BIO-key International - Earnings Call - Q3 2025

Executive Summary

• Q3 revenue of $1.55M declined YoY on tough comps from two large orders in Q3’24, while gross margin remained strong at 77%; net loss was $0.15 per share as OpEx fell 7.8% YoY.
• Results missed limited S&P Global consensus: revenue $1.80M* est. vs $1.55M actual and EPS ($0.12)* est. vs ($0.15) actual; just one estimate covers BKYI, magnifying variance impact on “beats/misses”* (Values retrieved from S&P Global).
• Management initiated FY25 revenue guidance of $6.5–$7.0M and highlighted a stronger Q4 pipeline, including a significant new Middle East defense deployment and EcoID III product launch.
• Liquidity improved post-quarter via ~$3.1M gross warrant exercise; proceeds helped reduce notes payable, leaving $675K principal outstanding after prepayments and exchanges.

What Went Well and What Went Wrong

• What Went Well

  • Gross margin resilience at 77% despite mix and timing, aided by absence of third-party software costs and sale of fully reserved inventory.
  • Strategic wins: “a significant biometric authentication deployment with a major new customer, a Middle East defense-sector security organization,” underpinned by the Cloud Distribution partnership in Saudi Arabia.
  • Product innovation: launch of EcoID III (FBI FAP 20, liveness, encrypted comms); initial volume deliveries to defense/government customers and attractive price point positioning.
  • Management quote: “We expect a strong close to 2025, with full year revenue in the range of $6.5–$7M, and solid growth from there in 2026”.

• What Went Wrong

  • YoY revenue decline driven by absence of two large Q3’24 orders (approx. $665K variance), highlighting timing lumpiness of larger contracts.
  • License fee revenue declined YoY to ~$0.92M (from ~$1.44M) on prior-year large deals; hardware down 17% YoY due to shipment timing; operating loss widened vs Q3’24.
  • EPS and revenue both missed limited consensus; one defense order (~$134–$140K) slipped from Q3 into early Q4, underscoring visibility challenges* (Values retrieved from S&P Global).

Transcript

Operator (participant)

Good morning, everyone. Thank you for standing by, and Welcome to BIO-key International's third quarter 2025 conference call. During management's prepared remarks, all participants will be in listen-only mode. Afterwards, listeners will be invited to participate in a question-and-answer session. As a reminder, this conference is being recorded today, Friday, November 14th, 2025. If you require operator assistance, please press star then zero. I will now turn the call over to Bill Jones, Investor Relations. You may proceed.

Bill Jones (Head of Investor Relations)

Thank you, Operator. Hosting today are BIO-key's Chairman and CEO, Mike DePasquale, and its CFO, Ceci Welch. As a reminder, today's call and webcast, as well as answers to investor questions, include forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words like anticipate, believe, expect, plan, and project, and 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, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For a more complete description of such risks and uncertainties which affect future performance, please see risk factors in the company's annual report, Form 10-K, as filed with the SEC.

Listeners are cautioned not to place undue reliance on such 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 today's call. With that, I'll turn the call over to Mike to begin.

Mike DePasquale (Chairman and CEO)

Thanks, Bill, and thank you all for joining us today. After my remarks and Ceci's financial review, we will open up the call to investor questions. From a big-picture standpoint, we reported revenue of approximately $1.55 million in Q3 2025, roughly in line with revenue in the first two quarters this year. We reported year-to-date revenue of slightly under $5 million. The roughly $600,000 decrease in both the third quarter and year-to-date revenue in 2025 compared to last year is largely due to quarter-to-quarter variability resulting from the timing of some larger customer orders. We had particular strength in last year's third quarter from two large orders, one from a longtime banking customer, which was more of a catch-up for expanding their deployment, and another one from an ongoing rollout of solutions by a longtime defense industry customer. Both customers are still very, very active.

The defense customer had a $140,000 order after the quarter closed in October that we really expected to get in the third quarter. It rolled over to the fourth quarter, and we continue and we expect continuing deployments and orders even this quarter and beyond. In addition, we expect our large banking customer to renew their contract, their subscription contract, in early 2026 on their steadily expanding deployment of our solution. The customer has over 29 million users enrolled in our solution with the potential for meaningful future additions. They made a major expanded investment in our solutions in 2023 and 2024, including a $900,000 upgrade to our fingerprint-only biometric customer identification technology. This option or solution allows them to identify clients with just a single fingerprint scan, eliminating the need for any other identifiers, including a card or an ID number.

