have expanded the team by introducing several new roles throughout sales and customer success. We're refining sales processes, upgrading our sales technology, and re-energizing the team to better position for success. And we're optimizing and increasing our marketing efforts. I'm confident this initiative will help us close more contracts, increase our share of wallet, and drive revenue faster. Ultimately, my efforts are aimed at helping AWARE grow its top line and broaden its base. With dedicated customer success, an expanded partner program, and a refined revenue organization in place, I'm very confident about AWARE's ability to drive growth and profitability. Now, I'd like to turn the call back to Bob for additional insights into our business drivers. Bob?
spk04: Thanks, Greg. This month, we entered the final phase of our business model transition from a book and ship company to a platform company with a strong base of recurring revenue. We are thrilled to have unveiled AwareID and are optimistic about the offering's prospects to expand recurring revenue. That said, while adoption of AwareID ramps up, We remain focused on accelerating our growth and expanding recurring revenue of our existing portfolio. To drive scale and top line revenue, we're focused on a couple key areas. First, optimizing our go-to-market strategy. As Craig highlighted, we need to capitalize on the tremendous opportunity within our current customer base and afforded by an expanded partner program. Transitioning to a revenue organization led by a chief revenue officer was a key part in this optimization process. Craig is leveraging his deep expertise to spearhead AWARE's sustainable revenue generating efforts and has already made a noticeable impact in the short time he's been with us so far. Second, as we discussed on prior calls for many customers, leveraging biometrics is a real cultural shift that requires close attention and guidance. From a people and process perspective, we've realigned our teams and expanded the customer success function to reflect this shift in mindset. From a technology perspective, we intentionally made AwareID functional from the start and easy to consume so we can increase accessibility of our technology and expand our total addressable market. All in all, we are confident that despite the current macroeconomic headwinds and short-term volatility, we are poised for significant long-term growth as we navigate the final phase of our business model transformation in 2023 and beyond. The team at AWARE appreciates your continued support and we look forward to what is ahead for our company and industry. With that, we are ready to open the call to questions. Matt, please provide the appropriate instructions.
spk03: Thank you, Bob.
spk02: As a reminder, you can submit a question using the built-in Ask a Question feature in the webcast player. Please hold while we populate the question. First question is for you, Dave. In Q2, you said you received $8.6 million in net cash proceeds. In the press release, you referenced a one-time gain of $5.7 million. Why the difference?
spk03: Thanks, Matt. As you know, from our filings.
spk06: We sold the building for about $8.9 million. After commissions and fees, we netted $8.6 million in cash proceeds. But on our books, we carried a depreciated cost basis of $2.9 million, roughly. So we netted a one-time gain of about $5.7 million on the income statement.
spk03: Thanks, Dave.
spk02: There's a question here for Craig. Craig, from your perspective, what does success ultimately look like for AWARE?
spk05: Sure. Thanks, Matt. Success for AWARE, I think, would take on a form as the biometrics industry leader with strong, consistent recurring revenue, robust client pipeline, driving expansions in new markets and geographic areas. With the changes we're implementing and the traction we're having with our enhanced strategy, We are well on our way to achieving this success.
spk02: Thanks, Craig. The next question is for Bob. Bob, you've mentioned a healthy pipeline. Can you provide some color or any contract or pipeline wins?
spk04: Yeah, thanks, Matt. I think as we previously mentioned, we've added language into most of our new customers' contracts to allow us to announce some customer wins. As Greg mentioned, we've got a robust pipeline and are getting to where we want to be, but it does take a while to get to the next step. Customers signed on 18 months ago are now moving to full launch. We're also seeing those customers increasing their spend with us. One of our longstanding customers has almost doubled their spend with us, and we expect people will come online more quickly with the Aware ID SaaS as there's functionality right out of the box. and it's low code. We're seeing good traction with the immigration customers in addition to the large financial institutions.
