Good afternoon, and welcome to Aware's Second Quarter 2022 Conference Call. Joining us today is the Company's CEO and President, Robert Eckel; and Corporate Controller, David Traverse, filling in for our CFO, David Barcelo, who's on vacation. 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 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 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 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 and 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'd like to turn the call over to Aware CEO and President, Bob Eckel. Bob?

Thanks, Matt. Good afternoon, everyone, and thank you for joining us today. After the market close, we issued a press release announcing our results for the second quarter ended June 30, 2022. A copy of the press release is available in the Investor Relations section of our website. We're glad that you could join us today for this quarterly update on Aware. On today's call, I will discuss the progress we're making transforming our business to a subscription-based model and share some points that demonstrate our continued execution on our long-term strategic growth plan to drive scale. Afterwards, our Corporate Controller, David Traverse, will provide additional details on our second quarter and year-to-date financial results. David is filling in today for our CFO, Dave Barcelo, who had a prior personal commitment and unfortunately could not be with us on this call. After David's section, I'll then review our 2022 business drivers and outlook. Lastly, we'll open the call for your questions. To begin, in the second quarter, we delivered $4.2 million in top line revenue despite a challenging economic environment. We are not immune to the negative impact caused by the current macroeconomic issues that have been reported in the news. Higher inflation, increasing interest rates and supply chain shortages are headwinds for purchasing decisions. As such, some companies are reviewing investment timing for changes in their existing workflows. Furthermore, in the financial services market specifically, two of these issues often result in fewer bank accounts being opened and fewer credit applications, which consequently slows the growth of our onboarding and authentication solutions that target mobile banking. Nevertheless, our biometrics-based solutions that address fraud prevention have seen particularly strong momentum with financial institutions in Latin America and Europe. Aware has already secured some of the largest banks in Brazil and…

Thank you, Bob, and good afternoon to everyone on the call. Turning to our financial results for the second quarter ended June 30, 2022. Total revenue was $4.2 billion compared to $4.7 million in the first quarter of 2022 and $4.3 million in the same year ago period. Year-to-date, for the six months ended June 30, 2022, our total revenue was $8.9 million, up from $8.7 million in the same year ago period. As Bob mentioned, the slight decrease in our second quarter revenue over the prior year period was primarily the result of supply chain delays, resulting in fewer orders from our OEM partners to whom we provide software for their biometric devices. Looking at our operating expenses. For the second quarter of 2022, our operating expenses decreased 4% to $5.6 million from $5.8 million in Q2 of last year. The $200,000 decrease in operating expenses was due primarily to slightly lower R&D sales and marketing costs. For the six months ended June 30, 2022, our operating expenses were $11.6 million, flat compared to the prior year period. The corresponding operating loss for the second quarter of 2022 was $1.35 million, an improvement from an operating loss of $1.54 million in the same year ago period. The year-over-year improvement in operating loss was primarily due to lower total operating expenses. Operating loss for the six months ended June 30, 2022, was $2.6 million, a 12% decrease compared to the prior year period. For the second quarter of 2022, GAAP net loss totaled $1.3 million or $0.06 per diluted share compared to a GAAP net loss of $1.5 million or $0.07 per diluted share in the same year ago period. GAAP net loss for the six months ended June 30, 2022, totaled $2.6 million or $0.12 per diluted share compared…

Thanks, David. Our business model transition from a book-and-ship company to a platform company with a strong base of recurring revenue derived from software subscriptions and related maintenance continues to make steady progress. The final phase of our transformation, the launch of our cloud-based adaptive authentication platform, remains on track for the second half of 2022, and we remain focused on accelerating our growth and expanding recurring revenue of our existing portfolio. In order to achieve this expansion in revenue, we're focused on three objectives in the second half of 2022 and beyond. First, our partnerships with indirect resellers remain vital. We expect partner-led sales to increase our operating leverage or our current offerings as we introduce and accelerate the scalability of our SaaS platform. So we're refocusing our emphasis around these accounts. Second, as a result of recent macroeconomic factors, we are seeing end users stay in the proof-of-concept and pilot stages of their deployments for longer than planned or anticipated. To address this and ultimately accelerate Aware's platform adoption, we have begun to increase our efforts around customer success. Having a strong customer success team is crucial as we focus on driving faster adoption and move to a SaaS-based business model to drive recurring revenue, particularly because end users often like biometrics expertise. For many, biometrics is a real cultural change. It requires a mind shift. As part of these customer success efforts, we are increasing the time we spend with our partners and customers to enable them to leverage the benefits of biometrics and specific advantages of the Aware's biometric-based solutions. And third, we are transitioning from a Chief Commercial Officer to a Chief Revenue Officer. As noted in last week's 8-K filing, our Chief Commercial Officer, Rob Mungovan, will be leaving Aware on August 31. Rob…

Thank you, Bob. As a reminder, you can submit a question using the built-in Ask a Question feature in the webcast player. Please hold while we populate the question. First question is for you, David. What is the impact of the building sale to your cash position?

Thanks, Matt. With the $8.6 million in net cash that we received from the sale of the Bedford building, we were able to add that to our already strong cash position of $25 million as of the end of the quarter. From a tax perspective, there's no capital gains tax on the sale and it will be -- the gain from the sale of the building, net of our disposals will be included in the ordinary income or loss at the end of the year.

Thanks, David. Bob, you mentioned anticipating some onetime expenses in Q3 due to the transition from a CCO to a CRO. Can you approximate those onetime costs?