That, in essence, is saving them approximately 30 seconds per transaction, which time is money, which is meaningful for them. Their current annual license fee is now over $1 million scheduled for renewal in early 2026. Whether they choose a one or a two-year contract, we expect that we'll see $1 million-$3 million in business and renewal in the first quarter. Across the board, and this is general within our business, we enjoy very high renewal rates in excess of 90%, meaning our churn rate is in the single digits. The lumpiness that we see in our quarter revenues is more of a function of timing of renewals, new deployments, or large customer expansions. There can also be true-ups for additional software licenses.

Q3 is generally a seasonally slower period for us, particularly in Europe due to the summer holiday period, but we expect to close out the year very strong as we advance our channel sales efforts in the broader Europe, Middle East, and Africa regions, where we are now focused solely on BIO-key branded solutions. Additionally, we're in the final stages of developing new marketing messaging for our website and our business development. This messaging and collateral should be implemented during the fourth quarter to get us well-positioned for the start of the new year. To support this project, we engaged an external marketing firm earlier in the year to work with us on our new website content and targeted marketing strategies. We're finalizing a major website overhaul focused on improving, again, the content, the navigation, with a plan released prior to the Gartner IAM Conference, which is held mid-December.

We also plan to release a significant update to our PortalGuard identity platform. PortalGuard operates as a single MFA multi-factor authentication user experience, providing a broad set of 17 factors of authentication, including, of course, our identity-bound biometric options to meet virtually any use case. Version seven, which is the new version, represents our most significant update ever. It features major platform modernization, enhanced configurability with improved deployment capabilities. Development is expected to conclude within the coming weeks, after which we'll undergo rigorous internal and third-party security testing. The timeline for general availability is late Q1 or early Q2 in 2026. Also in Q3, we introduced our new FBI FAP 20 certified EcoID III fingerprint scanner, which is aimed primarily for the regulated industries. Although BIO-key is primarily a software company, providing a total solution, including state-of-the-art hardware, is essential in supporting our annual recurring revenue software model.

The EcoID III reader pairs encrypted device-to-host communications with liveness detection for faster, more secure authentication. We've delivered initial volume EcoID III orders for defense and government customers in Q3. We also expect government-related and highly regulated industries like financial services, higher education, and healthcare to gravitate towards our new reader. Our PortalGuard platform, our IDaaS, our passkey use solutions all pair very, very nicely with the new EcoID III fingerprint sensor. As I mentioned on our call last quarter, we launched our cyber defense initiative in response to increased global defense spending, particularly in Europe and the Middle East, and our success with some significant high-profile deployments in these markets. Incorporated in these rising defense budgets is a significant emphasis on cyber resiliency and security as a priority.

Today, two of the top four largest global defense agencies by spending are using BIO-key technology to secure all of their critical information. We are well-positioned to capitalize on these growing defense budgets and spending and are advancing a growing pipeline of opportunities based on the deployment of our solutions by some of the most respected military security and defense ministries and agencies. Supporting this initiative, we're adding select resources to engage with contractors who will help us expand our market reach. We expect to see a growing base of new contract activity from these efforts, building on deployments this quarter and beyond. A primary factor in defense industry deployments is our ability to support critical infrastructure and access to sensitive environments with advanced biometrics and our multi-factor authentication technologies, without reliance on mobile devices or hardware tokens.

Biometric authentication is better suited in these engagements, given its enhanced security, accuracy, convenience, and ability to better prevent fraud and unauthorized access compared to traditional methods. Biometrics minimize false positives and improve the precision of access control. In addition, uniquely tying individuals to actions and access events aids in monitoring traceability and insider threat management for improved accountability and audit trails. Streamlining access processes also reduces time spent on logins and boosts productivity for defense personnel while maintaining strict security. For defense agencies managing highly sensitive data and infrastructure, we believe biometrics are growing as a preferred choice over traditional methods alone. Our references in that space give us a unique competitive advantage. We are gaining momentum, as I just described, in the defense sector, as well as in banking, government, higher education, as the rising incidence of security incidents highlights potential cybersecurity vulnerabilities.