spk02: Thanks, Bob. What sort of feedback did you receive at Money 2020 after launching the Wear ID?
spk03: Craig, you want to take this one?
spk02: Sure. Thanks, Bob.
spk05: We spent three days on the floor at Money 2020 talking with multiple fintechs, fund advisors, banks of all sizes, both credit unions, mid-market, online banks, as well as some of the largest banks in the world, and others in the financial services space. And the feedback on AwareID specifically, a low-cost, easy-to-implement solution for authentication, the feedback was ecstatic. We are even more excited coming out of this with a number of of great leads to follow up on that this product is really something different in the market, and the market is already responding.
spk02: Thanks, Greg. Next question. When do you anticipate your business model transformation to be complete? Is there a metric or milestone you're tracking internally to indicate the completion of the transformation?
spk04: Yeah, Matt. The transformation is an ongoing process, as you know, but we've achieved significant milestones. You heard Craig a minute ago. This week's launch of Aware ID and our recent CRM hiring of Craig really expanded our customer success in these initiatives. They're all critical things that we're putting in place for our SaaS business model. So we've grown recurring revenue, the percentage of total revenue. And as that percentage increases, we'll be able to speak to ARR as opposed to quarterly revenue. At this time, the best metric to track is our transformation would be cash flow breakeven as it reflects our company's profitability.
spk03: Thanks, Bob. Our next question, is it likely you get back to the Q2 level of revenue in the fourth quarter? Thanks, Matt.
spk05: Directionally, we expect Q4 to be better than Q3.
spk04: as we're seeing some headwinds described earlier begin to subside. Annually, given the headwinds we discussed, the full year won't be at the 15% rate we previously anticipated, but we anticipate more growth in 2023 as we work towards that target.
spk03: Next question. What are the company's plans for deploying its cash? Hey, Matt, I'll take that. So that's a good question.
spk06: Whereas, you know, it's very fortunate to be back with a very healthy balance sheet. We've got roughly $31 million in cash right now. And I know you'll see in the filings that this quarter we put about $20 million of our cash, or at least our cash reserves, into highly liquid marketable securities, treasuries, AAA bonds and such. We're looking to take advantage of the very attractive interest rates in the market today. If you want any more on that, you can check out the Q filing. But overall, our large cash balance enables us to be patient and smart, where we can evaluate and act on high ROI opportunities organically and inorganically. We're waiting to see how does Aware ID do. We've got things in the pipeline. And we're looking to drive scale as an organization and maximize that shareholder value. But at any given time, there's a mix of capital allocation initiatives in review. And as we make these decisions and communicate them, you know, they'll be pushed into our filings with the SEC.
spk02: The next question is for Bob. When do you anticipate AwareID contributing to top-line revenue?
spk04: That's a good question. We, you know, as we launch it, we anticipate AwareID to nominally contribute to Q4 revenue. As you know, AwareID is a pure SaaS pay-as-you-go model. So as SaaS becomes a more material contributor to our top-line revenue, we'll look at providing additional metrics like bookings and backlogs in our quarterly updates.
spk02: Bob, are you still expecting to be cash break-even on an operating basis by the end of next year?
spk04: Yeah, we continue to anticipate crossing over to just an EBITDA profitability by the end of 2023. Given the current impact of the macroeconomic headwinds, the exact timing is still unknown at this point. But nevertheless, we're comfortable with our current cost structure and do not anticipate adding significant objects in the near future.
spk02: Thanks, Bob.
spk03: Dave, how should investors think about your break-even revenue run rate quarterly or annual? Yeah, thanks, Matt. We...
spk06: We think our current cost structure will remain relatively stable. It has recently for the most part and will continue to remain that way going forward. And with that trajectory, you can see that we need about $5.5 million of quarterly revenue to hit that break-even mark. That seems attainable with the growth that Bob was just talking about. checking that later on. And we'll continue that way while our cost of goods remain nominal. And I'll say that way as long as Aware ID, our SaaS platform, remains a nominal part. That contributes more significantly to the top line. It'll increase our cost of goods a bit and adjust the target. But otherwise, you know, any growth in top line revenue will help us achieve cash break even.
