Q4 2023 BK Technologies Corp Earnings Call

Unknown Executive: Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation conference call for the fourth quarter and full year 2026. This call is being recorded. All participants have been placed on a listen-only mode.

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

Unknown Executive: Following management's remarks, the call will be open to questions. There is a slide presentation that accompanies today's remarks, which can be accessed via the website. At this time, it is my pleasure to turn the floor over to your host for today, John Nesbett of IMS Investor Relations. Please go ahead.

There is a slide presentation that accompanies today's remarks, which can be accessed via the webcast.

At this time it is my pleasure to turn the floor over to you I hate for today, John Nesbit of IMS Investor Relations. Please go ahead.

John Nesbett: Thank you. Good morning, and welcome to our conference call to discuss BK Technologies results for the fourth quarter and full year 2023. On the call today are John Suzuki, Chief Executive Officer, and Scott Malmanger, Chief Financial Officer. I'll take a moment to read the Safe Harbor Statement.

Thank you good morning, and welcome to our conference call to discuss BK technologies results for the fourth quarter and full year 2023.

On the call today are John Suzuki, Chief Executive Officer and.

Scott <unk> 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 are not based on historical facts or.

John Nesbett: Statements made during this conference call and presented in the presentation are not based on historical facts that are not based on historical facts or forward-looking statements. Such statements include, but are not limited to, projections or statements of future goals and targets regarding the company's revenue and profits. These statements are subject to known and unknown factors and risks.

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 company's 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.

John Nesbett: 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 the company's press release and in BK's filings with the 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. Okay, I'm now turning the call over to John Suzuki, Chief Executive Officer of BK Technologies. Please go ahead, John.

Statements and some of the doctors and risks that could cause or contribute to such material differences have been described in the company's press release and in Bk's Bk's filings with the 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.

Okay, I'll now turn the call over to Johnson <unk>, Chief Executive Officer of BK Technologies. Please go ahead John.

John M. Suzuki: Thank you, John. Thank you everyone for joining today. I'll start by reviewing some of the highlights of our operations and financial results during the quarter and fiscal year. Then I'll turn it over to our Chief Financial Officer, Scott Malmanger, for a deeper dive into our financial results. We'll conclude by opening up the call for a brief Q&A.

Thank you John Thank you everyone for joining today.

I'll start by reviewing some of the highlights of our operations and financial results during the quarter and fiscal year, then I'll turn it over to our Chief Financial Officer, Scott No manager for a deeper dive into our financial results will conclude by opening up the call for a brief Q&A.

Turning to slide three.

John M. Suzuki: Our 2023 fiscal year was highlighted by strong revenue growth and margin improvement. 2023 marks our second consecutive year of revenue growth, with full-year revenue increasing 45% to $74 million. And we capped off the year with a profitable fourth quarter that included earnings of $0.08.

Our 2023 fiscal year was highlighted by strong revenue growth and margin improvement.

2023 marks our second consecutive year of revenue growth with full year revenue, increasing 45% to $74 million.

And we capped off the year with a profitable fourth quarter that included earnings of eight.

John M. Suzuki: Driving this growth was the performance of our BKR series radios. We shipped 34,500 radios in 2023, a 37% increase over 2022. Our BKR-5000 single-band radio is enjoying strong market demand as federal, state, and local customers upgrade their portable communications technologies. And likewise, our newly launched BKR9000 multiband radio continues to gain recognition and traction. While the multiband capabilities of the BK9000 drive a higher price point, there is only a nominally higher cost to manufacture the 9000 as compared to the BKR5000.

Driving this growth was the performance of our BK or Sirius radios, we shipped 34500 radios in 2023% to 37% increase over 2022.

Our <unk> 5000 single band radio is enjoying strong market demand as federal state and local customers upgrade their portable communications technologies.

And likewise, our newly launched Big here 9000, multi band radio continues to gain recognition and traction.

While the multi band capabilities of the <unk> 9000 drive a higher price point.

There is only a nominally higher cost to manufacture the 9000 as compared to the <unk> 5000 <unk>.

John M. Suzuki: So we believe the 9000 can significantly enhance our immersion as it continues to gain popularity among our customer audiences. The fourth quarter of 2023 marked our sixth consecutive quarter of sequential gross margin improvement to 35.1%, a return to historical levels. And we achieved a full year gross margin of 30% compared to 19.3% in 2022. As announced last year, we are in the process of shifting the manufacturing of our radios to east-west manufacturing. We believe that outsourcing our manufacturing and transitioning to a more asset-light model will improve our margins in the long term by simplifying our supply chain management and reducing production expenses and end product cost. EastWest is an existing reliable partner. And this transition is an important strategic step for a business that we believe will help us to ensure efficient fulfillment of purchase orders and strengthen our ties over time.

So we believe the 9000 can significantly enhance our margin as it continues to gain popularity among our customer audiences.

The fourth quarter of 2023 marked our sixth consecutive quarter.

Our sequential gross margin improvement to 35, 1% a return to historical levels.

And we achieved full year gross margin of 30% compared to 19, 3% in 2022.

As announced last year, we are in the process of shifting the manufacturing of our radios to east West manufacturing.

