Aware, Inc.

Good afternoon and welcome to AWARE's second quarter FY26 conference call. Joining us today are the company's CEO and President, Ajay Amlani, and CFO, David Traverse. Following their remarks, we will open the call to questions. If you would 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 off current expectations of AWARES 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 factors that could cause actual results to differ materially from the 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, 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 that 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 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 would like to turn the call over to Aware's CEO and President, Ajay Amlani. Ajay?

Thank you, Delaney, and good afternoon, everyone. I want to begin with revenue for the quarter with $3.3 million compared with $3.9 million in the prior year period, a result that was below our expectations. Quarterly performance was affected by the timing and variability of our standalone product business as well as the slower federal procurement activity related to the government shutdown. While the precise impact of the shutdown is difficult to quantify, it created a meaningful headwind during the quarter. The rapid advancement of AI is reinforcing the importance of the market we serve as deepfakes, synthetic identities, Injection attacks and other AI-enabled threats become more sophisticated. Identity is becoming critical infrastructure for government and enterprise organizations. That is why we are focused so deliberately on the awareness platform. We believe the platform directly addresses this tailwind and where the market is headed by bringing biometric orchestration, decisioning, liveness detection, matching, and partner technologies together in one unified environment. We expect the second half of the year to follow our typical seasonal pattern, with revenue weighted more heavily toward the back half of the year compared to the first half of the year. The quarter reinforces the importance of the work we are doing to sharpen our focus, align our resources, and build a more scalable business around the areas where we believe AWARE can be most competitive. As we discussed last quarter, we are in the middle of an important transformation. We are moving away from a more fragmented product portfolio and focusing the company on the Awareness Platform, our SaaS-based biometric orchestration and decisioning platform. That transition takes time. It also creates near-term variability as we continue to support existing customers, pursue near-term opportunities and invest in the platform capabilities we believe will define the next phase of growth for Aware. Our priority is clear. We are building a more focused company around biometric orchestration, liveness detection, matching and the federal government and Enterprise Opportunities, where our technology, experience and collaboration create meaningful differentiation. During the quarter, we continued to make important progress against that strategy. This quarter, we made significant updates to the awareness platform to help organizations make smarter identity decisions in real time. The platform is built to serve as an intelligent control plane for identity, enabling organizations to design, deploy, run and optimize biometric workflows through one unified environment. This is important because many government and commercial organizations are navigating increasingly complex biometric environments, often managing multiple systems, vendors, data sources, and decisioning workflows at once. That fragmentation makes it harder to evaluate performance, manage fraud risk, and deliver consistent user experiences. We are hearing this directly in customer conversations and at recent trade shows. This feedback is reinforced by our research, which found that 98% of organizations currently using biometrics are interested in biometric orchestration capabilities with organizations already using an average of three biometric vendors. The Awareness Platform is designed to address that challenge directly. It enables organizations to configure enrollment, verification, authentication, and identification workflows, orchestrate multiple liveness detection, matching, and identity verification providers within a single transaction, evaluate and benchmark vendors in production, Normalize outputs for more consistent decisioning across both government and commercial environments. We were also pleased to welcome two new integrated technology partners, Rock and MyTech, to the Awareness Platform. These partnerships strengthen the platform and expand what customers can do through a single biometric orchestration environment. Rock's biometric matching technologies provide a high-performance foundation for identity decisioning workflows within the Awareness Platform. Identity verification and liveness detection capabilities bring additional high assurance fraud protection functionality into the platform. Together, these partnerships reinforce one of the core principles behind our strategy. The future of identity is not only about better individual algorithms, it is also about better orchestration. Customers increasingly want flexibility, visibility, and the ability to optimize performance across multiple technologies and vendors without disrupting live operations. Second, we continue to advance our intelligent liveness capabilities. The fraud landscape is becoming more sophisticated, particularly as deepfakes, injection attacks, synthetic identities, virtual cameras, device emulators and replay attacks become more accessible. Customers are looking for solutions that can strengthen security without adding unnecessary friction for legitimate users. Our latest intelligent liveness enhancements are designed to help address that need. These capabilities use advanced optical and spectral analysis to help verify that biometric images originate directly from a real device camera sensor in real time. Importantly, this remains a passive user experience and typically operates in under two seconds without requiring users to blink, move their head, or complete challenge response actions. We believe this is a critical capability for the market. As AI-driven fraud continues to evolve, organizations need liveness technology that can adapt to increasingly complex attacks while preserving speed and usability. Third, we made meaningful progress in intelligent matching. We announced advancements to our matching algorithm that are designed to deliver approximately 10 times lower false non-match rate compared to previous generations, along with a scalable architecture intended to enable sub-second, one-to-end matching across large biometric data sets. This matters because biometric matching performance and scalability are foundational to high-confidence identity systems. particularly in government, border, travel, financial services, and other environments where accuracy and speed and scale are all essential. Taken together, the progress we made across the awareness platform, intelligent liveness, and intelligent matching strengthens our ability to help customers move from fragmented biometric systems to more intelligent optimized identity decisioning environments. We are seeing renewed activity across the federal government market, particularly in areas tied to homeland security Border Modernization, Airport Infrastructure, Traveler Processing, and Biometric Identity Verification. Importantly, May represented the first full month of normalized operations for the Department of Homeland Security following the recent disruptions in government funding. We want to recognize the dedication of DHS employees and the important work they continue to do in support of national security, even through a challenging operating environment. Since activity has normalized, we have seen an increase in conversations RFIs, procurement activity, and program momentum in areas where biometric solutions are highly relevant. There are several publicly visible examples of this broader activity, including DHS traveler processing and vetting software, TSA's Gold Plus and secure identity management support initiatives, and DHS's Interagency Border Inspection System. We believe this renewed activity aligns well with AWARE's capabilities, particularly in biometric orchestration, liveness detection, matching, and high assurance identity workflows. It also supports a broader federal priority around modernizing security infrastructure, improving traveler and border processing, and leveraging trusted technology providers that can support mission critical identity programs. While the timing and revenue impact of these opportunities remains difficult to predict, The level of activity reinforces our confidence that the federal government market remains an important area of focus for AWARE. We are also focused heavily on executing teaming agreements with key systems integrators and partners that are well positioned in these pursuits. While the timing and revenue impact of these opportunities remains difficult to predict, the level of engagement reinforces our view that the market need is real and that AWARE has capabilities that are highly relevant to the direction federal identity infrastructure is moving. Looking at the second half of the year, we expect revenue to improve from Q2 levels and expenses to be lower as those cost reduction actions we discussed last quarter became more visible in our results. We also expect certain subscription renewals and customer activity that are typically weighted toward the second half of the year to support a more normalized baseline of recurring revenue. We will remain careful in how we discuss timing. Our business can be cyclical, and individual quarters can vary based on procurement timelines, renewal schedules, and customer decision making. But we do believe the second half of the year should reflect a stronger operating profile than Q2. To be clear, we are not where we want to be yet. Q2 is a difficult quarter, and we have more work to do. But we believe the actions we are taking are the right ones. focusing the company, building around the awareness platform, strengthening liveness and matching, pursuing near-term opportunities with discipline, and aligning resources to the markets where we believe we can win. With that, I will turn the call over to David to review our financial results in more detail. Over to you, David.

