Good afternoon, and welcome to Aware's First Quarter 2021 Earnings Conference Call. Joining us today is the company's CEO and President, Robert Eckel and CFO, David Barcelo. Following their remarks, we will open the call for questions. At any time using the built in Ask a Question feature in the webcast player. 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 Awares' management and involve inherent risks and uncertainties that could cause actual results to differ materially from those Scribe.
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 and Harrah in forward looking statements that management will be making today. Aware wishes to caution you that the factors that could cause actual results to differ materially from the results indicated by such statements. These risks and uncertainties are also outlined in the company's SEC filings, including its annual report on Form 10 ks 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 to 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. As the term is defined by the SEC in Regulation G. Non GAAP financial measures should be considered in isolation from or as a substitute for in financial information presented in compliance with GAAP.
Accordingly, Aware has provided a reconciliation of these non GAAP financial measures to their most direct comparable GAAP and the company's earnings release issued today. I'd 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 with that, I would like to turn the call over to Aware's CEO and President, Bob Eckel. Bob?
Thanks, Matt. Good afternoon, everyone, and thank you for joining us today. As you will soon hear, we have some very exciting news. After the market closed, we issued a press release announcing our results for the Q1 ending March 31, 2021. A copy of the press release is available in the Investor Relations section of our website.
So let me start by saying it's a pleasure to join you all again for our 2nd earnings call together. Just a few months ago, I had the chance to share a bit more about what Aware has managed to accomplish throughout 2020 Optimistic about the remainder of the year and beyond. On this call, I'll provide you with a high level overview of the quarter's operational results. Then I'll turn it over to our CFO, Dave Barcelo, so that he can review the financial results for the quarter. I will then take Time to discuss what we have on our near and long term horizons.
After that, we'll open the call for your questions. This quarter, we generated our 3rd consecutive period of top line growth. I'm excited about our increased subscription revenue, which shows our transformation is working. I'm also excited about entering the delivery phase on multiple federal Government Awards. These continue to bolster our reputation as a go to U.
S. Company for their biometric needs. And of course, I'm excited about Record number of quarterly Nomi transactions. Dave and I will talk about the significance of this shortly, but for now, I'd like to Like that there were more transactions protected by Nomi in the Q1 of 2021 than in any quarter previously. And they were also greater than half of all the transactions throughout 2020.
We see Noemi has proven its versatility, both geographically and within various sectors. Throughout the world, Noemi is providing a new way for institutions To interact with end users. We are realistically optimistic that the pandemic related headwinds that we've All experience will transform into tailwinds. In consideration of the continued impact of the pandemic and vaccine rollouts, We're staying in close contact with our customers and partners to ensure that implementations and service requests on a timely basis. Nevertheless, we're accounting for these risks in our modeling.
To be clear, 2021 will A period of continued transition and investment in our business. Quarterly revenue may fluctuate due to the timing of revenue recognition and the lumpy revenues from perpetual license contracts that we are continuing to convert into subscription revenues will still As such, we anticipate a degree and variability in our quarterly results as we progress through this phase. I'm looking forward to talking to you about what lies on Horizon in just a little bit. But for now, I'll turn it over to Dave, who will walk us through our financial
Thank you, Bob, and good afternoon to everyone on the call. Let's turn to our financial results for the Q1 ended March 31, 2021. Our total revenue in the Q1 increased 26% to $4,400,000 from $3,500,000 in Q1 of last year. Sequentially, revenue increased 29% from $3,400,000 in the prior quarter. Both the sequential and year over year increases were primarily due to increased subscription based revenue related to growing transaction volume from existing customers and the upfront recognition of fixed minimum amounts from 2 new international wins.
Turning our attention to operating expenses. For the Q1 of 2021, our operating expenses increased 21% to $5,900,000 from $4,900,000 in Q1 of last year. The quarterly increase was due primarily to an investment in additional sales and engineering resources in early 2020 and a full quarter of operating costs from our AFIX acquisition in late 2020. The corresponding operating loss for the Q1 of 2021 was $1,400,000 compared to an operating loss of $1,300,000 in the same year ago period. The year over year increase in operating loss resulted primarily from the aforementioned operating expenses, partially offset by the increased revenue in the quarter.
