Q4 2021 BK Technologies Corp Earnings Call

Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation Conference call for the fourth quarter and year end 2021. This call is being recorded all participants have been placed on a listen only mode. Following the management's remarks, the call will be open to questions before.

Before turning the call over to our Chief Executive Officer, Mr. Johnson's you T 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 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 in the BK 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 John <unk> 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 that I'll turn it over to our executive Vice President and Chief Financial Officer Bill Kelly.

To dive deeper into our financial results will conclude by opening up the call for a brief Q&A.

Building on our success in Q3, we continued to see strong demand and order activity for our portable communications technology in the fourth quarter, particularly for the <unk> 5000 since its release the product has gained excellent traction in the marketplace as well as new with new and existing customers.

Look forward to modernize their fleet.

As a result of the growing demand for our products. We closed out 2021 with a record bookings of $55 5 million and a backlog of $13 million. These milestones are a direct reflection of the strength of our product line customer service and sales teams as the marketplace continues to embrace our products with the goal of.

Enhancing their mission critical communication solutions.

During the fourth quarter, we won numerous contracts for sale and deployment of our products to highlight a few in October the Helena, Montana Fire Department selected the PK or 5000 for purchase and deployment as part of their lifecycle replacement program for aging radios and their wildland fire fleet in November .

The <unk> thousand was selected for purchase and deployment by the Wyoming State Forestry Division as they implement a lifecycle replacement program and expand their communication products and in December we received a purchase order valued at $1 million from the United States Department of Agriculture for service for the <unk> 5000.

As part of our five year blanket purchase agreement with the U S Department of Agriculture announced in May 2021.

While the demand for our products continue to grow we are still affected by supply chain challenges that impact our gross margins through increased material component and freight costs as I said before we remain hopeful that these costs will return to normal levels as we progress through 2022 and that our gross margins will show improvement as a result.

In the meantime, we are committing time and resources to optimize our supply chain as much as possible to help ensure that our customers are receiving their orders in a timely fashion.

As we start 2020 to customer demand and bookings remained strong that said constraints and timing issues with our supply chain during January and February hampered the availability of some material and components and delayed our product manufacturing processes those.

Those issues are being addressed and we anticipate increasing production in March and April while fulfilling customer demand as quickly as we can.

But with our visibility today I expect deliveries of certain products that we plan to complete in the first quarter will be pushed into the second quarter of 'twenty two.

One thing that has become very apparent to all of US as we follow news as that wildland fire activity has grown steadily in both frequency and duration in the years.

We are proud to be a premier provider.

The boat portable communications technology to first responders on the front lines.

Fire management and response is.

As our core market of ours and that continues to grow moving forward. We believe we also have a tremendous opportunity to increase our market reach beyond fire rescue and mitigation into the military law enforcement and emergency medical response sectors in.

In addition to macro in addition to the macro trend of more wildland fires another macro trend is increasing.

The public or cellular networks by first responders in conjunction with all with the all important traditional use of private networks.

This increased use of public networks represents a tremendous opportunity and to capitalize on this we recently launched a dedicated business unit focused on delivering software as a service solutions to the public safety market.

The new unit will develop and deliver a comprehensive suite of state of the art subscription based software solutions with unique features to first responders via the public cellular network. We recently applied for three patents related to push to talk over the failure.

And others either base smartphone applications for the first responders.

BK technologies is already a leader in land mobile radio.

And the land mobile radio market by developing technology that will tether, our first responders radio to his or her smartphone we are positioning ourselves at the forefront of what we believe is a significant industry wide opportunity that vastly expands our addressable market and further improves the safety and productivity of our first responder customers.

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Lastly, I'd like to update on the status of the <unk> 9000.

Since our last call I'm happy to report that we've made significant progress in the development of this product the issues that slowed our progress last year have been addressed and during the second quarter of 2022, we expect to start deploying working became our 9000 radios in the field for engineering test purposes.

