BIO-key International, Inc. — Q3 2026 Earnings Summary

Financial Performance:

• Q3 2026 total revenue was $1.48M, down 4% from $1.55M in Q3 2025, while Q3 2026 license fee revenue grew 39% to $1.3M.
• For the nine months ended September 30, 2026, total revenue grew 14% to $5.5M compared to $4.85M in the same period of 2025.
• Q3 2026 gross margin improved to 90% from 77% in Q3 2025, marking five consecutive quarters of improvement; 9M 2026 gross margin was 86% versus 77% in 9M 2025.
• Q3 2026 net loss narrowed 8% to $(886K) from $(965K) in Q3 2025; 9M 2026 net loss improved 42% to $(1.7M) from $(2.9M) in 9M 2025.
• Working capital increased to $3.1M at the close of Q3 2026 from $1.4M at year-end 2025.
• Stockholders' equity improved to $6.54M at September 30, 2026, from $5.11M at December 31, 2025.
• Cash and cash equivalents were $2.2M as of September 30, 2026.
• Accounts receivable increased to $2.35M at September 30, 2026, from $1.22M at December 31, 2025.
• Deferred revenue totaled $623K (current: $542K; long-term: $81K) as of September 30, 2026, compared to $635K (current: $573K; long-term: $63K) at December 31, 2025.

Guidance and Future Outlook:

• The company anticipates a solid finish to 2026 and a strong start to 2027, supported by recent Middle East government wins, a growing pipeline of government and financial sector opportunities, expanding deployments with existing customers, and anticipated annual license renewals.
• Management expects growth in artificial intelligence to create new market opportunities for verified human identity for AI agents.

Business Segments and Product Lines:

• License fees represented 86% of total revenues in Q3 2026, up from 59% in Q3 2025.
• EMESA (Europe, Middle East, and South America) region revenue grew 39% to $925K in Q3 2026, with license fees from the region more than doubling to $903K.
• Hardware revenue decreased to $12K in Q3 2026 from $364K in Q3 2025 due to a shift toward software-only orders.
• Service, maintenance, and other revenues decreased 27% to $195K in Q3 2026 from $268K in Q3 2025, reflecting the timing of renewals and a shift to Partner-led SaaS.
• BIO-key received FIDO Alliance full certification for its Passkey:YOU™ authentication, enabling biometric approval of AI agent actions.
• BIO-key integrated its IAM and biometric solutions into the cybersecurity portfolio of Cipher (a Prosegur company) in Portugal, with plans to expand to Spain, the U.S., and Brazil.
• BIO-key added three new government customers in the Middle East in October, bringing the total to eight new customers in the region over the past seven months.

Market and Competitive Landscape:

• The company highlighted validation from governments and banks, including the Central Bank of Jordan and a Portuguese national security agency, setting the highest bar for identity security.
• Industry research cited suggests machine identities (including AI agents) already outnumber human identities by more than 100 to 1.
• The company's partner network is increasingly generating opportunities, shortening sales cycles, and extending reach into new countries and sectors.

Risks and Challenges:

• Forward-looking statements note risks including history of losses, limited revenue, ability to raise capital, and ability to continue as a going concern.
• Risks include potential security breaches, competition in the biometric technology and identity access management industries, and market acceptance of biometric products.
• Risks include fluctuations in foreign currency exchange rates, hostilities in Ukraine, tariffs and trade barriers affecting inventory costs, and delays in product development.
• Risks include non-compliance with SEC and Nasdaq reporting requirements, potential suspension of trading, and loss of use of Form S-3 registration statements.
• Risks include the need to maintain effective internal controls over financial reporting.

Management Commentary and Tone:

• CEO Mike DePasquale stated that Q3 2026 results reflect the building strength of the core software business, with high-margin license fees offsetting variability in hardware and services.
• Management noted that despite modestly lower Q3 revenue, the company successfully narrowed its net loss for the quarter and the first nine months of 2026.
• The CEO emphasized that government and financial sector wins validate the company's solutions and that the foundation built with marquee customers, high-margin software revenue, a streamlined cost structure, and a cleaner balance sheet sets the stage for 2027.
• Management expressed confidence that the FIDO certification of Passkey:YOU addresses the new identity challenge posed by the commercial prevalence of AI agents.

Other Key Points:

• BIO-key retired its remaining note payable in Q3 2026 through exchanges for common stock, leaving the company effectively debt-free except for a $12K bank obligation in Europe.
• A warrant inducement transaction completed in August generated $2.5M in gross proceeds, contributing to the improvement in stockholders' equity.
• A non-cash deemed dividend of $4.5M related to the warrant inducement was recorded in Q3 2026, resulting in a net loss available to common stockholders of $(5.39M) or $(4.01) per share for the quarter.
• The company completed a 1-for-10 reverse stock split effective April 30, 2026.
• The company suspended trading on the Nasdaq Capital Market from May 13, 2026, until reinstatement on July 8, 2026, with monitoring by the Nasdaq Hearing Panel through July 6, 2027.