Yahoo Finance BK Technologies Corporation (AMEX:BKTI) Q1 2024 Earnings Call Transcript
BK Technologies Corporation (AMEX:BKTI) Q1 2024 Earnings Call Transcript May 12, 2024
BK Technologies Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation Conference Call for the First Quarter 2024. This call is being recorded. All participants have been placed on a listen-only mode and following management's remarks, the call will be opened for 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, 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 2024. On the call today are John Suzuki, Chief Executive Officer; and 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 or statements of future goals and targets regarding the company's revenue and profits. These statements are subject to known and unknown risk factors. The company's actual results, performance or 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 have been described in this morning's press release and in BK's 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 we do not undertake any duty to update such forward-looking statements. Okay. I'll now turn the call over to John Suzuki, CEO of BK Technologies. Go ahead, John.
John Suzuki: Thank you, John. Thank you everyone for joining today. I'll start by reviewing some of our 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. As most of you know, BK Technologies is a technology leader in the critical communications industry, developing single and now multiband radios. We have made great strides enhancing and expanding our radio product portfolio which has been driving our recent financial performance. Our relatively new SaaS division represents our longer-term vision developing next generation solutions that combine land mobile radios with LTE 5G smartphones to create seamless connectivity making the first responder safer and more productive.
Now let's dive into our first quarter results. Our first quarter provide a strong start to 2024 and while we still have a lot of work to do, our performance to date reflects the success we are achieving with executing our strategy. First quarter 2024 earnings per share of $0.19 represents our third consecutive quarter of improving profitability. Our gross margin improved to 34.5% in the quarter compared with 26.1% in the first quarter of 2023. And we expect to continue improving our gross margin throughout the year as we return to historical margin levels of 35 plus percent. Our BKR5000 single band radio enjoyed strong demand in the quarter, driven primarily by order activity from the USDA Forest Service for 5,620 radios. The BKR9000 also continues to gain market acceptance and recognition with orders from the Arkansas Department of Agriculture, Forestry Division and from Boulder County, Colorado.
We're especially encouraged by the order from Boulder as that is a Tier 2 county by population with over 300,000 total residents and the order demonstrates the 9000's appeal and ability to penetrate these larger markets. Our total backlog has increased to 19 million as of March 31, 2024 compared with the December 2023 ending backlog of 16 million. During the first quarter, we successfully completed the transfer of the BKR5000 production to our partner East West Manufacturing. Located in Juarez, Mexico, the East West BKR5000 production line is fully operational and is currently manufacturing radios for shipment in the second quarter. Also in the first quarter, we launched a multi-year, multimillion dollar development program for the BKR9500 multiband mobile radio.
A companion mobile radio to the BKR9000 multiband portable radio, which we expect will further penetrate our addressable markets. Our shift to a higher priced, higher margin product mix combined with our cost reduction initiatives continue to drive enhanced profitability for our business. As you can see in the graph, we have delivered consistently improved earnings per share since the third quarter of 2023. At the same time, revenue stayed largely consistent year-over-year demonstrating the impact of our efficiency initiatives. In the first quarter of 2024, we achieved gross margins of 34.5% compared to 26.1% in the first quarter of 2023. As mentioned, we believe a key driver of our incremental margin improvement going forward will be the outsourcing of our manufacturing, which will simplify our supply chain management and reduce both production expenses and end product costs.
We expect the shift to contract manufacturing coupled with the ongoing cost reduction initiatives and higher margin product mix will allow us to achieve historical margin rates in 2024 and continue to grow those rates going forward. A key focus and major recent initiative has been our shift to an asset light model. To recap, last year we announced an agreement with our existing contract manufacturer, East West Manufacturing to become the exclusive manufacturer of our radio product line. As of the end of the first quarter, the production line at the East West facility in Juarez, Mexico is fully operational and is currently manufacturing BKR5000 radios for shipment in the second quarter. Our transfer team comprised of BK and East West employees is currently migrating production of the KNG Series Mobile and the BKR9000 portable radios to East West with production expected to commence by the end of Q3 or early Q4.
Our BKR5000 production line in Melbourne has ceased manufacturing activities and Phase 1 of our staff reduction has been completed. I would like to take a moment to thank all of our Melbourne employees who worked through their notice period to ensure we met our first quarter production and shipment goals. Thank you to these employees. At this point, I thought I would take a minute to do a quick review of the BKR Series radio product evolution and strategy going forward. Since its launch in June of 2020, the BKR5000 has established itself as a premier single band radio for first responder agencies, propelling company revenue to a record high in 2023. The BKR9000 multiband radio which was launched about three years after the 5000 in May of 2023 is a higher priced and higher margin radio that significantly expands our addressable market among federal, state and local public safety customers.
And in new product news, today we are excited to announce that we have commenced a new development program to market a third radio in the BKR series, the BKR9500. As the trend towards multiband technology continues to gain traction, we are investing in another multiband development program to launch the BKR9500 multiband mobile radio. Installed in public safety vehicles, the 9500 is the companion radio to the BKR9000 multiband portable radio, which is carried by first responders. With both the BKR9500 and 9000, a first responder can remain in constant contact with dispatch whether in or outside their vehicle. As part of the normal product replacement cycle, we expect that the BKR9500 will replace older single band mobile radios currently installed in first responder vehicles, including police cars, fire engines, and ambulances.
