Q3 2022 BIO-Key International Inc Earnings Call
[music].
Good morning, ladies and gentlemen, thank you for standing by and welcome to the bio key International second quarter Conference call.
During managements prepared remarks, all participants will be in a listen only mode.
Afterwards listeners will be invited to participate in a question and answer session.
As a reminder, this conference is being recorded today Tuesday November 15th 2022, I would now like to turn the call over to Kimberley bidding Vice President of product marketing. Please proceed.
Thank you and thank you for joining our call. Joining me today are Iot chairman and CEO , Mike de Pasquale as well as Alex Russia, Managing director Biochem, Yeah, and bio Key's CFO D C wells.
Remind everyone that todays conference call and webcast and answers to questions include forward looking statements, which are subject to certain risks and uncertainties that may cause actual results to differ materially from those projected.
Words, such as anticipate believe estimate expect and plan and similar words typically identify and express forward looking statement.
Such forward looking statements are made based on management's beliefs and assumptions using information available currently pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
For a complete description of these and other risk factors that may affect the future performance of bio key.
Please see risk factors in the company's annual report filed on Form 10-K, with the Securities and Exchange Commission.
Listeners are cautioned not to place undue reliance on forward looking statements, which speak only as of today's date. The company undertakes no obligation to revise or disclose the revision to forward looking statements to reflect future events or circumstances after today.
With that I will turn the call over to Mike.
Thanks, Kim and good morning, and thank you for joining our call today.
After my brief remarks, I want to leave plenty of time for Alex to review our efforts in Europe , and the middle East and for Kim to discuss our sales and marketing initiatives. Specie. Then we will provide financial highlights and we will open the call for investor questions.
<unk> has become a global company with a global brand we have over 80 employees, including 36 in Europe , Middle East Africa, or EMEA region.
And Q3 was our second full quarter that included operating results from our swivel secure acquisition that closed in March.
Business and its integration into bio key is proceeding according to plan.
So our third quarter was affected by the normal European seasonal slowdown due to the summer holidays.
We also saw continued customer delays in our large IP projects in Africa, and we did see some slippage of projects in our domestic business from Q3 to Q4, but mostly with county governments that must go through the RFP process.
Despite these factors we grew Q3 revenues by 6% and year to date revenues rose, 26% to $5 $3 million, which is higher than our full fiscal 2021 revenue.
At <unk>, our success is largely to our focus on innovation, which is core to our mission to expand password list and mobile iam options.
Q3, we launched our updated mobile authenticator, App, which we call mobile App and we upgraded the user interface for our cloud hosted portal guard as a service or I guess, which Kevin will discuss in a few minutes.
Regarding Africa in Q2, we secured in Q3 I should say, we secured our application programming interface or API key access from the Nigerian National identity Management Commission for verification of all national identity numbers.
Unfortunately, NIM see I've had both technical and financial ratio led to delays in enrolling significant numbers of citizens but.
But we expect the situation to be resolved in the next few months.
In addition to national IV programs, there is a substantial need for mobile security solutions across Africa.
After two years of effort, we believe our African subsidiary is well positioned with the right technology and relationships to monetize those significant opportunities that exist across the continent.
Along with Gartner and Forrester.
We believe the multifactor authentication segment of cyber security is one of the most attractive growth opportunities in the global software market today.
So much of the market is still mired in legacy solutions that have been compromised repeatedly.
Also cyber insurance is becoming a mandate across public companies as well as small and medium sized businesses that house consumer data.
Insurance underwriters will not issue a policy to companies that do not have multi factor authentication in place.
And despite the geopolitical and economic headwinds that almost every global business is experiencing.
We believe MFA solutions will remain in high demand and the opportunity for bio key to move up the value chain to larger opportunities is now presenting itself.
Strong device and server based biometrics is our unique competitive advantage.
And it is getting greater visibility in the markets over the past two quarters again, Kim will speak to that shortly.
To enhance the awareness and reach of our solutions, we've invested in as an expanded team of direct and partner sales resources to complement our growing channel.