For the Q1 of 2021, GAAP net loss totaled $1,400,000 or $0.07 per share compared to a GAAP net loss of $1,100,000 or 0 point 0 $5 per share in the same year ago period. Our adjusted EBITDA loss for the quarter, which we reconcile in the earnings release, totaled $1,100,000 This compares to a similar adjusted EBITDA loss of $1,100,000 in the same year ago period. On the balance sheet, we had $36,000,000 in cash and cash equivalents at the end of the quarter compared to $38,600,000 as of December 31, 2020. For the 3 month period, we used $2,500,000 in the course of operations. Aware maintains a strong and strategic cash position that enables us to allocate capital to high ROI opportunities as they present themselves.
We're actively continuing to evaluate opportunities to ensure that we are making strategic investments to realize growth and scale as an organization. Organically, we've seen significant growth from our Noemi subscription accounts. We've surpassed 7,000,000 transactions in the Q1 alone. In comparison, we had $11,000,000 for the entire year of 2020. The growing volumes has tested the strength the scalability of this product line and this success is paving the way for future growth as new customers onboard based on the recommendations of our current customer base.
This completes my financial summary. Now, I'd like to turn the call back to Bob for additional insights on our operational progress in Q1, as well as key initiatives and priorities in 2021 and beyond. Bob?
Thanks very much, Dave. If you remember from the last call, I shared what we refer to as a 3 part transformational growth strategy. I'd like to frame my discussion around those three core pillars and discuss the progress we've made so far on bringing this working strategy to fruition. Before getting to that though, earlier I indicated my excitement around some success that we had in the Q1. Let me take a minute to tell you how it's an exciting time to be in the biometric space in general.
From a market perspective, there is an increased attention Passwordless authentication in general, and consumers are becoming more confident in biometric technology. Particularly with the pandemic, Consumers are looking for contactless and remote ways to verify their identity. We are seeing an increase in demand for touch to Spymetric Solutions as well as for remote onboarding and authentication as entities continue to look for ways to conduct secure business transactions without requiring a face to face contact. We're also seeing a lot of money making its way into the wrong hands through fraudulent recipients of pandemic Assistance payments or scams that claim to be authorized pandemic assistance programs. This is increasing the visibility around the need for safe, secure and Convenient Identity Verification.
Considering this, combined with the trajectory of the global biometric system market, which is expected to grow at a CAGR of 18% and the trajectory of the global SaaS market also expect to grow at a CAGR of 18 Eckel. We reaffirm our transformational strategy and are confident in our approach. And given that multi factor authentication is Expected to be the fastest growing segment, our expertise across biometric modalities positions us well to meet the needs of the markets we're targeting. Now back to our strategy. The first pillar of our growth strategy is the continued transformation of our existing platforms to create focused offerings To more appropriately meet the needs of our clients.
As we noticed throughout the pandemic and within the past decade, the world has changed dramatically. You may recall a time when system integrators were required to build large enterprise systems, integrate over and over again with various SDKs. Today's demand focuses on at the ready offerings that scale as you grow, and Nomi meets these Nomi enables proctored and unproctored document verification along with face and voice matching and liveness detection. It is recognized as one of the industry's leading liveness and matching software frameworks and has proven itself to be a hallmark of the Aware brand. During this quarter, as Dave mentioned, Noemi has secured a total of 7 11,000,000 transactions recorded last year.
Noemi's performance and adoption reinforces our focus on expanding the offering's Geographic and Sector Diversity. Nomi is up and running around the world. Among the list of Customers are some of the largest private sector banks and financial institutions in various regions. Latin America, in particular, is one of the fastest growing Regions in the global biometric software market. In the past few years, there's been a material embrace of the biometric technology both in Latin America's private and sectors driven by government spending, increased security spends, cybercrime mitigation and border management investments.
Our existing relationships combined with our portfolio of offerings that are easy to integrate, easy to install and easy to use positioned us well to capture additional market share and emerge as the go to biometric expert in the region. On the last call, we mentioned that a core tenet of our go forward strategy involves penetrating new growing and emerging While we continue to remain focused on government and financial services, we also recognize a growing list of other areas that Benefit from biometric applications. These include data and network security, personal security, consumer services, healthcare and shared economy. This quarter, we made our foray into the healthcare space by working closely with a digital identity company to help institute unified and secure strategies for managing patient identities. The global healthcare biometrics market is expected to grow at a CAGR of 24% over the next Eckel, which presents an encouraging opportunity.
