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BIO-key Worldwide, Inc. (NASDAQ:BKYI) Q1 2024 Earnings Convention Name June 18, 2024 10:00 AM ET
Company Contributors
Invoice Jones – Investor RelationsMike DePasquale – Chairman and Chief Govt OfficerCeci Welch – Chief Monetary OfficerJim Sullivan – Chief Authorized Officer
Convention Name Contributors
Operator
Good morning, everybody. Thanks for standing by, and welcome to BIO-key Worldwide’s First Quarter 2024 Convention Name. Throughout administration’s ready remarks, all individuals can be in a listen-only mode. Afterwards, listeners can be invited to take part in a question-and-answer session. As a reminder, this convention is being recorded at the moment, Tuesday, June 18, 2024.
I might now like to show the decision over to Invoice Jones, Investor Relations. Please proceed.
Invoice Jones
Thanks, Betsy, and thanks all for becoming a member of this name.
Our hosts at the moment are BIO-key’s Chairman and CEO, Mike DePasquale, and CFO, Ceci Welsh, in addition to Jim Sullivan, Senior VP of Technique and CLO, who will present some insights on BIO-Key’s new product launch.
As a reminder, at the moment’s convention name and webcast, in addition to solutions to investor questions, embody forward-looking statements, that are topic to sure dangers and uncertainties that may trigger precise realized outcomes to vary from these at present anticipated.
Phrases corresponding to anticipate, imagine, estimate, count on, plan, mission, or related phrases usually specific and determine these forward-looking statements. Such statements are made based mostly on administration’s beliefs and assumptions as of at the moment and utilizing data at present obtainable pursuant to the Secure Harbor provisions of the Personal Securities Litigation Reform Act of 1995. For an entire description of those and different dangers which will have an effect on future efficiency of the corporate, please see threat elements within the firm’s annual report as filed on Type 10-Okay with the SEC.
Listeners are cautioned to not place undue reliance on such forward-looking statements, which converse as of at the moment’s date solely, BIO-key undertakes no obligation to revise or disclose revisions to forward-looking statements to replicate circumstances or occasions that happen after at the moment.
Now, let me cross the decision to Mike to start. Mike?
Mike DePasquale
Thanks, Invoice, and good morning, and thanks all for becoming a member of us at the moment. After my remarks, Jim will present extra particulars round our formal launch of BIO-key’s Passkey:YOU authentication resolution. Then, Ceci will present a short overview of our monetary efficiency, and afterwards, we’ll open the decision to your questions.
First, the audit of our 2023 monetary statements was lately accomplished by our unbiased public accounting agency, and we filed our 10-Okay on June fifth, and we lately filed our Q1 10-Q this previous Friday. BIO-key is now up-to-date and compliant with all of our regulatory filings. Once more, Ceci will overview the numbers, however from a excessive degree, we continued our progress in 2023 with income up 10% from 2022 to $7.8 million.
In Q1, we generated constructive working money stream as we benefited from the growth of a biometric shopper identification system by a long-term monetary providers buyer who continues to increase their use of our biometric options. In truth, they’re at present seeking to doubtlessly improve their license from a easy to a extra advanced shopper ID-featured resolution, which we could have extra to say about later this 12 months. They actually have been a very good buyer of BIO-key’s and have generated important income for us over the previous years, as has our Overseas Protection Drive buyer that had offered a number of add-on orders to BIO-key in late 2023, and there actually can be extra and the opportunity of an expanded use of our resolution into different areas inside that group.
In Q1, we additionally diminished our bills 17% year-over-year, and due to this fact diminished our working loss by greater than 70% to roughly $500,000 in Q1 ’24. We have now extra work to do, however we imagine we’re on target with our Q1 efficiency. We glance to proceed this progress as we transfer ahead via 2024 with a deal with bigger alternatives that might have a significant influence on our outcomes, in addition to additional efforts to scale back value.
We imagine our rising international distribution community and buyer base has us in a very good place to drive income and transfer to constructive profitability over the following a number of quarters. Nearly all of our gross sales at the moment are via partnerships that we have developed via the years with over 150 companions, together with value-added resellers, system integrators, MSPs, or managed service suppliers as effectively. All of our European gross sales are via channel companions, and the vast majority of our general firm gross sales now originate or are dropped at us via a accomplice.
