Aware, Inc.

Good afternoon, and welcome to AWARE's fourth quarter and full year 2022 earnings conference call. Joining us today is the company's CEO and President, Robert Eckel, CFO, David 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 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 contains forward-looking statements that are based on the current expectations of a worst management and involve inherent risks and uncertainties that could cause actual results to differ materially from those described. Listeners should 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 risks inherent in forward-looking statements that management will be making today. AWARE wishes to caution you that there are factors that could cause actual results to differ materially from those indicated by such statements. These risks and uncertainties are also outlined in the company's SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements should be considered in light of these factors. You are cautioned not to place undue reliance upon any forward-looking statement, which speak only as of the date made. Although it may voluntarily do so from time to time, AWARE undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities law. 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 reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures in the company's earnings release issued today. This presentation will be recorded and made available for replay via a link 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 with our results for the fourth quarter and fiscal year ended December 31, 2022. A copy of the press release is available in the investor relations section of our website. On today's call, I will begin by discussing our financial and operational performance for the fourth quarter in the full year 2022. Then I'll review the progress we've made positioning our company to realize greater scale and sustainable growth. Afterwards, our CFO, Dave Barcelo, will provide additional details on our fourth quarter and full year 2022 performance. Next, our CRO, Craig Herman, will discuss our strategic initiatives to bolster sales and advance our go-to-market efforts. Finally, I'll review our key business drivers and 2023 outlook before opening the call to questions. For those of you who may be new to our company, Let me step back for a moment and provide a brief overview of who we are and what we do. Aware is an identity platform partner working to enhance trust in an increasingly connected world. Our mission is to balance security and user experience through technology for the few and at scale. We reduce fraud and enable compliance and security needs, as well as improve business efficiencies through offerings that address identity challenges of today while preparing for identity challenges in the future. These offerings facilitate digital onboarding, authentication, and lifecycle management of the user's biometric identity through proven and trusted multimodal adaptive biometrics. Adaptive meaning configured, sometimes preconfigured. It's based on the customer's technical capability as well as the use case and the end user's risk profile. 2023 marks our 30th anniversary and has given me pause to reflect on both the old and the new. For 30 years, we've led with deep rooted systems level technical expertise and algorithms trained on the most diverse operational data sets in the world. Our reputation in the biometric industry has earned us trusted spots with many governments. And today our technology can be found in all three branches of the US federal government. More than 80 government agencies, and over 300 law enforcement agencies worldwide. And while we cherish our roots and work hard to maintain our loyal customer base, we have actively shifted the company over the last three years. Our business model has changed, our culture has changed, our infrastructure has changed, and our target customers now include a growing portion of commercial clients which contribute to over a quarter of our revenue. We focused our technology to provide enterprise solutions, digital onboarding and authentication across verticals and to maximize business efficiencies those of you following our story for the past couple years now know that this transformation has been accomplished with a significant shift towards recurring revenue which hit approximately 10 million in 2022. now that you understand more about who we are and what we do i'd like to shift gears to discuss our operational and financial accomplishments during 2022. At high level, 2022 can be best characterized as an impactful transition year for AWARE, where we further solidified and strengthened our organization and our technology offerings, as well as positioning AWARE for greater scale and profitable growth in years to come. During 2022, we applied a deep focus on advancing and solidifying our solutions, product infrastructure, fulfillment mechanisms, and processes, as well as accelerating recurring customer growth. The changes we made over the last several months, including enhancing our sales team, refining our go-to-market execution, and establishing a customer success team, have positioned us to grow and expand our market share with our Nomi and BioSP offerings, as well as capitalize on AwareID, our new cloud-based SaaS solution. Our customer success team has already made a noticeable impact on our organization and sales effort. Established over the course of Q4, the team focused on accelerating customer onboarding, retaining and expanding existing customers through improved customer satisfaction and personal attention, and driving overall success in using AWARE's technology. In fact, already this quarter, our customer success team was instrumental in bringing a key new customer live, as well as enabling several customer renewals. Additionally, the customer success team is central to reducing the onboarding time for integrated resellers while allowing the sales team to focus on selling. Our partner reseller strategy is a key component to our go-to-market strategy, and we are encouraged by the success we have built in this area. During 2022, we added seven new Nomi resellers across multiple geographies, including Latin America, the UK, Egypt, Morocco, and Jordan. In addition to reinvigorating our sales teams and go-to-market strategies, we expanded and filled out our product portfolio. We launched AwareID back in October and have been working diligently to advance customer adoption of our cloud platform that can be provided as a SaaS or controlled and deployed in the customer environment. Furthermore, we leverage customer feedback to develop pre-bundled high-demand configurations of BioSP to accelerate deployments and extend product reach to customers who previously didn't have the time or resources to integrate or configure BioSP. The BioSP product line realized increased market acceptance in 2022, and these pre-bundled configurations are expected to further expand accessibility of this foundational offering. In Q4, we also completed the full integration of FortressID's technology, a highly complimentary business we acquired in December of 2021. This expanded our offerings around identity proofing to directly address financial compliance requirements, enable organizations to mitigate risk and curtail fraud. Lastly, throughout 2022, we focused on optimizing our organizational resources to best position a company for success in 2023 and beyond. As part of this effort, we relocated our corporate headquarters to Burlington, Massachusetts, to a smaller, more modernized facility that better meets our needs. Before continuing with our initiatives for 2023, I'll turn the call over to Dave. He will walk you through our financial results for the fourth quarter in the full year. Dave, over to you.