These investments are enabling us to build a growing base of recurring software as a service revenue with strong customer references.
We're also building our pipeline of customer and project opportunities some of which has progressed more slowly than anticipated over the past several months, which we are largely attribute to macro economic factors. Nonetheless, we do expect a strong close to the year as some customers seek to put their it budgets to work before.
Over.
Given our results through Q3, we now expect full year revenue up $7 million to $9 million in 2022, representing growth of approximately 37% to 76% over 2021 revenue.
Our outlook anticipates growth in recurring software license revenue to roughly 70% of our total or software license revenue supported by hardware and services revenue, which are typically in support of specific software projects.
Although there is a possibility we will see our African hardware deployments beginning this quarter, we are not forecasting that to begin until Q1 2023.
With that I will now turn the call to Alex Rojas to discuss our European and Middle East business Alex.
So we are all secured Europe business into bio key international as on <unk>.
Chuck and we'd rather be a be achieving our goals.
A continuation with the previous quarters I want to say that we met the targets and we continue to be a profit business unit.
To expand our sales team, we incorporate the Alphonso Fernandez senior enterprise sales account for spikes in Latin America.
These bands, though a general manager well known of the market with more than 10 years of experience. This deal will be responsible for generate opportunities and win opportunities we've been channel in Spain, and Latin America.
Our channel strategy Engwall by your key University that we speak previous as we add the new partners Brogan, we have done a retailer callbacks SaaS to daily tools will help them position bio keep product offer <unk> opportunities, which has been built in there.
Easy to use platform.
<unk> and marketing teams inside our resellers.
We are still lapping our value.
Value distribution partners for spine, we weep presence in Latin America. The sharp fleets is retreat and we expect to have the final decision next month, we have already 20 partners that cover 25 different countries and we expect to achieve 100.
In the next year.
Fourth of Ghana Ipads in Europe is already is already fully deployed and the next project going to be the same for Asia will allow us to start offering our product in that region, where they exist a lot of demand for cyber security products.
New Costco months.
Glad to announce that we have one of the large European supermarket chains.
P 50 calls so the large European bus company and then other Spanish GDP.
As a reference we have more but that means the ones that we want to highlight also closing working closing with our partners and with our customers. We received a huge upgrade for our.
Our customer a healthcare company and another one for the insurance insurance company.
We are also working a larger opportunities one of dams for the large retail chain and Iberia, where the project is to secure a handler and 20000 employees, we'd be going to represent more than 1 million.
Revenue for the global project will be likely to relevant opportunities. We are also working right now with the Central Bank in Asia, and the National banking, Angola and another in Ethiopia. In this case. The FFC is one five years with a projection of revenue off mall.
Thats $5 million.
<unk> seeks opportunities in golf, Vermont to Alco and private sector in Nigeria.
Also we have been achieved that we already are strategic partners.
Our drug and beyond Trust and we continue conversations conversations about extending that to sailpoint or bother them Asap by.
<unk> has been one of the I've been in one of the most relevant identity and access management event in London last weeks, where we adapt.
With our biometric solution and you didn't you fight, but several customers.
Wants to fill the needs of their projects not only the ones that the Yahoo, as the new ones, but the ones that they thought the challenge they have right now that legacy.
Solutions cannot feed for example share computers.
Kiosks and when the company bumpy ploy corporate mobile devices to their employees.
And that is a really simple life, what we show and they explain what is the good return of investment.
While these events, we bring 11 all proteins is two fold.
That's been impressed with the quality of that bleeds and we have been the only by your math well represented there.
Not related to the technology itself, but more with the business oriented we have studied a strategy approach to a side but.
Insurance companies to offer their bundle for F N E in the OEM sales model.
We continue to one Cogs in our portal got the MSP product, which as you know going to be the baseline for portal got C. I am we innovate as well.
One ships and features that we expect to announce soon.
We expect to announce again that we achieve our revenue target in the next call and we lapped I want to turn the call back to Kim.
Great. Thanks, Alex.
