Blueprint
Transcript of
BK Technologies Corp
Third Quarter 2019 Investor Conference Call
November 7, 2019
Participants
Timothy
Vitou – President
Bill
Kelly - CFO
Analysts
Edward
Schulz
Presentation
Operator
Good
day, ladies and gentlemen, and welcome to BK Technologies
Corporation Conference Call for the Third Quarter ended September
30, 2019. This call is being recorded. All participants have been
placed on a listen-only mode. Following management’s remarks,
this call will be open to questions.
Before
turning the call over to Mr. Vitou for opening remarks, I SEC.
These statements are based on information and understandings that
are believed to be accurate as of today, November 7, 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 will 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 BK’s filings with the of BK Technologies. Mr.
Vitou, you may begin.
Timothy Vitou - President
Thank
you, Julia. Good morning, everyone, welcome to the BK Technologies
Investor Conference Call for the third quarter and nine months
ended September 30, 2019. I’ll provide some comments about
the business before Bill takes us through the financial and
operating results.
Our
third quarter this year included a mix of financial and operating
results, combined with progress on important strategic initiatives
that are intended to enhance our competitive position and growth
prospects for the future. Sales for Q3 were driven primarily from
our stronghold in legacy customers, as evidenced by orders from the
US Forest Service that were previously announced in
July.
Also,
the TSA exercised the fourth one-year option, extending their
contract with BK to September 2020. The option provides for the
purchase of up to $2 million of our product. Upon exercising their
option, TSA also placed a firm delivery order for equipment and
services totaling approximately $1.8 million, of which
approximately $200,000 was fulfilled in September. The remainder is
anticipated to be fulfilled during fourth quarter this
year.
Orders
for state and local markets and international customers in Q3 were
soft in comparison to last year’s Q3 when we closed
substantial orders from public safety agencies in the State of
California and in Canada. Consequently, total sales for Q3 declined
relative to Q3 last year.
Gross
profit margins increased for the second consecutive quarter,
following a first quarter that was negatively impacted by the
federal government shutdown. This increase was reflecting
improvements in sales mix, prices, and product costs. Operating
expenses are above last year’s levels due to engineering and
product development initiatives; however, they decreased 23% from
the immediately preceding quarter.
As
I’ve mentioned on recent calls, we have been working on
several new product development programs that are vital to moving
us forward toward achieving the company’s strategic goals and
objectives. Reflecting the importance and high priority of these
efforts, I’m pleased and excited to report that just last
week we appointed a new Chief Technology Officer, Dr. Branko
Avanic. Branko brings to BK impressive credentials and experience.
His career is comprised of more than 30 years of product
development leadership with Motorola. Branko’s
accomplishments include 29 patents in land mobile radio, and a PhD
in electrical engineering. In his previous roles, Dr. Avanic has
been the architect of numerous successful land mobile radio
products. Since his arrival in August, Dr. Avanic has been focused
on our multiband development. His detailed examination and
assessment of the product identified design changes that we believe
should improve the product’s functionality and performance,
and enhance its ability to successfully compete in the
marketplace.
Although our
existing design is functioning and has passed FCC testing, we
believe it’s important to launch the best possible product to
maximize our prospects for widespread customer acceptance. We have
started the process of implementing these design changes. Doing so
will extend the time required to bring the product to market.
Although the timeline’s not firm, we anticipate completing
the development in the second half of 2020. Prior to then, however,
we anticipate rolling out the first product in our new BKR family
of radios. The BKR line is planned to eventually replace our
flagship successful KNG Series of radios.
We
intend for the BKR line to have a completely new look and feel,
with an easy, intuitive user interface. It is designed to high
specifications and provide exceptional performance. While the date
of the introduction of the first product in the BKR line is not
firm, we anticipate that it will be in the first half of 2020.
Clearly, we had hoped that our new products would arrive earlier;
however, we believe delivering a product out of the gate with
world-class functionality, performance and quality, is critical to
its success, and ultimately, our plans for increasing BK’s
share of the market.
This
concludes my overview this morning. I’ll now turn the call
over to Bill Kelly, our CFO, who will review the financial and
operating highlights for the third quarter and nine months of 2019,
before returning for some closing thoughts.
Bill.
Bill Kelly – CFO
Thanks,
Tim. Following is a summary of our financial and operating results
for the third quarter and nine months ended September 30,
2019.
Net
sales for the third quarter of 2019 totaled approximately $11.8
million, compared with approximately $13.3 million for the third
quarter last year. For the nine months ended September 30, 2019,
net sales totaled approximately $32.7 million, compared with $38.7
million for the nine month period last year.
Gross
profit margins, as a percentage of sales for the third quarter of
2019, improved to approximately 43.3%, compared with 41.1% for the
third quarter last year. For the nine months period of 2019, gross
profit margins were 40.4%, compared with 41.8% for the nine month
period last year. Gross profit margins for the third quarter
increased for the second consecutive quarter on the strength of a
more favorable mix of product sales, combined with improving prices
and declining product costs.
