Good afternoon and welcome to Aware’s Third Quarter 2023 Conference Call. [Operator Instructions] Before we begin today’s call, I would like to remind everyone that the presentation today contains forward-looking statements that are based on the current expectations of Aware’s management and involve inherent risks and uncertainties that could cause actual results to differ materially from those described. Listeners should please take note of the Safe Harbor paragraph that is included at the end of today’s press release. This paragraph emphasizes the major uncertainties and risks inherent in forward-looking statements that management will be making today. Aware wishes to caution you that there are factors that could cause actual results to differ materially from those results indicated such statements. These risks and uncertainties are also outlined in the company’s SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements should be considered in light of these factors. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time-our-time, Aware undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Additionally, this call contains certain non-GAAP financial measures that are defined by the SEC and Regulation G. Non-GAAP financial measures should be considered in isolation from or a substitute for information presented in compliance with GAAP. Accordingly, Aware has provided reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in the company’s earnings release issued today. I would like to remind everyone that this presentation will be recorded and made available for replay via a link available in the Investor Relations section of the company’s website. Now, I’d like to turn the call over to our CEO and President, Bob Eckel. Bob?

Thanks, Matt. Good afternoon, everyone and thank you for joining us today. I am excited to talk to you about our exciting things that have been going on at Aware. After the market closed, we announced our results for the third quarter ended September 30, 2023. A copy of the press release is available on the Investor Relations section of our website. Before reviewing our financial and operational highlights from the third quarter, I want to give you a quick overview of Aware and what makes us different. That way, those of you who are new to us have a better understanding of Aware. Aware is a global biometric platform company that uses data science, machine learning and artificial intelligence to tackle everyday business and identity challenges through biometrics. We’re working to enhance trust in an increasingly connected world through our mission of balancing security and user experience through our technology. Our offerings facilitate digital onboarding, authentication and life cycle management of the user’s biometric identity through proven, responsible and trusted multimodal adaptive biometrics. Over the last 30 years, Aware has proven the value of our offerings by continuing to be chosen by governments and commercial organizations alike for our experience and our hardened portfolio. Our reputation in the biometric industry has earned us trusted spots with core government agencies in the United States, Canada, the UK, Germany, Australia and more. In fact, we are a worldwide leader in biometric data orchestration for immigration and border management. We’re also trusted by industry leaders like the largest banks in Brazil and Turkey, among others, for onboarding and authentication. Further, we have championed the responsible use of technology, specifically leveraging artificial intelligence and machine learning to create software that ethically achieves demographic neutrality and equity, meaning we have purposely emphasized the need…

Thank you, Bob, and good afternoon, everyone, on the call. It’s a pleasure to be back here again with you today. Turning to our financial results for the third quarter ended September 30, 2023. Total revenue was $6.4 million compared to $3.2 million for the second quarter of 2023 and $3 million for the same year ago period. The increase in total revenue was primarily due to higher software license sales in the period. For Q3 2023, recurring revenue was $2.2 million. The $2.2 million in recurring revenue was up 5% sequentially and 4% year-over-year. Operating cash flow for the quarter was $2.5 million compared to usage of $2.2 million in the prior quarter and usage of $2 million in the same year ago period. Looking at our operating expenses, including the impact of one-time events. Our third quarter 2023 operating expenses were $5.6 million, a decrease from $6.1 million in the prior quarter and up from $600,000 in Q3 of last year. Operating income for the third quarter of 2023 was $700,000 compared to an operating loss of $2.9 million in the prior year quarter and operating income of $2.4 million in the same year ago period. For the third quarter of 2023, GAAP net income totaled $1.1 million or $0.05 per diluted share compared to a GAAP net loss of $2.7 million or $0.13 per diluted share in Q2 2023 and GAAP net income of $2.6 million or $0.12 per diluted share in Q3 last year. Please note that operating expenses, operating income and net income for Q3 of 2023 included an $800,000 one-time gain related to our adjustment to the fair value of the contingent acquisition payment from our 2021 acquisition of FortressID and that operating expenses, operating income and net income of Q3 of 2022 included…

