바이오키 인터내셔널(BKYI) 2026년 2분기 실적 발표 콘퍼런스 콜: 매출총이익률 87%, 하반기 수익성 목표

주요 핵심 내용

• 2026년 2분기 매출은 라이선스 수수료 매출이 1.2백만 달러로 53% 증가한 데 힘입어 전년 동기 대비 13% 증가한 1.92백만 달러를 기록했습니다.
• 매출총이익은 1.7백만 달러로 36% 증가했으며, 매출총이익률은 소프트웨어 라이선스 비중 확대 및 이전에 충당금을 설정했던 하드웨어 재고 판매를 반영해 73%에서 87%로 확대되었습니다.
• 순손실은 577,000달러(주당 0.56달러)로 51% 감소했습니다. 상반기 순손실은 782,000달러로 59% 개선되었습니다.
• 2분기 중 예정되었던 대규모 하드웨어 출하가 하반기로 연기되었습니다. 경영진은 이번 연기가 수요 약화보다는 타이밍의 문제라고 밝혔습니다.
• 경영진은 지연된 주문, 파이프라인 내 더 큰 기회, 안정적인 영업비용에 힘입어 2026년 하반기 흑자 전환을 목표로 하고 있습니다.
• 바이오키(BIO-key)는 워런트 거래 이후 현금 보유액이 4.5백만 달러를 초과하여 운영 및 성장 이니셔티브를 위한 운전자금을 확보했다고 밝혔습니다.

주요 재무 실적

상반기 매출은 주로 라이선스 수수료 성장으로 인해 23% 증가했습니다. 상반기 순손실은 전년 동기의 1.9백만 달러(주당 3.61달러)에서 782,000달러(주당 0.75달러)로 감소했습니다.

6월 30일 기준 바이오키는 자본총계 4.3백만 달러, 유동자산 3.8백만 달러(현금 1.4백만 달러, 매출채권 1.7백만 달러, 재고자산 376,000달러 포함)를 기록했습니다. 회사는 이후 워런트 행사 유도 거래를 통해 총 2.5백만 달러의 자금을 조달했습니다. 경영진은 5%의 금융 수수료 차감 후 순수입금을 약 2.3백만 달러에서 2.4백만 달러로 추정했습니다.

사업 및 영업 성과

바이오키의 성장은 수익성이 더 높은 소프트웨어 라이선스에 집중되었습니다. 경영진은 라이선스 매출과 반복 계약이 회사 전략의 핵심으로 남아 있으며, 소프트웨어의 수익 구조가 80%대 중반 수준의 매출총이익률을 뒷받침하고 있다고 밝혔습니다.

EMEA는 여전히 주요 확장 지역입니다. 요르단 중앙은행은 포털가드(PortalGuard) 및 웹키(WEB-key)를 활용한 인증 현대화 사업에 바이오키를 선정했습니다. 경영진은 해당 프로젝트가 파일럿 단계를 넘어 현재 도입 계획 단계에 있으며, 향후 2~3분기에 걸쳐 하드웨어 및 소프트웨어 매출이 더욱 확대될 것으로 예상된다고 밝혔습니다.

포르투갈에서는 국안안보 기관이 파트너사인 비주얼포마(Visualforma)를 통해 포털가드, 웹키, 그리고 바이오키의 FBI 인증 EcoID 지문 스캐너를 선정했습니다. 경영진은 바이오키와 파트너사가 추가 도입을 확보하는지에 달려 있겠지만, 포르투갈 공공 부문의 광범위한 기회가 향후 몇 분기 동안 연간 수백만 달러의 반복 매출을 창출할 수 있다고 밝혔습니다.

바이오키는 사우디아라비아, 요르단, 미국의 교육 기관을 공략하기 위해 막타비텍(MaktabiTech)과도 파트너십을 맺었습니다. 미국 내 금융 부문에서는 앨라배마주에 본사를 둔 AOD 연방신용조합(AOD Federal Credit Union)이 37,000명 이상의 조합원을 보유한 조직을 위해 바이오키의 생체 인증 솔루션을 도입했습니다.

규모 확장을 위해 파트너 모델은 여전히 중요합니다. 미국 내 신규 사업의 약 절반과 해외 사업의 사실상 전부가 채널 파트너를 통해 발생합니다. 바이오키는 또한 TD SYNNEX의 사업부인 DLT 솔루션즈(DLT Solutions)와의 협력을 통해 미국 공공 부문과의 관계를 발전시키고 있습니다.

포털가드 7.0(PortalGuard 7.0)은 잠재 고객에게 시연 중이며 기존 고객층을 대상으로 확대 도입되고 있습니다. 패스키:WE(Passkey:WE)는 여러 대형 잠재 고객과 함께 평가 및 파일럿 테스트를 진행 중입니다. 경영진은 기존 정체성 관리 시스템(identity provider)과의 연동 능력을 핵심 강점으로 설명했으나, 패스키:WE의 매출 기여도를 수치화하기에는 아직 이르다고 말했습니다.

