Q2 2022 BK Technologies Corp Earnings Call

Okay.

Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation Conference call for the second quarter 2022. 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. There is a slide presentation that is accompanying today's remarks that is available through the webcast. It is now my pleasure to turn the floor over to your host John Suzuki, Sir the floor is yours.

Thank you everyone for joining today I'll start by reviewing some of the highlights of our operations and financial results. During the quarter, then I'll turn it over to our Chief Financial Officer, Scott Burell major for a deeper dive into our financial results will conclude by opening up the call for a brief Q&A.

We experienced strong growth this quarter highlighted by an increase in our revenues to just over $12 million booking activity has been significant as market demand for our <unk> our product line continues to exceed our expectations.

Bookings in the quarter reached 19 million.

As new and existing customers embrace the BK or 5000.

We are also making great progress towards the launch of our next generation BK or night multi band device and have completed our first manufacturing belt with a targeted launch date during the fourth quarter of 2022.

As many of you know we're very excited about the potential for this product as we believe it will transform the size of our addressable market by giving us.

Access to additional market verticals.

Finally, our new software as a service or SaaS business unit has launched.

With this new unit, we will implement an aggressive strategy for introduction of state of the art subscription based solutions for responders.

Utilizing the LTE and PK smartphone application.

PK airplane.

<unk> 5000 radio continues to see strong traction in the marketplace.

We achieved record bookings of $19 million in the second quarter of 2022 and $34 million in bookings in the first six months.

Our bookings in the first half of 2022.

Represent a 50% increase compared to bookings in the first half of 2021.

Primarily driven by continued success of our <unk> thousand as new and existing customers upgrade radio fleets.

To meet this demand we've added a second production line in our Melbourne, Florida facility.

That significantly increases our manufacturing capabilities, which we believe will help us fulfill a large portion of our $26 8 million in backlog orders in the back half of 2022.

I want to take a moment to discuss our margin performance during.

During the second quarter, we saw continued margin pressure related to component shortages. The shortages remain a prevalent issue across our industry and directly impacted our gross margins over the past several quarters.

We have to get creative in order to secure components, we needed for production, which created an unusual short term spike in production costs in the first half of 2022.

The good news is that we're beginning to see more component availability. So we expect this pressure to subside considerably and anticipate margin improvement in the back half of 2022.

We believe that as pressures ease.

We are well positioned to meet the growing demand.

And to convert bookings to deliveries.

Radio deliveries are a key metric for us as they represent when we realized revenue.

As you can see we are forecasting significant growth in our delivery numbers in the back half of 2022.

We delivered just over 8500 radios in the first half of this year.

And we're forecasting a range between 16.

And 18400 units to be delivered in the second half.

We're also projecting to beat our full year 2021 delivery numbers by as much as 4500 units for the full year in 2022.

Shifting now to our product development pipeline, we are making great progress advancing our new <unk> 9000, multi band product and are now targeting a Q4 2022 launch.

As you can see in the graph provided this product transforms our addressable markets Spa.

Specifically, adding such verticals paas.

Police structure fire and emergency emergency medical services.

Currently our engineering and manufacturing teams are optimizing the performance fit and manufacture ability of the 9000.

And we are working to complete FCC certification field testing with several key accounts and a number or a second round of accelerated life testing.

The <unk> 9000, multi band radio will be positioned to take market share compared to similar multi band radios in the market.

With a strong value proposition and a robust go to market strategy. We believe we will yield stronger results. Once the product is officially launched.

We are also very excited about opportunities that we're seeing with SaaS applications for public safety communications market.

As the global SaaS market is poised for exponential growth over the past decade, the opportunity and public safety has been and wirelessly connecting our first responders vehicles using LTE cellular devices.

Over the next 10 years, though we believe the opportunity is to expand the communications platform that keeps first responders connected.

And almost any environment.

Whether they are in their car or have stepped away from their vehicle by leveraging smartphone technology advancements.

And the LTE <unk> <unk> network, we're developing state of the art applications that will connect the first responder through his or her smartphone.

And the BK or personal radio trading reliable communications, that's not just convenient but can also contribute to a safer faster response.

This is a massive opportunity.

We believe that this opportunity and this technology has the potential to revolutionize public safety communications by maximizing efficiency safety and execution in an industry, where situational awareness and response times are everything.

Given the importance of this opportunity in early March we announced the launch of a dedicated business unit focused on delivering software as a service SaaS solutions to the public safety market.

Led by industry veteran James CEO , the unit will develop and deliver a comprehensive suite of SaaS solutions for first responders by utilizing the LTE <unk> network.

We have several scalable smartphone applications under development, including the iOS and Android compatible.

<unk> play, which will serve as BK smart home platform application.

Additionally, we filed for three patents related to push to talk over cellular and other cellular based smartphone apps.

We're currently targeting a Q4 launch for our first SaaS offering.

Keeping you apprised of future developments.

At this point I'd like to turn it over to Scott.

Our chief financial officer towards financial and operating highlights.

Scott.

Thanks.

The following.

Excellent operating results for the period ending June 32022.

Sales for the second quarter.

Approximately $12 1 million compared with $11 3 million for the same quarter last year.

Importantly, Q2 bookings reached a record $19 million and first half bookings increased 50% compared to the first half of 2021. So there is considerable momentum as we move into the back half of the year.

Gross profit margins as a percentage of sales in the second quarter were 14, 2% compared with 38, 4% for the second quarter last year.

This was primarily due to a short term dramatic spike in commodity component prices to.

To keep production online we've made the strategic decision to go to the secondary market to secure a certain part which had a significant short term impact on our gross margins.

