Aware, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. Aware develops and sells biometric software, maintenance and related services to government and commercial customers. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise noted.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $3.02 million | $4.18 million | $11.95 million | $12.86 million |
| Operating income (loss) | $2.44 million | ($1.58 million) | ($0.20 million) | ($4.57 million) |
| Net income (loss) | $2.60 million | ($1.58 million) | $0.03 million | ($4.57 million) |
| Net income (loss) per diluted share | $0.12 | ($0.07) | $0.00 | ($0.21) |
- Q3 revenue fell 28% year over year, chiefly because software license revenue declined 63% to $0.81 million. Maintenance revenue rose 17% to $1.79 million; services and other revenue was $0.42 million.
- Nine-month revenue declined 7%. License revenue fell 13% to $5.46 million and services and other fell to $1.22 million, partly offset by maintenance growth of 9% to $5.27 million.
- Q3 and nine-month operating results include a $5.67 million gain on the July sale of the former headquarters. Excluding that gain, operating loss would have been approximately $3.23 million for Q3 and $5.87 million for the nine-month period, based on the reported figures.
- Q3 cost of sales was $0.28 million. A conventional gross margin is not separately reported; cost of sales primarily relates to customer services and other costs.
- Cash from operations was negative $4.56 million for the first nine months, versus negative $5.22 million a year earlier. Investing cash flow was negative $12.65 million, including $18.56 million of marketable-security purchases and a $2.50 million note investment, partly offset by $8.55 million of proceeds from fixed-asset sales. Financing cash flow was negative $0.09 million.
- At September 30, cash and cash equivalents were $12.66 million and marketable securities were $18.32 million, totaling about $30.97 million. Current assets were $41.24 million and current liabilities $6.48 million. The company reported no borrowings or conventional debt; liabilities include contingent acquisition payments.
- Total assets were $50.05 million, stockholders’ equity $42.65 million, and accumulated deficit $56.44 million. Available-for-sale securities had $0.17 million of unrealized losses recorded in other comprehensive loss. No income tax benefit was recorded; a full valuation allowance remained against deferred tax assets.
Significant developments, outlook and risks
- The former Bedford headquarters was sold in July for $8.9 million before a $0.3 million brokerage commission; the company recognized a $5.67 million gain. It began a new 10.5-year office lease in October 2022, with $8.2 million of rent over the term and a termination right after 7.5 years.
- Aware invested $2.5 million in an Omlis note bearing 5% annual interest and maturing in March 2026. The note has conversion and repayment provisions; its reported fair value was $2.57 million, including accrued interest. It is classified as a Level 3 fair-value asset.
- The 2021 FortressID acquisition includes contingent payments of up to $4.0 million tied to revenue targets in 2022 and 2023. The recorded contingent consideration was $0.92 million at September 30, 2022.
- Management said cash and cash equivalents were expected to fund operations for at least the next 12 months, while noting future needs depend on growth, results and investment requirements. No specific revenue or earnings guidance was provided.
- Management plans to focus R&D on existing and new products and expects to expand sales and marketing. It noted commercial biometrics markets are emerging and future revenue there is difficult to predict; license and services revenue also depends on winning projects and can fluctuate.
- Management reported no material impact from inflation to date. The filing states there were no material changes to the risk factors in the 2021 Form 10-K, no material litigation, and no material changes to internal control over financial reporting; disclosure controls were deemed effective.
Important facts for investors to verify
- Whether recurring maintenance growth can offset lower license and project-based services revenue, and how much quarterly results depend on large license awards.
- The company’s operating cash burn and liquidity outlook, including the composition, liquidity and valuation sensitivity of its marketable securities and Level 3 note receivable.
- Whether the headquarters-sale gain obscures ongoing operating performance and how the new lease affects future cash commitments.
- FortressID revenue-target performance and the possible timing and amount of earnout payments; also the Omlis note’s repayment or conversion prospects.
- The filing reports approximately $0.16 million of repurchases under the $10 million authorization through September 30; verify remaining authorization and future repurchase activity against subsequent disclosures.