BIO-key International, Inc. (BKYI) Q1 2026 Earnings Report, Transcript and Summary

Good morning, everyone. Thank you for standing by, and welcome to the BIO-key International's First Quarter 2026 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Monday, May 18, 2026. I would now like to turn the call over to Mr. Bill Jones of Investor Relations. You may proceed.

Thank you, Chuck. Hosting today are BIO-key's Chairman and CEO, Mike DePasquale; and its CFO, Ceci Welch. As a reminder, today's call and webcast as well as answers to investor questions, include forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words such as anticipate, believe, expect, plan, and project or similar words identify and express forward-looking statements. Such statements are made based on beliefs, assumptions and information currently available to management pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. For a more complete description of risks and uncertainties, which affect future performance, please see risk factors in the company's annual report, on Form 10-K as filed with the SEC. Listeners are cautioned not to place undue reliance on forward-looking statements made as of today, and the company makes no obligation to revise or disclose revisions to these statements to reflect circumstances or events occurring after this call. Now I'll turn the call over to Mike to begin.

Thanks, Bill, and thanks to everyone for joining us today. After my remarks, Ceci will review the financials, and we'll open up the call to investor questions. Our Q1 '26 results and Q2 '26 outlook reflect the benefit of our team's hard work, particularly over the last year, we're also seeing expanded appreciation for the unparalleled value that our biometric identity and access management solutions provide in securing mission-critical applications and data. Borrowing the old phrase, BIO-key has built a powerful suite of biometric solutions with the belief that customers will come. That strategy is really starting to play out for us in a meaningful way, and I will discuss that. Our Q1 '26 revenues reflect both new customer wins and growing long-term customer deployments in defense and financial services. Last year, we launched our defense and intelligence cybersecurity initiative targeted primarily in foreign markets for more secure identity and access management solutions. Our customer base now includes several of the world's most prominent and significant defense organizations, and our success in meeting their strategic needs is proving very valuable in supporting new opportunities. But it's not just government, defense and highly regulated industries. We're also seeing traction with enterprise customers, particularly in EMEA and the EMEA markets. Our progress in these regions is supported by an expanding base of strong regional distribution partners as well as foreign regulatory frameworks that are favorable to our strong biometric options. Outside of EMEA, we have also added new partners in India and Vietnam, where we are seeing solid opportunities in future periods as these partners ramp up their marketing and sales efforts. To better reach public sector opportunities in the U.S., which often require working with a preapproved vendor, we recently partnered with DLT Solutions, a division of TD Synnex, the world's largest IT distributor and solutions aggregator. TD Synnex employs 23,000 people globally and offers a massive portfolio of IT hardware, software, cybersecurity and cloud services to over 150,000 customers in more than 100 countries, while DLT is their kind of public sector arm domestically. We're integrating our PortalGuard IAM and Passkey:YOU biometric solutions into DLT's platform of offerings. The partnership provides a streamlined procurement path, enabling their extensive base of public sector customers to easily purchase and deploy our solutions, many of which face mandates to adopt Zero Trust digital infrastructure and implement multifactor authentication. With our solutions, customers can easily meet these requirements and anchor digital access to a person, rather than to just a device. We're working closely with the DLT team to help them educate public sector customers on the solutions and compelling ROI that BIO-key can provide. On our year-end call, I reviewed several factors that are shaping the market for our solutions today. So I'll just provide a brief overview of those. First, the continued expansion of digital services and mobile use cases that require secure authentication is widening our market opportunity. Second, we believe demand for the secure digital access BIO-key uniquely provides will continue to expand as organizations confront a more sophisticated and persistent cybersecurity threat landscape. Third, we expect passwordless authentication to continue to gain traction and become the standard this year and beyond, as enterprises look to reduce risk from phishing, credential reuse and misuse as well as account takeover attacks. BIO-key enables unique and highly secure passwordless solutions. Fourth, biometric authentication should see growing adoption in the highest value use cases as we've seen in military, defense, financial services, health care and other highly regulated industries where security and trust are most critical. Fifth, the rise of AI-driven threats really escalates the need for more resilient identity strategies that surpass vulnerable, yet widely deployed authentication methods like phones. And finally, the market is moving towards more unified access platforms that unite workforce, partner and privileged access under a single flexible foundation. These trends play directly into BIO-key's strengths, and we are starting to see them in our financial results. Today, our business is predominantly a subscription-based business with recurring revenues. Approximately 50% of our new business comes through our partnership model domestically. And as I've mentioned a number of times before, 100% of our business is sold through channel partners internationally, providing a very, very efficient and more importantly, a scalable model. I also want to mention that we launched a new website in mid-April, that is designed to better support our partners and customers in understanding how BIO-key can meet their needs. We believe it's an important step to support our growth goals. I want to thank our team who put a lot of hard work and effort into this launch, and I encourage investors to review it at www.bio-key.com. And as always, we welcome any feedback that you can provide. From a financial standpoint, BIO-key is in a solid position to continue to fund our growth. We ended Q1 with a book value of $7.6 million, or approximately $7 a share, including over $2 million, or $2.07 per share in cash, and we expect this position to continue to hold or improve as we approach the second quarter -- the end of the second quarter. As we mentioned a few days ago, our shares were recently suspended from NASDAQ. Today, we are actively working to return our shares to the NASDAQ capital market and have secured an appeals hearing, which will be held on June 16, which is next month, about 4 weeks from tomorrow. In the interim, our shares continue to trade on the OTC markets under the symbol BKYI. Although we cannot be certain of the success or timing of the panel's decision, our advisers believe there is reason for optimism regarding a return to NASDAQ trading by the summer. In summary, our business is off to a very strong start, and we are confident in our first half outlook and very optimistic regarding the balance of the year and beyond. After years of hard work, we believe BIO-key has never been better positioned for growth and improved financial performance, and we will continue to update you, all of our shareholders, on our business and listing process as we proceed forward. With that, I'll turn the call over to Ceci to review the Q1 financial results.