spk02: Thanks, Dave. Another one for you. Can you explain the 42% decline in subscription revenue year over year?
spk03: Yeah, Matt, this one's a bit tricky.
spk06: Subscription revenue, we all take it very flat, but as we've described in the past, due to the on-prem nature and other attributes, our revenue recognition around this is based off of the committed time period. So in Q3 of 2022, we had about $400,000 of revenue compared to $1.1 million last year. But overall for the nine months, we're flat at $2.2 million in both 2022 and 2021. So the big difference is that in Q3 of 2021, we booked a significant amount of revenue from existing customers that renewed for multiple years. That was, you know, that's different then than it is now. So as a result, instead of our typical annual revenue spike from those renewals, they got skipped in 2022 because these customers on the good news side, they're locked into 2023. But we saw an unusual lump or increase for revenue recognition in 2021. Yeah. Otherwise, our practices since then have been to sign and renew contracts for a one-year basis. And then we recognize that committed value at the time of signing or the time of renewal, which causes the typical annual spike. To be clear, there was no lost revenues in any of this. We just recognized more in 2021 and have a skip in 2022.
spk03: Thanks, Dave. What were the number of NOMI transactions in Q3?
spk06: Yeah, Matt, as we've mentioned before, we believe recurring revenue is a bit more reflective indicator of the continued adoption of NOMI because our companies transition into subscription-based platform and the mix of transaction and user-based contracts. So, As we mentioned up front, 69% of our Q3 revenue was recurring, so very good indicator there. And in the past, we disclosed transaction numbers because there was an early indicator of NOMI adoption and our transition to a recurring revenue model. Now, we are seeing customers renewing NOMI at higher volumes. It's been very heartening. We just recently signed a customer that last year, or this current year that just ended, had about 600,000, 700,000 transactions as their committed minimum. They went over it, and so we renewed them for next year, 2 million transactions, almost a three times increase for them.
spk02: Thanks, Dave. Bob, in what ways has Craig made a noticeable impact on the organization?
spk04: Yeah, that's a great question, Matt. We're excited to have Greg on the team. In the few months that he's been here, Greg's gotten right to work. I'll give you a couple quick examples and some quick wins. So he's identified personnel and skills gaps, and he's working with HR to quickly fill those positions, as well as providing training. Refining the sales process to close the gaps and prevent any leakage in the closure. proactively engaging with partners to accelerate the expansion, demonstrating his leadership through his inspiring demeanor, challenging the sales team for improved personal accountability. He's also identifying gaps in the sales tech staff and the source of the necessary tools to better enable the team for success. And these are just a couple of ways. I mean, we look forward to in tackling the initiatives he outlined and seeing how these immediate impacts lead to an impact on revenue. As he mentioned earlier, he's out at Money 2020 getting first-hand inputs from our customers.
spk03: Thanks, Bob. Our next question, how many customers are trialing AwareID? As I previously mentioned, there are about a dozen customers that were in a beta program.
spk04: prior to this week's Aware ID launch. We're looking to convert those customers to the latest release and expect to add more customers this quarter.
spk03: And I believe we closed one when we were out there, right, Greg? Yep. Yes.
spk02: Got it. Our next question, Aware has $1.42 per share in net cash versus stock price of $1.86. The market is giving little to no credit for a Wares operating business. Why do you think this is, and what is the market missing?
spk03: What is your plan to correct it? Yeah, thanks, Matt. That's a tough one.
spk06: I wish I knew exactly what our investor pool in the market were thinking. Certainly, as a management team, we feel that the company is Operating well, our fundamentals are very strong. We've talked about our cash balance, our ability to grow. You know, Craig mentioned in the call what he's doing to kind of transform the organization. And, you know, the best I can say right now is that, you know, the market is saying prove it. You know, prove that we have the sales potential that we're talking to. And, you know, we will. We'll start to see the growth that Bob was talking about. And, you know, I also have a feeling I didn't quite recognize just how much, you know, the cash and assets Aware has, you know, on the books right now.
