Blueprint
Exhibit 99.1
Transcript of
BK Technologies
2018 Year-End Investor Call
February 28, 2019
Participants
Tim
Vitou - President
Bill
Kelly - Chief Financial Officer
Analysts
Sam
Bergman - Bayberry Asset Management
Bruce
Gallaway - BK Technologies
Ed
Schulte - Investor
Presentation
Operator
Good
morning, ladies and gentlemen. Welcome to BK Technologies
Incorporated’s conference call for the fourth quarter and
twelve months ended December 31, 2018. This call is being recorded.
All participants have been placed in a listen-only mode. Following
management’s remarks, the call will be opened to
questions.
Before
turning the call over to Mr. Vitou for opening remarks, I’ll
provide the following Safe Harbor statement. Statements made during
this conference call that are not based on historical facts are
forward-looking statements. These statements are subject to known
and unknown factors and risks. The company’s actual results,
performance or achievements may differ materially from those
expressed or implied by these forward-looking statements, and some
of the factors and risks that could cause or contribute to such
material differences have been described in yesterday’s press
release and in BK’s filings with the SEC.
These
statements are based on information and understandings that are
believed to be accurate as of today, February 28, 2019, and we do
not undertake any duty to update forward-looking
statements.
I will
now turn the call over to Mr. Timothy Vitou, President of BK
Technologies. Mr. Vitou, you may begin.
Tim Vitou - President
Thank
you, David. Good morning everyone. Welcome to the BK Technologies
investor conference call for Q4 and twelve months ended December
31, 2018. I’ll provide some brief insights on the direction
of the business before Bill takes us through the financial and
operating results.
2018
was a very positive year for BK Technologies as we continued making
significant improvements in almost every area of the company. These
improvements were the catalyst that drove sales growth and
increased gross profit margins, while yielding operating profits
and positive cash flows. More importantly, our focused initiatives
are building BK’s competitive advantages for the coming
quarters and years.
Although BK has
been a mainstay in public safety communications for over 70 years,
in many respects, we’re more like a start-up. For the past
two years we’ve been undergoing a comprehensive makeover,
infusing new talent, modernizing and updating our processes,
developing new products, and changing our culture to embrace a
customer-centric and quality-first philosophy in everything we do.
Successfully implementing and sustaining such sweeping changes,
while remaining profitable, is certainly challenging. Much has been
accomplished over the past two years, and the progress can be seen
in our financial and operating results.
Looking
ahead, we believe our future is bright with new products in the
pipeline designed to increase our market share, and manufacturing
initiatives ultimately focused on world-class quality combined with
product cost reductions.
An
important first step in our future starts now. Next week
we’ll launch the BKR9000, our first digital multi-band
product offering. We anticipate that with this new product
we’ll be able to win market share quickly. We’ve made a
substantial investment in this product and believe that this
investment will yield attractive returns over both the short-term
and long-term.
The
BKR9000 has been the cornerstone of our product development efforts
over the course of 2017 and 2018. However, we’ve also
deployed resources to develop a broad, entirely new line of
portable and mobile radios to succeed our current KNG line.
Collectively, these products will serve as a fresh new foundation
upon which we can grow our core business and expand our reach into
new markets with increased capabilities that will enable us to
perform our primary goal, which is to support and facilitate the
mission of our military, first responder and public safety
heroes.
This
concludes my overview this morning. I’ll now turn the call
over to Bill Kelly, our Chief Financial Officer, who will review
the financial and operating highlights for Q4 and twelve months
ended December 31, 2018, before returning for some closing
thoughts. Bill?
Bill Kelly - Chief Financial Officer
Thanks,
Tim. The following is a summary of our financial and operating
results for the fourth quarter and twelve months ended December 31,
2018.
Net
sales for the fourth quarter 2018 increased 13.3% to approximately
$10.7 million, compared with approximately $9.4 million for the
fourth quarter last year. For the full year 2018, sales increased
25.3% to approximately $49.4 million, compared with $39.4 million
for 2017. The growth in sales for the year was broad-based across
markets and customers and was not the product of one particular
contract or customer.
