AWARE INC /MA/ Q2 FY2025 earnings call

• Strategic transformation focus: Building a durable business with operational rigor, market alignment, and differentiated technology.
• Awareness platform evolution: Repositioned product suite as the Awareness platform, with enhancements like 14x improvement in face matching speed and mobile face capture reliability.
• Leadership hires: Welcomed Lona Therrien as CMO to boost brand visibility and marketing efforts.
• Go-to-market strategy: Executing against 2025 plan with strong pipeline and strategic accounts, making targeted investments.
• Federal and commercial progress: Secured national ID programs for Middle Eastern governments, engaged with top global financial institution, and saw traction in law enforcement and federal government relationships.

Total revenue for the second quarter of 2025 was $3.9 million, down from $4.3 million in the prior year period. The year-over-year decrease was due to timing of perpetual license sales. Recurring revenue increased 2% year-over-year to $2.7 million for Q2 2025. Operating expenses for Q2 2025 were $5.9 million, up from $5.7 million in Q2 2024. Operating loss was $2 million, wider than the prior year's $1.3 million. For the 6 months ended June 30, 2025, total revenue was $7.5 million vs $8.7 million in the first half of 2024, recurring revenue was $5.4 million vs $5.9 million. Operating expenses were flat at $11.3 million, operating loss was $3.8 million vs $2.6 million in the prior year period.

• Second half of 2025 is an important period for pipeline advancement and customer onboarding, but no specific revenue guidance yet.
• Early traction from platform enhancements, leadership additions, and go-to-market efforts is expected to translate into improved revenue performance by year-end.

Q: Leidos announced a significant task order awarded by the FBI. Can you provide insight into the press release and its impact on Aware's partnership with Leidos?

A: We're excited about federal government investments in biometrics, but we don't comment on specific customers or partners, but look forward to participating in federal government investments.

Q: Based on current visibility, what do you expect for revenue in the second half of 2025?

A: Second half is important for pipeline and customer onboarding, but we're thoughtful about revenue timing as it varies by deal, focusing on execution to bring new customers into production.

Q: Looking into 2026 and beyond, what are the key revenue growth levers?

A: Key levers include federal government work, law enforcement market, and commercial market, with focus on federal budget increases, law enforcement technology upgrades, and growing commercial biometric utilization.

Q: Given recurring revenue grew modestly, what steps are you taking to accelerate subscription-based business?

A: Investing in go-to-market process and teams, focusing on scalable biometric projects and solutions in larger market segments with recurring long-term relationships.

Q: How are you improving the sales cycle velocity?

A: Focusing on strengthening end-to-end sales process, aligning closely with customer requirements, leading to shorter proof-of-value testing and higher success rates.

Q: What trends are you seeing globally in government biometric deployments?

A: Trends include federal government issued digital identities, global travel expansion using biometrics, and mobile driver's license rollouts, which Aware is positioned to capitalize on.

Q: Why is the second quarter G&A up more than R&D and selling and marketing?

A: R&D and sales/marketing costs are being realigned for execution and strategic priorities, with G&A fluctuations due to timing of onetime events and performance-based stock option expense.

Q: How does current pipeline and volume of deal flow compare to the first quarter?

A: Pipeline volume and value have accelerated significantly, with Q2 being an investment quarter in go-to-market and growth exceeding internal expectations.

Q: What are customer and revenue retention rates?

A: Current retention rates are consistent with previous years, with focus on improving customer relationship management and customer success team.

Q: Can you speak to notable recent RFP wins or losses?

A: We don't comment on specific projects or customers, but market is active with interest in our technology and validation of our product's performance.

Q: Can you give color on Aware's M&A pipeline?

A: Focused on internal execution, investing in internal teams and capabilities, with no immediate need for M&A as internal growth is prioritized.