Thank you, Bob. Good afternoon to everyone on the call. Turning to our financial results for the fourth quarter and year ended December 31st, 2022, our total revenue in the fourth quarter was $4.1 million, up 35% sequentially and up 2% from the $4 million in the same year-ago period. The sequential improvement in revenue was largely driven by increases in revenue attributed to NOMI and BioSP. For the 12 months ended December 31, 2022, total revenue was $16 million, compared to $16.9 million in the same year-ago period. The decrease in revenue was primarily the result of lower revenue from perpetual software licenses and services, which was partially offset by increases in software maintenance revenue and revenue from subscription-based licenses. As such, recurring revenue grew 7% to a record $9.7 million in 2022 as we progress further on our business model transformation. Now looking at our operating expenses for the fourth quarter of 2022, our operating expenses increased to $6.1 million compared to $5.5 million in Q4 of last year. The operating expenses for the 12 months in December 31st, 2022 were $18.2 million down from $23 million in 2021. which included the favorable impact of a $5.7 million gain in 2022 on the sale of our former corporate office. With regards to our profitability measures, operating loss for the fourth quarter of 2022 was $2 million, which compares to an operating loss of $1.5 million in the same year-ago period. For the full year, operating loss was $2.2 million, compared to an operating loss of $6.1 million in 2021. The improvement in operating loss in 2022 was primarily due to the gain we recorded related to the sale of our corporate office, which was offset by a decrease in revenue, increase in sales marketing expenses, as well as increase in G&A expenses. For the fourth quarter of 2022, GAAP net loss totaled $1.8 million, or $0.08 per diluted share, compared to a gap net loss of $1.3 million, or $0.06 per diluted share in the same year-ago period. For the full year of 2022, gap net loss totaled $1.7 million, or $0.08 per diluted share, compared to a gap net loss of $5.8 million, or $0.27 per diluted share in 2021. Adjusted EBITDA loss for the fourth quarter which we reconciled the gap net income in our earnings release, totaled $1.5 million, which compares to an adjusted EBITDA loss of $0.9 million in the same year-ago period. For the 12 months ended December 31, 2022, adjusted EBITDA loss totaled $5.4 million, compared to an adjusted EBITDA loss of $3.8 million in the prior year period. Switching gears to our balance sheet, we had $29 million in cash and cash equivalents and marketable securities at the end of the quarter, compared to $31 million at the end of the prior quarter. We utilized $1.2 million of our cash to repurchase 628,000 shares of our common stock at an average price of $1.83 per share in the fourth quarter of 2022, bringing the total amount of common shares repurchased in 2022 to 705,000, reducing outstanding shares by over 3% as we continue to be strategic in our stock buyback program and increase value for our existing shareholders. Our balance sheet remains robust and provides us with the flexibility to allocate capital to opportunities with high ROI potential that align with our long-term expansion and product roadmaps. Along that line, we continue to evaluate strategic opportunities that would enable us to generate sustainable and predictable growth for 2023 and beyond. This concludes my financial summary. Now, our CRO, Craig Herman, will discuss our sales strategy. Craig?