경영진 가이던스

경영진은 지속적인 매출 성장을 기대하며 2026년 하반기 흑자 전환을 목표로 하고 있습니다. 이러한 전망은 지연된 하드웨어 주문의 출하와 더불어 정부, 국방, 금융 및 기타 규제 산업 분야에서의 추가 대형 프로젝트 계약 체결 여부에 달려 있습니다.

회사는 지연된 주문을 3분기에 전량 출하하기를 희망하지만, 경영진은 시점이 여전히 불확실하며 하반기 전체로 연장될 수도 있다고 밝혔습니다.

경영진은 8월 유럽의 계절적 둔화에도 불구하고 3분기 성장을 예상하고 있으며, 4분기에는 현저히 강한 성장을 기대하고 있습니다. 또한 라이선스 및 반복 매출을 확대하는 한편, 비용 수준은 안정적이거나 감소하는 추세를 유지할 계획입니다.

바이오키는 자금 조달 이후 현금 잔액이 에이전틱 AI(agentic AI)용 생체 인식 제어 관련 작업을 포함해 운영 및 투자를 지원하기에 충분하다고 밝혔습니다. 경영진은 현재 추가적인 주식 가치 희석을 예상하지 않는다고 말했습니다.

리스크 및 관전 포인트

• 대규모 하드웨어 주문이 지연됨에 따라 2분기 실적은 경영진의 내부 기대치에 미치지 못했습니다. 정확한 출하 시점은 여전히 불확실합니다.
• 하반기 흑자 달성은 파이프라인 내 소수의 대형 프로젝트 계약 체결 여부에 부분적으로 달려 있습니다.
• EMEA 지역의 3분기 영업 활동은 8월 휴가철의 영향을 받을 수 있으며, 9월부터 사업 활동이 보다 본격적으로 재개될 것으로 예상됩니다.
• 2분기 매출총이익률 87%는 이전에 전액 충당금이 설정되어 매출총이익에 100% 기여한 하드웨어 재고 판매의 혜택을 받았습니다.
• 패스키:WE 및 AI 거버넌스용 생체 인증은 여전히 발전 중인 기회 요소입니다. 바이오키는 평가를 진행하고 파트너를 발굴하는 단계에 있으며, 단기적 매출 영향은 수치화하지 않았습니다.
• 워런트 행사로 인해 주식 수가 증가했습니다. 워런트 보유자는 9.9% 소유권 제한 규정을 적용받으며, 초과 주식은 유예 상태로 유지됩니다.

애널리스트 Q&A 주요 내용

경영진은 지연된 하드웨어 출하가 하반기의 여러 대형 기회 중 하나일 뿐이라고 밝혔습니다. 바이오키가 더 많은 사용자 수 기반의 정부, 국방 및 금융 분야 프로젝트를 추진함에 따라 계약 규모가 커지고 있습니다.

요르단 중앙은행 프로젝트에 대해 경영진은 바이오키가 경쟁 입찰을 통해 선정되었으며, 현재 파일럿 수행이 아닌 도입 물류/운용을 계획 중임을 확인했습니다. 경영진은 이 프로젝트가 연간 100만 달러 이상의 반복 매출을 창출하는 남아프리카공화국 은행 고객의 규모에 궁극적으로 도달할 수 있다고 말했습니다.

포르투갈과 관련하여 채널 파트너는 일반적으로 20%~30%의 소프트웨어 할인을 받고 구축 및 지원 서비스를 제공합니다. 바이오키는 이에 따른 매출 기준 자체 소프트웨어 매출총이익률이 약 85% 수준을 유지하고 있다고 밝혔습니다.

경영진은 고객의 기존 인프라를 교체하지 않고도 옥타(Okta), 포지록(ForgeRock), 듀오(Duo), 세일포인트(SailPoint) 등의 신원 플랫폼에 패스키:WE를 추가할 수 있다고 설명했습니다. 회사는 현재 대형 잠재 고객들을 대상으로 제품을 평가하고 있으나 상업적 기여도를 추정하기에는 더 많은 데이터가 필요하다고 말했습니다.

바이오키는 또한 중요한 AI 에이전트 작업에 대한 잠재적 제어 계층으로서 생체 인식을 강조했습니다. 경영진은 보안이 지문이나 얼굴 이미지 자체의 비밀성에 의존하기보다는 라이브니스 감지(liveness detection), 암호화된 생체 인식 템플릿, 보호된 전송에 달려 있다고 말했습니다.

실적발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good morning, everyone. Thank you for standing by, and welcome to BIO-key International's second quarter 2026 conference call. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, August 14, 2026. I will now turn the call over to Bill Jones of Investor Relations. Please go ahead.

Bill Jones

Hosting today are BIO-key'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. These are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words such as anticipate, believe, expect, plan, or project, and similar words identify and express forward-looking statements.

These 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 these risks and uncertainties that affect future performance, please see risk factors in the company's annual report on Form 10-K and the current Form 10-Q 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 forward-looking statements to reflect circumstances or events occurring after this call.

Now I'll turn the call over to Mike to begin.

