Aware's Q3 2025: Contradictions Emerge on Recurring Revenue Strategy, Pipeline Expectations, and Strategic Focus

Date of Call: October 29, 2025

Financials Results

• Revenue: $5.1M, up 33% year-over-year (Q3); YTD revenue $12.6M, similar to prior year
• EPS: $0.05 loss per diluted share, improved from $0.06 loss in prior year quarter (net loss $1.1M vs $1.2M prior year)

Guidance:

• Near-term quarterly results may vary based on timing of customer decisions and license mix.
• Q4 operating expenses expected to increase reflecting the full-quarter impact of Q3 investments in sales, marketing and product.
• Management expects more recurring, predictable revenue over time as go-to-market and pipeline conversion mature.
• Continue investing in certifications, partnerships and federal/enterprise opportunities with an emphasis on driving operating leverage and recurring revenue as scale increases.

Business Commentary:

* Revenue Growth and Customer Success: - Aware, Inc. reported $5.1 million in revenue for Q3 2025, representing a 33% year-over-year increase. - This growth was driven by a $1 million perpetual license expansion sale with an existing customer and a $600,000 new term license contract, indicating strong customer demand and successful customer retention strategies.

• Operating Expenses and Strategic Investments:
• Operating expenses for Q3 2025 were $6.4 million, compared to $5.4 million in the prior year quarter, reflecting an increase of 18.5%.

• The increase is attributed to targeted investments in sales, marketing, and product development, aimed at executing the company's go-to-market strategy and scaling revenue through disciplined execution.

• Government and Enterprise Market Demand:

• Aware's strategic focus on government and enterprise markets has led to sustained demand and growth opportunities.
• This is evident in the company's expansion with a major U.S. federal agency and new enterprise contracts in sectors like financial services and workforce management, driven by increasing emphasis on biometric modernization and fraud prevention.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "delivered 33% year-over-year revenue growth while improving our bottom line," noted FIDO Alliance certification as validation, and said "we believe Aware is positioned to lead" with expectations of increasing operating leverage and stronger recurring revenue as scale expands.

Q&A:

• Question from Matt Glover (Gateway Group, Inc.): Q3 revenue grew 33% year-over-year, but was flat year-to-date. Can you elaborate on the drivers of that variance and how investors should think about the sustainability of that top line growth in 2026?
  Response: David: Variability is driven by timing of license sales; demand exists (shown by Q3); management is shifting to more recurring, predictable revenue to smooth growth over time.

• Question from Matt Glover (Gateway Group, Inc.): You mentioned that quarterly results may fluctuate based on the timing of customer decisions and license mix. Can you give more color to the pipeline conversion patterns? How much visibility you have in the near-term deals and recurring revenue contribution?
  Response: David: Pipeline shows healthy engagement and improved visibility, but timing still affects quarter-to-quarter results; forecasting and conversion should improve as the go-to-market process matures.

• Question from Matt Glover (Gateway Group, Inc.): You called out the federal budget delays and shutdown impacts on appropriations. How significant has that been to near-term bookings? And are those revenues expected to shift into FY '26?
  Response: Ajay: The shutdown has delayed near-term bookings but budgets remain; conversations continue and we expect the spend to occur later with heightened urgency once resolved.

• Question from Matt Glover (Gateway Group, Inc.): As enterprises move towards biometric-anchored digital identity, who do you view as your primary competitors in the space? What differentiates Aware's Awareness platform technically and commercially?
  Response: Ajay: Main competition is customers building internally; Aware differentiates via a standards-aligned, interoperable platform, selective best-in-class component focus, and partner ecosystem to deliver faster, scalable solutions.

• Question from Matt Glover (Gateway Group, Inc.): How do you prioritize new certifications like ISO or FedRAMP in your road map? And are there any gating factors for certain federal or enterprise contracts?
  Response: Ajay: Certifications (FIDO, ISO, FedRAMP) are critical procurement gatekeepers; Aware will continue investing and advocating higher testing standards to meet customer RFP requirements and defend against advanced threats.

• Question from Matt Glover (Gateway Group, Inc.): Operating expenses rose due to investments in sales, marketing and products. How should we think about expense levels and operating leverage in FY '26 as revenue scales?
  Response: David: We will continue to invest in sales/marketing/product when a clear line to revenue exists, while maintaining discipline and pursuing efficiency to drive operating leverage as revenue scales.

• Question from Matt Glover (Gateway Group, Inc.): Can you share any color on the national ID contract?
  Response: Ajay: No additional color to share; prioritizing resources on the Americas and pursuing global national ID opportunities via vetted partners.

• Question from Matt Glover (Gateway Group, Inc.): Has Aware considered enabling interactions with smaller platforms?
  Response: Ajay: We evaluate smaller partners but prioritize those with proven scale potential and vetted management/customers so we can allocate resources effectively.

