BK Technologies Corporation

and recognition with orders from the Arkansas Department of Agriculture, Forestry Division, and from Boulder County, Colorado. We're especially encouraged by the order from Boulder, as that is a Tier 2 county by population with over 300,000 total residents, and the order demonstrates the 9,000's appeal and ability to penetrate these larger markets. Our total backlog has increased to 19 million, as of March 31st, 2024, compared with the December 2023 ending backlog of 16 million. During the first quarter, we successfully completed the transfer of the BKR 5000 production to our partner, EastWest Manufacturing. Located in Juarez, Mexico, the EastWest BKR 5000 production line is fully operational and is currently manufacturing radios for shipment in the second quarter. Also in the first quarter, we launched a multi-year, multi-million dollar development program for the BKR 9500 multiband mobile radio. A companion mobile radio to the BKR 9000 multiband portable radio, which we expect will further penetrate our addressable markets. Our shift to a higher priced, higher margin product mix, combined with our cost reduction initiatives, continue to drive enhanced profitability for our business. As you can see in the graph, we have delivered consistently improved earnings per share since the third quarter of 2023. At the same time, revenue stayed largely consistent year over year, demonstrating the impact of our efficiency initiatives. In the first quarter of 2024, we achieved gross margins of 34.5% compared to 26.1% in the first quarter of 2023. As mentioned, we believe a key driver of our incremental margin improvement going forward will be the outsourcing of our manufacturing, which will simplify our supply chain management and reduce both production expenses and end product costs. We expect this shift to contract manufacturing coupled with the ongoing cost reduction initiatives and higher margin product mix will allow us to achieve historical margin rates in 2024 and continue to grow those rates going forward. A key focus and major recent initiative has been our shift to an asset light model. To recap, last year we announced an agreement with our existing contract manufacturer, EastWest Manufacturing, to become the exclusive manufacturer of our radio product line. As of the end of the first quarter, the production line at the EastWest facility in Juarez, Mexico, is fully operational and is currently manufacturing BKR 5000 radios for shipment in the second quarter. A transfer team comprised of BK and East West employees, is currently migrating production of the KNG series mobile and the BKR 9000 portable radios to East West, with production expected to commence by the end of Q3 or early Q4. Our BKR 5000 production line in Melbourne has ceased manufacturing activities, and phase one of our staff reduction has been completed. I would like to take a moment to thank all of our Melbourne employees who worked through their notice period to ensure we met our first quarter production and shipment goals. Thank you to these employees. At this point, I thought I would take a minute to do a quick review of the BKR Series radio product evolution and strategy going forward. Since its launch in June of 2020, the BQR 5000 has established itself as a premier single-band radio for first responder agencies, propelling company revenue to a record high in 2023. The BQR 9000 multiband radio, which was launched about three years after the 5000 in May of 2023, is a higher-priced and higher-margin radio that significantly expands our addressable market among federal, state, and local public safety customers. And in new product news, today we are excited to announce that we have commenced a new development program to market a third radio in the BKR series, the BKR 9500. As the trend towards multiband technology continues to gain traction, we are investing in another multiband development program to launch the BQR 9500 multiband mobile radio. Installed in public safety vehicles, the 9500 is the companion radio to the BQR 9000 multiband portable radio, which is carried by first responders. With both the BQR 9500 and 9000, a first responder can remain in constant contact with dispatch, whether in or outside their vehicle. As part of the normal product replacement cycle, we expect that the BKR9500 will replace older single-band mobile radios currently installed in first responder vehicles, including police cars, fire engines, and ambulances. Leveraging state-of-the-art multiband capabilities, the 9000 and the 9500 will work in tandem to keep first responders better connected, significantly enhancing This will be a multi-year, multi-million dollar project, with the engineering development costs being capitalized to align the expense with the anticipated BCARE 9,500 revenue. We expect to see revenue from this offering to start in 2027. Our strategic expansion into the design and development of innovative multiband products is dramatically expanding our addressable market. Prior to the introduction of the BCARE 9000, our addressable market with the BCARE 5000 single band radio was approximately $200 million. To date, the BCARE 5000 has enjoyed strong market traction with our historically customer base in the wildland fire market vertical and gaining share with other first responder customers. The BKR 9000 multiband portable and companion 9500 address the wider market, which is approximately $2.3 billion and includes police, EMS, structured fire, military, public service, and utility customers. Given the early success of and market interest that we were seeing for the BCARE 9000. We believe that a bundled multi-band portable and mobile offering at the right price point will be well received and continue to drive the company to even higher revenue goals. In addition to our core radio business, we see a significant long-term opportunity with our SaaS business unit as we develop new solutions leveraging LTE 5G technology. We believe that the LMR industry as a whole is heading toward adopting more SaaS-based applications that connect first responders across their radios, vehicles, and smartphones. And we're committed to the growth of our SaaS business to place us at the forefront of this growing market. We are excited to announce today that we recently received patent approval from the United States Patent and Trade Office, USPTO, for one of our three patent-pending technologies. This USPTO patent protects Interop One's innovative feature, which enables a first responder to create on-demand ad hoc emergency talk groups with any smartphone user in a matter of minutes. This is a key differentiator for BK's InteropOne push-to-talkover cellular SaaS service. We also recently showcased our patent-pending technology IntelliPTT feature, enabling push-to-talkover broadband capabilities for both the BKR 5000 and 9000 radio customers at the 2024 International Wireless Communications Expo in Orlando, Florida. Feedback from the show clearly indicated IntelliPTT is driving a deeper interest in the BQR 9000 given the enhanced user experience when the Interop One service is accessed through the BQR 9000. The IntelliPTT feature development continues towards commercialization while the patent application is pending approval. The IntelliPTT feature will be offered as an optional paid software feature on both the BKR 5000 and BKR 9000. I will now turn the call over to our Chief Financial Officer, Scott Melmanger, to go over our financial results for the quarter. Scott?

