Good afternoon, and welcome to Aware’s First Quarter 2023 Conference call. Joining us today is the company’s CEO and President, Robert Eckel; CFO, David Barcelo; and CRO, Craig Herman. Following their remarks, we’ll open the call for questions. [Operator Instructions] 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 uncertainty 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 as only 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, the call contains certain non-GAAP financial measures as the 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 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, Bob Eckel. 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 first quarter ended March 31, 2023. A copy of the press release is available in the Investor Relations section of our website. We are pleased that you could join us for this quarterly update on Aware. On today’s call, I will first discuss our financial and operational performance for the first quarter. Then, I’ll review the progress we’ve made positioning Aware to drive scale and sustainable growth. Afterwards, our CFO, Dave Barcelo will provide further details on our first quarter performance. Following Dave’s remarks, our CRO, Craig Herman will discuss our strategic initiatives that are driving the company’s go-to-market efforts to boost sales. Finally, I’ll review our business drivers and 2023 outlook before we open the call for questions. Before I review our performance and current market dynamics in greater detail, I’d like to recap 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 the user experience through technology for the few and at scale. We solve everyday business and identity challenges by applying data science, machine learning and AI to biometrics. Through this, we help our customers reduce fraud, enable compliance and security needs, as well as improve business efficiencies. Collectively, our offerings address identity challenges of today, while preparing for identity challenges in the future. Specifically, 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,…

Thank you, Bob. Good afternoon to everyone on the call. Turning to our financial results for the first quarter ended March 31, 2023, total revenue was $4.3 million, compared to $4.1 million for the fourth quarter of 2022 and $4.7 million the same year ago period. The sequential increase in total revenue was due to higher software licenses in the period. A key focus area for us is building predictable recurring revenue streams. For Q1 2023 recurring revenue was $3.1 million, or 71% of total revenue. The $3.1 million in recurring revenue was up 17% sequentially and 4% year-over-year. Looking at our operating expenses. Our first quarter of 2023 operating expenses were $6.2 million, up slightly from $6.1 million in the prior quarter and $6.0 million in Q1 of last year, reflecting an increase in sales and marketing. Operating loss for the first quarter of 2023 was negative $1.9 million, an improvement from negative $2 million in the prior quarter compared to negative $1.3 million in the same year ago period. For the first quarter of 2023, GAAP net loss totaled negative $1.6 million or $0.07 per diluted share, compared to a GAAP net loss of negative $1.8 million or $0.08 per diluted share in Q4 of 2022, and negative $1.3 million or $0.06 per diluted share in the same year ago period. Our adjusted EBITDA loss for the quarter, which we reconcile to GAAP net loss in our earning release, totaled $1.4 million, which compares to adjusted EBITDA loss of $1.5 million in the prior quarter and adjusted EBITDA loss of $0.6 million in the same year ago period. Looking at our balance sheet, we ended the quarter with $27.3 million in cash, cash equivalents and marketable securities. We repurchased 191,000 common shares of stock at an average price of $1.79 per share as part of our previously announced share buyback program. Our strong cash position and no debt provides us with significant resources to weather any macro pressures, while at the same time, it affords us with the optimal flexibility to allocate capital toward opportunities with high ROI potential to align with our long-term growth potential. To that end, we’re seeing increased activity on both the buy and sell side, and we’ll continue to evaluate strategic opportunities that will enable us to drive scale as an organization and maximize shareholder value. This completes my financial summary. Craig will now discuss our enterprise sales strategy. Craig?

Thanks, Dave. It’s great to be here with you all today. As Bob touched on our partner centric go-to-market strategy continues to gain momentum. We’re seeing more and more opportunities arise through our partner network, while at the same time, our customer success team is actively collaborating with existing customers to expand deployments and increase our wallet share. To that end, our longstanding customer base and high renewal rates, which exceeded 90% in 2022, provides us with a significant opportunity to increase wallet share and overall customer lifetime value. To recap our strategy, our multichannel partner focus involves expanding our base of VARs, including local and regional integrated resellers, system integrators, OEMs and distributors. In parallel, we’re building a deeper network of consulting partners who can introduce, recommend and add Aware services and solutions into a larger ecosystem for customers on a global or regional basis. The third leg of our partnership strategy is technology partners, who can integrate our offerings based on target markets, vertical solutions and marketplaces, which allows us to increase the accessibility of Aware’s technology to the partner’s customer base. Bob already mentioned a couple of our key customer wins that resulted from our advanced product offerings and customer success team, but I would like to go a bit more in depth into these achievements. First, we are committed to gaining traction in the Fintech market. Aware is already a proven leader in fraud prevention, as we are trusted by some of the largest financial institutions in target countries around the world. With our customer success program streamlining the onboarding process and enhancing customer interactions, we are confident that we can capture meaningful market share in the Fintech’s space. Our next initiative is to continue expanding our partnership programs. As I touched on with these partnership…