Thank you, Mike. We released our results this morning via press release, and we plan to file our 2025 10-K this week, after which we will file the 10-Q and be up-to-date on our filings. So let me provide a brief overview of our Q1 results. Keep in mind that the review of our financial statements has not yet been completed by the independent public accounting firm, and results are, therefore, subject to adjustment. In Q1 '26, our revenues increased 34% to $2.1 million versus $1.6 million in Q1 '25. With the current year benefiting from expanded 1-year software license renewal from a long-time banking customer was serving over 30 million clients with our biometric identity solution. Overall, the license fee revenue increased 24% to $1.4 million. Our hardware revenue increased more than 100% to approximately $531,000, due to increased purchase from biometrics hardware solutions, including hardware sales related to a foreign Defense Ministry, defense expansion as well as the sales from of our previously fully reserved inventory. In line with revenue, our Q1 gross profit grew 33% versus the Q1 '25, $1.8 million, and we maintained a strong gross margin of 82% in both periods. This compares to the first year gross margin of 77.5% in 2025 and 81% in 2024. Gross margin benefited growth in high-margin license fee revenue and the sales of the fully reserved inventory. Our operating expenses were approximately $2 million in Q1 '25 and Q1 '26, as higher R&D was offset by lower SG&A expenses in Q1 2026. Higher revenue and gross profit combined with relatively flat operating expenses led to a net loss improvement of $165,036 or $0.15 per share in Q1 2026, versus the net loss of $736,545, or $1.57 per share in Q1 '25. Per share amounts and weighted average shares outstanding reflect the impact of the company's April 30, 1-for-10 reverse split, warrant exercises and other financing activities. Share counts are provided in today's press release. Turning to our financial position at 03/31/26, our book value was $7.6 million, or $7.04 per share compared with $7.7 million, or $7.07 per share at year-end. BIO-key had approximately $4.5 million of current assets, including $2.2 million of cash and cash equivalents and $1.6 million of accounts receivable. This compares to December 31, '25, when BIO-key had current assets of $4.5 million, including $2 million -- $2.7 million of cash and $1.2 million of accounts receivable. As Mike mentioned, we expect to be profitable and cash flow positive in Q2. Operator, we may now proceed with the questions and answers.

