Q1 2021 BK Technologies Corp Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation Conference call for the first quarter 2021. This call is being recorded all participants have been placed on a listen only mode. Following the management's remarks on the call will be open to questions before.
Before turning the call over to our President Mr. Timothy <unk> for opening remarks, I'll provide the following safe Harbor statement.
<unk> made during this conference call that are not based on historical facts or forward looking statements. Such statements include but are not limited to projections or statements of future goals and targets regarding the companys revenue and profits. These statements are subject to known and unknown factors and risks the company's actual results performance or achievements may differ materially from those expressed or implied by these forward looking.
<unk> and some of the factors and risks that could cause or contribute to such material differences have been described in yesterday's press release and in the 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 I will now turn the call over to Mr. Timothy <unk> President of BK technologies. Mr. <unk> you may begin.
Thank you Matthew.
Thanks, everyone for joining today I'll arrange my comments as follows first.
Highlight our financial results.
Next I'll spend some time, providing operational updates then I will turn the call over to executive Vice President and Chief Financial Officer Bill Kelly.
To dive deeper into the financial results.
We will conclude by opening the call for a brief Q&A.
Beginning with our financial results Q1 revenue came in at $8 6 million compared with $10 9 million in the first quarter of last year.
Revenues in Q1 were below internal expectations due in part to the timing of certain orders from our existing customers as well as some supply chain constraints.
Like many enterprises COVID-19 has disrupted the operations of some of our customers and supply chain partners slowing their ordering and fulfillment processes respectively.
It is important to emphasize this is not a demand issue, but rather a timing issue.
Some of these orders have now been booked or on the final procurement stage.
Giving us confidence that the second quarter will show growth.
Even with the short term sales decrease our gross margins were slightly above last year.
Reflecting efficiencies, we have driven into our manufacturing operations that have improved our utilization and absorption of manufacturing and support expenses.
We also realigned our sales and marketing teams and implemented other initiatives over the past year to optimize our expense structure.
Reflected in our 16% reduction in SG&A in Q1 versus Q1 of last year.
In short the company is well positioned to see margin growth as we continue to scale our business.
It's important to stay focused on the big picture over the last four years. This business has been totally transformed.
We brought in a new executive management team and a new board of directors.
Implemented new R&D and engineering strategies, our new product roadmap and new manufacturing strategies.
While revenue in Q1 was down compared to the previous year, primarily due to timing of orders, our new BK or 5000 is being very well received with product approvals and orders from very demanding existing and new customers alike.
This is reassuring given that we supply of critical product with life and death ramifications.
The next step in our product evolution as the BK or 9000 this.
This new product, which we expect to launch this year has the potential to be transformative to our business.
We've taken the time to listen to existing and potential customers. So that we can address their needs.
The key advancement of the BK on 9000 is that for the first time BK technologies will have a product with multi band capabilities.
This exponentially expands our potential market verticals and positions us for larger contracts.
As of right now with our existing BK products. We can go after approximately 20% of the $2 3 billion dollar LMR addressable market.
The multi band capabilities on the BK or 9000 significantly expands the percentage of the addressable markets we can pursue.
With the addition of the BK on 9000 to our family of products will be able to effectively compete in new market verticals, such as oil and gas.
We'll also be able to penetrate deeper into the municipal public service market.
And we'll have the capability to grab a larger piece of the police and structure fire markets. The two largest LMR market verticals.
For decades, the market leader Motorola has had what we estimate to be over 70% market share.
We firmly believe that the market is ripe for disruption.
Today, we have a low single digit market share we project debt with an increase of just a few percentage points in our market share has a potential to bring us to a 100 million plus in annual revenue.
Yeah.
Additionally, the 9000 is even more attractive margins on our current product offerings.
Project out longer term.
As we penetrate these additional verticals and the business scales, we should be able to achieve gross margins over 50% S.
SG&A of less than 32% of sales.
And an operating margin more than 12%.
