Aware, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; financial statements are unaudited. Aware develops and sells biometric software, solutions, and services to government and commercial customers. Amounts below are in millions except per-share data.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $4.175 | $2.474 | $12.857 | $7.883 |
| Operating loss | $(1.580) | $(2.520) | $(4.572) | $(7.568) |
| Net loss | $(1.579) | $(1.777) | $(4.569) | $(5.978) |
| Basic and diluted loss per share | $(0.07) | $(0.08) | $(0.21) | $(0.28) |
Revenue increased 69% in Q3 and 63% year to date. Software-license revenue was $2.197 million for Q3 and $6.287 million year to date; software maintenance was $1.526 million and $4.831 million, respectively. Management attributed the growth primarily to license sales, including subscription-based contracts. Cost of sales was $0.243 million and $0.933 million, respectively; gross margin calculated from reported revenue and cost of sales was approximately 94% for Q3 and 93% year to date.
- Operating expenses: Q3 total costs and expenses rose to $5.755 million from $4.994 million; year-to-date expenses rose to $17.429 million from $15.451 million. Higher sales and marketing and general and administrative costs were largely associated with increased headcount and professional services. R&D was broadly flat.
- Cash flow: Operating cash use was $5.218 million for the first nine months, versus $4.190 million in 2020. Investing cash use was $0.021 million; financing cash use was $0.029 million. Cash and equivalents declined $5.268 million to $33.297 million.
- Liquidity and debt: Current assets were $41.847 million and current liabilities $5.662 million at quarter-end. The balance sheet reports no borrowings or other debt. Management said cash was expected to fund operations for at least 12 months from the filing date, while noting additional financing could be needed and might not be available.
- Taxes: No income-tax benefit was recorded in 2021 because realization of benefits from losses and credits was uncertain. Prior-year periods included tax benefits of $0.736 million for Q3 and $1.416 million year to date. A full valuation allowance remained against deferred tax assets.
Material changes and outlook
- Year-to-date license revenue rose 98%; subscription-based contract revenue was $2.182 million, versus $0.460 million in the prior-year period. Maintenance revenue also grew, partly due to the AFIX product-line acquisition in Q4 2020.
- Unbilled receivables increased to $3.272 million from $2.229 million at year-end 2020; deferred revenue was $3.146 million, including current and long-term balances, versus $3.933 million at year-end.
- Remaining performance obligations for contracts longer than one year totaled $2.2 million. Aware expects to recognize approximately 67% of remaining performance obligations over the next 12 months.
- No specific revenue or earnings guidance was provided. Management said emerging commercial biometric markets make future revenue difficult to predict and that COVID-19 restrictions on customer meetings, demonstrations, events, and partner engagement had affected revenue and could continue to do so over the next several quarters.
- Aware agreed to sell its Bedford property for $8.0 million, but the buyer was not obligated to proceed. The buyer’s decision period was extended to December 31, 2021; closing remained subject to notice and specified conditions. The company occupied the property and could remain for approximately 90 days after a closing.
- The company disclosed a February 2021 cyberattack affecting a small number of email accounts. It reported no material losses or business interruption, but warned that cybersecurity events could cause data exposure, disruption, costs, or liability. It also noted cyber-insurance coverage has limits and deductibles.
- The board’s share-repurchase authorization was up to $10 million through December 31, 2021. No shares were repurchased in the first nine months of 2021; approximately $9.294 million remained available as of September 30.
Important facts for investors to verify
- Whether the stronger license and subscription revenue persists, given the company’s continuing operating losses and cash use.
- Collections and billing trends for unbilled receivables, and the timing of recognition of deferred revenue and remaining performance obligations.
- Whether the property sale proceeded after the extended buyer decision deadline, and the effect of any sale and transition costs.
- Management’s cash-runway assessment and the potential impact of continued losses, deferred tax asset valuation allowances, and COVID-related commercial constraints.
- Developments in cybersecurity protections and any subsequent incidents, costs, or claims.