As we onboard new channel partners and continue to win new customers, we believe that we can expand our foothold within the We also recently announced a strategic partner in Intercede. Intercede will power their MyID system with our biometric solutions in order to enable secure, multi factor authentication and digital identity Issuance and Management for Federal Agencies and Larger Enterprises. Though still in its early stages, We've already secured a significant win. Together with Intercede, we'll be working on a 10 year multimillion dollar contract to issue and manage the lifecycle of digital identities for thousands of U. S.
Department of State Employees. Intercede will be performing the integration and providing the hardware. We will be providing the software on the back end. This enables us to partnership with Intercede evolves and share new engagements and success stories. The 3rd and final major piece of our Transformational strategy is the shift towards our biometric identity management as a service.
These are our customer configurable usage based use what you need SaaS Services. These offerings will drive sustained growth across multiple verticals and ultimately offer a stronger recurring revenue base that Both our subscription and renewing term SaaS models provide recurring revenue. Most have upfront recognition for the customer's minimum obligation followed by revenues commensurate with a particular customer's usage or transaction For example, Q1 subscription revenue approached the same level as all of fiscal year 2020. Independent of this, we look at our success with Noemi as illustrative of these business models, and we anticipate that we'll finished 2021 with material subscription revenue growth over 2020. For now, the number of transactions with some lumpy revenue whenever we onboard new customers.
We expect a steady and material increase in transactions and subsequently subscription revenue as our customers' usage increases and we deploy our SaaS offerings. The model that I just described enables a more Consistent long term performance and an increased quality revenue. It also allows smaller customers to join the game at their own pace, customers who may have Historically felt put off or left out by committing or having to commit to a perpetual license. It's important to emphasize that while we are pleased with our performance this quarter, we're also mindful of the effect that revenue recognition and implementation time lines play in creating revenues that appear lumpy from quarter to quarter. That lumpiness may continue for some time as we transition from our legacy model to our newer subscription based model.
Lastly, I'd be remiss if I didn't briefly touch on our corporate development initiatives. We are aggressively pursuing external growth opportunities that complement our core capabilities and market However, our near term focus continues to remain on expanding our pipeline and executing on our multi pronged growth We ended the Q1 on a strong note and are in a great position to continue executing our strategy throughout the rest of the year. With that, we're ready
Thank you, Bob. Our first question is congratulations on the property sale. Can you discuss the company's future real estate plans? Why now is the right time to sell the headquarters and what you plan to do with the incremental capital?
So Matt, I'll answer that. Earlier this year, we received an unsolicited request from a developer and that was to purchase our office building in Bedford And as part of bid that they're submitting for a big government project. And so in order to include potential purchase in the bid, we are required to negotiate And signed purchase and sale agreement, which we just did. We just completed that. And as such, it's a material event, The signing must be disclosed in our SEC filings, which is why we included it in our 8 ks.
That said, A lot must happen. The timeline is uncertain. It doesn't necessarily mean that our building will be sold. But more importantly, the developer has to win the competitive bid from the government. And we don't know The outcome is of this for some time, but if we do proceed to a sale, details will be disclosed relative to the regulations The floor is in the SEC.
Thanks, Bob. Our next question is, when does the company intend to start disclosing subscription revenue?
Thanks, Matt. I can take that. This is Dave Barcelo. And our subscription revenues are disclosed in the upcoming 10 Q. They are not on the basis of financials since they have not hit a materiality threshold yet.
But as they continue to grow, we are keeping an eye on that, but we have disclosed the some of the subscription revenues for the quarter.
Thanks, Dave. Our next question is how would you judge the current progress in commercial biometrics?
Yes. Hey, good morning, everyone. Yes, happy to talk. So our progress has been very Good so far, especially with the recent wins. I believe this quarter the split between government and commercial is roughly Forty-sixty, with 40% of our sales coming from commercial customers.
So very happy with the progress there And with the success we're having around the subscription revenues, which are largely coming from our commercial customers, we Expect that trend to continue.
Hi, Steve. We have probably another question for you. Can you provide more Color on the 2 new international wins that are generating minimum revenues.
Yes. So let me unpack that a little bit. So the 2 new international wins are coming From customers in various parts of the world, we continue to see great progress in Latin America, both in Brazil, Mexico and other parts of the region. So we've got a new customer in Latin America as well as an added customer over in Europe. So Seeing great geographic expansion here and good progress.
