Q2 2021 BK Technologies Corp Earnings Call
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Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation Conference call for the second quarter 2021. This call is being recorded.
All participants have been placed in a listen only mode. Following management's remarks, the call will be open to questions.
Before turning the call over to our Chief Executive Officer, Mr. Johnson's bogie for opening remarks, I will provide the following safe Harbor statement statements.
Statements made during this conference call 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 companys revenue and profit.
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 those 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 yesterday's press release and in Bk's filings with the U S Securities and exchange.
<unk> 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 John <unk> CEO of BK technologies. Mr. Suzuki you may begin.
Thank you Dagmar.
And thanks, everyone for joining today as most of you know I joined baked VK very recently.
Some of you have already spoken with and others I look forward to speaking with at a future date.
Before I start with my opening remarks, I wanted to take a moment to address what attracted me to BK technologies.
As you know I have considerable experience in the industry. Most recently as the CEO of Johnson technologies.
And previous positions at companies, such as Ericsson and Motorola.
I was not looking for a job, but when but with this opportunity I could not pass it up with my background in the industry and have kept tabs on VK and the tremendous progress they've made in the past five years with our focus on building a world class engineering team and revamping the approach to manufacturing.
In operations.
He has built a solid foundation for growth.
The team at our <unk>, Florida Technology Center include some of the best talent in our industry and have already spent some time with them since coming on board I am excited about what the future holds particularly as it relates to the BK or 9000 Iot.
For a long time that this sector was ripe for a product like the 9000 and BK has methodically planned developed and will soon launch a cutting edge product the.
The BK teams mission is two pronged first to build the best communication device for the public safety multi band market and second to take market share from Motorola.
I think that BK or 9000.
I think with the BK or 9000, we're in good shape to achieve success on both of these fronts. Additionally, I like the fact that our design and engineering capabilities are here in the U S.
It makes for a better product and it resonates with customers and partners, particularly in the industries that we serve.
Finally, while the company is relatively small today. The board is committed to making BK are much larger and more valuable business, both through organic growth and potential acquisitions the.
The most recent capital raise is a reflection of this longer term strategy.
Im energized to have joined BK technologies, and I am confident that there are great things ahead with that introduction, let me review some of the highlights of our financial results and operating operational activity during the quarter.
Then ill turn it over to Tim the two Vk's President and then to our executive Vice President and Chief Financial Officer, Bill Kelly to dive deeper into our financial results. We will conclude by opening up the call for a brief Q&A.
Beginning with our financial results Q2 revenue came in at $11.3 million compared to $9.9 million in the second quarter of last year, our gross margins for the second quarter were slightly below gross margins in the second quarter of 2020. This is due primarily to cost increases for <unk>.
Cereal and freight as well as the ramp up of our internal manufacturing.
We expect that these extra costs will continue through 2021, but returned to a more to more normal levels in 2022 as supply chain catch up with the recent demands in short we believe the company is well positioned to see margin growth as we continue to scale our business.
One thing that I have been very impressed with during my short tenure at the company is the job that Tim and the rest of the executive team have done over the past four years to transform this business.
The <unk> thousand is seeing excellent traction in the marketplace with existing and new customers.
<unk> 9000, which we are on track to launch by the end of this year.
Potentially transformative to the business.
As of right now with our existing Vaca products. We believe we can go after approximately 20% of the $2.3 billion addressable market.
The multi band capabilities of the <unk> 9000 positions us to significantly significantly expand our reach to approximately 40% of the addressable market.
In addition to expanding our business with existing customers. We anticipate much of this opportunity is with brand new customers.
With whom we have not been able to do business with in the past.
Looking at market penetration today, we have low single digit market share and Motorola has what what we estimate to be over 70% market share.
We project that we project that an increase in just a few percentage points in our market share has the potential to bring us to $100 million plus in annual revenue.
If our product is even comparable let alone superior to that of the competition. Then this is very achievable.
Now I'd like to review a number of exciting developments from this past quarter.
We closed a public offering for an aggregate gross proceeds of $12.7 million.
As I discussed earlier this capital raise provides the company with significantly bolstered balance sheet to support growth initiatives be it additional investment in organic growth or strategic acquisitions to grow our share in the public safety market.
