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BIO-key reported second quarter 2018 financial results

BIO-key reported second quarter 2018 financial results
BIO-key International, an innovative provider of biometric authentication and security solutions, reported results for its second quarter ended June 30, 2018 (Q2’18) and reviewed recent progress.
BIO-key International, an innovative provider of biometric authentication and security solutions, reported results for its second quarter ended June 30, 2018 (Q2’18) and reviewed recent progress. 

Recent highlights 

  • América Móvil Subsidiary and Leading Latin America Telecom Provider Claro Selected BIO-key Software Solutions to Secure Access to Customer Data. 
  • Hungary’s Largest Service Provider Selected BIO-key for Multi-factor Authentication for Hungarian Law Enforcement Organization. 
  • Consumer Tech Provider Aluratek Partnered with BIO-key to introduce its Biometric and Bluetooth Padlock Line to National Retailers Including Best Buy. 
  • BIO-key Expanded its IP Portfolio with the Grant of U.S. Patent for Accelerating Biometric Searches Using Adaptive Indexing. 
  • IT Services Provider Quantum Business Advisory Partnered with BIO-key to Expand reach of its Biometric Authentication Solutions in India.

BIO-key's CEO Michael DePasquale commented, "Despite slower than anticipated deal activity during the second quarter, BIO-key continued to advance a range of business development initiatives designed to position the Company for substantial growth. We are particularly encouraged by our growing base of distribution relationships – fueled by partners who come to us to help them address customer needs. While we continue to work on several opportunities that could make significant contributions to this year’s and future results, we were not able to close many of these opportunities in the quarter.

“One area where we see substantial near-term potential is in the protection of high value customer data that is accessed by call center personnel. We secured a very large order in this area last year and were able to leverage this use case in Latin America. The protection of customer data is one of the greatest priorities on the IT landscape and we are working to expand awareness of the game-changing role that our biometric solutions can play. We think enterprises will soon recognize that they could be exposed to liability for not taking action to implement more robust protections and reporting for those accessing customer data.

"We are also building awareness and distribution reach for our innovative biometric and Bluetooth enabled locks across Asia and North America. We continue to expand our distribution reach through partnerships that have enabled us to place our products with prominent retailers, such as Best Buy, where our products are available in store and online.

“We also continue to expand our presence across Asia, via offices in India, Singapore and our primary subsidiary office in Hong Kong, and across Europe and North Africa, where we have new sales partnerships with leading technology providers supporting our international expansion strategy.

"Turning to our high value intellectual property portfolio, BIO-key recently secured a patent for our adaptive indexing method that accelerates biometric searches. While the most visible use of biometrics is principally focused on device-based authentication for mobile devices, our patent for accelerating one-to-many biometric authentication searches in the cloud, enables a far more secure and value-added solution, that can prevent duplicate enrollments, fraud and identity errors. Such protections are just not possible in the device-only authentication world. This technology is already in use in our enterprise biometric solutions, and the patent issuance may eventually present additional revenue opportunities.

"As continues to be the case given that we are still in the early stages of market adoption of many of our products, BIO-key’s quarterly performance will fluctuate based on the timing of larger software and hardware agreements, which in the past two years have been heavily weighted to the second half of each fiscal year. For that reason, we continue to focus investors on full year results, which represent a more relevant performance metric for our business.”

Financial results 

Q2’18 total revenue declined by $138,740 to $748,141 from $886,881 in Q2’17, due principally to lower hardware revenue related to the timing of larger orders.

Gross margin was negative 38% in Q2’18 compared to 10% in Q2’17, due largely to an increase in non-cash software license amortization to $659,136 in Q2’18 compared to $388,595 in Q2’17. The decline was also due to the unfavorable mix of products and services sold.

Q2’18 operating expenses declined 27% to $1,373,817 from $1,880,257 in Q2'17. The prior-year period included costs primarily related to factoring expenses and our Nasdaq up-listing, as well as higher R&D expenses, for product development.

BIO-key's Q2’18 net loss improved by $133,864 to $(1,655,465), or $(0.15) per basic share after preferred dividends, as compared to $(1,789,329), or $(0.32) per basic share after preferred dividends, in Q2’17. Per share results are based on 11,375,320 and 6,359,974 weighted average basic shares outstanding in Q2’18 and Q2’17, respectively.

For the first six-months of 2018, total revenue was $1,589,596 versus $2,305,216 in the first half of 2017, a decline of $715,620, principally due to the timing of larger software and hardware deals.

The net loss was $(3,847,456), or $(0.42) per basic share after preferred dividends, in the first half of 2018 versus $(3,145,516), or $(0.57) per basic share after preferred dividends, in a year-ago period.

Per share results are based on 9,623,151 and 6,228,197 weighted average basic shares outstanding in the first six months of 2018 and 2017, respectively.

At June 30, 2018, BIO-key had net working capital of $3.6 million compared to $4.7 million at December 31, 2017.

Financial guidance 

Based on specific opportunities in discussion, including sales & marketing, partner and distribution initiatives, as well as anticipated recurring revenue streams, BIO-key is reiterating its full year revenue guidance of $8M-12M. Within this guidance range, BIOkey would expect to generate positive cash flow from operations for the full year 2018.
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