In addition, growing regulatory requirements and increasingly stringent cyber insurance underwriting standards requiring MFA adoption help create opportunities for our superior biometric and portable authentication options. We are excited about the growth prospects into next year. Though, given our size and, as I just described, the variability of our business, our business may continue to fluctuate on a quarterly basis based on the timing of larger orders. As we work to build the business, we'll continue to keep a sharp focus as well on our cost structure, seeking to reduce our break-even levels and support our goal of positive cash flow and profitability. Ceci will walk through the numbers, but let me highlight that we have been able to reduce our operating expenses by over 10% through the first nine months of 2023, while at the same time expanding our global reach and suite of solutions.

Finally, as far as funding our runway to profitability, after the close of the third quarter, we were able to raise approximately $3 million net of fees and related expenses through a warrant exercise transaction, priced at $1.02 per share. This funding significantly expands our cash liquidity, puts us in a stronger position to pursue growth. As we expect a strong close to 2025, we are in a very, very good position from a financial perspective to be able to grow our business and actually overachieve our objectives coming into the new year. With that, let me turn the call over to Ceci to review the financials, and then we'll take questions.

Ceci Welch (CFO)

Thank you, Mike. We released our results this morning, and we plan to file our 10-Q later today. Let me walk through some of our highlights. Our Q3 2025 revenue was $1.5 million versus $2.1 million in Q3 2024, down approximately $595,000 year-over-year, principally due to the large orders Mike referenced in Q3 2024 that we did not have in this quarter. Those orders accounted for approximately $665,000 of year-over-year difference, offset by some new orders. As a result, our license fee revenue was $918,000 in Q3 2025 versus $1.4 million in Q3 2024. Service revenue increased slightly to $268,000 in Q3 2025 versus $267,000 in Q3 2024, as growth of recurring service revenue more than offset the decline in customer service revenue, supporting large customer upgrades in Q3 2024.

Hardware sales declined to approximately $364,000 in Q3 2025 from $436,000 in Q3 2024 due to the timing of hardware shipments in support of ongoing customer rollouts. Partially offsetting the timing difference was the sale of fully reserved inventory in Q3 2025. Now we have approximately $2.8 million remaining in fully reserved inventory, for which we have several potential customers. Q3 2025 gross margin remained strong at 77% compared to 78% in Q3 2024, as the absence of third-party licensed software offset a lower portion of our licensed revenue. BIO-key made further inroads in trimming operating expenses, which decreased 8% to $2.1 million in Q3 2025 versus $2.3 million in Q3 2024.

This reflects a 13% or $208,000 decrease in SG&A expense, offset by a 5% or $31,000 increase in research, development, and engineering expenses required to support the generation product introduction, including the EcoID III and our forthcoming PortalGuard upgrade. Reflecting lower revenues tempered by lower operating expenses, BIO-key's Q3 2025 net loss was $965,000 or $0.15 per share, as compared to $739,000 or $0.39 per share in Q3 2024. For the first nine months of 2025, our net loss was $2.9 million or $0.50 per share, as compared to a net loss of $2.9 million or $1.69 per share a year ago. Per share amounts were based on 6.6 million and 1.9 million weighted average shares outstanding in Q3 2025 and Q3 2024, respectively, and 5.8 million and 1.7 million for the first nine months of 2025, respectively, reflecting shares issued for warrant exercises and other financing-related activities.

As of September 30th, BIO-key had current assets of $3.7 million, including $2 million in cash, compared with 2024 year-end current assets of $1.9 million and $438,000 in cash. Accounts receivable and different factors increased 21% to $959,000 at September 30th, 2025, from $792,000 at year-end 2024. BIO-key also secured gross proceeds of $1 million for working capital and to support ongoing operations with the September 30th issuance of a senior secured commissary note. As Mike mentioned, subsequent to the close of the third quarter, we generated net proceeds of $2.9 million from the exercise of warrant agreements to purchase BIO-key shares at an exercise price of $1.02. Accordingly, the cash proceeds of the financing were not reflected in our Q3 balance sheet 2025. With that overview, Operator, let's proceed with the question and answer session.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If 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'll pause momentarily to allow callers to join the queue. Your first question comes from Dan Camas, Private Investor. Please go ahead.

