Q2 2025 BIO-key International Inc Earnings Call
Cecilia Welch: Good morning, everyone. Thank you for standing by and welcome to BIO-key International Inc.'s second quarter 2025 session call. During management's prepared remarks, all participants will be held only in the lounge. Afterwards, your students will be invited to participate in a question and answer session. As a reminder, this conference is being recorded today, Wednesday, August 13, 2025. I will now turn the call over to William Jones in Investor Relations. You may proceed.
Good morning, everyone.
Thank you for standing by and welcome to <unk> International's second quarter 2025, Paul.
During managements prepared remarks.
All participants will be in a listen only mode.
Afterwards, Ms Jones will be invited to participate in a question and answer session.
As a reminder, this conference is being recorded today Wednesday August 14 25.
I will now turn the call over to Bill Jones Investor.
They proceed.
William Jones: Thank you, Betsy. Hosting today are BIO-key International Inc.'s Chairman and CEO, Michael DePasquale, and its CFO, Cecilia 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 like anticipate, believe, expect, plan, and project, or any similar words identify and express forward-looking statements. These statements are made based on the beliefs, assumptions, and information currently available to management as of today and are pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For a more complete description of the risks and uncertainties that may affect future performance, please see risk factors in the company's annual report on Form 10-K as filed with the Securities Exchange Commission.
Thank you Betsy.
Hosting today are <unk>, chairman and CEO, Mike Depasquale.
It's CFO <unk> Wang.
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 like anticipate believe expect plan and project.
Or any similar words identify and express forward looking statements. These statements are made based on our beliefs assumptions and information currently available to management as of today and are pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of nine.
195 for a more complete description.
The risks and uncertainties that may affect future performance. Please see risk factors in the company's annual report on Form 10-K as filed with the Securities Exchange Commission listeners are cautioned not to place undue reliance on forward looking statements made as of today and the <unk>.
William Jones: 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 such statements to reflect circumstances or events that may occur after this call. Now, I will turn the call over to Mike to begin. Mike?
He makes no obligation to revise or disclose revisions to such statements to reflect circumstances or events that may occur. After this call now I will turn the call over to Mike to begin Mike.
Michael DePasquale: Thanks, Bill, and thank you all for joining us today. After my brief remarks and Cecilia's financial review, we will open the call to investor questions. BIO-key had a solid Q2 performance with revenue rising 49% versus last year and 6% on a sequential basis. We also advanced our expense reduction initiatives, trimming SG&A expenses by 13.5% versus last year, more than offsetting increased investments in R&D to further enhance the capabilities of our solutions. We have also reduced our note payable to a balance of $447,000 from $1,500,000 at the end of December 2024. Turning to business highlights in the quarter, BIO-key and our partner Runlevel secured a major identity and access management deployment with the National Bank of Mozambique. Also in Q2, we extended our penetration of the defense intelligence market based on the capabilities and strength of our IAM and, in particular, our biometric-enabled solutions.
Thanks, Bill and thank you all for joining US today. After my brief remarks, FCC's Financial review, we will open the call to investor questions.
<unk> had a solid Q2 performance with revenue rising 49% versus last year and 6% on a sequential basis.
We also advanced our expense reduction initiatives trimming SG&A expenses by 13, 5% versus last year more than offsetting increased investments in R&D.
To further enhance the capabilities of our solutions.
We've also reduced our note payable to a balance of $447000 from the million and a half dollars at the end of December 2024.
Turning to business highlights in the quarter bio key and our partner run level security major identity and access management deployment with the National Bank of Mozambique.
Also in Q2, we extended our penetration of the defense intelligence market based on the capabilities and strength of our iam and in particular, our biometric enabled solutions.
Michael DePasquale: We are highly limited in what we can say about security and defense customer engagements, but what I can say is that we completed the first phase of a deployment for a new international defense agency customer, and a respected Middle East police force commenced a three-year PortalGuard deployment. In addition, we secured $600,000 of follow-on orders for a prominent foreign defense ministry that bring this ongoing project to over $3 million in total revenue over the last few years. Building on our success with a growing list of foreign military and defense customers, today we announced the formation of the BIO-key Cyber Defense Initiatives. We plan to staff this effort with sales and support executives that have strong military and intelligence experience to guide our efforts and to expand our market reach by building engagement with leading defense industry contractors.