Michael DePasquale

Thanks, Bill, and thank you all for joining us this morning. After my remarks, Cecilia will review the financials, and then we will take investor questions. Let me start with the headline. Our second quarter bottom line improved 51% on 13% revenue growth. And for the first half of the year, our net loss improved almost 60% on 23% growth in revenues. To be clear, these results didn't meet our proposed expectations, not because of any softness in demand, but due to a delayed shipment for a hardware order that we had anticipated in Q2. The order was delayed, and we expect to ship it in the second half of the year.

Considering that shift, combined with the opportunities already in our pipeline, we expect continued growth and are targeting profitability for the second half of 2026. So let me spend some time talking about what's driving our outlook. It's really about the broader momentum we're building today, particularly across Europe, the Middle East, and Africa, or EMEA, which is really starting to bear fruit. We're closing deals, adding productive channel partners, and developing new project discussions at an accelerated pace, all of which fundamentally underlie our business momentum. Our revenue gains are also supported by strong secular backdrops. According to Future Market Insights, the global market for authentication solutions is projected to grow rapidly over the next 10 years, from roughly $26 billion this year to over $114 billion by 2036.

This represents a 16% compounded annual growth rate as organizations of all kinds and all sizes take action to defend against increasingly sophisticated cyber threats. In the area of passwordless authentication, where BIO-key delivers industry-leading solutions, a recent FIDO Alliance report found that 68% of organizations are actively deploying or piloting passkeys for employee sign-in. In addition to our biometric and Passkey:WE passwordless solutions, our flexible authentication platform, PortalGuard, supports 16 different authentication factors and doesn't depend on any single device. This provides us with a unique ability to support complex authentication environments because when it comes to enterprise and government authentication needs, one size simply doesn't fit all.

To put that in context, let me walk through several recent wins and partnerships, most of which were announced just in the past few weeks. In the Middle East, we partnered with MaktabiTech to bring PortalGuard, including passwordless authentication and identity-bound biometrics, to educational institutions in Saudi Arabia, supporting their Vision 2030 digital transformation agenda, as well as to Jordan and the U.S. Separately, the Central Bank of Jordan is working with us on a national initiative to modernize authentication across the country's financial sector using our PortalGuard and WEB-key technologies to move away from passwords and tokens entirely.

We believe growing examples of national scale mandates, including sovereign ID, represent the future of authentication in the region, a future where we intend to play a substantial role. Turning to Europe, a national security agency in Portugal selected BIO-key and our in-country partner, Visualforma, to deploy PortalGuard and WEB-key with our FBI-certified EcoID fingerprint scanners. This follows our earlier nationwide public sector rollout and a digital identity contract we secured with Visualforma for deployment in a major Portuguese tourist city. It's an example of how one successful public sector deployment can help foster additional opportunities as trust and reference relationships continue to build over time.

In the U.S., Alabama's AOD Federal Credit Union, which serves more than 37,000 members, deployed our phishing-resistant biometric-based authentication solution through our partner, BlueAlly, citing our platform's flexibility versus alternatives that they evaluated, as well as reduced help desk burden from eliminating frequent password resets. As phishing and MFA fatigue attacks escalate against financial institutions, identity-bound biometrics is gaining traction as smart and powerful protection with a compelling cost of ownership. I'll also note, we continue to see attractive second half opportunities building in our EMEA pipeline. Our momentum in the region is broad-based, spanning government, defense, financial services, and now education.

We believe this reflects rising urgency among these customers, driven both by increasing cybersecurity incidents and growing geopolitical tensions, and supported by generally more favorable regulatory frameworks that let us move from first conversation to signed contracts more quickly. In the second quarter, we completed a 1-for-10 reverse stock split to support our continued Nasdaq listing. In July, we regained compliance with the Nasdaq listing rules and resumed trading on the Nasdaq Capital Market, which provides a visible and respected platform for our common stock. And earlier this week, we enhanced our financial liquidity and balance sheet through a warrant transaction that raised gross proceeds of $2.5 million. New capital will continue to support our operations and, more importantly, our growth initiatives and perceived financial strength with prospective customers, while also bolstering our compliance with current and proposed listing requirements.

Most importantly, we are focused on executing against the significant opportunities in front of us. Our go-to-market model continues to scale efficiently through partners. Roughly half of our new U.S. business and virtually all of our international business is developed through our channel network. On the domestic public sector side, we're building out our working relationship with our new partner, DLT Solutions, a division of TD SYNNEX. This relationship provides a streamlined procurement path into DLT's very large base of public sector customers, most of whom must work with pre-approved vendors to meet Zero Trust and MFA mandates. On the product side, our major PortalGuard 7.0 platform upgrade is now being demonstrated to prospects and has already begun to roll out more broadly across our existing customer base.

I will now touch on an area of exciting potential, which is the role biometric authentication can play in securing the AI ecosystem. We believe that human oversight of agentic operations really is a killer app opportunity for biometrics. Several recent high-profile AI control failures have helped to highlight the need and the potential for biometrics to play a critical role in providing non-repudiable authentication and approval for material AI agent actions. This isn't just our internal view. In January, the first governance framework built specifically for agentic AI was released at the World Economic Forum's annual meeting with a central pillar that humans must remain meaningfully accountable for decisions and actions taken by autonomous systems.

