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spk03: 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 9,000s' appeal and ability to penetrate these larger markets. Our total backlog has increased to 19 million as of March 31, 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 multi-band mobile radio. A companion mobile radio to the BKR 9000 multi-band 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 .5% compared to .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, East West Manufacturing, to become the exclusive manufacturer of our radio product line. As of the end of the first quarter, the production line at the East West 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 K&G 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 BKR 5000 has established itself as a premier single radio for first responder agencies, propelling company revenue to a record high in 2023. The BKR 9000 multi-band 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 multi-band technology continues to gain traction, we are investing in another multi-band development program to launch the BKR 9500 multi-band mobile radio. Installed in public safety vehicles, the 9500 is the companion radio to the BKR 9000 multi-band portable radio, which is carried by first responders. With both the BKR 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 BKR 9500 will replace older single-band mobile radios currently installed in first responder vehicles, including police cars, fire engines, and ambulances. Leveraging -the-art multi-band 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 BKR 9500 revenue. We expect to see revenue from this offering to start in 2027. Our strategic expansion into the design and development of innovative multi-band products is dramatically expanding our addressable market. Prior to the introduction of the BKR 9000, our addressable market with the BKR 5000 single-band radio was approximately $200 million. To date, the BKR 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 multi-band portable and companion 9500 address the wider market, which is approximately $2.3 billion and includes police, EMS, structure fire, military, public service, and utility customers. Given the early success and market interest that we were seeing for the BKR 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 Interrupt 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 Interrupt One -over-cellular SaaS service. We also recently showcased our patent pending technology IntelliPTT feature, enabling -talk-over 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 BKR 9000 given the enhanced user experience when the Interrupt One service is accessed through the BKR 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 Malmanger, to go over our financial results for the quarter. Scott? Thanks,
spk02: 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 .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 $0.19 per basic and diluted share in the first quarter of 2024 compared with a net loss of $1.3 million, or $0.37 per basic and diluted share in the prior year period. We expect enhanced profitability as we continue to reduce costs and improve our gross margin. Non-GAAP adjusted EPS, which adds back net realized and unrealized gain and loss on investments, stock-based compensation expenses,
spk00: and
spk02: severance expenses was $1.1 million, or $0.30 per basic and diluted share compared with a loss of $978,000, or $0.29 per basic and diluted share in the first quarter of 2023. We reported adjusted EBITDA of $1.4 million in the first quarter of 2024 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 31, 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.
spk03: 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 wind market share. Early market feedback for the BKR 9000 has been positive, and the radio has been certified on various states, regional, county, and city P-25 radio systems. It is still early, but initial orders for the BKR 9000 has 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 BKR 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 price, higher 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 are continuing to create more value for our stakeholders. Starting with our trusted BK brand, we are expanding the BKR series product line and market penetration. We are developing next generation SaaS 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.
spk06: Thank you very much. At this time, we'll be conducting our question and answer session. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please hold a moment while we poll for questions. Thank you. Your first question is coming from Jeff Siegman of Siegman Capital Advisors. Jeff, your line is live.
spk04: Hey, guys. Thanks for taking the question. Can you talk a little bit more about the synergies between the BKR 9000 portable radio and BKR 9500 mobile radio?
spk03: Hey, Jeff. This is John Suzuki. Thanks for the question. So the key difference, I would say, is the 9000 is what they call a portable radio or a handheld radio. This is something that the first responders would carry. The 9500 is a similar radio. It's a higher power radio and they are typically installed in vehicles. So they run from vehicles. The synergy between the two is when the officer is in the vehicle, he's usually operating using the mobile radio, the radio that's in the vehicle. And then when he gets out of the vehicle, he switches over and he's now operating from his portable radio. To the extent possible that that user interface, that experience on accessing the radio and how it's used mirrors each other, that makes it easier for the police officer or the first responder to go from his vehicle radio to his personal radio or his portable radio. And so that's why we call it a companion radio. We try to make it, in essence, seamless for that first responder to switch back and forth. And then, of course, that there's benefits in simplifying training for the user.
spk04: Got it. Got it. Right. That's helpful. Thank you. That's all for me.
spk06: Thank you very much. Your next question is coming from Aaron Martin of AIGH Investment Partners. Aaron, your line is live.
spk05: Hi. Good morning. Congratulations on the strong EPS print. A couple items. Also, thanks for calculating the non-GAAP EPS. I didn't have to ask you. On the question on the severance of $127,000, was that recognized? I assume it's primarily the manufacturing line employees from the transition. Was that recognized in COGS or was that lower down on the line items?
spk02: Yeah, the severance portion was recognized in the SG&A as a corporate expense. We did have other costs that were recognized in COGS due to the transition.
spk05: Got it. What level, can you quantify those one-time items that went into COGS? Well,
spk02: there were some productivity or performance bonuses and stuff that were associated with the production, and that's why they were recorded as a COGS expense.
spk05: Got it. Okay. And then on the $9,500, I understand, obviously, on the OPEX line, it's going to be capitalized expenses there, so it won't really go into the OPEX line. On a cash basis, what's the investment like on a quarterly annual basis to get for this new development? Are you able to utilize your existing strong engineering team? Do you need more resources for that? Give us some color around there.