We are highly limited in what we can say about security and defense customer engagements, but what I can say is that we completed the first phase of a deployment for a new international defense aging agency customer and a respected middle East Police force commenced a three year portal guard the appointment.
In addition, we secured $600000 of follow on orders or a bought a prominent foreign defense Ministry that bring this ongoing project to over $3 million in total revenue over the last few years.
Building on our success with a growing list of foreign military and defense customers today, we announced the formation of the biotech cyber defense initiatives.
We plan to staff this effort with sales and support executives that have strong military and intelligence experience to guide our efforts to expand our market reach by building engagement with leading defense industry contractors.
Michael DePasquale: The initial focus of the Cyber Defense Initiatives will be in the EU, in Europe, where we have key reference accounts and member countries have committed to substantially expanding military and defense investments. Europe's Readiness 2030 framework and ReArm Europe plans aim to mobilize over 800 billion euros in defense investment over the next four years. Included within these efforts is the Security Action for Europe, or SAFE, loan mechanism, raising 150 billion euros for defense readiness, including missile defense, drones, and, of course, cybersecurity. Similarly, NATO members recently agreed to increase their defense and security spending to at least 5% of their GDP by 2035, more than doubling the previous longstanding target of 2% of GDP. Of the new 5% spending target, 1.5% is explicitly allocated to cybersecurity and security-related investments, including strengthening network defenses against cyber attacks.
The initial focus of the cyber defense initiatives will be in the EU in Europe, where we have key reference accounts and member countries have committed to substantially expanding military and defense investments.
Europe's readiness 2030 framework and rearm Europe plans aimed to mobilize over 800 billion euros in defense investment over the next four years.
<unk> within these efforts is the security action for Europe were safe loan mechanism, raising 150 billion euros for defence readiness, including missile defense drones and of course cyber security.
Similarly.
They recently agreed to increase their defense and security spending to at least 5% of their GDP by 2035.
More than doubling the previous long standing target of 2% of GDP.
Of the new 5% spending target one 5% is explicitly allocated to cyber security and security related investments, including strengthening network defenses against cyber attacks. The EU complement these efforts through initiatives to secure <unk> networks and critical infrastructures.
Michael DePasquale: The EU complements these efforts through initiatives to secure 5G networks and critical infrastructures, as well as a dedicated action plan for cybersecurity in vital services like hospitals and healthcare providers. This unprecedented increase in spending is deemed essential for deterring aggression and countering complex hybrid threats. Outside the defense sector, we are particularly encouraged about overall growth opportunities in the EMEA regions of Europe, the Middle East, and Africa, where we have been seeing improved traction and a particular interest in our differentiated identity-bound biometric capabilities. We have refocused our efforts on BIO-key branded solutions in those markets, following our transition away from the former licensed Swivel Secure solutions and services that we were selling in 2024 and previous to that.
As well as a dedicated action plan for cyber security and vital services like hospitals and health care providers.
This unprecedented increase in spending is deemed essential for determining aggression and countering complex hybrid threats.
Outside of the defense sector, we are particularly encouraged about overall growth opportunities in the EMEA regions of Europe, the Middle East and Africa, where we have been seeing improved traction in a particular interest in our differentiated identity bound biometric capabilities.
We've refocused our efforts on bio key branded solutions in those markets. Following our transition away from the former licensed struggle secure solutions and services that we were selling it.
In 2024 and previous to that.
Michael DePasquale: Though it takes time to rebuild the opportunity pipeline and channel strategy to focus solely on the BIO-key product suite, we are seeing good traction and positive year-over-year revenue comparisons as we progress through the year. From a margin perspective, our focus on BIO-key solutions provides us greater control and stronger gross margins, supporting our expectations for growth and enhanced margins from the EMEA group in the back half of 2025. Finally, across the business, we have been developing a new marketing program to better articulate our unique capabilities and compelling value proposition. Given the complexity and competition that exist in our space, we realized it was time to bring a new voice and focus to our core value proposition to better support our channel partners and direct sales efforts.
So it takes time to rebuild the opportunity pipeline and channel strategy to focus solely on the biotech products suite, we are seeing good traction and positive year over year revenue comparisons as we progressed through the year.
From a margin perspective, our focus on biotech solutions provides us greater control and stronger gross margins supporting our expectations for growth and enhanced margins from the EMEA group in the back half of 2025.
Finally across the business, we have been developing a new marketing program to better articulate our unique capabilities and compelling value proposition.
