Aware, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results; amounts below are in U.S. dollars unless noted. Aware develops and sells biometric software, maintenance, and related services to government and commercial customers.
Financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $6.381M | $3.015M | $13.870M | $11.945M |
| Operating income (loss) | $0.747M | $2.444M | $(4.057)M | $(0.197)M |
| Net income (loss) | $1.144M | $2.599M | $(3.075)M | $0.031M |
| Basic and diluted EPS | $0.05 | $0.12 | $(0.15) | $0.00 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(1.242)M | $(4.561)M |
- Q3 revenue rose 112% year over year, driven primarily by $3.0M of license revenue from a government contract. Software licenses were $4.391M, maintenance $1.889M, and services and other $0.101M.
- Nine-month revenue increased 16%, mainly from higher software license sales. License revenue was $7.535M, maintenance $5.491M, and services and other $0.844M.
- Q3 2023 operating income included an $0.812M gain from reducing the fair value of the FortressID contingent acquisition payment to zero. Q3 2022 and nine-month 2022 results included a one-time $5.672M gain on sale of the former headquarters. These items materially affect period comparisons.
- Interest income was $0.397M for Q3 and $0.982M year to date, up from $0.155M and $0.228M, respectively, in 2022. The filing attributes the increase mainly to higher rates on investments and money-market balances, and interest related to an IRS tax carryback claim.
- The filing does not present a consolidated gross-margin figure. Cost of services and other revenue was $0.410M in Q3 and $1.033M year to date; management said its share of services revenue rose as services revenue fell and engineering costs increased.
Financial position and liquidity
- At September 30, 2023, cash and cash equivalents were $5.683M and marketable securities $21.839M, totaling $27.522M. Combined cash and securities declined about $1.5M from December 31, 2022.
- Current assets were $36.802M and current liabilities $7.858M. Total assets were $50.182M; stockholders’ equity was $37.865M.
- The company reported no borrowings. Operating lease liabilities totaled $4.528M, including $0.632M current and $3.896M long-term.
- Nine-month operating cash use was $1.242M. Investing activities used $4.394M, primarily reflecting purchases of marketable securities net of sales; financing activities used $0.430M, including $0.467M of share repurchases.
- Management said available cash and cash equivalents are expected to fund operations for at least 12 months from the filing date, while noting longer-term needs depend on growth, results, and investment requirements.
Outlook, commentary, and notable matters
- No specific numeric revenue or earnings guidance was provided. Management expects software-license revenue to continue fluctuating with the timing of customer and partner projects; it cannot predict future revenue from emerging commercial markets.
- Management plans to continue developing existing and new products and expects to expand sales and marketing resources. It expects general and administrative expense to rise in dollars but generally decline as a share of revenue; project-related services margins are expected to fluctuate.
- Deferred revenue was $5.912M, including $5.349M current. The company expects to recognize approximately 90% of remaining deferred revenue over the next 12 months. Remaining performance obligations for contracts longer than one year totaled $3.7M.
- The $2.695M Omlis note receivable accrues interest at 5% and matures in March 2026. Its fair value is a Level 3 measurement. The related warrant and right of first refusal expired in September 2023 without action.
- The company received a $1.5M federal tax refund in August 2023 related to a carryback claim. It maintained a full valuation allowance against net deferred tax assets and recorded no income tax benefit for the periods presented.
- The board’s $10M repurchase authorization expires December 31, 2023. About $1.8M had been repurchased through September 30, leaving approximately $8.224M available under the plan.
- Management reported no material change in risk factors, no material litigation, and effective disclosure controls and procedures.
Most important facts for investors to verify
- Whether the $3.0M government-contract license sale is repeatable and how project timing affects future revenue.
- Cash conversion and receivable collection: accounts receivable increased to $6.519M from $3.317M at year-end, while nine-month operating cash flow remained negative.
- The collectability and valuation assumptions for the $2.695M Level 3 Omlis note receivable.
- Whether the operating cost base and planned sales-and-marketing expansion can be supported by recurring revenue, given the nine-month operating loss.
- How much of reported profitability comparisons reflects nonrecurring items, including the 2022 property-sale gain and 2023 contingent-payment valuation gain.