BK Technologies Corporation (AMEX:BKTI) Q1 2023 Earnings Call Transcript May 6, 2023

Operator: Good morning, ladies and gentlemen, and welcome to the BKTI First Quarter 2023 Earnings Call. This call is being recorded. [Operator Instructions] Following management’s remarks, the call will be open to questions. There is a slide presentation that accompanies today’s remarks, which can be accessed via the webcast. At this time, it is my pleasure to turn the floor over to your host for today, Mr. John Nesbett of IMS Investor Relations. Please go ahead.

John Nesbett: Thank you. Good morning, and welcome to our conference call to discuss BK Technologies results for the first quarter of 2023. On the call today are John Suzuki, Chief Executive Officer; Scott Malmanger, Chief Financial Officer. I’ll take a moment to read the safe harbor statement. Statements made during this conference call and presented in the presentation that are not based on historical facts are forward-looking statements. Such statements include, but are not limited to, projections and statements of future goals and targets regarding the company’s revenue and profits. These statements are subject to known and unknown factors and risks. The company’s actual results, performance and achievements may differ materially from those expressed or implied by these forward-looking statements and some of the factors and risks that could cause or contribute to such material differences that have been described in this morning’s press release and in the BK filings with the U.S. Securities and Exchange Commission.

These statements are based on information and understandings that are believed to be accurate as of today, and do not undertake any duty to update such forward-looking statements. Okay. I’ll now turn the call over to John Suzuki, Chief Executive Officer at BK Technologies. Go ahead, John.

John Suzuki: Thank you, John. Thank you, everyone, for joining today. I’ll start by reviewing some of the highlights of our operations and financial results during the quarter, then I’ll turn it over to our Chief Financial Officer, Scott Malmanger, for a deeper dive into our financial results. We’ll conclude by opening up the call for a brief Q&A. Turning to Slide 3. Our first quarter is off to a strong start with the shipment of 10,001 radios, which is on the top end of our previously announced target to ship 8,000 to 10,000 radios per quarter. The improved shipment volumes drove revenue growth of 184% in the quarter to approximately $19 million with improved gross margin of 26%. Our increased shipment activity was primarily related to our improved and expanded manufacturing capabilities, which have allowed us to ramp production of the BKR 5000, which is seeing tremendous demand.

We continue to make progress toward the launch of our BKR 9000 Multi-Band Radio. Compliance testing continued through the quarter, and it is our understanding that the testing is near complete, with the expectation that we will receive FCC certification shortly thereafter. As we’ve mentioned, we’re seeing a great deal of interest in the BKR 9000. We’re looking toward formally launching this multi-band technology whose capabilities are expected to open up a larger addressable market with several new market verticals. From a marketing standpoint, in late March, we traveled to Las Vegas to participate as a premier sponsor of the International Wireless Communications Expo, or IWCE. This is an important event in our industry, attended by more than 4,000 professionals from the public safety and critical communications industry.

Over the course of the 2-day event, we showcased all our products and technology. We were especially excited to demonstrate and highlight our newest offerings, the BKR 9000 and our InteropONE SaaS service. Turning to Slide 4. During the quarter, we saw a strong and steady order activity for our BKR 5000 as new and existing customers expand and upgrade their portable communications technology. Booking activity in the quarter remained strong, and we ended the quarter with an order backlog of $22.9 million as of March 31, 2023. The recent orders include $1.4 million follow-on order from the Washington State Department of Natural Resources and a $781,000 order from the California Department of Forestry and Fire Protection. We have previously supported these 2 customers, providing BK portable communications equipment and technology and their continued confidence in and reliance on our offerings is great to see.

Following the close of the first quarter, we also received a $970,000 order for the BKR 5000 from the Oregon, Washington Bureau of Land Management, another long-time BK customer. I also want to highlight that during the quarter, we received our first purchase order for our InteropONE push-to-talk over cellular service from a large public safety agency located in a top 5 metropolitan area in the U.S. We’re excited to have this first one under our belt and confident that there will be many more orders for this unique service offering moving forward. Slide 5. Slide 5 illustrates continued traction we’re seeing with our BKR 5000. In the quarter, we shipped 10,001 units coming in at the top end of our quarterly shipment target. Our manufacturing and production operations are executing well.

And as we move through 2023, we are targeting the shipment of 8,000 to 10,000 radios each quarter. Turning to Slide 6. With production lines ramped up and our shipment cadence study, we are driving improved margin as we are able to get more and higher-priced product delivered to our customers. On this slide, you can see how the global supply chain issues negatively impacted our margins through much of 2022. While we were creative and nimble in our efforts to secure parts and components, it was an expensive endeavor, and our production and delivery capabilities were constrained for much of 2022. As we move through 2023, we anticipate that we see steady quarter-to-quarter gross margin improvement, and we reiterate our full year 2023 gross margin target of 35%.

