Q3 2021 BK Technologies Corp Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation Conference call for the third 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 opened to questions before turning the call over to our Chief Executive Officer, Mr. John <unk> for opening remarks, I will provide the following safe Harbor statements stay.
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 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 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 the <unk>.
Case 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'll now turn the call over to Johnson Zucker CEO of BK technologies. Mr. Suzuki you may begin.
Thanks, everyone for joining today I'd like to start by reviewing some highlights of our operations and financial results. During the quarter, then I'll turn it over to Tim to <unk>, 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.
During Q3, we saw strong demand for strong demand and order activity for our portable communications technology, particularly the PK or 5000.
The product is gaining excellent traction in the marketplace.
As new and existing customers at the state and federal levels look to modernize their radio fleet.
Unfortunately, this better than expected demand was not fully reflected in our results for the quarter.
The supply chain challenges that we and many other companies are contending with has extended our product delivery schedules.
That said the strong demand we are seeing has resulted in BK exiting the third quarter with the highest backlog in five years more than double the $5 9 million reported backlog at the end of 2020.
This backlog sets us up well for what is typically a seasonally slow fourth quarter and provides momentum as we move into 2022.
As you would expect the supply chain challenges also impacted our gross margin.
As we saw increased material and freight costs, we're hopeful that the extra class will return to more normal levels. Later in 2020, 'twenty two as we optimize and normalize our supply chain as.
As we continue to scale, our business and as customers continue to upgrade to PK R series products. We believe the company is well positioned to see margin improvement.
We have taken multiple initiatives to deal with the supply chain challenges of note. We recently announced the appointment of Sean Conway as director of supply chain, Sean brings 20 years of supply chain management expertise and he is already doing a great job, leading the charge to minimize short term supply chain disruptions.
Maximize our efficiency and convert customer orders to shipments.
We strategically increased our inventory levels to ensure we have certain components on hand, when we need them. We expect inventory, we expect inventory to return to normal level to normal levels as our supply chain stabilized.
It is our priority that our customers who have come to rely on our mission critical technology received their orders and timely fashion.
Finally, I'd like to address the status of the <unk> 9000, we were originally shooting to get the product launched this year.
We're moving into the manufacturing phase it became apparent that additional development time was necessary. It is essential for us to get this product right for our customers.
Hence I don't want to provide a specific date as to when we will launch the product.
But rest assured it is a priority to get the best product launched when it is ready for the market.
From a financial performance standpoint, with our existing products exceeding expectations.
Assured that we have plenty of horsepower to drive growth and our salespeople are more than busy as we head into 2022.
To conclude my remarks, I'd like to reiterate how impressed and encouraged I am by the dedication and hard work of our team.
With our product portfolio today, we are in a strong position to continue winning new contracts and customers. We also have a solid balance sheet and the and the financial flexibility to explore acquisition opportunities that will complement our growth as we continue scaling BK technologies to be a leader in the communication industry.
<unk>.
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 <unk> 5000, since we last spoke Tim.
Thank you John.
And good morning, everyone. The VK 5000 is being very well received in the market, we continue to win contracts and orders across the country, including the following.
In August we received a $2 5 million purchase order from the USDA Forest service for the BK or five as part of the five year blanket purchase agreement with the USDA, We announced back in May of 2021.
We also received a purchase order for the BK or 5000 from the National Interagency Fire Center, better known as NIST and Theyre radio cash for the <unk> 5004, there while in management program.
In September we received purchase orders for the BK or 5000 from Grand Teton National Park in Wyoming.
And the Mississippi Forestry Commission and a selection for purchase from the Arizona Department of Forestry and fire management.
Also in September the <unk> was selected for purchase by our longtime customer the Nevada Bureau of land management as it conducts a lifecycle replacement program for its fire in land management portable communications technology.
In October the BK or 5000 was selected for purchase and deployment by the U S Army at Camp, Eric John and Eric John Kuwait.
Additionally, the <unk> was selected for the Helena, Montana, Montana Fire Department is.
As part of its lifecycle replacement program for the aging radios and its wildland fire radio fleet.
These continued selections upgrades in orders represent the confidence that both our new and existing customers have in our products.
As you know many of our customers are frontline workers and first responders operating with zero margin for error.
And they choose our best in class state of the art portable communications technologies to maintain this standard in life threatening situations.
We take great pride in that and we 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 September 32021.
