BIO-key International, Inc. Q1 FY2026 earnings call

Market & Growth Traction

• The company's long-term strategy of building a full suite of biometric identity and access management solutions is driving meaningful growth, with new customer wins and expanding deployments in defense and financial services.
• Expanded traction in international markets, including EMEA, India, and Vietnam, supported by a growing network of regional distribution partners and favorable foreign regulatory frameworks for biometrics. 100% of international business is sold through channel partners, creating a scalable, efficient go-to-market model.
• New partnership with DLT Solutions (public sector division of TD Synics, a global top IT distributor) to enable streamlined procurement of BioKeys solutions for U.S. public sector customers, who face mandates for zero-trust infrastructure and multi-factor authentication.

Product & Strategic Positioning

• Management highlighted six key industry trends that align with BioKeys' core strengths: growing demand for secure digital authentication, rising cybersecurity threats, accelerating adoption of passwordless authentication, growing biometric adoption in high-security regulated industries, increasing need for resilient identity solutions to counter AI-driven threats, and demand for unified access platforms.
• The company is predominantly subscription-based with recurring revenue, and 50% of new domestic business comes through the partnership model. A new customer and partner-focused website launched in mid-April 2026 to support growth goals.

Financial & Listing Status

• Ended Q1 2026 with a book value of $7.6 million ($7.04 per share), including $2.2 million in cash and cash equivalents. Total current assets were $4.5 million, with $1.6 million in accounts receivable. The company has sufficient cash to fund ongoing growth operations.
• BioKeys shares were recently suspended from NASDAQ, but the company has secured an appeal hearing for June 16, 2026, and advisors are optimistic for a return to NASDAQ trading by summer 2026. Shares currently trade on OTC markets under ticker BKYI.
• Q1 2026 gross profit grew 33% year-over-year to $1.8 million, with a stable strong gross margin of 82% (flat year-over-year). Operating expenses remained flat at ~$2 million year-over-year, leading to a net loss improvement of $165,036 (15 cents per share) compared to Q1 2025.

BioKeys International reports two core revenue segments for Q1 2026:

1. License Fee Revenue: Increased 24% year-over-year to $1.4 million, accounting for 66.7% of total Q1 2026 revenue.
2. Hardware Revenue: Increased over 100% year-over-year to approximately $531,000, accounting for 25.3% of total Q1 2026 revenue. This growth was driven by foreign defense customer purchases and sales of fully reserved inventory, of which ~$100,000 was written-off inventory. Total Q1 2026 revenue across segments increased 34% year-over-year to $2.1 million.

• Management expects to be profitable and cash flow positive in Q2 2026.
• Management confirmed it is on track to file the 2025 10-K and Q1 2026 10-Q within the same week of the earnings call, to regain full regulatory compliance.
• The company has strong visibility into full year 2026 results, with a growing pipeline of larger $500,000 to over $1 million deals, and multiple awarded contracts awaiting final order processing. First half 2026 revenue is projected to reach ~$5 million.
• Management is optimistic about growth for the full 2026 and beyond, and expects the company's strong financial position to hold or improve by the end of Q2 2026.

• The outcome of the NASDAQ relisting appeal is not guaranteed, and the current OTC listing has resulted in an approximate 20% discount to the company's prior NASDAQ trading valuation.
• Biometric deployments in the U.S. face greater regulatory and privacy barriers (such as BIPA regulations) than international markets, which can slow adoption of BioKeys solutions in the domestic public and private sectors.
• Forward-looking statements around future revenue, profitability, and relisting are subject to inherent risks and uncertainties that could cause actual results to differ materially from current expectations.
• Large deal wins are not guaranteed, and hardware revenue is prone to quarter-to-quarter lumpiness based on the timing of large customer orders.

Q: What is the status of the NASDAQ appeal and upcoming regulatory filings, and is the listing process distracting from operations?

A: The appeal hearing is scheduled for June 16, 2026, with advisors optimistic for relisting in late June or July 2026. The company expects to file both the 10-K and 10-Q in the same week as the call to regain full compliance. The delisting has not impacted daily operations, and the company is on stronger financial footing than it has been in many years, with sufficient capital to invest in growth initiatives.

Q: Why has hardware revenue grown sharply this quarter, and will this strength continue?

A: Hardware sales generally increase alongside larger license deals, as defense clients in particular require biometric hardware touchpoints for personnel access. The quarter also included higher sales of previously fully reserved inventory, which flows directly to the bottom line. Hardware will remain a standard, high-margin part of the company's full solution offering for large customers, though it will continue to be more lumpy than steady license revenue. Additional reserved inventory sales are expected in coming quarters.

Q: What is the growth outlook outside of the core defense vertical, specifically in education and financial services?

A: Education is a stable, growing market for BioKeys but does not offer the same hyper-growth potential as financial services. International financial services, particularly large national banks, are a high-growth target, with multiple wins and a strong pipeline of opportunities. International banks face far fewer privacy restrictions on biometrics than U.S. firms and have clear needs for ultra-strong authentication for staff and customer access, making this a key growth vertical going forward.

Q: Why is BioKeys more successful winning large international contracts than U.S. contracts, and what is its competitive differentiator?

A: International markets have far less regulatory and privacy pushback against biometric authentication than the U.S., where regulations like BIPA create barriers to widespread adoption. BioKeys' key differentiator is its full, flexible end-to-end platform that combines robust biometric authentication with multiple other authentication factors (tokens, cards, phone-based verification) to meet varied customer use cases. Unlike large pure-play biometric firms like IDEMIA or NEC, BioKeys offers full single sign-on and application access integration, and unlike major IAM players like Okta or SailPoint, it has native biometric capability (and often partners with SailPoint internationally to complement their offerings).