Aware, Inc. — Q1 2022 Form 10-Q
Business and period: Aware develops and sells biometric software, solutions and services to government and commercial customers. This unaudited report covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless noted.
Financial results
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $4.692 million | $4.419 million; up 6% |
| Software license revenue | $2.628 million | $2.367 million; up 11% |
| Software maintenance revenue | $1.661 million | $1.536 million; up 8% |
| Services and other revenue | $0.403 million | $0.516 million; down 22% |
| Gross profit and margin | $4.378 million; 93.3% | $4.036 million; 91.3% |
| Operating loss | $(1.288) million | $(1.449) million |
| Net loss / diluted loss per share | $(1.279) million / $(0.06) | $(1.448) million / $(0.07) |
| Operating cash flow | $(2.381) million | $(2.471) million |
Operating margin improved to approximately (27.5%) from (32.8%). The company attributed higher revenue mainly to software licenses, including a $0.5 million increase in subscription-based contracts, partly offset by lower fixed-amount license sales. Lower services revenue reflected less work performed with systems integrators. Total operating expenses were $5.980 million, versus $5.868 million; selling and marketing and general and administrative costs increased, while R&D was nearly unchanged.
Cash and cash equivalents were $25.082 million at March 31, down $4.881 million from year-end 2021. Investing cash outflow of $2.500 million was the purchase of an Omlis note; financing cash flow was zero. Current assets were $34.784 million and current liabilities $5.209 million. The balance sheet reports no debt. Deferred revenue was $3.300 million, including $3.071 million current. The company recorded no income-tax benefit and maintained a full valuation allowance on deferred tax assets.
Material changes, outlook and notable items
- Liquidity outlook: Management believes cash and cash equivalents are sufficient to fund operations for at least the next 12 months, while noting that additional financing may be needed and cannot be assured. No quantified revenue or earnings guidance was provided.
- Omlis investment: Aware invested $2.5 million in a four-year note bearing 5% annual interest, with conversion rights at a 20% discount in a future financing. It also received a warrant to buy up to 8% of Omlis equity and an 18-month right of first refusal. The note is valued using Level 3 inputs; the warrant was assigned no material value. Verify collectability, conversion terms and valuation assumptions.
- FortressID acquisition: Acquired in December 2021 for $2.5 million cash plus contingent consideration initially valued at $0.9 million. Earn-out payments may reach $4.0 million based on 2022 and 2023 revenue targets. The reported contingent consideration remained $0.9 million at quarter-end.
- Property and office arrangements: Aware amended the planned sale of its Bedford property for $8.9 million, with closing scheduled by June 30, 2022. The buyer deposited $0.3 million in nonrefundable escrow; Aware may be entitled to $7 million in damages in specified buyer-default circumstances. Aware also signed a Burlington office lease with $8.2 million of rent over a 10.5-year term, subject to a termination right exercisable by June 30, 2022. The sale and lease outcomes were not yet resolved in this filing.
- Capital allocation: The board authorized repurchases of up to $10 million through December 31, 2023; none were made in Q1. Remaining authorization was $10 million.
- Operating plans and risks: Management expects to expand sales and marketing and continue product development, but described commercial markets as emerging and future revenue there as difficult to predict. No material risk-factor changes or material legal proceedings were reported. Management concluded disclosure controls were effective.
- Contract outlook: Remaining performance obligations for contracts longer than one year totaled $2.4 million; the filing says approximately 66% of remaining performance obligations is expected to be recognized over the next 12 months.
Investor facts to verify
- The MD&A summary gives Q1 2021 revenue of $4.2 million and operating loss of $1.6 million, which do not match the financial statements’ $4.419 million revenue and $1.449 million operating loss. Confirm the intended comparison; the summary above uses the statement amounts.
- Progress and conditions for the $8.9 million property sale, including the scheduled closing and buyer-default provisions.
- Whether Aware exercised its Burlington lease termination right by June 30, 2022, and the resulting lease commitments.
- Omlis note performance, valuation and any conversion or warrant developments, as well as FortressID revenue against earn-out targets.
- Cash burn and the company’s ability to meet liquidity needs beyond management’s stated 12-month outlook.