Q3 2020 BK Technologies Corp Earnings Call
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Good morning, ladies and gentlemen, and welcome to BK Technologies Corporation Conference call for the third quarter and nine months ending September Thirtyth 2020. This call is being recorded.
And all participants have been placed in a listen only mode. Following management's remarks, the call will be opened to your questions before turning the call over mR.V. two for opening remarks, I will provide the following safe Harbor statement.
Statements made during this conference today.
Our non.
Based on historical facts are forward looking statements. These statements are subject to a known and unknown factors and risks the companys 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 Yesterdays press release, and then be case filings with the SEC.
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 forward looking statements.
I will.
Turn the call over to Mr. Timothy V to President of BK technologies, Mr beat to the floor is yours Sir.
Thank you Jim.
And thanks, everyone for joining today I'll arrange my comments as follows first I'll highlight our financial results second I'll spend some time, providing operational update.
And third I'll turn the call back over to bill to dive deeper into our financial results before opening up for some Q and a.
So first up the financial results Q.
Q3 revenue of $12.8 million grew 8%.
Operating income of $1 million increased 250.
The 3%.
And operating margins of 8.17% more than tripled.
These third quarter results illustrate the earnings power of our new expense structure.
We're committed to leveraging net expense structure and driving profits with revenue growth, which we can achieve in at least three ways.
One increased sales of existing products to growing sales of our BK. Our 5000 launched 90 days ago in August and three with the launch of the Multiband BK. Our 9000 in the first half of next year.
We had success in each of those growth initiative.
During the quarter and after quarter end.
Beginning with our first growth initiative, increasing sales of existing products. We won a contract for up to $4.2 million from an electric utility agency of the US Department of energy for the deal we.
The contract was for BK is.
Ganji to digital P 25, portable and mobile radios with related accessories, which will be deployed at more than 35 sites in the U.S.
The contract covers a period of one year, which commenced in June 2020, and expires in June 2021.
Shortly after award.
Awarding the contract the deal we issued from purchase orders for equipment totaling approximately $3.1 million.
We like this vertical is the utilities and energy market segment are an important part of our strategic plans to increase BK is overall market share accordingly, a significant contract.
From an agency of the deal we is encouraging.
This important new customer select the BK as a sole source for this contract over several competitors based on a comprehensive evaluation of performance functionality and price.
We're excited to welcome this agency and to support their mission.
With World class products and services.
Continuing with existing products.
We also won an order totaling approximately $1.1 million from the National Energy Agency Fire center or in this city.
The order was for Bks KMG to portable radios with related accessory.
As we have been for so many years, we're proud to support an FC in the professional while land firefighting community. They have relied upon our products and while and fire suppression efforts for over two decades first deploying the E series in G series analog radios than our P 25, D series radios and more.
More recently migrating to our P 25, KMG to digital radios.
Our extended track record of dependability in harsh in life threatening conditions has clearly earned this these confidence as demonstrated by that recent order.
After quarter end, our momentum for sales of existing products.
Products continued.
With an order totaling approximately one and a half million dollars for both public service agency of the US department of interior or de alive.
The order was for Bks KMG to portable radios and mobile radios with related accessories.
This order is active.
Dissipated to be fulfilled during the fourth fourth quarter of 2020.
We are pleased to continue our longstanding support of the deal lie.
Which spans more than 25 years, such an extended relationship combined with this order is a clear demonstration of their confidence in us we're looking for.
Forward to cultivating similar long term relationships for many years to come.
Moving on to our next growth initiative launching an increasing sales from new products on August 31, we announced the market introduction of the BK. Our 5000 portable radio the first model in the new BK Our series a peak 20.
Five LM, our products and solutions.
The BK or 5000 offers an array of programmable functionality to help first responders get the most out of their tactical communications to be care 5000 comes in three tiers, allowing maximum flexibility and customization for the radio use.
Users mission critical needs and has been designed to meet the requirements of today's tough public safety communications environment.
The baby care 5000, with design and developed by our engineering team with extensive input from customers to incorporate the features and options needed by first.
20, bonders, including Bluetooth GPS and BK is long long popular cloning capability.
The new form factor includes a top display large control buttons for use with heavy gloves and an IP 68, Ruggedized housing, which comes in both black and optic yellow.
For some new intuitive user interface maintains the same ease of use characteristics that have been customer proven and well accepted in the current BK products software and programming editors.
Which further allows for an easy transition from current embedded products to the new BK our series a full.
Hi of accessories is available, including intelligent battery and charging solutions.
68, remote speaker microphones and the ever popular BK wildland fire alkaline battery clamshell.
The new baby care 5000 expected to be a platform that enhances BK his ability to address.
Significant new vertical markets, leading to extended growth and market share.
After quarter end, we were pleased to announce our first significant order for the baby care 5000 and related accessories. The order totaled approximately $1.1 million from a state of Tennessee agency and as anticipated.