Given the complexity and competition that exists in our space. We realized it was time to bring a new voice and focus to our core value proposition to better support our channel partners and direct sales efforts.
Michael DePasquale: In North America, we continue to build on our strong position in higher ed, healthcare, and other public sector segments, as well as finance and insurance, benefiting from our growing base of reference accounts and IT professionals who have experienced firsthand the competitive strengths and value that we provide, in particular with our biometrics. In addition, we are taking steps to revitalize our North American direct and channel sales efforts by recruiting new leadership and cultivating a more collaborative and competitive sales culture to drive improved results. We are also moving back to an in-office model for our sales, business development, and marketing teams once again, which is identical to the way we operated before the COVID pandemic. In closing, we believe these strategic business development initiatives, coupled with our growing base of global channel partners, customers, and reference accounts, put BIO-key International Inc.
In North America, we continue to build on our strong position in higher Ed healthcare and other public sector.
Segments, as well as finance and insurance.
Benefiting from our growing base of reference accounts and it professionals, who have experienced firsthand the competitive strengths and value that we provide in particular with our biometrics.
In addition, we have taken and taking steps to revitalize our north American direct and channel sales efforts by recruiting new leadership and cultivating a more collaborative and competitive sales culture to drive improved results were.
We are also moving back to an in office model for our sales business development and marketing teams once again, which is identical to the way we operated before the Covid pandemic.
In closing we believe these strategic business development initiatives, coupled with our growing base of global channel partners customers and reference accounts.
Michael DePasquale: in a strong position to deliver improved top and bottom-line results in 2025 and beyond. We also continue to seek opportunities to reduce costs across the business, to lower our break-even level, and support our path to positive cash flow and profitability. I am excited about our potential over the coming quarters and appreciate the patience and support of our investors who have helped us get to this place. Now, I will pass the call to Cecilia Welch to review BIO-key International Inc. financials.
<unk> in a strong position to deliver improved top and bottom line results in 2025 and beyond.
We also continue to seek opportunities to reduce cost across the business to lower our breakeven level and support our path to positive cash flow and profitability.
I am excited about our potential over the coming quarters and appreciate the patience and support of our investors who have helped us get to this place now.
Now I will pass the call to Cc Welch to review biotech financials.
Cecilia Welch: Thank you, Mike. Our results were released this morning via press release, and I will now talk about some of the highlights. Our Q2 2025 revenue increased 49% to $1.7 million versus $1.1 million in Q2 2024, with improvements in each segment. The most significant contributor was a $458,000 increase in hardware revenue, principally due to additional deployments of finger biometric scanners for a large long-time customer. License fee revenue increased 4% in Q2 2025, reflecting our growing base of SaaS subscription contracts. Our service revenue increased 11%, largely to the benefit of customer service for a large customer upgrade. Q2 2025 gross profit increased by $354,000, or 40% to $1.2 million from $0.9 million in Q2 2024. Due to the increase in total revenue, offset by a modest decline in gross margin to 73% in Q2 2025 versus 77% in Q2 2024.
Thank you Mike.
Our results were released this morning, the press release and I will now talk about some of the highlights.
Our Q2, 'twenty five revenue increased 49% to $1 7 million versus $1 1 million in Q2, 'twenty four with improvements in each segment.
The most significant contributor with 458000.
Increase in hardware revenue principally due to additional deployment of single biometric scanners for a large long time.
Licensing revenue increased 4% to $2 25, reflecting our growing base.
Yes.
I'm, sorry subscription contract our service revenue increased 11% largely to the benefit of customer service for a large customer upgrade.
Two 225 gross profit increased by 350000, 54000, or 40% to 1.2 million from <unk> 9 million in Q2 24.
The increase in total revenue offset.
Modest decline in gross margin to 73% in Q2 25 versus 77% in Q2 24.
Cecilia Welch: The year-over-year margin decrease was the result of a large increase in hardware revenue as a percentage of sales in the current year period, as it carries a lower margin than license fees and services. BIO-key International Inc. reduced operating expenses by approximately $217,000, or 8.5%, to $2.3 million in Q2 2025 versus $2.5 million in Q2 2024, due to a 13.5% reduction in SG&A expenses resulting from reductions in administrative, sales, personnel costs, and professional service fees. As Mike DePasquale mentioned, the SG&A improvement was partially offset by higher research and development costs in support of development of next-generation products, such as our PortalGuard upgrade and the exploration of new products and new product lines.
