BIO-key International, Inc.

Good morning, ladies and gentlemen. Thank you for standing by and welcome to Bio-key International's fourth quarter conference call. During management's prepared remarks, all participants will be in listen-only mode. Afterwards, listeners will be invited to participate in a question-and-answer session. As a reminder, this conference is being recorded today, Friday, March 31, 2023. I'd like to turn the call over to Bill Jones, Investor Relations. Please proceed.

Thank you. Thank you for joining today's call. Participating today are BioKeys Chairman and CEO Mike DePasquale, CFO CeCe Welch, VP of Channels for North America Galen Rogers, and myself. I remind everyone that today's conference call and webcast, as well as answers to questions, may include forward-looking statements, which are subject to certain risks and uncertainties that may cause actual results to differ from those projected. Words such as anticipate, believe, estimate, expect, plan, project, and similar words generally identify and express forward-looking statements. These forward-looking statements are made based on management's beliefs and assumptions today using information currently available pursuant to the safe harbor provisions of the private security for a complete description of these and other risk factors that may affect the future performance of Bio-key, please see Risk Factors in the company's annual report as filed on Form 10-K with the Securities and Exchange Commission. Listeners are cautioned not to place undue reliance on such forward-looking statements, which speak only as of today's date. BioKey undertakes no obligation to revise or disclose revisions to such forward-looking statements to reflect events or circumstances occurring after today. And with that, I will turn the call over to Mike. Mike?

Thanks, Bill. Good morning, and thank you for joining our call today. After my remarks, I want to let one of our new senior sales executives, Galen Rogers, introduce himself. and review sales and channel initiatives for 2023. CC will provide financial highlights, and then we'll open the call to investor questions. From a high level, we had a strong close to the year, achieving full year revenue of $7 million, which met the low end of our revenue guidance. More importantly, we made tremendous progress in 2022, solidifying our global reach and brand, while continuing to expand our base of high-margin annual recurring revenue. We now serve tens of millions of end users across 600 customers globally, leveraging our PortalGuard platform in North America and Swivl Secure in Europe and the Middle East. We've evolved our business to a software-as-a-service or a SaaS-based model, or more precisely, what we refer to as ID as a service or IDaaS. Our 2022 net loss increased due to added expenses from the acquisition of Swivel Secure, our PortalGuard iDAS sales and marketing build, and the active development of enhanced features for our solutions, including mobile auth. Additionally, our personnel and other costs reflected general inflation-based increases that were experienced by most companies in 2022. In response, We have been taking steps to reduce costs wherever possible, including streamlining our headcount and overhead. We are also looking to enhance our financial liquidity by working to reduce hardware inventories, which were increased to navigate potential supply chain challenges back in late 2021 and early 2022. We had $4.8 million of inventory at year end, and we have a goal to reduce that by at least half in the first two quarters of 2023. Importantly, during 2022, BioKey achieved higher software revenues in North America, Europe, the Middle East, South America and Asia. Given ongoing funding and rollout delays for government-sponsored Civil ID programs in Africa, it was the one region that did not achieve growth. However, we are cautiously optimistic that things could begin to turn around in Africa, in particular Nigeria, as we progress through 2023. Innovation remains critical to BioKey's growth and competitive position. And during 2022, we made significant progress expanding and enhancing our solutions, including our passwordless and mobile solutions, which include our proprietary identity-bound biometrics, or IVB capabilities. We launched enhancements to our mobile authenticator app in Q3 2022, and we also developed and launched an updated admin panel that delivers an improved user experience for PortalGuard users. These successful launches received excellent feedback from customers and prospects. Our PortalGuard iDesk franchise continued to build momentum in 2022. further expanding penetration of customers across higher education, county governments, and business enterprises. Customers prefer PortalGuard for its effective security, ease of use, scalability, and attractive value proposition. In 2023, we will look to increase PortalGuard's penetration of these verticals while also pursuing opportunities in new adjacent markets. To enhance the global reach of our solutions and sales, we have expanded our direct sales team, which is supported by both traditional and digital marketing campaigns. In conjunction with a management transition announced in January 2023, we recruited Galen Rogers as VP of Channels and Chad Carter as VP of Sales, both in North America. I will turn the call over to Galen in a moment. But let me first say that we are very excited to bring their experience, skill sets, and leadership to our company as they each have decades of valuable sales experience within larger organizations in our industry and space. It cannot go unnoticed that cybersecurity challenges continue to grow in both the number of episodes and their severity. To counter this trend, Industry forecasters expect another record level of cybersecurity spending in 2023, and we believe BioKey is well positioned to benefit. To date, nearly a third of all organizations have launched passwordless authentication solutions, which is up from 22% last year, but still leaves a very substantial sales opportunity on the table. We think our multi-factor solutions, with identity-bound biometrics offer a unique and cost-effective solution for organizations across most verticals and use cases, especially for those looking to implement passwordless or zero-trust solutions, which are critical in today's environment. I could go on, but let me just say that we believe our substantial direct sales and partner distribution footprint positions us well around the globe. We are working a solid pipeline of customer opportunities, including several that are very substantial in scale, while we also continue to build this pipeline through our sales and marketing outreach. The true force multiplier for us is our Channel Alliance program, or CAP, that is being spearheaded in EMEA by our Managing Director, Alex Rocha, and here in North America by Galen. As a result, we feel confident for continued growth in 2023 and beyond. We disclosed today that we expect Q1 2023 revenue will be at a record level, getting us off to a strong start for the year. And rather than attempt to project a specific revenue range for 2023, we've instead indicated that we expect 2023 will be a period of substantial top line and bottom line improvement. This outlook is supported by our strong start in Q1 along with our growing base of high-margin contracted annual recovering revenues, which we currently estimate to be at approximately $7 million in run rate. Based on these factors, we feel very confident in substantially exceeding our 2022 top and bottom line performance, reducing our cash burn and moving towards break-even and profitability. Before I turn the call over, I'll note that a recent report by Houlihan and Loki showed median valuation multiples for public companies in the cybersecurity software industry range from a low of three to seven or eight times revenue on an enterprise basis, depending upon expected growth. Obviously, BioKey is trading at much less than that based on 2022 results, and we are off to a strong start in 2023. which can meet solid appreciation for all of our stakeholders. I'll now turn the call over to Galen Rogers who joined us in early 2023 to briefly review how he is working to take BioKey's sales reach to higher levels in 2023. Galen?