Thanks, Craig. We entered 2023 in the final phase of our business model transition to a platform company with strong recurring revenue. We are excited now that we have AwareID in the market and starting to gain traction. However, as adoption ramps up, we remain committed to evolving our full portfolio of products and enhancing our customer success mechanisms to scale our business. Furthermore, our pipeline contains promising prospects with the potential to drive recurring revenue as our partners begin to bring in more and more deals. To best convert our pipeline into tangible results and drive recurring revenue, we’re focused on three key initiatives: first, to propel growth by focusing on scaling through partners and marketplaces; second, to protect the base by retaining and expanding our core customers and business segments; and finally, to establish AwareID’s product market fit through a targeted adoption in strategically selected industry verticals. As I’ve noted in the past, our business will continue to be subject to quarterly variations in financials due to timing of awards and adoption, so our emphasis remains on the full year outlook and performance. Looking ahead, our expectation is to grow total revenue and annual recurring revenue, or ARR, by at least 15% in 2023. We also continue to expect operating cash flow exiting 2023 to be neutral to positive, which means we will manage both inflows and outflows towards profitability, while taking into consideration seasonal timing of cash outlays. As we work towards achieving our cash flow goals, we remain confident in our ability to deliver robust operational performance, while we progress along our strategic growth roadmap to strong recurring revenue and sustainable future growth. We truly appreciate everyone’s continued support and are excited about the future of Aware. With that, we are ready to open the call to questions. Matt, please provide the appropriate instructions.

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 questions.

Dave, how should investors be thinking about operating expenses this year?

Thanks, Matt. As I mentioned in my prepared remarks, our Q1 operating expenses were up slightly quarter-over-quarter. And as we talked a bit on the last call, we expect to run around $5.5 million each quarter during 2023. This excludes non-cash items, amortization, depreciations, and stock comp. So as we target getting close to positive cash flow, we expect to optimize our cost structure rather than continue to invest.

Thanks, Dave. Another one for you. What is the progress on the share repurchase plan?

During the first quarter, we repurchased about 191,000 shares. That was about 1% of our outstanding shares and average price this quarter was $1.79.

Thanks, Dave. Next question, can you provide an update on the CloudABIS contract you mentioned last quarter?

Yeah, thanks for the question. Yes, we anticipate the particular contract will go live this summer, so while we can’t formally announce it right now all the details. We are excited to get this customer onboarded and in the cloud with ABIS, it’s a large scale biometric ID and deduplication service. This contract will have a positive impact on recurring revenue as we continue our transition to a platform company. As we’ve highlighted previously, keep in mind that our business is subject to quarterly variations in financials, because of the timing of awards and adoptions. We are winning contracts every quarter, however, some deals take longer to realize the revenue than others. Therefore, we are largely focused on our full year performance and outlook.

Thanks, Craig. We’ve got a multipart question next. Please clarify the implied revenue growth for 2023 Q4 of approximately 50% year-over-year under the stated assumptions of steady quarterly expenses for 2023 versus the direct guidance of 15% revenue growth for full year 2023. Should we expect zero to negative growth in the first 3 quarters in all of 2023 growth to occur in the fourth quarter?

Yeah. Thanks, Matt. Let me unpack that a little bit. So as you saw, we generated about $4.3 million in revenue in Q1 that was an improvement from the prior quarter and down slightly from Q1 2022. And while we don’t provide quarterly guidance on how our revenue will be trending throughout 2023, we do expect the growth for the year to be at least 15%, both total revenue and ARR. Now, if you look back, you can see there’s some historical seasonality to our revenue, but the quarterly variability tends to be less than the 50% in this question. So if I kind of unpacked a little bit further, in the question you mentioned implied revenue growth and presumably that’s based on our target of exiting 2023 as operating cash flow neutral. So, along those lines, again, we don’t focus on quarterly results, but I will note that our average operating cash burn across the last four quarters was right around $1 million. So that provides you some guidance as to how much growth we have left to go before we can hit cash flow neutral.

Great. Thanks, Dave. Next question, can you discuss the technology roadmap for Aware?