[Operator Instructions] And the first question will come from Jack Vander Aarde.

Ceci, congrats on the strong results and strong fundamental outlook. Obviously, there's bit of noise here, and it's unfortunate with the NASDAQ delisting, but it sounds like things are on track. It sounds like you feel good about it. So I guess just maybe some housekeeping questions, Mike, just quickly. The NASDAQ appeal meeting is coming up, I think, next month, you said -- and that puts you on track to get relisted. Just to revisit those comments quick. And then the 10-K sounds pretty confident that, that's going to be filed by next week. Can I just get a confirmation on that?

Yes. So yes, our hearing was scheduled on Friday, we got notice that it was scheduled for the 16th of June. So we're in the process of preparing for that. We expect that, as I mentioned in my prepared remarks that we will get through that process and God willing, without any bumps in the road, be fully compliant all the way around and get back on the capital markets, certainly, maybe late June or July. It depends on the timing for that panel. So everything is in motion there, and our advisers are very confident that we have -- we should be optimistic about being able to do that. As you know, we traded for 9 days above $1 before we got suspended, which was a statutory scenario with the NASDAQ, it's their process. And so that was our only issue at the time. And so we will get back on, and we'll keep everybody posted as we proceed forward. So that's for sure going to happen. As it relates to the filings, yes, we expect that we'll get everything filed. We're hoping to have both the K and the Q filed this week, so we will be fully compliant and up-to-date on everything out there. That's it.

Okay. I appreciate all that. That's very clear. And these results seem to give you -- a good leg in that race, I would say, to get back to status That's great to hear, Mike. Maybe just in terms of the cash and the balance sheet and given these recent results here, which it sounds like you're on track for potential profitability here. No issues with funding your existing growth initiatives and also with just your customer discussions there's no -- any implications there or distractions with the tech team and NASDAQ. Just to clarify one more question.

No. Quite frankly, no. I think you know we have a very broad portfolio of customers in virtually every sector of the economy. And they -- many of them have been with us for many, many years when we were an OTC company, and then uplisted to the NASDAQ. And so it really isn't impacting anything that we do. We're on a greater solid footing from a financial perspective than we probably have been in many, many years. We have enough money to obviously operate our business and to continue to invest in the growth initiatives that we have. As I mentioned, it's all about scale for us right now. We've got a great product. We continue to improve and evolve that product as is required and as necessary. And we have built a very strong partner network, especially internationally. And it's really in our hands right now just to continue to scale this business, and it will scale very profitably, as you can see. Our gross margins have been hovering in that 75% to 85% range for years, and that will continue to be as we scale revenue into the $5 million and $10 million range on a quarterly basis, you can imagine what will drop to the bottom line.

Excellent. And Mike, just looking at your outlook for the second quarter/the first half of this year, it's significant progress from last year, obviously, and also just historically in recent memory. So I guess like what's going on in your, I guess, pipeline here, your go-to-market? Are you feeling like -- do you have more visibility than you've had? Now in the past 2, 3 years, in terms of this demand funnel, all of a sudden, this $5 million of revenue that looks like set up for the first half. How is the back half looking to you? Are you already thinking ahead that far?

Well, it looks very good. It looks very strong. I mentioned that in my prepared comments. So there's no question. we have better visibility. What's happening, Jack, is we are -- first of all, we're going after larger opportunities. And so when you have $500,000 to $1 million or over $1 million transactions in the pipeline, and they're with the larger partners who have very strong positions in those end-user customer environments, the confidence goes up, right? And it doesn't mean, again, you win every deal, but we have a very strong pipeline for 2026. Full year, right? First half, certainly, we're very honed in on, and we know exactly where we stand at this point. And for the rest of the year, we have a number of contracts that have already been won, but need to be -- have been awarded, but yet need to be papered, meaning we need to get orders and so forth and so on. So we're feeling real good about the entirety of 2026.

