BIO-key International, Inc. Common Stock 2026 Q2 Earnings Call

Hosting today are BIO-key's Chairman and CEO, Mike DePasquale, and its CFO, Cece Welch. As a reminder, today's call and webcast, as well as answers to investor questions, include forward-looking statements. These are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words such as "anticipate," "believe," "expect," "plan," or "project," and similar words, identify and express forward-looking statements. These statements are made based on beliefs, assumptions and information currently available to management pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act. For a more complete description of these risks and uncertainties that affect future performance, please see risk factors in the company's annual report on Form 10-K and the current Form 10-Q filed with the SEC.

Listeners are cautioned not to place undue reliance on forward-looking statements made as of today, and the company makes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events occurring after this call. Now I'll turn the call over to Mike to begin.

Mike? Thanks, Bill, and thank you all for joining us this morning.

After my remarks, Cece will review the financials, and then we will take investor questions. Let me start with the headline. Our second quarter bottom line improved 51% on 13% revenue growth. For the first half of the year, our net loss improved almost 60% on 23% growth in revenues. To be clear, these results didn't meet our proposed expectations, not because of any softness in demand, but due to a delayed shipment for a hardware order that we had anticipated in Q2. The order was delayed, and we expect to ship it in the second half of the year. Considering that shift, combined with the opportunities already in our pipeline, we expect continued growth and are targeting profitability for the second half of 2026. Let me spend some time talking about what's driving our outlook.

It's really about the broader momentum we're building, particularly across Europe, the Middle East, and Africa, or EMEA, which is really starting to bear fruit. We're closing deals, adding productive channel partners, and developing new project discussions at an accelerated pace, all of which fundamentally underlie our business momentum. Our revenue gains are also supported by strong secular backdrops. According to Future Market Insights, the global market for authentication solutions is projected to grow rapidly over the next 10 years, from roughly $26 billion this year to over $114 billion by 2036. This represents a 16% compounded annual growth rate as organizations of all kinds and all sizes take action to defend against increasingly sophisticated cyber threats.

In the area of passwordless authentication, where BIO-key delivers industry-leading solutions, a recent FIDO Alliance report found that 68% of organizations are actively deploying or piloting Passkeys for employee sign-in. In addition to our biometric and Passkey:YOU passwordless solutions, our flexible authentication platform, PortalGuard, supports 16 different authentication factors and doesn't depend on any single device. This provides us with a unique ability to support complex authentication environments because when it comes to enterprise and government authentication needs, one size simply doesn't fit all. To put that in context, let me walk through several recent wins and partnerships, most of which were announced just in the past few weeks. In the Middle East, we partnered with Maktabi Tech to bring PortalGuard, including passwordless authentication and Identity-Bound Biometrics, to educational institutions in Saudi Arabia, supporting their Vision 2030 digital transformation agenda, as well as to Jordan and the UAE.

Separately, the Central Bank of Jordan is working with us on a national initiative to modernize authentication across the country's financial sector using our PortalGuard and WEB-key technologies to move away from passwords and tokens entirely. We believe growing examples of national scale mandates, including sovereign ID, represent the future of authentication in the region, a future where we intend to play a substantial role. Turning to Europe, a national security agency in Portugal selected BIO-key and our in-country partner, Visualforma, to deploy PortalGuard and WEB-key with our FBI-certified EcoID III fingerprint scanners. This follows our earlier nationwide public sector rollout and a digital identity contract we secured with Visualforma for deployment in a major Portuguese tourist city. It's an example of how one successful public sector deployment can help foster additional opportunities as trust and reference relationships continue to build over time.

In the U.S., Alabama's AOD Federal Credit Union, which serves more than 37,000 members, deployed our phishing-resistant biometric-based authentication solution through our partner, BlueAlly, citing our platform's flexibility versus alternatives that they evaluated, as well as reduced help desk burden from eliminating frequent password resets. As phishing and MFA fatigue attacks escalate against financial institutions, our Identity-Bound Biometrics is gaining traction as smart and powerful protection with a compelling cost of ownership. I'll also note we continue to see attractive second-half opportunities building in our EMEA pipeline, as our momentum in the region is broad-based, spanning government, defense, financial services, and now education. We believe this reflects rising urgency among these customers, driven both by increasing cybersecurity incidents and growing geopolitical tensions, and supported by generally more favorable regulatory frameworks that let us move from first conversation to signed contracts much more quickly.

In the second quarter, we completed a 1-for-10 reverse stock split to support our continued Nasdaq listing. In July, we regained compliance with the Nasdaq listing rules and resumed trading on the Nasdaq Capital Market, which provides a visible and respected platform for our common stock. Earlier this week, we enhanced our financial liquidity and balance sheet through a warrant transaction that raised gross proceeds of $2.5 million. This new capital will continue to support our operations, more importantly, our growth initiatives and perceived financial strength with prospective customers, while also bolstering our compliance with current and proposed listing requirements. Most importantly, we are focused on executing against the significant opportunities in front of us. Our go-to-market model continues to scale efficiently through partners. Roughly half of our new U.S. business and virtually all of our international business is developed through our channel network.

On the domestic public sector side, we are building out our working relationship with our new partner, DLT Solutions, a division of TD SYNNEX. This relationship provides a streamlined procurement path into DLT's very large base of public sector customers, most of whom must work with pre-approved vendors to meet Zero Trust and MFA mandates. On the product side, our major PortalGuard 7.0 platform upgrade is now being demonstrated to prospects and has already begun to roll out more broadly across our existing customer base. I will now touch on an area of exciting potential, which is the role biometric authentication can play in securing the AI ecosystem, as we believe that human oversight of Agentic AI operations really is a killer app opportunity for biometrics.

Several recent high-profile AI control failures have helped to highlight the need and the potential for biometrics to play a critical role in providing non-repudiable authentication and approval for material AI agent actions. This is not just our internal view. In January, the first government's framework built specifically for Agentic AI was released at the World Economic Forum's annual meeting with a central pillar that humans must remain meaningfully accountable for decisions and actions taken by autonomous systems. We see biometrics as the ideal method for enabling such human control. Separately, the Cloud Security Alliance have described a governance vacuum around non-human identities as service accounts, bots, and AI agents now outnumber human users inside many enterprises by more than 100 to one. Most organizations have no reliable way to tie an agent's actions back to an accountable person.

Chief Information Security Officers rank identity assurance for an AI world as a top security priority in 2026 and 2027. We think that is exactly the gap that biometric Identity-Bound Biometrics authentication is built to close, anchoring high-stakes approvals to a real person rather than a device or a credential that can be shared, stolen, or cloned. We are actively working to develop strategies around our existing solutions such as Passkey:YOU and working to identify and develop strategic partners to build out AI governance connection points around this opportunity. Before I turn the call over to Cece, I want to reiterate our excitement about the business progress so far this year and the strength of our outlook for the second half and moving forward.

It's a genuinely exciting time for BIO-key, as the work we put into this business over many years is increasingly being recognized and, more importantly, validated by a growing base of private and public sector customers around the world. With that, I'll turn the call over to Cece for her financial review.