Our customer deployment, we completed the migration of the University of Arkansas at Fort Smith, and California, Santa Rosa Junior College from on premise solutions to our cloud hosted portal guard identity as a service or <unk> platform in Q3.
By deploying our solution, our higher education customers are able to accomplish much more but there I T by that by eliminating the resources and costs of on premise infrastructure and maintenance.
Further the large increase in remote access outside and institutions firewall is better suited to our I'd ask solution than legacy on Prem architectures.
Also in Q3, the long Beach Community College District in California purchased by our key branded hardware token to support multi factor authentication for a portion of their student user base.
Outside of higher education, we also expanded our global enterprise franchise, adding a Dutch based multinational conglomerate and a leading Saudi Arabia health care procurement provider.
In October a large southwestern U S Auto group selected portal guard Eidos to safeguard consumer financial data.
And other customers are now seeking enhanced I am solution to support F. T C compliance requirements for data protection.
<unk> access security with multifactor authentication.
The SEC's updated safeguards rule requires even nonbanking financial institution, such as mortgage brokers motor vehicle dealers and pay day lenders to develop implement and maintain a comprehensive security system to keep their customers information space.
Our portal guard I'd ask platform enables companies to provide comprehensive I am capability and robust MSA method not only to strengthen their overall security posture, but also ensure compliance with government regulations.
Also six county governments, and Kansas, Virginia, New Mexico, Florida, South Dakota, and New York selected portal Guard I'd ask for improve data security as well as regulatory and insurance compliance.
County governments are facing a cascade of ransomware attacks targeting the public sector threats that require enhanced I am solutions like ours.
Continue to partner with counties to improve there I am strategy showcasing portal guard at the National Association of counties are Niko annual conference in Q3, where I participated in a panel about communicating about cyber security across your county, and co hosting a webinar in September alongside make a CIO.
Adrienne County, Missouri, or by a key customer and how counties can rightsize their cyber security program.
As demonstrated by customer deployments, we continue to advance our core identity and access management business bolster inside sales effort and our growing channel Alliance partner our cap program.
We believe the cat programs global reach will be the source for 50% or more of sales going forward.
For example in Q3, we announced the dark seal technology, a managed security service provider or M. S. S T and Florida selected portal Guard I'd asked to provide its customers with an enterprise grade I am solution.
Mark steel deliver cyber security solutions to small to medium sized enterprises.
And that's P and M. S. N P selected portal God I'd ask for unmatched variety of options for workforce and customer multifactor authentication with exclusive identity bound biometric option as well as single sign on and self service password reset to support their customers' cyber security strategy.
Also in Q2, we announced a distribution partnership with Israeli based multi point group for for southern and Central Europe , and the Middle East.
Multi point offers not only distribution, but also pre sales analysis training and full support to be sellers and customers are security and identity solutions and 15 country.
Adding quality partners like dark seal and multi point.
And for each of our solutions in important segments and regions of the marketplace.
In terms of product development, Mike mentioned that we launched important updates and enhancements to our mobile app solution in Q3.
My whole life is currently the only multi factor authentication mobile app that integrates the power of identity bound biometrics with other authentication modality, allowing customers to build a more complete and secure access management strategy.
Mobile off supports palm scanning with our palm positive solution and facial recognition with our faith positive solution and now also supports Apple face a D touch I D and Android biometrics as well as push token authentication, which can all of these factors as part of portal guards MFA.
Enhancements make mobile app much more powerful and more convenient for customers to use when looking to exceed their increasing security requirements.
We rolled out these upgrades at the Gartner I am summit in Las Vegas in August the Gartner summit gathering some of the most influential industry leaders in enterprise organization in the I am industry.
This year's theme focused on the adoption of the new I am approaches amassed a great digital transformation and reliance on remote business being experienced by organizations of all sizes.
It was a great opportunity for us to build brand awareness for mobile off and our ABB solution and resulted in six new enterprise opportunities that we are now working to advance.
We continue to build our client relationship with Gartner meeting with the leading I am and market analysts during numerous inquiries and vendor briefing held in Q3.