And July retired major general great pain, a member of the board of BK technologies. Since January 2017 was named Chairman of the board of directors of the company.
General pain brings over 40 years of leadership experience, both in the military and private sector.
Given the customers, we serve having a chairman of his background and pedigree as retired major general has already proven to be a value.
At this point I'd like to pass the call to timber to our president to highlight some of the customer traction we have seen for the BK or 5000 since we last spoke Tim. Thank.
Thank you John and good morning, everyone. The BK BK or 5000 is being very well received in the market, we continue to win contracts across the country, including the following.
In may the BK or 5000 was selected by the Boardman fire and rescue district in Boardman, Oregon, and Washington, and Department official outlets were also awarded a five year blanket purchase agreement from the USDA Forest service that extends through May six 2026.
And establishes maximum procurements over a five year period of $50 million.
Just a few days ago, we received and announced the $2.5 million purchase order under this agreement.
In June the Nevada Division of Forestry, the Illinois Division of Forestry, The Montana Department of natural resources, Portland Fire and rescue the Depot Bay Fire District, and the Oregon Department of Forestry, all selected our upgraded to <unk>.
In July we continue to win orders at the state and at the federal level.
As the U S Department of Interior Bureau of land management chose the BK RFID for purchase and deployment to assist them in managing approximately 950 million acres of total land across the U S.
We've also received orders for the <unk> from the Tennessee Valley Authority.
<unk> fire and rescue Department, and chaparral, New Mexico, and the <unk> fire and rescue in Oregon.
To tap off the top off the quarter.
We received an order for our <unk> portable communication technology from the Florida State parks.
These awards upgrades in orders represent a significant vote of confidence in our product as most of those most of these divisions are frontline workers and first responders operating with zero margin for error and they continue to select our best in class state of the art product to maintain the standard.
Unfortunately, these natural disasters are only getting more common as we've all seen over the past few years.
BK provides the people on the Frontlines with 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 of more of these heroes.
I'll now turn the call over to Bill Kelly, Our executive Vice President and Chief Financial Officer, who will review the financial and operating highlights Bill.
Thanks, Tim.
Following is a summary of our financial and operating results for the periods ending June 30 of 2021.
Sales for the second quarter totaled approximately $11.3 million compared with $9.9 million for the same quarter last year.
Throughout Q2, we experienced material shortages and extended lead times within our supply chain, which impacted our ability to manufacture and convert customer orders and shipments.
We anticipate that these factors will likely persist through the end of the year.
Gross profit margins as a percentage of sales in the second quarter was 37, 2%.
Compared with 43, 6% for the second quarter last year.
As John mentioned previously this was primarily due to cost increases for material and freight.
As well as the ramp up of our internal manufacturing.
Which we anticipate should improve as we refine and improve our processes moving forward.
Selling general and administrative expenses or SG&A for the second quarter totaled approximately $4.6 million or 42% of sales.
Compared with $4.4 million.
Or 43, 9% of sales for the same quarter of last year.
This increase is related to the timing of product development expenses as well as increased sales commissions.
We recognized an unrealized gain of $2.3 million on our investment in FTE financial group.
Paired with an unrealized loss of 200000.
For the second quarter last year.
Our net income for the second quarter of 2021 totaled approximately $1.7 million or.
<unk> 13 per basic and <unk> 12.
Our diluted share.
Compared with a net loss of approximately $302000 or <unk> <unk> per basic and diluted share for the same quarter last year.
As of June 32021, working capital totaled approximately $24.9 million.
Of which $22.9 million is comprised of cash cash equivalents and trade receivables.
This compares with working capital totaling $15.1 million at 2020 year end, which included $13.3 million of cash cash equivalents and trade receivables are.
Our capital return program.
<unk> has paid 21 consecutive quarterly dividends.
With the last being paid on August nine.
A few days ago.
That concludes my remarks.
We'll now move on to the question and answer portion of the conference call I'll remind everyone that we do not provide financial guidance, our operational guidance on a quarterly or annual basis.
<unk>, we're now ready to open the floor for questions.
The floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time.
