Aware, Inc. — Q2 2023 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2023. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. Aware develops and sells biometric software, solutions and services to government and commercial customers.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $3.184 | $4.238 | $7.490 | $8.930 |
| Operating loss | $(2.936) | $(1.353) | $(4.805) | $(2.640) |
| Net loss | $(2.652) | $(1.289) | $(4.220) | $(2.567) |
| Net loss per diluted share | $(0.13) | $(0.06) | $(0.20) | $(0.12) |
- Revenue fell 25% in Q2 and 16% in the first half year over year. Operating margins were approximately negative 92% and negative 64%, respectively.
- Q2 software license revenue declined 49% to $1.039 million; maintenance revenue was nearly flat at $1.767 million. First-half license revenue fell 32% to $3.145 million, while maintenance revenue rose 3% to $3.602 million.
- Operating expenses increased 9% in Q2 and 6% for the first half. Selling and marketing expense rose 38% in Q2 and 24% in the first half, primarily due to higher employee costs and contracted sales agents.
- For the six months, operating cash flow was negative $3.699 million, compared with negative $2.558 million a year earlier. Cash and cash equivalents declined $8.436 million to $3.313 million; investing cash outflow was $4.433 million, including purchases and sales of marketable securities.
- Cash, cash equivalents and marketable securities totaled $25.061 million at June 30, down $3.917 million from year-end. Working capital was approximately $27.487 million. The balance sheet shows no conventional borrowings; operating lease liabilities totaled $4.576 million.
Material changes and balance-sheet items
- The larger operating and net losses chiefly reflect lower software license revenue, while selling and marketing spending increased. Interest income rose to $0.284 million in Q2 and $0.585 million for the first half, mainly due to higher rates on investments and money-market balances.
- Marketable securities were $21.748 million, primarily U.S. Treasury securities and corporate bonds. The filing reports $0.149 million of gross unrealized losses on these securities at June 30.
- A $2.663 million note receivable from Omlis Limited accrues interest at 5% and matures in March 2026. It is carried at fair value; the company says its value increased through accrued interest.
- The FortressID acquisition contingent payment liability was $0.812 million, classified as current. No 2022 revenue targets were achieved; up to $2.0 million remains potentially payable against 2023 targets.
- A $1.498 million tax receivable related to a federal loss carryback remained outstanding from the IRS. Aware maintained a full valuation allowance on its other deferred tax assets and recorded no income tax benefit.
Outlook, risks and other disclosures
- No specific revenue or earnings guidance was provided. Management expects software license revenue to continue fluctuating with the timing of customer and partner projects, and said commercial markets are emerging and future revenue from them is difficult to predict.
- Management plans to continue investing in product development and expects to expand sales and marketing resources. It believes available cash and cash equivalents are sufficient for operations and known long-term cash requirements for at least 12 months from the filing date, while noting future needs depend on growth, results and investment requirements.
- About 85% of deferred revenue was expected to be recognized within 12 months. Remaining performance obligations for contracts longer than one year totaled $4.0 million.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter. It disclosed no material litigation and no material changes to the risk factors in its 2022 Form 10-K.
- The share repurchase authorization runs through December 31, 2023. Aware repurchased 190,908 shares in the first half; $8.347 million remained authorized at June 30.
Important facts for investors to verify
- Whether the decline in license revenue reflects project timing or a sustained reduction in demand, and how commercial-market expansion is progressing.
- Cash consumption and operating-loss trends relative to management’s stated liquidity horizon.
- Collection timing for the $1.498 million tax receivable and repayment, conversion or other resolution of the Omlis note.
- Whether FortressID’s 2023 revenue targets trigger any contingent acquisition payment.
- Use of the remaining share-repurchase authorization and the effect of continued repurchases on liquidity.