There's a lot of work to do to get there, but we see a clear path to achieving net overtime.
I've spoken a lot about land mobile radio on our opportunity within this $2 3 billion dollar addressable market and Theres plenty of opportunity for us within that number to drive growth.
However that said it's important to note that part of our longer term strategy is to look at contiguous opportunities beyond LMR that give us access to the additional areas of the $14 $6 billion public safety market. For example, this could include markets such as <unk>.
<unk> services or.
Our emergency management tools and solutions or cyber security equipment.
This is not an immediate focus but it's important to understand our long term objectives.
Further expanding addressable market beyond the LMR and building BK technologies into a much larger company for shareholders.
Two key areas of focus have been product technology development and improving our manufacturing processes.
On the technology development front, we've significantly enhanced our capabilities over the past few years.
We recently opened and announced our new Technology Innovation Center in South Florida.
Technology innovation centers mission is to explore leading edge communication technologies and.
And leverage that in designing solutions to wide ranging communication challenges facing today's public safety professionals.
Leading the technology innovation centers, <unk>, Chief Technology Officer, Dr. Bronco Atlantic.
Who brings with him over 30 years of technology and development experience at Motorola.
He has assembled a highly skilled engineering team with deep backgrounds, and a broad array of technology disciplines and extensive direct experience designing state of the art communication technology solutions.
We also launched several strategic initiatives several years ago.
To significantly upgrade manufacturing processes. This.
This includes bringing certain activities such as surface Mount technology or SMT in house, while migrating others to U S based manufacturing partners and qualified second sources for backup.
This strategy allows for improved quality control and shortens development lead time.
While guarding against business interruptions.
Which ultimately yields benefits and product costs inventory throughput and working capital management.
Additionally, we now have a more cyber secure supply chain.
Which is increasingly important to government agencies.
Now, let's dig into some of the customer traction we have seen for the BK or 5000 since we last spoke.
First we receive various approvals of the.
New technology from customers.
We received fire approval rating from the U S National Interagency fire center or a necessity for the BK or 5000.
Our engineering team work closely with the <unk>.
<unk> achieved the status of fire approved for Interagency fire us.
This authorization enables a product to be used by all federal employees.
And all personnel under contract with the federal the federal government working on Wildland fires enforced health protection.
We received approval from the U S Department of the interior of the DIY for the BK or 5000. This complements our nifty fire approval certification, providing the necessary approval for the DIY purchases, including high risk fire and law enforcement use.
The Dubai further noted that the product passed on every risk assessment code that they test.
DIY agencies combined have an estimated 80000 BK radios deployed across the nation.
We've also had multiple orders for the BK or 5000 from some of the most demanding customers.
We want a new strategic customer in the state of California.
The Idaho Department of lands placed the largest single order in many years upgrading the BK or 5000.
We also secured businesses business from a new municipal fire and rescue customer in Idaho.
A state that ranked second in the nation for the percentage of homes at risk.
From wildfires.
We were awarded a new service contract by the U S Department of Agriculture Sports service for maintenance and repair of BK products.
Replacing the previous service contract. This new contract extends our long standing relationship with force service that provides us with reoccurring service revenue for many years.
The BK or 5000 was selected for purchase and deployed by the Kentucky Chapter of our global Environmental organization with more than 1 million members in 70 countries.
Alberta Health services extended their contract one of our key strategic objectives has been to establish a presence internationally and this provides the foundation from which to grow our business in Canada.
The Washington Department of natural resources, a very longstanding customer is starting to migrate to the BK or 5000, that's a sign of their confidence in the product.
Finally, higher highlighting our broad product platform Nitze purchased our <unk> two series P $1 50, and 400 technology solutions.
Unfortunately natural disasters are only getting more common as we've all seen over the past few years.
Yes.
Pardon me BK provides the people on the frontline with these products that they can depend on in life and death situations, we take great pride in that and look forward to getting our products in the hands on more of these heroes.
