BIO-key International, Inc. (NASDAQ:BKYI) Q3 2022 Earnings Call Transcript
Wed, December 28, 2022 at 9:59 AM EST
BIO-key International, Inc. (NASDAQ:BKYI) Q3 2022 Earnings Call Transcript November 16, 2022
Operator: Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the BIO-key International Third Quarter Conference Call. During management's prepared remarks, all participants will be in a listen-only mode. Afterwards, listeners will be invited to participate in a question-and-answer session. As a reminder, this conference is being recorded today, Tuesday, November 15, 2022. I would now like to turn the call over to Kimberly Biddings, Vice President of Product Marketing. Please proceed.
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Kimberly Johnson: Thank you, and thank you for joining our call. Joining me today are BIO-key's Chairman and CEO, Mike DePasquale; as well as Alex Rocha, Managing Director of BIO-key EMEA; and BIO-key's CFO, Cecilia Welch. I will remind everyone that today's conference call and webcast and answers to questions include forward-looking statements, which are subject to certain risks and uncertainties that may cause actual results to differ materially from those projected. Words such as anticipate, believe, estimate, expect and plan and similar words typically identify and express forward-looking statements. Such forward-looking statements are made based on management's beliefs and assumptions using information available currently pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
For a complete description of these and other risk factors that may affect the future performance of BIO-key, please see the risk factors in the company's annual report filed on Form 10-K with the Securities and Exchange Commission. Listeners are cautioned not to place undue reliance on forward-looking statements, which speak only as of today's date. The company undertakes no obligation to revise or disclose revisions to forward-looking statements to reflect future events or circumstances after today. With that, I will turn the call over to Mike.
Michael DePasquale: Thanks, Kim. Good morning and thank you for joining our call today. After my brief remarks, I want to leave plenty of time for Alex to review our efforts in Europe and the Middle East and for Kim to discuss our sales and marketing initiatives. Ceci then will provide financial highlights, and we'll open the call for investor questions. BIO-key has become a global company with a global brand. We have over 80 employees, including 36 in Europe, Middle East, Africa or EMEA region. And Q3 was our second full quarter that included operating results from our Swivel Secure acquisition that closed in March. The business and its integration into BIO-key is proceeding according to plan, though our third quarter was affected by the normal European seasonal slowdown due to the summer holidays.
We also saw continued customer delays in our large IT projects in Africa, and we did see some slippage of projects in our domestic business from Q3 to Q4, but mostly with county governments that must go through the RFP process. Despite these factors, we grew Q3 revenues by 6%, and year-to-date revenues rose 26% to $5.3 million, which is higher than our full fiscal 2021 revenue. At BIO-key, our success owes largely to our focus on innovation, which is core to our mission to expand passwordless and mobile IAM options. In Q3, we launched our updated mobile authenticator app, which we call MobileAuth. And we upgraded the user interface for our cloud-hosted PortalGuard as a service or IDaaS, which Kim will discuss in a few minutes. Regarding Africa, in Q2, we secured our - in Q3, I should say, we secured our application programming interface or API key access from the Nigerian National Identity Management Commission for verification of all national identity numbers.
Unfortunately, NIMC has had both technical and financial issues that led to delays in enrolling significant numbers of citizens, but we expect the situation to be resolved in the next few months. In addition to National ID programs, there was a substantial need for mobile security solutions across Africa. After two years of effort, we believe our African subsidiary is well-positioned with the right technology and relationships to monetize those significant opportunities that exist across the continent. Along with Gartner and Forrester, we believe the multifactor authentication segment of cybersecurity is one of the most attractive growth opportunities in the global software market today. As so much of the market is still mired in legacy solutions that have been compromised repeatedly.
Also, cyber insurance is becoming a mandate across public companies as well as small and medium-sized businesses that house consumer data. Insurance underwriters will not issue a policy to companies that do not have multifactor authentication in place. And despite the geopolitical and economic headwinds that almost every global business is experiencing, we believe MFA solutions will remain in high demand, and the opportunity for BIO-key to move up the value chain to larger opportunities is now presenting itself. Strong device and server-based biometrics is our unique competitive advantage. And it is getting greater visibility in the markets over the past two quarters. Again, Kim will speak to that shortly. To enhance the awareness and reach of our solutions, we've invested in an expanded team of direct and partner sales resources to complement our growing channel.