Oh look paid to be fulfilled during the fourth quarter of 2020.
We're excited about this order because it came within one month after launch. Additionally, this Tennessee State agency is a first time BK customer.
The BK or 5000 is just the initial model in a comprehensive.
This new line of radios.
Which will include multi band products next year, securing service such a substantial order from a new customer shortly after a new product launch was very promising and we look forward to capitalizing on our early momentum.
Speaking a multi band products that brings us to our next growth in.
Initiative launching our first multi band product the BK our 9000.
During the third quarter, we continued to make headways towards the launch of the BK, Our 9000, which is expected to be in the first half of 2020.
To be care 9000 addresses additional markets at a significantly.
The higher price point with exponentially larger contract opportunities.
We believe it will open new vertical markets and customers and B, what fuels our growth in the next several years.
To take a bit of a step back.
There is an approximate $2 billion addressable market for Alomar we've.
Only a huge opportunity for both organic and exponential growth with the release of the new BK R series products.
In particular, the 5000 9000 open the approximate 1 billion dollar structure fire and law enforcement verticals.
That up until now BK has had.
Recent limited access to.
Given the current environment of weather extremes, social unrest in the global pandemic the importance of public safety as heightened we're confident in our new products and focus will allow us to capture additional market share quickly.
We look forward to updating you on the sales of the be careful.
5000 in the progress of the BK or 9000 in the quarters ahead.
And while we're excited about the future I'd like to reiterate the present is bright.
Third quarter performance of 8% revenue growth, 253% operating income growth and the tripling of operating margins was achieved.
Had from existing products, the new expense structure and with the BK or 5000, only introduced midway through the quarter.
Our existing newly launched and future growth engines allow us to create substantial short term and long term shareholder value as these third core.
Our results demonstrate.
This concludes my overview I will now turn the call over to Bill Kelly, Our Chief Financial Officer, who will review the financial and operating highlights.
Thank you Tim.
Following is a summary of our financial and operating results for the third quarter and.
For nine months ended September Thirtyth 2020.
Net sales for the third quarter of 2020 increased 8.1% to approximately $12.8 million.
Compared with approximately $11.8 million for the third quarter last year.
For the nine months.
It's ended September Thirtyth 2020, net sales increased 2.6% to approximately $33.6 million compared with $32.7 million for the nine month period last year.
Gross profit margins as a percentage of sales for the third quarter.
In the September Thirtyth, 2020 were approximately 40.8% compared with 43.3% for the same quarter last year.
For the nine month period ended September Thirtyth 2020, gross profit margins were approximately 40%.
Compare.
And with 40.4% for the same period last year.
Our cost of products and gross profit margins are derived from material labor and overhead costs product mix manufacturing volumes and pricing.
Gross profit margins for the third quarter of 2000.
Paralleling decrease compared with the same period last year, primarily due to a less favorable mix of product sales.
For the nine months ended September Thirtyth 2020, gross profit margins decreased slightly compared with the nine month period last year.
Having been impacted primarily.
For the first quarter during which more customer orders will flow were fulfilled with online on hand inventory in concert with our inventory reduction program.
Resulting in lower manufacturing volumes and sub optimal utilization and absorption of manufacturing and support expenses.
Earlier this year, we reduced manufacturing operations employment by approximately 21%.
As well as other related expenses these.
These reductions combined with increasing sales have improved our utilization in the absorption of manufacturing and support expenses.
SGN.
<unk> expenses for the third quarter ended September Thirtyth, 2020 decreased by $653000 or 13.6%.
To approximately $4.2 million, which was 32.6% of sales.
This compares with approximately 4.8.
We in dollars or 40.8% of sales for the same quarter last year.
For the nine months ended September Thirtyth, SGN, any expenses decreased by $2 million or 13%.
To approximately $13.3 million, which was 39.
Milling, 5% of sales.
This compares with approximately $15.2 million or 46.6% of sales for the nine month period last year.
Consistent with employment and expense reductions in our manufacturing operations earlier in the year, we reduced.
SGN a employment by approximately 15%.
As well as other expenses and sales go to market engineering and headquarters.
For the third quarter of 2020, we recognized other expenses totaling approximately $362000.
Related.
Good primarily to an unrealized loss on our investment and 13 47 property insurance holdings.
During last year's third quarter, we recognized net other expenses totaling approximately $310000.
For the nine months ended September Thirtyth 2020, net other expense.
Users totaled approximately $945000, primarily from an unrealized loss from 13 47.
Hi.
For the same period last year, we recognized net other income of approximately $222000.
Primarily from an unreal.
Realized gains on 13, 47, PIH and interest income.
For the third quarter of 2020, net income increased almost 185% to approximately $678000 or five cents per diluted share compared.
Compared with 200.
$38000 or two cents per diluted share for the third quarter last year.
For the nine months ended September Thirtyth 2020.
Net loss narrowed to approximately $817000 or seven cents per diluted share.
