Aware, Inc.

Good afternoon and welcome to AWARE's third quarter 2023 conference call. Following management's 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 would like to remind everyone that the presentation today contains forward-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 risk inherent in forward-looking statements that management will be making today. AWARE wishes to caution you that there are several 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 forward-looking statements which speak only as of the date made. Although it may voluntarily do so from time to time, a winner takes 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 that are defined by the SEC in Regulation G. Non-GAAP financial measures should be considered in isolation from or substitute for information presented in compliance with GAAP. Accordingly, AWARE has provided reconciliation of these non-GAAP financial measures to the most directly 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 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. I'm excited to talk to you about our exciting things that have been going on at AWARE. After the market closed, we announced our results for the third quarter ended September 30th, 2023. A copy of the press release is available in the investor relations sections of our website. Before reviewing our financial and operational highlights from the third quarter, I want to give you a quick overview of AWARE and what makes us different. That way, those of you who are new to us have a better understanding of AWARE. Aware is a global biometric platform company that uses data science, machine learning, and artificial intelligence to tackle everyday business and identity challenges through biometrics. We're working to enhance trust in an increasingly connected world through our mission of balancing security and user experience through our technology. Our offerings facilitate digital onboarding, authentication, and lifecycle management of the user's biometric Over the last 30 years, AWARE has proven the value of our offerings by continuing to be chosen by governments and commercial organizations alike for our experience in our hardened portfolio. Our reputation in the biometric industry has earned us trusted spots with core government agencies in the United States, Canada, the UK, Germany, Australia, and more. In fact, we are a worldwide in Brazil and Turkey, among others, for onboarding and authentication. Further, we have championed the responsible use of technology, specifically leveraging artificial intelligence and machine learning to create software that ethically achieves demographic neutrality and equity, meaning we have purposely emphasized the need for treating all individuals equitably. During research, design, development, testing, and refinement, we train our algorithms on some of the largest and most diverse datasets in the world. bias based on age, gender, or race, as independently tested and confirmed by NIST. Also, we believe in consent-based biometric technology, meaning outside of specific forensic applications in law enforcement and defense and intelligence, only people who consent to leverage biometrics are users of our technology. Additionally, our agnostic approach allows customers the flexibility they need to build on past investments rather than rip and replace. Third, we've earned our trusted status through a portfolio that mitigates threats and asserts the integrity of identity in a future-proof way. Since Aware doesn't outsource any biometric technology, we are the only biometric provider our customers need to work with. And if a new attack vector emerges, we are able to work directly to address it without needing to wait on a third party. Further, we set the bar for liveness in the industry. In a recent independent NIST benchmarking study, AWARE took the top spot in security for both impersonation and evasion detection for one of the presentation attack types, the only provider to do so. Ranking top five in security and top 10 in convenience across the strong majority of presentation attack types for evasion, AWARE is the only provider who has successfully found the balance of security appropriately for every use case. And lastly, before I discuss the progress we've made to accelerate growth and drive greater scale for wear, I want to point out how important it is for us to offer future-proof solutions. An organization's business requirements will evolve over time, as will the external landscape. Our offerings and platform can scale with customers, adapt to changing environmental conditions, risk profiles, or consumer demands. and anticipate and or respond to future attack vectors. This positions us well to maintain the customer satisfaction needed to retain and expand the recurring revenue we've been building. In fact, since I joined the company at the end of 2019, we've grown recurring revenue 83% or 16% annually from $5.4 million in 2019 to nearly $10 million over the trailing 12-month period ended September 30, 2023. We expect to end 2023 with more than 11 million in recurring revenue, providing solid visibility going into the new year. Now, with that background and context, I'd like to discuss our operational and financial achievements for the third quarter of 2023. In Q3, we expanded our recurring customer base through our continuous efforts to enhance our market-leading technology and develop our partner ecosystem. Q3 was a very strong quarter for AWARE and reflects your tremendous This quarter, we generated $2.5 million in operating cash flow and continued building upon the foundation for future recurring revenue. After working through several deals that were delayed over the past few quarters and months, we secured a $3.4 million contract that, along with annual maintenance options, has a five-year value of up to $5.1 million. which expands our footprint in the U.S. government, as well as us beginning to recognize revenue from the five-year $5 million contract we secured with our largest BioSP customer in Q2. Both contracts reflect the trust leading government agencies place in us, and when combined with our new Aware Avis contracts, are expected to contribute more than $1.5 million to our annual recurring revenue. Additionally, our partner-focused selling motions have enabled us to reduce our selling costs while increasing new business conversion at an accelerated pace. In fact, during Q3, we had four new accounts go live and signed two new contracts with our partners for Aware ID. Our strong third quarter performance reflects our continued efforts to increase ARR and drive sustainable future growth. Craig will walk you through our key customer wins and progress on our go-to-market initiatives in more detail. But I wanted to touch on a few more