Thanks, John. Sales for the first quarter totaled approximately $18.2 million compared with $18.7 million for the same quarter last year, but increased sequentially by 12% compared to revenue of $16.3 million in the fourth quarter. Gross profit margin in the first quarter was 34.5%, which as John stated, is nearing a return to historical margin levels of 35% plus compared to 26.1% in the first quarter last year. Selling general and administrative expenses, or SG&A, for the first quarter totaled approximately 5.3 million compared with 5.9 million for the same quarter last year. Operating income totaled $983,000 compared with an operating loss of $987,000 for the first quarter of last year. We recorded net income of $681,000 or 19 cents per basic and diluted share in the first quarter of 2024 compared with a net loss of 1.3 million or 37 cents per basic and diluted share in the prior year period. We expect an enhanced profitability as we continue to reduce costs and improve our gross margin. Non-gap adjusted EPS, which adds back net realized and unrealized gain and loss on investments, stock-based compensation expenses, and severance expenses was 1.1 million or 30 cents per basic and diluted share compared with a loss of 978,000 or 29 cents per basic and diluted share in the first quarter of 2023. We reported adjusted EBITDA of 1.4 million in the first quarter of 24 compared with an adjusted EBITDA loss of $696,000 in the first quarter of 2023. As of March 31, 2024, we have approximately $3.3 million of cash and cash equivalents and no long-term debt. Additionally, as we began transferring our production activities to east-west, we recorded an inventory reduction of $1.4 million to $22.5 million at March 31st, 2024. We believe 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 that we need to grow our business. I will now turn the call back over to John. Thank you, Scott.

With the progress that we've made in Q1, we believe we're on track to meet our stated targets for 2024. The engineering investment we made to develop the BKR series radios is starting to pay off. The strong market adoption for the BKR-5000 demonstrated that BK can develop and market a public safety radio that appeals beyond our core market of wildland fire and win market share. Early market feedback for the BKR-9000 has been positive and the radio has been certified on various state, regional, county, and city P25 radio systems. It is still early, but initial orders for the BKR 9000 have shown that this radio is not only appealing to wildland fire, but it can be successful in both Tier 3 and Tier 2 counties like Boulder County, Colorado. Our goal for 2024 is to introduce the BQR 9000 to as many current and new customers to position the radio for upcoming radio upgrade cycles. As previously stated, we believe that our transition to contract manufacturing and our shift to a higher priced, higher margin product mix will allow us to achieve incremental margin improvement as we move through 2024. Lastly, With the wildland fire season in full swing and our historically stronger second and third quarters ahead of us, we remain confident in our previously stated target of $1.50 per share for the full year. To close my prepared remarks, I would like to summarize how we're continuing to create more value for our stakeholders. Starting with our trusted BK brands, we are expanding the BKR series product line and market penetration. We are developing next generation SAS capabilities to expand our total addressable market. And lastly, we are transitioning BK to an asset light model so we can better focus on what we do best, develop and market innovative public safety communication solutions. Operator, we can now open the call for questions.