For the
third quarter of 2019, selling, general, and administrative
expenses totaled approximately $4.8 million, compared with $4.6
million for last year’s third quarter. However, as Tim
mentioned, they declined 23%, or $727,000, from the preceding
quarter. For the nine months ended September 30, 2019, SG&A
expenses totaled approximately $15.2 million, compared with
approximately $13.2 million for the same period last year. The
increase in SG&A expenses for both the third quarter and nine
months was attributable primarily to new product
development.
For the
third quarter of 2019, we recognized net other expenses totaling
approximately $310,000, related primarily to an unrealized loss on
our investment in 1347 Property Insurance Holdings. During last
year’s third quarter, we recognized net other expenses
totaling approximately $211,000. For the nine months ended
September 30, 2019, net other income totaled approximately
$222,000, primarily from gains on 1347 PIH. For the same period
last year, we recognized net other expenses of approximately $1.6
million related to investment and exchange [cough].
For the
third quarter of 2019, we reported net income of approximately
$238,000, or $0.02 per diluted share, compared with $650,000, or
$0.05 per diluted share, for the third quarter last year. For the
nine months ended September 30, 2019, our net loss totaled
approximately $1.3 million, or $0.10 per diluted share, compared
with net income of approximately $1.2 million, or $0.09 per dilute
share, for the same period last year.
Our
capital return program has paid 14 consecutive quarterly dividends,
with the last one paid on October 15, 2019. We have also
repurchased approximately 1.3 million shares since the
program’s inception.
I’ll now turn
the call back over to Tim.
Timothy Vitou – President
Thank
you, Bill. I believe we made important strides during the quarter
toward achieving our vision for new products that we intend will
differentiate BK from our competitors, and drive the growth in
market share, sales, and shareholder value.
We’ll now
move on to the question and answer portion of the call. I’d
like to remind everyone that we do not provide financial and
operating guidance on a quarterly or annual basis.
Julia,
we’re now ready to open the floor for questions.
Operator
Thank
you. [Operator instructions]. Please hold while we poll for
questions. Our first question comes from Edward Schulz who’s
an individual investor. Go ahead, Edward.
Q: Good morning, Tim and Bill. Thank you
very much for taking my question. Couple of questions I have here.
On the R&D, last quarter it was about $3 million, this quarter
possibly $2.5 million, and in the previous several quarters of this
year or last year it was running around $2 million.
Would
you expect that in the future that we’d remain between that
$2.5 million and $2 million range, or is there a possibility, when
we closer to rolling out the new line, that we’ll jump back
up above that $2.5 million level?
Bill Kelly - CFO
Hi, Ed,
this is Bill. I anticipate that once we get closer to the
introduction of the multiband, we’ll see some engineering
expenses come back. We did see them come back a bit in third
quarter as we utilized less external resources, which are
expensive, and rely more on an internal staff. And that’s a
key focus of Dr. Branko and his arrival here.
Q: Okay, thank you. The last few
quarters you gentlemen have indicated that the sales funnel looked
pretty full there, that there were some opportunities out there. I
was just trying to get a little bit better understanding on the
sales funnel that you’re looking at. Is that more long term,
where some of these contracts are maybe a year or so down the road
that you’re expecting to move forward, or is some of this
more short term that you’d expect in the next couple of
quarters?
Timothy Vitou - President
Ed,
this is Tim, great question. It’s a little of both. We just
recently were awarded a contract, which is basically a hunting
license within the federal government. It’s nothing that we
would necessarily do a public relief on, or a press release on,
because nothing has been awarded against it, but it’s another
contract vehicle that we can utilize within the federal
government.
The
funnel itself, we continue to add and constantly are renewing our
funnel and the pipeline. There are activities out there that we are
chasing. I think you mentioned this before in prior calls, Ed, and
you recognize that some of our sales cycles in the federal, and the
state and local space, can be lengthy. They can take up to a year
in some cases. We continually focus. It is a huge focus of mine
right now to continue to grow the funnel.
Q: And then my final question is on the
investment that you have with FGI, which I guess is invested in
Property Insurance Holdings. The investment you made a few years
ago, I believe the total investment was approximately $3.7 million,
that’s come down substantially as property insurance has come
down, but I guess they’ve entered into an agreement to sell
off most of their insurance subsidiaries, and they’ll receive
cash and stock, I guess a little over $8 a share, which would be
above your initial purchase price.
Is that
something that you would expect, that once that settles out, that
you would repatriate some of those funds that cash back to BK, or
is that something that you would expect to leave more as a
long-term investment with fundamental?
Bill Kelly – CFO
Good
question. The investment in 1347 PIH is driven primarily at the
board level, and I know they have a belief that that’s going
to end up being a positive investment for the company. I
can’t really comment on a specific timeframe. There are no
immediate plans that have been announced to handle that investment
any differently. But as the board continues to analyze that, as
things happen, we’ll certainly make announcements, public
announcements.
Q: Okay, thank you very much.
That’s all I had today.
Timothy Vitou – President
Thank
you, Ed.
Bill Kelly – CFO
Thanks,
Ed.
Operator
There
appear to be no further questions. Mr. Vitou, [indiscernible] back
over to you.
Timothy Vitou – President
Thank
you, Julia. Thank you all for participating in today’s call.
We look forward to talking with you again when we record our Q4 and
full-year 2019 results in March of 2020. All the best to all of you
and have a great day today.