The year over year margin decrease was the result of the large increase in hardware revenue as a percentage of sales in the current year period.
Is it carries a lower margin and license fees and services.
<unk> reduced operating expenses by approximately 217000 or eight 5%.
The $2 3 million in Q2, 25 versus $2 5 million in Q2 24 due to a <unk>.
<unk> 45 per cent reduction in SG&A expenses, resulting from reductions in administrative sales personnel costs and professional service fees.
As Mike mentioned, the SG&A improvement was partially offset by higher research and development.
In support of development of next generation products, such as our portal guard upgrade and the exploration of new products and new product line.
Cecilia Welch: Reflecting higher revenues and lower operating costs, BIO-key International Inc.'s Q2 2025 net loss improved to $1.2 million, or $0.20 per share, from a net loss of $1.7 million, or $1.00 per share in Q2 2024. Our per share amounts are based on 5.8 million weighted average shares outstanding in Q2 2025 compared to 1.7 million in Q2 2024, principally related to the share issuances from the warrant exercise and other financing-related activities. As of June 30, 2025, BIO-key International Inc. had current assets of $4 million, including $2.3 million in cash, up from the year-end current assets of $1.9 million, which included $438,000 of cash. The accounts receivable also increased 37% to $984,000 in June 2025, from $718,000 at year-end in 2024. Operator, at this time, please prepare for Q&A session.
Reflecting higher revenues and lower operating costs <unk> 25, net loss improved to $1 2 million or <unk> 20 per share from a net loss of $1 7 million or a dollar per share to $2 24.
Our per share amounts are based on $5 8 million weighted average shares.
Landing in Q2, 25 compared to $1 7 million in Q2 24.
Principally related to the share issuances from the warrant exercises and other financing related activities.
As of June 32025, Iot had current assets of $4 million, including $2 3 million in cash up from the from.
From a year and current assets of $1 9 million, which included $438000 of cash accounts receivable also increased 37% to 984.
In June 2025.
718000.
Year end in 2024.
And now operator at this time, please prepare for Q&A session.
Yes.
Speaker 4: We will now begin the questions. To ask a question, you may press star and one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Once again, if you would like to ask a question, please press star, then one to join the question queue. That is star, then one. The first question today comes from Dan Commas, who is a private investor. Please go ahead.
We will now begin the question.
To ask a question you may present.
One on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Once again, if you would like to ask a question. Please press Star then one to join the question queue. That's Star then one.
Yeah.
The first question today comes from Dan Thomas with Who's a private Investor. Please go ahead.
Dan Commas: Hi, guys. With the increased costs for this, I guess, sales and support team on the Cyber Defense Initiatives and increased R&D, should we expect the recent trend towards reduced operating expenses to reverse?
Hi, guys.
Yeah with the increased costs for our I guess, our sales and support team.
On the cyber defense and.
Increased R&D should we expect.
The recent trend towards a reduced operating expenses to reverse.
Okay.
Michael DePasquale: No. Well, again, I want to answer that question the right way, Dan. By the way, good morning. The answer to that question is we had, I will call it a blip in the second quarter due to a few things. Number one, some restructuring in sales. I mentioned in my prepared remarks we were doing some changes in leadership and sales and business development resourcing. So that is number one. Number two, events, and that is just the timing. You know, we attend a couple of core events each year. One of them is Gartner, one is Identiverse, ISC Squared. We attend that event as well. So the timing of and the payment, right, for those events is one element. I think we believe that the expense run rate that we started the year at will pretty much be the way we proceed through the third and fourth quarter.
No.
Again, I want to answer that question, the right way down and by the way good morning.
So no the answer to that question is we had a I'll call. It a blip in the second quarter due to a few things number one some restructuring in sales.
I mentioned in my prepared remarks, we were doing some some changes in leadership and the sales and business development Resourcing.
So that's number one number two events and Thats just the timing.
Attended a couple of core events each year one of them is Gartner one is identive ers.
C. R squared, we attend that event as well and so the timing of and the payment right for those events is one element and I think we believe that the expense run rate that we started the year at from.
We're pretty much be the way we proceed through the <unk>.
The.
Third and fourth quarter. So again it was about a $300000 blip in Q2.
Michael DePasquale: So again, it was about a $300,000 blip in Q2.