Sales for the third quarter totaled approximately $12 6 million compared with $12 $8 million for the same quarter last year.
Gross profit margins as a percentage of sales in the third quarter were 32, 8% compared with 41, 6% for the third quarter last year.
As John mentioned this is primarily due to sales mix.
And cost increases related primarily to material and freight.
Selling general and administrative expenses or SG&A for the third quarter totaled approximately $4 5 million or 35, 7% of sales compared with $4 $2 million or <unk> 32, 6% of sales for the same quarter last year.
This increase is related to the timing of engineering prototype material as well as sales commissions.
For the third quarter of 2021, we recognized an unrealized loss of approximately $2 $2 million on our investment in <unk> financial group.
Compared with an unrealized loss of 291000.
For the third quarter of last year.
Our net loss for the third quarter 2021 totaled approximately $2 6 million or <unk> 15 per basic and diluted share compared with a net income of approximately $790000 or <unk> <unk> per basic and diluted share for the same quarter last year.
As of September 32021, working capital capital totaled approximately $25 $6 million.
Of which approximately $21 $7 million is comprised of cash cash equivalents and trade receivables.
This compares with working capital totaling $16 2 million at 2020 year end, which included $13 $3 million of cash cash equivalents and trade receivables.
Our capital return program has paid 22 consecutive quarterly dividends with the most recent being paid on October 18 2021.
I would also like to mention that on July one 2021, the company changed its accounting to apply manufacturing overhead at the time of purchase receipts prior to that date the company applied the material burden at the time the inventory was issued to work in progress.
This change resulted in a net increase of approximately $1 $3 million in inventory and retained earnings.
Comparable 2020 periods have been adjusted to reflect this change which will be detailed in the 10-Q the.
The change did not have a material effect on the operating loss and net loss or loss per share for the three and nine months.
This concludes my remarks, I'll now move on to the question and answer session.
Conference call I would like to remind everyone that we do not provide financial or operating guidance on a quarterly or annual basis.
Thank you.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
We asked a while posing your question you. Please pickup your handset and for listening in on speaker phone to provide optimum sound quality.
Once again, please press star one on your phone if you have a question at this time, please hold while we poll for questions.
And once again, ladies and gentlemen, if you do have a question. Please press star one on your phone at this time.
We did have a question come in from Walter Bellinger from Me Tonight, where capital Walter Your line is live.
Hey, guys. Thanks for taking my questions.
So are you seeing any shift in revenue composition with the improved performance of the 5000.
Yeah.
Hi, Walter this is Tim Thanks for the question, we are seeing a change in shift in some of the revenue mix the BK or 5000 contribution to the overall revenue mix is growing.
And especially exciting to me is with the 5000.
We're also attracting some additional new customers, which is expanding the revenue base. So we're getting not only a bigger contribution from that product, but a better.
Expansion into some new market verticals.
Okay, Great and then are you able to pass some of the pricing price increases that you're seeing onto your customers.
Again this is Tim Walter Thanks, again for that question in some cases, we are capable of passing on some.
Some cost increases to our customers. However, a great deal of our business is done utilizing contracts due to our customers being in the government.
Agencies.
Most of these contract vehicles prevented us from passing price increases onto the customers.
Any one specific time theres only a couple of different times throughout the year, we can pass things on so.
Not everyone can be passed the price increase.
Got it okay.
That's I think that's it for me thanks, a lot for taking my questions guys and good luck.
Thank you.
Thank you once again, ladies and gentlemen, if you wish to enter the queue to ask a question. Please press star one on your telephone keypad at this time.
The next question is coming from Orin Hirschman from AIG H investment partners are in your line is lives.
Alright, thank you.
So.
Obviously.
It's been a lot of expectations with the new product release that it was really going to expand your Tam dramatically.
The company on a growth track.
Delays, albeit.
Some preorders et cetera, what still gives you the confidence that this is just.
The pickup at this point in time in terms of the production aspects and that you're still feeling confident that you can compete with.
The major competitor that's out there with a product that's at least as good or superior.
Hi.
Ziggy Thank you for that question.
I can take the second part of your question first which is.
Getting a product out into the market that can compete I mean that is definitely our priority.
And that was where the design goals that we put forth. So the confidence level, we have and part of this is a little bit understanding the hardware development cycle. So when you go through hardware developments.
Very much an iterative approach. So you do your design you get it into manufacturing you build your boards and then you do your testing to see if it meets those performance criteria. So as I said in my opening remarks, we put it into into manufacturing, we built the boards and and we determined that the perf.
