Q3 2024 BK Technologies Corp Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation conference call for the third quarter 2020. 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 third quarter 'twenty 'twenty four.
This call is being recorded all participants have been placed on a listen only mode. Following management's prepared remarks, the call will be opened for questions. There's a slide presentation that accompanies today's remarks, which can be accessed via the webcast.
Operator: Following management's prepared remarks, the call will be open for questions.
Operator: There's a slide presentation that accompanies today's remarks, which can be accessed via the web.
Jon Nesbett: At this time, it is my pleasure to turn the floor over to your host for today's call, Jon Nesbett of IMS Investor Relations. Please go ahead.
Speaker Change: At this time it is my pleasure to turn the floor over to your host for today's call John Nesbit of IMS Investor Relations. Please go ahead.
Speaker Change: Okay.
Operator: Thank you.
John Suzuki: Good morning and welcome to our conference call to discuss BK Technologies results. for the third quarter of 2024.
John Nesbit: Thank you good morning, and welcome to our conference call to discuss BK technologies results.
John Nesbit: For the third quarter of 2024 on the call today are John Suzuki, Chief Executive Officer, and Scott My Major Chief Financial Officer, I'll take a moment to read the Safe Harbor statements 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.
John Suzuki: On the call today are John Suzuki, Chief Executive Officer, and Scott Malmanger, Chief Financial Officer.
Operator: I'll take a moment to read the Safe Harbor Statements. 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 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, and achievements may differ materially from those expressed or implied by these forward-looking statements.
John Nesbit: But are not limited to projections or statements in 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 statements and some of the factors and risks that could cause or contribute any such.
Operator: And some of the factors and risks that could cause or contribute any such material differences to have. Differences have been described in this morning's press release and BK's filings with the U.S. Securities and Exchange Commission.
Cereal differences too.
Differences have been described in this morning's press release and Bk's filings with the U S. Securities 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.
Operator: 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.
Jon Nesbett: Okay, and I'll turn the call over to John Suzuki, Chief Executive Officer at BK Technologies. Please go ahead, John.
Speaker Change: Now I'll turn the call over to John Suzuki, Chief Executive Officer of BK Technologies. Please go ahead John.
John Suzuki: Thank you, Jon. Thank you, everyone, for joining today. I'll start by reviewing some of the highlights of our operations and financial results during the quarter.
John Suzuki: Thank you John.
John Suzuki: 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 manager for a deeper dive into our financial results.
John Suzuki: Then I'll turn it over to our Chief Financial Officer, Scott Malmanger, for a deeper dive into our financial results. will conclude by opening up the call for a brief Q&A. The third quarter of 2024 was highlighted by solid progress and execution on our operational goals. We achieved our fifth consecutive quarter of profitability with gap earnings per share of 67 cents. and year-to-date earnings per share of $1.33. Given our progress in the quarter, we will be providing updates to our financial targets later in this presentation. Third quarter backlog remains strong at 27 million, supported by solid order activity for our BKR 5000 and BKR 9000 radios from both new and existing customers looking to upgrade their radio fleet.
John Suzuki: I will conclude by opening up the call for a brief Q&A.
John Suzuki: The third quarter of 2024 was highlighted by solid progress and execution on our operational goals, we achieved our fifth consecutive quarter of profitability with GAAP earnings per share of <unk> 67.
John Suzuki: And year to date earnings per share of $1 33.
John Suzuki: Given our progress in the quarter, we will be providing updates to our financial targets later in this presentation.
John Suzuki: Third quarter backlog remains strong at 27 million supported by solid order activity for our <unk> 5000, and <unk> 9000 radios from both new and existing customers looking to upgrade the radio fleets.
John Suzuki: We also continued our trend of incremental margin improvement with gross margins of 38.8% in the quarter, driven by a combination of strategic cost reduction initiatives and a shift in product mix to include more BKR series radio sales. During the quarter, we completed our manufacturing transition project to east-west manufacturing with the majority of our third quarter revenue generated from products manufactured by east-west. Additionally, lower product costs related to the transition favorably impacted our gross margin performance, and we expect to see continued margin improvement moving forward as we realize the full savings of the East-West partnership. We continue to receive strong order activity for our BKR series radios from both new and existing customers in a quarter.
John Suzuki: We also continued our trend of incremental margin improvement with gross margins of 38, 8% in the quarter driven by a combination of strategic cost reduction initiatives and a shift in product mix to include more BK R series radio sales.
John Suzuki: During the quarter, we completed our manufacturing transition project to east West manufacturing with the majority of our third quarter revenue generated from products manufactured by East West.
Additionally, lower product costs related to the transition favorably impacted our gross margin performance and we expect this to we expect to see continued margin improvement moving forward as we realize the full savings of the east West partnership.
John Suzuki: We continue to receive strong order activity for our <unk> or Sirius radios from both new and existing customers in the quarter.
John Suzuki: Specifically, the BKR 9000 is receiving substantial interest from state and local agencies, and our order activity has been encouraging. One order in the quarter that I'd like to highlight was received from the Florida Forest Service. a long standing customer of BK. for the BKR9000 at a total value of $3.3 million. The radios will be used by several different branches throughout the organization, including wildland fire and land management, for fighting active fires and facilitating controlled burns, as well as for research to improve biodiversity and ecosystem health. This order demonstrates the versatility of the BK9000 across varying departments and operations and is an example of the increasing demand that we're seeing from this radio among state and local agencies.
John Suzuki: Specifically the <unk> 9000 is receiving substantial interest from state and local agencies and our order activity has been encouraging.
