BIO-key International, Inc. (NASDAQ:BKYI) is a leading provider of identity and access management (IAM) solutions, enabling secure work-from-anywhere for enterprise, education, and government customers. The company's vision is to enable any organization to secure streamlined and passwordless workforce, employee, customer, student and citizen access to any online service, workstation, or mobile application, without a requirement to use tokens or phones.

BIO-key's product portfolio includes PortalGuard® and PortalGuard Identity-as-a-Service (IDaaS) enterprise IAM, AuthControl Sentry, AuthControl Enterprise, AuthControl MSP, WEB-key® biometric civil and large-scale ID infrastructure, and accessory hardware to provide a complete solution for its customers. Millions of people use BIO-key's multi-factor-authentication (MFA) solutions every day to securely access a variety of cloud, mobile and web applications, on-premise and cloud-based servers from all of their devices.

Business Overview

BIO-key was founded in 1993 and has been a pioneer in developing automated, finger identification technology that supplements or compliments other methods of identification and verification. The company's advanced biometric technology has been used to improve both the accuracy and speed of competing finger-based biometrics.

BIO-key operates a SaaS business model with customers subscribing to term use of its software for annual recurring revenue. The company sells its products directly through its field and inside sales teams, as well as indirectly through a network of over 150 channel partners including resellers, system integrators, master agents and other distribution partners.

The company's subscription fees include a term license of hosted or on-premise product and technical support and maintenance of its platform. Subscription fees are primarily based on the products used and the number of users enrolled in the platform. BIO-key generates subscription fees pursuant to noncancelable contracts with a weighted average duration of approximately one year.

Financials

For the full year 2023, BIO-key reported annual revenue of 7.75 million, a 10% increase from the prior year. However, the company incurred a net loss of 8.52 million and negative operating cash flow of 3.79 million. Free cash flow was also negative at 3.79 million.

In the first quarter of 2024, BIO-key generated revenue of 2.18 million, up 19% sequentially from the prior quarter. The company's gross profit margin improved significantly to 86% in Q1 2024, compared to 40% in the year-ago quarter, driven by a higher mix of higher-margin license fee revenue.

BIO-key was also able to reduce its total operating expenses by 17% year-over-year in Q1 2024, leading to a 70% reduction in its operating loss to 509,000. The company's net loss for the quarter was 510,000, or 0.32 per share, compared to a net loss of 1.69 million, or 3.51 per share, in the prior year period.

Liquidity

As of March 31, 2024, BIO-key had 690,449 in cash and cash equivalents, and 2.27 million in total current assets. The company had negative working capital of approximately 1.05 million at the end of the quarter.

BIO-key has historically financed its operations through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, and through factoring receivables. The company currently requires approximately 732,000 per month to conduct its operations, an amount it has been unable to consistently achieve through revenue generation.

In 2023, the company wrote down 3.1 million of inventory that was slated for projects in Africa. BIO-key is now working to convert that portion of the hardware inventory to cash upon shipment to support its growth initiatives and operations.

The company also has several larger projects with new and existing customers that are in the request for proposal or proof of concept stages with healthcare, financial, and foreign defense force customers, which could potentially benefit its results in upcoming quarters.

Risks and Challenges

BIO-key faces several risks and challenges, including its history of losses and limited revenue, ability to raise additional capital, protection of its intellectual property, competition in the biometric technology and identity access management industries, and integration of the Swivel Secure Europe acquisition.

The company also faces risks related to security breaches, customer concentration, and its ability to expand into new geographic markets. BIO-key's temporary loss of the use of a Registration Statement on Form S-3 to register securities in the future, and its ability to remediate material weaknesses in its internal controls over financial reporting during fiscal year 2024, also pose risks.

Growth Opportunities

The overall IAM market continues to grow due to factors such as the migration of enterprises to the cloud, remote and hybrid work environments, increasing cybersecurity regulations, and cyber insurance requirements. These trends are driving increased demand for MFA and advanced IAM solutions, providing significant opportunities for BIO-key.

The company is strategically partnering with larger IAM providers like SailPoint, Ping, and ForgeRock to leverage their large customer bases and integrate BIO-key's biometric authentication solutions. BIO-key's flexible, lower total cost of ownership, and user-experience-centric authentication approach through biometrics positions it well to capitalize on this growing market.

BIO-key also recently launched its Passkey:YOU solution, which provides a unique password-less authentication experience without the need for phones or hardware tokens. This solution addresses the operational challenges of mainstream MFA options in scenarios involving roving users and shared workstations, which are common in industries like manufacturing, retail, and healthcare.

Outlook

BIO-key is focused on increasing revenue and implementing cost-saving initiatives in 2024 to support its path to cash flow break-even and profitability. The company expects to continue its progress from the first quarter, driven by larger opportunities with existing and new customers, as well as the monetization of its inventory in Africa.

While BIO-key faces liquidity challenges and the need for additional financing, the company's growing global distribution network, strategic partnerships, and unique biometric authentication solutions position it well to capitalize on the expanding IAM market. With a focus on execution and cost management, BIO-key aims to drive meaningful top and bottom-line performance improvement in the coming quarters.