These investments are enabling us to build a growing base of recurring software-as-a-service revenue with strong customer references. We're also building our pipeline of customer and project opportunities, some of which has progressed more slowly than anticipated over the past several months, which we largely attribute to macroeconomic factors. Nonetheless, we do expect a strong close to the year as some customers seek to put their IT budgets to work before it's over. Given our results through Q3, we now expect full year revenue of $7 million to $9 million in 2022, representing growth of approximately 37% to 76% over 2021 revenue. Our outlook anticipates growth in recovering software license revenue to roughly 70% of our total or software license revenue, supported by hardware and services revenue, which are typically in support of specific software projects.
Although there's a possibility we will see our African hardware deployments begin this quarter, we are not forecasting that to begin until Q1, 2023. With that, I will now turn the call to Alex Rocha to discuss our European and Middle East business. Alex?
Alex Rocha: Swivel Secure unit business into BIO-key International as on track, and we had been achieving our goals. In continuation with the previous quarters, I want to say that we met the target, and we continue to be a profit business unit. To expand our sales team, we incorporate as Senior Enterprise Sales Account for Spain and Latin America and Mercedes-Benz a General Manager well-known of the market with more than 10 years of experience. This team will be responsible for generating opportunities and win opportunities with the channel in Spain and Latin America. Our channel strategy involved BIO-key University that we speak previous. And we added a new partner program where the resellers have access to daily tools to help them position BIO-key product offer and identify opportunities, which has been built in the easy-to-use platform for sales and marketing teams inside our resellers.
We are selecting our add value distribution partner for Spain with presence in Latin America. The shortlist is retrieve and we expect to have the final decision next month. We have already 20 partners that cover 25 different countries, and we expect to achieve 100 in the next year. PortalGuard IDaaS in Europe is already fully deployed and the next project going to be designed for Asia, will allow us to start offering our product in that region where it exists a large demand for cybersecurity products. New customers, I'm glad to announce that we have one of the large European supermarket chains, a Saudi city council, the large European bus company, and another Spanish city as a reference. We have more, but that means the ones that we want to highlight.
Also closing -- working closely with our partners and with our customers, we received a huge upgrade for sales our customer, a healthcare company and another one for insurance company. We are also working in large opportunities one of them for a large retail chain in Nigeria, where the project is to secure 120,000 employees. We're going to represent more than €1 million revenue for the global project. Related to relevant opportunities, we are also working right now with the Central Bank in Asia and the National Banking Angola, and another in Ethiopia. In this case, the FFP is for five years with a, projection revenue of more than $5 million, plus six opportunities in government, telco, and private sector in Nigeria. Also, we have been achieved that we are already a strategic partner - for trust and beyond rust, and we continue conversations about extending that to SailPoint Omada and SAP.
BIO-key has been in one of the most relevant identity and access management event in London last week, where we attempt with our biometric solution and identify that several customers want to fill the needs of their projects. Not only the ones that they are at the new ones, but the ones that they have, the challenge they have right now, that legacy solutions cannot fit. For example, share computers kiosks and when the, company don't deploy corporate mobile devices to the employees. And that is a very simple way for we show and explain what, is, the good return of investment. For this event, we bring 11 opportunities to fold and has been impressive for the quality of that lease. And we have been the only biometric vendor represented there, not related to the technology itself, but more with the business-oriented, we are studying a strategy approach to cyber insurance companies to offer the bundle for SMEs in the OEM sales model.
We continue to work hard in our PortalGuard MSP product, which, as you know, going to be the baseline for PortalGuard CIM with innovative functions and features that we expect to announce soon. We expect to announce again that we achieved our revenue target in the next call. And with that, I want to turn the call back to Kim.
Kimberly Johnson: Great, thanks, Alex. In terms of our customer deployment, we completed the migration of the University of Arkansas at Fort Smith and California Santa Rosa Junior College from on-premise solutions to our cloud-hosted PortalGuard Identity-as-a-Service IDaaS platform in Q3. By deploying our solution, our higher education customers are able to accomplish much more with their IT budget by eliminating the resources and costs of on-premise infrastructure and maintenance. Further, the large increase in remote access outside an institution's firewall is better suited to our IDaaS solution than legacy on-prem architectures. Also in Q3, the Long Beach Community College District in California purchased BIO-key branded hardware tokens to support multifactor authentication for a portion of their student user base.
Outside of higher education, we also expanded our global enterprise franchise, adding a Dutch-based multinational conglomerate a
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