Earnings Call Transcript
Nov. 15, 2017 2:11 PM • BKYI
BIO-key International, Inc. (OTCQB:BKYI)
Q3 2017 Earnings Conference Call
November 15, 2017 10:00 AM ET
Executives
Scott Mahnken - VP of Marketing
Mike DePasquale - Chairman and CEO
Barbara Rivera - COO
Ceci Welch - CFO
Analysts
Brian Kinstlinger - Maxim Group
Presentation
Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the BIO-key International’s Third Quarter 2017 Conference Call. During the presentation, all participants will be in listen-only mode. After the speakers' remarks, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, November15, 2017.
I would now like to turn the conference over to today's host, Scott Mahnken, BIO-key's Vice President of Marketing. You may begin, sir.
Scott Mahnken
Good morning and thank you for joining us on today's call. With me this morning are Mike DePasquale, BIO-key's Chairman and CEO; Barbara Rivera, COO and Ceci Welch, BIO-key's CFO.
I'd like to remind everyone that today's conference call and webcast may contain forward-looking statements that are subject to certain risks and uncertainties that may cause actual results to differ materially from those projected on the basis of these statements. The words estimate, projects, intends, expects, believes, and similar expressions are intended to identify forward-looking statements.
Such forward-looking statements are made based on management's beliefs as well as assumptions made by and information currently available to management, 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 International, see Risk Factors in the company's Annual Report on Form 10-K and its other filings with the SEC.
Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The company also undertakes no obligation to disclose any revision to these forward-looking statements to reflect events or circumstances after the date made.
At this time, I'd like to turn the call over to Mike DePasquale.
Mike DePasquale
Thank you Scott, and good morning everyone, and thank you all for joining us today. I'll begin my remarks with a few comments on our third quarter, provide an update on our long-term growth strategies and then our updated outlook for full fiscal-year 2017 performance.
Our third quarter results reflect the solid contribution from the sales of our growing array of hardware products. This performance is a reflection of our decision to expand BIO-key’s product focus beyond our core software offerings which can be variable in nature as far as size and timing.
Hardware sales grew 134% over the year ago quarter, driven by growing demand for the plug and play functionality of our compact fingerprint readers that are compatible with Windows 10. Our readers providing crease security was also providing the convenience of allowing customers to sign into web hosted and local applications with the touch of a finger. Demand from our readers is coming from a broad spectrum of enterprise customers as well as consumer users.
For example, a US insurance and annuity provider with total assets of nearly $250 billion selected our ECO-ID fingerprint readers to provide an added layer of hardware based user authentication to compliment their existing password-based sign-in credentials for thousands of employees.
Recognizing need to deploy a second layer or factor to authenticate those logging into its network and applications, the insurance provider choose our solution, which has been tested and qualified by Microsoft for use with Windows Hello over a number of alternatives, signing with ease of use and deployment, it’s security and it's attractive total cost of ownership.
Similarly our Sideswipe readers were chosen by a government defense electronics contractor to secure employee access to their online infrastructure. The deployment enabled the client to comply with regulatory requirements for a multi-factor authentication. And we expect that this initial order will lead to additional opportunities. Since debuting our prototypes of our TouchLock line of Bluetooth and biometric enabled padlocks nearly a year ago at the 2017 CES show, we've advanced the product line into commercial production and are seeing growing sales.
In fact, our TouchLock line contributed meaningfully to hardware revenues in both the second and third quarter of this year. Following initial sales in Asia in the second quarter, we recently launched these products in the US to our own e-commerce site www.shopbiokey.com and on amazon.com. The strategy behind launching our own e-commerce platform is to provide us with a direct to customer sales channel for testing and launching new products.
We also expect our e-commerce presence will provide us with customer insights such as product preferences, purchasing patterns, and what advertising, marketing and social channels are most effective in driving sales. We intend to substantially expand the availability of TouchLock products via other e-tailers in the coming months. At the same time, we plan to expand our retail presence by teaming with additional distributing partners and retailers.