Pending the results of these tests.

Tests will be in a much better position to finalize our launch date to.

To conclude.

Im incredibly proud of the team's strong results that we've been able to deliver.

Our fourth quarter, and 2021 performance reflects robust demand and order activity for our product line and we're excited and encouraged by the many opportunities that are over the horizon as we move forward into 2022.

We are armed with a solid balance sheet and the financial flexibility to explore acquisition opportunities and develop revolutionary new products and solutions that complement our growth as we continue scaling BK technologies.

At this point I'd like to turn it over to Bill Kelly, Our executive Vice President and Chief Financial Officer, who will review the financial and operating highlights Bill.

Thank you John .

Following is a summary of our financial and operating results for the periods ending December 31 2021.

Sales for the fourth quarter totaled approximately $12 8 million compared with $10 6 million for the same quarter last year.

Gross profit margins as a percentage of sales in the fourth quarter were 36, 2% comp.

Compared with 44, 2% for the fourth quarter last year.

Primarily due to sales mix cost increases related to material and freight expenses.

Selling general.

General and administrative expenses or SG&A for the fourth quarter totaled approximately $4 4 million or 34, 4% of sales comp.

Compared with $3 8 million or 35, 7% of sales for the same quarter last year.

For the fourth quarter of 2021, we recognized an unrealized loss of approximately $530000 on our investment and FG financial group.

<unk> to an unrealized gain of $177000 in the fourth quarter of 2020.

Our net loss for the fourth quarter of 2021 totaled approximately $303000 or <unk> <unk> per basic and diluted share.

Compared with net income of approximately $1 $1 million or <unk> <unk> per basic and diluted share for the same quarter last year.

As of December 31, 2021.

Working capital totaled approximately $25 2 million.

Of which approximately $18 $8 million is comprised of cash cash equivalents and trade receivables.

This compares with working capital of approximately $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 23 consecutive quarterly dividends with the most recent dividend paid on January 24 2022.

We also implemented an increase to our quarterly dividend to.

<unk> per share, reflecting our confidence in <unk> financial strength and long term plan.

I would like to again point out that on July one of 2021.

The company changed its accounting to apply manufacturing overhead at the time of purchase receipts.

<unk> to July <unk>, 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 is detailed in our 10-K.

This concludes my remarks, we will now move on to the question and answer session and.

And I would like to remind everyone that we do not provide financial and operating guidance on a quarterly or annual basis.

Matthew we can open the floor for questions.

Certainly 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 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.

Your first question is coming from Brett Reece from Janney Montgomery Scott Your line is live.

Good morning, gentlemen, thanks for the opportunity to ask a couple of questions.

John .

Extra costs from supply chain issues.

We able to shift.

Some of the burden onto the customer.

In the contracts.

So the short answer on that is yes, we have been doing that for for the last period.

Some of our contracts are longer term contracts and they are fixed price with some key customers, but where we can we're definitely.

Taking the opportunity to increase pricing on our products.

Great great.

Could you just refresh my recollection, what has to happen for that $55 million in bookings to become.

Our firm backlog number.

Yes so.

Our business for the most part is a book and ship business, meaning when we get when we get orders and we should be able to turn them turn them around or our customers certainly expect us to be shipping in a more timely fashion than we have over the last recent period.

So really it comes back to the supply chain and the availability of material on a global basis.

Disruption that the.

Omicron virus more recently has created and shutdowns in the factories around the world has created.

Our supply disruption and what we're seeing is that companies are just like us are increasing their inventories to try and prevent that unfortunately as you build these products or many different components and that can have.

99% of these components, but if I don't have 100% I cant complete a product and so what we're trying to do is get ahead of that Bryan buffering, and some inventory working with our suppliers and sharing that when they make promises to us that they actually fulfill on those deliveries.

We made a large investment in our supply chain management team last year, which I believe we announced we're also from a board perspective, we have the support of the board to do what is necessary. So that we can convert this backlog into revenue at the at the quickest possible time.