Hello. It's been about 10 months, I think, since you announced the Bank of Egypt win. Was that a recurring revenue deal, or were there permanent licenses? Are you expecting similar revenue from that client or customer in 2026?

Mike DePasquale (Chairman and CEO)

Absolutely. Dan, good morning, by the way. Yes, the answer to that question is that was an initial deployment that we announced just about a year, give or take, 10 months ago. We are expecting an expanded deployment, and that may even happen here in the fourth quarter. The answer to that question is yes, that is a growing deployment.

I see. A follow-up on that is, since you partnered, I think, with Raya on that, does that mean your margins are lower on that project?

Not at all. Our gross margins on software are 90+%, and so they remain 90+% from a gross perspective. I'll make a comment about partners, just as kind of an aside. You may have noticed over the last month or so, we've made a number of announcements with partner companies that are bringing us into local markets throughout the Middle East, in Africa, and in Europe. You're going to see even more coming in the near term. That's a force multiplier. These are very significant. If you read these press releases that we've made, these are significant players who have significant resources in the local markets and have influence in particular industries, some in government, some in banking, healthcare, and so forth. What you get there is you get local cultural support, you get influence.

Given that 90+% of our business in EMEA, in general, that's Europe, Middle East, Africa, comes through partners, this growing base in what we call our CAP program, right, Channel Alliance program, is going to pay significant dividends for us as we proceed forward. Every one of these partners that we've signed, like Raya, comes with a deal, right? Historically, partners get signed, and then you go out, it's kind of a license to hunt, try to find an opportunity. What's happening here, particularly again in EMEA, is that we're signing these partners because they have a deal. We've already been working with them, and they want to go out and represent what they perceive to be the most unique and capable identity and access management biometrically-enabled platform that's available.

You can see, again, based on all those announcements that we're getting, we're making very, very good progress.

Yeah, yeah, that's helpful. Just on the Bank of Egypt still, the first step was to handle the NBE employees, right, and then move on to B2B and B2C. Are we looking at non-employee expansion as a, say, 2027 target?

I think two things. Number one, the initial deployment was, I believe, in the range of 20 or so thousand users, and that was not the full employee base. There is still an expansion in the existing enterprise employee base. The answer to the second question, which is what we call CIAM, Customer Identity and Access Management, the answer to that is yes, there is definitely an opportunity to take this to customers, similar in nature to what we do with Capitec Bank in South Africa, where they're utilizing our biometric technology, not only internally for employee and employee access, but for customer access.

Okay. Is that 2027? Is that by any chance next year?

I think all of this is on the table for some. Again, the employee expansion is on the table for this year. I believe in 2026, they'll begin looking at the CIAM deployment.

On the defense side, I think in the second quarter, Ceci, you mentioned iterating to multi-million dollars with your largest defense ministry. Last week, you announced one of the largest Middle East sector deployments in the region with another unnamed defense organization. Is this contract on the same scale as this longer-term defense ministry?

It's even bigger. It has bigger potential. The answer is yes, they're very large. Most of these defense ministry opportunities, depending upon the size of the country, are large opportunities. They have a really good expansion potential because usually you're starting with a base population so that they can get going, and then they're expanding out to additional users and enrolling additional users. These are large deals, and they have a really long tail. They're very sticky, meaning once you get involved, they do a lot of vetting. They look at a lot of different options. Once you get involved, you're there for a significant period of time.

Sounds really good. With all these bank and defense wins, do you have any kind of feel for what your current ARR is, the recurring revenue?

Our ARR is growing. I would say we certainly are in the because you have to back out. When you look at our total number, it includes hardware and software. I think our ARR base, including renewals on our traditional contracts, right, the traditional PortalGuard business that we purchased, probably are in the $6 million-$7 million range right now. Our churn, as I mentioned in my prepared remarks, is in the single-digit range as well. I would say that's a good number.

Yeah, that's a remarkable churn. Your EcoID III release said the price point, high-quality scanners was significantly reduced. Is the price lowered relative to the EcoID II, or does this third version compete with a different quality of scanner?

