bkti_ex991
Exhibit 99.1
Transcript
of
BK
Technologies Corporation
Fourth
Quarter & Twelve Months 2020 Earnings Call
March
4, 2021
Participants
Timothy
Vitou - President
William
Kelly - Chief Financial Officer & Secretary
Analysts
Walter
Ramsley - Walrus Partners
Presentation
Operator
Good
morning, ladies and gentlemen, and welcome to the BK Technologies
Corporation Conference Call for the Fourth Quarter and Full-Year
2020. 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 our President, Mr. Timothy Vitou for
opening remarks, I will provide the following safe harbor
statement. Statements made during this conference call 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 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 U.S. 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. I will now turn the
call over to Mr. Timothy Vitou, President of BK Technologies. Mr.
Vitou, you may begin.
Timothy Vitou - President
Thank
you, Kate, and thanks, everyone, for joining today. I’ll
arrange my comments as follows: first, I’ll highlight our
financial results; next, I’ll spend some time providing
operational updates; and then, I’ll turn the call back over
to our Executive Vice President and Chief Financial Officer, Bill
Kelly, to dive deeper into our financial results. We’ll
conclude by opening up the call for a brief Q&A.
Moving
to financial results, we had a strong fourth quarter. Revenue grew
43% and we generated an operating profit of $900,000. Operating
margins were 8.4%, a substantial improvement, compared with a
negative 32.4% for last year’s fourth quarter. Our gross
profit margins and key metrics continued to benefit from revenue
growth and new products, combined with our restructuring and the
related expense reductions.
Taken
altogether, 2020 Q4 results continue to highlight the earnings
power of our new expense structure. Moreover, we believe BK is just
getting started with these strong results. We think that over the
next few years, we have a path to reach up to $100 million in
revenue and an ability to generate substantial
profits.
We feel
we can achieve that goal by remaining focused on increasing sales
of existing communications technology products, growing sales of
our newly launched BKR 5000, and preparing for the planned launch
of the multiband BKR 9000 in midyear 2021.
The BKR
9000 should significantly increase contract sizes we can compete
for. We’re looking forward to its launch, complementing the
performance of our existing and relatively new offerings. Turning
to an update on sales of existing products and solutions, during
the fourth quarter of 2020, we were awarded a contract totaling
approximately $1.5 million from the U.S. Department of
Interior.
The
order was for BK’s Digital P-25 KNG2-Series portables and KNG
Series mobile communications technology, with related accessories.
Our mantra at BK is that we build products with accountability and
integrity. Thus, it’s gratifying to see continued adoption of
our KNG mobiles in individual deals as well as in mixed deals that
include our new BKR 5000.
In
fact, after the quarter, we won business from a municipal Fire
Department in Virginia that included both BKR 5000 and KNG Series
products.
Moving
on to our next growth initiative, launching and increasing sales
from new products. Just ahead of Q4, we announced the market
introduction of our BKR 5000 portable communication technology, the
first model in the new BKR series.
During
the fourth quarter, we were pleased to announce our first order,
which totaled approximately $1.1 million from an agency of the
State of Tennessee. We were particularly excited about this order
since we had launched the product only a month prior. Additionally,
the Tennessee State agency was a first-time BK
customer.
The BKR
5000 is just the initial model in a comprehensive new line of
communications technology, which will include multiband products
scheduled for release midyear. Securing such an extensive order
from a new customer shortly after a new product launch was very
encouraging.
Momentum
for the 5000 has continued into the first quarter of 2021. And we
have issued multiple announcements regarding new orders. And to
make sure interested parties are more fully informed of our
continued progress, we intend to increase our rate of
announcements.
Recently,
we announced an order from a new and strategic customer in Montana
for our BKR 5000 for their first responders. We also announced an
order from a county fire department in the State of Texas. During
these challenging times of severe weather and electrical
disruptions, we are pleased to provide hero firefighters in the
great State of Texas with BKR 5000s.
As this
raging weather and other emergency events occur with increasing
frequency, we take great pride in outfitting the public safety
heroes that are keeping our community safe with solutions they can
trust, which brings us to our next growth initiatives, launching
our first multiband communications product, the BKR
9000.
We have
continued to make solid progress toward being able to launch the
BKR 9000 later this year. The BKR 9000 addresses a much greater
market at a significantly higher price point, along with
exponentially larger contract opportunities. We believe the 9000
will open an array of new markets and customers for us, serving as
the primary driving force for our growth in the next several years,
and complementing the BKR 5000 expansion.
The
newly launched BKR 5000 and forthcoming BKR 9000 will allow us to
penetrate new vertical markets that were largely inaccessible to us
previously. Today, BK’s market share is relatively small,
less than 2%. We see a huge opportunity for market gains through
the introduction of these new products.
We view
the market opportunity as so significant that we announced just
this morning, a new Technology Innovation Center located in South
Florida. The primary initial focus of the Center is the completion
this year of the BKR 9000, which coupled with the new BKR 5000,
allows BK to expand into new vertical markets totaling an estimated
$1.2 billion.