Great and one last one with respect to the <unk>.

<unk> solutions business can you give us some idea on how big that can that can grow to an ice.

Sumit its recurring revenue win and very high margin, so any color on that would be appreciated.

Brett Thanks for the question Yeah, we're very excited that we've we've taken a step towards.

SaaS business again, historically, we've been a product book and ship business.

Which has been has been very successful for us and I believe that we have tremendous organic growth, especially with the BK R series radios to 5000 has proven that in 2021, and we're excited with the 9000, but to your point the SaaS business is a higher margin business and it is a reoccurring business and.

We've put a put business plans in place to see growth in that particular market, we do see a huge opportunity as as public safety embraces cellular technology and we believe that is very complementary.

With our land mobile radio so the intent of our business is really to find solutions that tether, both the smartphone applications that sit on public safety radio on cell phones tethered.

Tethered to that to the land mobile radio to deliver a new set of services that make that first responder either safer more productive. So we do see this as a huge opportunity of growth for the company and we're pleased that we're able to launch this business unit.

Great. Thank you for taking my questions and good quarter keep it up thank.

Thank you Brian .

Thank you. Your next question is coming from Walter Bellinger from Mayflower Capital. Your line is live.

Hey, guys. Thanks for taking my question so.

So I know that you don't typically provide backlog beyond year end, but could you provide a sense at least directionally how backlog has been trending in the first quarter.

Yeah, Walter Thank you for the question.

We've had broad based customer demand.

Early 2022 and orders have been very strong to date in Q1.

The backlog has grown on the strength of those orders were continuing to manage through challenges in our supply chain. John commented on that a little while ago, but we anticipate making progress in catching up on those on.

Those backlog orders and shipping them.

Over the next several quarters.

Okay, Great. That's it for me thanks for taking my questions.

Thanks Walter.

Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone at this time.

Your next question is coming from Alan Lyons Your line is live.

Yes, good morning, John and Bill.

Several of my questions were already answered so I just have.

Koppel.

What have you.

You tell me approximately what percentage of the business in 2021 that was from new customers versus existing government. So forth contracts you've had.

Generated last year.

Al. This is bill I don't have that breakdown specifically at my fingertips I can tell you that our performance and securing new customers in 'twenty one.

It's better than what we have seen historically and I attribute that in large part to the introduction of the new product would be <unk>, 5000, which I think plays better and state and local.

Sales opportunities.

Yes.

You and I talked from time to time, I will I'll get some more empirical data.

I can share with you.

Okay. Thanks, and my other question.

Wasn't answered already.

I presume now youre in a position that the 10-K has been filed to implement.

No buyback program is that accurate.

Actually not.

Our policy.

In regard to the insider trading window.

Is that okay.

Opens two days two trading days following.

Following the filing of our 10-K or our 10-Q.

However, it also closes 15 days before the end of the quarter. So of course, we're within 15 days of the close of Q1. So the next point.

Absent any any material nonpublic developments.

Would be.

Window would open after two days after the filing of our first quarter 10-Q, which I would anticipate.

During the second week of May.

Got it okay.

Yes.

Alright, Thank you and good luck this year looking forward to the 9000 getting out.

Thank you Alf X out.

Thank you that concludes our Q&A session I will now hand, the conference back to Johnson <unk> CEO of BK technologies for closing remarks. Please go ahead.

Thank you Matt. Thank you all for participating in today's call. So just to recap BK or 5000 orders have surpassed expectations.

<unk> continues to be a challenge, but demand is there we have made progress on the BK or 9000.

And are excited to start field engineering testing in the second quarter.

The new business unit, we just launch focused on higher margin software solutions is a very exciting initiative for us and could potentially be transformative to our customers over the next several years.

We look forward to speaking to you again, when we report our Q1 2022 results in May of 2022.

All the best to you and have a great day.

Thank you.

Thank you ladies and gentlemen. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.