Yeah, just to give you an overview of it, it’s constantly evolving, expanding its portfolio based on the current growth and emerging and future use cases. So in order to do this, we provide an apply artificial intelligence machine learning to the biometrics to solve the complex identity management problems that we’ve had over for 10 years now. So to that end, we’ve advanced our technology roadmaps along multiple vectors: one of them is machine Learning and AI; another is data science and data engineering biometric modalities, face, voice, fingerprint, iris and behavioral software engineering and applications the infrastructure and deployment, and methodology, whether it’s on-prem, SaaS and make sure we adapt to the customers environment. Mobile applications and then non-biometric, where we have some several active programs looking at document authentication and document liveness, and then our deep research group relative to new technologies.

Dave, the next question is for you. How does commercial revenue compare from the prior quarter and year-over-year?

Yeah, good question. So as I mentioned in my prepared remarks, our commercial revenue accounts for over a quarter of our total revenue. So that means, well, specifically in Q1 of 2023, it was about $1.3 million. And so that’s up about 5% or so from Q1 of 2022.

Thanks, Dave. Next question is for Craig. What is the current addressable market size and growth dynamics within Aware’s portion of the biometrics industry?

Sure. The global market for biometric technology is expected to grow at a compounded annual rate of about 20%. This will reach a total addressable market of approximately $71 billion by 2027. There are several factors that are driving demand for biometric technologies, including new government regulations, business need for convenience and operational efficiencies, as well as an increased rate of identity fraud and data breaches. With Aware’s out of the box readiness and lightning face adaptability, we believe our company is well positioned to capitalize on the lucrative market opportunity supported by robust industry tailwinds and drivers.

Another one for Craig. How do recent U.S. government budget proposals impact Aware’s government business?

Yeah, there is a lot happening on this side of the business. We anticipate the most recent budget proposal to have a positive effect on our government business as a whole, since we work with all 3 branches of the U.S. federal government. More specifically, the latest proposal includes additional funding for U.S. Customs and Border Protection. To strengthen and improve security technologies at and between ports of entry, which could be a potential opportunity for us to gain additional wallet share. Furthermore, the National Cybersecurity Strategy and the anticipated Digital Theft Executive Order presents more potential opportunity for Aware, we are continuously monitoring the federal government’s activities in the space and submit proposals regularly. The timing of awards and subsequent implementation can vary depending on the size of the project and a variety of other factors.

Thanks, Craig. How has the macro environment affected the pipeline? Or are deals still being pushed further out?

Yeah, we talked about this last quarter about a few customers pushing out their start times. A number of government customers delayed going live, which shifted that revenue to the right. However, in Q1, we finally started to see some of these deals materialize as we have onboarded those customers. We believe we’ve weathered the macroeconomic storm are beginning to see our resilience pay off with a healthy pipeline of high quality opportunities around the globe.

Next question what kind of traction are you seeing with AwareID?

Craig, do you want to take this one since you’re in the field?

Sure. As Bob mentioned earlier, accelerating adoption and establishing the product market fit for AwareID is one of our key focuses for 2023. Leveraging our partnerships, like our collaboration with SoftwareONE is crucial to our go-to-market strategy. When AwareID enters the AWS marketplace later this summer, we will tap into the vast reach of the platform to generate strong momentum for the solution. Interestingly, with enterprise customers, AwareID has been an intriguing offering to open doors to conversations that may otherwise have been closed. Some of these conversations lead to a proof-of-concept project with the prospects. Others lead to prospects realizing that a SaaS offering isn’t exactly what they want, and they’re more interested in Knomi, which is on-premise. The bottom line comes down to the depth and breadth of our portfolio, a strength that affords customers, the flexibility to deploy world class biometrics in the manner in which they need to.

Thanks, Craig. Next question, what are the company’s capital allocation plans in 2023?

I’ll take that, Matt. We ended the quarter with about $27.3 million in cash and marketable securities. In Q1, we continued to take advantage of the increasing interest rates in the broader market, and we also progressed with our previously announced share buyback plan, as I talked to before. So, overall, in 2023, we are maintaining a robust cash position, no debt, and it allows us the strength to navigate any of the macro headwinds build the flexibility to evaluate strategic opportunities that could help us drive scale as an organization and maximize shareholder value.

Next question, when will you break out SaaS revenue?

