Aware, Inc. (AWRE) Earnings

Management highlights

- Strategic Transformation * The company is executing a strategic shift away from a fragmented product portfolio to a focused business model centered on the Awareness Platform, a SaaS-based biometric orchestration and decisioning platform * The transition creates near-term revenue variability as the company balances support for existing customers, pursuit of near-term opportunities, and investment in long-term growth capabilities * Cost reduction actions (including $4 million in annualized expense cuts implemented starting in Q2 FY26) are being rolled out to align expenses with strategic priorities - Product Development Milestones * Significant updates were released for the Awareness Platform, which acts as a unified intelligent control plane for identity that lets organizations design, deploy, run, and optimize multi-vendor biometric workflows in one environment, addressing widespread industry fragmentation * Two new integrated technology partners, Rock and MyTech, were added to the platform, expanding available biometric matching, identity verification, and liveness detection capabilities for customers * Enhanced intelligent liveness capabilities were launched, using advanced optical and spectral analysis to detect AI-enabled fraud (deepfakes, injection attacks, synthetic identities) while maintaining a passive, under 2-second user experience that requires no active user actions * Improved intelligent matching algorithms were announced, delivering approximately 10x lower false non-match rates than prior generations, with a scalable architecture enabling sub-second matching across large biometric datasets - Market Momentum * Federal government procurement activity slowed in Q2 due to the recent U.S. government shutdown, creating a material headwind for quarterly results * After Department of Homeland Security (DHS) operations normalized in May 2026, the company saw increased engagement, including more requests for information, procurement activity, and program momentum in high-priority areas: homeland security, border modernization, airport infrastructure, traveler processing, and biometric identity verification * Customer research confirms 98% of organizations using biometrics are interested in biometric orchestration capabilities, as organizations currently use an average of three separate biometric vendors, creating operational and fraud risk fragmentation that the Awareness Platform addresses * The growth of AI has created strong tailwinds for the company's core identity assurance business, as AI-enabled sophisticated fraud increases customer demand for robust biometric security solutions

Guidance

- The company expects total revenue in the second half of FY26 to be higher than first half revenue, and higher than Q2 FY26 revenue, in line with the company's typical seasonal pattern where revenue is weighted toward the back half of the year, supported by the expected timing of subscription renewals and customer activity that typically falls in H2 - Operating expenses are expected to be lower in the second half of FY26, as the $4 million annualized cost reduction actions implemented earlier in the year will be more fully reflected in quarterly results - Management continues to expect significant quarterly variability due to the unpredictable timing of procurement cycles, contract renewals, perpetual license awards, and customer decision-making, and notes the business is best evaluated over multiple quarters rather than any single quarter - No formal full-year revenue or profit guidance was provided, and management did not revise prior formal guidance in this call

Segment performance

AWARE does not break out performance across multiple product segments in this call, reporting only consolidated financial results for the quarter. Consolidated Q2 FY26 revenue was $3.3 million, down from $3.9 million in the prior year period, driven by lower perpetual software license revenue. Operating expenses totaled $6 million, a slight increase from $5.9 million in the prior year, reflecting 2025 hire costs partially offset by first half 2026 spending cuts. GAAP net loss was $2.6 million ($0.12 per diluted share), up from a $2 million ($0.08 per diluted share) loss year-over-year. Adjusted EBITDA loss was $2.3 million, compared to a $1.4 million loss in Q2 FY25. For the first half of FY26, consolidated total revenue was $6.6 million, down from $7.5 million in the prior year first half, again due to lower perpetual license revenue. First half operating expenses rose to $13 million from $11.3 million, including $700,000 in one-time severance costs and higher compensation from 2025 hires. First half GAAP net loss was $6 million ($0.28 per diluted share), up from a $3.4 million ($0.16 per diluted share) loss year-over-year. First half adjusted EBITDA loss was $5.5 million, compared to a $3 million loss in the prior year first half. The company ended the quarter with $16.8 million in cash, cash equivalents, and marketable securities, with no outstanding debt.

Risks & headwinds

- Quarterly revenue is subject to high variability driven by procurement timing, renewal schedules, and customer decision-making cycles, which can lead to results that miss management expectations, as seen in Q2 FY26 - The ongoing business transformation away from a fragmented product portfolio creates near-term revenue volatility as the company transitions to the new platform-focused strategy - Government shutdowns and related disruptions to federal procurement activity can create material near-term headwinds to quarterly performance, with impacts that are difficult to quantify ahead of time - Forward-looking statements are inherently uncertain, and actual results could differ materially from expectations due to a range of unforeseen factors, as outlined in the company's SEC filings (Form 10-K, Form 10-Q) - The rapid evolution of AI-enabled fraud requires continuous product development to keep pace with new threats, creating ongoing investment requirements and execution risk

Analyst Q&A

• Q: How does the company's focus on federal government opportunities translate to the commercial business?

  A: Government and commercial organizations face very similar core challenges, including AI-enabled fraud, operational complexity, regulatory pressure, and the need for secure low-friction user experiences. There is a two-way credibility benefit: commercial customers view government-vetted technology as higher quality and more secure, while government customers look to commercial best practices for usability and speed. The Awareness Platform's biometric orchestration model meets needs common to both sectors, so government traction naturally supports commercial adoption.

• Q: When will AWARE return to sustained quarterly revenue growth?

  A: The ongoing transformation and cost actions are designed to build a strong foundation for consistent long-term growth, rather than delivering immediate accelerated growth. The company expects H2 FY26 revenue to exceed H1 revenue per seasonal trends, with lower expenses as cost cuts fully take effect. Longer term, the scalable Awareness Platform model and strong tailwinds from AI-driven fraud, global identity modernization, and government infrastructure investment are expected to drive sustainable growth over time.

• Q: Is the Awareness Platform currently market ready, and what competitive advantages does it have for biometric orchestration?

  A: The Awareness Platform launched earlier in 2026, is fully market ready today, and is available for customer demos, trials, and procurement. Its core competitive advantage is its deep integrated ecosystem of leading third-party biometric technology providers, giving customers access to top-tier biometric capabilities through a single unified API, which no competing platform currently offers. Two new partners, Rock and MyTech, were added to the ecosystem in Q2.

• Q: What is the current status of the top 15 global financial institution customer secured one year prior?

  A: The customer has successfully completed its first contract term, renewed for a second year, and remains an active, satisfied customer. During Q2 FY26, the company worked with the customer to test and evaluate additional AWARE technologies for potential future expansion of the relationship.