We've made solid strides in building out our enterprise and leading retail channel partnerships including D&H, Ingram, TAMKO and PCM on the enterprise side as well as Walmart, Dell, Jet, B&H Photo, Staples and the Microsoft stores retail touching the consumer. We look to build upon these relationships that we inaugurated with our fingerprint reader solutions with our new line of biometric and Bluetooth enabled padlocks.
Collectively, these partnerships bring us a broad based distribution reach for both enterprises and customers. We also look to leverage our distribution partners to showcase our products at relevant tradeshows. For example, we showed our TouchLock TSA product at the Tax Free World Association gathering of the duty free and travel retail industry in Cannes via our partner, the retail travel group.
TouchLock TSA improves the physical security of luggage with reliable access by removing the vulnerability of simple pins, combination or keys which can be forgotten or lost and is also approved by the security - Transportation and Security Administration. We garnered good interest at this event and we are now working the leads that were developed with our partner. We also showed our locks and readers last week at the CES Unveiled New York, a forum bringing together innovative technology companies, top media global buyers and key tech influencers together to showcase new products and trends leading up to the CES show in Las Vegas, January 9 through 12, 2018.
As the holiday season approaches, we are working to gain some exposure for our hardware products as potential gifts. Though first slated for October, we now expect our SideTouch fingerprint readers to appear several times over the next few weeks on the Home Shopping Network. HSN broadcasts 24 hours a day to over 90 million homes across America providing great exposure for BIO-key and our products. HSN hosts will demonstrate the ease of installing and using SideTouch readers on Windows’ PCs and tablets. The readers will be offered on a standalone basis and in PC, tablet and laptop product bundles, and we will try to make investors aware of the air dates and times as soon as possible.
Turning to our software license segment, despite modest year-over-year improvement, the results were disappointing relative to some of the large opportunities we are working. The size and complex layers of decision making at enterprise customers makes purchasing outcomes very difficult to predict. Though we have historically seen more activity in the fourth quarter, as many companies look to tap end of the year procurement funding balances.
Despite our Q3 software license performance, we continue to advance a few significant hardware and software opportunities in our sales pipeline and believe there remains some potential to close a portion of one or more of those in the next few months. As cyber attacks continue to buffet our daily news, we expect to see further action on the part of organizations in taking proactive measures to protect critical infrastructure. In that environment, we are working to make sure the security convenience and lower cost of ownership of our solutions is known to decision makers as they make investments in greater security.
Importantly, we continue to execute on our long-term strategies during the quarter, which are focused on three main objectives. Growing our software license revenue base, transitioning our software business to a recurring software as a service revenue model, and expanding sales of our hardware products to both enterprise and consumer customers. Beyond our substantial head start in developing biometric solutions, we have also positioned BIO-key with a biometric inclusive posture, which means that our patented solutions can be seamlessly integrated with solutions of other security and authentication providers including all forms of biometric identification.
In this way, BIO-key is able to play an important role in most security solutions. Further, as we have often said, BIO-key’s software solutions are agnostic as to the biometric modality. Our web key solution is designed to work with any biometric measurement and many other forms of authentication. And while I'm on the topic of other biometric measurements, I did want to briefly mention Apple's launch of the iPhone X which utilizes facial recognition as its sole mode of biometric authentication. As is typical when Apple does anything, their use of facial recognition in the new high-end phone has sent shock waves through the security industry, raising concern for the future of other biometric forms such as fingerprint.
And these concerns have been reflected in 20% or greater declines in the market values of several publicly traded companies in the biometric field. Bottom line, we do not believe Apple's move into facial recognition is cause for any great concern for BIO-key. And once the buzz buy is down, we believe the viability of fingerprint and other modalities will be clear. While this may sound self-serving, the viewpoint is solidly rooted in customer and industry feedback, where we are seeing any traction for this technology within government or enterprise customers.