And then In terms of the minimum, our subscription revenue is recognized a bit up Brent, for these two customers, but we will see it recurring with annual renewals at the same levels.
Thanks Dave. We have another question. Can you provide a bit more context on the consumption based revenues that you mentioned in the deck? Very impressive transaction count this quarter. Just trying to get a sense of how these transactions are converted into revenue and how you would be interpreting these transaction volume?
Yes, that's a great question. It gives me a little opportunity to expand a little bit on the last bit. So our Transaction count isn't necessarily a direct correlation for the subscription revenue of the quarter. As I was hinting at before, we've got These monthly minimums, so our subscription based customers fall into 1 of 2 categories, those with Minimum annual commitments and those without. So if a customer has a minimum commitment, then the majority of that annual minimum Is recognized upfront in that quarter.
And then when they go over their minimum transaction counts will recognize the revenue as it occurs in that period throughout the year. But for customers that have no minimum, They fall into the latter part of that category, and their revenue will be recognized at the time of usage in each Porter. So when you think about in aggregate, the volumes should be a good correlation for annual revenues, But we will be much more lumpy on a quarterly basis due to these upfront minimums for some of the customer base.
Thanks, Dave. Our next question, we've noticed that there's been some pretty significant M and A activity in the space recently, Particularly as it relates to Microsoft's acquisition of Nuance. Given how big they've now become, do you think there is any room to compete On the speech recognition side, how much of an effect do you think the acquisition has on Aware's ability to compete in high growth verticals like healthcare?
Thanks, Matt. Well, first of all, it was never our intention to compete against Nuance in speech recognition. Their specialty is around speak recognition and the use cases associated with that. Like when you have a customer call a call center line and speak and answer to get routed to the appropriate representative. We are focused on in our voice specialties on speaker recognition.
So the difference is, it's Less about what you say and more about verifying the identity of the person speaking. I did just mention, as Speaker recognition becomes more important as an adjunct or as a fused Option relative to face or finger or voice, I mean or iris. This will also add or eliminate some of the multi factor authentication needs and some of the friction. So all that being said, yes, we know how to do speech recognition, but it's really about the identification of the individual based It's on their opting in or their use. So it's we're all about the speaker recognition.
And so we don't think Position is going to impact our ability to go after speaker recognition use cases. As a matter of fact, we're working on a couple right now and we're Targeting those in our high growth verticals, which include healthcare, and you heard me talk about a healthcare opportunity that we just were able to close this quarter. And additionally, we have the proven expertise and experience for multimodal biometrics and used separately, as I said, or in the enrollment process and the authentication process. And it's a critical piece that's often overlooked You know, as by companies that specialize in speech recognition. So we're confident that this acquisition will deter our Success in the in our serviceable addressable market.
Thanks Bob. Our next question, I've noticed that a lot of close competitors and OEMs are providing healthcare, travel passes, digital IDs. It seems to be a trend that emerged post COVID and is growing larger and larger. Does Aware have a play in this space or Are there plans to work with a partner on implementing a solution like this?
Thanks. I mean that obviously It's a topic of the day and of the year. And as I've stated before, we remain focused on our long term strategy, And we're actively monitoring and discussing around vaccine passports and our close contact with resellers and customers Regarding use of biometrics to secure those, control those, we believe that the health applications Need to tie to a trusted identity to protect the user. The public and the information That the Health App carries or being able to fraudulently document it or create another one is one that They're facing right now. So we want to be able to and we are providing biometrics to help enable that not to be the case that An individual can steal your vaccine identity now or use that nefariously.
So we do provide biometric software to many system integrators, And we will enable them in turn to develop customer facing apps for many of these type of applications.
Hey, Bob. Can you shed some more light on when we'll see the transformation pick up speed? What are some indicators that you've been through the bulk of the transformation? Should we expect to see To expect to be seeing subscription revenue overtake license revenue in a few quarters, few years.
Well, Dave may be able to add a little bit more color to it, but we can't currently speak with greater certainty as we're in the initial stages of our Subscription transformation, both in our legacy perpetual license to subscription transformation and then also our SaaS services. But as you can see, we do see a steady and positive increase, and we've got some key indicators we mentioned in the 10 Q as we go through this. And Dave talked about the high number of transactions and also the minimum, some of the subscriptions that we've set up. And also in the past calls, I've talked about term contracts, where we're looking to set up Descriptions, but at a longer term, 3 5 years to get break the quality of revenue and make sure that The customers are with us for a long time. And that also cuts down on their switching costs And it also gives us a good stand in that.