Thanks, David. It’s great to be here with you all today. As Bob discussed, Q3 was a very strong quarter for Aware. We continue to protect and scale our recurring revenue base through the implementation of a formal partner program, further product enhancements and capabilities and capitalizing on the high-quality opportunities in the pipeline. Building upon the foundation we laid last quarter for future recurring revenue, we closed several deals that were previously pushed to the right, including the large multimillion-dollar, multiyear U.S. federal government contract Bob mentioned earlier. After receiving a lot of positive feedback from our customers, we incorporated facial identification capabilities, enhanced front-end document capture and better processing functionality into AwareID. In addition to the back-end support and user experience improvements, we included new mobile application frameworks, Flutter and React Native. The AwareID platform now provides value for various use cases without compromising accessibility, an improved security and user experience and provides various levels of technical access for developers. As Bob mentioned, we also debuted a developer hub, which is generating excitement for the platform and the developer community and providing easier access to development resources for our customers. We also partnered with a reputable outside firm to harden AwareID’s SaaS infrastructure to expand the potential reach of our previously announced partnership with Software One. We expect these changes will have a positive impact on our opportunities in the U.S. commercial market in Latin America as a whole. During Q3, we launched a formal partner program to accelerate adoption of our offerings and expand our global reach. Our partner ecosystem is built around three areas of focus to maximize the program’s potential reach. The first being transparency. Providing greater clarity and transparency around products, road map, pricing tiers and incentives for current and future partnerships are crucial…

Thanks, Craig. Building upon the foundation we’ve laid over the past few quarters, we’ve generated meaningful cash flow and recurring revenue in Q3 through our efforts in new contract structure in our newly secured and expanded customer base. Through the continuous evolution of our technology and the launch of a formal partner program, we continue to leverage our customer relationships to optimize spending, drive recurring revenue and accelerate adoption for our SaaS-based platform. I’m proud of the revenue team and their efforts that have led to the highest quarterly revenue since Q2 of 2016 and the highest level of quarterly operating cash flow since Q4 of 2018. Looking at the remainder of the year, we are increasingly confident in our ability to achieve or exceed our financial goals, which includes growing total revenue and ARR by 15% in 2023 and to exit the year with neutral operating cash flow, which means we manage both inflows and outflows towards profitability while taking into consideration seasonal timing of cash outlays. With our strong performance this year and especially Q3, we are confident we can reach or exceed our cash goals and believe we are well positioned to continue ramping up recurring revenue and driving sustained growth. We are excited for Aware’s future and appreciate everyone’s continued support. With that, we are ready to open the call for questions. Matt, please provide the appropriate instructions.

Thank you, Bob. [Operator Instructions] David, what was the recurring revenue for the quarter? How much of that was from subscriptions versus maintenance?

Thanks Matt. Recurring revenue for the quarter was $2.2 million with $1.8 million of that coming from maintenance and the rest of that from our subscription-based revenue.

Thanks David. Apart from the gaming space, what other markets on the commercial side are you seeing increased interest in?

Sure. Thanks Matt. We are seeing a lot of opportunity in online gambling, education, workforce management, healthcare and financial services. As we have talked about in the past, we are continuing to leverage our government relationships to gain market share in new geographies and expand our commercial use cases. An example of this is leveraging our strong foundation in the Turkey financial sector. We have been able to streamline and our breakthrough into North Africa. And so this has really accelerated our expansion in the Middle East.

Thanks Craig. David, another one for you. With a strong balance sheet, what are your capital allocation plans?

Yes. We ended the quarter with $27.5 million in cash, cash equivalents and marketable securities and no debt. We are continuing to capitalize on the higher interest rates as well as our previously announced share repurchase program. Moving into the remainder of 2023 and then 2024, we are maintaining – our goal is to maintain a robust cash position that will enable us to evaluate strategic opportunities with potential to maximize shareholder value and drive scale.

Bob, a question for you. Can you give some color as to why you chose to appoint a Principal Financial Officer as opposed to a Chief Financial Officer?

Sure Matt. Obviously, this is not a traditional management structure for most public companies. But I feel and we feel that it aligns well with our current organizational scale, also our needs and it – well with our cost optimization initiatives that we have going on. So, promoting David to Principal Financial Officer allows us to reduce costs without compromising our ability to achieve our financial and operational goals. And also having streamlined financial team aligns with our strategic growth and cash plans. And I will say it again, David has done a fantastic job as our Corporate Controller over the past 3 years and we feel he is the right person for the position.

Thanks Bob. I am going to combine a couple of questions here. We have received some questions looking for more details around Dave Barcelo’s departure, specifically if severance is owed and if any violations, legal proceedings or items of consequence transpired or are pending.

I will take that one. Dave Barcelo’s departure from the company is not the result of any dispute or disagreement on any matter. As Bob mentioned earlier, we are thankful for all of Dave’s leadership during these past 3 years. We do anticipate incurring some one-time severance costs, which will be reflected in our Q4 and full year 2023 results. However, we still remain on track to exit the year due to operating cash flow.

Thanks David. A question for Craig, over the past couple of quarters, you have announced a few product enhancements. How are you picturing the evolution of Aware’s technology?

