BK Technologies Corporation Q1 2023 Earnings Call

Thank you good morning, and welcome to our conference call to discuss <unk> Technologies' results for the first quarter of 2023.

On the call today are Johnson Zucchini, Chief Executive Officer.

And Scott Mill manager Chief Financial Officer, I'll take a moment to read the Safe Harbor statement statements made during this conference call and presented in the presentation that are not based on historical facts are forward looking statements. Such statements include but are not limited to projections and statements of future goals and targets regarding the company's revenue and profits. These statements.

Subject to known and unknown factors and risks cookies.

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.

Cause or contribute to this.

Such material differences that have been described in this morning's press release, the Dk filings with the U S Securities Exchange Commission.

Statements are based on information and understandings that are believed to be accurate attitude do not undertake any duty to update such forward looking statements.

Okay, I'll now turn the call over to Johnson, <unk>, Chief Executive Officer, Peter Pathologist go ahead John .

John Thank.

Thank you everyone for joining today.

And then I will turn it over to our Chief Financial Officer, Scott now manager for a deeper dive into our financial results.

I'll conclude by opening up the call for a brief Q&A.

Turning to slide three.

Our first quarter is off to a strong start with the shipment of 10001 radios.

The improved shipment volumes drove revenue growth of 184% in the quarter to approximately $19 million with improved gross margin of 26%.

We continue to make progress towards the launch of our <unk> 9000, multi band radio.

As we've mentioned, we're seeing a great deal of interest in the <unk> 9000, we're looking toward formally launching this multi band technology, whose capabilities are expected to open up a larger addressable market with several new market verticals.

From a marketing standpoint in late March we travel to Las Vegas to participate as a premier sponsor of the international Wireless Communications Expo or Iwc.

This is an important event in our industry.

Attended by more than 4000 professionals from the public safety and critical communications industry.

Over the course of the two day event, we showcased all of our products and technology.

We were especially especially excited to demonstrate and highlight our newest offerings. The <unk> 9000.

And our Interop, one SaaS service.

Turning to slide four.

During the quarter, we saw strong and steady order activity for our <unk> 5000, as new and existing customers expand and upgrade their portable communications technology.

And a $781000 order from the California Department of Forestry and fire protection.

And their continued confidence in and reliance on our offerings is great to see.

Yes.

Following the close of the first quarter. We also received a $970000 order for the <unk> thousand from the Oregon, Washington Bureau of land management, another longtime BK customer.

I also want to highlight that during the quarter. We received our first purchase order for our Interop one push to talk over cellular service from a large public safety agency located in a top five metropolitan area in the U S.

In the quarter, we shipped 10001 units.

Coming in at the top end of our quarterly shipment target.

To 10000 radios each quarter.

Turning to slide six.

With production lines ramped up and our shipment cadence steady we are driving improved margin.

As we were able to get more more and higher priced product delivered to our customers.

On this slide you can see how the global supply chain issues negatively impacted our margins through much of 2022.

While we were creative and nimble in our efforts to secure parts and components it.

Capabilities were constrained for much of 2022.

Slide four.

Sorry slide seven.

During the first quarter FCC testing was ongoing.

Once we receive certification, we will turn our attention to completing that transition.

There's a great deal of market interest in the <unk> 9000 in the first months of production will be dedicated to fulfilling the current backlog orders.

As John mentioned, we closed the first quarter with an order backlog of $22 9 million.

Selling general and administrative expenses or SG&A.

And lastly, we are working hard to achieve incremental product cost improvements throughout the year.

So there'll be there'll be some overlap.

A census basis, it's obviously a hallmark for you could you.

You see some percentage of your customer base material percent wanting to migrate to multi bands or not really.

So that's a good question Oren.

I think you can argue it multiple ways ultimately it comes down to two their budgets.

I think the the strongest.

Client base that we have that makes the case for by multi band radios is in the state of California. So calfire is a huge customer revise and refine department belongs to Cal fire and the state of California.

The state of California operates on off for frequency bands and so when these firefighters when they go out and respond on a wildland fire mission, they're carrying their BK radios and when they go back on their home system. Most of them will pick up a competitors radio because the technology is.

Not compatible right they are using a different technology.

So I think that there is a there is an argument that says when I replace my radios for my home system.

Why don't I, just buy a BK nine multi band radio that way I just have one radio that can operate on my home system as well as when I'm a mission for for Wildland fire.

No.

That's a TBD right we have to we have to see but there is certainly a strong argument that would say.

And the state of California in those fire departments that are in the and the other frequency bands the higher frequency bands.

Basically in the larger city centers, there's a good argument that says that they.

They may consider strongly just migrating 100% to the <unk> 9000, which which I think is a good thing for US right. It's an upsell for us.

Okay and last question.

Quickie.

One is that first customer deployed yet and do you think you will see this quarter or next quarter customer number two or three years or more.

Yes so.

The first customer has deployed.

They have been using it on a mission now for for about a month or two and.

And the feedback that we've gotten from the customer has been very very positive.

In terms of other new orders, we have several field trials at the federal state and local level one of the things I will say is every time, we presented and are up one to a customer.