We are also still contending with escalated freight costs.

However, as we speak with you today, we began to see.

Pricing pressure ease.

And are confident that we will see improving margins in the back half of the year.

Selling general and administrative expenses or SG&A for the second quarter totaled $5 4 million compared with $4 6 million for the same quarter last year.

This increase was primarily due to increases increased costs associated with the launch of the SaaS division as well as preparing for the BK or 9000 launch.

Operating loss totaled $3 7 million compared with operating loss of 200000 for the second quarter of last year.

It is important to note that for the quarter, we recognized an unrealized non cash loss of approximately 600000 on our investment in FTE financial group compared to an unrealized gain of $2 3 million in the second quarter of 2021.

As of June 32022, working capital totaled approximately $17 4 million of which approximately $12 $4 million is comprised of cash cash equivalents and trade receivables.

This quarter marks the 25th consecutive payment of quarterly dividends to shareholders under our capital return program.

That concludes my remarks.

Thanks Scott.

I am energized about the growth opportunities in front of our company.

Particularly given the traction we're seeing with the <unk> 5000.

The pending launch of the <unk> 9000, multi band radio and the establishment of our new SaaS business unit.

As we execute selling our 5000 product and capitalize on the significantly expanded market opportunity that our 9000 and SaaS business unit bring to the table, we're targeting driving this business to exceed $100 million by 2025.

Importantly, as we look longer term, both the 9000 and the SaaS business should drive higher margins in the business with that we will move to the question and answer portion of the conference call.

Operator, we're now ready to open the floor for questions.

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 ask that while posing your question you. Please pickup your handset is listening on speaker phone to provide optimum sound quality.

Again, Thats star one on your phone and please hold while we poll for questions.

We do have our first questioner Lucas Hampden from Lucas Bridge.

Capital.

Hey, good morning.

Thanks for taking my question I know you mentioned that you think will likely see margin improvement in the back half of the year can you provide any more color around this and what we could expect.

Sure as I mentioned component shortages have created an unusual on short term spike in product costs that have increased pricing pressures in the first half. These pressures are only temporary and have already subsided considerably and we expect margin improvement in the back half of 2022.

<unk>.

Thank you.

Okay, and we have an additional questioner.

Erin Markson from H I G H investment partners.

Hi, good morning.

Congratulations on the strong bookings this quarter.

I'm going to follow up again on the margins in your comment there on the component pricing, it's nice to see that starting to ease.

Do you really believe that all the all the pricing is all transitory.

You are seeing out there with deflation some of this stuff is permanent it's not just about shortages.

Sure.

Rush Rush orders.

Expedite fees some of it is actual true cost increase that.

I don't believe are coming back down so are you seeing that at all really going back down.

I would say that we are trending back to historical rates as far as the gross margin on sales.

So I.

I think we're trending that direction, but it's too early to tell exactly.

When we will be able to achieve historic margins.

I mean, this brings up sort to have discussed with you before which comes down to the.

We can't just sit there waiting for prices component prices have come down.

And I understand the nature of your long term contracts with your customers what youre in an environment right now where you have strong bookings are bookings more than you're booking more than you can deliver.

These are some of them are under your long term contracts with some of them are otherwise it would be.

Very reasonable too.

Price those based upon the current pricing environment.

And is that part of the strategy to get gross margin, where it needs to be.

Aaron Thanks.

As John Suzuki, Yes, we've talked about this in the past for sure. We've continued the policy that where we can raise prices. We are raising prices and you are correct. We do have some long term contracts.

Specifically, the federal government, which have more restrictions around that.

But again, we have executed on price increases and that we are continuing to do that.

Yes.

I would just want to add one other note on the on the margin here if I can.

So part of that is is definitely on the supply side of the parts increases as Scott mentioned right, but the other activity that we can take as a company and have taken is looking at how we do cost reductions on our product and so between the pricing stabilizing going back.

To historical levels. In addition, we've taken additional actions to take cost out of our.

That cost structure faster.

Okay.

<unk>.

And then when appropriate the third leg is of course pricing that's all keep pushing you on it.

Absolutely Aaron Thank you.

Okay. Thank you we're looking forward to the <unk> launch a few months. Thank you.

As a reminder, as we continue through question and answer period. If you have a question that you would like to ask please press star one on your phone at this time.

Okay.

And we have our next questioner Orin hirschman from AIG H investment partners.

And just one more follow up on the ninth.

This means the nine works field testing in the left on me that started field testing customers and now it's a matter of getting production ready through through Q3.

Thank you for.

Thanks for the question certainly getting the production setup.

You are correct right, that's that's an activity.

I think that in terms of the work that still needs to be done we are still getting feedback both from our manufacturing team and from the testing in the field. So the objective here is to fine tune and dial in the performance of the radio the assembly fits of the radio and the overall reliability of the radio which is.

One of the reasons why we're doing the second round of accelerated life testing.

So that work is ongoing and we will continue and once it's completed.

As I mentioned before we will put out a press release and we are anticipating that that press release will go out in the Q4 timeframe.

Just quick clarifications mean that Theres no issues anymore in terms of achieving frequencies and things like that like we had in the first go around.

That's correct statement Orange, we have high confidence that this ratio will get launched in the fourth quarter.

Okay very good.

Thank you.

Okay. Sir there appears to be no further questions in the queue do you have any closing comments you would like to finish up.

Thanks, Mike.

Thank you all for participating in today's call. We look forward to speaking with you again, when we report our Q3 2022 resolved in November of 2022.

All the best to all of you and have a great day.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank.

You for your participation.