We see biometrics as the ideal method for enabling such human control. Separately, the Cloud Security Alliance have described a governance vacuum around non-human identities as service accounts, bots, and AI agents now outnumber human users inside many enterprises by more than 100 to 1. And most organizations have no reliable way to tie an agent's actions back to an accountable person. Chief Information Security Officers rank identity assurance for an AI world as a top security priority in 2026 and 2027. We think that's exactly the gap that biometric identity-bound authentication is built to close, anchoring high-stakes approvals to a real person rather than a device or a credential that can be shared, stolen, or cloned.

We are actively working to develop strategies around our existing solutions, such as Passkey:WE, and working to identify and develop strategic partners to build out AI governance connection points around this opportunity. Before I turn the call over to Cecilia, I want to reiterate our excitement about the business progress so far this year and the strength of our outlook for the second half and moving forward. It's a genuinely exciting time for BIO-key, as the work we put into this business over many years is increasingly being recognized and, more importantly, validated by a growing base of private and public sector customers around the world. With that, I'll turn the call over to Cecilia for her financial review.

Cecilia Welch

Thank you, Mike. We released our results after yesterday's close via press release and also filed our Form 10-Q. Let me walk you through some of the important highlights. Total revenue for Q2 '26 increased 13% to $1.92 million compared to $1.7 million in Q2 '25. That growth was driven by a 53% increase in license fee revenue to $1.2 million from $800,000 reflected several new customer license agreements signed during the quarter. Hardware revenue decreased 19% to $460,000 from $569,000, principally due to the timing of customer deployments, including the absence of a large order Mike mentioned that shifted from Q2 into our second half, with a large deployment for a long-term customer in prior year period. Service, maintenance and other revenue decreased 28% to $231,000 from $322,000 due to lower non-recurring service revenues tied to product customization and the timing of recurring revenue service agreements renewals. The first half of the year, total revenue grew 23%. They're also driven primarily by the license fee growth.

Gross profit for the quarter increased 36% to $1.7 million from $1.2 million in Q2 '25, and gross margin improved to 87% up from 73% a year ago. That improvement reflects growth as well as larger concentration of high margin license fee revenue and increased benefit from sales of hardware inventory that had previously been fully reserved. Much of the reserved inventory relates to units originally purchased for projects that were delayed indefinitely during the pandemic. We have been selling that inventory into other markets and since it's been fully reserved, those sales carry 100% gross profit contribution. Total operating expenses decreased 5% to $2.2 million, principally reflecting lower selling general and administrative expense from our ongoing cost containment efforts, partially offset by higher expenses related to the reverse stock split and operating expenses, audit and tax-related costs.

In all, our Q2 '26 net loss improved to $577,000, or $0.56 per share, compared to a net loss of $1.17 million, or $2.01 per share in Q2 '25, a 51% improvement. For the first half, our net loss improved 59% to $782,000, or $0.75 per share, compared to $1.9 million, or $3.61 per share, in the first half of 2025. Weighted average common shares outstanding, and per share results reflect an impact of the April 30th 1-for-10 reverse stock split, as well as warrant exercises and other financing activities through June 30th.

Turning to the balance sheet, stockholders' equity was $4.3 million as of June 30, and we had $3.8 million of current assets at the quarter end, including $1.4 million of cash and $1.7 million of accounts receivable and $376,000 of inventory. Following the quarter end, we reduced the outstanding balance due for our outstanding note by $350,000 or 51% to $325,000 in exchange for the issuance of $81,100, or approximately $4.32 per share. And as Mike mentioned, we raised gross proceeds of $2.5 million earlier this week through a warrant inducement transaction involving the sale of 681,334 shares of common stock upon the exercise price of $4.06 per share, and the new issuance of warrants to purchase 1.2 million shares of common stock at an exercise price also $4.06 per share. Given the effect of the financing proceeds, the company's current cash position is now over $4.5 million, which provides ample working capital support for our operations and growth. As Mike outlined, we expect continued growth and we are targeting profitability for the second half of the year. Operator, we can now proceed with questions and answers.

Operator

Thank you. [Operator Instructions] The first question today comes from Jack Vander Aarde with Maxim Group. Please go ahead.

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Jack Vander Aarde

Okay, good morning. Great update, Mike. So, Mike, maybe I'll start with a question on your business outlook for the back half of the year. Expecting revenue growth and profitability, which is great to hear. Just maybe touch on that, I guess specifically that large hardware order that got pushed into the second half? Do you have any line of sight there, visibility, how that's going to be allocated as it ships? And is it going to be, or is it going to be allocated across both the third and the fourth quarter?

Michael DePasquale

It's hard for me to say right now. We'd like to see it all ship in the third quarter, but we'll see as things evolve. But more importantly, Jack, that's not the only large order or let's say project or contract that we're working for the second half. What I didn't mention in my prepared remarks is what we're really enthused and excited about is the size of our orders and the amount of orders and the size of our contracts are going up significantly. So as we work in the regulated industries, especially in government, defense, and in banking, the opportunities in general themselves are bigger, right? The user counts and user population are larger, and so therefore, so are the value of those contracts. So the reason that we're enthused and excited about continued growth in the second half and obviously getting to profitability is, you know, we need just a couple of those large ones to fall, and we should easily get there. So it's that order and many others that we're working in the second half as well in our pipeline.

