BIO KEY INTERNATIONAL INC (BKYI)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 revenue was $1.61M, up ~10% sequentially vs. Q4 2024, but down 26% year over year as the prior-year quarter included a $1.2M two‑year renewal for a long‑term financial services customer; the same customer contributed $690k in Q1 2025 tied to its upgrade to one‑to‑many fingerprint ID .
• Gross margin remained strong at 82.6–83% and SG&A fell 23% YoY; cash rose to $3.1M on warrant exercises, and note payable was reduced to ~$0.76M, strengthening liquidity and flexibility .
• Management reiterated a goal of sequential revenue growth through 2025 (with typical Q3 EMEA seasonality caveat) and indicated gross margins around ~80% as a target baseline; OpEx expected to be relatively flat with minor event‑driven upticks .
• Strategic progress: expanding EMEA focus to BIO‑key‑branded solutions; wins in defense (rapid four‑day deployment), education (Wyoming DOE; Ed Tech JPA), and financial services (National Bank of Egypt) increase recurring and channel momentum .
• Risk flag: Nasdaq minimum bid deficiency notice (potential reverse split if needed to regain compliance by Nov. 5, 2025) adds a listing risk overlay despite improved cash and margins .

What Went Well and What Went Wrong

What Went Well

• Strong margin and cost discipline: Q1 gross margin 82.6%–83% with SG&A down 23% YoY; CEO emphasized “healthy” margin profile and reduced SG&A, bolstering path to profitability .
• Strategic customer upgrade: Long‑term financial services customer upgraded to one‑to‑many fingerprint‑only ID (trim ~30 seconds per client interaction), contributing $690k in Q1 and expected to renew ~$3M for next two‑year period starting Q1 2026; “very compelling use case” with potential broader adoption .
• New logos and channel traction: rapid defense deployment in 4 days, Wyoming DOE PortalGuard IDaaS for up to 20,000 staff, Ed Tech JPA approval reaching 195 districts, and NBE enterprise deployment via partner Raya; these widen EMEA/SLED/NBE pipelines and recurring base .

What Went Wrong

• Year‑over‑year revenue decline: Q1 2025 revenues fell to $1.61M vs. $2.18M, primarily due to lapping the $1.2M Q1 2024 financial services renewal and the transition away from lower‑margin Swivel Secure services in EMEA .
• Higher net loss: Net loss widened to ($0.74M), or ($0.16)/share, from ($0.51M), or ($0.32)/share, as lower revenue offset cost reductions; loan fee amortization and interest expense also weighed on “other income (expense)” .
• Listing compliance overhang: Nasdaq bid price deficiency notice introduces delisting risk and potential need for additional actions (e.g., reverse split) if not cured, which can affect investor sentiment and capital markets access .

Financial Results

Segment revenue breakdown:

KPIs and balance sheet highlights:

Comparison to Wall Street consensus (S&P Global):

Values retrieved from S&P Global.*

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our revenue rose approximately 10% sequentially vs. Q4’24… Year‑over‑year revenue decreased 25% due to a $1.2M two‑year contract… versus $690k recorded in Q1’25 from the customer’s addition of incremental biometric capabilities.” — Mike DePasquale, CEO .
• “Our gross margin remained healthy in Q1 at 83%, and we reduced our selling, general and administrative expense by 23% year‑over‑year… Our cash position increased substantially to $3.1M…” — Mike DePasquale .
• “We expect revenue from this customer to more than double to approximately $3 million for the next 2‑year license period starting in Q1 ’26… it’s all margin, it’s all software.” — Mike DePasquale on large financial services customer .
• “We have refocused our efforts on BIO‑key‑branded solutions in [EMEA]… We expect our expanding EMEA group to return to growth with enhanced margins as we progress through 2025.” — Mike DePasquale .
• “Given this backdrop… we feel BIO‑key is well positioned to achieve improved top and bottom line results… supported by this growing base of recurring revenue… which is over $6 million right now.” — Mike DePasquale .

Q&A Highlights

• Customer concentration and upgrade economics: The largest customer doubled ARR (~$1.4–$1.5M annually), with ~$700k recognized in Q1; renewal structure could be ~$3M upfront for two years starting Q1 2026 .
• Revenue mix and timing: Q1 revenue beyond $690k was a mix of service/maintenance, new logos (Wyoming DOE, NBE), and upsells to IDaaS; Wyoming was a Q1 event with some deferred elements; NBE may continue with upgrades .
• Product strategy and differentiators: Passkey:YOU enables biometric as a FIDO authenticator for phoneless/tokenless scenarios (e.g., call centers, shop floors) layering over Okta/Ping/Duo deployments; growing traction noted .
• Outlook/tone: Management expects sequential quarterly growth with caveat for Q3 EMEA seasonality; gross margin targeted around ~80% and OpEx “relatively flat” with minor event‑related upticks .
• Balance sheet/cash burn: Q1 operating cash burn included paydown of AP/accruals due to improved cash; expectation for decreased burn contingent on AR collections; plan to pay off current debt by term with lender flexibility .

Estimates Context

• Q1 2025 beat vs. consensus: Revenue $1.61M vs. $1.30M*, EPS ($0.16) vs. ($0.24); both above expectations, aided by upgraded financial services deployment and growth in hardware scanners tied to expanded biometric use cases . Values retrieved from S&P Global.
• Limited coverage: Only one estimate for revenue and EPS underscores low sell‑side coverage; results may prompt upward adjustments to near‑term revenue trajectory, while management’s sequential growth framework provides a directional anchor [GetEstimates].

Key Takeaways for Investors

• Margin quality and cash position improved: ~83% gross margin and $3.1M cash post warrant exercises reduce near‑term financing risk and support execution despite listing compliance overhang .
• Visible 2026 renewal catalyst: The largest customer’s one‑to‑many fingerprint upgrade sets up a $3M two‑year renewal in Q1 2026; near‑term ARR uplift ($1.4–$1.5M/year) supports sequential growth narrative .
• Defense/SLED momentum is building: Rapid defense deployments and Ed Tech JPA approval expand recurring pipeline in regulated, phone‑restricted environments; watch for follow‑on phases and larger multi‑year awards .
• Transition benefits in EMEA: Exit from Swivel Secure low‑margin services and focus on BIO‑key products should continue to lift blended margins and channel efficiency through 2025 .
• Near‑term trading setup: Low estimate coverage and clear beats vs. consensus*, combined with sequential growth commentary, can catalyze sentiment; monitor Q2 deal timing and Q3 seasonality [GetEstimates] .
• Risk management: Nasdaq bid non‑compliance introduces technical risk; management highlighted options (including reverse split) to cure if needed—track bid price trajectory into November 2025 .
• Operational focus: Maintaining ~80% gross margin and flat OpEx while scaling IDaaS/biometrics is key to accelerating path to profitability; commission spend will flex with top‑line growth .

Note: All quantitative figures in tables include citations from company documents. Consensus estimates marked with * are Values retrieved from S&P Global.