BIO-Key's Q3 2025: Contradictions Emerge on Revenue Growth, Operating Expenses, Expansion, Bank of Egypt Deployment, and ARR Expectations

Date of Call: November 14, 2025

Financials Results

• Revenue: $1.5M in Q3 '25, down ~$595K YOY from $2.1M in Q3 '24; year-to-date revenue slightly under $5M
• EPS: $0.15 loss per share in Q3 '25, compared to $0.39 loss per share in Q3 '24 (Q3 '25 net loss $965K vs $739K prior year)
• Gross Margin: 77% in Q3 '25, compared to 78% in Q3 '24

Guidance:

• Large banking customer expected to renew in early 2026; renewal projected to generate $1M–$3M in Q1 2026.
• PortalGuard Version 7 targeted for general availability late Q1–early Q2 2026 after internal and third-party security testing.
• Expect continued deployments and expansions across defense, banking, government, higher education driven by partner network and pipeline.
• Raised net proceeds (~$2.9–$3.0M) post-quarter to extend cash runway toward profitability.

Business Commentary:

* Revenue and Customer Deployments: - BIO-key International reported revenue of $1.55 million in Q3 '25, roughly in line with revenue in the first two quarters of the year, but down approximately $600,000 from the previous year. - The decline was due to quarter-to-quarter variability from the timing of larger customer orders and specific deployments, such as a significant order from a defense customer that rolled over to the fourth quarter.

• Hardware Sales and Financial Performance:
• Hardware sales decreased to approximately $364,000 in Q3 '25 from $436,000 in Q3 '24.

• The decline was due to the timing of hardware shipments in support of ongoing customer rollouts, though it was partially offset by the sale of fully reserved inventory.

• Profitability and Expense Management:

• The company reduced its operating expenses by over 10% through the first nine months of 2025, with expenses decreasing to $2.1 million in Q3 '25 from $2.3 million in Q3 '24.

• This reduction was achieved while expanding global reach and solutions, indicating a focus on cost control and efficiency.

• Defense and Cyber Defense Initiatives:

• BIO-key's defense sector is gaining momentum with large-scale deployments, including a Middle East deployment involving a major defense organization.
• This growth is attributed to increased global defense spending and a focus on cyber resiliency, with two of the top four largest global defense agencies using BIO-key technology.
  
  

  Sentiment Analysis:

  Overall Tone: Positive

  • "We are excited about the growth prospects into next year." Management highlighted cost reduction: "reduce our operating expenses by over 10% through the first 9 months of 2025." Post-quarter financing: "we were able to raise approximately $3 million net of fees" and CEO: "I do see [profitability]. No question in my mind."

Q&A:

• Question from Dan Khamis (Private investor): Well, it's been about 10 months, I think, since you announced the Bank of Egypt win, was that a recurring revenue deal? Or were the permanent licenses? And are you expecting similar revenue from that client customer in 2026?
  Response: Initial deployment is recurring and expanding; management expects further expansion possibly in Q4 and continued growth into 2026.

• Question from Unknown Attendee (Private investor): Since you partnered with Raya on that, does that mean your margins are lower on that project?
  Response: No—software gross margins remain 90%+, partners act as force multipliers to access local markets without meaningfully reducing gross margin.

• Question from Unknown Attendee (Private investor): The first step was to handle NBE employees then move to B2B/B2C—are we looking at non-employee expansion as a 2027 target?
  Response: Employee expansion could occur this year; CIAM/customer-facing expansions are expected to begin in 2026.

• Question from Unknown Attendee (Private investor): The recently announced Middle East defense deployment—is this contract on the same scale as your longest-term defense ministry contract?
  Response: It's even bigger with greater potential; defense deals are large, sticky, start with a base population and have long tails for expansion.

• Question from Unknown Attendee (Private investor): With all these bank and defense wins, do you have any kind of feel for what your current ARR is, the recurring revenue?
  Response: Estimated ARR including renewals is roughly $6M–$7M today; churn is single-digit.

• Question from Unknown Attendee (Private investor): Is the EcoID III price lowered relative to EcoID II or does it compete with a different quality of scanner?
  Response: EcoID III competes with higher-quality readers at a $49.99 list (vs PIVPro high-$60s); EcoID II was ~$44.99 but lacked on-device encryption and liveness—EcoID III adds encryption and liveness; initial order ~7,500–10,000 units.

• Question from Unknown Attendee (Private investor): Any update on the boomerang stock asset value now that the put period is over?
  Response: Will assess during the 2025 audit; management believes the asset value remains intact but provided no specifics.

• Question from Unknown Attendee (Private investor): Any insight into why the stock has seen extreme trading volume recently?
  Response: Management uncertain; suggests announcements and heightened interest in security/biometrics may drive volume and believes the company is undervalued.

• Question from Jack Vander Aarde (Maxim Group LLC, Research Division): What led to the decision to install formal guidance parameters and can we expect a formal guidance framework for 2026 on the next earnings call?
  Response: Confidence stems from a solid pipeline and partner network; will provide formal guidance when predictability improves—deals typically become clear a few months before signing.

• Question from Jack Vander Aarde (Maxim Group LLC, Research Division): I recall a large renewal coming in 1Q '26—is this still on track?
  Response: Yes, the large banking renewal in early 2026 remains on track.