Leveraging companions and their buyer networks permits us to achieve a broader, addressable market, and in addition frees up our direct gross sales workforce to pursue the bigger income offers, of which I’ve talked about a pair examples which are at present in our pipeline.
One other level of focus in 2023 is that we started strategically partnering with a number of the bigger id in entry administration suppliers within the business, like SailPoint, Ping, and ForgeRock, who’ve giant buyer bases with put in IAM options who can improve their MFA to incorporate BIO-key’s distinctive identity-bound biometric providing. The general IAM market continues to develop for a lot of causes.
Enterprises are migrating to the cloud, their workforces are working remotely or hybrid, and third-party contractors require entry to methods. There are growing cybersecurity rules and cyber insurance coverage necessities, and BIO-key options assist our clients meet all of those regulatory and insurance coverage necessities round stronger, safer authentication, whereas offering superior person expertise and higher worth than different mainstream authentication choices. The present local weather of broad enterprise adoption of multi-factor authentication and superior IAM approaches present loads of alternatives for BIO-key to distinguish itself on a extra versatile, decrease complete value of possession, and extra person experience-centric authentication strategy via biometrics.
Multi-factor authentication, zero belief, and password-less environments are important for enterprises who need or want cyber insurance coverage, in addition to to fulfill the SEC’s new cybersecurity threat administration and reporting guidelines and CISA rules that require lined corporations to promptly report cyber disruptions and ransomware funds. We count on all of those rising necessities, in addition to fixed cybersecurity incidents and high-profile breaches, to maintain cybersecurity a top-priority merchandise in boardroom and administration discussions all through 2024 and 2025. Once more, BIO-key options enable corporations to fulfill these challenges with extra flexibility, decrease prices, and so the present setting represents a really favorable backdrop for gross sales of our options.
We additionally count on using Passkey authentication to increase its market penetration in 2024. As such, we simply launched Passkey:YOU, a singular password-less authentication resolution that doesn’t require using telephones or {hardware} tokens. This resolution may be very helpful for quite a lot of enterprise use instances, and in a second I will cross the decision to Jim Sullivan to debate this thrilling alternative in larger element.
I’ve mentioned lots of the causes for a constructive market outlook for id and entry administration suppliers, and I’ve touched on some elements particular to BIO-key and our very distinctive options. We’re an business chief in biometric id, corresponding to fingerprint and palm and facial ID, that are among the many 17 completely different authentication elements that we at present provide our clients, which is essentially the most versatile and possibility obtainable within the business, and that basically does separate BIO-key from the competitors. At present we now have over 600 clients and a strong base that gives recurring high-margin license payment revenues or ARR.
We proceed to pursue giant income alternatives via our direct gross sales workforce whereas leveraging our channel companions to achieve a bigger addressable market. We are going to proceed to pursue value discount initiatives to speed up our path to profitability and continued constructive money stream. Additionally in Q2, we’re exploring alternatives to transform some slow-moving {hardware} stock into money.
In 2023, we wrote down roughly 4 million of inventories, together with about $3.1 million which was bought for our African initiatives. We count on to monetize a few of that stock within the present and persevering with quarters. For all of those causes, we imagine BIO-key is effectively positioned to proceed significant prime and bottom-line efficiency enchancment as we progress via this 12 months.
Now let me flip the decision over to Jim to debate our new Passkey:YOU resolution. Jim?
Jim Sullivan
Thanks, Mike.
Everybody could have seen the press launch from final week the place we introduced the formal launch of BIO-key’s Passkey:YOU authentication resolution, which is concentrating on underserved office situations that contain roving customers who share workstations, stopping phishing by eliminating passwords, and implementing multi-factor authentication, or MFA, as a aim of almost each enterprise. However mainstream id platforms are solely providing restricted authentication choices based mostly on considered one of two precedence approaches, both telephone apps, which now would come with issues like phone-based Passkeys, or per-user FIDO {hardware} tokens like YubiKeys, which promote for a price of $30 to $80 every.
Each telephone apps and FIDO tokens are implementations of what we name something-you-have authentication, versus one thing you recognize, like passwords, or one thing you’re, like biometrics. Operational challenges come up as a result of something-you-have authentication choices do not match effectively and are not effectively suited for a lot of office situations, corresponding to manufacturing store ground, retail, name facilities, healthcare, or hospitality, the place customers are usually roaming amongst quite a lot of shared workstations, kiosks, or point-of-sale terminals, or they use handheld units. These workplaces typically prohibit using private telephones for security or distraction causes and go away an enterprise id workforce solely a single obvious possibility for strongly authenticating these giant roving workforces. That is to purchase them FIDO {hardware} tokens.