We believe that outsourcing our manufacturing.

And transitioned to a more asset light model will improve our margins in the long term by simplifying our supply chain management, and reducing production expenses and product costs.

East West is an existing reliable partner.

And this transition is an important strategic step for our business that we believe will help us to ensure efficient fulfillment of purchase orders.

And strengthened our margins over time.

John M. Suzuki: The move to East West is underway and will take place in planned stages with no expected interruptions in production or shipping capabilities. Under the terms of the agreement, EastWest has also made an aggregate $2 million investment in BK Technologies that consists of the purchase of 77,520 shares of the company's common stock at a price of $12.90 per share, as well as warrants to purchase 135,500 shares of common stock at an excise price of $15 per share. The East West investment closed in the fourth quarter of 2023.

The move to east West is underway and we will take place and planned stages with no expected interruptions in production or shipping capabilities.

Under the terms of the agreement East West has also made an aggregate 2 million investment in BK technologies that consists of the purchase of 77520 shares of the company's common stock at a price of $12 90 per share as.

Well as warrants to purchase 135500 shares of common stock at an exercise price of $15 per share.

The east West investment closed in the fourth quarter of 2023, and we appreciate their vote of confidence in our company.

John M. Suzuki: And we appreciate their vote of confidence in our company. Turning to slide four. We continue to grow the amount of radio units shipped annually, and as a result of increased shipments, we recognized strong revenue growth in 2023. As I mentioned before, we saw 37% of radio units shipped in the full year 2023 compared to the full year 2022, and revenue growth of 45% compared to the prior year, driven by a combination of increased radio shipments as we worked through the backlog that accumulated during the supply chain constraints in 2022 and significant order activity related to the BKR product line. At the beginning of the fourth quarter,

Turning to slide four.

We continue to grow the amount of radio units shipped annually and as a result of increased shipments we recognized strong revenue growth in 2023.

As I mentioned before we saw 37% in radio units shipped in the full year 2023 compared to the full year of 2022 and revenue growth of 45% compared to the prior year driven by a combination of increased radio shipments.

As we worked through the backlog that accumulated during the supply chain constraints in 2022, and significant order activity related to the BK or product line.

At the beginning of the fourth quarter.

John M. Suzuki: We received a purchase order for our BKR 9000 from the State of Hawaii Department of Health as they battled the wildfires. And another large purchase order from Sandoval County, valued at $963,000, which, as I said last quarter, we defined as a Tier 3 county in terms of population density. Also in the fourth quarter, we received a $315,000 purchase order from the United States Department of Defense representing the BKR-9000's growing recognition among federal and military agencies. This order activity has continued in 2024. In January, we received a purchase order from the Arkansas Department of Agriculture and Forestry Division for 87 BKR9000 radios, which are compatible with the Arkansas P25 system, allowing the force division to standardize on a single radio model across all operations. I'm pleased to say that we've already completed shipment of this order, and the customer subsequently increased their order to more than triple the initial amount. We also received an order for 315 BKR9000s from Boulder County, Colorado.

We received a purchase order for our <unk> 9000 from the state of Hawaii Department of health as they battled the wildfires.

Another large purchase order from Santa Barbara County, valued at $963000, which as I said last quarter we.

We defined as a tier three county in terms of population density.

Also in the fourth quarter, we received.

$315000 purchase order from the United States Department of defense, representing the <unk> nine.

A growing recognition among federal and military agencies.

This order activity has continued in 2024.

In January we received a purchase order from the Arkansas Department of Agriculture, and Forestry Division for 87, <unk> 9000 radios.

Which are compatible with the Arkansas P 25 system.

Allowing the forest division to standardize on a single radio model across all operations.

I'm pleased to say that we've already completed shipment of this order and the customer subsequently increased their order to more than triple the initial amount.

We also received an order for 315, <unk> nine thousands from Boulder County, Colorado.

John M. Suzuki: As part of an upgrade program to replace a variety of older radios for 26 fire agencies throughout the county, this order is especially exciting because Boulder County is a Tier 2 county with over 300,000 residents, showcasing the 9000's ability to penetrate larger markets. Turning to slide five. 2023 was characterized by consistent gross margin improvement and a return to the lower end of our historical margin levels as we closed out the year with the fourth quarter gross margin at 35.1%. This was our sixth consecutive quarter of gross margin improvement, dating back to the second quarter of 2022, when supply constraints severely impacted our margin profile. We continue to advance our cost-reduction initiatives and believe that our transition to contract manufacturing, coupled with the higher margin BKR 9000 radio, becoming an increasingly larger part of our product mix positions us well to continue improving margins in fiscal 2024. Now I'll turn over to Scott Malmanger, CFO, to take you through the financials. Scott.

As part of <unk>.

As part of an upgrade program.

To replace a variety of older radios for 'twenty six fire agencies throughout the county.

This order, especially.

Is especially exciting because bulloch county, as a tier two county with over 300000 residents showcasing the nine thousands ability to penetrate larger markets.

Turning to slide five.

Okay.

2023 was characterized by a consistent.

Gross margin improvement and a return to the lower end of our historical margin levels as we closed out the year with the fourth quarter gross margin at 35, 1%.