Definitely competes with a higher-quality device. We sell two what I call FBI-certified, PIV-certified readers. One is called the PIV-Pro, which we've been selling for many, many years. That's a very high-quality optical device, glass platinum. The EcoID III competes with that device at a lower price point. So it's $49.99, list price quantity one versus the PIV-Pro, which is in the high $60s, low $70s. That's number one. Number two, the new EcoID III is much higher quality and carries liveness detection and full encryption on device. The EcoID II did not have that capability. So the EcoID II was priced a little bit lower at $44.99, but it didn't have encryption, and it did not have liveness detection innate in the device like the EcoID III does.

We sold, I guess, initial order was about 7,500 units a little under 10,000 units to one of our defense customers out of the gate as soon as we were able to deliver the product in Q3.

Okay. It's been a year about since you received the boomerang stock. I assume the nine-month put period is over and you didn't return the stock. Is there any update on the value of that asset now?

I think we'll be looking at that as we do our audit for calendar 2025, fiscal 2025. I know they've made a number of small acquisitions, and I know they're involved in some strategic scenarios. Nothing that I can speak to, it appears that that value is certainly intact.

One more question, I guess, for this round here. I think you're, have you done any research into, well, I mean, the stock is trading anywhere from 1x-100x the flow for the last three weeks. Any research you've done to figure out what's driving that kind of action?

It's a tough question to answer. First, I think announcements typically drive volume, right? We've seen significant volume in the stock on some of the announcements we've made. Why our stock would trade 450 million shares on one single day and turn $400 million in trade value, it's almost surreal. I don't have a particular answer for that. I think there's a lot of interest in our space. There's an awful lot of interest in security. In particular, we have a very unique offering in a very strong niche in defense and banking, and we have great references. If you look at where we are today from a market capitalization perspective, you look at the numbers, we're very undervalued. Perhaps there's interest in investing and taking a position in a potential company that has a lot of upside.

Those are only theories, and I can't really say and understand at any level why we see those days with that kind of volume.

Okay. Is there anybody else in the queue right now? Do you know?

Operator?

Operator (participant)

Yes, we do have another questioner in the queue. Okay. I'll get off then. Thank you.

Mike DePasquale (Chairman and CEO)

Thanks, Dan.

Operator (participant)

Your next question comes from Jack Vander Aarde with Maxim Group. Please go ahead.

Jack Vander Aarde (SVP and Senior Research Analyst of TMT, Gaming, and Entertainment)

Hey, Mike. Good morning. I'm juggling a few conference calls this morning, so I had to join this call a little late. I apologize if I'm being redundant, but thanks for taking my questions. The guidance, this is something new that popped up. I just want to know what kind of led to your decision process to feel confident enough to install formal guidance parameters? Can we expect formal guidance parameters for 2026 on the next earnings call? Thanks.

Mike DePasquale (Chairman and CEO)

Thanks, Jack. First of all, good morning, and I appreciate you're pretty busy today. Yeah, we're pretty confident in our position right now. I think, again, you've seen the announcements. You've seen that we're starting to see the results of the investments we've made, in particular in this, I've described, partner network that we've been building. We have more confidence because typically these deals are RFP or they're very large opportunities that are being worked and they're competitive. You'll know a couple, three months before you get the contract signed that you actually won the order and won the business. The pipeline now is pretty solid, and we feel good about that. That's the reason behind that. I'd love to be able to give guidance, and as we get more predictable, we'll do that. Look at this quarter. Look at the third quarter.

Quite frankly, we expected at least $200,000, $250,000 more in business that did not materialize, not because the business went away, but just because of the timing. One of our customers, one of our defense customers had to change budgets, and so it caused a week and a half delay in processing the order. That is an order we expected in the third quarter wound up falling to the early part of October. Nothing to do with the business or the efficacy of that contract, just timing. That is what makes it difficult for us, Jack. I hope that we will be more predictable in the beginning part of the year. We will be able to do that.

Jack Vander Aarde (SVP and Senior Research Analyst of TMT, Gaming, and Entertainment)

Okay. Great. Two more questions there, Mike. I guess the first one was I recall a large renewal that was coming up, I think in 1Q 2026. Is this still on track, and is that the case?

Mike DePasquale (Chairman and CEO)

Yes.

Jack Vander Aarde (SVP and Senior Research Analyst of TMT, Gaming, and Entertainment)

Okay. Great. Obviously, we just had the longest U.S. government shutdown in history. Does that have any impact on your business in the fourth quarter or just any of the growth initiatives or just anything operationally? Did that have an impact?