Leveraging state-of-the-art multi-band capabilities, the 9000 and the 9500 will work in tandem to keep first responders better connected significantly enhancing. This will be a multi-year, multimillion dollar project with the engineering development costs being capitalized to align the expense with the anticipated BKR9500 revenue. We expect to see revenue from this offering to start in 2027. Our strategic expansion into the design and development of innovative multi-band products is dramatically expanding our addressable market. Prior to the introduction of the BKR9000, our addressable market with the BKR5000 single band radio was approximately $200 million. To date, the BKR5000 has enjoyed strong market traction with our historically customer base in the wildland fire market vertical and gaining share with other first responder customers.
The BKR9000 multi-band portable and companion 9500 address the wider market, which is approximately $2.3 billion and includes police, EMS, structured fire, military, public service and utility customers. Given the early success and market interest that we were seeing for the BKR9000, we believe that a bundled multi-band portable and mobile offering at the right price point will be well received and continue to drive the company to even higher revenue goals. In addition to our core radio business, we see a significant long-term opportunity with our SaaS business unit as we develop new solutions leveraging LTE 5G technology. We believe that the LMR industry as a whole is heading toward adopting more SaaS-based applications that connect first responders across their radios, vehicles, and smartphones.
And we're committed to the growth of our SaaS business to place us at the forefront of this growing market. We are excited to announce today that we recently received patent approval from the United States Patent and Trade Office, USPTO for one of our three patent pending technologies. This USPTO patent protects InteropONE's innovative feature, which enables a first responder to create on demand ad hoc emergency talk groups with any smartphone user in a matter of minutes. This is a key differentiator for BK's InteropONE Push-To-Talk Over Cellular SaaS service. We also recently showcased our patent pending technology, IntelliPTT feature enabling Push-To-Talk over broadband capabilities for both the BKR5000 and 9000 radio customers at the 2024 International Wireless Communications Expo in Orlando, Florida.
Feedback from the show clearly indicated, IntelliPTT is driving a deeper interest in the BKR9000 given the enhanced user experience when the InteropONE service is accessed through the BKR9000. The IntelliPTT feature development continues towards commercialization, while the patent application is pending approval. The IntelliPTT feature will be offered as an optional paid software feature on both the BKR5000 and BKR9000. I will now turn the call over to our Chief Financial Officer, Scott Malmanger to go over our financial results for the quarter. Scott?
Scott Malmanger: Thanks, John. Sales for the first quarter totaled approximately $18.2 million compared with $18.7 million for the same quarter last year, but increased sequentially by 12% compared to revenue of $16.3 million in the fourth quarter. Gross profit margin in the first quarter was 34.5%, which as John stated is nearing a return to historical margin levels of 35% plus compared to 26.1% in the first quarter last year. Selling, general and administrative expenses or SG&A for the first quarter totaled approximately $5.3 million compared with $5.9 million for the same quarter last year. Operating income totaled $983,000 compared with an operating loss of $987,000 for the first quarter of last year. We recorded net income of $681,000 or $0.19 per basic and diluted share in the first quarter of 2024 compared with a net loss of $1.3 million or $0.37 per basic and diluted share in the prior year period.
We expect an enhanced profitability as we continue to reduce costs and improve our gross margin. Non-GAAP adjusted EPS, which adds back net realized and unrealized gain and loss on investments, stock-based compensation expenses and severance expenses was $1.1 million or $0.30 per basic and diluted share compared with a loss of $978,000 or $0.29 per basic and diluted share in the first quarter of 2023. We reported adjusted EBITDA of $1.4 million in the Q1 of '24 compared with an adjusted EBITDA loss of $696,000 in the first quarter of 2023. As of March 31, 2024, we have approximately $3.3 million of cash and cash equivalents and no long-term debt. Additionally, as we began transferring our production activities to East West, we recorded an inventory reduction of $1.4 million to $22.5 million at March 31, 2024.
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 need to grow our business. I will now turn the call back over to John.
John Suzuki: Thank you, Scott. With the progress that we've made in Q1, we believe we're on track to meet our stated targets for 2024. The engineering investment we made to develop the BKR Series radios is starting to pay off. The strong market adoption for the BKR5000 demonstrated that BK can develop and market a public safety radio that appeals beyond our core market of wildland fire and wind market share. Early market feedback for the BKR9000 has been positive and the radio has been certified on various states, regional, county and city P25 radio system. It is still early, but initial orders for the BKR9000 has shown that this radio is not only appealing to wildland fire, but it can be successful in both Tier 3 and Tier 2 counties like Boulder County, Colorado.
Our goal for 2024 is to introduce the BKR9000 to as many current and new customers to position the radio for upcoming radio upgrade cycles. As previously stated, we believe that our transition to contract manufacturing and our shift to a higher priced, higher margin mix -- product mix will allow us to achieve incremental margin improvement as we move through 2024. Lastly, with the wildland fire season in full swing, and our historically stronger second and third quarters ahead of us, we remain confident in our previously stated target of $1.50 per share for the full-year. To close my prepared remarks, I would like to summarize how we're continuing to create more value for our stakeholders. Starting with our trusted BK brand, we are expanding the BKR Series product line and market penetration.
We are developing next generation SaaS capabilities to expand our total addressable market. And lastly, we are transitioning BK to an asset light model, so we can better focus on what we do best, develop and market innovative public safety communication solutions. Operator, we can now open the call for questions.
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