Sure. Aware’s technology is primarily driven by our ability to both predict and adapt to the market’s needs. Right now, we are focused on three trends in this market. The first being increased adoption of cloud-based solutions. Two, cross-platform mobile support. And finally, greater interest in deep learning and AI. By focusing on these three areas, we can tailor our technology to be easily and rapidly deployable for any emerging use case or changes in the market. Following the pandemic, digital crime became more advanced and widespread.

Thanks Craig. Another one for you, you have mentioned in previous calls that you are focused on growing the commercial side of the business, what progress have you made?

Yes. So, as we talked about earlier, Aware’s strong reputation in the government space has been generating momentum for the company on the commercial side. The confidence government agencies, especially those in larger governments like the U.S. and Europe, have in our technology is starting conversations with larger, more recognizable brands, which we can then leverage to accelerate our breakthrough into the commercial space.

Next question, Bob, there was a significant improvement in operating cash flow compared to last year. What drove this?

Well, thanks Matt. And I think this improvement in cash flow really, it boils down to our persistent execution of our growth strategy and our cost structure optimization efforts. We have been working on optimizing our costs, as you know. And we continue to ramp adoption for all the solutions and really driving for a leaner operational model. Through our recent product enhancements Craig was talking about earlier and we have been talking about in the press releases, with the launch of our formal partnership ecosystem, we have really expanded our technologies use cases and made it more accessible to more of the population. So, the upgrades we have rolled out this year to Knomi and AwareID enabled our partners and sales team to go-to-market with more versatile, secure, easy-to-use solutions, and that resulted in increased sales and up-selling. Additionally, the view of our formal partner ecosystem and pricing tiers now allows organizations of all sizes from start-ups to global enterprises to adopt Aware’s technology. And lastly, our partnership program really maximized the potential reach of our current and future partnerships without significantly increasing our go-to-market costs.

Thanks Bob. Our next question, Aware spoke with the CIO of Banca Decebal [ph] at Identity Week America last month. How has the partnership evolved over the years? And what impact has the relationship had in terms of other opportunities for Aware?

Sure. Banca Decebal, it was one of the pioneers in the Brazilian financial sector. To incorporate biometrics and has for the past 7 years, they used Knomi to validate account access and credit applications for their customers. Since deploying Knomi, the bank has had very low levels of fraud even with the number of transactions increasing nearly ten-fold in the last 5 years and the recent evolution of criminal activity. Digital crime has become more advanced and widespread throughout Brazil as technology became an integral part of everyday life. This increase in online fraud and digitization has created opportunities for Aware to gain market share in sectors like e-commerce, sporting events, etcetera. Moreover, Aware’s success to warding a new malware designed to attack banks like Banca Decebal could translate into additional opportunities within the global financial sector as the software is now being exported to the United States and Europe. For anyone that’s interested, you can watch the interview between our Lat-Am General Manager and the Banca Decebal CIO on Aware’s YouTube channel. In fact, I would recommend checking out our YouTube channel. We continue to build on it and is a big piece of our focus from a marketing perspective as we continue to build out different ways to message our audiences and our prospects.

Thanks Craig. What kind of feedback are you receiving from customers regarding AwareID or your other solutions?

Sure. The feedback from our clients around AwareID, very focused on two things, the ease of use and the breadth of the offering. On the heels of our latest release, customers and prospects are using AwareID to replace multiple technologies and improve the user experience in their app or online presence. The addition of documentation, authentication with cutting edge AI-driven face liveness is delivering a better, more secure user experience. The speed of deployment has gone from months to days so that customers can deploy, test and iterate with very little assistance and/or developer resources.

David, a question for you, why was the company not more aggressive in buying back – in its buyback program?

Yes. Thanks Matt. So, as I mentioned earlier, we do believe in buying back our stock and to the attractive use of capital. However, we are limited based on Nasdaq rules of how much we can buyback based on historical trading volumes.

Thanks David. At this time, this concludes our question-and-answer session. If your question wasn’t answered, please e-mail Aware’s IR team at awre@gateway-grp.com. I would now like to turn the call back over to Bob for closing remarks.

Yes. I would like to thank all of you for joining today’s call and also of course, thank our employees, partners, shareholders for the continued support that they provide us. And as a reminder, you may learn more about our strategy in the investor presentation that’s available on our website. And we look forward to updating you on Aware’s progress on our next call. Matt, over to you.

Thanks Bob. I would like to remind everyone that a recording of today’s call will be available for replay via link in the Investors section of the company’s website. Thank you for joining us today for Aware’s third quarter 2023 conference call. You may now disconnect.