So in essence I believe that over time we will bounce back, the fingerprint industry will bounce back because in government, in enterprise customers love the ease of use, the simplicity and more importantly the accuracy that's associated with our biometric technology. So while we do understand the excitement and concern that Apple's launch has generated, we are not seeing it impact near-term demand for our products at all, other than from a curiosity standpoint. I'll leave it there, but I'm happy to answer any questions that may come up later in the call.
In summary, we remain confident that we have the right technology and focus to drive long-term growth of our hardware and software offerings. Based on our year-to-date performance and our pipeline of sales opportunities, we remain confident in BIO-key’s growth potential. Today, we are reaffirming our full-year revenue guidance of $6 million which represents the low end of our prior revenue guidance range and would imply year-over-year growth of approximately 100%.
With those updates, I'd like to invite Barbara to review additional Q3 2017 operational highlights. Barbara?
Barbara Rivera
Thank you, Mike. Our objective is to scale and streamline our operations to better serve our enterprise customers, which historically have contributed over 85% of revenue and typically operate within highly regulated industries such as healthcare, government and financial services, as well as in consumer oriented businesses such as retail that retain data and financial information on large numbers of consumers.
These consumers often have sensitive technology, processes that require enhanced security and significant customization. As Mike mentioned, our biometric inclusive strategy enables our software to support multiple modes of authentication and to perform on almost any device or operating system. We believe this agnostic approach resonates with enterprise customers who seek seamless integration and have complex and disruptive prophecies.
This BIO-key advantage makes us a compelling choice for the enterprise and demonstrated by our customer base, which includes some of the largest organizations in the world. Nonetheless, as we have all seen, the path toward adopting new authentication solutions can be surprisingly long, challenging and very hard to predict.
Research and development remains critical to our operations both in terms of remaining fully compatible with most IT systems, while also making investments to develop new solutions and enhancements that position us to meet tomorrow’s security needs. We balance in-house R&D with strategic relationships and outsourcing that helps us leverage our capabilities in the most cost effective way. Also from a cost perspective, we are focused on streamlining operations where possible as well as maximizing the value and reach of our distribution partnerships.
And with that I’d like to invite Ceci to review our Q3 2017 financial performance. Ceci?
Ceci Welch
Thank you, Barbara. Reviewing our Q3 2017 financial results, total revenues increased by 118% to 942,881 over Q3 2016, principally due to higher hardware and services revenue. Sales for the first nine months of 2017 rose 1.9 million to 3.2 million from 1.3 million in the prior year period reflecting a solid improvement across all three revenue categories.
Q3 hardware sales rose 134% to 512,281, driven principally by increased fingerprint reader sales and approximately 164,000 to revenue from our new product of biometric locks. Service revenues increased 4715% [ph] to 260,000 in Q3 ’17 compared to 540,000 in Q3 ’16 in connection with a special software requirement from an existing customer, while recurring maintenance and service revenues decreased 36% to 117,000 from 182,000 in Q3 ’16 due to the non-renewal of two maintenance contracts.
Gross profit margins decreased to 2% from in Q3 ‘17 from 60% in Q3 ’16, principally due to 388,681 of noncash amortization expense related to the Finger Q, a portfolio of mobile and online payment security software technologies in the period versus no such expense in last year. Gross margin also impacted by revenue mix, which included higher percentage of hardware sales that carry a lower margin. Excluding the noncash amortization, BIO-key’s Q3 ‘17 profit margin would have been 43%.
Q3 ‘17 operating expenses increased to 1.6 million from 1.5 million in the prior-year period, principally due to a 34% increase in selling, general and administrative expenses, primarily related to our Hong Kong subsidiary, commitment fees, noncash compensation, NASDAQ related fees and commissions, partially offset by reduction in research and development, and engineering costs.
BIO-key’s Q3 net loss was 1.6 million or $0.28 per share after the preferred dividends as compared to 1.1 million or $0.24 per share after the preferred dividends in Q3 ’16. The higher loss was primarily due to the decrease in gross profit. For the nine months ended September 30, 2017, BIO-key’s net loss was 4.7 million or $0.85 per share after preferred dividends versus 3.6 million or $0.77 per share after the preferred dividends for the nine months ended September 30, 2016.