However one token per person dangers person lockout in the event that they lose their token, so the FIDO alliance is recommending that every person be provisioned with two or three FIDO tokens every. Now, outfitting 5,000 employees with a pair of tokens would imply shopping for and sustaining 10,000 to fifteen,000 of those $25 to $70 tokens, in order that if we’re a producer who has 5,000 employees, they’re spending thousands and thousands of {dollars} each couple of years so as to have the ability to present these tokens to employees.
Producers of tokens themselves are projecting that 25% loss per person is a typical loss fee, so this turns into a consumable spend that basically swamps the economics of including a multi-factor for these roving workforces.
Now, our Passkey:YOU modifications all of that by marrying BIO-key’s famend biometric authentication with only a contact of a finger to a hosted passkey that’s based mostly in software program and hosted on servers, so that every person can unlock a private passkey at any of these workstations with only a contact of their finger as a substitute of getting to hold a telephone or a token, and meaning customers carry nothing, and BIO-key Passkey:YOU does the work to offer a phoneless, tokenless, and passwordless authentication expertise at any workstation within the enterprise.
So Passkey:YOU is leveraging the prevailing FIDO2 WebAuthN authentication workflows which are already in each id and most utility platforms, and due to this fact, it helps a drop-in useful substitute the place you may need beforehand used {hardware} tokens to as a substitute enable the person expertise of a contact of a finger or additionally help tapping their door entry badge that they have already got, in lots of instances, on a shared machine on the workstation. This modifications the {hardware} economics from shopping for {hardware} for each person to placing {hardware} on the entry level itself and radically reduces the price of rolling out multi-factor sturdy authentication to a workforce.
Now, the truth that we’re FIDO compliant is vital as a result of we’re passing all the superior person expertise and decrease value via the prevailing commonplace FIDO authentication workflows that often are considered accepting solely FIDO {hardware} tokens or phone-based passkeys, so the economics of placing this in place goes to be easy by way of each value to deploy in addition to the truth that you are not shopping for {hardware} for each considered one of your customers, and our clients have been asking us to make the biometric expertise that they love extra accessible with out having to essentially do integrations and perhaps even herald our product like PortalGuard. So this enables us to enter current options the place there are IDPs like Okta or Ping already current, and people id suppliers are in a position to then undertake our biometric expertise.
Now, we constructed this so as to ship this resolution with our accomplice, IDmelon, who has the power to basically flip our authentication expertise right into a passkey, and that makes it in order that it is basically easy for an enterprise so as to add passkeys the place they’re already doubtlessly {hardware} tokens as a substitute. And we expect this product can be a helpful software for the a whole bunch and even 1000’s of enterprises which are at present struggling to ship sturdy passwordless authentication to all their customers inside an current IAM workflow.
Now, in its biometric mode, Passkey:YOU is already powered by our current platform, which permits a limiteless variety of customers to basically be their very own phish-proof credential, and this can be a phish-proof resolution as a result of all the authentication course of is cryptographically secured in order that no credential may very well be obtained by fooling the person with a phishing assault into offering their authentication credential like a password. So, that is completely secured in opposition to phishing, and but it is also simpler for the customers.
So, that mixture of decrease value, simpler person expertise goes to make it in order that that is we expect goes to be a extremely popular resolution to carry into these shared workstation workflows. Biometric platform is constructed with privateness capabilities and privateness regulation compliance inbuilt in order that our clients do not have to fret about being compliant as a result of we maintain guaranteeing that issues like consent for all of the customers as a part of enrollment is built-in into the workflows. We additionally present user-controlled privateness dashboards in order that customers might be compliant with understanding how their biometrics is getting used, have management over whether or not they wish to revoke it or take away it. These are the capabilities that we have constructed into the product so our clients do not have to fret about it. This ensures that BIO-key Passkey:YOU will combine into any current framework with out having to have both a compliance concern or an integration effort. And once more, we wish to make it as straightforward as potential for individuals to undertake and profit from the biometric expertise that we have got so many purchasers utilizing already.