So at this time, we're seeing it pick up speed And we're there to work with our customers from the smallest to the largest. And since we've been able to To provide a subscription type service, we've been able to onboard more smaller players To enable them to make a bigger, I'll say, a disruptive impact in the biometrics market.
Thanks, Bob. We have another question. You talked a bit about lumpiness. Is there anything in the quarter to signify this quarter was a high lump, Such as license payments or initial subscription payments that may not repeat next quarter.
Dave, do you want to take that one? I mean, I think we just talked about A minute ago, but if you don't want to, I can address it either way.
Yes, Bob. And I think overall the main message here is that our Revenue should be looked at from the annual basis. There is some ups and downs. But yes, this will be Our 3rd consecutive quarter of growth, Q2, we're looking to achieve what we can, but we do have some lumpiness in Q1 and we're not projecting out what we're doing on a quarterly basis.
Yes. Let me add to that a little bit. I think just to be clear, Dave added some Discussed earlier on the lumpiness, some of our contracts, subscription contracts, let's say, there are 3 year term or 5 year term, Most of them have a minimum. So let's say they're saying, okay, we're going to do 1,000 transactions or 100,000 transactions. So a lot of them have a minimum.
Whenever that minimum is decided, the revenue will be recognized for that minimum entry level in that particular quarter. And then from there out, as they exceed those minimums, it will then be added to the subsequent quarters. So the following year, you'll get the same hit again in that quarter. If you have a 3 year contract, it will happen for 3 years or 5, so forth. So is there there is some revenue recognition relative to the maintenance that's pulled out and other things, but it's very If you've got a 3 year term contract, 1 a month for the whole year, you wouldn't see any lumpiness You don't know if it's the same value.
But again, just to be clear that we're looking at things at a yearly basis. Hopefully that answered your question, Matt.
Yes. Our next question is, if the subscription revenue is disclosed in the 10Q, Can you please tell us what the subscription revenue was in the quarter last year?
Dave, you want to take that one?
Yes, I can grab that Bob. Yes, so this will be the first time we are disclosing Subscription revenue, I think we've talked about it at our last earnings call. So happy to have it in the Thank you, that will be released shortly. Our subscription revenue for the quarter was a shade under $800,000 And as you may have noted in the earnings release, we mentioned that our Quarterly subscription revenue was the same as or roughly the same as it was for all of last year. So Certainly happy about that progress.
And as we go forward, we will continue to disclose or we expect to continue to disclose our subscription revenue. And once it becomes material, it should be included in the face of the contract sorry, face of the 10Q.
Thanks, Dave. So we have a follow-up question. Thank you for adding color on the company's plans for inorganic growth via strategic M and A. Would love to understand how the company thinks about share repurchase for our first acquisitions, especially in light of the 2020 share repurchase authorization?
Yes. Let me take that. Well, one thing, I mean, you can just see what we have I think I mentioned in the call, and I know I mentioned Eckel. We're looking at opportunities. We picked up what we believe was a good match for us.
And so we're doing trade offs as we go relative to which the best way to use our cash. So overall, I mean, we have the opportunity and we have the flexibility to do that. And we make that on Quarterly basis, and as I said, we're actively looking to focus on our long term growth strategy. And in that, there's those decisions that we make and have a discussion around, depending if we find good fits externally and also Whether there's some opportunities internally where we want to accelerate, for instance, our SaaS services or offerings. So I know it's a long winded question, but there are a bunch of trades that go into that and it's not a simple, are we going to resume or not resume.
We have the option the way we are set up to be able to do what's best for the company.
Thanks, Bob. 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 atgatewayir.com. Now I'd like to turn the call back over to Bob for closing remarks.
Well, I want to thank all of you for joining us on today's call. During our last call, we mentioned that we'd be releasing an investor presentation containing a bit more of information About the strategy that we outlined last time in here, and that presentation is now available on Aware's Investor Relations website. And I'd be remiss if I didn't especially thank our employees, partners, investors for their and your continued support. And we look forward to updating you on our next call. So with that, Matt?
I'd like to remind everyone that a recording of today's All will be available for replay via link available in the Investors section of the company's website. Thank you for joining today for Aware's Q1 2021 earnings conference call. You may now disconnect.