John Suzuki: One order in the quarter that I'd like to highlight was received from the Florida Forest service.
John Suzuki: Long standing customer of BK.
John Suzuki: For the <unk> 9000 at a total value of $3 3 million.
Speaker Change: The radios will be used by several different branches throughout the organization, including Wildland fire and land management for fighting active fires and facilitating control Burns.
As well as for research to improve biodiversity and ecosystem health.
This order demonstrates the versatility of the <unk> 9000.
Speaker Change: Across varying departments in operations and is an example of the increasing demand that we're seeing from from this radio.
Speaker Change: State and local agencies.
John Suzuki: looking at the gross merge. We drove continued improvement in the quarter, largely related to our ability to reduce manufacturing expense through the outsourcing of our radio manufacturing to east-west. We expect gross margins to continue to improve through 2024 and 2025 as we work towards achieving gross margins of 50%. As I mentioned earlier, we achieved our fifth consecutive quarter of profitability this quarter with earnings per share of 67 cents. And we have significantly improved our profitability each quarter since the second quarter of 2023. What you'll note here is that while third quarter revenues were consistent with fiscal 2023 levels, the cost saving initiatives and the transition to east-west manufacturing generated enhanced margin profile and profitability.
Speaker Change: Looking at the gross margin.
Speaker Change: We drove continued improvement in the quarter largely related to our ability to reduce manufacturing expense through the outsourcing of our radio manufacturing to east West.
Speaker Change: We expect gross margins to continue to improve through 2024, and 2025 as we work towards achieving gross margins of 50%.
Speaker Change: As I mentioned earlier, we achieved our fifth consecutive quarter of profitability this quarter with earnings per share of <unk> 67.
Speaker Change: And we have significantly improved our profitability each quarter since the second quarter of 2023.
Speaker Change: What you'll note here is that while third quarter revenues were consistent with fiscal 2023 levels the cost saving initiatives and the transition to east west manufacturing generated enhanced margin profile and profitability.
John Suzuki: Given our performance in the quarter and year-to-date, we have decided to revise our financial targets to better align with our expected results. We are raising our GAAP earnings per share and non-GAAP earnings per share targets for the full year of 2024. We are now targeting full-year GAAP EPS to exceed $1.65 per share, increased from our previous target of $1.50 per share, and non-GAAP EPS of $1.92 per share, which is an increase over our previous target of $1.77. Order activity has been strong, and we're especially encouraged by the demand we're seeing for the BKR-9000 multiband radio from our existing wildland fire customer base.
Speaker Change: Given our performance in the quarter and year to date, we have decided to revise our financial targets to better align with our expectations expected results.
Speaker Change: We are raising our GAAP earnings per share and non-GAAP earnings per share targets for the full year of 2024.
Speaker Change: We are now targeting full year GAAP EPS to exceed $1 65 per share increased from our previous target of $1 50 per share.
Speaker Change: And non-GAAP EPS of $1 92 per share, which is an increase over our previous target of $1 77.
Speaker Change: Order activity has been strong and we're especially encouraged by the demand we're seeing for the <unk> 9000, multi band radio from our existing wildland fire customer base.
John Suzuki: We received several purchase orders for the BK9000 in the third quarter, including a $3.3 million order from Florida Forestry Service, as I discussed earlier. the Missouri Department of Natural Resources for their wildland fire operations. the Minnesota Department of Natural Resources for their wildland fire operations, and the Gallatin County Sheriff's Department in Montana, representing interests for the 9,000 from a law enforcement agency in a Tier 3 county. We closed third quarter with a backlog of 27 million, which was was supported in large by the adoption of a BKR 5000 and 9000 among new and existing customers.
Speaker Change: We received several purchase orders for the <unk> 9000 in the third quarter, including a $3 3 million dollar order from Florida Forestry service as I discussed earlier.
Speaker Change: The Missouri Department of natural resources for their wildland fire operations the.
Speaker Change: The Minnesota Department of natural resources for their wildland fire operations and gallons in County Sheriff's Department, and Montana, representing interest from the for the 9000 from a law enforcement agency in a tier three county.
We closed the third quarter with a backlog of $27 million, which was was supported in large by the adoption of a big care 5009 thousand among new and existing customers. We anticipate that most of this backlog will be delivered in the fourth quarter of 2024, and the first quarter of <unk>.
John Suzuki: We anticipate that most of this backlog will be delivered in the fourth quarter of 2024 and the first quarter of 2025. We completed the transition program with EastWest Manufacturing in the quarter, a move that's already delivering cost reductions and production efficiency. As we've mentioned before, our move to East-West is expected to provide continued enhanced gross margins while also allowing us to more closely focus on new product development. We retained a small production team in our facility in Florida for the final assembly and test of the BigCare 9000 as well as to support the production of some of the smaller low-volume specialty products.
2025.
Speaker Change: We completed the transition program with east West manufacturing in the quarter, a move that is already delivering cost reductions and production efficiencies.
Speaker Change: As we as we've mentioned before our move to East West is expected to provide continued to enhance gross margins.
Speaker Change: While also allowing us to more closely focus on new product development.
Speaker Change: We retained a small production team and our facility in Florida for the final Assembly and test of the Big here 9000, as well as to support the production of small of some of the smaller low volume specialty products.
Speaker Change: Yes.
John Suzuki: A new streamlined, build-to-order final assembly process for the BK9000 was implemented and is expected to be able to produce up to 20,000 radios per year at full capacity.