Dan Commas: Okay. Can you give us any additional color on what meaningful contract activity in the first half of next year means? Cybersecurity in Europe, I think.
Okay.
Hum.
Can you give us any at all additional color on.
What a meaningful contract activity in the first half of next year means.
Cyber security in Europe I think.
Michael DePasquale: It is pretty significant. I think our challenge, in fact, we have contracts that we have closed already this quarter and late last quarter and this quarter that we really just cannot discuss. It is a very robust market, in particular for us, for our very specific solutions. We provide not only an MFA, but an identity and access management platform with PortalGuard. We are pretty much the only vendor that has a solid proven biometric attachment to ratchet up the level of security for access management for these defense contractors and ultimately the end-use defense agencies. Because of our powerful references, that business is going to grow for us. We announced the formal initiative. We have been working this for the past year, but we announced the formal initiative this morning to go after that business in a bigger way.
Yes pretty significant.
I think.
Our challenge in fact, we have contracts that we've closed already this quarter.
And late last quarter and this quarter that we really just can't discuss.
It's a it's a very robust market in particular for us for our very specific solutions. So.
We provide a not only an MFA, but in identity and access management platform with portal guard.
And we are pretty much the only vendor that has a solid proven biometric attachment.
To ratchet up the level of security.
For access management for these for these defense contractors and ultimately the unused defense agencies, and so because of our powerful references.
That business is going to grow for us and so we announced the formal initiative I mean, we've been working this for the past year, but we announced a formal initiative.
This morning.
To go after that business in a bigger way and we'll be doing some.
Michael DePasquale: We will be doing some marketing and some other things to ensure that all of the contractors and the end-use agencies know about BIO-key International Inc. because many of these large contracts are hosted and managed by large primes, right? On an international basis, we know who all of them are. We have very good partner relationships already in EMEA. This is just making it more significant for us. It is no secret, right, that the U.S. has forced the EU and the Middle East to step up and spend more to defend themselves and to also acquire product missiles, weapons, all kinds of drones, and other technology from the U.S. as well. There is no doubt that the money is there. There is no doubt that the need is there.
Marketing and.
Some other things to ensure that.
All of the contractors and the end use agencies know about bio key.
Because many of these large contracts are.
Sid and managed by large price right and on an international basis, We know who all of them are we have very good partner relationships already in EMEA.
And this is just making it.
Making it more significant for us it's no secret right that the U S has forced.
The EU and the middle east to step up and spend more to defend themselves.
And to also acquire.
Product missiles weapons, all kinds of drones and other technology from the U S as well so.
There's no doubt that.
The money is there there's no doubt that the need is there and with our references and in particular with some very high level agencies that we havent, even discussed or announced and we can't yet.
Michael DePasquale: With our references, in particular with some very high-level agencies that we have not even discussed or announced, and we cannot yet, we think we are in a really good position to capture that. That is again on the government side, but we also have a very robust enterprise business. Look at our business in banking and in healthcare. In education, we have well over 100 customers that represent millions and millions of users every day that use our technology. I do not want anyone to think that we are moving away in any way, shape, or form from the enterprise business. I think what we are trying to say here is we are going to take advantage of the thermals that exist now because of this increase in the defense and intelligence markets that has recently evolved.
We think we're in a really good position to capture that and Thats you know thats again on the government side, but we also have a very robust enterprise business I mean look at our business in banking and in health care.
In education, we have well over 100 customers that represent millions and millions of users every day that use our technology.
So I don't want anyone to think that we're moving away in any way shape or form from the enterprise business, but I think what we're trying to say here is we're going to take advantage of the thermals.
That exists now because of this increase in <unk>.
In the defense and intelligence markets, that's recently evolved.
Dan Commas: Okay. When you say you have contracts that you cannot mention, I am just wondering, have you received the income from those contracts already in Q2, or are those contracts scheduled to come in in the first half of next year or something? I am just trying to get a feel for how.
Okay.
When you say you have.
Contracts you can't mention or I'm. Just wondering have you received the income from those contracts already in second quarter or are those contracts scheduled to.
Come in and the and the <unk>.
First half of next year or something.
I'm just trying to get a feel for how it's all both polar I was very clear I mentioned, we have already contracts that we've again close at the end of last quarter this quarter in Q3.