This was our sixth consecutive quarter of gross margin improvement dating back to the second quarter of 2022.

When supply constraints severely impacted our mortgage our margin profile.

We continue to advance our cost.

Reduction initiatives and believe that our transition to contract manufacturing coupled with the higher margin <unk> 9000 radio becoming an increasingly large larger part of our product mix positions us well to continue improving margins in fiscal 2024.

Now I'll turn over to Scott <unk> CFO to take you through the financials Scott Thanks, John.

Scott A. Malmanger: Thanks, John. On slide six, you'll see a summary of our financial and operating results for the quarter and full year ended December 31, 2023. Sales for the fourth quarter totaled approximately $16.3 million compared with $20.3 million for the same quarter last year, primarily due to the record number of radio unit shipments in the fourth quarter of 2022. Last year's fourth quarter revenue performance was significantly impacted by improved electronic component availability, which allowed the company to work through a substantial backlog developed during the first nine months of 2022. Full year 2023 revenue increased 45% to $74.1 million compared to $51 million for the full year of 2022. Gross profit margin in the fourth quarter of 2023 was 35.1%, which, as John mentioned, represents a return to historical levels, compared with 21.7% in the fourth quarter of last year.

On slide six Youll see a summary of our financial and operating results for the quarter and full year ended December 31 2023.

Sales for the fourth quarter total approximately $16 3 million compared with $20 3 million for the same quarter last year, primarily due to the record.

Radio unit shipments in the fourth quarter of 2020 to.

Last year's fourth quarter revenue performance was significantly impacted by improved electronic component availability, which allowed the company to work through substantial backlog developed during the first nine months of 2022.

For year, 2023 revenue increased 45% to $74 1 million compared to $51 million for the full year of 2022.

Gross profit margin in the fourth quarter of 2023 was 35, 1%, which as John mentioned and represents a return to historical levels compared with 21, 7% in the fourth quarter of last year.

Scott A. Malmanger: For the full year of 2023, gross margin is expected to increase to 30% compared to 19.3% for the full year of 2022, primarily related to decreased material, components, and freight costs due to improving supply chain factors. General and Administrative Expenses, or SG&A, totaled approximately $5.3 million for the fourth quarter, compared to $6 million for the same quarter last year. SG&A for the full year of 2023 totaled $23 million compared to $20.9 million in 2022. SG&A costs were higher on an annual basis due to engineering and product development expenses related to the continued design and development of the BKR series and the introduction of the BKR 9000 product to the market. We expect SG&A expenses to decrease as a percentage of sales going forward. Operating income totaled $400,000 in the fourth quarter compared with an operating loss of $1.6 million in the fourth quarter of last year.

For the full year of 2023 gross margin increased to 30% compared to 19, 3% for the full year of 2022, primarily related to decreased material component and freight costs due to improving supply chain factors.

Selling general and administrative expenses or SG&A total approximately $5 3 million for the fourth quarter compared to $6 million for the same quarter last year.

SG&A for the full year of 2023 totaled $23 million compared to $20 9.022 million 22.

SG&A costs were higher on an annual basis due to engineering and product development expenses related to the continued design and development of the BK R series and the introduction of the BK or 9000 product to the market.

We expect SG&A expenses to decrease as a percentage of sales going forward.

Operating income totaled $400000 in the fourth quarter compared with an operating loss of $1 6 million in the fourth quarter of last year.

Scott A. Malmanger: We expect to recognize an operating loss of $777,000 for the full year of 2023, compared with an operating loss of $11.1 million for the full year of 2022. In the fourth quarter of 2023, we recorded net income of $290,000, or $0.08 per basic and diluted share, compared with a net loss of $961,000, or $0.28 per basic and diluted share, in the prior year. For the full year, we recognize a net loss of $2.2 million, or $0.65 per basic and diluted share, compared with a net loss of $11.6 million, or $3.44 per basic and diluted share, in 2022. On a non-GAAP basis, we also provide in our earnings release tables for adjusted EPS, which adds back net realized and unrealized gain or loss on investments, stock-based compensation expenses, severance, and a new product introduction inventory write-off.

We recognized an operating loss of 777 for the full year of 2023, compared with an operating loss of $11 1 million for the full year of 2022.

In the fourth quarter of 2023, we recorded net income of 290000 or <unk> <unk> per basic and diluted share compared with a net loss of 961000.

Or <unk> 28 per basic and diluted share in the prior year.

For the full year, we recognized a net loss of $2 2 million or 65.

65 per basic and diluted share compared with a net loss of $11 6 million or $3 44 per basic and diluted share in 2022.

On a non-GAAP basis, we also provided in our earnings release tables for adjusted EPS, which adds back net realized and unrealized gain or loss on investments stock based compensation expenses severance and a new product introduction.

Inventory write off.