Speaker Change: Our new streamlined build to order final assembly process for the <unk> 9000 was implemented and is expected to be able to produce up to 20000 radios per year at full capacity.
Scott Malmanger: I will now turn the call over to our Chief Financial Officer, Scott Malmanger, to go over our financial results for the quarter. Scott.
Speaker Change: I will now turn the call over to our Chief Financial Officer, Scott and I'll measure to go over our financial results for the quarter Scott.
Scott Malmanger: Thank you. Thanks, Jon. Sales for the third quarter totaled approximately $20.2 million, essentially consistent with $20.1 million for the same quarter last year, which is in line with our expectation that 2024 revenue will be consistent with 2023 results.
Scott Burell: Thanks, John.
Scott Burell: Sales for the third quarter totaled approximately $22 million essentially consistent with $20 1 million for the same quarter last year, which is in line with our expectation that 2020 for revenue will be consistent with 2023 results.
Scott Malmanger: gross profit margin in the second quarter was 38.8% as compared to 31.9% in the third quarter of 2023. which surpasses our target margin levels of 35% for 2024. We expect to continue to achieve margin improvement as we drive our cost reduction initiative. Selling General and Administrative Expenses, or SG&A, for the third quarter totaled approximately $5.2 million, compared to $5.8 million for the same quarter last year. Operating income totaled $2.6 million compared with an operating income of $594,000 in the third quarter of 2023. We recorded net income of $2.4 million or $0.67 per basic and $0.63 per diluted share in the third quarter of 2024, compared with net income of $90,000 or $0.03 per basic and diluted share in the prior year period.
Scott Burell: Gross profit margin in the second quarter was 38, 8%.
Scott Burell: As compared to 31, 9% in the third quarter of 2023.
Scott Burell: Which surpasses our target margin levels of 35% for 2024, we expected continued to achieve margin improvement as we drive our cost reduction initiatives.
Scott Burell: Selling general and administrative expenses or SG&A for the third quarter total approximately $5 2 million compared to $5 8 million for the same quarter last year.
Scott Burell: Yeah.
Scott Burell: Operating income totaled $2 6 million compared with an operating income of 594000 in the third quarter of 2023.
Scott Burell: We recorded net income of $2 4 million or <unk> 67 per basic and <unk> 63 per diluted share in the third quarter of 2024, compared with net income of 90000 or <unk> <unk> per basic and diluted share in the prior year period.
Scott Malmanger: non-GAAP adjusted net income, which adds back net realized and unrealized gain or loss on investments, stock based compensation expenses, and severance expenses was $2.7 million, or an adjusted EPS of $0.75 per basic and $0.71 per diluted share compared with adjusted net income of $1.1 million or $0.33 per basic and $0.32 per diluted share in the third quarter of 2023. We expect enhanced profitability as we continue to reduce costs and improve our gross margins and are confident in our revised target of full year gap EPS exceeding $1.65 and full year adjusted EPS target of $1.92 per share.
non-GAAP adjusted net income, which adds back net realized and unrealized gain or loss on investments stock based compensation expenses and severance expenses was $2 7 million or an adjusted EPS of <unk> 75.
Scott Burell: <unk> per basic and <unk> 71.
Scott Burell: <unk> per diluted share compared with adjusted net income of $1 1 million or 33 cents.
Scott Burell: <unk> per basic and <unk> 32 cents per diluted share in the third quarter of 2023.
Scott Burell: We expect enhanced profitability as we continue to reduce cost and improve our gross margins and are confident in our revised.
Scott Burell: Target of full year, GAAP, EPS exceeding $1 65, and full year adjusted EPS target of $1 92 per share.
Scott Malmanger: We reported adjusted EBITDA of $3.1 million in the third quarter of 2024 compared with an adjusted EBITDA of $662,000 in the third quarter of 2023.
Scott Burell: We reported adjusted EBITDA of $3 1 million in the third quarter of 2024, compared with an adjusted EBITDA of 662000 in the third quarter of 2023.
Scott Burell: Yeah.
Scott Malmanger: Turning out of the company's liquidity, we significantly strengthened our balance sheet in the year to date period. As of September 30 2024, we have approximately $4.2 million of cash and cash equivalents and no debt. Working capital improved to approximately $22.7 million at September 30, 2024, compared with $16.8 million at December 31, 2023. Driven by increases in accounts receivable, that was somewhat offset by inventory reductions. as we transition radio manufacturing lines to East West. Shareholders equity has also increased to 26 million compared with $21.3 million at December 31, 2023, demonstrating the enhanced value we've achieved year-to-date.
Scott Burell: Turning now to the company's liquidity, we significantly strengthened our balance sheet and the year to date period as of September 32024, we have approximately $4 $2 million of cash and cash equivalents and no debt.
Scott Burell: Working capital improved to approximately $22 7 million at September 32024, compared with $16 8 million at December 31, 2023.
Scott Burell: Driven by increases in accounts receivable that was somewhat offset by an inventory.
Scott Burell: Inventory reductions.
As we transitioned radio manufacturing lines to east West.
Scott Burell: Shareholders equity has also increased to $26 million compared with.
Scott Burell: $21 3 million at December 31, 2023.
Scott Burell: Demonstrating the enhanced value we've achieved year to date.
Scott Malmanger: With our visibility today, we believe that we are well positioned to continue improving our balance sheet through the balance of 2024. And that our current cash position combined with anticipated cash generated primarily by radio sales and borrowing availability under our credit facility provides us with the working capital, we need to grow our business.
