Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the BIO-key International Fourth Quarter Conference Call. During management's prepared remarks, all participants will be in a 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. Now I would like to turn the call over to Bill Jones, Investor Relations. Please proceed.

Thank you, thank you for joining todays call. Participating today are BIO-key's Chairman and CEO, Mike DePasquale; CFO, Cecilia Welch. VP of Channels for North America, Galen Rodgers, and myself. I will 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 and plan and similar words typically 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 Securities Litigation Reform Act of 1995. 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 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. BIO-key company undertakes no obligation to revise or disclose revisions to such forward-looking statements to reflect future 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 Executive, Galen Rodgers introduce himself, and review sales and channel initiatives for 2023. Ceci 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 10s of millions of end users across 600 customers globally, leveraging our PortalGuard platform in North America and Swivel 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, IDaaS sales and marketing built, and the active development of enhanced features for our solutions, including MobileAuth. 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're also looking to enhance our financial liquidity by working to reduce hardware inventories, which we 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, BIO-key achieved higher software revenues in…

Thank you very much, Mike. First about myself. I have 23 years in this business with 16 years in technology sales, with the majority of my time has been in Channel Sales. Most recently, I was Director of Strategic Channel at Ping Identity. From a channel perspective, our mission is building scalable, dependable, and collaborative avenues that contribute to revenue growth and value, while expanding our market presence globally. More specifically, what this means is that we have focused on the core objectives of reaching new markets, building pipeline, generating partnerships, and increasing our deal size, and then tacking specific higher value opportunities. Higher value opportunities in cybersecurity would include such things as, established cybersecurity systems integrators, large account resellers, and technology partnerships. From there we manage and analyze what's working and not working, so that we can continue to enhance our process and performance. We currently have a great base of partners in our Channel Alliance Partner Program, with over 500 partners globally. We have key distribution partners such as Intellisis, 3i, and DLT, a TD SYNNEX company and our sled partner. We have key value added reseller relationships that we have certain important tech alliances with firms like AWS, Beyond Trust and ForgeRock. We also have key cyber managed security service provider relationships, and one of my initiatives in 2023, is to roll out our new enhanced partner program to new and curtain current partners. This will provide structure and incentives to evangelize, sell licenses, and provide services to the market. This program will reward cybersecurity partners differently from the previous program by training partners to implement our solution and in turn provide additional sourced opportunities, which I believe is low hanging fruit to drive the business. From a numbers perspective, our plan includes 1 million of channel…

Thank you, Galen. Please let me review some of our financial highlights. Q4 ‘22 revenue rose 88% to $1.8 million from $9.9 million in Q4 ‘21, reflecting higher software license and service fees, including the benefit of the Swivel Secure acquisition in March of 2022. Likewise, 2022 revenue rose 37% to $7 million versus $5.1 million in 2021. Both current year periods, higher software license and service fees were partially offset by lower hardware revenue. Revenue from software licenses increased 92% in Q4 ‘22, and 79% to $4.6 million in fiscal year 2022, reflecting the addition of Swivel Secure and new quarterback customers and existing recurring revenue contracts. Service revenue increased 104% in Q4 ‘22, and increased 41% to $1.8 million for the full year 2022. With the majority representing recurring maintenance and software and support. Recurring service revenue increased 13% to $1.2 million in 2022, due largely to increase maintenance related to software licenses. Non-recurring customer services increased 216% to $546,000 in 2022, due to increase new customer installations, Swivel service fees and the conversion to cloud platform. As our customer base continues to grow, we expect service revenues to continue to increase. Our sales increased 25% in Q4 ‘22, but decreased 50% to $646,000 for the year. The annual decline was due to the sales to an international government agency in Nigeria in 2021 that did not recur in 2022, due to delayed rollout of the government project. Strength in Q4 ‘22 was attributable to new customer orders in addition to expanding existing installations. Gross profit increased to $1.2 million in Q4 ‘22, versus $0.6 million in Q4 ‘21. Due to higher revenue for a better realized gross margin of 67% versus 60% in the prior year period. For the full year, gross profit margins improved to 71%…

[Operator Instructions] The first question will be from Jack Vander Aarde from Maxim Group. Please go ahead, sir.

Okay, great. Good morning, guys. I appreciate the update. And thanks for taking my questions. I think as I did this last time, I'll just start with -- I'll start with some fourth quarter questions and move on to your outlook. But Ceci, I will finish with the question on what stock comp was in the quarter and what the current total shares outstanding is, as I as I wait for the 10-K? So let me start with the question then from Michael. First, on the fourth quarter OpEx, you mentioned you expect the OpEx to be reduced sequentially as you head into first quarter, obviously overhead. Gut SG&A expense in the fourth quarter, it was $3.3 million. So that was a pretty substantially is up 800k from the third quarter and well above any other prior quarter. So can you just help me understand, what is normalized SG&A expense as kind on quarterly basis as you kind of enter 2023?

Good morning, Jack. And good, good question. So for sure, just at a high level, and then I'll have Ceci chime in. But, at a high level, based on what we said in our prepared remarks here. We've made significant investments in development for really in two areas for IDaaS, building out and scaling out our SaaS solution, and also our MobileAuth technology. So, you're going to start to see expenses normalize and come back down to a lower level that, again, because most of the initial development is complete, so you know, that's one area. We also -- and again, I'll let Ceci address this specific Q4 SG&A increase, but why don't I let her do that now I think that's appropriate this way will directly answer your question.