highlights first. After emphasizing the development of our customer success team over the past few quarters, we're excited to finally have a formal partnership program in place. Aware has a strong commitment to partner success, and we look forward to directly collaborating with our partners to convert the growing market demand into more wallet share for us and our partners. Our Aware Avis offering delivered as intended, and we believe the solution has found an excellent niche in the underserved market. We deployed AwareAvis to three law enforcement agencies, of which one is on-prem and two are cloud-based. Of the three deployments, one began producing recurring revenue in Q3, and the other two would begin producing recurring revenue in Q4. In conjunction with an enhanced partner ecosystem, we also optimized AwareID to make it even more versatile, secure, and accessible by introducing facial identification capabilities and improving the back-end functionality. Now businesses of all size can easily incorporate our world-class biometric authentication without changing their backend. Furthermore, we added a developer hub to the platform, which encourages developers to experiment with AwareID's capabilities to help build brand affinity amongst the engineering and developer communities. Even though we are continuing to optimize AwareID's market fit, it's important to note that AwareID is opening doors across all our biometric solutions to high-quality opportunities with large and recognizable brand names. As I mentioned earlier, our technology is recognized as a top performer industry-wide, and most recently, our patio rooms were ranked number one in security for both impersonation and evasion for presentation attack type 4A in the NIST FATE benchmarking test. AWARE has also recently been named an industry catalyst and role model in the 2023 Biometric Digital Identity Prism Report. While we can't and don't plan to announce every contract that we've secured or are working to secure, AWARE is consistently winning business in competitive markets. Our ability to anticipate market trends and adapt our award-winning solutions to specific customer needs continues to contribute to our market leadership. Now, before moving on to our financial performance, I'd like to briefly address last week's 8K filing. As noted in the filing, AWARE has streamlined its financial organization. Dave Barcelo is no longer with AWARE. As part of this realignment, we have promoted our corporate controller, David Traverse, to principal financial officer. Dave Barcelo was with AWARE for over three years, and we are very fortunate to have his leadership. We cannot thank him enough for his contributions and wish him all the best in his future endeavors. We have total confidence in David Traverse fulfilling the financial leadership role. Some of you may recall David from a previous earnings call when he stood in for Dave Marcelo. David joined AWARE three years ago as Vice President and Corporate Controller. He's got an extensive background in finance and public accounting. Prior to joining AWARE, David was Vice President and Corporate Controller at C-Change International and Vice President, Finance and Chief Financial Officer at Artel Video Systems. He has also worked as a certified public accountant at several public accounting firms. We may not track the file to 10Q on time and do not anticipate this change to impact our filing cadence for investor relations activities. Lastly, we are committed to exiting this year with neutral operating cash flow and continue to optimize our cost structure, focus on maximizing our operating cash flow as we prepare and enter 2024. I'll now turn the call over to David to walk us through our financial results for third quarter 2023. David, over to you.

Thank you, Bob, and good afternoon everyone on the call. It's a pleasure to be back here again with you today. Turning to our financial results for the third quarter ended September 30th, 2023. Total revenue was $6.4 million compared to $3.2 million for the second quarter of 2023 and $3 million for the same year ago period. The increase in total revenue was primarily due to higher software license sales in the period. For Q3 2023, recurring revenue was 2.2 million. The 2.2 million recurring revenue was up 5% sequentially and 4% year-over-year. Operating cash flow for the quarter was 2.5 million compared to usage of 2.2 million in the prior quarter and usage of 2 million in the same year-ago period. Looking at operating expenses, including the impact of one-time events, our third quarter 2023 operating expenses were 5.6 million. a decrease from $6.1 million in the prior quarter and up from $600,000 in Q3 of last year. Operating income for the third quarter of 2023 was $700,000 compared to an operating loss of $2.9 million in the prior quarter and operating income of $2.4 million in the same year-ago period. For the third quarter of 2023, GAAP net income totaled $1.1 million, or $0.05 per diluted share. compared to a gap net loss of $2.7 million or $0.13 per diluted share in Q2 2023, and gap net income of $2.6 billion or $0.12 per diluted share in Q3 last year. Please note that operating expenses, operating income, and net income for Q3 of 2023 included an $800,000 one-time gain related to our adjustment to the fair value of the contingent acquisition payment from our 2021 acquisition of Fortress ID, and that operating expenses, operating income, and net income of Q3 of 2022 included a $5.7 million one-time gain related to the sale of the company's building located in Bedford, Massachusetts, in July of 2022. Our adjusted EBITDA for the quarter, which would reconcile the gap net income in our earnings release, totaled $400,000, which compares the adjusted EBITDA loss of $2.4 million in the prior quarter and a loss of $2.5 million in the same year-ago period. The significant improvement in adjusted EBITDA was primarily due to higher revenue. Looking at our balance sheet, we ended the quarter at $27.5 million in cash, cash equivalents, and markable securities, compared to $25.1 million at the end of the prior quarter. We purchased 81,083 common shares of stock at an average price of $1.52 per share as part of our previously announced share buyback program. We believe repurchasing our common stock at certain valuation levels presents an attractive opportunity given our strong balance sheet and growth prospects. As we exit 2023, we are supported by a strong and improving cash balance and no debt. Our robust balance sheet enables us to evaluate every high ROI opportunity that has potential to advance our strategic growth roadmap. That completes my financial summary. I'd now like to turn the call over to Craig to discuss the advances we made in our go-to-market strategy. Craig?