Scott Burell: With our visibility today, we believe that we are well positioned to continue improving our balance sheet through the balance of 2024 and that our current cash position combined with anticipated cash generated primarily by radio sales and borrowing availability under our credit facility.
Scott Burell: Provides us with the working capital we need to grow our business.
John Suzuki: I'll turn the call back over to John. Thank you, Scott. With the third quarter now closed, I'm pleased to say that we are on track to exceed our operational and financial targets for 2024. Our visibility today, we're confident in our ability to achieve full year gap EPS to exceed $1.65 per share up from $1.50 and non gap EPS of $1.92 per share up from $1.77. We have made solid progress throughout 2024 and believe these new targets better reflect our performance year to date and where the business is heading going forward. As we close out the year, we remain focused on accelerating the BKR 9000 adoption rate, winning new customers, and growing our market share.
Scott Burell: I'll now turn the call back over to John.
John: Thank you Scott.
John: With the third quarter now closed I am pleased to say that we are on track to exceed our operational and financial targets for 2024.
Our visibility today, we're confident in our ability to achieve full year GAAP EPS to exceed $1 65 per share up from $1 50, and non-GAAP EPS of $1 92 per share up from $1 77.
John: We have made solid progress throughout 2024 and believe these new targets better reflect our performance year to date.
John: And where the business is heading going forward as we close out the year, we remain focused on accelerating the beak here 9000 adoption rate, winning new customers and growing our market share.
Operator: With that, we can now open the call for questions.
Speaker Change: With that we can now open the call for questions Kelly.
Operator: Kelly? Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality.
Kelly: Certainly the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
Kelly: So about posing your question you. Please pickup your handset up listing on a speaker phone to provide optimum sound quality can you talk just a few moments while we poll for questions.
Operator: Please hold just a few moments while we poll for questions.
Aaron Martin: Your first question is coming from Aaron Martin with AIGH Investment Partners. Please pose your question, your line is open.
Your first question is coming from Aaron Martin with AIG investment partners. Please pose your question your line is live.
Aaron Martin: Hi, good morning, guys. Congratulations on the quarter and obviously, the increased operating leverage really shining through. So congratulations on that.
Hi, Good morning, guys, congratulations on the quarter and honestly.
The increased operating leverage really shining through.
Congratulations on the.
John Suzuki: Just a technical question of the $3.3 million order. Was that included in the quarter end backlog? Because you announced it after the end of the quarter?
Speaker Change: Technical question.
Speaker Change: The $3 $3 million order is that in.
Speaker Change: Due to the quarter end backlog could you announced that after the end of the quarter.
John Suzuki: Yes. Thank you for the question, Aaron.
Speaker Change: Yes.
Speaker Change: Well. Thank you for the question Eric.
Jon Nesbett: Okay. And then, are you, can you remind us on the, you know, as we look towards Q4, and then going into next year of the typical seasonality of the business? Yeah, thank you again for the question there.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Are you.
Speaker Change: But can you remind us on the you know as you look towards Q4 and going into next year of the typical seasonality of the business.
Speaker Change: Yes.
Speaker Change: Yes. Thank you again for the question there and this is John.
Jon Nesbett: And this is Jon. And so our strongest quarters for orders and revenues is Q2 and Q3. Our weakest quarter for new order business is Q4. And that's primarily driven from the fact that the third quarter is the end of the fiscal year for federal government, and they still represent about 35 or 40% of our business. So as you go into the fourth quarter, which is their first quarter of their fiscal year, their budgets are just not set. And as you know, we just went through an election, and they just went through a continuing resolution. So we continue to talk to our customers.
Speaker Change: So.
Speaker Change: Our strongest quarters for orders and revenues as Q2 and Q3 are weakest.
Speaker Change: Quarter, four new order business as Q4, and Thats, primarily driven from the fact that.
Speaker Change: The third quarter is they ended the fiscal year for federal government and they still represent about 35% or 40% of our business. So as you go into the fourth quarter, which is their first quarter of their fiscal year.
Speaker Change: Their budgets are just not sat and as you know we just went through an election and they just went through a continuing resolution. So we continue to talk to our customers. We have an understanding of what they believe their budget will be but typically and again I think this year, they're just not going to be in a position to start placing purchaser.
Jon Nesbett: We have an understanding of what they believe their budget will be. But typically, and again, I think this year, they're just not going to be in a position to start placing purchase orders in the fourth quarter. So that tends to be a lot lower. The first quarter tends to be stronger, because now that's in their second quarter of their fiscal year. And then we're into second and third quarter of the calendar year.
Speaker Change: In the fourth quarter, so that tends to be a lot lower the first quarter tends to be stronger because now that's in the second quarter of their of their fiscal year. And then then we're into second and third quarter of the calendar year.
Scott Malmanger: Scott Malmanger, Unknown Executive, Brett Reiss, Aaron Martin, Jeff Sigman, BK Technologies Yeah, I think the best way to characterize that, Aaron, is that we're targeting that 50%, right? And we believe that is achievable through both the transfer that we've done, the cost downs we've done, and the transition of the 9,000. So we believe that you'll see continued gross margin improvements. Now, as we get closer to 50%, you know, we may take one step back, two steps forward, just because of the different quarters and what they bring. But we're definitely, we definitely are on track to achieve that.
Speaker Change: Got it.
Speaker Change: And on the gross margin, obviously, a great number and you've always.
Speaker Change: We talked about.
Speaker Change: Even though your cost target.
Speaker Change: So what's what can you tell us about the strategy there again in Q4 and 2025.