The feedback we get is pretty pretty much comment one it's a unique and novel feature.

No one else in the marketplace offers this capability.

And two they like the pricing model of pay as you go. So a lot of these a lot of these people have looked at similar services from our competitors.

But they found it cost prohibitive because they have to put it on every.

Every first responder cell phone or every member within their agency on their on their cell phone. So it becomes cost prohibitive. When you start looking at hundreds of subscriptions and at the end of the day. They can only talk amongst themselves. So it's pretty limited and it's and it can be cost costly when.

When they look at our subscription model you only need a handful maybe just want I mean, only need is one subscription but.

At most you have a handful of subscriptions with your team leaders and then at the end of it which has a pretty minimal subscription price and at the end of the day. The only time that you really start paying us when you start using it inviting guests users.

And that's the time when you really need it. So when you need it you have to pay a little bit of money, but the incident, usually will pay for itself.

For that service at that time.

Okay, great. Okay. Thanks, so much.

Thank you for the question Oren.

Thank you ladies and gentlemen, just as a reminder, if you do have any questions. Please press star one on your phone keypad now.

Okay appear to have any further questions in the queue.

Scott Weiss has just popped into key some sub co capital Scott Your line is live.

Hi, guys how are you.

Good morning, Scott.

Congratulations on good quarter I have two quick questions. One in our past conversations you indicated you expect revenue per device of around $2000.

And it looks like this quarter.

Came in around $1870 per device can you comment on that number and where you expect it to go.

Between now and the rest of the year and then my second question is the investment losses on the balance sheet can you comment on what those investments were.

So let me address the first question and then I'll pass the second question to Scott.

So Scott I would say you are picking up one of those metrics that we watch very closely and that's revenue per per radio just to put that in context for everyone on the call.

The revenue per radio is is is inclusive of the radio costs itself, but it also includes all the accessories and services that surround that radio so when we ship.

Our radio like a <unk> 5000, and we ship it with.

The radio itself and then we will ship it with a battery charger antenna.

Speaker microphone. So these are all accessories. The interesting thing about accessories is that although the radio may be fielded seven to 10 years. The accessories themselves get replaced every one to two years, depending on us and so I may sell the radio ones, but I'll sell accessories for the life of that radio.

On the field.

If you look at our revenue and unit shipment in 2020, and 20, sorry, 2021 and 2022.

The revenue per radio came in around $2000 per unit.

But if you look more deeply into 2022 for example in Q3, we were about $2200.

And in Q4, I think we were around $800 and so you can see that there's definitely some seasonality.

The revenue per radio.

Unit.

And in our company most of the accessories are sold journal fire season, Wildland fire season, which is primarily Q2 and Q3. So what we would expect to see is higher revenue per radios shipments.

In those quarters versus Q1, and Q4, but again on average at least for 'twenty, one and 'twenty two it's Ben.

2002.

$2000 per radio ships now all that being said.

We are.

This 2023 will be in a historical year for us in terms of number of units shipped.

We are looking very closely to see if that number $2000 tracks for this year I can't say for sure Scott whether it is just because of the volume increase that we're projected and again.

Projected to be on the high side of our range, which is close to a 40% increase in units shipped in 2023.

So I think that we just have to wait and see on how the how the quarters fall out, but we do expect to ship more more accessories.

The upcoming quarters.

The second question I'm going to defer to my friend Scott here.

Good morning, Scott.

Basically the investment on the on the books is an investment that was made back in 2018, so a number of years ago.

And we continue to monitor that investment to see if now would be a good time to exit that position or not but thats something that we review.

Constantly are every quarter.

So thats kind of where we're at with the investments. So those are unrealized losses. So we'll see.

Where we go from there.

Okay. Thank you John .

John one follow up to your answer.

Assuming the 9000 is certified and launched at some point over the next call. It three six months given the higher asps on that I would assume as your revenue per device in the back end of the year will be higher than what we've seen over the last few quarters.

Is that correct, yes, well I think I think in general right I don't want to lock myself into the fourth quarter rate.

And just because of the mix of of nine thousands to five thousands in other radios that are shipped right.

I think I think as a general statement going forward as the as the product mix.

Becomes more heavy on the 9000 clearly the revenue per radio is going to be it's going to go up.

That's a true statement in the fourth quarter I think just because of the number of radios. We're looking at shipping and again just to reiterate and set expectations, we're going to slow roll the rollout on the 9000. So first few months is going to be.

A finite number of radios that are issued and then the next quarter, it's going to be raised in the next quarter, it's going to be raised and we want to do that to ensure that.

We get good solid feedback from our customers and that if there are any issues that we were able to to immediately address them very quickly in the ideal case.

It's all green lights, and things are going well and as we see more green lights will continue to increase those production rates the demand will certainly be there and it seems like it is.

But we need to be cautious on how quickly we deploy these things to ensure that that what we're deploying is a great product.

Great. Thank you I appreciate it.

Thank you very much appears to be the end of our question and answer session I will now hand back to management for closing remarks.

Thank you all for participating in the call today.

We look forward to speaking with you again, when we report our Q2, all the best to all of you and have a great day.

Thank you everybody. This does conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.