We executed a focus identity bound biometrics marketing campaign in Q3 with streamlined our messaging and content, including an anthem video updated website content and cohesive design leveraging this campaign, we placed ads I T b to b buyers on streaming TV and reached over 100000 views.
And produced over 2000 web site visits.
Internationally, we hired the Spanish PR firm, and though which is already booked five interviews in Spain for Alex with major TV and radio stations and had a byline placed and Chief Security Officer or CFO magazine.
In Q4, we expect to continue our gartner relationship and to work with Influencers outside of bio key to evangelize. The IBD messaging, we have seven events planned, including our first international event as Alex mentioned I D. M U K, which happened just last week in London.
Our current marketing initiative is a popular lift campaign, where we are against streamlining content and messaging around the elimination of password you.
I think by Ochiai Daddy bound biometrics as a phone with token list password less option.
Our channel focus is on our new partner portal and content that will help partners learn about our products and position them effectively to their customers.
We are also revisiting our sales tools and continuing to meet with customers to capture more of their success stories and explore the value they experience when using biotech solution.
Lastly in October our portals I received the access management solution of the year Award in the 2022 cyber security breakthrough awards conducted by cyber security breakthrough.
This is the second consecutive year portal Guard has earned this honor compete.
Computer Security magazine in Britain also selected portal guard for their computer security 2022 award in the innovation category, which is a well recognized global award, especially in European markets and.
And with that I'll pass the call over to our CFO see CMO.
Thank you Kim.
I'll briefly review bio key financial highlights for the third quarter.
Q3, 22 revenue rose, 6% to $1 4 million versus $1 3 million in Q3 21.
Year to date revenues grew 26% to $5 3 million versus $4 2 million through the first nine months of 2021.
Both Q3 and year to date period of 2020 to higher software licensing fees were partially offset by lower hardware revenue also.
2022 period included the results of civil secure followed following its acquisition in March annual recurring revenue for the software licenses increased five 5% to 918000 versus 870000 in Q3 in 'twenty one.
The increase from the addition of swivel and in addition to the new corporate card customers.
Service revenue improved 17% to 372000 in Q3, 'twenty, two with the majority or 81% representing recurring maintenance and support.
Nonrecurring services decreased 8% to 68000 in Q3 of 2022 versus 74000 in Q3 2021 due to fewer upgrades from on Prem to cloud deployment versus the prior year quarter.
Hardware sales declined to 83000.
Q3, 22 from 110000 in Q3, 'twenty, one due to other MFA options offered with Cologuard.
All these higher revenue gross profit was flat at $1 million in Q3, 22 versus Q3, 'twenty, one due to higher cost for la.
License fees related to the civil secure software license.
Realized gross margin declines.
71% from Q3 22.
77% in Q3, 'twenty, one also related to third party license fees.
Operating expenses increased to $3 3 million in Q3, two two from 2 million in Q3, 21, reflecting a $1 1 million increase.
Hum.
Sorry.
The increase in SG&A expenses as well as higher research development and engineering expenses in SG&A increases included costs related to the integration I'm still a secure operation increased travel and trade show expenses amortized expenses for swivel.
Share based compensation travel and wages.
And benefits for new employees.
R&D related to higher personnel costs and product development, including the Q3 launch of significant enhancements and updates to our mobile app.
I Hope you reported a Q3 'twenty two operating loss of $2 4 million.
An operating loss of $1 million in Q3, 'twenty, one due to operating costs, increasing more than revenue and gross profit.
Biotech reported Q3 22 net loss to common shareholders of $2 5 million or 29 cents per share as compared to $1 million or 13 cents per share in Q3 21.
For the first nine months of 2022 biotech reported a net loss to common shareholders of $5 4 million or 64 cents per share versus a net loss of 3 million or <unk> 39 per share in the first nine months of 2021.
The nine month loss.
Approximately $1 1 million of noncash expenses.
217000, with amortization of intangible assets allocated to acquisitions 294000 of share based compensation. In addition to depreciation capitalized contract costs and other non cash expenses.