Per share results in Q3 ‘17 and Q3 ‘16 are based on weighted average share cost of 6.5 million and [indiscernible] million basic shares outstanding respectively, which have been adjusted to reflect the impact of the company's 1 for 12 reverse split in December of 2016.
As Mike commented, BIO-key is reiterating the low end of the 2017 revenue guidance of 6 million with a gross margin of 50% or better depending on the sales mix. We remain confident in our ability to achieve the revenue guidance based on our enterprise order pipeline, sales expectations from our locks and fingerprint reader hardware, software license renewals and services revenue anticipated by year-end. Finally, on a cash basis, excluding amortization other non-cash expenses, BIO-key’s breakeven run rate remains approximately 7.5 million on an annual basis.
Reviewing our liquidity and other resources at September 30, 2017, our total cash and cash equivalents plus current receivables was approximately 1.5 million as compared to approximately 2.6 million at the end of December 31, 2016. In September, we issued 427,778 shares to an existing investor and board member for an aggregate price of 1,540,000.
BIO-key received cash proceeds of 1 million for 277,778 shares and 540,000 of accrued dividends payable or converted to 150 shares of common stock plus warrants to purchase 138,889 shares of common stock at 3.60 per share. Subsequent to the close of the third quarter 2017, the same investor and board member converted 27,404 shares of Series A-1 Convertible Preferred into common stock at the contractual conversion price of $3.60 per share resulting in the issuance of 761,222 of BIO-key’s common stock.
And now operator let’s start the question-and-answer session.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Brian Kinstlinger with Maxim Group.
Brian Kinstlinger
Can you talk about what's driving the expectation in the fourth quarter for $3 million of revenue? I know you mentioned it seasonally strong, but maybe in order, is it biometric locks that are starting to take off, is it the relationships for the SideSwipe, and the other products. Maybe just go through that fourth quarter expectation.
Mike DePasquale
It's across the board and it also was consistent with some renewal business on the enterprise side that we have upcoming So it's hardware, it's certainly software, but we have a greater expectation for performance in the fourth quarter from the software segment within our enterprise business, and it's also our new products. So it's a combination of all of those items.
Brian Kinstlinger
In terms of the biometric locks, is there a visibility on partners that are buying them from you? Is that now selling - are you now selling that product completely, just take me through the [indiscernible].
Mike DePasquale
So both. We are, as we declared months ago, we are pursuing retail and e-tail relationships through our distribution channels, similar in nature to what we have done with our finger scanners. So you will see our locks available online through e-tail channels as well as brick and mortar stores in the spring. We missed the cycle to get in brick and mortar for the end of the year, so we’ll be in brick and mortar as we approach the first quarter. We also, as I described in my comments, set up our own e-commerce site.
You can buy the locks directly from our e-shop by site or you can go to Amazon and purchase them. We did not want to miss the holiday season as well and be able to provide these products directly to consumers. Plus, this gives us a really good way to gauge the buying patterns. We've got a full product line, so which specific products, price ranges, all of our products are available in different colors and different form factors. So this is a way for us to gauge what consumers really want to purchase and so that's why we went ahead and set up our own venue to begin moving and selling locks just about two weeks ago. I think we went live just about two weeks ago, our e-shop by site.
Brian Kinstlinger
And in terms of retail and e-tailers, are these some of the larger guys? Obviously, the Home Depots and Targets of the world, Telelock, should we expect these types of relationships with a smaller bricks and mortars and hardware stores, how do I think about -- and will you announce some of those relationships?
Mike DePasquale
We will announce those relationships when they have product in store and they will be some of the larger ones that we all know about it are very notorious in moving these kinds of products, both not only locks but that also with electronic products, right, because this is not just a lock. You can buy a Master Lock four pack for 19.99. This is really a specialty product, blue tooth enabled, fingerprint enabled. So it's more of an electronic type product. In fact, there was a video that was posted up to our social media channels. It was a news segment that was shot in Pittsburgh yesterday that kind of reviews the product and why this particular interviewer believed that it was a wonderful gift product for the holidays.