Mike DePasquale (Chairman and CEO)

Not at all. Not at all. We did not see any impact at all. Typically, we are flying way above that in the context of security, and so it is kind of a mandate. We have never really seen any of that impact anything that we do. Just does not mean nothing.

Jack Vander Aarde (SVP and Senior Research Analyst of TMT, Gaming, and Entertainment)

Okay. Great. Can you just touch on maybe as you look at 2026 outside of the large renewal in Q1 2026, are there any other major upcoming renewals throughout the year that I should be aware of? Also, any expansion opportunities that you see coming up throughout the year?

Mike DePasquale (Chairman and CEO)

I think there's a lot of that on all sides. In particular, again, our pipeline of new deals, new opportunities that are spawning as a result of our footprint growing in both defense and banking and healthcare. You're going to see a lot more happen over the coming months and coming quarters. You're going to see renewals from, again, that large banking and finance contract that we've had. We've had for years and continues to grow and expand. You're going to see expansions like we discussed in the last question period with customers like the National Bank of Egypt and others that are continuing to expand their existing deployments, right? Not only for employees or internal use, but also ultimately out to customers. I think there's an awful lot of that on the horizon.

I go back to the point I was trying to make with Dan, and that is the expanding partner network is a force multiplier for our company. That is going to have a huge impact in our ability to double and triple our business in the coming quarters and the coming years.

Jack Vander Aarde (SVP and Senior Research Analyst of TMT, Gaming, and Entertainment)

Great. Maybe just one more follow-up. Speaking to your channel partners, can you just give us an update on all the various channel programs you do have? The Channel Alliance program, I recall, was a major growth area a couple of years ago, and I just have not gotten a clear update on that. What is the status of the Channel Alliance program and then some of your other partnerships?

Mike DePasquale (Chairman and CEO)

Yeah. Again, in the Channel Alliance program, you've seen a number of announcements we've made just recently. I won't repeat that, but those are all partners that are part of the Channel Alliance program that we have. We have distributors. We have MSPs, what we call Managed Service Providers. We have MSSPs, Managed Security Service Providers, right, or Managed Security Service Providers. We have resellers. There are various components within the CAP program for different types of partners that service end-user customers. That is just continuing to grow. More importantly, it's not quantity. It's quality. What you want are significant players who have a cultural and a local expertise who deliver services to large companies, mostly large companies, and do it over a period of time where they have credibility. When they come in and recommend a solution, the customer takes a look at it.

That's what we're driving. We're not trying to drive quantity anymore. We're trying to drive quality.

Jack Vander Aarde (SVP and Senior Research Analyst of TMT, Gaming, and Entertainment)

Yes. No, I'm happy you said that. I think just another part of that, though, is are any of your channel, are your Channel Alliance Partners, or is there a portion of them that are exclusively reselling and pushing BIO-key? Are they also servicing other or providing other vendors' support as well? How does that kind of, I guess, break out within the Channel Alliance program?

Mike DePasquale (Chairman and CEO)

Yeah, that's a great question. We do have some partners that exclusively sell the BIO-key IAM solution, but most of these players sell all the core broad software like Microsoft and Oracle and you name it, and all of the network security, Cisco, and so forth. They typically provide all of that to an end-user customer. The security piece is one component of their overall solution or service for that client. It really depends. As it relates to security, we have some that exclusively sell BIO-key and some that sell other solutions as well. Remember, our unique competitive advantage, and I don't care if you look at Okta, SailPoint, Ping, ForgeRock, it doesn't really matter. We have the biometric component that they don't natively have. That's our differentiator.

Even if we're not exclusive, we tend to be exclusive because they don't have what we have.

Jack Vander Aarde (SVP and Senior Research Analyst of TMT, Gaming, and Entertainment)

Got it. Great. I guess I'll ask one more. Ceci, maybe this is a question for you as well. Just the margins were really strong, again, for the licensing revenue, which is great to see. I think it's helping the break-even case. I look at the operating expenses, and you guys have done a good job of keeping those tamed. Going forward, do I expect any changes in the operating expenses, or are there any further cost savings? Just curious because it does seem like you're tracking towards that break-even number on maybe even a smaller base of revenue because of those strong margins.