Slide 7. Slide 7 provides an update on the launch of our BKR 9000. During the first quarter, FCC testing was ongoing. Throughout the process, we stayed in close contact with the test lab and our understanding is that the final test phase is nearing completion. So we expect to receive FCC certification shortly. Once we receive certification, we will turn our attention to completing the transition from the development to manufacturing and shipping. There is a great deal of market interest in the BKR 9000 and the first months of production will be dedicated to fulfilling the current backlog orders. While it’s taking a bit longer than originally planned, we believe we’re very close to getting this product into customers’ hands and we’ll keep you informed as we continue to move closer to the finish line.

Now I’ll turn it over to Scott Malmanger, CFO, to take you through the financials. Scott?

Scott Malmanger: Thank you, John. On Slide 8, you will see a summary of our financial and operating results for the period ending March 31, 2023. Sales for the first quarter totaled approximately $18.7 million compared with $6.6 million for the same quarter last year. As John mentioned, we closed the first quarter with an order backlog of $22.9 million. Gross profit margin in the first quarter was 26% compared with 22% in the first quarter last year. Selling, general and administrative expenses, or SG&A for the first quarter totaled approximately $5.9 million compared with $4.9 million for the same quarter last year. SG&A expenses included increased spending for product introduction of the BKR 9000 as well as onetime costs associated with the ATM and with our sponsorship and participation at IWCE.

First quarter operating loss totaled $1 million compared with an operating loss of $3.4 million for the first quarter of last year. In the first quarter of 2023, we recognized the net unrealized loss of $113,000 on our investments compared with an unrealized loss of $496,000 in the same quarter last year. We recorded a significantly reduced net loss of $1.3 million or $0.07 per basic and diluted share in the first quarter of 2023 compared with a net loss of $3.9 million or $0.23 per basic and diluted share in the prior period — prior year period. It is our expectation that with continued strong sales performance and gross margin improvement, we should see profitability levels improve as well. And finally, as of March 31, 2023, we have approximately $2.8 million of cash and cash equivalents and only $258,000 in long-term debt.

From a liquidity standpoint, we believe that our current cash position, combined with anticipated cash generated primarily by radio sales and borrowing availability under our credit facility provides us with the working capital that we will need to grow our business. I will now turn the call back over to John.

John Suzuki: Thank you, Scott. Turning to Slide 9. On Slide 9, we lay out our focus for 2023. We remain focused on maximizing production efficiency. Our capacity is set to produce up to 10,000 radios per quarter or $40,000 for the full year. We’re targeting production at 8,000 to 10,000 radios per quarter and a shipment of 32,000 to 36,000 radios for the full year. Based on backlog and forecasted demand, with our visibility today, we believe 2023 shipment activity will come in at the high end of our full year target. Second, we are focused on driving gross margin improvement with a gross margin target of 35% for the full year 2023. We believe this target is achievable for several reasons. The higher cost parts and components purchased last year are almost exhausted and were replaced with parts purchased at a more normal historical cost level.

Price increases established in 2022 will start to be more prevalent in our product mix during the balance 2023 shipments. In the elevated and steady production rates, we expect to see improved operating leverage. And lastly, we’re working hard to achieve incremental product cost improvements throughout the year. There’s still a lot of work to be done this year, but we’re off to a good start, and we will remain committed to improve in gross margins throughout the year. In our third area of focus, we want to continue to establish strategic beachheads in the federal, state and local public safety markets for the BKR 9000, Multi-Band Portable Radio and InteropONE. We believe that establishing these beachheads is important as we plan for continued growth in 2024 and achieving our 2025 goal.

Slide 10. On our last slide, we reiterate our longer-term goal of reaching $100 million in revenue by 2025. We are investing to drive profitable growth with the vision to establish BK as a premier personal communications technology provider for the public safety and critical communications markets. Our BKR 5000 is a proven success in its appeal to new customers as well as to existing customers. Likewise, the launch — likewise, once launched, the BKR 9000 will considerably expand our target markets. Finally, we’re excited about securing our first of what we believe will be many new customers for InteropONE. We think this new offering will improve first responder safety and response times, potentially saving lives. As a SaaS service, we anticipate InteropONE will play a meaningful role in delivering high-margin, reoccurring revenue as we gain market presence over time.

With that, I will turn the call over to the operator for questions. Operator?

Q&A Session

Operator: Thank you very much. We are now opening the floor for questions. [Operator Instructions] Your first question is coming from Orin Hirschman from AIGH Partners.

Operator: [Operator Instructions] Okay. We don’t appear to have any further questions in the queue. Scott Weis has just popped into queue from Semco Capital.

Operator: Thank you very much. That appears to be the end of our question-and-answer session. I will now hand back to management for closing remarks.

John Suzuki: Thank you all for participating in the call today. We look forward to speaking with you again when we report our Q2. All the best to all of you, and have a great day.

Operator: Thank you, everybody. This does conclude today’s conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.