It's a special product. It's priced really, really well and it's available in different form factors and colors. So it's cool and we think that not only e-tail channels, but brick and mortar channels are going to pick this up and feel really good about it and we think we're going to move a lot of product. But again timing is everything. We won't be able to get into brick and mortar until the first quarter or maybe towards even the first -- end of the first quarter as most very large big box type retailers have cycles and we're in that cycle right now.
Brian Kinstlinger
So while you are running a direct sales model until we see the big box retailers taking and even when the big box retailers take it, I think I've asked this question in the past, what do you do to create brand awareness. I know social media is one way with your current capabilities, but what are you thinking about changing in or beginning to improve brand awareness as this product is obviously very new.
Mike DePasquale
Yeah. We haven’t even started that yet. You're going to see over the next couple of weeks, you'll see a whole campaign in the social and public venues that promote these products. We have an affiliate marketing program that we're kicking off, which will extend the reach and breadth and depth of our market or addressable market. So all of these things will be evolving over the next couple of weeks and certainly be put in place for the holidays. You'll see product reviews, you'll see media pick up, we were at the CES unveiled event in New York last Thursday. We met with well over 250 media and media representatives, so we're just going to start now to see, we saw yesterday the first television telecast of a review of our products. I think we’ll be going in Chicago this week, if not early next week. So we've got a whole kind of plan of marketing type events that will evolve over the next couple of weeks that will create brand awareness and we'll see how we do.
Brian Kinstlinger
And then in terms of the bicycle lock, can you talk about the relationships you're building there and kind of the progress you're making with the bicycle lock.
Mike DePasquale
Yeah. That product is going to be in the market in the next few weeks, so that was a really big hit at the event last Thursday. We'll be shipping that product in volume before the end of the year and the marketing for both the TSA and the bike lock is very, very vertical. So it's an easier market to address and we think we're going to be very successful there. It's also global. As you know, bicycles are a basic mode of transportation in many countries around the globe and so attaching ourselves to the bicycle companies and those that promote that level of transportation will also be an important thing for us. So we'll be promoting those products around the world and you'll begin to see them in the market, likely the early part of December over the next couple of weeks.
Brian Kinstlinger
And so that is you selling to one of your partners that sell bicycles or is that the shift – do you expect significant shipments for that spread out to multiple vendors.
Mike DePasquale
All the above, everything you mentioned. We've been associated with a number of bicycle companies. In fact, we designed the lock in particular for a large bicycle company in Japan. And that was, in essence, the brainchild of this product and also with CES in January, we’ll have some, I’ll call it, follow-on or new or additional type products in different form factors in configurations that will be available.
Brian Kinstlinger
Have you come up with a price for what that will be shipped for, what -- and what kind of profits you make on that?
Mike DePasquale
Well, we can talk about MSRP. We have three versions of the bicycle lock. There's a Bluetooth variation and a fingerprint version and then a combination of both Bluetooth and fingerprint. So the Bluetooth and fingerprint only versions will, MSRP will retail out at 59.99, the combination lock which you can open with your phone or with your finger will retail out at 69.99.
Brian Kinstlinger
And then finally the software opportunities you're talking about in the fourth quarter, are those newer type recurring software deals or are they more one-time license deals in nature?
Mike DePasquale
Both. We are really pushing, Barbara mentioned in her comments we're really pushing to a SaaS model. We want to exclusively sell in that venue but there are certain customers in fact very large ones who sometimes prefer to purchase on a perpetual bait and so we don't limit ourselves and walk away from business but we're really moving in that direction.
Operator
[Operator Instructions] The next question comes from [indiscernible].
Unidentified Analyst
The cost of licensees however and other was nearly 50% higher than those same sales, I'm wondering what the gross margin is that you expect in the fourth quarter?
