Summary
Aware's second quarter of 2021 delivered the topline jump the company has been promising. Revenue for the quarter ended June 30, 2021 was $4.3 million, up 125.6% from $1.9 million in the prior-year quarter. For the six months ended June 30, 2021, revenue was $8.7 million, up 60.5% from $5.4 million. Management attributed the gain to higher subscription revenue tied to rising transaction volume from existing customers and to upfront recognition of fixed minimum transaction amounts from two new international wins. Software license revenue drove most of the increase, with maintenance revenue also higher and services revenue up from a small base. The AFIX product line, acquired in late 2020, added revenue after its integration was completed during the quarter.
Costs still left the quarter underwater, although the loss is much smaller. Operating loss was $1.5 million, narrowed 58.3% from a $3.7 million loss in the prior-year quarter. Operating margin of negative 36.2% was up 159.6 percentage points from negative 195.8%. Net loss was $1.5 million, narrowed 50.9% from $3.1 million, and diluted EPS was negative $0.07 against negative $0.15 a year earlier. Over six months, net loss of $3.0 million narrowed 28.8% from $4.2 million, and diluted EPS improved to negative $0.14 from negative $0.20. Adjusted EBITDA loss, a non-GAAP measure, was $0.9 million for the quarter, compared with a $3.3 million loss in the year-ago period, and $2.0 million for the six months versus $4.5 million. Research and development expense was close to flat as added engineering headcount offset lower third-party development spending. Selling and marketing expense rose on higher headcount and contracted sales agents. General and administrative expense declined, helped by pandemic-related administrative turnover costs booked in the prior-year quarter that did not repeat.
Cash generation is the weak spot. Operating cash flow was negative $0.85 million for the quarter, up 39.0% from negative $1.40 million a year earlier, but for the six months it was negative $3.32 million, down 70.9% from negative $1.94 million. The company spent $0.02 million on property and equipment in the first half, down 94.0% from $0.35 million in the prior-year period. Cash and cash equivalents stood at $35.2 million on June 30, 2021, a decrease of $3.4 million from December 31, 2020. Deferred revenue of $2.95 million was flat against $2.96 million a year earlier, and remaining performance obligations of $2.10 million were down 19.2% from $2.60 million. That backlog measure did not move in the same direction as reported revenue.
Operational momentum gives the growth argument some backing. Aware recorded more than 18 million transactions in the first half of 2021, compared with 11 million in all of 2020, which the company says is five times the number of transactions in the first half of 2020. The AFIX integration is complete, adding what management calls an immediately accretive ancillary revenue stream. Aware partnered with IRIS ID to help state and local agencies use the FBI's Next Generation Identification Iris Service, and the security company Imprivata selected Knomi to support self-enrollment for prescribers of controlled substances, a first-to-market healthcare use. Cyber Defense Magazine named Knomi the winner for Best Product in Passwordless Authentication in its 2021 Global InfoSec Awards.
Management gave no numeric guidance for either the third quarter or the full fiscal year. CEO Bob Eckel said the company expects to roll out additional new core offerings by year end, aimed at expanding into Biometric SaaS, and pointed to a sizeable pipeline plus strategic acquisitions under evaluation. The risk list in the filing is long and familiar. Aware depends on government customers and their contracting and fiscal policies, draws a significant portion of revenue through third-party channel partners, faces intense competition, and sells into a cloud-based model where broad market demand is not assured. The company also warned that COVID-19 effects will likely hurt revenue over the next several quarters. No income tax benefit was recorded in the first half of 2021 after benefits in the prior-year periods, and a full valuation allowance remains against net deferred tax assets. Aware said carrying back its 2020 net operating loss could yield a refundable federal tax credit of about $1.5 million. With $35.2 million in cash, the balance sheet can fund the current level of losses, but the company still has to show that the revenue gain is durable.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $4.3M | $4.4M | -3.5% | $1.9M | +125.6% |
| Gross profit | $4.0M | $4.0M | -2.0% | $1.7M | +129.1% |
| Gross margin | 92.8% | 91.3% | +1.4 pp | 91.3% | +1.4 pp |
| Research & development | $2.4M | $2.4M | -1.3% | $2.4M | -2.4% |
| Sales & marketing | $1.5M | $1.7M | -9.2% | $1.2M | +27.1% |
| General & administrative | $1.6M | $1.4M | +13.7% | $1.8M | -10.5% |
| Total operating expenses | $5.8M | $5.9M | -1.0% | $5.6M | +3.9% |
| Operating income (loss) | -$1.5M | -$1.4M | -6.5% | -$3.7M | +58.3% |
| Operating margin | -36.2% | -32.8% | -3.4 pp | -195.8% | +159.6 pp |
| Net income (loss) | -$1.5M | -$1.4M | -6.5% | -$3.1M | +50.9% |
| Net margin | -36.2% | -32.8% | -3.4 pp | -166.2% | +130.0 pp |
| Diluted EPS | -$0.07 | -$0.07 | ±$0.00 | -$0.15 | +$0.08 |
Risks
COVID-19 restrictions continued to prevent face-to-face customer meetings, in-person software demonstrations, trade shows and strategic partner meetings, which the company says adversely impacted revenue in 2020 and the three and six months ended June 30, 2021 and will likely adversely affect revenue over the next several quarters.
The filing discloses a specific event: in February 2021 a small number of company email accounts were subject to a cyber-attack. Management states it does not believe material losses occurred and business was not interrupted, but the incident is cited as an example of the evolving cybersecurity risk to its products, systems and customer data.
Remaining performance obligations fell to $2.10 million in FY2021 Q2 from $2.60 million in FY2020 Q2, down 19.2%, while deferred revenue was flat at $2.95 million versus $2.96 million, indicating limited forward revenue visibility even as current quarter revenue rose 125.6%.
Revenue remains tied to winning biometrics systems proposals with government end users and channel partners, and the second quarter software license increase was due primarily to fixed amount contracts; the company states it cannot predict future revenue from emerging commercial biometrics markets.
Operating cash flow was negative $3.32 million for the six months ended June 30, 2021, down 70.9% versus the prior-year period, driven by a $3.0 million net loss and $1.3 million of changes in assets and liabilities, even as cash and cash equivalents decreased $3.4 million from December 31, 2020 to $35.2 million.
Operating loss narrowed but the company attributes part of the offset to increased operating expenses from higher headcount in sales and engineering resources driving new product areas; selling and marketing expense rose 27% in the quarter and 28% year to date while general and administrative expense rose 4% year to date.
A full valuation allowance was recorded against net deferred tax assets as of June 30, 2021, and the company recognized no income tax benefit for the three and six months ended June 30, 2021, citing recent loss history and continued uncertainty about future projections of income.
SaaS KPIs
All quarters →Adjusted EBITDA loss
Summary, forecast, risks and KPIs are extracted from AWARE INC /MA/'s SEC filings for Q2 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.