Excellent. Maybe just if I'm looking at, I guess, the sort of -- it looks like hardware revenue really picked up this quarter. Is this just -- I know it could be lumpy, but is this a something that's a new dynamic that's being integrated in most of your deals that you're seeing now? You do have strong gross margins on the hardware side. But it's just interesting to look at because hardware can kind of go up and down while license revenue seems to be more steady. What are you seeing from the hardware side in terms of the deals that you are bringing to the table?

Well, I think as you close these larger license opportunities, the requirement for hardware is also significant. So many of our Ministry of Defense customers that utilize our technology, have to put many touch points in place for access for all of their force members or their staff. So again, it can go hand-in-hand. As you mentioned, we maintained really good gross margins in our hardware. And Ceci mentioned in her prepared remarks that we are selling our fully reserved inventory right now in greater volumes. And so that's going right to the bottom line. And obviously, it's all cash and all margins. So that's helping us certainly this year and will continue to help us as we evolve through the year, but again, hardware is part and parcel of our larger opportunities. So it's always going to be there. And yes, it's certainly more lumpy than the software and license revenue is, but it's still a very strong part of our full and complete offering, which is what customers want. They want a full and complete offering from one vendor, and we provide that for them.

Got it. And Mike, just with all your core verticals, obviously, defense has been very strong, and there doesn't seem to be any shortage of developments in the geopolitical world here today to keep driving that. Outside of defense, looking at education and financial services, I suppose. Where do you see you're having, I guess where's the next leg up for you within those 2 segments? Do you feel like you're growing at -- is there an opportunity in education in your business as well as financial services that you're seeing with defense?

Absolutely. So we have a really good sizable base in education, as you know, and that's continuing to evolve. And so yes, education is a great market for us. But does it have hyper-growth potential like financial services? No. I believe financial services has significant growth for us. We have been targeting with our partners internationally, national banks, right? So the banks in countries that manage the currency. And we've had a number of wins. We have a number of opportunities in our pipeline that you're going to hear about over time as we knock them down. And they have a very, very specific need for ultra-strong authentication. And in the international venue, have no restrictions or very few restrictions in the context of privacy and so forth that we deal with here in the U.S., right, on a daily basis. And so biometrics are a really good option for them because they can positively identify individual staff and the likes who enter their portals or their applications. So I think financial services is a very, very strong and growing vertical for us, and you're going to hear a lot more about that going forward.

Excellent. And Mike, if I could just ask kind of one more thematic question. Just wondering if you could share any thoughts that you may have. Two of the kind of, I guess, growing industry dynamics that are these trends now, especially in the legal world. You have the Clarity Act that's coming up here, seems to be moving further. With just tokenization real-world assets and just crypto in general, given your financial services industry? And also, with your cybersecurity and just protecting biometrics in general, quantum is becoming somewhat of a theme that people are focused on a bit. Just wondering if you have any thoughts on where BIO-key sees or fits in, in these themes of quantum down the road as well as tokenization and crypto being more mainstream?

Great. Those are two great questions. So RWA, right, real-world tokenization, all that stuff that everyone is hearing about and talking about is certainly evolving. But it's happening much, much slower than anyone had anticipated. And I think this year, you see it kind of hit the rails because there are other priorities. So I kind of feel really good about where we are because we're serving the real world today, their needs and their requirements. While we're investing in things like quantum, all of the latest and newest generation encryption theories around quantum proofing and so forth are all things that are on our plate right now and that we're researching. But don't get caught up in the hype is my comments on both of those scenarios. Look at where we are today, look at the real-world issues that we have today and look at real-world solutions that solve those problems today, but also have a perspective for where the puck is going and where we're going to be tomorrow. And certainly, we're right in the heart of that. So I mean, again, if you look at where the money is being spent today and where things are moving, it's taking much, much longer. And that's why you're seeing a number of the companies that fundamentally have no current technology to address issues and problems, and are only looking in the future are really struggling. Now again, it's kind of like AI, right? There's no doubt that AI is currently impacting our lives, personal and business, and it's going to continue to evolve, but it still has to find its footings, and the companies that are engaged in that technology are going to come and go. We've been around a long time, providing very, very basic and yet sophisticated highly secure solutions for some of the most important applications on the globe. And I think, again, we're going to continue to do that, right? And we have proven that we can do that. We've been here for over 30 years. That's my perspective, Jack.