I'll now turn the call over to Bill Kelly, Our executive Vice President and Chief Financial Officer, Who's going to review the financial and operating highlights Bill.
Thanks, Tim.
Following is a summary of our financial and operating results for the period ending March 31 2021.
Sales for the first quarter totaled approximately $8 6 million compared with $10 9 million for the first quarter last year.
As Tim reported revenues in the first quarter were below internal expectations due in part to the timing of certain customer orders and delays within our supply chain.
Many enterprises COVID-19 has disrupted the operations of some of our customers on supply chain partners slowing their processes.
As Tim mentioned this relates to timing rather than demand.
Several of these customer orders have now been booked are in the final procurement stage, giving us confidence that second quarter will yield growth.
Gross profit margins as a percentage of sales for the first quarter.
Were 36, 2% compared with 35, 8% for the first quarter last year.
While gross profit margins for the first quarter of 2021 were materially consistent with the same quarter last year.
They were adversely impacted by approximately three 3% for one time inventory reserves related to our legacy product line. The K on G series.
Absent this impact gross profit margins for the first quarter of 2021 would have been approximately 39, 5%.
Last year, we reduced manufacturing operations employment and other manufacturing related expenses and these reductions have improved our utilization and absorption of manufacturing and support expenses.
Selling general and administrative expenses or SG&A for the first quarter decreased approximately $770000 or 16, 2%.
Approximately $4 million, which was 46, 4% of sales.
This compares with $4 $7 million or <unk> 43, 6% of sales for the same quarter last year.
In the second quarter last year.
Excuse me in the first quarter last year <unk>.
Consistent with the employment in expense reductions on our manufacturing operations, we reduced SG&A employment as well as other expenses in sales go to market engineering and headquarters.
These reductions impacted SG&A expenses, but were made later and.
Last year's first and second quarter.
We recognized an unrealized gain of $205000 on our investment in PIH.
Compared with an unrealized loss of $306000 for the first quarter last year.
Our net loss for the three months ended March 31, 2021 narrowed by approximately $498000 or <unk> 41, 8%.
To approximately $694000 or six cents per basic and diluted share.
Impaired with a loss of approximately $1 $2 million or <unk> per basic and diluted share for the same quarter last year.
As of March 31, 2021.
Working capital totaled approximately $13 2 million of which approximately $10 $9 million is comprised of cash cash equivalents and trade receivables.
This compares with working capital totaling approximately $15 $1 million at 2020 year end, which included $13 $3 million of cash cash equivalents on trade receivables.
Our capital return program has paid 20 consecutive quarterly dividends.
The last one was paid on April 26 2021.
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.
We're now ready to open the floor for questions.
Certainly ladies and gentlemen, the floor is now opened for questions. If you have any questions or comments. Please press star one on your phone at this time, we do ask that while posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone. Please hold while we poll for questions.
There are no questions in the queue at this time.
Your first question is coming from Walter Ramsey Your line is live.
Thank you.
Good morning, Congratulations can I a couple of questions.
9000 product line can you tell us when you expect that to officially hit the market.
Thanks for the question Walter This is Tim.
On the 9000 is still tracking for.
<unk> released this year there are several stages as you know when we released the 5000. For example, there is a consider considerable amount of customer approvals that are required quite a bit of certification of course FCC approval.
That's one level of release the second is when we start beginning customer orders, that's taking customer orders I think you've seen we've already announced we've already accepted some preorders for that radio.
I believe that.
We're still on track.
It would be disingenuous to say a specific date like <unk>.
July seven something like that we're looking at it from just a pure standpoint of wind to our.
Radio is going to be released from engineering to manufacturing for commercial release and that is still gated for the.
The second half of this year.
Okay.
So the product is still being developed.
We're in a pretty much of a lockdown mode. At this point Walter there is again, so many levels of development I could get into some crazy detail if you'd like on on what level of the development. It is we're in the stages of the engineering team is doing there very advanced testing.
On the product.