Gross
profit margins as a percentage of sales for the fourth quarter 2018
were approximately 35.5%, compared with a negative 10.6% for the
fourth quarter of 2017. For the full year 2018, gross profit
margins totaled approximately 40.5% versus 24.2% for the prior
year. Gross profit margins as a percentage of sales for last
year’s fourth quarter and full year were adversely impacted
by inventory write-offs and costs associated with product
modifications and upgrades, which were recognized in the fourth
quarter.
For the
fourth quarter of 2018, selling, general and administrative
expenses totaled approximately $4.3 million, compared with $4
million for last year’s fourth quarter. For the full year
2018, SG&A expenses totaled $17.6 million, compared with
approximately $14.6 million for the prior year. The increase in
SG&A expenses is attributed primarily to new product
development, particularly the dual-band product introduced next
week.
Operating income
for the year increased approximately $7.4 million to $2.4 million
versus an operating loss of $5 million for the prior year. For the
fourth quarter, we reported an operating loss of approximately
$532,000, compared with $5 million for the fourth quarter last
year.
During
the fourth quarter, we recognized other expenses totaling
approximately $1.3 million related primarily to unrealized losses
on our investment in 1347 Property Insurance Holdings. Last
year’s fourth quarter we recognized other expenses totaling
approximately $1.4 million related to the settlement of a legal
matter, which were partially offset by a gain of $546,000 derived
from the sale of shares of Iteris. For the full year of 2018 other
expenses totaled approximately $2.9 million, which were primarily
comprised of losses from our investments in 1347 PIH and Iteris,
combined with exchange losses related to a Canadian dollar
denominated contract. For the prior year we incurred expenses of
approximately $1.4 million for the previously mentioned settlement
of a legal matter, recognized more than $1.8 million in gains on
our investment in Iteris.
For the
full year 2018, we reported a net loss of $195,000, or $0.01 per
diluted share, compared with a net loss of $3.6 million, or $0.27
per diluted share for 2017. For the fourth quarter of 2018 we
reported a net loss of $1.3 million, or $0.10 per diluted share,
compared with a net loss of $4.3 million, or $0.31 per diluted
share, for the same quarter of 2017.
Our
capital return program, in place for over two years, has now paid
11 consecutive quarterly dividends; the last one being paid on
January 15, 2019. We have also repurchased approximately 1.1
million shares since the capital return program’s
inception.
I would
now like to turn the call back over to Tim.
Tim Vitou - President
Thank
you, Bill. 2018 showed marked improvement from the preceding year,
generating operating profits and cash while self-funding our very
aggressive product development plans.
However, much
remains to be accomplished. As we continue to execute our strategic
plan, I believe we can increase our positive momentum, supported by
our new products, which will offer extensive advantages that can
drive a larger share of the market, profitable growth, and
ultimately increase shareholder value.
We’re going
to move on to the question and answer portion of the conference
call. I would like to remind everyone that we do not provide
financial and operating guidance on a quarterly or annual
basis.
David,
we’re ready to open the floor for questions.
Operator
Thank
you. At this time, we will be conducting a question and answer
session. [Operator instructions]. Our first question is from Sam
Bergman with Bayberry Asset Management.
Q: Good morning, Tim, Bill. How are
you?
Tim Vitou - President
Good.
How are you, Sam?
Q: Good. A couple questions. First of
all, do you provide any backlog numbers at yearend?
Tim Vitou - President
We do
not.
Q: Okay. What were the gross margins in
the fourth quarter?
Bill Kelly - Chief Financial Officer
So,
35.5%, Sam.
Q: With some of the initiatives that
have taken hold, can we get those margins over 40% when we include
the new products or not?
Bill Kelly - Chief Financial Officer
We
believe so, Sam. Our plans are to have the new products,
particularly the multi-band, at price points and manufacturing
costs that we believe will yield margins that are better than even
the 40.5% for the year.
Q: Will there be an initial lag when
first shipments are sent out on the new product in terms of margins
or do you think you can get up to that speed pretty
quickly?
Bill Kelly - Chief Financial Officer
I think
we can get up to that speed pretty quickly.