Scott A. Malmanger: Adjusted net income for the fourth quarter of 2023 was $650,000, or 19 cents per basic and diluted share, compared with a loss of 603,000, or 18 cents per basic and diluted share, in the fourth quarter of 2022. For the full year of 2023, an adjusted net loss of $52,000 or $0.02 per basic and diluted share compared to a loss of $9.6 million or $2.85 per basic and diluted share for the full year of 2022. We reported that Justin Ibeda of $892,000 in the fourth quarter of 2023 compared to adjusted EBITDA of $436,000 in the fourth quarter of 2022. For the full year of 2023, we reported an adjusted EBITDA of $130,000 compared to an adjusted EBITDA loss of $9.1 million for the full year of 2022. Finally, as of December 31, 2023, we will have approximately 3.5 million in cash and cash equivalents and no long-term debt. Working capital at December 31, 2023 was $16.8 million, compared with approximately $13.2 million at the year-end 2022.

<unk> net income for the fourth quarter of 2023 was $650000 or <unk> 19 cents per basic and diluted share compared with a loss of 603000.

Our 18th cents per basic and diluted share in the fourth quarter of 2022.

For the full year of 2023, adjusted net loss of 52000, or <unk> <unk> per basic and diluted share compared to a loss of $9 6 million or $2 85 per basic and diluted share for the full year of 2022.

We reported adjusted EBITDA.

$892000 in the fourth quarter of 2023 compared to adjusted EBITDA of $436000 in the fourth quarter of 2022.

For the full year of 2023, we reported an adjusted EBITDA of $130000 compared to an adjusted EBITDA loss of $9 1 million.

The full year of 2022.

Okay.

Finally as of December 31, 2023, we have approximately $3 5 million of cash and cash equivalents and no long term debt.

Working capital at December 31, 2023 was $16 8 million compared.

With approximately $13 2 million at the year end 2022.

Scott A. Malmanger: From a liquidity standpoint, we believe that our current cash position, combined with the anticipated gas cash generated primarily by radio sales and borrowing availability under our credit facility, provides us with the working capital that we need to grow our business. I will now turn the call back over to John. Thanks, Scott.

From a liquidity standpoint, we believe that our current cash position combined with the anticipated gas cash generated primarily by radio sales and borrowing availability under our credit facility provides us with the working capital that we need to grow our business.

I will now turn the call back over to John.

Thanks Scott.

Turning to slide seven.

John M. Suzuki: We want to take some time on this call to provide our outlook for 2024 based on the visibility that we have today. With our backlog now normalizing at $16 million from the peak of $42 million in September of 2022, we expect 2024 revenue to be consistent with 2023 levels, but with an improved margin profile. Our cost-down programs are continuing and should contribute to incremental margin improvement through 2024, especially as we transition our manufacturing to East-West. Moreover, the higher-margin BCARE 9000 is expected to have a positive impact on our gross margin as this product continues to gain market recognition and becomes a more prominent part of our product mix. Overall, we are optimistic about the upcoming year, which should be characterized by expanding gross margins, lower operating costs, and significantly improved profitability and free cash flow. With the visibility we're seeing today, we believe that we will be able to achieve earnings per share of at least $1.50 for the full year 2024. Turning to slide 8.

We wanted to take some time on this call to provide our outlook for 2024.

Based on the visibility that we have today.

With our backlog now normalizing at $16 million from the peak of $42 million in September of 'twenty. Two we expect 2020 for revenue to be consistent with 2023 levels, but with an improved margin profile.

Our cost down programs are continuing and should contribute to incremental margin improvement through 2024.

Especially as we transition our manufacturing to east West.

Moreover, the higher margin be care 9000 is expected to have a positive impact on our gross margin as this product continues to gain market recognition and becomes a more prominent part of our product mix.

Overall, we are optimistic about the upcoming year, which should be characterized by expanding gross margins.

<unk> lower operating costs and significantly improved profitability and free cash flow.

With the visibility we are seeing today, we believe that we will be able to achieve earnings per share of at least $1 50 for the full year 2024.

Turning to slide eight.

John M. Suzuki: When I joined the company in July of 2021, I stated that BK was on a path to grow revenue from the low 40s to $100 million by 2025. My statement was based on our investment strategy to develop a new generation of radios, the BKR series. First introduced in the fall of 2020, the BKR5000 single-band portable radio quickly established sales growth momentum and was the primary driver fueling our ability to achieve full year 2024 revenue of $74 million. Last summer, BK launched its first multiband portable radio, the BKR9000.

When I joined the company in July of 2021, I stated that BK is on a path to grow revenue from the low forties to $100 million by 2025.

My statement was based on our investment strategy to develop a new generation of radios, the BK or series.

First introduced in the fall of 2020, the <unk> single band portable radio quickly establish sales growth momentum and was the primary driver fueling our ability to achieve full year 2020 for revenue of $74 million.

Last summer VK launched its first multi band portable radio the <unk> 9000.

John M. Suzuki: Initial market response has been positive, with first responders testing the BK9000 in their most difficult operating conditions. Radio performance is meeting the high standards of first responders, while the look, field, and audio quality are exceeding expectations. For years, the public safety market has been calling for an affordable multiband radio.

Initial market response has been positive with first responders testing the <unk> in their most difficult operating conditions.

Radio performance is meeting the high standards of first responders, while the look and feel.

An audio quality are exceeding expectations.

For years, the public safety market has been calling for and affordable multi band radio.