Jack Vander Aarde

Okay, great. No, I appreciate all that. Of course, things are... it's really growth across the board here. If I look at your license revenue as well, that did look like it picked up a bit here in the second quarter. I just want to kind of housekeeping question. Normally you have that slower third quarter sometimes in the licensing front because of EMEA. Now things have changed a little bit in your business model. Do we expect growth across, I guess, all the segments as well then in the back half, including license revenue?

Michael DePasquale

Yes, well, first of all, license revenue is growing, and that's really what we're after, right? I mean, that's what drives our gross margin and maintaining a high gross margin, because most of our customers who buy our biometric, identity-bound biometric solutions, buy both hardware and software. But for sure, the third quarter, given again, like right now, virtually everyone is off right in August. So things don't pick up until first or so, first, second week of September. But I still feel like we have enough in the pipeline to have growth in the third quarter and absolutely, certainly significant growth in the fourth quarter as we close out the year. So, yes, I think we're going to continue to see growth across the board.

And, like what we're after, right? That's the business here, recurring revenue, signing customers up, getting more contracts in play, and building a recurring revenue base. That and, you know, maintaining our expense levels. We had a little bit of a blip in the second quarter with one-time expenses, but that was a one-time event. Our expenses have been very stable, if not declining. So, you know, we need to hold in that realm and we need to build that license revenue. With gross margins in the, you know, 85% range, it's, you know, most of what we sell drops to the bottom line.

Jack Vander Aarde

Yup, no, definitely. This is actually, might be a historical record quarter on the gross margin front. I'm looking back at my model here, but no, that was great to see. And then plus you got this cash that came in with these warrant inducements and I think you're over $4 million of cash now pro forma. As you look forward and you're going to be profitable, I mean, is this cash? What are the specific use cases for cash? Or is this just good working capital on hand to have?

Michael DePasquale

And no further dilution expected. Well, there's no further dilution expected. That's for sure. At this point, we have adequate cash resources to not only operate our business, but to continue to invest in the areas, as I mentioned, around agentic AI and security. Securing that whole ecosystem right now is really a wonderful opportunity for biometrics, and no one does it better than us. I mean, it's pretty clear, and we've been validating this, as I mentioned in my prepared remarks, with many prospect customers and, in particular, partners, that we have a very unique offering. Roaming users and use cases where phones and tokens just don't work and because again they use users cannot have, for example, a phone in their hand if they're in a service bay, or they don't want them with a phone in a call center where you can take photographs of customer records and that kind of thing.

So, you know, we've got the perfect solution, and our Passkey:WE offering, which is now ramping is going to be a really big benefit for us. So, you know, we're just really optimistic about being able to take advantage of that. But yes, we're not anticipating any additional dilution at this point. We've got adequate cash on hand to continue to operate our business and we'd like to keep working at the highest level we can. It gives us credibility with our prospects and our customers. And so that was the impetus behind doing this last raise that we did.

Jack Vander Aarde

Okay, great to hear. And just because you mentioned it, maybe one more question on Passkey:WE, just do you have like a rough sense, what percentage or just roughly how much of that is a business driver for your results, I guess, in the back half to get profitable or your revenues recently. Just kind of what does that make up in terms of BIO-key's overall revenue mix?

Michael DePasquale

Well, we're just scaling. It's hard for me to give you a percentage, but it's the kind of solution, maybe put it in context, a solution that can be sold anywhere to anyone even if they're running today a competitive offering. So let's just take a classic Okta, ForgeRock, Duo, SailPoint customer that has those use cases that I just mentioned. They have employees in the call center. They have service employees that cannot utilize a phone or a token. They can take advantage of our solution because it can just bolt on to their existing what we call IdP. So it can just bolt on and can be utilized today without changing out their infrastructure.

So that's pretty powerful. We don't really know what the potential is over the next, you know, probably 12 months, but it's significant. And as we continue to, right now, we're in a number of different evaluations and pilots with some large customers. As we get more data and information on that, I think we'll be able to predict. But at this point, we know it's large. We'll see how large. And by the way, if we can attach this directly to those partners for them to make available to their customers that are in those fringe use cases, it can be even bigger. It could be really significant. But we have work to do.

Jack Vander Aarde

Excellent. Well, great to hear, Mike. I appreciate all the time and I'll hop back in the queue.

Michael DePasquale

Thanks.

Operator

[Operator Instructions] The next question comes from Dan Camhi, Private Investor. Please go ahead.

Dan Camhi

Good morning.

Michael DePasquale

Good morning.

Dan Camhi

Hi. On the Central Bank of Jordan, the release said that the central bank was developing an initiative. Does that mean that they're studying what they want to do or have they been, are you contracted and actually receiving revenues like in the second quarter or expect in the third quarter?

Michael DePasquale

Yes, we are, and we're expecting it to be much more significant going forward. So, in the second half and then obviously into the first part of 2027, as we described in that press release, it's a significant initiative that could impact their entire user population. If you think about our South African bank customer where, you know, we're generating well over a million dollars in ARR, it certainly has that potential and capability, but will crescendo to that over the next probably two to three quarters.