<unk> ended the quarter.
Assets of $9 9 million, including $2 8 million of cash and cash equivalents $1 8 million of accounts receivable and $4 9 million of inventory.
Working capital excluding deferred revenue was $6 5 billion and total stockholders' equity was $11 2 million or $1 32 per share.
And now I think we can turn the call back over to the operator for investor questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
If you would like to withdraw your question. Please press Star then two.
We will pause momentarily at this time to assemble our roster.
Today's first question comes from Richard Richard Arnold a private investor.
Yeah.
Am I on.
You are sir.
Okay.
So Richard Arnold I'm 87, so bear with me, while I remember a few things.
A couple of years ago, I was told that $8 million was breakeven.
Uh huh.
Similar to what we've been told this year.
There was a sudden to contract for $75 million in Africa.
And.
Oh that there were bank guarantees on the horizon.
You said that it brings me to my question.
Oh goodness.
Last quarter.
We lost two and a half million dollars.
Exactly when those African contracts were on the table $18 million was raised.
We only have $3 million.
A question basically it comes down to what is breakeven now when is that expected and is there enough cash to last through 2023, Richard Arnold. Thank you.
Thank you Richard for your questions.
So.
Let me address that George kind of three parts.
First pieces Africa I mentioned in my prepared remarks that we've seen delays.
Delays in the key deployment to the projects because of the core agency that's responsible for for that in Africa, and so we've seen delays. We do expect those projects will deploy and we do expect because we have a significant chunk of inventory Cc mentioned, we have about four.
We have various segments of inventory for different products, but associated with Africa about $4 million in inventory that at cost that we expect to deploy so some of our cash a portion of the cash that we raised obviously has gone.
For that purpose a also a portion of our cash went to two acquisitions. We acquired two companies. One is Porto guard pistol start back in 2020, and we just closed in March on a transaction to acquire swivel secure Europe both of those are.
Were accretive to our earnings they are profitable entities. They continue to grow and so we're doing very very well there.
And it is also.
Putting us in a position to be a major player in the identity and access management space in particular and multifactor authentication.
Clearly our breakeven has gone up because our expenses have gone up associated both with the acquisitions.
And of course, our marketing initiatives and trying to expand our business as Kim described in her prepared remarks.
So you know clearly.
We do expect to get to breakeven and we expect to get there certainly at the start for early part of 2023.
The third quarter in particular as it relates to Europe as the slowest quarter with the slow.
With the summer months in Europe , and so this is our lightest quarter from a seasonally adjusted perspective, we expect as I mentioned before a strong close to the fourth quarter and we expect a strong first quarter as well, which is which again is just traditionally a stronger quarter in our EMEA business.
So we do expect to get to breakeven and we expect to get there early in 2023.
Michael Please address is the $3 million cash.
And until now.
To survive 2023.
With the idea that you just lost two and a half million dollars in the last quarter, yes.
Obviously.
You know we have a we have cash and we have inventory, obviously, we have to turn that inventory into cash.
But we'll absolutely have the financial resources to support our business through through the end of this year and well into 2023.
Alright, well.
My last question would be as Mr. Sullivan happy with the purchases you made recently is an inside insider, which was well Jim and I have been buying the stock as you know each quarter and we do believe in the company are both of US believe that the significant upside that the identity and access management market in <unk>.
General presents you.
You know as you use is.
It's really one.
One of the most significant opportunities in the investment community today I think most companies in our space have been been hit pretty hard from a valuation perspective.
There's been a lot of consolidation, but one thing for sure as I had been <unk>.
Peaking with forest or as we're working with Gartner the kind of core industry analyst in this space multifactor authentication as a mandate across the board I mentioned in my prepared remarks can't get cyber insurance.
Public companies must habit small medium sized enterprises are or acquiring it to protect their assets, especially if they'd house consumer data.
So at the end of the day I think despite the geopolitical scenario that we face despite the economic downturns multifactor authentication the segments that we operate in I think will remain strong.