Mike DePasquale
I think the only way I can answer that Dan is to say it depends on the mix. So if we have a very strong quarter in relationship to software sales, obviously, the gross margin can be quite a bit higher. If we have a mix of hardware and software and it balances in the 50% range, obviously, it'll be a little bit lower. So it really does depend on the mix. There's no question about it.
Unidentified Analyst
Well, let me ask then, we're halfway through the fourth quarter and you're now guiding for a minimum of about, I guess, if I've got my numbers right, about 2.75 million for the fourth quarter. Can you give us any kind of probability that you can assign at this time for meeting that target.
Mike DePasquale
We wouldn’t have reaffirmed our guidance if we didn't believe we can make it, so I think we have to leave it at that and we’ll see how we end the year.
Unidentified Analyst
In the last call, you mentioned that there was an ATT deal, I think it was ATT that would show in the second half. Can you say what revenues you collected on this deal in the third quarter?
Mike DePasquale
I don't believe we mentioned anything about AT&T. So I don't -- yeah I'm not sure what you're making reference to.
Unidentified Analyst
Well, there was a large deal that you said didn't show up in the second quarter, which show up in the second half?
Mike DePasquale
I don't know how you're making reference to AT&T. We did have a business that was booked in the second quarter that we delivered this quarter and we actually delivered in the third quarter and we will also deliver in the fourth quarter, but I do not believe it's related to or was related to anything we mentioned in regards to AT&T.
Unidentified Analyst
Oh, that could be my assumption, I assume that or something. What were the maintenance contacts that were lost and what were the reasons.
Mike DePasquale
Just attrition. We have attrition and we've had attrition through the years. We’ll have customers that will just no longer decide to pay maintenance because they really haven't had any maintenance issues quite frankly. Some of our OEM customers in particular that do not change bills that do not update because it's embedded in a device or in a particular product that almost like firmware that doesn't change will decide not to pay maintenance and it just really natural turnover and that's what we experienced.
Some of it also is, as we move to SaaS, as you know, the line maintenance line will decrease as well just naturally over time. But there were no -- nothing material in the context of something to be alarmed about or anything that was unnatural. We didn't lose a customer, a large customer per se or anything like that or a large contract.
Unidentified Analyst
Okay. Last question, I think we've had about two quarters now of 1.5 million or so million in losses. What is the breakeven for BIO-key moving forward? I know, you’ve had some extraordinary expenses, perhaps, in the last couple of quarters, but we do expect you need to get about 2.5 million now per quarter to breakeven.
Mike DePasquale
That's a great question. I believe Ceci mentioned that at the tail end of our comments, our breakeven has been relatively consistent through the year. It's about 7.5 million on an annualized basis. So if you were to break that across the quarters, right, it's less than 2 million, but it's in that range give or take and it really depends on the mix and you're right also about the extraordinary expenses. As you know, we spent quite a bit of money over the last really 12 months positioning ourselves for the NASDAQ listening, including expenses to get on the NASDAQ and so forth.
So those are not recurring and I'd like to see actually I do believe that our expenses are going to decline again. We went through a significant period over the last four or five years where we were able to keep our expenses basically steady or declining and grow our revenue. I think we're going to be back in that mode again for sure. We're again jettisoning those who were eliminating those non-recurring expenses and then getting more efficient in the way we manage our business going forward, especially with the new sales technologies that we're using, I could see expenses going down. But right now, our breakeven is 7.5 million on an annualized basis.
Operator
[Operator Instructions] The next question comes from Frank Wolf [ph]. Frank, your line is now open.
Unidentified Analyst
Sorry. So Mike, last year, you guys had some subscription licenses. In the fourth quarter, can we assume those are going to repeat this year for the fourth quarter and then also can you give some us sell through or do you have any sell through feedback for the bike lock in Japan yet.