John M. Suzuki: We believe that the BKR 9000 answers that call and will fuel BK's next stage of growth to support our goal of $100 million in revenue by 2025. Looking beyond 2025, we're also focused on establishing products and services that will open up additional verticals that we can leverage and enhance our offerings beyond traditional communications technology. Our SAS Business Unit has demonstrated promising early results through its Interop One offering, and we believe that this part of our business represents an attractive long-term opportunity that will complement our traditional hardware model. BK Technologies has established a reputation as a premier provider of communications technology to the public safety and critical communication market, and that reputation continues to grow.

We believe that the <unk> answers that call and while fuel Bk's next stage of growth to support our goal of $100 million in revenue by 2025.

Looking beyond 2025, we are also focused on establishing products and services that will open up additional verticals that we can leverage and enhance our offerings beyond traditional communications technologies. Our SaaS business has demonstrated promising early results through its interop, one offering and we believe that this part of our <unk>.

<unk> represents an attractive long term opportunity that will complement our traditional hardware model.

BK technologies has established a reputation as a premier provider of communications technology to the public safety and critical communication markets.

And that reputation continues to grow.

John M. Suzuki: With a steadily improving margin profile and an innovative product line that has demonstrated the ability to capture market share across a wide range of customers in the public safety communication space, we believe that we are well positioned with momentum to continue driving results in 2024 and beyond. Before I open the call for questions, I would like to remind everyone that we will be attending the 36th Annual Roth Conference at the Ritz-Carlton in Laguna Niguel, California, from March 17-19. If you're attending the conference, please feel free to reach out to us via the contact information at the bottom of today's press release or sign up for the conference for one-on-one meetings with Scott and myself. With that, we'll now open up the call for questions. Thank you very much.

With a steady improving margin profile.

And in innovative product line that has demonstrated the ability to capture market share across a wide range of customers and public safety communications space. We believe that we are well positioned with momentum to continue driving results in 2024 and beyond.

Before I open the call for questions I would like to remind everyone that we will be attending the 30 <unk> annual Roth conference at the risks Ritz Carlton.

In Laguna Niguel, California March 17th through the 19th if you're attending the conference. Please feel free to reach out to us via the contact information at the bottom of today's press release or sign up to the conference for one on one meetings with Scott and myself with that we'll now open up the call for questions.

Jan Thank you very much at this time, we are opening the floor for questions. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question you May Press Star two if you would like to leave your question from Nicky to anyone.

Unknown Executive: At this time, we are opening the floor for questions. If you would like to ask a question, please press star 1 on your telephone. The confirmation tone will indicate that you're live. You may press star two if you would like to remove your question. For anyone using speaker equipment, it may be necessary to pick up your hands.

Speaker equipment, it might be necessary to pick up your handset before pressing the keys. Please hold amendment oilseed poll for any questions.

Brett Reiss: Please hold the moment. Okay, our first question is coming from Brett Reiss of Janney Montgomery. Brett, your line is: Hi, John. Hi Scott. Congrats on, you know, continued good results. Thank you. I don't know if you can answer this, but I'll ask it. The guidance of $1.50 earnings per share, you know, for calendar year 2024, what range of EBITDA and free cash flow would that translate into? I'll try to answer that, and John can fill in the blanks. Basically, you know, our gross margins are trending in the right direction and have been for several quarters. We are also, you know, continuing with our cost-down programs, and higher-margin BKR 9000 is becoming a larger part of our product mix.

Okay. I'll first question is coming from Brett Reece of Janney Montgomery, Scott Bret Your line is live.

Okay.

Hi, John Hi, Scott Congrats on a.

Good continued results.

Thank you.

I don't know if you can answer this but I'll ask it the.

Guidance of a 100 dollar 50 earnings per share for calendar year 2024.

What range of <unk>.

EBITDA and free cash flow.

Would that translate into.

Well I'll try to answer that and Jon can fill in the blanks basically our gross margins are trending in the right direction and have been for several quarters. We are also continuing with our cost down programs and higher margin BK or 9000 is becoming a larger part of <unk>.

Our product mix and will further enhance the margins.

Brett Reiss: And we'll further enhance the margin. If you just take the math of 35% gross margins on revenues in the 70s and use existing SG&A as a percentage of sales, you should get close to the dollar and a half. Alright, so I take a dollar and a half times the amount of outstanding shares, and that's my EBITDA number. That would Yeah, that's going to be in the range.

If you just take the math of 35% gross margins.

The revenues in the 70 S.

And.

<unk>.

Use existing SG&A as a percentage of sales you should get close to the dollar and a half.

Alright, so I take a dollar and a half times the amount of outstanding shares and that's my EBITDA number.

That would yes, that's going to be in the range yes.

Scott A. Malmanger: Yeah. Okay, okay. And, with respect to the cadence and the handoff in manufacturing from us to East West, does it, you know, it seems like it's going along very well and smoothly? Do you see a continuation of that or not? Can there be any hiccups?

Okay.

Income and.

Okay with respect to the.

The cadence and the handoff in.

In manufacturing too from us to east West.

Is it you know it seems like it's going along very well and smoothly.

Yeah.

Do you see a continuation of that or.

Can there be any hiccups does anything keep you up at night with respect to that relationship.