Excellent. That's a great perspective, and I appreciate that rundown. It sounds like things are going very well right now for BIO-key.

Next question will come from Dan Kamis, investor.

Yes, very nice quarter. That's quite nice. Kind of a couple of housekeeping questions, I guess. Do you have a cash flow from operations number for the first quarter by any chance? I know you guys don't usually do that, but I'm just wondering.

I'd have to revert to Ceci. I think we ended the year with about $2.7 million-or-so in cash, and we ended the first quarter with about $2.3 million. So I mean, back of the envelope, that's sophisticated, right? Probably use and timing right on collections, receivables that kind of thing. So I think we're pretty solid. Let's put it this way. We're not hemorrhaging as we have in the past.

Right. And what's, Mike, your current ARR run rate, is that now improved with some of these contracts?

Similar, I guess, the answer, it's episodal, right? So if you have to look at our receivables, right, from quarter-to-quarter, but I would say, yes, as these larger projects land, obviously, the receivables are pretty significant. So yes, I think it's certainly improving as the business is improving.

I'll just add to, it depends on when some of the bigger shipments are, some of them come at the end of the quarter and some come at the beginning because they were we didn't get them in the quarter before. So like Mike said, it's episodal based on timing.

Okay. Ceci, can you say how much of the hardware sales was the written-off inventory?

Yes, it was in the financials, and I don't remember off the top of my head, but hold one second, basically $100,000.

I see. I got it. And Mike, were these inventory sales kind of a one-off thing? Or was there any softer licensing associated with sales?

There's a combination of both. And it's -- I think we're starting to see, and I think it will be reflected in our results in Q2 and beyond, more significant sales of that reserved inventory.

That's good. If you're profitable in the second quarter, would you be able to offset profits with prior losses to avoid taxes like we've been hoping for years?

I assume. I mean, we have plenty of NOLs, right, net operating losses. And so I'm sure our accountants will -- and our tax accountants will help us with that. But yes, for sure.

Okay. A couple more conceptual questions, I guess. Is it harder to win the large U.S. contracts in the military and financial area than EMEA? And if so, can you give some color on why that might be?

I think what you asked is why are we so successful internationally on the defense side? And is it more difficult on the U.S. side to win those contracts?

And financial.

Yes. I mean, it's hard to say. I think, there's a different dynamic internationally. There's no reticence at all to using biometrics, right? I mentioned in my comments, the privacy and concerns about all the regulatory scenarios like BFA in the United States, right? They don't exist internationally. We've had programs in the U.S., like, for example, in Texas, where they were using biometrics to manage the food stamp program. And the privacy monitors, fundamentally killed that program, and their expenditure went up 4x, because people were cheating. So we have a different dynamic here in the U.S. and it permeates throughout not only the public sector, but also the private sector as well. And that doesn't exist. It is much less difficult on the international front to deploy these solutions. So I mean, I think that's the simple answer. Now do we have U.S. opportunities? Absolutely. Do we have U.S. customers? Absolutely. Do I believe that business is going to grow? Absolutely. I do believe that. In particular, I am really excited about the TD Synnex DLT opportunity because they're a monster in that space. And they have customers in every state in the U.S. We are doing really well in state and local government, right? We have the perfect solution for biometrics, right, for highly secure access. And with a partner of that size, that gives us -- it just opens up a whole market for us. So working closely with those partners, that's really the force multiplier in how we're going to scale our business. So, yes, I do believe that there's a difference. And I do believe, though, however, there is an opportunity on both sides of the world.

Great. Well, on some of these global bank contracts or financial contracts, defense contracts, can you say who your competition is for these contracts? And again, maybe you've talked about this before, but just to reiterate, what's the differentiator in financial services for you in these global?