Okay, thanks, Mike. Yes, Jack, as we indicated, we wrote off some of the things that had been outlying as far as things we had on receivables that we didn't consider collectible. We paid some substantial fees for the loan and for acquiring Swivel. And then due to a lot of factors, we wrote the goodwill we had on the books off. So, you know, as you can see, there were just some goodwill loans $1.8 million, and then we had over another $1 million and other miscellaneous non-cash basically expenses that we could just consider that were not viable assets on the book.

Okay. I guess, excluding the impairment charge, no, I'm not referring to that, I'm just talking about your actual SG&A expense, it was $3.3 million roughly. Is that kind of a normal baseline or that the highest quarter book value of $2.5 0:24:50 [ph] million in the third quarter?

No. Right. And as Mike was -- yes, we've been streamlining it and we expect going forward that, SG&A, and R&D will be under $3 million per quarter. That's what we are budgeting towards.

Okay. Excellent. I appreciate the color there. Let me switch gears and quick to your outlook. Michael, it's good to hear you expect sequential revenue growth in first quarter ’23 and then substantial growth in for the full year of 2023. Even despite what sounds like limited visibility into the African contract contribution. But it may be just for clarity, as far as your first quarter ‘23 revenue outlook for sequential growth. Does that assume anything from those two African contracts? Or is this just mostly from the strength of your recurring license business? Thanks.

Right now it's really the strength of our core business. What I mentioned and what was in our press release is that our current -- I'll call it recurring revenue stream, which consists of two items, mainly two items, and that's subscription revenue, annual subscription revenue. And the second is maintenance from our kind of traditional customers that bought perpetual licenses from us, but have to pay maintenance for support going forward. So if you take those two buckets, that business right now, is contracted, meaning it's committed. And it will generate approximately $7 million in revenue. So that's our base. So we're starting fundamentally where we were at our full revenue picture in 2022. So our base is about $7 million. Anything above and beyond that, that I am predicting right now. And again, you'll see when we report our Q1 results said it will be a very strong and record quarter for us. That is not including anything from the African business right now. We are cautiously optimistic that that business is going to start and ramp up again. There was an election in Nigeria that was held in February, the National Identity Management Commission has been fundamentally shut down in the context of making payments to the agents that were doing all of the enrollments for that World Bank initiatives. All of that is again, starting to bubble up again. In fact, the World Bank is contemplating directly paying for the enrollments and paying the agents who were doing the enrollments because it's been just a debacle there to get the project moving at the pace that they want to see it move. So in general, everything that we're projecting is less Africa. And I consider Africa right now, upside for us now. Now, that's one piece. The second piece is, our EMEA group, which is managed by our Managing Director in Europe, Alex Rocha, has been signing partners in Africa to sell our PortalGuard solutions. We just made an announcement on Thursday, Wednesday, or Thursday about a new partner that we just brought on Board Ethnos that focuses on cybersecurity, and has a practice across Africa to support enterprises and government agencies to help them strengthen their security infrastructure. So, you know, we do believe that we're going to be selling our traditional products globally, including Africa. But the bulk of our focus right now is clearly on our core business, which is PortalGuard, and our biometrics.

Okay, got it. Very helpful color. And you know, of course, you mentioned the $7 million kind of baseline is kind of where you're starting with your recurring revenues, which is very high margin revenue as well. So that's certainly a positive. And then in speaking of which, you mentioned, you're moving -- you're working on moving towards profitability. Just given your comments, unexpected overhead cost reductions, and yet substantial revenue growth and bottom line improvement in 2023. I guess it is just make sense to reassess kind of, do you have an idea of what sort of revenue represents breakeven or profitability for you?

Well, I think on a high level, right, if we're in the $3.5 million range, right now, with current expense, at the current expense run rate, we're going to be certainly at breakeven or profitability. So, if you want to look at it on an annualized basis, it's probably around $14 million, give or take. Now, there's some cost savings and advantages that we may see, as we traverse through the course of the year, and we're going to see our revenue grow as well. So perhaps that point will change. But right now, that's probably the best perspective, I think to give.

Okay, that's very helpful. I appreciate that color. And then, as I mentioned, at the beginning, Ceci, if I could just maybe reflect what the total stock comp was in the fourth quarter, and what the current total shares outstanding?

Yes, so I'm just going from the K, which gives me annual. So the stock comp was a $388,000, outstanding shares are a little over $9.2 million.

Great. And just for clarity, is the 10-K going to be coming out today? I don't think I've seen it quite yet. But I imagine it'll be file today?

Jack, unfortunately, we found out yesterday that it likely will not get filed today. We'll get filed next week. Unfortunately, our auditors -- and you're seeing this unfortunate, I suspect you see it as well across the board, just for shortage of resources and lack of resource, it's been very difficult for the auditors to get through the process with the number of clients they have. Our audit firm was purchased by Marcum, mid last year. And so we have been transitioning into the new firm. And it's just taken some extra time the last two quarters to get all of the work done again with the transition and resources. So, we will file, but we will file late.

Okay, understand. And yes, I have seen -- just to confirm, I have seen that across a lot of emerging growth companies as well. So that makes sense. Well, good. I'm happy to hear about your outlook for robust growth. That's it for me. Thanks for the questions.

Thank you, Jack.

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Thank you everyone for joining today's call. We look forward to updating you on our Q1 call, which will be held in May. So it's not too far away. And as usual, we'll continue to provide regular updates via press releases for newsworthy developments as they happen. Once again, we thank you for taking the time to join us this morning. And have a great weekend everyone.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.