John M. Suzuki: Does anything keep you up at night with respect to that relationship? Hi Bruce. Thanks for the question. I'll answer that. So first, I will say on our last call, we said that the transition would take place between the first quarter and the third quarter of this year. We're well into the first quarter, and I would say the transition is going very well. That being said, right, what keeps me at night is what you don't know.

Hi, great. Thanks for the question I'll answer that so.

So first I will say on our last call. We said that the transition will take place between.

The first quarter in the third quarter of this year.

We're well into the first quarter and I would say the transition is going very well.

And that being said right what keeps me at night is what you don't know so the team has done a lot of work to mitigate risk.

Unknown Executive: So the team has done a lot of work to mitigate risk. Part of that was building up our inventory, and I don't know if you noticed, but we had a fairly high inventory at the end of the year, especially in finished products and WIP. The purpose of that was to ensure that we would be able to continue to make our deliveries in the first quarter in the event that there were any hiccups. So far, as we close out the first quarter, the transition project is actually ahead of schedule for the products that we had planned to transition in the first quarter. But I'll talk about that more when we get to our first quarterly call. Unknown Speaker Right. Thank you for taking my questions. I will drop back in the queue, but with good good results.

Part of that was building up our inventory I don't know if you noticed we had a fairly high inventory at the end of the year.

Especially in the finished products in the web the purpose of that was to ensure that we would be able to continue to make our deliveries in the first quarter in the event that there were any any hiccups.

So far as we close out the first quarter.

The transmission project is actually ahead of plan for the products that we had plan to transition in the first quarter, but I'll talk about that more.

And when we get to our first quarter call.

Great. Thank.

Thank you for taking my questions I will drop back in queue, but could good results. Thank you. Thank you. Thank you.

Unknown Executive: Thank you. Thank you. Thank you. Thank you very much. Just as a reminder, if anyone does have any questions... Please press star 1 on your phone.

Thank you very much just as a reminder, if anyone does have any questions. Please press star one on your phone keypad now.

Aaron Martin: Our next question is coming from Aaron Martin of AIGH Investments. Unknown Speaker 0, Hi, good morning. Congratulations on the progress, especially on the gross margin. Can you, I mean, you give us basic quality statements around the gross margin and improvement? Can you give us more quantitative statements about where there is more gross margin improvement as we go into this calendar year? Well, yeah, I think I'll try to answer that. Basically, the margin improvement was incremental over 2023, and that's kind of our baseline. You know, we've returned to historical levels.

Our next question is coming from Aaron Martin of AIG H investment partners.

Sure.

Yes.

Hi, good morning, congratulations on the progress, especially on the gross margin.

Can you.

<unk> basically quality statements around the gross margin improvement.

Can you give us more quantitative statements.

About where there is more gross margin improvement.

As we go into this calendar year.

Well, yes, I think I'll try to answer that.

Basically.

The the margin improvement was incremental over 2023, and thats kind of our baseline.

Turn it back to historical levels and we've got <unk>.

Scott A. Malmanger: And we've got, you know, a number of initiatives, cost reduction initiatives on the different product lines that will continue through 24. And then the mixed profile with the BKR 9000 will continue to improve the margins incrementally throughout 24 and 25 as the BKR 9000 is a larger perform, you know, percentage of our revenue base. When I look at 2024, you know, as a percentage of the overall shipments, what percent should we assume the 9000 will be? We're not providing that.

Number of initiatives cost reduction on nips.

Initiatives on the different product lines that will continue through 24, and then the mix profiles with the BK or 9000 will continue to improve the margins incrementally throughout 'twenty four 'twenty five is the <unk> 9000 as large.

Perform.

Percentage of our revenue base.

When I look at the 2024 as a percentage of the overall.

Shipments what percentage should we assume the 9000 will be.

We're not providing that and we're not providing that information.

John M. Suzuki: Aaron, we're not providing that information. When we launched the 9000, I had said that we were not going to give details on the mix for competitive reasons. And again, I'll reiterate, we have enjoyed, with the 5000 and our previous generation products, a market that was very loyal to BK, where we enjoyed 95% market share. The market that we're now entering is heavily contested with a number of competitors. And we're taking market share, right? So I don't need to spotlight that more than what I'm doing in our press releases.

When we launched the 9000 I had said that we are not going to give details on on mix for competitive reasons and again ill reiterate we have enjoyed with.

With the 5000 and our previous generation products.

Market that was been very loyal.

To BK, where we enjoyed a 95% market share.

The market that we are now entering is heavily contested with a number of competitors.

And and we're taking market share right. So I don't need to spotlight that more than what I am doing it in our press releases.

John M. Suzuki: But to say that the market is very large is a correct statement, and I believe that we are taking market share. Got it. Okay.

But to say that the market is very large is a correct statement and I believe that we are we are taking market share.

Got it Okay and then on the on the guide for $1 15 EPS GAAP.

Aaron Martin: And then on the guide for $1.15 EPS, that's GAP EPS, or I mean, he started this quarter giving off non-gap numbers with what the guide is, which is the guide is on gap EPS. Yeah. Got it. And then this was the first quarter you started reporting non-GAAP. Can you go into a little bit of the differential there?

GAAP EPS for.