Again, when we look at when we release our radio it's when we plan on taking orders and then when Randy our COO is prepared to commercially released that product to the to the customer. So the development process is still developing.
You'll notice day I mentioned in my.
My my portion of the conversation. This morning that we've had extensive feedback from our customers, which is it's like music to our ears to get that level of concern and interest in helping us develop this product.
So we are taking our time, making sure that we're absorbing all of this input we're getting from our customers and the feedback. So that we can include it to make sure that this radio is an absolute.
Product debt development that delivers what the customers are looking for.
Okay.
Sounds good and then as far as the current product line goes to 5000 and the older can geez what percentage of the orders now are the 5000 compared to the <unk>, which I guess you would call the legacy stuff.
Our legacy equipment still dominates for sure we are accepting and we've released quite a few press releases youll noticed in the last six months on strip very strategic customers already migrating to the 5000 Im not sure that I am prepared to give an exact 20.
<unk>, 40%.
Percentage number, but what's encouraging Walter is at the sales level that I monitor on a very daily basis.
Okay.
Use my hour.
Quoting and our RFP, an RFP responses have been substantially geared toward the 5000 going forward.
We still have some very long standing customers that are diehard <unk> fans and are continuing to still purchase that product. So I think it's a very fluid percentage, that's going to be obviously growing much much quicker and much deeper into the 5000 as we go forward okay.
And I don't know if anybody else's in the Q, but if not.
Just if you could comment on the supply problems getting the.
Parts from overseas I guess, you indicated that was a problem and also.
The customers themselves.
But they were virtual all day.
<unk> gone back to real life, so to speak and business as usual or you still battling it out with the zoom calls on all that stuff.
Two part question supply chain and then the access to customers due to COVID-19 as I as I list right you're dead on correct Walter.
<unk> supply chain.
We are seeing extended lead times and the difficulty or the challenge in <unk>.
<unk> and his team from the procurement office is trying to make sure that we're staying ahead of the curve we are shipping right now.
We can deliver to all of our customers the requirements. They need just on a pretty much an extended basis. We used to have a book to ship ratio that was literally in days. It's now turning more into weeks, nothing thats, preventing us from or causing any customer concern, it's just giving the.
The guidance that day, we're not going to take an order Monday and ship. It Friday, we're going to take an order Monday and it may ship in a couple of weeks and they're perfectly okay with that it is hard to tell really how the supply chain will unfold, but we are monitoring it extremely closely.
The second half of your question was about customer access and it's an interesting dynamic.
We are seeing some access to customers.
On.
Years ago, we go into a meeting with a customer group and they'd have 10 people on their side of the table to one or two of us and we would be presenting to the masses.
And we kind of shifted into a zoom remote mode. We still have that dynamic where we'd be one or two people on the call and they would have their eight or nine or 10 on their side on the zoom call. What's happening now is they are allowing us to come in but it's one on one it's kind of interesting.
I prefer to be the zoom wherever we can talk to more people at one time.
As some of these government agencies, which is all we deal with city County State and Feds as they open their doors. So we're allowed to and Theres still giving us a little bit of a straight arm on face to face.
But I believe that the kind of world has kind of shifted Walter into kind of a zoom oriented kind of world and I think that our sales guys are.
RGB coming very very efficient debt.
Presenting and talking in selling over the tool last year was our second highest sales.
Number on record.
I don't see that.
That changes a whole lot maybe in the next couple of quarters with the vaccine and as people are opening up more and more governments are opening up we will be allowed into bigger sales events I noticed the industry shows are starting to fire up again later this summer in August and September So that's always a good sign as.
Well.
Mhm, Okay, well thanks for answering the question so that's great.
You bet. Thank you will.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone at this time.
Please hold while we poll for questions.
Okay.
Yeah.
There are no further questions in the queue at this time I will now turn the floor back to our hosts.
Thank you Matthew.
And thanks, everyone for participating today, we look forward to speaking with you again, when we report our Q2 2021 earnings results in August.
All the best to all of you and have a great day to day.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.