Aware, Inc.

Good afternoon and welcome to AWARE's fourth quarter and full year 2023 conference call. Joining us today is the company's CEO and President, Robert Eckel, Principal Financial Officer, David Traverse, and CRO, Craig Herman. Following their remarks, we will 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 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 risks inherent in Fort Lincoln 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 described. indicated by such statements. These results 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 references recurring revenue, annual recurring revenue, and adjusted EBITDA, which are non-GAAP financial measures, as the term is defined by the SEC in Regulation G. Non-GAAP financial measures should 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 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. After the market closed, we reported our results for the fourth quarter and full year ended December 31st, 2023. A copy of the press release is available in the investor relations section of our website. 2023 marked a record-breaking year for AWARE as we began to see the impact of our successful transformation to a recurring revenue and subscription-first business model. Our financial performance reflects our continued efforts to drive sustainable growth by prioritizing annual recurring revenue, focusing our go-to-market strategy, enabling our partner ecosystem, accelerating product market fit, and optimizing our organizational structure. Our strategic execution yielded markedly improved results, in line with our expectations for 2023. Headlining our success was a 23% growth in annual recurring revenue, or ARR, bringing our ARR to $12 million. An impressive level, especially when you consider where it was generating approximately $12 million in total revenue in my first year of this transformational journey, 2020. Our total revenue now, after the 14% year-over-year growth to $18.2 million, marks the highest level since 2016. Furthermore, we have momentum. In Q4, we generated $3.7 million in recurring revenue, reflecting a 40% year-over-year growth. These achievements propelled us to achieve the highest level of annual recurring revenue in the company's history and establish a strong recurring revenue base for 2024. Moreover, our focus on cost optimization and operational efficiency has not only strengthened our financial position, but it also positions us for sustainable growth. We do still continue to see long sales cycles and did have net income negatively impacted in the quarter by a $2.7 million write-off related to a March 2022 $2.5 million investment in Omnibus Limited. Overall, we did see a significant reduction in cash burn in the year, underscoring our commitment to financial prudence and sustainable growth. Greg and his team have demonstrated their ability this year in securing valuable clients and strategic partners, laying a solid foundation for future scalability. While I'll defer to Craig to dive deeper into our go-to-market strategy and key customer wins for Q4 and 2023, I'd like to highlight a few recent wins. Notably, in Q4, we onboarded several new clients in our core geographies, including a prominent technology provider in Argentina, a leading tech company in Dubai, and a Turkish bank. These successes emphasize our commitment to expanding our global footprint and forging impactful partnerships across diverse markets. Furthermore, our dedication and focus on enhancing our partner program, which was officially launched in the third quarter, remains unwavering. In recent months, we have successfully integrated Avanza Solutions and Surban Group into our partner ecosystem. These strategic alliance are poised to bolster WARE's market presence in our target verticals spanning North America, latin Europe northern Africa and the Middle East, in fact, our collaboration with servant group is already yielding promising results with three potential opportunities emerging as a direct outcome. This underscores our commitment to fostering mutually beneficial partnerships that drive growth and expansion across our focus verticals and markets. As previously noted in our quarterly updates, it's important to acknowledge that we do not intend to announce every contract secured or currently in progress. However, it's worth highlighting that AWARE's leading technology and resilient partnerships continue to identify additional opportunities in highly competitive markets. Although there may be some fluctuations from quarter to quarter, we maintain a robust pipeline of opportunities in our backlog. Moreover, our solid foundation of recurring revenue serves as a stabilizing force, mitigating the impact of these fluctuations and providing a strong basis for future growth. Before discussing 2024, I'll turn the call over to David to take us through our financial results for the fourth quarter and the full year, and Craig to review our go-to-market. David, over to you.

Thank you, Bob, and good afternoon, everyone. Turning to our financial results for the fourth quarter and full year ended December 31, 2023. Total revenue for the fourth quarter was $4.4 million, compared to $4.1 million in the same year-ago period. The year-over-year improvement was largely due to higher software maintenance revenue. For the 12-month end of December 31, 2023, total revenue was $18.2 million, an increase compared to $16 million in 2022. The increase in total revenue was primarily due to higher software license revenue. Annual recurring revenue, or ARR, as of December 31st, 2023, increased to $12 million, compared to $9.7 million as of December 31st, 2022. For Q4 2023, recurring revenue was $3.7 million, or 82% of total revenue. The $3.7 million in recurring revenue represented a 40% year-over-year increase. For the 12 months ended December 31st, 2023, recurring revenue was $11 million, an increase of 13% compared to $9.7 million in 2022. Looking at operating expenses and operating loss, which include one-time actions in 2023 and 2022 related to the $2.7 million write-off of our investment in Omnibus Limited in the fourth quarter of 2023, the 800,000 one-time gain in Q3 of 2023 related to the closeout of our contingent consideration related to our Fortress ID acquisition, as well as the 5.7 million one-time gain related to the sale of the company's building in July of 2022. Our fourth quarter operating expenses were 8.9 million, up from 6.1 million in Q4 of last year. Operating expenses for the 12 months ended December 31st, 2023 were $26.8 million, up from $18.2 million in 2022, which, as mentioned earlier, include the one-time actions in 2023 and 2022. Operating loss for the fourth quarter of 2023 was $4.4 million, compared to an operating loss of $2 million in the same year-ago period. Operating loss for the 12 months ended December 31, 2023, was $8.5 million, compared to $2.2 million in 2022. Now turning to gap net loss, which also includes the one-time transactions mentioned earlier. For the fourth quarter of 2023, gap net loss totaled $4.2 million, or $0.20 per diluted share, compared to gap net loss of $1.8 million, or $0.08 per diluted share in Q4 of last year. For the full year of 2023, gap net loss totaled $7.3 million, or $0.35 per diluted share, compared to gap net loss of $1.7 million, or $0.08 per diluted share in the prior year. Our adjusted EBITDA loss for the quarter totaled $1.3 million, which compares to a loss of $1.5 million in the same year-ago period. The year-over-year improvement in adjusted EBITDA was primarily due to higher revenue. By the 12 months ended December 31, 2023, adjusted EBITDA loss totaled $4.6 million, an improvement compared to an adjusted EBITDA loss of $5.2 million in the prior year-ago period. Looking at our balance sheet, we ended the quarter with $30.9 million in cash, cash equivalents, and marketable securities, compared to $29 million at the end of the prior year, as we were able to collect on our IRS carrier-back claim of $1.5 million and close out a long-term services project that was previously in unbilled revenue. As part of our previously announced share buyback program, which we extended to December 31, 2025, we repurchased 299,780 common shares of stock at a cost of $500,000 during the year. Entering 2024, we are backed by a strong cash position and balance sheet that offers us the flexibility to evaluate all ROI opportunities with the potential to expedite our growth strategy. That completes my financial summary, and now I'd like to turn the call over to Craig to discuss the progress we made on our go-to-market initiatives. Craig?