Aware, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. Aware develops and sells biometric software, solutions, and services for government and commercial markets.
Financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $4.305 million | $4.692 million |
| Operating loss | $1.869 million | $1.288 million |
| Net loss | $1.568 million | $1.279 million |
| Net loss per share, basic and diluted | $0.07 | $0.06 |
| Cash used in operating activities | $1.485 million | $2.381 million |
- Revenue declined 8% year over year. Software license revenue fell 20% to $2.105 million, primarily due to lower perpetual-license sales and project timing. Maintenance revenue rose 10% to $1.835 million; services and other revenue was $0.365 million.
- Operating loss increased as revenue declined and total costs and expenses rose to $6.174 million from $5.980 million. Selling and marketing expense increased 12% to $1.991 million, mainly on higher headcount and contracted sales agents. Research and development expense was $2.381 million; general and administrative expense was $1.504 million.
- Interest income increased to $301,000 from $9,000, primarily due to higher rates on investments and money-market balances. No income tax benefit was recorded.
- At March 31, cash and cash equivalents were $8.390 million and marketable securities were $18.912 million, totaling $27.302 million. The combined balance was $1.676 million below December 31, 2022. Total assets were $49.400 million and stockholders’ equity was $38.767 million.
- The balance sheet reports no borrowings. Liabilities include operating lease obligations and an $812,000 contingent acquisition payment. Current assets were $35.656 million versus current liabilities of $6.043 million.
- Cash used in investing activities was $1.518 million, including net purchases of marketable securities; cash used in financing was $356,000, including $341,000 of share repurchases. Cash and cash equivalents fell by $3.359 million during the quarter.
Changes, outlook, and risks
- Revenue mix shifted toward maintenance: licenses were 49% of revenue versus 56% in Q1 2022; maintenance was 43% versus 35%. Revenue from over-time performance obligations rose to $2.537 million from $1.999 million.
- Management expects cash and cash equivalents to fund operations for at least the next 12 months, while noting that longer-term adequacy depends on growth, operating results, and investment needs. Management anticipates continued investment in product development and expansion of sales and marketing. It expects interest income to increase in absolute dollars over the next 12 months, subject to interest-rate changes. No specific revenue or earnings guidance was provided.
- Management says perpetual-license revenue can fluctuate with customer project timing and that future commercial-market revenue is difficult to predict. SaaS revenue was zero in both periods, though the company expects SaaS offerings to generate revenue in future periods.
- A $2.632 million Level 3 note receivable from Omlis accrues interest at 5% and matures in March 2026. A related warrant to purchase up to 8% of Omlis expires September 11, 2023; its reported fair value was zero. The $1.362 million federal tax receivable related to a 2020 loss carryback had not been received as of March 31, 2023.
- The company repurchased 190,908 shares for approximately $341,000 during the quarter. The repurchase authorization permits up to $10 million through December 31, 2023; approximately $8.347 million remained available at quarter-end.
- The filing reports no material litigation and no material changes to the risk factors in the 2022 Form 10-K. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Investor verification priorities
- Track license sales and project timing, and assess whether maintenance growth and prospective commercial or SaaS revenue can offset license volatility.
- Monitor operating cash burn, expense growth, and management’s stated liquidity runway; distinguish cash from marketable securities.
- Verify collection of the $1.362 million tax receivable and review the Omlis note’s credit, conversion, repayment, and warrant terms.
- Follow the 2023 FortressID revenue targets and related contingent payment exposure, as well as remaining share-repurchase activity.
- Consult the 2022 Form 10-K for the detailed risk factors, which are incorporated by reference and were not reproduced in this quarterly filing.