Well I may own more shares and James Sullivan, So I'm, hoping that you're right I. Thank you for answering my questions. Thank you Richard.
As a reminder, if you do have a question. Please press Star then one.
The next question comes from Dan Ken He's our president Investor.
Hello.
Last quarter.
You know I came in a little late on the call. So I think I missed your remarks on Africa. So excuse me if I.
After we've done the question but.
You mentioned, a voter registration system.
Requiring 2000 units I think our COO.
Can you tell us when the election as schedules and how much lead time is necessary to get the hardware in place and.
Right.
Yes, that's a project, we're working and Swaziland, which is now epsilon knee they changed the name of the country or the election has to be held in August and typically they need six to nine months lead time to you know get get the product deployed so the product will begin to get deployed.
Are likely at the beginning of 2023.
Okay would there be any.
The reason that that could get delayed at this point or because we're.
We're probably about nine months away from that right now right.
You know these are projects that are very focused U N D P.
You know the these elections get scheduled and it's very very important from a democratic perspective that they take place anything could happen in Africa as we've certainly experienced over the past couple of years, but that election.
<unk> is scheduled to happen in August .
And our and our customer our partner has been awarded the contract, but obviously until the money flows. They don't go and build product. So we'll we'll see how that evolves in the early part of 2023.
I see I mean is there a possibility that Swaziland decides not to use biometrics or something like that or.
I think every country and you can go back and look this up do a Google search on this almost every country in Africa that holds.
And election utilizes some form of biometric capabilities, because there's just no other way to ensure one vote one citizen one vote.
Okay.
When you said no hardware revenues from Africa in the fourth quarter that that includes this contract right.
We're not anticipating any we could see something happen, but we're not we're not forecasting that into the fourth quarter.
Okay.
Okay.
Was there any.
Oh, I think last quarter, you mentioned the transaction fees may begin work from Nigeria, where there was there anything like that in.
New this quarter.
In the third quarter, we anticipate that to begin later this quarter and certainly into 2023 we're.
Well on our way to getting all the infrastructure in place to begin to do that.
Yeah.
Oh I see are you talking like.
Low or five figures or low six figures or something like that or what kind of revenue are you kind of looking at well I think it will hit our it'll start in that range and then it will ramp over time, It's an agency banking project that we've been working on for quite some time and so as.
As the transaction volume increases so will our revenue in and obviously our margin.
Okay.
<unk> got a couple of questions on a mobile lots I think in your last call you mentioned that.
<unk> supports phase I D.
You also said our face positive solution.
Is that.
Our bio key developed face technology or license them.
I wasn't quite sure what the what that was.
Yes, so it may have been a little bit confusing I think what Kim was referencing is mobile app and what it supports across the board. So mobile App now supports palm scanning right. So you can scan your palm.
It's server and device based so you can scan your palm with mobile wallets and positively identify yourself. We are now also support facial recognition and that is a licensed product. We did not go out and believed that we needed to go out and develop financial Oh, I'm, sorry facial algorithms.
To match faces when there's really good technology out there that can be licensed are at a very fair rate. So we now support facial recognition as part of the mobile Wap App, but she also said was as an authenticated or as another authentication option, we support face side.
And touch I'd on the up.
IPhone and Android biometrics. So when you look at mobile author, even portal guard in general one of our distinct competitive advantages as a flexibility that we provide our customers we support pinch tokens cards keys.
And biometrics right and our biometrics are stronger option. They can be centrally match. They can be matched on device. So now we're supporting a full suite of authentication options 16, plus options that our customers can pick selecting shoes to secure their their portals and their.
For information on their front end and their networks. So that's what she was describing.
Okay. Then so somebody can load the mobile off app on an iPhone or an it becomes sort of a plug and play device manager for multi authentication on on the cell phone is that.
Uh huh.
Right now mobile off is a is a an enterprise security solution. You know we focus on the enterprise, we don't focus directly on the consumer or our focus in bio key is securing enterprises and we believe that mobile off will be an extension.