These will be taken in the order. They will receive is that any time. Your question has been answered you can remove yourself from the queue by pressing one again, ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad at this time.
Our first question comes from Walter Bellinger with <unk> capital. Please state your question.
Hey, guys. Thanks for taking my question.
Could you provide a little more color around the market verticals do you expect a 9000 will open up.
Sure Walter This is Tim the President the 9000 is being targeted for.
Four major big buckets of.
Sure.
Operation for US. The first is the public safety market, which includes the structure fire vertical and the law enforcement vertical structure fires over $700 million a year. The law enforcement is over $500 million a year.
The <unk> and the nine thousands being designed specifically with those verticals in mind.
So.
<unk>.
Customers in the public services arena that would be like the transportation bus lines. The water sewer road departments, the waste management in any kind of major city or even minor city.
The EMS vertical is one that we've been in before that will also be a very attractive.
9000 marketplace for us.
And then in the federal side, we have the Dod.
Specifically the army will be a very attractive market for us too.
Enter as well as some of the other DHS and Deogee Doe J agencies all of these.
Markets are exactly where the 9000 can play.
Great. Thanks.
That's it for me good luck guys.
Thank you Arthur.
Again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad at this time.
Our next question comes from Kevin Mankin. Please state your question.
Hey, guys congratulations on the great quarter.
Just a quick question in terms of being able to pass through some of these costs are these and these contracted and on long term contracts or are you able to kind of increase prices to kind of counter the increased cost of materials and.
Supply chain issues.
So some of these.
Some of our customers have long term contracts and we do have stated.
Contracts, where other customers use us purchasing vehicles and those are locked in prices.
I would say between the two of them that would be the majority of our sales. So it's a little bit more difficult for us to to increase the pricing that we have and because of those contracts and other cases, where we had been discounting in the past those are areas, where we could probably.
Look at reducing and we've been doing that.
Yes.
Got it okay. Thank you.
Okay. Our next question comes from.
Brett Brett Reiss with Janney Montgomery. Please state your question.
Hi can you hear me.
We can yes.
Great great.
Thank you for the opportunity to ask a question.
When you announce.
The.
Contract awards with governmental bodies, a quasi governmental bodies.
I assume the funding.
To consummate the order is in place.
Or can that sometimes be.
An issue.
Thanks for the question Brett This is Tim it varies quite frankly, when we announced the BPA that blanket purchase agreement with the.
For service for example, they typically will stretch out in this particular case five years it can exceed $50 million they will have a budget.
Every year to us.
Applied toward that it varies every year, sometimes we've seen over the 14 years ive been here the budget.
From year to year increase and sometimes we see it decrease so it really varies so the funding is rarely therefore that kind of BPA on our regular contract that is going to show sales over one two or three years that funding is typically already in place. Therefore the issue the contract. So we have both.
Great Great could you describe what.
From an engineering point of view.
That happened.
Before the 9000 series.
Good to go and can be accepted by customers.
For orders.
Hi, Brent this is John <unk>, So I had the pleasure of spending some time and saw grass last week with the engineering team and first I want to say that.
I've been in the industry over 30 years I've worked with a lot of engineering groups.
With with Harrison with Motorola.
<unk> Johnson, obviously more recently and I would say this is one of the most impressive.
Engineering teams that I've ever met with.
In terms of the challenges they have I mean, I would say that this is a critical period as we go from the development into manufacturing.
I think over the next couple of months that the team is extremely focused and.
And this is this is a key part of the development.
In terms of the individuals.
I'd say there is nothing that we didnt expect its normal there is normal things that you would see through the development process of designing a new radio.
And the team are addressing those issues.
No.
Other than that.
We still believe that we are on track to get this.
<unk> launched at the end of end of this year.
Great. Thank you very much for taking my question.
Sure absolutely Brad.
Okay and that was the final question I'll turn it back over to management for closing remarks.
Thank you dogma and thank you everyone for participating in today's call. We look forward to speaking with you again.
Report on our Q3.2021 results in September of 2021, all the best to you and have a great day.
Thank you. This concludes today's conference call. Thank you for your participation you may disconnect. Your lines at this time and have a great day.
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