Compared with approximately 1.3 million.
$1 or 10 cents per diluted share for the same period last year.
For the first nine months of 2020.
We reduced inventory by over 37% or $5.1 million and generated approximately $1.7 million of positive cash.
Flow increase.
The increase in our cash balance by 36%.
Our capital return program has paid 18 consecutive quarterly dividends with the last one paid on October Twentyth 2020.
That concludes my remarks, we will now move on to the question.
And answer portion of the conference call.
I would like to remind everyone that we do not provide financial and operating guidance on a quarterly or annual basis.
Jim We're now ready to open the floor for questions.
Thank you, ladies and gentlemen, if you would like to ask a live question over your telephone lines.
Star and one on your telephone keypad pressing star Mondo pleasure line into the queue and I'll play.
Excuse me I will open your lines one at a time.
A friendly reminder, that if you are joining us today on a speaker phone. Please return to your handset prior to joining stuff.
Prior to pressing star and wanted to be sure that your signal does.
Does reach our equipment also that also provides the best audio quality once again, ladies and gentlemen that is star and one if you would like to ask a question and we'll pause for a few moments to give everyone a chance to signal.
And we'll take our first question today from Mr. Ed Schultz.
Line is open.
Okay. Thank you and congratulations on the on the good quarter, there and and protect my questions. The first question I have is on the M. The cobot pandemic and its effect on your sales.
Yeah Historic.
We clients in California have been among the largest clients and California's had more restrictive shutdowns and the rest of the country can you comment on the ability of your salesforce to have constructive dialogue with these clients and have you seen any indication that orders may have been delayed or possibly move forward to a forward quarters.
Good morning.
Yes. Thank you for the question this is Tim.
Well that has had a couple of different effects on the sales organization. We have been severely limited in our ability to actually go out and meet face to face with.
Customers, where that typically has the most effect.
Designed new customers when you're trying to build a relationship as you know a lot of our customer or a lot of our sales is based on a long term existing relationships and we've been able to kind of pivot very successfully to online zoom calls and.
The meeting virtually as.
Morning post the face to face so with regard to existing customers. It hasn't really affected us too much we have seen co bid.
Having effect on some budgets at some county levels out on the West coast, where they delay to purchase by a quarter or two something along those lines.
As of.
But here again, it I think whats happening Ed is that people are learning how to do things differently. You're finding there is no coded handbook. So people are kind of walking through new processes New pro.
Procedures to continue doing business one of the things I'd like to remind the team and the team constantly reminds me.
Radios or one of those products that may be.
Since its going to support public safety first responders, there's still a critical need all throughout co bid. We continued to manufacturer. We continue to work because were considered an essential business to supply. These tech.
Equal comps to our.
Public safety.
Customers I think that going forward when it comes to the new accounts, we were very excited to announce the agency in Tennessee that was done through.
Through a very talented sales individual virtually we were.
Able to send them product they put it through the paces, we were doing a lot of zoom calls with their technology experts testing the gear. So it was is the complication.
The sale was magnified, but the sales team was able to pull it off so I'm very proud of their efforts.
Okay. Thank you.
The next question I have is on the R&D last year. This quarter. It was about 2.4 million that's come down to about 2 million and I guess, so far this year, we've averaged about 2 million a quarter is that the type of number that we should expect going forward about $2 million per quarter.
Hi, This is bill.
No.
It's.
It should be about that level, we're working through our business plan next year. We if you look at last year in the first couple of quarters of this year, we have had engineering trend down a bit because we have been using fewer external resources.
So I would I would expect that to continue we are relying on now almost exclusively on our internal team, we will probably expand that team and its capabilities a bit next year, but I don't expect to see.
Any ramp up in R&D.
Because of that.
Okay and then the last question I have is on your inventory. So obviously brought that down quite a bit from 13 million down to about 8 million is that the type of level that we should expect going forward or would you expect that maybe some rebound getting back up towards that 10 million <unk> dollar level.
No.
Our goal is to keep that as.
Those levels and we've it's been.
Difficult and very successful reduction program, that's been one of the companies.
Biggest challenges for years and.
The guidance.
In the company have done a nice job of bringing it down and our intent is to stay there.
There and as the as the product line.
Continues to be more modernized in the K in or the BK, our product line expands with new products and the decay in Gi eventually goes away.
We could stand.
And because of the new componentry and processes that have been implemented its.
It's possible that we could could bring it lower but during the course of next year I would expect to stay at about these levels.
Okay very good okay, Thats, all I have and congratulations on the launch of the BK or 5000.
Thank you Ed Grady then.
And Mr. Kelley Mr. B., two we have no further questions from our audience at this time I'll turn it back to our leadership team for any additional or closing remarks.
Hey, Jim and thank you all for participating in today's call. We look forward to talking with you again, when we report our.
Q4, and full year 2020 results in March of 2021.
All the best to all of you and have a great day today.
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Uh huh.
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