Dan Camhi

I see. Will you be selling hardware?

Michael DePasquale

Both hardware and software. But obviously our focus is on the software, right, the user accounts. That's always driving – well, again, our blended gross margins are really, really good, 75% plus. But obviously software is a higher gross margin.

Dan Camhi

I see. So what, what has to happen for you to actually ramp up and make some of these bigger sales? Is there some...

Michael DePasquale

We're really in the deployment planning stage right now, it's how we go from point A to point B and, you know, there's a lot of work when you're doing a deployment this large, right? There's not only – there's logistics, there's everything, right? Provisioning, logistics, all that kind of stuff. So we're in the planning stages with them right now.

Dan Camhi

I see. But my question is, is this like a pilot where they'll then decide whether they want to continue to run?

Michael DePasquale

No, no, no, no, no, no. No, we're well beyond that. So we've been selected. I think the press release was clear on that, as was the quote from the senior cyber research who's been working with us.

Dan Camhi

I see. And was that a competitive bid?

Michael DePasquale

Yes. Believe it or not, it was a competitive situation, and we were selected sole source.

Dan Camhi

Okay. All right, let's switch to the Portugal release. How do we estimate the value of the rollout of BIO-key's IAM and biometric authentication technologies to the Portugal's public sector ecosystem? Is your margin, and what is your margin considering your partnering with Visualforma?

Michael DePasquale

The margins are the same. You know, typically a partner, it could be Visualforma or, you know, it could be DLT, could be any one of our partners, domestic or international. Typically, they get a 25%, anywhere from 20% to 30% on the high end discount off the software. But again, the gross margin to us, because it's software, is the same. So it's 85% of a lower number, but it's 85%. So typically, again, Dan, that's the classic partner discount that these partners get. And so generally they get a discount on the software and then they're providing services to the customer. Right. And that's where they really make most of their money.

Right. They get obviously they get a margin on selling the product, but their real business is providing the services and all of the support to the end customers. And in EMEA, 100%, it doesn't matter how large the enterprise is or how small they are, they're generally buying through an MSP, MSSP, or reseller or distributor. So that's the way that model works. And it really is a force multiplier. And we bought the Swivel Secure Europe business, when we bought it four or five, almost five years ago now, we bought that to get the distribution channel and the resources that we have there now in EMEA to sell through our products, right? And we were always planning on a transition from selling the Swivel product to BIO-key product, right?

The Swivel product had a 50% gross margin. Our BIO-key products have margins that are significantly higher than that. What's astounding to me, especially over the last year, given that we jettisoned the SSE product and decided not to renew that contract, it's amazing how these partners have very, very rapidly picked up on the BIO-key solutions and the biometric component in the BIO-key solutions that they're now selling through to all these customers. It really is amazing, and that's why we have such a significant pipeline there.

Dan Camhi

Okay, and the first part of that question was, how do we value the rollout to the public sector?

Michael DePasquale

Well, you know, you're talking about a country. You're talking about a public sector component in, I call it state and local, right? We did sell a large municipality a solution that now can be replicated into 50 or 100 types of scenarios like that and then you have what we announced last week or the week before was a federal government agency that secured our product for a very high profile defense-related initiative. So that was federal. We sold about four to six months ago a municipal-type scenario, and now, you know, connect the dots. You got references. What is that potential? It's certainly in the millions of ARR over the next, you know, quarters. But again, that business will be developed in combination with that partner and other partners as well that are selling in that space.

Dan Camhi

I see. Now, I think Portugal's got about 1 million people in their public sector. So are you basically looking to get that whole niche over the next couple years or something like that? Is that what we're looking at?

Michael DePasquale

Again, if you're thinking about state and local, that's one thing, but think about all the government-related initiatives in security, in military, in intelligence. These are all the things that are ramping up, not just in Portugal. They're ramping up in every country in the region, in the fuller EMEA region, not just in Europe, in the Middle East. I mean, look at the way the countries in the Middle East are ramping from a defense initiative perspective, from an intelligence perspective. And the fact that, and this is why I think our business there has just astounding potential, because we're now collaborative. As a country, we are collaborating more with those Middle Eastern countries than we ever have before. And they're buying a lot from us on the defense side, right? Not just weapons, but we're collaborating from an intelligence perspective. We're collaborating from a financial perspective. So, I mean, I just think the potential is incredible.

Dan Camhi

Got it.

Michael DePasquale

One other thing, Dan. And we have references, like real references. So when we find an opportunity or an opportunity comes to the doorstep through a partner, it's easy for us to refer them to someone who's already using the solution to solve a similar problem. To me, that's huge. That's 60% of what you need to continue to build and scale a business.

Dan Camhi

Yes, I understand. On Saudi Arabia, I found it interesting that they were interested in your technology for education, not necessarily for finance and defense. Is there an opportunity there?

Michael DePasquale

Well, there is. And, again, it all comes down to the partners, right? So we signed on a partner that has a very strong base in education. And we have the references in other applications where it's being used. And so here, too, what I just described is a proof point that we can continue to find ourselves expanding into other sectors of the economy. And education is just one of them. We have a very large project in healthcare in a Middle Eastern country that we're deploying right now. You know, a lot going on.