It's clearly the full and complete authentication -- biometric authentication option that we provide, and the flexibility to use 16, 17 other factors. So one size doesn't fit all. And in banks, for example, in branch or for staff in office, biometrics may be perfect. However, they may have outsiders, meaning outside the physical infrastructure that need to access information. And we provide -- because we have a full and complete platform with PortalGuard, we can provide all of those different options, using a phone, using a card, using a token or a key. So I think that's our competitive differentiator. And bringing again that very strong option with biometrics really separates us from everybody else in the space. There are large biometric players like IDEMIA, for example, or NEC, but they're going after airports and border control and all that other stuff. They don't have the authentication, SSO, single sign-on, network log on. They don't have all of that software. That's the front end of companies and enterprises or a public sector agencies' portals and applications, right? We front-end all of that. That's our competitive differentiator.

I see. And who, when you go after these contracts, who do you see competitive wise going for these contracts, too?

Well, if they're looking at and seriously considering biometric for everybody or even for just a piece, well, guess what? It's not Okta. It's not SailPoint, it's not ForgeRock. It's not them because they don't have that. They can partner with us. In fact, SailPoint is becoming a very, very big partner for us internationally, where they're providing all of the privileged access, and all of the higher-level authentication management, and we're providing the actual authentication technology, as I just mentioned, the 16 factors, including the biometric. So it really is -- I always think it's -- everyone has a competitor, right? There's no such thing as one company that dominates a space without competition. But we just really don't see any of those players able to do the same things that we do for a customer. So it's pretty unique. There are probably a bunch of regional or smaller players that we may compete against or an MSP that's trying to pull together pieces of a solution to do what we do. But no one big player that actually matches exactly what we do for what we do, right, which is strictly authentication.

That's actually amazing. I got just a couple more. Outside of cash, I think the market is assigning the value of your business at about $2.5 million. If you start generating cash, could you see the company buying back shares or declaring a dividend or something like that?

We'd love to do that. I don't think we're in a position to do that today. I don't think it would be prudent, right? Obviously, we want to be able to reinvest in the things that are going to help us scale, right? So our partner network, again, ensuring our technology is leading edge, right, not bleeding edge, as Jack had asked questions about what's the future, right? I call that bleeding edge. We want to be on the leading edge, not the bleeding edge. But yes, we'd love to be able to do that. And over time, I'm hoping we will be able to do that. We only have 1.1 million shares outstanding right now. And so anything we can do in that realm would be just incredible. We are grossly, grossly undervalued, especially with the NASDAQ suspension, that certainly devalued us probably about 20% where we -- below where we were when we were on the NASDAQ, and we were still undervalued at that time. I mean, if you think about our first half revenue is projected to be about $5 million, we'd be trading onetime 1/2 year's revenue. It's obscene. But again, bumps in the road with the NASDAQ suspension and the timing of that, it wasn't, again, an issue with us from an operational perspective, it was strictly a miscalculation of the very specific date requirements for the NASDAQ, right? 10-day notice 10 days trading above $1. So that devalued us for sure, but I think that's recoverable, right? All ships rise with the tide. If the business continues to perform, right, we're going to achieve the level of value that we should achieve. And there aren't many look around the industry, there aren't many profitable companies, public companies that smaller companies like BIO-key and Security that are profitable, if any? I can name a couple. Trust me, they're not profitable. And so I think we're going to grow into that valuation if we continue to perform.

Okay. Last question. The associated hearing, I believe that has legal adviser fees to get back on the NASDAQ. Will that be expensed against your revenue in the second quarter?

We don't believe so. We don't believe so. We have some help with that, and we're not concerned at this stage. But yes, we do have advisers that we've hired to have deep experience in the process. So we want to put our best foot forward, but all of that will be covered.

[Operator Instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Mike DePasquale for any closing remarks. Please go ahead.

Thank you again for joining today's call. We genuinely appreciate your interest in BIO-key, and I look forward to updating investors on our progress on our next call. As always, we will update investors via press release of significant developments in the interim. If you have any additional questions, please reach out to our IR team whose contact information is provided in today's press release. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.