Q: In terms of the shutdown that
occurred with the government in December, January, should we assume
there’s going to be some effect in the first quarter from
that shutdown or not?
Tim Vitou - President
Sam,
this is Tim. I believe you will see an effect. What a lot of people
don’t realize when there’s a government
shutdown—we’ve gone through several. When the
government agencies even suspect one could be coming, they start to
shut down some of the purchases well before the actual government
shuts down. And then of course, when the government is shut down
you certainly see no purchasing, and then it takes a little bit of
a time for the government to ramp back up and start issuing the
purchase orders.
So,
even though the government may be shut down for 32 days,
there’s actually a build-up time where you see slower
purchasing and then certainly a ramp-up time after the shutdown is
over. So, it did definitely have an effect on us at the end of last
year, in Q4, and it remained in the first part of this year so
far.
Q: What do you see as of February
28th? Do
you see it back now?
Tim Vitou - President
Our
communications with our customers are lighting back up. Just
because the sale didn’t occur when we assumed or had planned
for it to occur, it doesn’t mean it was a lost sale; it just
means it was delayed. So, even though you may see an effect on
business in the first quarter, we anticipate getting what we
thought we would have later in the year anyway.
Q: I had two remaining questions.
Investment securities, what does a company have in its portfolio
right now of investments, if anything?
Bill Kelly - Chief Financial Officer
The
sole investment right now, Sam, is the 1347 PIH
investment.
Q: Do you have plans to liquidate this
year or it’s going to be a long-term investment?
Tim Vitou - President
I think
you’re going to see that the board is going to be announcing
some future plans within the next few months on what we’re
doing with our PIH investment. Up until now, management’s
been pleased with the latest announcements that you might have seen
on PIH in the last, I guess, couple of weeks now. So, you’re
going to see future announcements coming out, Sam, and give it a
couple of months.
Q: Okay. That should be it for now.
Thank you.
Tim Vitou - President
Thanks,
Sam.
Operator
Our
next question is from Bruce Gallaway with BK
Technologies.
Q: Hi, guys. How you doing?
Congratulations.
Tim Vitou - President
Thank
you, Bruce.
Q: You’re showing some good
growth. Can you give us some color on the multi-band product?
Obviously it’s going to be launched, I guess, this quarter or
next quarter. How significant do you see that product? Is it a $10
million product, a $15 million product, $5 million product? Where
do you see it fitting in to the total revenue mix?
Tim Vitou - President
Great
questions, Bruce. The actual launch of the radio is next week.
We’re launching it at the IWCE show, which is the biggest LMR
industry show of the year. We purposely chose that due to the
variety of customers and industry people that are in Vegas next
week. So, we’ll have our full complement and our complete
booth will be doing nothing but showcasing this BKR9000.
We’re extremely excited about it.
I think
the thing that has me the most excited, Bruce, is this is not going
to cannibalize our existing product. This will be adding to; this
will be all incremental business. I’m not going to pin myself
down to an exact number on the call here on what we anticipate for
the balance of the year revenue-wise. But, it will be a
significant—we anticipate it being—it better be a
significant contributor to our revenue stream.
Q: Obviously you’ve pre-marketed
it; you’ve spoken to a bunch of customers about it.
You’ve got some feedback to give you the optimism that you
have.
Tim Vitou - President
Absolutely. Not to
put too many numbers or wrap around too much data and give too much
of a guidance, but we’ve got well over 30 different
opportunities I already identified that we’ve talked with
customers on that are current customers looking to purchase this
style of radio. We’re talking thousands of units. We believe
that as the year progresses these numbers just start to
exponentially grow as well.
Q: Great.
Tim Vitou - President
You’re
absolutely correct. We’ve been talking to customers for well
over a year with this product.
Q: Well, good luck with it. Obviously it
could add a lot to incremental sales and margins. What are you
doing about IR? I mean, there seems to be a real dearth of interest
in the stock and liquidity in the stock and there seems to be no
coverage at all. Are you going to try to ramp that up? I mean, this
year you should be going into a $50 million year, and the stock is
just very languishing at this point.