Leading
the Technology Innovation Center is BK’s Chief Technology
Officer, Dr. Branko Avanic, along with a highly skilled team with
deep backgrounds in a broad array of technology disciplines, and
extensive direct experience designing state-of-the-art
communications technology solutions. They will serve as the
cornerstone of our new technology initiatives helping BK’s
technology footprint expand into new addressable markets. Given the
present moment of weather disturbances, social upheaval and the
pandemic, the role of public safety plays increases
significantly.
We are
confident that our new communications technology allows us to tap
into greater market share rapidly. And while we’re excited
about the prospects of the BKR 9000s launch and the potential
implications, I’d like to reemphasize that current
performance has been tremendous.
Q4
revenue grew 43% year-over-year, and operating results improved by
$5 million benefiting from our new expense structure, and with the
BKR 5000 just introduced in August last year. Our existing new and
forthcoming communication solutions will facilitate our goal of
creating substantial shareholder value as the fourth quarter
results highlight.
This
concludes my overview. And I’ll turn the call over to Bill
Kelly, our Chief Financial Officer, who will review the financial
and operating highlights.
William Kelly - Chief Financial Officer &
Secretary
Thank
you, Tim. Following is a summary of our financial and operating
results for the periods ending December 31, 2020. Our overall
financial and operating results for the full year 2020 improved
markedly from the preceding year. Sales for 2020 grew over 10%
compared with 2019, while gross profit margins as a percentage of
sales increased 2% year-over-year.
Additionally,
our balance sheet strengthened during the year with a $4 million or
30% reduction in inventory, which was a significant contributor to
positive cash flow for the year of approximately $2.4 million.
Meanwhile, as Tim mentioned, we launched the first portable radio
the BKR 5000 in a new line of land mobile radio products with
additional models planned for 2021.
Total
sales in 2020 grew 10.1% to approximately $44.1 million, compared
with $40.1 million for the prior year. The increase was attributed
to federal and state public safety agencies, some of which were new
customers. We also realized sales from our new BKR 5000 portable,
which was introduced during the third quarter of 2020.
Gross
profit margin as a percentage of sales in 2020 increased to
approximately 41% compared with 39% for the previous year. The
improvement was attributed primarily to improved mix of product
sales and reduced manufacturing costs.
Selling,
general and administrative expenses for 2020 declined approximately
$3 million, or 15% to approximately $17 million or 38.6% of sales,
compared with $20 million or 50% of sales in 2019. The decrease in
SG&A expenses was the result of broad-based cost reduction
actions, including a reduction in our workforce. The combined
impact of sales growth, gross profit margin improvement, and
reduced operating expenses yielded an increase of over $5.4 million
in operating income from the prior year.
We
recognized other expenses totaling approximately $797,000 in 2020,
primarily attributed to an unrealized loss from our investment in
PIH made through FGI 1347 Holdings, a consolidated variable
interest entity. This compares with other income of $762,000 last
year, which was primarily related to an unrealized gain from the
investment in PIH.
For
2020, we recognized pre-tax income of approximately $251,000, a
significant improvement from last year’s pre-tax loss of
approximately $3.6 million. We recognized income tax expense of
approximately $3,000 for 2020 compared with a benefit of $987,000
for the prior year. Our income tax expense and benefit was largely
non-cash as a result of deferred items.
Net
income for 2020 of approximately $248,000 or $0.02 per basic and
diluted share, improved $2.9 million from last year’s net
loss of approximately $2.6 million or $0.21 per basic and diluted
share.
As of
December 31, 2020, working capital totaled approximately $15.1
million, of which $13.3 million was comprised of cash, cash
equivalents and trade receivables. This compares with working
capital of approximately $14.5 million at 2019 year-end, which
included $8.6 million of cash, cash equivalents and trade
receivables.
During
2020, we fulfilled the limit of our stock repurchase program,
repurchasing an additional 121,261 shares of our common stock,
utilizing cash of approximately $280,000. And our capital return
program has now paid 19 consecutive quarterly dividends with the
last one paid on January 19, 2021.
That
concludes my remarks. We’ll now move on to the
question-and-answer portion of the call. I would like to remind
everyone that we do not provide financial and operating guidance on
a quarterly or annual basis. Kate, we’re ready to open the
floor for questions.
Operator
Thank
you. Ladies and gentlemen, the floor is now open for questions.
[Operator Instructions] Our first question today is coming from
Walter Ramsley. Your line is live.
Q: Thank you. Congratulations, great quarter, and looks like
you’re ready to go for the current year as well. The question
I have has to do with your supply chain. There’s been talk
anyway in the industry of getting problems obtaining semiconductors
and other electric components. Have you had any issues there? And
are there any cost pressures that you foresee in the current
year?
Timothy Vitou - President
Well,
thank you for the question, Walter. This is Tim. Randy Willis, our
COO who is in charge in monitors, procuring all of our components
on an hourly basis is constantly giving us signals that there are
certain components and certain pieces that we do acquire, that are
starting to lengthen their lead time. So instead of having a
typical 3- or 4- or 5-week lead time, it may be a 5, 6, 7 lead
times. So that causes us to have to adjust, potentially, maybe some
inventory levels in order to continue the product
flow.