Yes, I think the best way to characterize that Aaron.
Speaker Change: Is that we're targeting that 50% right and we believe that is achievable through through both the the transfer that we've done and the cost downs have done and the transition of the 9000. So we believe that Youll see continued.
Speaker Change: Gross margin improvements now as we get closer to 50%. We may take one step back two steps forward, just because of the different quarters and what they bring but we're definitely we definitely are on track to achieve that.
Aaron Martin: Got it. Okay.
Speaker Change: Got it Okay, and then I guess that sort of brings up the vision 2025 talked about you know part of the revenue of $100 million and 50% of those gross margins.
John Suzuki: And then I guess that sort of brings up the Vision 2025, talked about, you know, a target of revenue of $100 million and 50% gross margins. and any thoughts around that and again as we go into 2025 past the Q4 seasonally.
And any thoughts around the again as we go into 2025 past the Q4 seasonality.
John Suzuki: Sure. So, Vision 2025 was set when I started with the business in July of 21. That remains our vision, and that continues to be what the business is focused around achieving.
Speaker Change: Sure. So vision 2025 was set when I started with the business in July of 'twenty one.
That remains our vision and Thats continues to be what the business is focused around achieving in terms of what we will be looking at in 2025, I certainly don't want to get ahead of myself and we'll be talking to the to the street during our fourth quarter call, which I think is going to be in March of 2025%. So at that point, we will.
John Suzuki: In terms of what we will be looking at in 2025, I certainly don't want to get ahead of myself, and we'll be talking to the street during our fourth quarter call, which I think is going to be in March of 2025. So, at that point, we will provide you what our targets will be for 2025, but nevertheless, Vision 2025 exists, and that's what the business is driving towards.
Speaker Change: <unk>, what our targets will be for 2025, but nevertheless, right vision 2025 exists and Thats, what the business is driving towards.
Aaron Martin: Okay, congratulations on the progress. You know, actually, in the past, he's given us a number of radios shipped in a quarter. What was the number for Q3 or for, you know, first nine months?
Speaker Change: Okay.
Speaker Change: Resolutions on the progress.
Speaker Change: In the past you've given us.
Speaker Change: The number of radios shipped in the quarter.
Speaker Change: What was the number for Q3 or for the first nine months.
John Suzuki: So we actually stopped that practice, Aaron, and we actually communicated that on a call. And the reason for that was the competitive nature of the 9000. And we just we just didn't want to provide any any additional information to our competitors. Because again, the 9000 really starts approaching onto their customer base. And so so for that reason, we just we decided not to not to disclose numbers of units sold.
Speaker Change: So we actually stopped that practice.
Speaker Change: Erinn, we actually communicated that on our call and the reason for that was the competitive nature of the 9000 and we just we just didn't want to provide any any additional information.
Speaker Change: And to our competitors because again, the 9000 really starts approaching onto there.
Speaker Change: Our customer base.
Speaker Change: And so.
Speaker Change: So for that reason, we just we decided not to not to disclose numbers of units sold.
Aaron Martin: Okay, congratulations again on the progress on this operating leverage. Thank you, Aaron.
Speaker Change: Okay. Congratulations again on the on those progress and this operating leverage.
Eric: Thank you Eric.
Eric: Yes.
Samir Patel: Once again, if you do have any questions or comments, please press star 1 on your phone at this time. You have a question coming from Samir Patel with Escalade and Capital. Please pose your question.
Speaker Change: Once again, if you do have any questions or comments. Please press star one on your phone at this time.
Speaker Change: Do you have a question coming from Samir Patel with <unk> capital. Please pose your question your line is live.
Samir Patel: Your line is Hey guys, congrats on a good quarter.
Speaker Change: Hey, guys congrats on a good quarter.
Samir Patel: Thank you, Samir. So I have three questions. The first is maybe you could talk about, you know, you talked about continuing to ramp those efforts to sell the 9000. Maybe you can talk about kind of the market segments where you're the most optimistic. You know, for example, I noticed that in addition to the Florida win, that's more kind of a traditional customer, you highlighted a win with the sheriff's department in Montana, which I assume is a maybe a new customer. And I know you were at IACP recently. So maybe just some thoughts on kind of segments where you're continuing to focus where you're optimistic about being able to drive those sales.
Speaker Change: Thank you Samir.
Speaker Change: So I have three questions.
Speaker Change: <unk>.
Speaker Change: Is maybe you could talk about you talked about continuing to ramp those efforts to sell the 9000, maybe you can talk about where the market segments, where you're the most optimistic for example, I noticed that in addition to the Florida.
Speaker Change: When that's morphing into traditional costly you highlighted a win with the sheriffs departments in Montana, which I assume is a.
Speaker Change: Maybe a new customer and I know you were at AACE recently, so maybe just some thoughts on kind of segments, where you're continuing to focus where you're optimistic about being able to strike wholesales.
John Suzuki: Yeah, that's a good question. So what we have been communicating in the past with the market for the 9000, because it's a, it's an all band radio. We felt that that radio was best positioned for law enforcement and what we call structured fire, so your local fire departments and ambulance services. So these are very large market segments that operate in urban environments, and typically we haven't sold to them in the past, so it was a whole new market. If you look at the total market of radios in the US, which is about $2.3 billion, 85% of those radios fall into those types of categories.
Speaker Change: Yes, that's a good question so what we have been communicating in the past.
Speaker Change: With the market for the 9000, because it's a it's an all band radio.
Speaker Change: We felt that that radio was best positioned for law enforcement and what we call structured fire. So your local fire departments.