Mike DePasquale
We're just, yeah, let me answer the last question first. The bike locks, we're just going to production on those products so we'll begin shipping them the end of this – we only have another month and a half to go, but we'll begin shipping them in December as I mentioned before. So I think we'll have a better handle on that as we get into the beginning of next year and will report that out on our next call. In the context of the subscription business that we did last year, yes, there's certainly a strong possibility that we'll see those -- that subscription renew as well.
Q - Unidentified Analyst
And then just two other questions as well, can you comment on how many subscription customers you have currently and then also or at least ballpark and then also can you give us a little insight of what customers are saying about the Apple facial recognition and why you don't see that as a relatively short-term issue right now? Thanks.
Mike DePasquale
Sure. So I’ll take the last question first again. The Apple, first of all, we're not hearing from customers. Keep in mind that we don't focus on the, so to speak, the device dedication, consumer device authentication market as you know Touch ID and facial recognition or face ID our focus, so we don't do that. That's number one. Number two, the input and feedback that we will get and certainly are getting from our enterprise customers is that they're not using facial recognition technology for authentication. That's a fact. So you're not going to see some of our typical and classic customers that are buying our finger scanners that are buying our software, change and put cameras or use existing cameras that they have on their PCs and laptops for facial recognition.
First, keep in mind that the camera that's utilized in the facial ID or face ID deployed is a very special device. And so it's an infrared camera that has all other types of functionality to try to make it more accurate. You’re typical in-classic camera that comes on your laptop, your notebook or your tablet PC does not have that capability and so we're not going to see that deployed in enterprise at least in this generation. I mean, who knows what will happen five and ten years from now.
I think it's hard to say. I think there will be other modes of biometrics that we're looking at right now. We believe that passive behavioral biometrics are going to be a really strong contender going forward, for not only mobile devices but also for tablets PCs, notebooks and so forth. So, there are other technologies that we see have, we think, greater viability long term. Very difficult to be in the movie theater and have to hold the phone up to your face to unlock it that if you want to be on the subway or be on 9th Avenue in New York City, take your $1000 device out and hold it in front of your face.
All these things, do you want to be driving in your car and have to again position your face or look the other way to unlock the phone. So all these things are going to come up, they're all going to be discussed, they're all going to be reviewed. I think the technology is wonderful. It's convenient, but whether it will get pervasive use and whether Apple will decide to put the finger scanner back in the device over the next year will all be determined by them.
Your first question was –
Unidentified Analyst
Yes. Just ballpark, first question, and also do you have a general, I mean that facial recognition for Apple, that's probably a lot more expensive to you, right, for another consideration.
Mike DePasquale
Well, yeah, because the camera obviously is quite sophisticated and it's their device. Keep in mind, it's a proprietary technology. So it's not going to be widely or pervasively available to other vendors like Dell or HP or Samsung anyone to integrate into their device. So that's kind of a separate issue. On the subscription side, we have a handful of customers. We just started that push. Barbara really began that change in the second quarter and so we have a handful of customers and we think that will grow over time. It certainly makes it more affordable for these customers to be able to buy or acquire the technology and deploy it. So it's good for them and it's good for us because it will ultimately make us more predictable long term, but many companies, especially many small and medium sized software companies are going through this transition and it can be somewhat painful in the beginning, but I think in the long term, it's going to pay off.
Operator
[Operator Instructions] At this time, this will conclude our question-and-answer session. I would now like to turn the conference back over to Mike DePasquale for any closing remarks.
Mike DePasquale
Thank you. We look forward to updating you on our business progress and outlook on our next call and we hope to see some of you at the Imperial Capital Security Conference in New York City on Thursday, December 7. We will announce specific details shortly. Please also be sure to follow us on social media and our blog where we provide ongoing updates on our products and our activities. Our social media information is at the end of today’s release. Content you will find includes links to media coverage, including coverage of our touch lock line by a CBS affiliate that we met last week at the pre-CES event. Again, thank you for your interest in BIO-key and for your participation in today's call.
Operator
The conference is now concluded. Thank you for attending today's presentation.
