Earnings Transcript for BKYI - Q1 Fiscal Year 2024

Operator: Good morning, everyone. Thank you for standing by, and welcome to BIO-key International's First Quarter 2024 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, June 18, 2024. I would now like to turn the call over to Bill Jones, Investor Relations. Please proceed.

Bill Jones: Thank you, Betsy, and thank you all for joining this call. Our hosts today are BIO-key's Chairman and CEO, Mike DePasquale, and CFO, Ceci Welsh, as well as Jim Sullivan, Senior VP of Strategy and CLO, who will provide some insights on BIO-Key's new product launch. As a reminder, today's conference call and webcast, as well as answers to investor questions, include forward-looking statements, which are subject to certain risks and uncertainties that can cause actual realized results to differ from those currently expected. Words such as anticipate, believe, estimate, expect, plan, project, or similar words typically express and identify these forward-looking statements. Such statements are made based on management's beliefs and assumptions as of today and using information currently available pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For a complete description of these and other risks that may affect future performance of the company, please see risk factors in the company's annual report as filed on Form 10-K with the SEC. Listeners are cautioned not to place undue reliance on such forward-looking statements, which speak as of today's date only, BIO-key undertakes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events that occur after today. Now, let me pass the call to Mike to begin. Mike?

Mike DePasquale: Thanks, Bill, and good morning, and thank you all for joining us today. After my remarks, Jim will provide more details around our formal launch of BIO-key's Passkey

Jim Sullivan: Thank you, Mike. Everyone may have seen the press release from last week where we announced the formal launch of BIO-key's Passkey

Ceci Welch: Thank you, Jim. As Mike referenced, the audit of our 2023 financial statement was recently completed by our independent registered public accounting firm and therefore we filed both the 2023 10-K and our 10-Q for Q1 '24. I'll review the Q1 '24 results which were also in our press release issued yesterday as compared to the restated Q1 2023 results. Q1 '24 revenues were up 19% sequentially to $2.2 million, which was in line with the comparison in Q1 '23. The current year period benefited from the expanded use of our BIO-key biometric client identification system by a long-time financial services customer in South Africa. A large order from them drove 23.6% increase in license fee revenues offset by a decline in recurring and custom services and hardware revenue. Services declined due to the loss of a large service agreement and a large customer order for Sewell Secure Q1 '23 that did not recur. Our gross profit and gross profit margin benefited from the greater proportion of license fee revenues which command a higher margin than services and equipment. As such, our gross profit grew to $1.9 million from $0.9 million in Q1 '23, with our blended gross margin improved to 86% from 40% in Q1 '23, which included a hardware reserve expense. If you exclude the hardware reserve expense in Q1'23, it would have been 62% versus 86% in Q1 '24, with the current year period also benefiting from the revenue mix that included a higher margin license fee revenue. Turning to expenses, we reduced our total operating expense by $231,000, or 17% in Q1 '24 versus Q1 '23. This included SG&A reductions of $149,000 and $83,000 less in research and development and engineering expenses. Expense reductions included sales personnel and marketing show expenses and lower lease expense for our New Jersey headquarters, as discussed in prior calls. We were able to downsize the corporate headquarters, reducing our lease expense and related occupancy costs, as most of the team is now working remotely. These cost-cutting initiatives were slightly offset by higher audit and professional fees related to public reporting and regulatory filing. Given higher revenues and gross profit, we trimmed the operating loss by $1.2 million to an operating loss of $509,000 in Q1 '24, from an operating loss of $1.8 million in Q1 '23. In terms of bottom line, BIO-key significantly trimmed its net loss by 70% to $ 510,000, or $0.32 per share in Q1 '24 versus $1.9 million, or $3.51 per share in Q1 '23. We will continue focusing on increasing revenue and cost-saving initiatives in 2024 to support our cash to cash flow break-even and profitability. In terms of the bound key items, as of March 31, 2024, BIO-key had current assets of approximately $2.3 million, including $690,000 of cash and cash equivalents, $710,000 of accounts receivable and due-to-factor, and $440,000 of inventory, net of the $4 million of reserves. As mentioned, in Q1'24, BIO-key received $1.5 million in cash related to an extended two-year extension of a license agreement with a long-term financial services customer that utilizes our biometric technology for customer authentication. In 2023, we wrote down $3.1 million of inventories that were slated for projects in Africa down to zero. We are working to convert that portion of the hardware inventory to cash upon shipment to support our growth initiatives and operations. We also have several larger projects with new and existing customers that are in a request for proposal or proof of concept stages with healthcare and financial customers and a foreign defense force that's an existing customer, which could potentially benefit our results in upcoming quarters. That concludes our prepared remarks. Now I'll ask the operator to begin the Q&A.

Operator: We will now begin the question-and-answer session. [Operator Instructions]

Unidentified Analyst:

Bill Jones:

Operator: At this time, we are showing no questions and the Q&A session has ended. I'll ask Mike DePasquale for closing remarks.

Mike DePasquale: Thank you, everyone, for joining our call today. We look forward to updating you on future investor calls. Please reach out to our IR team, whose contact information is listed in our press release with any follow-up questions. We look forward to updating you on our Q2 call, and as always, we'll provide news and updates in the interim by press release. Again, thank you for your time today.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.