Speaker Change: And ambulance services. So these are very large market segments that operate in urban environments and typically.
We haven't sold to them in the past so it was a whole new market. If you look at the total market of radios in the U S, which is about $2 3 billion, 85% of those radios fall into those types of categories.
John Suzuki: And so when we started the program on the 9000, we certainly view that as our largest market opportunity. As we've launched the product, what surprised us the most is just the adoption within the wildland fire. These are people that typically operate in one band VHF. They're very cost conscious. And, and so our thought was, is that these guys would not be paying twice as much money for a multiband radio. What we found over the last year is, while that's true for, say, U.S. Forestry, one of our largest federal customer, they're still buying those $5,000. A lot of the state agencies, what we found out was they have a real need to communicate on the statewide radio systems, which typically operate in a different band, say 800 megahertz.
Speaker Change: And so when we started the program on the 9000, we certainly view that as our largest market opportunity.
Speaker Change: As we've launched the product what surprised us. The most is just the adoption within the wildland fire. These are people that typically operate in one band VHS.
Speaker Change: They're very cost conscious.
Speaker Change: And and so our thought was is that these guys would not be paying twice as much money.
Speaker Change: For a multi band radio.
Speaker Change: What we found over the last year is.
That's true for say U S forestry.
One of our large our largest federal customer theyre still buying those five thousands.
Speaker Change: Lot of the state agencies what.
Speaker Change: What we found out was they have a real need to communicate on a state wide radio systems, which typically operate in a different band say 800 megahertz.
John Suzuki: And so they're making the business case that says, hey, I need I need my radios for forestry services and wildland fire. It's got to be BK. Why don't I just pay a little bit more money and I can get a radio that I can use on the statewide system to interoperate with all the other agencies. And so that that was probably our biggest surprise. Typically, again, these agencies are not as well funded as say, state law enforcement, but they are getting the funding based on that requirement and that need. And so from our perspective, that's actually a very strong positive.
Speaker Change: And so they're making the business case that says hey, I need I need my radios for forestry services and wildland fire, it's got to be BK.
Speaker Change: Why don't I, just pay a little bit more money and I can get a radio that can that I can use on the statewide system to inter operate with all the other agencies.
Speaker Change: And so that that was probably our biggest surprise typically again. These agencies are not as well funded as a state law enforcement, but they are getting the funding based on that requirement and that need and so from our perspective, that's actually a very strong positive.
John Suzuki: is I mean, I guess the Boulder County Orders kind of example of that. Yeah, Boulder County is at a county level. Exactly. Exactly that. But at a county level, right, you had 26 fire departments, all of them had BK radios for wildland fire, but they also had a different brand radio for their their structure fire operations. So when they respond to a fire in their town or in the city, typically, they're not using their BK radio, they're using a competitor's radio. When they made the decision to buy new radios, it made sense to them just to buy one radio for both operations, for both missions.
Speaker Change: I mean, I guess, the Boulder county, or those kind of example of ball.
Speaker Change: Yes, Boulder County is at a county level exactly it's exactly that but at a county level right you had 26 fire departments.
Speaker Change: All of them had BK radios for wildland fire, but they also had a different brand radio for their structure fire operations. So when they respond to a fire in their town or in the city.
Speaker Change: Typically they're not using their BK radio if they are using our competitors radio.
Speaker Change: When they made the decision to buy new radios. It made sense to them just to buy one radio for both operations for both missions.
John Suzuki: And then they could have one radio for all the fire services, covering all missions. And of course, that was the BKR-9000.
Speaker Change: And then they could have one radio for all the fire services covering all emissions and of course that was the <unk> nine.
Samir Patel: Okay, that's good.
Speaker Change: Okay. That's great. My second question you didn't mention anything about the 9500.
Samir Patel: My second question, you didn't mention anything about the $9,500. And kind of in the research I've done talking to people, it seems like there's a significant portion of the market that likes to purchase the mobile and portable radios as a bundle, and it seems like that's kind of a big unlock for you once you get that to market.
Speaker Change: And kind of in the research I've done talking to people. It seems like there was a significant portion of the market.
Like she purchased the mobile and portable radios as a bundle and it seems like that's kind of a big unlock for you once you get that to market.
John Suzuki: So maybe you could talk about how that development process is going, kind of how heavy of a lift that is relative to developing the $9,000, and with your increased earnings and cash flow, is there any chance you could kind of reinvest maybe a little bit more to accelerate getting that product to market faster?
Speaker Change: If you could talk about how that development process is going kind of how heavy of a lift that is relative to developing the 9000.
Speaker Change: And with your increased earnings and cash flow is there any chance you could kind of reinvest in maybe a little bit more to accelerate.
Speaker Change: Mark to market faster.
John Suzuki: Excellent question, Samir. We did announce that we were starting a program for the 9500, which is the multiband mobile. We did say that we expected to bring that market in 2027. So that's, that's what we've said in the past. In terms of the development risk, They use a lot of the common architecture between the multiband portable, the 9,000, and what will be the 9,500 mobile. So the core technology of doing multiband will be very similar, if not the same, between the radios. Now there's some nuanced differences between a handheld device and a device that's on a mobile, more in the mechanics.
Speaker Change: Excellent question Sameer.
Speaker Change: We did announce that we are starting a program for the 9500, which is the multi band mobile we did say that we expected to bring that market in 2027. So that's that's what we have said in the past.
Speaker Change: In terms of the development risk.