• Question from Jack Vander Aarde (Maxim Group LLC, Research Division): Did the U.S. government shutdown impact your business or growth initiatives in Q4?
  Response: No impact observed; operations and security mandates insulated the business from shutdown effects.

• Question from Jack Vander Aarde (Maxim Group LLC, Research Division): Beyond the 1Q '26 renewal, are there other major renewals or expansion opportunities in 2026 we should note?
  Response: Yes—multiple renewals and expansions across banking, defense and healthcare are expected; the expanding partner network should accelerate new deals and expansions.

• Question from Jack Vander Aarde (Maxim Group LLC, Research Division): Update on the Channel Alliance Program and partner exclusivity?
  Response: CAP is growing with distributors, MSPs, MSSPs and resellers; focus is on quality partners—some are exclusive but most sell multiple vendors; BIO-key's biometric differentiator drives partner preference.

• Question from Jack Vander Aarde (Maxim Group LLC, Research Division): On operating expenses and path to breakeven—do you expect further cost savings or changes?
  Response: CFO: ongoing cost discipline (rent reductions, spending reviews) and continued efforts to manage expenses; will keep optimizing spend.

• Question from Jack Vander Aarde (Maxim Group LLC, Research Division): Do you see profitability/breakeven on the horizon?
  Response: CEO: Yes—combination of pipeline, renewals, partner-led scaling and strong blended margins (~70–80%) supports path to breakeven.

• Question from Dan Khamis (Private investor): Revenues appear flat/down YOY—have you isolated the cause for flatness?
  Response: Timing and lumpiness—transition from third-party to BIO-key products and a one-time catch-up with a banking customer in prior year explain the decline; management expects better results going forward.

• Question from Dan Khamis (Private investor): With ~$3M in cash and insider buying, why is BKY the best investment for that $25,000?
  Response: CFO: Company is fundamentally undervalued; past financing created overhang but cash position and customer base position the company to unlock value going forward.

Contradiction Point 1

Revenue Growth and Expense Management

It involves differing perspectives on revenue growth and expense management, which are crucial for understanding the company's financial health and strategic direction.

Do you have an estimate of your current ARR (recurring revenue)? - Unknown Attendee

2025Q3: Our ARR is growing. I would say we certainly are in the $6 million to $7 million range right now. - Michael DePasquale(CEO)

Will there be growth in Q3 or a slowdown before a Q4 ramp-up? - Dan Thomas (Private Investor)

2025Q2: We don't provide guidance on revenue and continue to work through the transition with our new distribution channel and the launch of new products and services. - Michael DePasquale(CEO)

Contradiction Point 2

Operating Expense Reduction

It concerns the company's commitment and progress in reducing operating expenses, which impacts profitability and financial sustainability.

Will operating expenses change going forward, and are there further cost savings expected? - Jack Vander Aarde

2025Q3: We're just trying to make good decisions on those types of things. - Cecilia Welch(CFO)

With higher cybersecurity and R&D costs, will the recent decline in operating expenses reverse? - Dan Thomas (Private Investor)

2025Q2: The increase in expenses was a one-time issue, and the company anticipates returning to the original expense run rate for the remainder of the year. - Michael W. DePasquale(CEO)

Contradiction Point 3

Expansion Opportunities and Revenue Growth

It involves differing expectations for revenue growth and expansion opportunities, which are crucial for understanding the company's growth strategy and financial performance.

Are there other major renewals in 2026 besides the large one in 1Q '26? Are there any expansion opportunities expected throughout the year? - Jack Vander Aarde (Maxim Group)

2025Q3: 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. - Michael DePasquale(CEO)

What are expectations for large renewals or repeat orders in Q2 and beyond? - Jack Vander Aarde (Maxim Group)

2025Q1: BIO-key expects to grow sequentially, targeting revenue growth in Q2, Q3, and Q4. Challenges may arise due to seasonal factors in Europe in Q3, but the goal remains to grow the business. - Michael DePasquale(CEO)

Contradiction Point 4

Bank of Egypt Deployment and Revenue Expectations

It involves differing expectations for the scale and timing of revenue from the Bank of Egypt project, impacting revenue forecasts and growth strategy.

Is the Bank of Egypt deal announced 10 months ago a recurring revenue deal or permanent licenses? And will you expect similar revenue from this client in 2026? - Unknown Attendee

2025Q3: The answer to that question is that was an initial deployment that we announced just about a year ago. And we are expecting an expanded deployment and that may even happen here in the fourth quarter. - Michael DePasquale(CEO)

Will revenue from the Wyoming Department of Education and National Bank of Education contribute to Q2 revenue? - Jack Vander Aarde (Maxim Group)

2025Q1: The National Bank of Egypt has ongoing opportunities for upgrades and enhancements. - Michael DePasquale(CEO)

Contradiction Point 5

ARR Growth and Expectations

It involves changes in recurring revenue growth expectations, which are crucial for understanding the company's financial health and future growth prospects.

Can you provide an update on your current ARR, specifically the recurring revenue component? - Unknown Attendee

2025Q3: Our ARR is growing. I would say we certainly are in the $6 million to $7 million range right now. - Michael DePasquale(CEO)

What caused the delay to 2025, such as longer sales cycles? Can you clarify the changes since November? - Jack Vander Aarde (Maxim Group)

2024Q4: It's going to be a challenging fiscal year for us in terms of the pure financials. I've said this even in the past earnings call. - Michael DePasquale(CEO)