I might be completely happy to reply any questions that you will have relating to Passkey:YOU within the Q&A, however for now I wish to flip the decision over to Ceci Welch so she will be able to overview the financials.
Ceci Welch
Thanks, Jim.
As Mike referenced, the audit of our 2023 monetary assertion was lately accomplished by our unbiased registered public accounting agency and due to this fact we filed each the 2023 10-Okay and our 10-Q for Q1 ’24. I will overview the Q1 ’24 outcomes which had been additionally in our press launch issued yesterday as in comparison with the restated Q1 2023 outcomes.
Q1 ’24 revenues had been up 19% sequentially to $2.2 million, which was in step with the comparability in Q1 ’23. The present 12 months interval benefited from the expanded use of our BIO-key biometric shopper identification system by a long-time monetary providers buyer in South Africa. A big order from them drove 23.6% enhance in license payment revenues offset by a decline in recurring and customized providers and {hardware} income.
Providers declined because of the loss of a giant service settlement and a big buyer order for Sewell Safe Q1 ’23 that didn’t recur. Our gross revenue and gross revenue margin benefited from the larger proportion of license payment revenues which command the next margin than providers and tools. As such, our gross revenue grew to $1.9 million from $0.9 million in Q1 ’23, with our blended gross margin improved to 86% from 40% in Q1 ’23, which included a {hardware} reserve expense.
When you exclude the {hardware} reserve expense in Q1’23, it might have been 62% versus 86% in Q1 ’24, with the present 12 months interval additionally benefiting from the income combine that included the next margin license payment income.
Turning to bills, we diminished our complete working expense by $231,000, or 17% in Q1 ’24 versus Q1 ’23. This included SG&A reductions of $149,000 and $83,000 much less in analysis and growth and engineering bills. Expense reductions included gross sales personnel and advertising and marketing present bills and decrease lease expense for our New Jersey headquarters, as mentioned in prior calls. We had been in a position to downsize the company headquarters, lowering our lease expense and associated occupancy prices, as a lot of the workforce is now working remotely. These cost-cutting initiatives had been barely offset by greater audit {and professional} charges associated to public reporting and regulatory submitting.
Given greater revenues and gross revenue, we trimmed the working loss by $1.2 million to an working lack of $509,000 in Q1 ’24, from an working lack of $1.8 million in Q1 ’23. When it comes to backside line, BIO-key considerably trimmed its web loss by 70% to $ 510,000, or $0.32 per share in Q1 ’24 versus $1.9 million, or $3.51 per share in Q1 ’23. We are going to proceed specializing in growing income and cost-saving initiatives in 2024 to help our money to money stream break-even and profitability.
When it comes to the sure key objects, as of March 31, 2024, BIO-key had present property of roughly $2.3 million, together with $690,000 of money and money equivalents, $710,000 of accounts receivable and due-to-factor, and $440,000 of stock, web of the $4 million of reserves. As talked about, in Q1’24, BIO-key acquired $1.5 million in money associated to an prolonged two-year extension of a license settlement with a long-term monetary providers buyer that makes use of our biometric expertise for buyer authentication.
In 2023, we wrote down $3.1 million of inventories that had been slated for tasks in Africa all the way down to zero. We’re working to transform that portion of the {hardware} stock to money upon cargo to help our development initiatives and operations. We even have a number of bigger tasks with new and current clients which are in a request for proposal or proof of idea phases with healthcare and monetary clients and a international protection pressure that is an current buyer, which might doubtlessly profit our leads to upcoming quarters. That concludes our ready remarks.
Now I will ask the operator to start the Q&A.
Query-and-Reply Session
Operator
We are going to now start the question-and-answer session. [Operator Instructions]
Unidentified Analyst
Invoice Jones
Operator
At the moment, we’re displaying no questions and the Q&A session has ended. I will ask Mike DePasquale for closing remarks.
Mike DePasquale
Thanks, everybody, for becoming a member of our name at the moment. We sit up for updating you on future investor calls. Please attain out to our IR workforce, whose contact data is listed in our press launch with any follow-up questions. We sit up for updating you on our Q2 name, and as all the time, we’ll present information and updates within the interim by press launch. Once more, thanks in your time at the moment.
Operator
The convention is now concluded. Thanks for attending at the moment’s presentation. You could now disconnect.
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