Tim Vitou - President
Also,
great insight, Bruce. Bill and I have been to New York. Kyle
Cerminara, our Chairman, and Lewis Johnson, our Co-Chairman, are
working to do exactly that, to bring on some IR guidance. We have
been, you’re right, probably languishing longer than we
should have been on some of the stock prices. We are going to make
a much bigger effort in 2019 along those lines,
though.
Q: I look forward to it.
Great.
Operator
Our
next question is from Ed Schulte [ph], Investor.
Q: Good morning, Tim and Bill. Thanks
for taking my call.
Tim Vitou - President
Sure,
Ed. Good morning.
Q: Good morning. A question for you on
the multi-band. About nine months ago is when you first announced
it and we’re launching it next week. That would be for the
portables. You also mentioned last year that you’d be moving
along and also developing a model for the mobile market. How long
would it take to get that? Would that be something that’s
just another quarter or so down the road or do you expect that to
be longer?
Tim Vitou - President
It’ll be a
little bit longer because we have other products, Ed, that
we’re going to be developing and announcing before the end of
the year that’s going to be replacing our current KNG series
of products. That’s our mainstay right now. We’re full
bore go ahead on our development of our new portable and mobile on
those lines. And then the multi-band mobile probably is not until
early 2020 before we introduce that product.
Q: Thank you. Most of my other questions
have been answered, but I do have one more on your pipeline of
opportunities. A couple years ago you had that big contract with
the Department of Homeland Security, last year you got the nice
contract with the Army there. What do you look forward to as far as
the pipeline of opportunities either through the government or
smaller, let’s say, police or fire or county
departments?
Tim Vitou - President
We have
an extremely—in fact, in the 11 years I’ve been with
the company, mostly driving sales, this is the most dynamic
pipeline and funnel I’ve seen in the company’s history
and a lot of it is the expansion into our state and local arena.
We’re getting an enormous amount of attention from more than
just the fire communities of our cities, counties, and states;
we’re getting into a lot of the law enforcement as
well.
Our
federal business is also increasing and our exposure is expanding,
especially due to the multi-band. A lot of the federal agencies
have already made the change to buy nothing but multi-band
products. So, our federal customers are very excited about the
BKR9000. In fact, they’ve all been very, very tuned in to the
development process, and we’ve worked closely with them,
getting their feedback. They’ve been an enormous help in
designing the radio.
I
don’t have a TSA $30 million contract to announce any time
soon because the government so far hasn’t shown any RFI
activity that will lead to an RFP that are in that size. But, the
good news is there’s far more RFPs that we’re chasing
than we were a year or two or ten years ago. So, the total dollar
value is much, much higher.
Q: Tremendous. That’s all I had
today. Best of luck on the launch of the BKR9000.
Tim Vitou - President
Thanks,
Ed.
Operator
Our
next question is a follow-up from Sam Bergman with Bayberry Asset
Management.
Q: Hello.
Tim Vitou - President
Hi,
Sam. You’re back.
Q: Hi. One last question, in terms of
the federal agencies, what’s the push right now in 2019 by
sales department in terms of getting more federal agencies on
board?
Tim Vitou - President
Excellent question.
It all starts with the team and redeveloping the team and
augmenting the sales team to go after further penetration into
agencies we typically haven’t been able to attract.
We’ve got Craig Price, our Senior Vice President, is really
pushing hard on the development of our federal team. So, frankly,
Sam, we’re able to go after more customers by just purely
having the sales capabilities to go after them.
So,
that’s the first step of it. The second step is as
we’ve won some federal agencies and we’re performing
well, that is working well as a reference. We think that not only
can we organically grow the customers we already have in the
federal space with internal sales, we can exponentially grow by
branching out into agencies who historically haven’t been in.
So, we’re very excited about the federal space in 2019 and
2020 going forward, especially with the BKR9000.
Q: Thank you very much.
Tim Vitou - President
Thank
you, Sam.
Operator
Ladies
and gentlemen, we have reached the end of the question and answer
session. I would like to turn the call back to Tim Vitou for
closing remarks.
Tim Vitou - President
Thank
you, David, and thank you all for participating in today’s
call. We look forward to talking with you again when we report our
first quarter 2019 results in May. All the best to all of you and
have a great day.