Aware, Inc.

good afternoon and welcome to aware second quarter 2023 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 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 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 statements 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 laws. Additionally, this 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 present in compliance with GAAP. Accordingly, OER has provided a reconciliation of these non-GAAP financial measures to the most frankly comparable GAAP measures in the company's earnings release issued today. I would like to remind everyone that 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 our CEO and President, Bob Beckel. 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 second quarter and in June 30, 2023. A copy of the press release is available in the Investor Relations section of our website. On today's call, I will first discuss our financial and operational performance for the second quarter. Next, I'll review the steps we've taken to drive growth and scale for AWARE. Then, our CFO, Dave Barcelo, will provide details on our second quarter results. After Dave's remarks, our CRO, Craig Herman, will discuss our strategic initiatives to advance the company's go-to-market motions and increase sales. Finally, I'll review our key business drivers and 2023 outlook before opening the call for questions. Like last quarter, I'd like to start by briefly introducing 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 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 our 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. Over the last 30 years, we've led with deep-rooted systems level, technical expertise, and algorithms, trained on the most diverse operational datasets in the world. Our reputation in the biometric industry has earned us trusted spots with many governments, and today, our technology can be found and expanding in all three branches of the U.S. federal government, in more than 20 financial institutions, and over 150 law enforcement agencies worldwide. Our technology, which spans four technology platforms, has been deployed by more than 60 partners in more than 20 countries and is protected by nearly 80 patents and numerous trade secrets. 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. These contribute to over a quarter of our revenue. We focus our technology to provide enterprise solutions for digital onboarding and authentication across verticals and to maximize business efficiencies. Our transformation has been accomplished with a significant emphasis and shift towards recurring revenue, which hit approximately 10 million in 2022, and is continuing to build in 2023. Now, with that background and context, I'd like to discuss our operational and financial achievements for the second quarter of 2023. In Q2, we focused largely on protecting, securing, and expanding our recurring customer base through product enhancements and improving our partner-centric sales strategy. This year, we renewed our largest Nomi customer for another three years. And in Q2, we continued to expand the scope and size of that contract. We also secured our largest EME partner and their banking customers with our new upgraded biometric and identity verification platform and an additional use case along the way. Lastly, as the quarter closed, we signed a five-year, $5 million contract with options up to $8 million. which include a facial recognition upgrade to our largest BioSP customer. I'll let Craig go into more detail on the progress we've made expanding the base, but I want to highlight a few more proof points of progress and success from this quarter. We signed several quality commercial customers in Latin America and in Turkey, furthering AWARE's wallet share overseas. We've also continued our momentum-winning ABIS contracts, having won two more ABIS awards one of which is our first cloud ABIS award ever in Miami Valley, Ohio. And we expect these ABIS contracts to start generating revenue in Q3. The new logo signed in Q2 are a testament to the confidence corporations and the governments have in AWARE's technology to protect both consumers and nations alike. The key drivers behind our success securing and protecting the base this quarter have been our recently implemented customer success focus and processes. which Craig will talk about more in depth later, as well as a few product enhancements we recently rolled out. With security challenges evolving every day, it's critical we are constantly improving and adapting AWARE's technology to continue providing best-in-class security. This quarter, we focus on development efforts reinforcing the capabilities of AWARE ID's facial authentication, improving NOMI's liveness detection excellence, in upgrading our orchestration to address new identity verification use cases with document authentication. Given the enhancements to KnowMe and AwareID, we are confident Aware is well-positioned to capture additional market share in both existing and new use cases. In fact, these updates already have helped us secure contracts mentioned previously. With an improved partner-centric sales strategy, enhanced biometric solutions, and robust pipeline, We are confident we can expand our global footprint and capitalize on the growing biometric industry as a whole. Now, I'll turn the call over to Dave to walk us through our financial results for the second quarter before discussing our initiatives and outlook for the remainder of 2023 and beyond. Dave, over to you. Thank you, Bob.

Good afternoon to everyone on the call. Turning to our financial results for the second quarter into June 30th, 2023. Total revenue was $3.2 million compared to $4.3 million for the first quarter of 2023 and $4.2 million for the same year-ago period. The sequential and year-over-year decrease in total revenue was primarily due to lower software license revenue in the period. For Q2 of 2023, recurring revenue was $2.1 million, or 65% of total revenue. The $2.1 million in recurring revenue was down 32% sequentially due to contract renewal timing. Looking at our operating expenses, our second quarter of 2023 operating expenses were $6.1 million, slightly down from $6.2 million in the prior quarter and up from $5.6 million in Q2 of last year. Operating loss for the second quarter of 2023 was $2.9 million compared to $1.9 million in the prior quarter and $1.4 million in the same year-ago period. For the second quarter of 2023, gap net loss totaled $2.7 million or 13 cents per diluted share compared to a gap net loss of $1.6 million or 7 cents per diluted share in Q1 of 2023 and $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 GapNet loss in our earnings release, totaled $2.4 million, which compares to adjusted EBITDA loss of $1.4 million in the prior quarter and a loss of $0.8 million in the same year-ago period. Looking at our balance sheet, we ended the quarter with $25.1 million in cash, cash equivalents, and marketable securities, compared to $27.3 million at the end of the prior quarter. While our cash position remained strong, we continued to optimize our cost structure to align with our business needs. Furthermore, our robust cash position allows us the flexibility to evaluate all high ROI opportunities that have the potential to drive scale and further AWARE's growth roadmap. This completes my financial summary. Now, I'd like to turn the call over to Craig to discuss the progress we're making on our go-to-market strategy. Craig?