Thank you, Ajay. Let's review our financial results for the second quarter ended June 30th, 2026. Revenue for the quarter was 3.3 million. compared to 3.9 million in the prior year period. This decrease reflects lower perpetual software license revenue. Operating expenses for the quarter increased to 6 million compared to 5.9 million in the prior year quarter. The higher expenses include costs related to hires we made in 2025 that are partially offset by spending reductions we have made in the first half of this year. We will continue to make adjustments to our operating expenses as we focus on our strategic objectives. Net loss for the quarter was $2.6 million, or $0.12 per diluted share, compared to $2 million, or $0.08 per diluted share in the prior year period. Adjusted EBITDA loss was $2.3 million, compared to $1.4 million in the prior year period. Turning to our results for the six-month end of June 30, 2026. Total revenue was $6.6 million, compared to $7.5 million in the prior year period. The decrease reflects lower perpetual software license revenue. Operating expenses increased to $13 million compared to $11.3 million in the prior year period. The higher expenses include one-time severance costs of $700,000, as well as higher compensation costs related to hires remaining in 2025. As we noted in our Q1 call, We reduced operating expenses by $4 million on an annualized basis starting in Q2, 2026. And we will continue to make adjustments to our operating expenses as we continue to focus on our strategic objectives. Net loss was $6 million or $0.28 for a diluted share compared to $3.4 million or $0.16 for a diluted share in the prior year period. Adjusted EBITDA loss was $5.5 million compared to $3 million in the prior year period. We ended the quarter with approximately $16.8 million in cash, cash equivalents, and marketable securities, and no debt. Our balance sheet remains strong and provides flexibility as we execute our strategic plan. We continue to manage expenses carefully while investing in our strategic priorities, including the awareness platform and pursue opportunities in the federal government enterprise markets. As Ajay noted, we expect the second half of the year to be stronger and the first half of the year from a revenue perspective based on typical seasonality supported by the timing of certain customer activity and subscription renewals that are typically weighted toward the back half of the year. We also expect lower expenses in the second half as the cost reductions we implement become more fully reflected in our results. That said, we expect quarter variability to continue. Our revenue could be impacted by the timing of perpetual licenses, procurement cycles, renewals, and Service Activity. For that reason, we continue to believe the business is best evaluated over multiple quarters rather than any single quarter in isolation. Our financial priorities remain unchanged. Maintain discipline on expenses, preserve balance sheet flexibility, support our existing customers, and align investment with the areas we believe create the greatest long-term value. With that, I'll turn it back over to Ajay for closing remarks. Ajay.