That gets us into what we call the CIA M space, the customer identity and access management space, where our customers are enterprise customers will be able to use mobile law.
To authenticate their customers. So if you think about almost every.
Large entity.
On the globe.
Deals directly.
With consumers in some way shape or form. So for example, it may even be just registering the warranty for a product that a consumer buys even though they don't buy it directly from the company they buy through a retailer or whatever so.
Allowing our enterprise customers to be able to securely authenticate their customers is kind of the next extension and we call that C. I, a M or customer identity and access management are there is a an app that is downloaded from the.
The Apple store or the Android store that gets loaded onto the device whatever it is iPhone or Android phone Samsung doesn't really matter what brand.
And then that links up to the enterprise and allows for secure access to whatever information they are securing on locking down.
Okay.
M. On swivel are are you still looking at the 3 million target or do you have any kind of adjustment on that I know he's indicate we are we are hitting as Alex described we're hitting all of our objectives as it relates to swivel and we expect to.
To hit our nine month than our 12 month objectives as well remember that we acquired the company in March So we've ramped a little bit of revenue in the first quarter of last year.
And that's true through the nine month period we've.
We've generated just about one a little under $1 $6 million in revenue.
Represents about 30% of our overall total revenue pistol Star Poodle Guard is about 33%.
<unk> the core biotech companies about 36%.
The difference between 2021 and 2022 is really the Delta in Africa Africa, we generated about $700000 in revenue.
Last year.
Through nine months and this year as it relates to the hardware side at zero. So we're growing in every aspect of our business are certainly year over year, except and of course swivels added a million and half dollars in revenue as well, but we're growing in every aspect of our business except for Africa.
Right now.
I see so then you expect basically in the fourth quarter from swivel about as much as you've made in the first three quarters and I get that right.
We expect swivel to continue to grow absolutely and to meet our objectives.
We we will meet our objectives.
Is that where a well defined and stated in our original acquisition plan.
On the hardware margins.
I've been saying I think anywhere from 37% to 47%.
Hum.
This quarter I guess, there's a low amount of hardware I'm not sure if the margins are.
Oh good.
Yeah.
The number here too.
Use but what do you expect your margins at an average going forward.
Gross margin I think there they are pretty consistent.
Hardware that we sell that goes alongside our software right two fingers scanners that we sell to a.
To our enterprise customers that the margins are generally in the area that you just described depends on the product, but it's generally in the 30 40 range give or take.
The Africa hardware.
Obviously can could be in that range as well it could be a little bit lower it could be a little bit higher it depends on the on the project and the process, but but those are pretty good ranges for for hardware and expectation going forward.
Okay.
I noticed in your 10-Q, a Hong Kong.
500, K bond and a reserve.
Is that borne now at risk.
It's on our it's on our on our balance sheet, it's money that we.
We were paid for the work that we did there and it's it's held in a bond.
It's being rolled over and you know our auditors wanted us to put it in reserve in case.
You know something happened there in China. So the money is in China, it's not in Hong Kong.
So we're doing what.
What we need to.
I think the 10-Q, just said that you haven't received any proceeds or interest so was there supposed to be interest or.
Just kind of wondering what the status that bond as you know I'll, let <unk> answer the detailed question, but yeah. The bond definitely had it was an interest bearing note.
Yes, it was a bond that Uh huh.
Just bearing the first bond would you receive the interest in <unk>.
Rolled over to the second bond and we have not received that interest.
Interest yet.
Okay, and how long has it been going on for us.
A couple of years or something or I'm little confused.
The funds are due on June of last year.
Okay. So does that mean this bond is now at risk.
It could be worse.
Could be yeah, we're working with.
It could be Dan, which.
Is why where we have a reserve for it.
We're working with our.
Our Chinese partners, but they could be.
Clearly as money owed by <unk>, it's been that.
That bond the initial bond was purchased in.
I want to say 2000.
19.
For 2018.
Plenty of wood in 'twenty to 'twenty one.
Okay.
Is that 500 K included in in cash too.
It is not it is separate on the balance sheet.
