BIO-key Revenue Jumps 49 Percent in Q2

Key Points

• GAAP revenue rose 49% year over year to $1,696,907 in Q2 2025, beating expectations.

• GAAP earnings per share missed estimates at ($0.20) for Q2 2025, but the GAAP net loss narrowed significantly compared to Q2 2024.

• GAAP gross margin compressed to 73% in Q2 2025 due to a higher mix of hardware sales.

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BIO-key International (NASDAQ:BKYI), a provider of biometric authentication and identity management solutions, reported earnings for Q2 2025 on August 13, 2025. The company delivered strong GAAP revenue growth, increasing 49% compared to the same period last year, reaching $1.7 million (GAAP). However, its GAAP loss per share of ($0.20) came in below expectations and was worse than the GAAP consensus estimate of ($0.15). Despite this, the company saw improvement in its GAAP net loss, gross profit, and operating efficiency. Results highlight the impact of a growing customer base in Europe, the Middle East, and Africa (EMEA), but also reflect continued challenges in achieving sustained profitability. The quarter overall showed progress in revenue and cost controls, yet ongoing margin pressure and reliance on large contracts remain notable concerns.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Company Background and Key Business Drivers

BIO-key International is known for its Identity-Bound Biometrics, which use a person's unique physical traits for security, rather than traditional passwords or devices. This technology supports secure authentication for industries like defense, banking, education, and government.

The company has recently focused on expanding its presence in the EMEA region. This included shifting its operations to prioritize its own higher-margin biometric solutions and streamlining cost controls. Success in these areas can help drive recurring software revenue and improve profitability. The move away from reselling third-party software licenses has also been a core strategy to boost margins.

Quarterly Performance Highlights

Hardware sales expanded sharply as multiple large deployments went live. Notably, hardware sales reached $568,824, a significant jump from the $83,492 (GAAP) recorded in Q2 2024. This increase resulted from large-scale biometric security solutions delivered to a long-term defense sector customer and the sale of previously reserved hardware inventory. While hardware boosted top-line results, it also reduced GAAP gross margin, as hardware sales typically earn lower profit percentages than software licenses or services.

All GAAP revenue categories posted growth, with GAAP software license fees up 4.1% GAAP services revenue increased 13.6% year over year. The uptick in services was mainly due to custom upgrade projects for significant customers. The EMEA region played a key role, with new contracts and partnerships driving much of the expansion. The company cited more than $600,000 in follow-on orders from a foreign defense ministry and its first large deployment at a national bank in Mozambique. Strategic partnerships with companies in Saudi Arabia, Spain, and Portugal extended market access in those territories.

Operating expenses were reduced by 8.5% to $2.3 million. These savings came largely from lower selling, general, and administrative (SG&A) costs, reflecting successful efforts to manage headcount, audit expenses, and facilities costs. GAAP research and development (R&D) spending rose 7.6%. Much of this was dedicated to a major update to the PortalGuard IDaaS (Identity-as-a-Service) platform, scheduled for release in Q4 2025. This marks the first major upgrade since 2018, aimed at keeping the product competitive and secure as digital security needs evolve.

GAAP net loss narrowed to $1,167,396, down from $1,666,950 in Q2 2024. The improvement reflects both increased revenues and disciplined cost management. While still operating at a loss, BIO-key used proceeds from warrant exercises and reduced debt to strengthen its balance sheet. GAAP cash and cash equivalents climbed to $2.3 million as of Q2 2025, up sharply from $0.4 million as of FY2024. The company also reduced its note payable from $1,525,977 to $447,153 over the last six months (as of June 30, 2025, GAAP).

Product and Strategy Developments

BIO-key's primary product families are its Identity-Bound Biometric solutions, which enable organizations to use fingerprint and other biological markers for authentication. The PortalGuard IAM (Identity and Access Management) platform, including the cloud-based PortalGuard IDaaS, is also central. These products are marketed as tools to allow passwordless, phoneless, or tokenless secure access, appealing to customers with strict security needs.

The period saw successful PortalGuard deployments in both government and education. For example, the Wyoming Department of Education rolled out PortalGuard IDaaS to support up to 20,000 end users, and the National Bank of Egypt launched the platform for 30,000 employees. In higher education, more than 30,000 users migrated from on-premises software to the modern IDaaS version in Q1 2025, helping shift revenue to a recurring, subscription-style model. In addition, participation in California Ed Tech JPA now provides BIO-key solutions to nearly 200 school districts with over 2.6 million students, increasing exposure in K-12 education.

The quarter also included the formal launch of the BIO-key CyberDefense Initiative, a strategic business line targeting the growing need for cybersecurity within defense and intelligence sectors. BIO-key is building out dedicated sales and technical teams with relevant expertise and aims to leverage expanded European defense budgets as demand for advanced biometric solutions rises. Management described increasing engagement with government clients in EMEA as a core growth driver for 2025.

Despite these advancements, margin compression resulted from the larger share of hardware revenue. Hardware comprised about 33.5% of total GAAP revenue.

Outlook and What to Watch

BIO-key did not provide formal financial guidance for the upcoming quarter or the full year. Management, however, stated ongoing optimism for continued revenue traction and expects the launch of the revamped PortalGuard platform in Q4 2025 to support further growth. The leadership team highlighted a strong pipeline of new business opportunities in EMEA, especially across the defense sector, and signaled that substantial contract activity could occur in the first half of 2026.

Management aims to maintain liquidity improvements. Margin trends, the mix between hardware and software revenue, and progress on large government and international deals will be essential metrics for evaluating BIO-key’s future financial health.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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