BIO-key Revenue Jumps 49 Percent in Q2

BIO-key International (NASDAQ:BKYI) reported Q2 2025 earnings on August 13, 2025, highlighting a 49% year-over-year revenue increase to $1.7 million (GAAP) and an 8.5% reduction in operating expenses versus Q2 2024. Management discussed strategic pivots into defense/intelligence markets, improvements in financial efficiency, and expectations for sustained growth driven by multi-year contracts in EMEA defense and commercial verticals beyond 2025.

BIO-key expands into defense sector amid rising EMEA spending

Defense and intelligence verticals are central to management’s new Cyber Defense Initiative, aiming to capture opportunities created by more than €800 billion in anticipated European Union (EU) and NATO defense investments over the next four years, with 1.5% earmarked for cybersecurity and security-related investments, including strengthening network defenses against cyber attacks. Reference projects in the EU and Middle East have already generated more than $3 million in cumulative defense ministry revenue over the past 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 Initiative. 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. 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."
-- Michael DePasquale, Chairman and CEO

The company’s active positioning in cybersecurity for defense primes it for ongoing high-value contract flow, leveraging rising EMEA defense budgets and enhanced credibility with blue-chip agency clients.

BIO-key delivers significant YoY revenue growth and cost discipline in Q2

Revenue reached $1.7 million (GAAP), a 49% year-over-year increase, with 40% growth in gross profit to $1.2 million, despite a decline in gross margin from 77% to 73% due to a higher hardware revenue mix. Operating expenses fell by $217,000, an 8.5% year-over-year decline, as general and administrative (SG&A) costs were cut 13.5% versus Q2 2024, exceeding the impact of increased research and development (R&D) investment.

"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 deployment of finger biometric scanners for a large long-time customer. License fee revenue increased 4% in Q2 2025, reflecting our growing base of subscription contracts. Our service revenue increased 11%, largely due to the benefit of customer service for a large customer upgrade. Q2 2025 gross profit increased by $350,000 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. 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 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."
-- Cecilia Welch, CFO

This combination of top-line expansion and effective expense management reflects improved operational leverage, despite persistent quarterly net losses.

BIO-key projects multi-year, recurring defense and enterprise contract revenue

Recent wins in EMEA and the Middle East include a three-year PortalGuard contract with a police force, and ongoing multiyear defense ministry deployments representing more than $3 million in aggregate value to date. Management disclosed both already-closed and pending confidential government contracts, confirming visibility into new income extending through 2025 and beyond.

"These are real contracts that have already generated revenue and are expected to continue generating revenue through the end of this year and into next year. And beyond, right? Obviously, these are spending initiatives that are in particular in the EU and in The Middle East are multiyear, 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."
-- Michael DePasquale, Chairman and CEO

These durable contracts lay a foundation for recurring revenue streams.

Looking Ahead

Management reiterated their expectation of maintaining the expense run rate established at the start of the year through Q3 and Q4, despite recent restructuring and event spending, Management affirmed that the cash balance is sufficient to support operations through the end of the year. No explicit quantitative revenue or earnings guidance was provided for Q3 or full-year 2025. Management emphasized their anticipation of contract-driven growth, particularly from existing and new multiyear defense and enterprise wins expected to materialize in the coming quarters, including Q3 and Q4 2025 and into 2026.

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