AWARE INC /MA/ Q3 FY2025 earnings

Aware's third quarter revenue rose 33% year over year to $5.1 million. Net loss narrowed to $1.1 million, and diluted EPS improved to $(0.05). Operating loss narrowed to $1.3 million, and operating margin improved to negative 25.2%. The revenue increase came from perpetual license expansion with an existing customer and new term license contracts, though management noted typical fluctuations in perpetual and term license timing and recurring revenue components. Revenue growth was driven by strong new customer activity and expansion within the existing base. Adjusted EBITDA loss, a non-GAAP measure, improved to $0.8 million from $1.1 million a year earlier. That improvement was mostly due to higher total revenue, partly offset by higher operating expenses.

The nine-month picture is less encouraging. Revenue was flat at $12.6 million. Operating loss widened to $5.1 million, and operating margin fell to negative 40.4%. Net loss widened to $4.4 million, and diluted EPS fell to $(0.21). Management attributed the wider loss to higher operating expenses, including additional headcount in 2025. The company said revenue changes were primarily due to software license and maintenance increases, partly offset by lower services and other revenue. Software license revenue fluctuates based on project timing, and the company expects that pattern to continue. Services and other revenue also depends on when projects start and finish. The company said its market strategy remains focused on legacy government biometrics markets and expansion into commercial biometrics markets, though it cannot predict future commercial revenue because those markets are still emerging.

Cash generation remains a pressure point. Operating cash flow was negative $2.35 million for the quarter, down from the prior-year quarter, and negative $6.44 million for the nine months, down from the prior-year period. Capital expenditures were $0.00 million in the quarter and $45 thousand year to date. Deferred revenue increased 20.5% year over year to $6.52 million, and remaining performance obligations increased 33.3% year over year to $0.40 million. Those balance-sheet items suggest some billing momentum even as reported revenue stayed lumpy. The decline in cash reflects the operating loss and normal working capital swings, including accounts receivable collection timing. The company ended the quarter with a cash, cash equivalents, and marketable securities balance that management says will fund operations for at least the next twelve months.

Operationally, Aware notched several wins. In October it achieved FIDO Alliance Certification for Face Verification. It launched Intelligent Liveness, which combines passive and active methods to deliver sub-second capture speeds and cut false-negative rates by roughly 50% against internal benchmarking. The company expanded work with a major U.S. federal agency by adding Intelligent Liveness to a mission-critical biometric program. It added a new financial services customer for biometric verification and adaptive liveness. These moves support the CEO's three-pronged transformation strategy: advancing core biometric technology, strengthening the go-to-market model, and deepening partnerships and certifications. The CEO said the company remains focused on pursuing large, durable opportunities that translate into multi-year recurring revenue and product leverage. Recurring revenue, a non-GAAP measure, rose to $3.6 million from $2.8 million in the prior-year quarter. The mix still leans on license deals, and management said quarterly results may vary based on timing and license mix.

Guidance remains qualitative. The company did not provide numerical revenue or earnings guidance for the next quarter or the full fiscal year. For the remainder of fiscal 2025, management expects engineering expenses to increase as it invests in product development. It also expects selling and marketing expense to rise in future periods as it backfills the chief product officer role and adds sales hires. Interest income should decrease slightly over the remainder of 2025 because of lower projected average cash balances and lower interest rates. Risks include a significant portion of revenue from government customers, reliance on third-party channel partners, intense competition, rapid technological change, cybersecurity threats, limited intellectual property protection, and the need to attract and retain key personnel. Other risks include changes in government contracting or fiscal policies, the possibility that a significant commercial market for biometrics may not develop, product errors or defects, open source software, third-party software defects, cloud model demand, infringement claims, government regulations, cost cutting, adverse economic conditions, acquisitions, and additional tax liabilities. The company also carries a full valuation allowance against its net deferred tax assets. Aware says its cash and cash equivalents will be sufficient to fund operations for at least the next twelve months, but operating cash flow has been negative and the nine-month net loss widened.