<unk> was not where we wanted it to be.
And so the decision was to bring it back into the design phase and re re re tweak the boards of the design. So that the next time, we go into manufacturing, we will see an improvement or achieve those goals.
Hardware development, it's an iterative approach. Unfortunately, it's not something that you can do very quickly. So every time you do a design spend on our hardware.
You have to go through a design of the board you have to manufacture. The board then you populate the board and then you're bringing into manufacturing. So all of that takes weeks of time and it's unclear. How many iterations that we will have to do before we get a final product that we believe will compete effectively in the marketplace, but we're confident.
That we have the right team, we have the right platform and that.
And that when the time is right when the product is right. When it meets those calls at that point, we're going to we're going to do a press release and we're going to launch it into the marketplace.
Hey.
I don't know if you said that you could say it but what's the total backlog at this point.
Got it.
So the comment we have total backlog at the end of Q3.
The comment that we major in our statement was that it's over double our ending backlog in <unk>.
2020, which was $5 9 million over double.
Yes.
Over double meaning that you see.
Ken I apologize its over double meaning.
Meaning within that the new products.
Sorry for that.
No thats fine or in our total backlog total backlog that includes.
Legacy product as well as the new BK or.
The piece of the backlog that is 9000.
I wouldn't describe are described as material at this point.
Okay.
So the orders that you've seen for that product or like early sample orders like small volumes that people want to play with before they give you more volume orders.
Hey, Aaron this is Tim.
Presale orders that we received our customers who are doing just that theyre looking at the product in some cases, some are utilizing funding they know theyre going to switch to that platform.
When it's available and shipping in mass quantities, but theyre getting some early orders into the system.
So it's a kind of a mixed bag of things we also have.
A lot of different agencies, who are picking up.
Products for comparison to other BK products like the <unk> 5000.
So as Bill said, the total dollars not necessarily material at this point, but.
It's several orders from several different types of customers.
Has anything changed in the competitive landscape.
But in terms of so it will be leaving in and have the capabilities that the customers want anybody come out with a new gadget so to speak.
Well on the 5000 to 9000, it's two different.
Some customers customer basis.
Sorry.
Yes.
I meant the ninth component okay, yes, so the market the market overall has not changed in terms of <unk>.
Multi band products.
There is still only two primary competitors that have products in that particular space.
Okay, and then left two questions. If I may one is just on that record backlog.
Can you characterize how much of it you think is just related to.
Or that there's probably easy one characterize it probably both you could characterize how much is related to the shipment delays meeting.
Two or $3 million, so really going out the door already and you couldn't do it.
This is the strength of incoming orders based on the <unk>.
Customers increased demand for product.
I'm trying to I'm trying to think sorry.
You are asking of the backlog how much we would we could have shipped.
Yeah.
I could answer that way because that would ultimately I'm looking for is the strength of the measure of the incoming orders as opposed to the backlog being.
Composition that the combo of that little thing coming orders versus what stacking up and stuff you really hope to a ship share. It's certainly weighted on the incoming order side the demand is strong.
Okay.
Going forward and lastly can you just take us through and again my apologies for not being familiar with BSG financial what is that what are you. What are you going to do with it.
And does it affect the overall picture of the company's financial strength.
Could you give us a quickie on that one.
Or and this is Phil.
<unk>.
The investment in <unk> financial there are no no plans to change that at this time generally speaking that is handled at the board level with.
With the directors.
The prospects for <unk> financial I believe or are viewed as positive it was a it.
It was a challenging quarter for them in third quarter, but for now I don't.
I don't have any.
The plans that have been announced for that to change.
Okay, where does it actually show up.
On the balance sheet.
Clear on that.
That shows up on the other asset section of the balance sheet or and if you look.
It's.
Below current assets, let's call it investment and securities.
Okay got it thanks again.
Okay, great. Okay. Thanks very much.
Thank you as there were no other questions in queue. At this time I would like to hand, the call back to the BK technologies management team for any closing remarks.
Thank you Paul Thank you all for participating in today's call. We look forward to speaking with you again when we report our Q4 2021 results in March of 2022, all the best to all of you and have a great day on this November today.
Yes.
Yeah.
Thank you ladies and gentlemen, this does conclude today's conference you may disconnect at this time and have a wonderful day. Thank you for your participation.
Yeah.
Yeah.