Dan Camhi

Okay. You said Jordan was sole source. Is that true of some of these other ones too? Is there any competition? I'm just kind of wondering, who are you competing against?

Michael DePasquale

Yes, so many of these projects come in through partners, but also come in through large technology partner companies as well. So, for example, we have been working very closely with SailPoint in the Middle East, who has, you know, multi, multi, multi-million dollar contracts to provide security solutions mostly for governance and, you know, not necessarily authentication, and they need an authentication partner, someone who has the flexibility and someone who provides the biometrics like we do, which is very unique. And so that's why, you know, our business is growing. It's the relationships with the partners and the big technology companies that are driving these large contracts on these international opportunities.

And that's where our group, in particular in EMEA, has done an incredible job. And they've been doing this for 15 years. So, you know, that partner network that we built there is very valuable because it takes a lot of time to build that network. It takes even more time to get real deals going with them. And then it takes just really good relationship management to continue to grow and scale the business.

Dan Camhi

Let's move to the U.S. The U.S. financial system seems to me like it's been quite resistant to moving towards identity-bound biometrics. Is the Alabama federal credit union any kind of even minor harbinger of change for that in the U.S.?

Michael DePasquale

I think it is, Dan. I think that the whole, first of all, the cyber attack acceleration, especially since we've been engaged with the, you know, international altercations and geopolitical stuff that we're going through is kind of escalating. That's number one. Number two, I think the agentic AI situation has everyone on edge. And you're right, biometrics in general, right, there was this perception that biometrics infringed on privacy and the U.S. was all about protecting your privacy, right, not caring necessarily about your security. Well, I shouldn't say not caring, but caring less about the security and more about your privacy. That line is moving for sure because good security protects your privacy. It doesn't impinge on your privacy.

And that perception of biometrics potentially impinging on privacy is really starting to move. And I think consumers are starting to recognize that as well. And they're also recognizing the convenience of a biometric. They're also seeing that the traditional SMS, you know, multi-factor type authentication, that the hard token that we've been using for years, the validate accounts are going away. I mean, Microsoft announced it fundamentally that they're killing SMS authentication in Entra over the next couple of quarters, and they're going to passkeys. So, passkeys come out a direct, convenient, biometric option, which I think is going to accelerate the use of biometrics in general across the enterprise and across consumer apps in the coming quarters. And it's going to happen pretty quick.

Dan Camhi

I see. Is there an opportunity with Microsoft there to partner in any way?

Michael DePasquale

You know, I'd like to say yes, but on the other hand, you know, if you look at Google and Microsoft, you know, Google Authenticator and Microsoft with Entra, they've kind of gone it alone, I should say, and they're trying to entrap all of their customers into utilizing everything that they make available. More experienced CISOs are rebelling against that because they don't want all their eggs in one basket. And so there, in my opinion, is the opportunity. It's not necessarily partnering with them. It's offering an alternative, which is better, faster, and cheaper than they can provide. Because they may lure you in and offer you a new component for free, right? And then next year, when you get your renewal contract, you notice that you just got a 20% hit. And now you're already using the solution and it's very difficult to switch out. So, yes. I think we play to that and we play very well there. Plus, we offer the 16 factors of authentication, including the biometrics, if that's in your bailiwick and you want to use it. That's our differentiator.

Dan Camhi

I understand. Let's talk about AI a little bit. In this non-repudiable authentication approval for these AI agents, what stops an AI agent from, say, intercepting a fingerprint and using it to authenticate later or identify later?

Michael DePasquale

Well, that's a simple one, Dan. What stops that is the ecosystem and the technology infrastructure that you have around your biometric. Because your biometric is public information. When you walk into your office or you go into an office, to a store and you put your hand on the door, you leave your fingerprint there. If somebody really wanted your fingerprint, they could lift it. I mean, again, this is all theoretical, right? Your face is surveilled, you walk through Times Square, it could be now, it could be 500 times. I used to say 200, but it could be 500 times your face is surveilled. And, you know, if someone wanted your face, they could take a picture of your face.

What makes biometrics systems secure and protect from agentic scenarios is the ecosystem around the biometrics. So what is that? That's liveness detect, right? To ensure that it's real and your face is real or your finger is real or your palm is real or your, you know, your iris is real. So that's number one. It's all the encryption around the biometric. Remember, we're never matching a fingerprint or a face or a palm. We're matching a digital representation of that. So what are we doing? We are algorithmizing and we are encrypting. So we're encrypting the templates, then we're encrypting the transportation, the way we move the template from one place to another, whether it's on device or it's into a central system to match and back down for approval to, let's say, a mobile device, a phone or a tablet or a computer.

So it's that secure ecosystem that protects against that potential agentic formation. And that's where we have 30 years experience in doing that and why in very high profile, very high profile, high secure venues and environments, WEB-key, our product, our full and complete encrypted ecosystem for biometrics has been selected by some of the most sophisticated, if not the most sophisticated security organizations in the world. Long-winded answer, but...