spk03: Thanks, Dave. Next question. When are you going to sell something?
spk02: Revenue is declining. What is the problem?
spk03: Sure.
spk05: I'll take this. Yeah, you know, I think that we've got some really strong indicators, right? We are seeing expansion with our existing customers, which when transactions go up, demand goes up, which is going to equate to people and other companies looking for solutions. We have a really robust pipeline, some things pushed out. We have seen delays on people wanting to spend cash and commit. unless they are in almost need to move to something. So deals are taking longer. The third piece is we sell predominantly to the enterprise right now outside of Aware ID, and this is one of the reasons we launched a SaaS low-cost solution, so that we can get much more of a repeatable stream of customers coming on board. The enterprise takes longer. There's longer decision times. RFPs, things along those lines, that can equate to a longer sales cycle, which delays it. So for us, our focus is being in multiple revenue streams with different types of customers and different types of products. And we're very bullish on what we'll see coming in in Q4 and Q1 into next year.
spk02: Thanks, Craig. Next question, are there cost savings opportunities to be had over the next 12 months should negative macro conditions continue?
spk03: Yeah, I've got this, Matt.
spk06: Yeah, the management team here take a very disciplined approach looking at our growth opportunities, what we should be investing in, and where we should be spending our money. As we look over the next 12 months, Nobody knows exactly what will happen. We do see growth ahead of us. We see a strong pipeline. We see good opportunities and everything we've talked about. Should things upset that and the growth not happen, we have strong cash reserves that allow us to be flexible, but we'll also be wise with the cost basis of the company. There's nothing right now that we feel like is excessive, but we'll have a very disciplined approach to where we invest and where we don't.
spk02: Thanks, Dave. Next one's for you. Were there any one-time or severance-related charges in the quarter that will not repeat?
spk06: Yeah, that's a good question. It's good to call out here. You may have noticed our EBITDA for Q3 was – markedly worse than it was last quarter, and that is because there were a couple of unusual costs in there with the change in the sales organization. We had some severance and some recruiting-type expenses that are unusual for the business. In addition, you may notice on our queue filing that We increased our bad debt reserve. We're partnered with a startup company that, in this environment, their funding is questionable, and so we thought it prudent to make some reserves. Overall, that could impact more of our customer base, but most of our customers are good, solid-paying government customers, so we don't expect that to be any worse.
spk02: Thanks, Dave. Next one's for Craig. The new SAS product, do you anticipate that customers that currently pay for licenses will transition to SAS, and how does that change the overall revenue profile of the company?
spk03: Sure.
spk05: Yeah, you know, as I talked a little bit about, you know, as we move to more of a SAS focus and products, the subscription revenue is going to continue to increase. I think where our focus is is delivering the solution that the customer needs. So if it's in the cloud or a SaaS-based platform, something that's low cost and easy to implement but with little customization versus something that needs to be on premise with heavy customization, we can go either way. So for us, our focus will continue to be on the customer and providing the solution that they need.
spk03: while also moving more and more towards a subscription-based revenue.
spk02: Thanks, Craig. At this time, this concludes our question and answer session. If your question wasn't answered, please email the Wares IR team at awre at gatewayir.com. And now I'd like to turn the call back over to Bob for closing remarks.
spk04: Yeah, thanks, Matt. I want to thank everyone for joining us on today's call. I also want to thank our employees, partners, and shareholders for the continued support. As a reminder, you may learn more about our strategy and the investor presentation available on our website, and we look forward to updating you on AWARE's progress on our next call. Matt?
spk02: Thank you, Bob. I'd 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 for joining us today for AWARE's third quarter 2022 conference call. You may now disconnect.
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