Okay.
Alright on the.
When does the 500 cade and that BBVA I would have to be paid off.
That's similar to a PPP loan.
It's something that we acquired with trouble.
It is.
Very low interest.
Loan.
They had it basically interest free for the first year.
It's being repaid now at about 11000 per month.
And.
Like I said the interest you will see the interest expenses very low.
The income statement.
Hey, Mike.
3600, so far this year I believe.
Okay I've got a couple more questions I know I've taken a long time here.
Uh huh.
The Oh.
SG&A in the R&D.
It seems like it's doubled from last year.
Do you expect R&D and SG&A to remain at these levels.
Guys are doing a great.
Great R&D and.
The marketing is.
I've been noticing.
Been excellent, but I'm just wondering if this is where do you think youre going to have to be.
It's a great question.
No we believe that the R&D will certainly go down.
On the biometric side for our mobile product and we expect the portal guard.
R&D expenses.
<unk> expenses to be flat.
Maybe somewhat negative, but we invested.
In too.
Areas over the last 12 to 18 months, one is bringing the <unk>, which is the cloud version of Porto guard to market.
So that was a significant investment for us when we bought the company. They had just begun to to define the <unk>. So the cloud solution, we invested to actually bring it to market and right now I.
I'd say, 90% of our customers that we onboard onboard to our cloud solution, which is hosted on AWS. So on Prem.
Sales of our really declining it's only certain customers there are certain banks county state and local governments that want on Prem solutions, but the majority of our customers are going to the cloud we invested very heavily there and.
And we still have investments to make in that area. So I think that will be flat as.
As we proceed forward on the mobile outside we did the majority of that development through contract vehicles, and so we had contractors working on that project and so that will begin to decline.
This quarter and beyond so I think our R&D expenses will actually go down in total.
For the fourth quarter you mean.
Or I guess fourth quarter and beyond.
So does that mean that your some of these apps have been completed and have been successful.
So that's kind of what that means yes, we're completing things right now.
Joining them. So obviously, they're they're deployable, but you have answered that question is yes.
Okay. Then the last question I think is.
Assuming you make the low end of your guidance of $1 seven.
That's why I mean do you lose.
I don't know it could be let's say your your.
Opex is the.
The same could lose one and a half million or so.
Uh huh.
So you could be down to.
1.3 million say by the end of the fourth quarter and if things slow in the first.
First quarter I'm, just wondering you you must.
Are there contingency plans to raise capital in the first quarter.
We'll do whatever we need to do a I don't think we want to raise capital right now with these rates, we'd likely look at some sort of a debt instrument or.
Another vehicles should we need the cash, but I I don't anticipate actually raising equity capital and in this market I think we have other options and we also have a significant chunk of inventory Dan as we described in a number of projects in the in the works that will generate cash for the company.
All of that inventory is paid for.
Yeah, No I understand that you have the inventory that the problem has been but we always we always have I can say this we always have plan a and plan b and so we always have contingencies to ensure that we can we can run this business. We have a very very viable vibrant business, especially again when you look at our software revenues are growing.
We've got a great footprint now in EMEA to expand from we've got a great channel partner network in Europe , We're building out our channel partner network here in the U S. It's kind of a force multiplier right can't have enough direct salespeople to cover the market. The way you want to you've got to really extend yourself through these partners and channels.
And we're doing that we've invested very heavily in those areas and that's beginning to bear fruit for us.
Okay, well, let's let's hope you meet the high end of your guidance for next quarter.
Alright, that's all I got thank you.
Thank you.
Once again, if you do have a question. Please press Star then one.
Yeah.
At this time, we're showing no further questioners in the queue and this concludes our question and answer session I would now like to turn the call back over to Mike <unk> for closing remarks.
Thanks for everyone to everyone for joining the call today.
Look forward to updating you on our Q4 and full fiscal 2022 core call early next year.
As usual, we will continue to provide regular news updates via press release as significant development has to happen within the business. Once again. Thank you for your time this morning and have a great day.
Okay.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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