Speaker Change: They use a lot of a common architecture between the multi band portable the 9000 and what will be the 9500 mobile so the core technology of doing multi band will be very similar if not the same between the radios now there are some nuances or differences.
Speaker Change: <unk> between a handheld device and a device that's on them on a mobile more on the mechanics.
John Suzuki: I'm That needs to be worked out, but that's that's engineering that's well understood in our industry, and I think it's relatively low risk now that the timeline on this, why the timeline takes as long as it does is because you're you're looking at all new mechanics. And so when you're going through mechanical design. There's the design process, and then there's the tooling, the time to do tooling, which could be three to four months, and then you produce the product, and then you go through several iterations. Unfortunately, it's not a high-risk function, but just takes a lot of time, and it's really hard to compress that time.
Speaker Change: That needs to be worked out, but that's that's engineering, that's well understood in our industry and I think it's relatively low risk now that the timeline on this why the timeline takes as long as it does is because youre looking at all new mechanics, and so when you're going through.
Speaker Change: Canticle designs.
Speaker Change: There's the design process and then theres the tooling the time to do tooling, which could be three to four months and then you produce the product and then you go through several iterations. Unfortunately, it's not a high risk function, but just takes a lot of time and Theres really it's really hard to compress that time.
John Suzuki: And so that's why we stated that we'd have a product out by 2027.
Speaker Change: And so that's why we stated that we would have a product out by 2027.
Samir Patel: Okay, understood.
Speaker Change: Okay understood.
Scott Malmanger: And then the final question, sort of just a boring modeling thing. But I was looking at the deferred revenue line item on your balance sheet, and there's not really any disclosure around it. And it's sort of not obvious to me other than interop one, what what that might be. So could you just kind of clarify the source of the deferred revenue? Yeah, as part of our product offering, we have extended warranties. And so according to GAP, that's a deferred revenue until the extended warranty period is, you know, exercised. So that primarily all of the deferred revenue.
Speaker Change: And then the final question sort of just a boring modeling thing.
Speaker Change: But I was looking at the deferred revenue.
Speaker Change: One item on your balance sheet, and there's not really any disclosure around that you're sort of not obvious to me other than info offline.
Speaker Change: What what that might be so could you just kind of clarify the source of the deferred revenue.
Speaker Change: Yes, it's part of our product offering we have extended warranties and so according to GAAP, that's a deferred revenue until the extended warranty period is exercised.
Speaker Change: So that's <unk>.
Speaker Change: Primarily all of the deferred revenue.
Speaker Change: Well that and are up one yes.
Scott Malmanger: Yeah, and the interop. Okay, understood.
Speaker Change: <unk>.
Speaker Change: Okay.
Samir Patel: Appreciate the clarification. I'll, I'll pass it back. Thanks.
Speaker Change: Understood I appreciate the clarification and I'll.
Speaker Change: At the back.
Eric Voss: Thank you, Samara. Your next question is coming from Eric Voss with Mission Vertical. Please pose your question.
Speaker Change: Sameer.
Your next question is coming from Erik bass with mission vertical. Please pose your question. Your line is live.
Eric Voss: Your line is live. Hey, Jon, Scott, can you hear me?
Erik Bass: Hey, John Scott can you hear me.
Scott Malmanger: Yes, sir.
Speaker Change: Yes sure.
Scott Malmanger: Congratulations on a great quarter and a good good year here. Can you kind of take us through or help us with the working capital and kind of how you think that progresses over the next six months to a year? Sure. Basically, you know, the improved gross margins are generating the working capital improvement. And as I mentioned, in the remarks, basically, we paid off all of our debt, including the line of credit, and we've established a new line of credit. on October 30th. So we've got the working capital necessary to basically grow the business to, you know, our target of $100 million of revenue.
Speaker Change: Congratulations on a great quarter and a good good year here.
Speaker Change: Can you kind of take us through or help us with the.
Speaker Change: The working capital and cash.
Speaker Change: How.
Speaker Change: You think that progresses over the next <unk>.
Speaker Change: Six months to a year.
Speaker Change: Sure.
Speaker Change: <unk> the.
Speaker Change: The improved gross margin are generating.
Speaker Change: Working capital improvement and as I mentioned in the remarks made.
Speaker Change: Basically we paid off all of our debt, including the line of credit and we've established a new line of credit.
Speaker Change: On October 30th So we've got the.
Speaker Change: Working capital necessary to basically.
Grow the business too.
Speaker Change: Our target of $100 million of revenue.
Scott Malmanger: and basically that would be generated by product sales. Okay, so this is the right level for working capital at this point? Yes.
And basically that would be generated by product sales.
Speaker Change: Okay. So this is the right level for working capital at this point.
Speaker Change: Yes.
Scott Malmanger: Okay.
Speaker Change: Okay, and then can you kind of talk about the progression of.
Eric Voss: And then can you kind of talk about the progression of gross margin? That's been fantastic.
Speaker Change: Gross margin that's been fantastic.
Eric Voss: Is there seasonality to the improvements going forward just because of the seasonality of the business? Or how should we think about gross margins over the next couple of quarters?
Speaker Change: Is there a seasonality to the improvement.
Speaker Change: Going forward, just because of the seasonality of the business are.
Speaker Change: How should we how should we think about gross margins over the next couple of quarters.
Jon Suzuki: Yeah.
Speaker Change: Yes.
