Aware, Inc.

Good afternoon, and welcome to AWARE's first quarter 2023 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 today contains four looking statements that are based on the current expectations of AWARE's 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 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 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 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 four-licking statements which speak as only of the date made. Although it may voluntarily do so from time to time, AWARE undertakes no commitment to update or revise the four-licking 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 measure 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 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 first quarter ended March 31, 2023. A copy of the press release is available in the Investor Relations section of our website. We are 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 first quarter. Then I'll review the progress we've made positioning AWARE to drive scale and sustainable growth. Afterwards, our CFO, Dave Barceló, will provide further details on our first quarter performance. Following Dave's remarks, our CRO, Craig Herman, will discuss our strategic initiatives that are driving the company's go-to-market efforts to boost sales. Finally, I'll review our business drivers and 2023 outlook before we open a call for questions. Before I review our performance and current market dynamics in greater detail, I'd like to recap who we are and what we do for those of you who may be new to AWARE in our industry. AWARE is an identity platform partner working to enhance trust in an increasingly connected world. Our mission is to balance security and the user experience through technology for the few and at scale. We solve everyday business and identity challenges by applying data science, machine learning, and AI to biometrics. Through this, we help our customers reduce fraud, enable compliance and security needs, as well as improve business efficiencies. Collectively, our offerings address identity challenges of today while preparing for identity challenges in the future. Specifically, these offerings facilitate digital onboarding, authentication, and lifecycle management of the user's biometric identity through proven and trusted multimodal adaptive biometrics. Over the last 30 years, We've led with deep-rooted systems level, technical expertise, and algorithms trained on diverse operational data sets from around the world. Our reputation in biometric industry has earned us trusted spots with many governments, and today our technology can be found in all three branches of the U.S. federal government and more than 80 government agencies and over 150 law enforcement agencies worldwide. Our technology, which spans four technology platforms, has been deployed in more than 20 countries and is protected by 78 patents and numerous trade secrets. And while we cherish our roots and work hard to maintain our loyal customer base, we've 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 for digital onboarding and authentication across verticals and to maximize business efficiencies. Those of you following our story for the past couple of years know that this transformation has been accomplished with significant shift towards recurring revenue. Our current recurring revenue of approximately $10 million in 2022 is not far off from the total revenue achieved in 2019 or 2020. So with that background, I'd like to discuss our operational and financial achievements for the first quarter of 2023. After a successful transformational year with focus on rebuilding the front end of the business and introducing our SaaS offering, we entered 2023 with solid momentum, supported by a growing market opportunity, a proven product portfolio, and an expanding partner network. During Q1, we continued concentrating on evolving, enhancing our solutions, product infrastructure, and fulfillment strategies, as well as expanding our recurring customer base. As a result of our reinvigorated sales team and go-to-market strategies, we've added new customers for Nomi and AwareID, increasing our recurring revenue base. A driving force behind these new logos is the robust partnership program we put in place following Craig's appointment last year. As you hear from Craig, we are working to cultivate a partnership ecosystem that will ultimately help us reach further into financial services and into new growth markets, while additionally expanding our footprint globally and in the U.S. market. I will let Craig go into more detail on our go-to-market strategies and partnership programs, but I wanted to touch on a few key wins first. Craig and his customer success team's potential truly started to be realized so far this year. Recently, they were able to secure and onboard an on-prem customer in under a month, a process that would have taken six to nine months or more previously. The customer success team's ability to streamline the onboarding process combined with the adaptability and out-of-box readiness of our biometric authentication solutions gives us the confidence we can convert our pipeline. Despite the ongoing macroeconomic challenges, The industry has some interesting tailwinds and our pipeline remains robust with high quality opportunities. In conjunction with our pipeline growing quarter over the quarter, we are also securing and activating new logos through shared partner resources. This is enabling us to generate increased momentum across our product portfolio, including AwareID. Although revenue from AwareID remains a nominal portion of our total revenue today, we remain confident in our ability to meaningfully scale its contribution based on the interest we are seeing from the customers as we optimize our product market fit. It's worth noting that one of the many reasons Aware continues to win in the market is because of our ability to listen to our customers and deploy our solutions that best fits their needs, whether that may be SaaS, hybrid, or on-prem. Lastly, with our healthy pipeline, reinvigorated efforts around customer success strategic partnerships, and unparalleled biometric authentication solutions, we believe we are well positioned to capitalize on a growing global biometric industry. Now, before discussing our near-term business drivers and outlook, Dave will walk us through our financial results for the first quarter. Dave, over to you.

Thank you, Bob. Good afternoon to everyone on the call. Turning to our financial results, for the first quarter ended March 31st, 2023. Total revenue was 4.3 million compared to 4.1 million for the fourth quarter of 2022 and 4.7 million the same year ago period. The sequential increase in total revenue was due to higher software licenses in the period. A key focus area for us is building predictable recurring revenue streams. For Q1, 2023, recurring revenue was $3.1 million, or 71% of total revenue. The $3.1 million in recurring revenue was up 17% sequentially and 4% year-over-year. Looking at our operating expenses, our first quarter of 2023 operating expenses were $6.2 million, up slightly from $6.1 million the prior quarter and $6.0 million in Q1 of last year, reflecting an increase in sales and marketing. Operating loss for the first quarter of 2023 was negative $1.9 million, an improvement from negative $2 million in the prior quarter compared to negative $1.3 million in the same year-ago period. For the first quarter of 2023, gap net loss totaled negative $1.6 million, or $0.07 per diluted share. compared to a gap net loss of negative 1.8 million, or 8 cents per diluted share, in Q4 of 2022, and negative 1.3 million, or 6 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 $1.4 million, which compares to adjusted EBITDA loss of $1.5 million in the prior quarter and adjusted EBITDA loss of $0.6 million in the same year-ago period. Looking at our balance sheet, we ended the quarter with $27.3 million in cash equivalents and marketable securities. We repurchased 191,000 common shares of stock at an average price of $1.79 per share. as part of our previously announced share buyback program. Our strong cash position and no debt provides us with significant resources to weather any macro pressures, while at the same time it affords us with the optimal flexibility to allocate capital toward opportunities with high ROI potential to align with our long-term growth potential. To that end, we're seeing increase in activity on both the buy and sell side and will continue to evaluate strategic opportunities that will enable us to drive scale as an organization and maximize shareholder value. This completes my financial summary. Craig will now discuss our enterprise sales strategy. Craig?