BIO-key International (NASDAQ:BKYI) reported a 4% decline in third-quarter revenue as lower hardware sales offset growth in software license fees, but a shift toward higher-margin licenses helped narrow its operating loss.
Revenue fell to $1.48 million from $1.55 million a year earlier, Chief Financial Officer Ceci Welch said on the company’s earnings call. License fee revenue rose 39% to $1.28 million and accounted for 86% of total revenue, compared with 59% a year earlier.
Gross margin expanded to 90% from 77%, while the operating loss narrowed to $820,000 from $892,000. Chairman and CEO Mike DePasquale said license fee revenue has grown by double digits year over year for three consecutive quarters.
Hardware Sales Weigh on Revenue
Hardware revenue fell to $12,000 from $364,000 in the prior-year quarter, which included a large deployment for a long-term customer. Sales, maintenance and other revenue declined 27% to $195,000, which Welch attributed to renewal timing and the company’s partner-led sales model.
During the question-and-answer session, DePasquale said a larger hardware order expected from an international partner had been pushed out. The hardware is being sold in smaller batches to the partner, which serves multiple end customers, and he expects sales to continue through the end of 2026 and into early 2027.
For the first nine months of 2026, revenue increased 14% to $5.55 million, driven by 37% growth in license fees. The nine-month net loss narrowed 42% to $1.67 million from $2.87 million.
Third-quarter net loss narrowed to $886,000 from $965,000. Including a $4.5 million noncash deemed dividend related to an August warrant inducement, net loss available to common stockholders was $5.9 million, or $4 per share, Welch said. She said the accounting entry did not affect operating loss, cash or stockholders’ equity.
International Wins and Casino Contract
DePasquale highlighted demand from government and financial-services customers in the Middle East and Europe. In the third quarter, the Central Bank of Jordan selected BIO-key for a national biometric authentication initiative, while a Portuguese national security agency selected the company and partner Visualforma to secure access to systems and applications.
The awards brought BIO-key to eight new Middle East customers in roughly seven months, DePasquale said. Revenue from the company’s Europe, Middle East and South America region rose 39% in the quarter, with license fees more than doubling.
The company is establishing a Saudi Arabian subsidiary to support government business and has integrated its identity and authentication technologies into the portfolio of Cipher, the cybersecurity division of Prosegur, initially in Portugal.
In the U.S., BIO-key announced that a casino resort selected its PortalGuard platform and biometric technology for workforce access. DePasquale described the prepaid, three-year agreement as a multiple-six-figure deal covering a single entity. He said it was a fourth-quarter opportunity and would be recognized in that quarter.
Outlook and Balance Sheet
DePasquale said BIO-key expects approximately $1.2 million in annual license renewals in the first quarter of 2027 and is targeting profitability around that period. He also said he expects significant fourth-quarter revenue growth over the $1.188 million reported a year earlier, without providing a specific forecast.
The company ended September with $2.2 million in cash and approximately $2.4 million in accounts receivable. Working capital rose to $3.1 million from $800,000 at the end of June. Welch said BIO-key retired its remaining note payable during the quarter; a small euro-denominated loan of approximately 12,000 euros remains and is expected to be repaid by year-end.
DePasquale said the increase in receivables reflected new business, including several larger Middle East deals. He said collections could help the company reach break-even cash flow in the fourth quarter, though the timing depends on payments through partners.
BIO-key also sees an opportunity in authentication for artificial intelligence agents. DePasquale said its biometric technology could verify the person authorizing sensitive agent-driven actions and that the company plans to deploy the solution to customers this quarter. Its internally developed Passkey:YOU authenticator received FIDO Alliance certification in September and was in final testing ahead of a broader launch, he said.
About BIO-key International (NASDAQ:BKYI)
BIO-key International, Inc. (NASDAQ: BKYI) develops biometric authentication and identity and access management solutions. The company helps organizations secure access to applications, networks, devices and data through fingerprint recognition and other authentication methods designed to reduce reliance on passwords. Its product portfolio includes PortalGuard, an identity and access management platform that supports single sign-on, multifactor authentication, self-service password management and access control.