You started this quarter given a lot of non-GAAP numbers.

And the guide is which.

The guidance on GAAP EPS, yes.

Okay got it and then this is the first quarter, where you started reporting non-GAAP.

Can you go.

Go into a little bit of the differential there.

Scott A. Malmanger: Well, yeah, I think the inclusion of non-GAAP measures is going to help investors better understand our strategic and operational factors associated with the company's financial performance. You know, we want to provide this information, and we believe that adjusted EBITDA, free cash flow, and non-GAAP EPS are the best representations of the business. So that, you know, that's the reason that we started to use non-GAAP measures.

Well, yes, I think the inclusion of non-GAAP measures is going to help the investors better understand our strategic and operational factors associated with the company's financial performance. We want to provide this information and we believe that adjusted EBITDA.

Cash flow and non-GAAP EPS are the best representation of the business.

So.

That's the reason that we started to use non-GAAP measures.

Scott A. Malmanger: Got it. And what I was wondering was what was the non-GAAP EPS number in this quarter? Unknown Speaker 19 cents.

What was apologize what was the non-GAAP EPS number in this quarter.

Okay.

19.

Aaron Martin: Got it. So, if I were to try to extrapolate that on the guide, $1.50 of GAAP EPS would be what in non-GAAP EPS? Bye!

Got it.

So if I were to try to extrapolate that on the guide.

The $1 50 of GAAP EPS would be what in non-GAAP EPS.

Scott A. Malmanger: I don't think, I don't think we'll, you know, provide guidance on that. Okay, so let's go this Q4 in terms of the, I assume you have a reconciliation of the gap to non-gap EPS. What was the difference there, the depreciation?

I don't think I don't think we will.

I'll provide guidance on that.

And this Q4 in terms of the.

A reconciliation of the GAAP to non-GAAP EPS, but what was the.

The difference there is the depreciation.

Scott A. Malmanger: Yeah, it's gonna, it's going to be depreciation. And that, well, that's for the EBITDA for the gap measures, the stock comp severance, and Inventory Write Down, or the adjustments for EPS. Aaron, it's detailed in that table in the press release. Yeah, sorry, we don't actually don't have it in front of us.

Yes.

It's going to be depreciation and <unk>.

Well that's for the EBITDA for the GAAP measure the stock comp.

Severance.

And.

Inventory write down inventory write down.

Where the where the adjustments for EPS Aaron its detailed in a table in the press release and <unk>.

Yes, sorry, we don't have actually I actually don't have it in front of us so scotts going by memory here.

John M. Suzuki: So Scott's going by memory here. Okay, and then in terms of Interop 1, what can you tell us in terms of the, you know, number of agencies using it? Kind of give us some qualitative stuff, but what can you tell us about where it's being used, and are we seeing yet any sort of... cross-selling between that and your existing hardware business? Yeah, so that's actually the area I would definitely highlight, right? I think if you looked at the existing customer base with the 5,000, there was definitely interest in Interop One. We had some trials; U.S. Forestry and Bureau of Land Management at the federal level had some trials.

Okay.

And then in terms of interrupt one what can you tell us in terms of the <unk>.

Number of agencies using it.

Kind of give us some qualitative stuff, but what can you tell us about.

Where it's being used in.

So we think that any sort of.

Yeah.

Cross selling between that and your existing hardware business.

Yes.

That's actually.

The area I would definitely highlight right.

I think if you looked at.

The existing customer base with a 5000 there is definitely interest in <unk>, we had some trials.

Forestry and Bureau of land management, and the federal level had some trials and they do see.

John M. Suzuki: And they do see this capability having value. That being said, for where they operate, they tend to have no cell phone coverage. And so they're really looking for that low earth orbit satellite system that's going to be put out, where you have satellite direct to cell phone service, and that we're still a little bit early in that market.

They do see this capability, having value that being said for where they operate they tend to have no cell phone coverage and so they're really looking for that low Earth orbit satellite system, that's going to be put out where you have satellite direct to cell phone service and that we're still a little bit early in that in that market.

John M. Suzuki: But for those types of customers, they're really looking for that service to be available to provide coverage, obviously, in areas where there's no coverage today. In terms of where we're seeing the most traction, it's really with the BKR 9000 customers. So pretty much every customer who has purchased the 9000, we've talked to them about Interop One, and all of them find that service as an added value to their business. So most recently, the larger ones that we got, we got Sandoval County in the Q4 timeframe when we went to make the deliveries for the 9,000. We had our own team there.

But for those types of customers. They are really looking for that service to be available to provide coverage.

Honestly in in areas, where there's no coverage today.

In terms of where we're seeing the most traction is really with the.

<unk> 9000 customers so pretty much every customer who is purchase of 9000, we've talked to them about interop, one and all of them find that that service.

Yeah.

As an added value to their business. So most recently.

The larger ones that we we got some of our county in the Q4 timeframe. When we went to make the deliveries.

For the 9000, we had our team there as.

John M. Suzuki: It was over 200 radios we delivered to them. And we took the opportunity, right, to introduce them to Interop One. And immediately, they saw the value of that, of that service. And they've been in field trials since then. More recently, Boulder County, same story.

