BK Technologies Corporation

Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation conference call for the fourth quarter and year-end 2021. This call is being recorded. All participants have been placed on a listen-only mode. Following the management's remarks, the call will be open to questions. Before turning the call over to our Chief Executive Officer, Mr. John Suzuki, 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 the BK 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 John Suzuki, CEO of BK Technologies. Mr. Suzuki, you may begin.

Thanks, everyone, for joining today. I'd like to start by reviewing some highlights of our operations and financial results during the quarter. Then I'll turn it over to our Executive Vice President and Chief Financial Officer, Bill Kelley. to dive deeper into our financial results. We'll conclude by opening up the call for a brief Q&A. Building on our success in Q3, we continue to see strong demand and order activity for our portable communications technology in the fourth quarter, particularly for the BKR 5000. Since its release, the product has gained excellent traction in the marketplace, as well as with new and existing customers look forward to modernize their fleet. As a result of the growing demand for our products, we closed out 2021 with a record bookings of 55.5 million and a backlog of 13 million. These milestones are a direct reflection of the strength of our product line, customer service, and sales teams as the marketplace continues to embrace our products with the goal of enhancing their mission critical communication solutions. During the fourth quarter, we won numerous contracts for sale and deployment of our products. To highlight a few, In October, the Helena, Montana Fire Department selected the BKR-5000 for purchase and deployment as part of their lifecycle replacement program for aging radios in their wildland fire fleet. In November, the BKR-5000 was selected for purchase and deployment by the Wyoming State Forestry Division as they implement a lifecycle replacement program and expand their communication products. And in December, we received a purchase order valued at $1 million from the United States Department of Agriculture Forest Service for the BKR 5000 as part of our five-year blanket purchase agreement with the U.S. Department of Agriculture announced in May 2021. While the demand for our products continue to grow, we are still affected by supply chain challenges that impact our gross margins through increased material, component, and freight costs. As I said before, we remain hopeful that these costs will return to normal levels as we progress through 2022. and that our gross margins will show improvement as a result. In the meantime, we are committing time and resources to optimize our supply chain as much as possible to help ensure that our customers are receiving their orders in a timely fashion. As we start 2022, customer demand and bookings remain strong. That said, constraints and timing issues with our supply chain during January and February hampered the availability of some material and components and delayed our product manufacturing processes. Those issues are being addressed and we anticipate increasing production in March and April while fulfilling customer demand as quickly as we can. But with our visibility today, I expect deliveries of certain products that we plan to complete in the first quarter will be pushed into the second quarter of 22. One thing that has become very apparent to all of us as we follow the news is that wildland fire activity has grown steadily in both frequency and duration in the years. We are proud to be a premier provider of dependable portable communications technology to first responders on the front lines. Fire management and response is a core market of ours, and that continues to grow. Moving forward, we believe we also have a tremendous opportunity to increase our market reach beyond fire, rescue, and mitigation into the military, law enforcement, and emergency medical response sectors. In addition to the macro trend of more wildland fires, another macro trend is increasing use of the public or cellular networks by first responders in conjunction with the all-important traditional use of private networks. This increased use of public networks represents a tremendous opportunity, and to capitalize on this, we recently launched a dedicated business unit focused on delivering software as a service solutions to the public safety market. The new unit will develop and deliver a comprehensive suite of state-of-the-art subscription-based software solutions with unique features to first responders via the public cellular network. We recently applied for three patents related to push-to-talk over the cellular and other cellular-based smartphone applications for the first responders. BK Technologies is already a leader in the land mobile radio market. By developing technology, that will tether our first responders' radio to his or her smartphone, we are positioning ourselves at the forefront of what we believe is a significant industry-wide opportunity that vastly expands our addressable market and further improves the safety and productivity of our first responder customers. Lastly, I'd like to update on the status of the BKR 9000. Since our last call, I'm happy to report that we've made significant progress in the development of this product. The issues that slowed our progress last year have been addressed, and during the second quarter of 2022, we expect to start deploying working BKR 9000 radios in the field for engineering test purposes. Pending the results of these field tests, we will be in a much better position to finalize a launch date. To conclude, I am incredibly proud of the team's strong results that we've been able to deliver. Our fourth quarter, and 2021 performance reflects robust demand and order activity for our product line, and we're excited and encouraged by the many opportunities that are over the horizon as we move forward into 2022. We are armed with a solid balance sheet and the financial flexibility to explore acquisition opportunities and develop revolutionary new products and solutions that complement our growth as we continue scaling BK Technologies. At this point, I'd like to turn it over to Bill Kelly, our Executive Vice President and Chief Financial Officer, who will review the financial and operating highlights. Bill?

Thank you, John. Following is a summary of our financial and operating results for the periods ending December 31st, 2021. Sales for the fourth quarter totaled approximately $12.8 million, compared with $10.6 million for the same quarter last year. Gross profit margins as a percentage of sales in the fourth quarter were 36.2% compared with 44.2% for the fourth quarter last year, primarily due to sales mix, cost increases related to material and freight expenses. Selling general and administrative expenses, or SG&A, For the fourth quarter, totaled approximately $4.4 million, or 34.4% of sales, compared with $3.8 million, or 35.7% of sales for the same quarter last year. For the fourth quarter of 2021, we recognized an unrealized loss of approximately $530,000 on our investment in FG Financial Group. compared to an unrealized gain of $177,000 in the fourth quarter of 2020. Our net loss for the fourth quarter of 2021 totaled approximately $303,000, or two cents per basic and diluted share, compared with net income of approximately $1.1 million, or eight cents per basic and diluted share for the same quarter last year. As of December 31st, 2021, working capital totaled approximately $25.2 million, of which approximately $18.8 million is comprised of cash, cash equivalents, and trade receivables. This compares with working capital of approximately $16.2 million at 2020 year end, which included $13.3 million of cash, cash equivalents, and trade receivables. Our capital return program has paid 23 consecutive quarterly dividends, with the most recent dividend paid on January 24, 2022. We also implemented an increase to our quarterly dividend to $0.03 per share, reflecting our confidence in BK's financial strength and long-term plan. I would like to again point out that on July 1st of 2021, the company changed its accounting to apply manufacturing overhead at the time of purchase receipts. Prior to July 1st, the company applied the material burden at the time the inventory was issued to work in progress. This change resulted in a net increase of approximately $1.3 million in inventory and retained earnings. The comparable 2020 periods have been adjusted to reflect this change, which is detailed in our 10-K. This concludes my remarks. We will now move on to the question and answer session, and I would like to remind everyone that we do not provide financial and operating guidance on a quarterly or annual basis. Matthew, we can open the floor for questions.