Dan Camhi

No, no, I got it. I got it. That was good. A couple questions on the warrants, and then I'll be off here. What were the net proceeds on the warrants?

Michael DePasquale

$2.5 million.

Dan Camhi

Is that gross or net?

Michael DePasquale

Gross. And, you know, there's a commission for the bankers was 5%, so... I guess that's what, $2.35 million, somewhere in that range, $2.3 to $2.4 million.

Dan Camhi

Okay, so does that mean – I think there were 600,000 of them. You had 1.1. Does that mean that somebody now owns a third of the company, and if they exercise the other 1.2 million warrants, what happens then?

Michael DePasquale

Yes, so the way that works, and you can look at the filings, right? It's all detailed out there in the 8-K and so forth, is that the warrant holder will never own more than 10%, 9.9% of the company. There's a blocker in place. They will buy or that they bought all the warrants and they only take ownership of 9.9% at a time of the warrants, and the rest are held in abeyance. The company gets the money up front, right? Because they exercised all of the 681,000 warrants that they had.

Dan Camhi

So the answer is no, they will never own a third of the company. I see. And do we know how many of the warrants have been exercised so far?

Michael DePasquale

Well, they've all been exercised. How many of them have been taken out of abeyance? I would say nearly half, give or take.

Dan Camhi

Oh, I see. I see. Okay. So quite a few.

Michael DePasquale

Quite a large number. 275,300 in that range. 300,000, give or take, have already been taken out of abeyance. So about half in the last four days.

Dan Camhi

I mean, that by itself, I guess, could explain some of the price drop in the stock.

Michael DePasquale

But there's no question. I mean, that is one. But again, it's also the general market. I've been watching – it's an interesting point you bring up. I've been watching a series of companies. They're not necessarily peers to us in the context of what they offer, but they're size-wise, you know, small, public Nasdaq companies. And there seems to be a mantra in the market this past couple of weeks, and it's sell on the news. I've seen really good earnings announcements. I've seen good contract announcements. And I've seen these stocks trade down, you know, 15%, 20%. So I don't think you can look at the stock price and say, well, it happened because of this or it happened because of that.

I think it's just a series of things. And it's a fact that the low end of the market has been experiencing this kind of volatility right now. And, you know, it is what it is. But, you know, look, we clearly were disappointed in our anticipated revenue for the second quarter. You know, getting that hardware order would put us way well over the top and obviously would have been a profitability. So that's one thing. But again, our business is still growing. So for sure, that's a factor.

The second thing, though, on the other side is, you know, our balance sheet is very, very strong right now. Our equity position is very, very strong right now. Having a few more shares outstanding strengthens our, you know, compliance requirements and so forth. That's very positive. So, you look at the pipeline and the things that I described over the last 45 minutes, all very, very positive. So, I think there are more positives than negatives out there right now, and we'll catch up, we'll catch back up, I'm sure. Because we're so undervalued by any metric that, all ships rise with the tide, and at some point, we will get our due fair value.

Dan Camhi

Well, your cash is, I think you're, just based on your cash, that's $2.50 a share. I think, if I'm computing this right, assuming you have about 1.8 million shares outstanding. One question on the cash, I think you had 1.4 at the end of the last quarter, the second quarter, and you got 2.3, but somehow you have 4.5 now. That's not the 800K and higher. You pulled in some of the receivables or something in this quarter or something like that happened? How did you get that extra cash? I'm a little confused.

Michael DePasquale

I think, Cecilia—

Cecilia Welch

Yes, we have collected receivables from the June close through July.

Dan Camhi

Okay. And added more. Okay, that's good. All right, last question. In your 2025 Form 10-K, I saw the line, we expect that the growth in revenue will alleviate our going concern within the next 12 months. I'm not sure. Has that line remained in the recent Form 10-Q?

Cecilia Welch

No, that did not remain, but normally the end of the year is where it matters the most. And, you know, that's where we're headed.

Dan Camhi

I see. So you guys, is that still something that you feel is valid? I mean, what has to happen? What do the auditors or what do the SEC regulations say about allowing you to say something like that? Because I don't think I've ever seen that in any of your Form 10-Ks.

Cecilia Welch

Well, the auditors approved us saying that, so.

Michael DePasquale

I think Dan, it's pretty straightforward, right? You're on the right path, meaning that you're crossing the line between using cash and being cash neutral. You have enough cash on the balance sheet to operate the business for a couple of years, even with the burn that you have. And so that gives you comfort to say, listen, this is not a going concern scenario because if there's a blip or a downturn, the company has enough cash to continue to operate. I mean, it's not that complex.

Dan Camhi

Okay. Okay. I appreciate all the time you guys gave me. Thank you.

Michael DePasquale

You're welcome.

Operator

Showing no further questions, this concludes today's Q&A session. I'll ask Michael DePasquale to provide closing remarks.

Michael DePasquale

Thank you again for joining today's call. We genuinely appreciate your continued interest in BIO-key, and I look forward to updating investors on our progress on our next call. We will be participating in the H.C. Wainwright Conference in mid-September. And as always, we'll continue to update investors via press release on 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. Thank you, everyone, and have a terrific weekend.

Operator

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