Ceci Welch (CFO)

Hi, Jack. Yes. We are just analyzing everything. It is just something that every quarter people are looking to spend on this, that, and the other thing. We are just trying to make good decisions on those types of things. As we said in the past, we have lowered all of our rents for all of our places. We are just doing what we can. We will continue to do that. Just keep our eyes on the prize, so to speak.

Jack Vander Aarde (SVP and Senior Research Analyst of TMT, Gaming, and Entertainment)

Great. Mike, do you echo those comments, though, just in terms of do you see profitability break-even on the horizon?

Mike DePasquale (Chairman and CEO)

Absolutely. No question in my mind. I do see it. I think it's a combination of things. It's, again, the pipeline. It's some of the larger renewals. It's also us managing and scaling around our existing resource pool, which, again, with the CAP program gives us the ability to do that, right? Typically level one and level two support for these customers comes from the partner, right? We're there as a backup. This business scales very, very nicely with the model that we built. Even on the hardware side, the hardware that we sell, we get really good margins. We don't do anything without a 50+% margin, even on the hardware side. Blended, we're in that 70%-80% range, and we think we can stay there.

Jack Vander Aarde (SVP and Senior Research Analyst of TMT, Gaming, and Entertainment)

Okay. Excellent. I appreciate the time, and thanks for taking my questions, Mike.

Mike DePasquale (Chairman and CEO)

Thank you, Jack. Take care now. Have a good weekend.

Operator (participant)

Again, if you have a question, please press star, then one. Your next question is a follow-up from Dan Camas. Please go ahead.

Hey. It looks like your revenues are going to be flat or down year-over-year. The very good news, of course, is that the expenses have come down. In terms of revenue, have you isolated the basic reason for flatness? Was it the loss of swivel revenue, or what caused it to be flat, I guess, is my question?

Mike DePasquale (Chairman and CEO)

Definitely the transition from third-party to BIO-key product. That took a little while to get productive. We're productive now. I think you're going to see actually far better results. That's number one. I think number two is we had an anomaly last year with our banking customer having to catch up. In particular, in the third quarter, we had over $500,000 in revenue that was not recurring. It was pretty much a one-time shot. I think that's it. I mean, there is nothing here in this business other than timing that I am concerned about right now. I think we're in a really, really good position. We're lowering our break-even point. We're growing our partner network, which again is a force multiplier to get more deals and more business. We're operating in a market that has just insatiable demand.

I mean, defense, banking, huge market opportunities for advanced security. We've got the solutions, and we've got the references and the quals to be able to solve those issues. It goes back to what we call zero trust, but more importantly, it goes back to no phone, no token, and fundamentally utilizing a passwordless solution that can be used across the enterprise. Because again, our focus is enterprise right now. We're blending and moving to CIAM. I just think we've invested very, very heavily over the last four years in R&D, in sales, and in marketing, and expanding our footprint globally, especially now in the Middle East. You're going to see more of an expansion coming in the Asian markets. Stay tuned for that. That's going to have a huge impact on us.

Okay. Just as a final thought, I think with the $3 million in cash, you're probably still at about one time's book value. I know you and Jim have been doing some buying in the second and third quarters, maybe about $25,000 worth. I would just like to hear your take on why you think BIO-key is the best investment for that $25,000.

I think we're fundamentally undervalued. Look at us. Take any multiple, take any comp. I think, again, we've been traditionally undervalued. We've done a lot of financing. I want to be brutally honest, right? I understand that that created overhang, and it creates sometimes investor trepidation. There's no doubt or debate about it. I felt, we felt, keeping the company alive with the notorious installed base of customers we have, we're in a really good position. I think we're not grabbing the value that we deserve. I think you're going to see that unlocked in the near term and in the future.

Okay. Thank you very much.

Thank you, Dan.

Operator (participant)

Showing no further questions, this concludes the question-and-answer session. I'll ask Mike DePasquale to provide closing remarks.

Mike DePasquale (Chairman and CEO)

Thank you. Thank you again for joining our call today. We greatly appreciate your interest in investment in BIO-key and look forward to updating you on our progress. If you have any questions, please reach out to our IR team via phone or email, and they will be very responsive. Their contact information is in today's release, our earnings release. With that, Operator, this will conclude the call. Thank you, everyone, and have a terrific weekend.

Operator (participant)

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