Yeah, thanks for that, Matt. As you’ve heard from our commentary, we’re continuing to focus on building our SaaS base. Craig just went through that, and while we don’t anticipate SaaS revenue to be a significant revenue source in 2023. SaaS customers are being added monthly, momentum is building, all the good stuff, Craig was just talking to. So we’re optimistic about reaching our ARR goals, and we can offer these new build flexible deployments no one else can. And so once our revenue generated from SaaS contract reaches a material amount, we will break it out separately on our income statement, our Q1 SaaS revenues were nominal.

Thanks, Dave. Our next question, what are the target markets and typical use cases for AwareID?

Craig?

Yeah, so where we’re really focused with AwareID right now is an offset of the financial services industry, which is where we’ve had a lot of traction success with Knomi. We’re really focused on more Fintech, mid-market, credit unions, and banks, on the financial services side. We’re also really starting to see a lot of traction across the education market and certifications, so online certifications to prove that someone taking the test is the actual person. This has gained more and more as people are doing more contract work and a lot more remote work. And then, finally, those two are really online, but then we really see the offline world of access control really starting to take hold with some recent opportunities that we’re going down the path with. The ability to use, to be able to easily implement AwareID without a lot of resources and then have full biometrics to use in buildings, rooms, et cetera, has really gotten some traction lately.

Thanks, Craig. Our next question, how long does it typically take to get a new customer operational with AwareID, BioSP and Knomi, respectively?

Sure. This is really the uniqueness of what we do. So AwareID really can take days to set up, up and running. And again, it’s low code, it’s in the cloud. Knomi and BioSP are typically much more customized to the company’s infrastructure, what they’re looking for, their specific workflows and other things that we’re connecting into. So in some cases we’re a part of the overall solution, some case we are the solution, so in those cases that can take again months to do a full implementation and scope out. And that’s why we’re really excited about the ability to marry AwareID and Knomi, so that the world isn’t one size fits all, and we really do have solutions that fit what customers need right now. And so it really does depend on the implementation and the customer.

Our next question is for Dave, the language achieve neutral deposit of operating cash flow exiting 2023? Please for the sake of absolute clarity confirm this does not include any balance sheet driven from interest received?

Yeah, let me provide a little color on this. So we say positive operating cash flow exiting 2023, because at any given time going forward, there’s fluctuation our cash flow like our revenue has some historical seasonality to it, specifically Q1 is almost always our highest cash flow usage. So that’s the reason rewarded [ph] as exiting 2023, not every quarter will be cash flow positive, but we plan to exit with revenues reaching the levels of our expenses in that ballpark, so that we can achieve our Q4 neutral and positive cash flow. So it had nothing to do with balance sheet driven interest received.

Thanks, Dave. We’ve got a 2-part question. How much balance sheet cash is excess from cash required to operate the business? Relatedly, is there anything preventing the company from pursuing a tender offer in light of the present market valuation, which ascribes nearly no value at all to the company’s underlying business?

Yeah, so with regards to the cash required to operate the business, I think I mentioned earlier our operating cash flow has averaged a usage of about $1 million a quarter for the last few quarters. So you can use that to determine roughly how much it has cost us over the last year and we are trending favorably. So with a cash balance of $27 million subtract that out and that’s the excess cash acquired. And, of course, we are trending towards cash flow neutral to positive. So from there pursuing a tender offer, in general, we are always open to any strategic alternatives that help the company. There’s nothing specifically preventing us from a tender offer. We are evaluating all opportunities as they’re presented to us.

Thanks, Dave. Next question, how is the competitive environment?

Yeah. So I’ll take this one. It really does align again with a few different things. So AwareID, there is a large startup community very focused on biometrics, where we are competing in that facet. We are competing again with some of the bigger players in the space, when it comes to financial services, federal. And then there’s the geography piece to it, where we have local players, especially in Latin America, local players in the Middle East, where we have strong foothold as well as here in North America. So in a word, the competitive environment is frothy. We are competing in every deal with competitors that we know based on typically the size of business, the market that they’re in and the geography.

Thanks, Craig. 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. Now, I’d like to turn the call back over to Bob for closing remarks.

Yeah, I just want to say thank you for joining today’s call and I’d like to thank all our employees, partners and shareholders for their continued support. And you can learn more about our strategy, we have an updated investor presentation that’s now available on our website and we look forward to updating you on Aware’s progress on our next call. Matt?

Thanks, Bob. I’d like to remind everyone that a recording of today’s call will be available for replay via link in the investor section of the company’s website. Thank you for joining us today for Aware’s first quarter 2023 conference call. You may now disconnect.