Aware, Inc.

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?

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.

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.