Michael DePasquale: No, both. Both. I was very clear. I mentioned we have already contracts that we have, again, closed at the end of last quarter, this quarter in Q3. They will be reflected in the Q3 results, right? I mean, unfortunately, again, we cannot really announce the names or any of that at this point. At some point, perhaps we will be able to do that. At this point, we cannot. I think even in Q2, certainly, at least I look at the stock price, and I do not think it is reflective of our performance today. I think that the market just yet at this point does not realize, again, our opportunity.
And they'll be reflected in the Q3 results right I mean, Unfortunately again, we can't.
We can't really announce the names or any of that at this point at some point, perhaps we will be able to do that but at this point, we can't and so on.
I think even in Q2 you know the.
Certainly at least I look at the stock price and I don't think itch.
Reflective of our performance today, and I think that the market just yet at this point doesn't realize again, our opportunity and unfortunately, it's it's going to happen.
Michael DePasquale: Unfortunately, it is going to happen. It is going to be shown in the results because a lot of the things that we are involved in right now are just not announceable. It is just the way it is. I do not think we are the only company in this position, but certainly for us right now, that is our situation.
It's going to be shown in the results.
Because a lot of the things that we.
Are involved in right now are just not announcing its just the way it is and I don't think we're the only company in this position, but certainly for us right now.
That's our situation.
Dan Commas: Okay. But you are saying that these things you have not announced, that they will be providing income in the next year. And that is some of what you are basing this idea of meaningful contract activity, or are you just expecting that because of the increased market in Europe and EMEA? That is what I am trying to understand.
Okay, but you're saying that the these things you havent announced that they'll.
Well there'll be providing income are in the next year.
And that's some of what you're basing this idea of.
Meaningful contract activity or are you just expecting that because of the increased market in Europe, and and I'm. Yeah. That's what I thought Oh, no. This isn't a pipe dream.
Michael DePasquale: No, no, no. This is a pipe dream. There will be results this quarter from some of these contracts in Q3. This is Q3. We are in Q3 and Q4 and obviously beyond. But these are real contracts that have generated revenue already and will continue to generate revenue through the end of this year and into next year and beyond, right? Obviously, these are, you know, these spending initiatives that are, in particular in the EU and in the Middle East, are multi-year, right? These are not just, you know, one-time kind of blips. These are investments that are going to go on for five-plus years, maybe even longer.
There will be results this quarter.
Some of these contracts in Q3. This is Q3, where in Q3 and Q4 and obviously beyond but these are real contracts that have.
Generated revenue already and will continue to generate revenue through the end of this year and into next year.
And beyond right. Obviously these are.
This.
Spending.
Initiatives that are in particular in the EU and in the Middle East are multiyear right. These are not just one time kind of blips. These are investments that are going to go on for.
Five plus years, maybe even longer.
Dan Commas: Okay. Do you expect these to ramp, I guess? I am trying to understand, we have lost a million dollars, I think, in this quarter. So these have to ramp for you to get to break even. Are you expecting like a significant growth from these in the first half? Is that what is going on?
Okay. Do you expect these two to ramp I guess, I'm I guess I'm trying to understand the Wil.
Uh huh.
Well I mean, we've lost $1 million I think in this quarter. So the these have to ramp for you to get to breakeven. So are you expecting like a growth significant growth from these in the first half is that what's going on.
Michael DePasquale: Oh, absolutely. There is no question. I mean, you know, again, it is iterative, right? These things will grow. The quantity of opportunities, customers will grow, as will the size. And typically, these things start and then they iterate. If you look at that, our first, our largest defense ministry, right, we have iterated to multi-million dollar, to multiple millions of dollars in sales, both hardware and software with them over the last few years. So, you know, these are the things that continue, right? They start and then they iterate. They get bigger. More users get added. More touchpoints get added, i.e., that represents hardware. But one other point that I want to make, you know, our blended gross margins still are 70%-plus, which is very, very strong. You know, they float, right, between 70% and 80%.
Absolutely there is no question.
Again, it's iterative right. These things will will grow that quantity of.
<unk> customers will grow as will the size and typically these things start and then they iterate our if you look at that.
First our largest defense Ministry right, we've we've reiterated to multi million dollar.
To multiple millions of dollars in sales, both hardware and software with them over the last few years and so these are the things that continue right. There. They they start and then they iterate they get bigger more users get added more touch points get at it I E that represents hardware, but one other point that I want to make.
Our blended gross margins still are 70, plus percent, which which is very very strong.