It's over 200 radios I think we delivered to them and we did we took the opportunity to introduce them to interop, one and immediately they saw the value.

Of that of that service and they've been in field trials since then.

Recently Boulder County same story, so pretty much every customer we talk to around the 9000, there is a tie in with inner offline and again, it's a little bit different operation they tend to be more around the cities and the in the suburbs and the need for broadband is something that they are using today, so that a lot of there.

John M. Suzuki: So pretty much every customer we talk to around 9,000, there's a tie-in with Interop One. And again, it's a little bit different operation. They tend to be more in the cities and the suburbs, and the need for broadband is something that they're using today, so a lot of their officers already have smartphones deployed.

Officers already have smartphone funds deployed so that was very encouraging for us as we see that and we do believe that these are complementary services. So they don't replace each other but having both services. The 9000 Interop one certainly adds to our story.

John M. Suzuki: So that was very encouraging for us, as we see that. And we do believe that these are complementary services. They don't replace each other.

John M. Suzuki: But having both services, the 9000 and Interop One, certainly adds to our story of why you should choose the 9000. Got it? Now, going back to the gross margin, is it fair to say that some of the stuff in the gross margin improvement in the earlier quarters or six quarters of improvement was really just getting rid of some of the supply chain stuff, you know, higher cost stuff when you were expediting stuff and all that. Is it fair to say all that is finished? And now it's a question of cost. Yeah. Okay, and then I will expand on that a little bit, Aaron. Some of these cost stands as we go forward, with East West, right? We're more able to vertically integrate the sub assemblies into the east-west manufacturing operations, avoiding that two-stepping. And so, as they take more control of the full product, the cost of the product will go down over time.

Why you should choose the 9000.

Got it.

Going back to the gross margin.

Is it fair to say some of the stuff in the gross margin improvement in the earlier quarters or six quarters of improvement was really just getting rid of some of the supply chain.

Higher costs for newer expediting stuff and all of that is it fair to say all of that is finished and now it's a question of cost downs.

Yes.

Okay and then.

I will expand on that a little bit Aaron.

Some of these cost stands as we go forward with east West right, we're more able to vertically integrate the sub assemblies into.

And to the east West manufacturing operations, avoiding that to stepping and so as they take more control of the full product the cost of the product will go down over time.

John M. Suzuki: Got it. Though, as you did mention, you do have very high inventory going into the year. Do you still have some of the high-cost inventory sitting there on your balance sheet, which will keep the gross margin slightly lower while it's running through the balance sheet? Aaron, I would say there's some, but I would say it's minimal. I would say it's not material or not significant. Yeah, especially from the 22 timeframe.

Got it.

As you didn't mentioned you do have very high inventory going into this year.

Do you still have some of the high cost inventory.

Sitting there on your balance sheet, which will.

The gross margin, let me lower wallets wallets running through your balance sheet.

Eric I would say there is some but I would say, it's minimal I would say, it's not material or not significant yes, especially from the 'twenty two time frame right.

Aaron Martin: Right. I've got it. So lastly, though, as Scott said before, in regards to the question about the guidance, if you just take the current revenue run rates, mid 70s, put a 35% gross margin on it, you essentially get, and the same, you know, operating expense levels, you essentially get $1.50 in EPS. So I'm trying to reconcile that with, you know, the call for continued gross margin improvement. And, you know, even if revenue does not grow, which, you know, put that in as it is, wouldn't we, if 35% of the baseline going into the quarter, going into the year, and I mean, I don't know how much improvement we're talking about, but $1.50 seems conservative if there's going to be gross margin improvement. Is that accurate? I like Yeah, I like a conservative measure.

Got it lastly, though.

Scott you said before.

Question about the guidance if you just take the current revenue run rate to mid seventies.

At a 35% gross margin on it you essentially get in the same operating expense levels essentially get a $1 50 in EPS, So I'm trying to reconcile that with.

The call for continued gross margin improvement.

And so even let's say revenue does not grow.

Sure.

But that is as it is.

Sure.

35% of the baseline going into the quarter going into the year.

I don't know what how much approval, we're talking about but.

He's conservative if theres going to be gross margin improvement is that accurate.

I like like a conservative measure.

Scott A. Malmanger: Okay, but my math is correct. Your math is, yes, your math is correct. Okay, thank you very much. Congratulations on the progress. Thank you, Aaron. Thank you very much. Well, we don't appear to have any further questions in the queue. I'm now going to hand it back over to the management for their closing. Thank you, Jen. Thank you all for participating in today's call. We look forward to speaking with you again as we report our Q1 results. All the best to all of you, and have a great day. Thank you very much, John. This does conclude today's conference. You may now disconnect your lines and have a, Thank you.

Okay, but my math is correct.

Your math is yes, your math is correct.

Okay. Thank you very much congratulations on the progress.

Thank you Aaron.

Thank you very much well, we'd have to pay to have any further questions in the key I'm now going to hand back over to the management so that closing remarks.

Thank you Jen.

Thank you all for participating in today's call. We look forward to speaking with you again as we report our Q1 results all the best to all of you and have a great day.

Thank you very much John This does conclude today's conference you may now disconnect your lines and have a wonderful day.

For your participation.