His
driving mantra is, constantly protect the flow, make sure that
we’re always prepared to answer the customer requirements on
shipping product. That said, the team, I believe, has done a
fantastic job of keeping our inventory under control. As Bill
mentioned earlier in his remarks, our inventory levels are
substantially lower than what we went into the year
with.
So
it’s a balancing act. But right now, we believe that
we’ve got eyes on all the products we need. There is some
tightening in certain components that we do source on a global
basis. But at this point, we haven’t gotten any signals that
there is major cost issues or supply issues.
Q: Well, that sounds good. And just one other question, as
far as the selling cycle, with the Coronavirus abating, have you
been able to get out into the field more and meet your potential
customers face to face? Or is it still more of a remote operation
at this point?
Timothy Vitou - President
Another
great question, Walter. It’s kind of a mixed bag. When we see
it at the – we deal at the city, the county, the state and
the federal level of governments. The fed boys and ladies have been
pretty straight armed on allowing us to come into their facilities.
The states depending on the state has opened up the ability to
actually get in and do sales presentations on a very small scale,
it’s usually a 1-on-1 kind of thing. We’re used to a
1-on-10 kind of conversation. They’re not packing their rooms
full of people. It’s usually 1 or 2 people at all if
that.
Again,
it varies at the county and city level. We have seen some opening,
but there’s still the vast majority of what we do is via Zoom
or Skype or some other technology for off-site presentations,
remote presentations, I should say. So I believe, it’s
opening up a little bit. I’m in constant contact with all of
our sales guys trying to monitor exactly that level of
activity.
Q: So once it does open up, do you think that will shorten
the sales cycle or they’ll just make it easier, but it really
won’t have a financial impact?
Timothy Vitou - President
I
don’t think – well, I look at the sales cycle as
what’s the effect from a budget standpoint. And if we go in,
we present our products the customer falls in love with us and the
product and wants to buy it. Typically it still takes quite a while
for them to get the product or the procurement into their budget
cycle. It’s a well-known fact in the land mobile radio
industry that you could see anywhere from a 6 to 12-month cycle, by
time the customer agrees to buy before we see a PO.
So as
we’ve been able to talk with our customers at least remotely,
we’ve been able to keep the interest. They’re very,
very keen on seeing the 5000. So we’re sending a lot of
product out, so they can demo the gear themselves and see the gear,
we walk them through it remotely and there’s an enormous
backup demand for the 9000 as well. I don’t know that the
sales cycle shortens, I haven’t seen it yet. I think there is
a bit of a backup demand for land mobile radio
products.
But
it’s just a matter of the individual, city, county, state and
fed agency to allow us to get in and see them. But as last year
showed we were setting some records in our sales and bookings
department throughout the year, we had our second best sales year
ever even with the constraints of COVID. So I’m very, very
excited about this year and our ability to move the
needle.
Q: Sounds good. Well, thanks for taking the questions. Those
were great answers. I appreciate it.
Timothy Vitou - President
Thank
you, Walter. Have a great day.
Operator
Thank
you. [Operator Instructions] Our next question today is coming from
[Alan Lyons] [ph]. Your line is live.
Q: Thank you. Hey, Tim, Bill, congratulations on the efforts
that you have put in with the engineering, reengineering and
revamping, the company is starting to look to really payoff and
exciting opportunities. A question about with COVID-19 slowly
getting under control, what do you see your international
opportunities in 2021?
Timothy Vitou - President
Thanks
for the question, Alan. I love talking and thinking internally and
strategizing on international markets. As you know, you’ve
been around for a while with the company, we have historically been
kind of a North America centric organization, we have had success
in certain markets like Australia, Philippines, Indonesia, a couple
of markets in Latin America. We see our ability to start to expand
our marketplace, especially with the upcoming BKR 9000 as well as
BKR 5000. We think we can address some international markets a
little bit better.
The
age-old question on international business, though, become service.
And how do we support the service? So we’re very careful that
if we’re chasing which we are international opportunities
that there’s going to be some level of infrastructure in that
country that we can support our customers. It’s very, very
key to our business model. That’s what helps us win quite a
bit of our business is our post-sales support and basically living
with the customer.
So, I
do believe 2021 will start to grow some of our international
business. I think we’ll do it in a very controlled effort, so
that we can do the support of those sales. But I think the new
product line, the BKR Series really lends itself terrific to the
international marketplace.
Operator
Thank
you. It appears we have no further questions in queue at this
time.
Timothy Vitou - President
All
right. Well, thank you, Kate. And thank you all for participating
in today’s call. We look forward to talking with you again
when we report our Q1 2021 results in May. All the best to all of
you and have a great day today.
Operator
Thank
you, ladies and gentlemen. This does conclude today’s event.
You may disconnect your lines at this time and have a wonderful
day. Thank you for your participation.