Float right between 70 and 80.
Michael DePasquale: But at the end of the day, those are very, very strong and powerful gross margins. And I think a testament to the quality and the nature of our solution set. Customers want one throat to choke. They want to be able to buy everything from us and know that we are there to support everything. So, you know, again, that is also very powerful for us.
But at the end of the day those are very very strong and powerful gross margins and I think a testament to the.
The quality.
And the.
The nature of our solution set customers want one throat to choke they want to be able to buy everything from us.
And know that we're there to support everything so.
Again, Thats also very powerful for us.
Dan Commas: Okay. You mentioned some of this has happened in the third quarter. I think last call, you mentioned that during the summer, I guess Europe shuts down in August and whatnot. Do we have a feel at all for whether we will get growth in the third quarter or whether we might see a little bit of a slowdown before a ramp back up in the fourth quarter? Anything like that?
Okay.
You mentioned.
Some of this has happened in the third quarter I think last call you mentioned that during the summer I guess Europe shuts down in August and whatnot.
Do we have a feel at all four.
Whether we'll get growth in the third quarter or whether.
Whether we might see a little bit of a slowdown before a ramp back up in the fourth quarter anything like that yes, while we don't provide guidance. So I'm not going there, but there's no question that Europe right now right. We're in the we're in the dead when the debt portion of the summer in Europe.
Michael DePasquale: Well, we don't provide guidance, so I'm not going there. There's no question that Europe right now, we're in the dead portion of the summer in Europe. You know, that will continue through the end of the month. But in September, you know, things will wake back up again. So we're encouraged by our pipeline and the number of opportunities we have. In the context of also on this, you know, kind of defense intelligence segment, it's typically a priority. So it's less impacted by the, I'll call it the malaise that you see typically in the European summer because these things are mission-critical. They may obviously have less staff or a diminished focus, but the focus doesn't go away, as it will sometimes you'll see that in the enterprise or commercial markets in Europe. But you'll see less of that in the defense and intelligence sectors.
And.
That will continue through the end of the month, but in September.
We will wait back up again, so we're encouraged by our pipeline and the number of opportunities we have and in the context of also on this kind of defense intelligence.
This segment, it's typically a priority so it's less impacted by the.
I'll call it the malaise that you see typically in.
In the European Summer.
Because these things are mission critical right. So so they may obviously have less staff or diminished focus, but the focus doesn't go away as it will.
Sometimes you'll see that in the enterprise or commercial markets in Europe, but you'll you'll see less of that in the defense and intelligence sectors.
Dan Commas: Okay, that's helpful. How much of the reserve inventory did you sell? Can you give us that?
Okay. That's helpful.
How much of the reserve inventory cause yourself can you give us that.
Michael DePasquale: We are selling it basically every quarter. We sold a bunch already this quarter in Q3. We continue to move that inventory. Our goal and objective is to, again, by the end of the year, have moved the bulk of it. I keep mentioning, and I have mentioned this on a number of calls, that we have a few larger opportunities to move higher volumes of those units. That is starting to come to pass for us. You will see that reflected in the numbers as we evolve forward. Of course, as you know, they have all been written down. It is revenue and it is also all cash. It is good for us and all margin.
Yeah, Yeah, we were selling it.
Basically every quarter.
We sold a bunch already this quarter in Q3, we continue to.
To to move that inventory and our goal and objective is to <unk>.
Again by the end of the year to move the bulk of it so I keep mentioning and I've mentioned this on a number of calls.
That we have a few.
Larger opportunities to move higher volumes of those units and that's starting to.
Come to pass for us so.
You'll see that reflected in the numbers as we evolve forward and of course as you know they've all been written down. So it's it's all its revenue and its also wall cash. So it's good for us and in all margin.
Dan Commas: Right. But can you tell us how much you have left?
Right right, but can you tell us how much you have left.
Michael DePasquale: No.
No.
Dan Commas: Do these hardware sales lead or lag software sales? I noticed a big increase.
To the do these hardware sales lead or lag our software sales.
Big increase.