Jon Suzuki: Hi, Eric, it's Jon. So, you know, you've got so many factors that are impacting the gross margin as we go forward. So let me just hit some of the seasonality ones, right? In Q2, Q3, there are strongest quarters, primarily because a lot of the federal orders come in and get shipped. There are also, the price on those radios are, I guess, lowest price, right? They're the most aggressive because they give us the most volume. And so in Q2, Q3 tends to be more pressure on the gross margin because of the lower average selling price of those radios.
John: Hi, Eric it's John.
John: So you got so many factors that are impacting the gross margin as we go forward. So let me just hit some of the seasonality ones rate in Q2 Q3, there are stronger strongest quarters, primarily because a lot of the federal orders come in and get shipped there also.
John: The price on those radios are I guess lowest price right, there and most aggressive because they give us the most volume.
John: And so in Q2 Q3 tends to be more pressure.
John: On the gross margin because of the lower average selling price of those radios.
Jon Suzuki: If you look in the past, you wouldn't see that in the chart because it was over over achieved by the cost savings that we've had through our cost initiatives and then now going through East West. And then on top of it, as we go forward, we're getting more and more 9000 shipped out, which is even a higher margin profile. So You know, when you when you when we map it out over the over the next year, you know, we can see a couple different scenarios happening based on when we ship, say, the federal radios versus when we ship the 9000 radios versus when some of the cost improvements would kick in.
John: If you look at in the past you wouldn't see that in the chart because it was over over achieved by the cost savings that we've had.
Through our cost initiatives and then now going through East West and then on top of it as we go forward, we're getting more and more than 9000 shipped out which is even a higher margin profile. So.
John: When you when you when we map it out over the over the next year.
We can see a couple of different scenarios happening.
John: Based on when we ship.
John: The federal radios versus when we shipped the 9000 radios versus when some of the cost improvements would kick in and so it's really hard for me to definitely say what that is going to look like but in terms of price pressure I guess on mix.
Jon Suzuki: And so it's really hard for me to definitely say what that is going to look like. But in terms of price pressure, I guess, on mix, it's Q2, Q3, and that's mainly driven by the federal rate.
Q2, Q3, and that's mainly driven by the federal radios.
Eric Voss: Okay, brilliant.
Speaker Change: Okay brilliant alright, nice job guys.
Eric Voss: All right. Nice job, guys.
Operator: Thank you. You have a follow-up question coming from Samir Patel with Ask an Alumn Capital. Please put your question in your line. Hey, yeah, sorry if I missed this, but any update on that BK 9000 tethering capability with Interop One because I know that was one of the things you're kind of excited about in terms of being able to drive sales of Interop One. Yeah, so we've been working on the tethering approach for this last year. The development team has made some great strides in that, but we're still not at the point that we're comfortable putting it into a first responders hand.
Speaker Change: Thank you.
Speaker Change: You have a follow up question coming from Samir Patel with <unk> capital. Please post your question your line is live.
Speaker Change: Yeah, sorry, if I missed this but any update on VK 9000 operating capability within are off one because I know that was one of the things you were kind of excited about in terms of being able to drive sales and are off one.
Speaker Change: Yes, so we've been working on the tailoring approach.
Speaker Change: For this last year. The development team has made some great strides in that but we're still not at the point that we're comfortable putting it into a first responders hand.
John Suzuki: But we do believe that the solutions, you know, that they're on track to get to that point, it's not, again, it's not about just making the calls and, and making the connection. It's about resilience, right? So you have to be able to do change, change knobs on the radio, do a whole bunch of crazy things. And that Bluetooth connection stays intact at all cases. And so what we what we found was, there were a few scenarios where the Bluetooth would drop, or the audio would get distorted. And that's just not acceptable.
Speaker Change: But we do believe that their solutions.
That they are on track to get to that point, it's not again, it's not about just making the calls in <unk>.
Speaker Change: And making the connection it's about resilience right. So you have to be able to do change changed knobs on the radio do a whole bunch of crazy things and that Bluetooth connection stays intact at all cases, and so what we found was there were a few scenarios, where the Bluetooth would drop or the audio would get distorted.
Speaker Change: And that's just not acceptable and so we're trying to weed out those edge cases.
John Suzuki: And so we're trying to weed out those edge cases, before we go into field trials with customers, because it's a, I would say it's a very new approach for this market. The markets said that they're very excited about this. And the last thing we want to do is turn them sour on the technology. Because everyone has a preconception of Bluetooth as a reliable technology. And we want to make sure that whatever we put in the hands of these first responders, even in a test environment, is rock solid.
Speaker Change: Before we go into field trials with customers because it's a I would say, it's a very new approach for this market.
The markets said that Theyre very excited about this and the last thing we want to do is turn them sour on the technology.
As everyone has a pre conception of Bluetooth as a reliable technology and we want to make sure that whatever we put it in the hands of these first responders even in a test environment is rock solid and we're just not there yet today.
John Suzuki: And we're just not there yet today.
Samir Patel: Understood. Appreciate it.
Speaker Change: Understood.
Operator: This does conclude our question and answer session.
Speaker Change: This does conclude our question and answer session I would now like to turn the floor back over to John Suzuki for closing remarks.
John Suzuki: I would now like to turn the floor back over to John Suzuki for closing remarks. Thank you, Kelly. Thank you all for participating in today's call.
Speaker Change: Thank you Kelly.
John Suzuki: Thank you all for participating in today's call. We look forward to speaking with you again, when we report our full year's results all the best to you and have a great day.
Operator: We look forward to speaking with you again when we report our full year's results. All the best to you, and have a great day. Thank you, everyone.
Speaker Change: Thank you everyone. 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.
Operator: This does conclude today's conference call.
Operator: You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.