Specific employment agreements are available on our latest proxy statement that were filed with the SEC in April of 2022. And specific to Rob Mungovan, a copy of the amendment to the agreement was included in the 8-K filed on July 20.

Bob, another one for you. When do you anticipate hiring a new CRO?

We've made an offer to a candidate and the individual has accepted, and we have an expected start date in early August. And if all goes to plan, the new CRO will begin to work with Rob Mungovan to ensure a successful transition. This person comes to us with extensive experience in driving revenue in several areas such as enterprise software, SaaS and partner sales, and we'll be holding off on sharing any further details about the incoming CRO until after an official start date, at which time we'll issue more descriptive announcement.

Thanks, Bob. You didn't mention your expected growth rate. Are you scaling back your guidance?

Well, based on our current pipeline and visibility, we expect to grow our top line in 2022 along with our recurring revenue. However, given the continued macroeconomic headwinds that we mentioned in the prepared remarks, we don't think it's prudent to commit to a specific growth rate for the year because we're not sure how much more impact these macroeconomic headwinds will have on our customers and their buying decisions.

Why has your patent count decreased?

Between 2020 and 2022, the patent count was reduced to remove unnecessary jurisdictions and/or deviations while maintaining one or more U.S. patents within each affected patent family. And the optimization of our patent portfolio has reduced our maintenance cost by 2/3 from approximately $360,000 yearly to approximately $90,000 per year with no sacrifician in any value. And furthermore, our introduction of multiple trade secrets into our IP portfolio and process refines the process by which we guard those trace sequences. So we positioned us for better protection without any getting cost. And then we continue to grow our bank of trade sequence and also new patent applications when critical and breakthrough technology is fully aligned with the future of the business.

Thanks Bob. Next question. How confident are you in your ability to be cash breakeven on an operating basis by the end of next year? Does the macro environment push this out into 2024?

We're managing the macro environment the best we can. We still anticipate we'll cross over to adjusted EBITDA profitability by the end of 2023. And again, I'll reiterate, although the exact timing is unknown at this point.

Bob, next question. Any color you can add on your capital allocation plan?

All I can say is that we're fortunate to have a strong cash position that enables us to invest in the highest return on investment opportunities that are aligned with our product road map and our long-term growth plan. And it doesn't matter if those are organic or inorganic, we're looking at both. And I don't plan on getting into specifics prior to our general market announcements in this area.

Thanks Bob. Next question is for you, David. Did Aware make any share repurchases in the second quarter?

Yes. So we did purchase a nominal number of shares, and we'll continue to repurchase shares in line with the approved share repurchase program that has been set.

Thank you. Why was Rob Mungovan terminated?

Well, as I stated earlier, we're realigning the organization to shift from a CCO to a CRO. It has resulted in the elimination of the Chief Commercial Officer position. And then with this realignment, we'll be emphasizing strategic account management, supported by enhanced customer service and customer success initiatives, putting us in a better position to grow revenue from the existing product lines and the new SaaS offering. And as I stated earlier, Rob certainly made an impact over 25 years, and we can't thank him enough for what he's done.

Thanks Bob. Has current macro changed your hiring plans or sales strategy?

The current macro environment has not changed our hiring or sales strategy. As mentioned in our prepared remarks, we've strengthened our focus on customer success through strategic hires and internal reallocation of resources, so we can guide our customers into full production and get them into their adoption. We remain well positioned to implement any personnel changes that we need to do and identify them. And we anticipate the incoming CRO will have input into both hiring and sales strategies, and we're prepared to work with them on it.

Thanks, Bob. Next one is regarding our SaaS offering. How many customers are trialing? When can the SaaS offering be a meaningful contributor?

Well, right now, we currently have a dozen or so select customers that are trialing the SaaS platform, and they're providing us some great feedback, and we're adding more as we speak. That trial has been going on for a couple of quarters now with more coming on. Their constructive feedback has been overwhelmingly positive and very helpful in our quality assurance process so we can assure an optimal user experience as well as the basic needed baseline functions. And we're on track for our SaaS offering in the second half of the year relative to general availability, and we believe it will be -- meaningfully contribute to our revenue in FY 2023.

Dave, the next one is for you. What was subscription revenue?

So year-to-date, the subscription revenue has been $1.7 million, and that compares to $1.1 million last year.

Bob, next question for you. Have you seen deal activity slow because of the macro?

As I mentioned before, we are definitely seeing some impact of the closure of some deals due to the macroeconomic situation. But in generally, commercial applications, some companies evaluate the timing of their investment decisions and commercial budgets as we know can be more discretionary. In contrast, on the government side, the budgets are more in line with the longer-term plans that are in place and decisions must be executed on. So regardless of the environment, yes, we are seeing some deal activity slow. However, we have a diversified customer mix, and it's allowing us to maintain and increase revenue, including recurring revenue as a percentage of the overall year-to-date as compared to last year.

Thanks Bob. At this time, this concludes our question-and-answer session. If your question wasn't answered, please e-mail Aware's IR team at awre@gatewayir.com. I'd now like to turn the call back over to Bob for closing remarks.

Well, I want to thank everyone for joining us today on this call. I'd also like to remind you all about the investment presentation that's available on our website. And if you haven't already downloaded it, I invite you to do so, learn more about our overall strategy. And as always, I'd like to thank our employees, partners and investors once again for their continued support, and we look forward to updating you on our next call. Over to you, Matt.

Thanks Bob. A recording of today's call will be available for replay via a link in the Investor Relations section of the Company's website. Thank you for joining us today for Aware's second quarter 2022 earnings conference call. You may now disconnect.