Michael DePasquale: They usually come together. They usually come together. So typically, the initial contract or sale will include software and the hardware to, you know, to get the solution up going, users registered, deployed. Then the expansion will typically include software and maybe some hardware. So there might be less, there might be more. In the context of our large defense ministry customer, they have deployed, I believe, 40,000 touchpoints, meaning they have deployed 40,000 finger scanners in different locations throughout their infrastructure. They continue now to add users, right? More and more larger portions of their population are now getting enrolled because they have a wide distribution of touchpoints. They fundamentally have mandated that anyone who accesses anything that has to do with their intelligence infrastructure must utilize the BIO-key solution. Every one of those touchpoints has a BIO-key logo on it, just FYI.
When they usually come together and they usually come together so typically.
The initial contract or sale will include software and hardware to.
The the solution going.
The users registered.
Deployed and then the expansion will typically include software and maybe some hardware so there might be less there might be more in the context of our large defense ministry customer they've deployed I believe 40000.
Such points, meaning they've deployed 40000 fingers scanners in different locations.
Throughout their infrastructure.
And they continue now to add users right more and more larger portions of their population are now getting enrolled because they have a wide distribution of touch points and they fundamentally have mandated that anyone who accesses anything bad.
That has to do with their intelligence infrastructure must utilize the biotech solutions.
And every one of those touch points as a <unk> logo on it just FYI.
Okay.
Dan Commas: Can you give us any update on Nigeria or Africa? That is still.
Can you give us any update on Nigeria or Africa.
That's still.
Michael DePasquale: You know, we still operate there, and we really have turned our focus to supporting our core products right now. You know, we have a number of partners that we have signed up to our EMEA group in Africa that will be representing us, but more for our core technology and core products. The volatility on the other side of the market, you know, I call it the civil ID market, is just it is just not worth our effort at this point. We do believe, though, in Africa as an emerging market, but more on the, as you see, we closed two deals in two banking deals in Africa in the first half, right? The National Bank of Mozambique and Egypt. We have another one in the pipeline that we hope will close this quarter or next.
You know, we still operate there and where we really have turned our focus to.
Supporting our core products right now.
We have a number of partners that we've signed up through our EMEA group in Africa that are.
We will be representing us, but more for our core technology and core products. The the volatility on the other side of the market I call. It. The Civilised D market is just it's just not worth our effort at this point.
We do believe though in Africa is an emerging market, but more on the.
As you see we closed the two deals in two banking deals in Africa in the first half right the bank of Mozambique and Egypt.
We have another one in the pipeline that.
We hope will close this quarter or next.
Michael DePasquale: So going after the commercial, you know, enterprise market, in particular with our biometric solutions, seems like a very powerful opportunity. So that is our focus right now in greater Africa.
So going after the commercial enterprise market in particular with our biometric solutions is seems like a very powerful opportunity. So that's our focus right now.
Greater Africa.
Dan Commas: I see. Last question. Do you think you have enough cash and equivalents to get you through the end of the year?
Last question are you think you have enough.
Cash and equivalents to get you through the end of the year.
Michael DePasquale: Yes, we do.
Yes, we do.
Dan Commas: Okay. I will get back in the queue. Thank you for the time.
Okay, I'll I'll get back in the queue. Thank you for the time.
Michael DePasquale: Thanks, Dan.
Dan.
Okay.
Speaker 4: As a reminder, if you would like to ask a question, please press star, then one to join the question queue. That is star, then one to ask a question. There are no further questions at this time. I would like to turn the call back over for any closing remarks.
As a reminder, if you would like to ask a question. Please press Star then one to join the question queue. That's Star then one to ask a question.
There are no further questions at this time I'd like to turn the call back over for any closing remarks.
Michael DePasquale: Thank you, everyone, for taking the time with us today. You may reach out to our IR team, whose contact information is in today's press release with any follow-up questions. Also, we expect to participate in a number of conferences as we evolve forward through the end of the year. Stay tuned for those announcements. We certainly will keep you posted. With that, have a great day, a great rest of the week, and a great rest of the summer. We look forward to updating you on our call in the late fall, in the mid-fall, in October. Have a great day.
Thank you everyone for taking the time with us today.
May reach out to our IR team, whose contact information.
As in today's press release with any follow up questions.
Also.
We expect to participate in a number of conferences.
As we evolve forward through the end of the year and stay tuned for those announcements. We certainly we'll we'll keep you posted.
With that have a great day.
A great rest of the week and a great rest of the summer we look forward to updating you on our call.
After in the in the late fall and the mid fall in October have a great day.
Speaker 4: Conference is now concluded. Thank you for attending today's presentation. You may now
Sounds like it has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yeah.
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