Contradiction Point 1

Recurring Revenue Growth Strategy

It involves the company's strategy for accelerating its recurring revenue growth, which is crucial for future sustainability and investor expectations.

Q3 revenue increased 33% YoY but remained flat YTD. Explain the factors behind this discrepancy and how investors should assess the sustainability of revenue growth by 2026? - Matt Glover(Gateway Group, Inc.)

2025Q3: We're building a more sustainable revenue model, but we have a license component business that causes timing variability. The strong year-over-year growth in Q3 demonstrates demand, while the flat year-to-date trend reflects timing dynamics. - David Traverse(CFO)

What steps are you taking to accelerate your subscription-based business? - Matt Glover(Gateway Group, Inc.)

2025Q2: We continue to invest in our go-to-market process and teams, focusing on scalable biometric projects and solutions. Our target markets are larger end enterprise infrastructure deployments, which typically involve recurring long-term relationships. - Brian J. Krause(CRO)

Contradiction Point 2

Pipeline and Revenue Expectations

It involves expectations for pipeline advancement and revenue acceleration, which are critical for understanding the company's growth trajectory and investor confidence.

Quarterly results may fluctuate based on customer decision timing and license mix. Can you provide more details on pipeline conversion patterns and your visibility into near-term deals and recurring revenue contributions? - Matt Glover(Gateway Group, Inc.)

2025Q3: We're strengthening our go-to-market engine and forecasting capabilities. We see good engagement and visibility in the pipeline. As we improve, we expect to see more consistency and better conversion across the pipeline, which should lead to increased visibility in recurring revenue contributions. - David Traverse(CFO)

How does your current deal pipeline volume compare to Q1? - John Basler(Basler Capital)

2025Q2: The acceleration of our pipeline, both in volume and value, has significantly exceeded our internal expectations in Q2. This is the result of investments in our go-to-market strategy. We expect to see revenue acceleration in the second half of 2025 and into 2026. - Brian J. Krause(CRO)

Contradiction Point 3

Revenue Growth Sustainability

It involves varying explanations and expectations for the sustainability and growth of the company's revenue, which are critical for investor understanding and decision-making.

Q3 revenue grew 33% YoY but was flat year-to-date. Can you explain the cause of this discrepancy and how the sustainability of 2026 revenue growth should be viewed? - Matt Glover(Gateway Group, Inc.)

2025Q3: We're building a more sustainable revenue model, but we have a license component business that causes timing variability. The strong year-over-year growth in Q3 demonstrates demand, while the flat year-to-date trend reflects timing dynamics. Management changes are focusing on driving more recurring and predictable revenue, which should lead to smoother results and consistent growth over time. - David Traverse(CFO & Treasurer)

Why did total revenue increase in the fourth quarter but decline for the full year? - Matt Glover(Investor Relations)

2024Q4: While we were able to grow recurring revenue, total revenue declined, and that was due to the license sales that can fluctuate from period to period based on the buying cycles of government agencies. - David Traverse(CFO)

Contradiction Point 4

Strategic Focus and Customer Acquisition

It involves differences in the emphasis on customer acquisition strategies and the role of partnerships, which are important for understanding the company's growth strategy and market positioning.

With enterprises adopting biometric-anchored digital identity, who are your primary competitors, and how does Aware's Awareness platform differentiate technically and commercially? - Matt Glover(Gateway Group, Inc.)

2025Q3: Our top priority is direct engagement with customers, delivering science-forward, customer-obsessed solutions to solve their most critical identity challenges. Partners like AWS and others can complement our efforts. Still, we are selective. We will only work with partners who share our mindset, add real strategic value and help us deliver the scalable high-impact outcomes that our customers demand. - Ajay Amlani(CEO & President)

Has Aware made progress in adding customers or growing sales on the AWS Marketplace or other partner programs? - Matt Glover

2025Q1: Our focus is not on driving growth through any single product. It's on solving large-scale identity challenges for Fortune 500 enterprises and government agencies where biometrics are becoming mission-critical. We're now solution-first, engaging directly with senior decision makers on enterprise-wide risk mitigation, fraud prevention and digital identity modernization. - Ajay Amlani(CEO & President)

Contradiction Point 5

Sales Efficiency and Strategy

It highlights differing approaches and priorities in sales strategy, which could impact revenue growth and market competitiveness.

How do pipeline conversion patterns affect quarterly results? What visibility do you have on near-term deals and recurring revenue contributions? - Matt Glover(Gateway Group, Inc.)

2025Q3: We see good engagement and visibility in the pipeline. As we improve, we expect to see more consistency and better conversion across the pipeline, which should lead to increased visibility in recurring revenue contributions. - David Traverse(CFO & Treasurer)

What changes are being implemented to improve sales efficiency? - Matt Glover(Investor Relations)

2024Q4: We are taking a more focused and strategic approach to sales, aligning our efforts with the areas where Aware's biometric solutions can drive the most impact. - Ajay Amlani(CEO, President & Director)