spk03: Hi, Aaron. It's John. So, we're certainly using our current development team. There are some nuances that are unique on a mobile, and we'll have to bring in those resources when necessary, and we'll make a decision on whether we bring them on staff or on contract. In terms of total spend, right, the engineering spend for this year is going to be consistent to last year in terms of money that we're spending. We're not planning to spend more money. The amount of time that the engineers can spend on the $9,500 will be dependent on the priorities that they're seeing as we do our transition and maintaining our production. So, for the engineers, the key thing obviously is to get the transition done on time and successful, and that requires the efforts and maintaining our production levels. The third priority after that is dedicating time to the $9,500 development. So, as the transition continues through the year, we expect to see more and more time being allocated to that new product development.
spk05: By and large, this is an allocation of time, such as some items that will require additional investment.
spk03: Yes.
spk05: Okay. And on the inventory line, as we continue to do this transition, what do you think is the appropriate level of inventory for you guys to be having on your balance sheets? It's still pretty elevated.
spk02: Yeah, we will continue to see improvement quarter over quarter as we transition more of our production over. But once again, Aaron, we have raw material inventory for some of our legacy products and also some of the long lead time raw inventory. So, we will continue to see improvement through the year.
spk03: I
spk02: think
spk03: we've said, Aaron, in the past, that we'd be, I mean, my personal goal is to get down to 12. I don't think we'll get down to 12 by the end of the year. But that's a very feasible number, right? We're still very elevated because we're starting to now move the material, right, going through that. But you'll see that drop throughout the year. You know, whether I hit 12 million, we probably won't hit 12 million by the end of the year. But it'll be in the teens for sure by the end. And our goal is from a company's perspective, and if I look at what our volumes are, getting down to that level is very achievable.
spk05: Got it. Can we switch gears to Interop 1? Can you talk a little bit about specifics in terms of the number of trial users out there, how many agencies you're talking to, or departments, some sort of metrics that we can measure? You know, how should we be measuring your progress in Interop 1?
spk03: Yeah, well, in terms of field trials, it's in the hundreds, right, just to give you an idea. It crosses federal, state, local agencies. The traction in terms of converting those field trials into actual orders, we're finding that's a very slow process. A lot of these guys, the people we're trialing with, already have a service from either Motorola Communications or from AT&T or other suppliers out there. What we're finding is those users are not using those services to the degree that they thought they were going to use it for. And so now they see the value, the extra value in our service, but they're struggling with converting their current service to our service. And that seems to be a bit of a drag on the adoption rates. But everyone that we've demonstrated it to clearly say that this is different than the eight other services on the market. And the thing that's different about it is the ability to create these ad hoc talk groups on demand, which we just got the patent on. So there might be some other avenues that we're going to start looking at, Aaron, in terms of, you know, it's hard for us maybe to be a market maker, even though we may have a great technology. Maybe we need to take a different approach to the market and look at those people who are in that market and seeing how we can partner with them. So we'll start those discussions as we go forward.
spk05: Got it. And then in terms of your, I think we've talked in the past about the BKR 9000 customer having a different profile than the BKR 5000 customer. And then is that playing out in terms of Interop 1 interest with those 9000 customers? You know, what can you say about that?
spk03: Yeah, I mean, the true answer is yes. Right? The Interop 1 type service and the 9000 kind of go together. The customers that are looking at that go together. But
spk05: that's still really only showing up in field trials, not so much in conversions. Correct?
spk03: Well, for that service, that's true. Right? The 9000, not so much. Right? We're getting much more traction on the 9000 sales. What customers are waiting for at this point is the tethering capability, the IntelliPTT. So it's not commercial yet. So we've demonstrated it. They really like that idea. And in their mind, that would be something that would advance the cost for them to buy the Interop 1 service. Because if you look at it, it's really two devices. It's a smartphone using Interop 1 service and then you have the 9000. And they can do that today, not with Interop 1. They have potentially another service today. With the IntelliPTT, I can now tether these devices together and link these two products together so that when I'm using my 9000, I can operate on a private radio system or I can change the knob and access the cellular system and use the talk groups through Interop 1. That concept is very attractive to these types of users. And so they're looking forward for us to get this in the field so they can actually test to see how that would operationally work.
spk05: Okay. Thanks a lot and congratulations on the continued progress.
spk03: Thank you, Aaron. Thanks.
spk06: Thank you very much. Just a reminder, if there are any remaining questions, you can press star one on your phone keypad now. Our next question is coming from John Old from Long Meadow Investors. John, your line is live.
spk05: Thanks. Thanks, John and Scott for the call today and congrats on the results. Just a quick question on gross margin. In the past, as I recall, I think you sort of set a normalized number of 40% with that rising with the introduction of the 9000. And in your remarks and the deck, you sort of used 35 plus. And this one sort of changed the margin profile going forward. And then follow up with the what do you see as the revenue and margin profile of the 9500 once you bring that to market relative to the other two products and sort of just the size of revenue opportunity. And margin profile.
spk03: Thanks, John. It's John. It's John. Let me try and parse that and then Scott can chime in. Our historical margins are like 35 to 40 and that hasn't changed. I think in the script, you're right. We said 35 plus because we do. We do see ourselves overshooting that as the 9000 mix becomes more prevalent and we do expect to get into the 40s as we go forward. And that will be primarily driven by the higher margin product mix of the 9000. Right. In terms of in terms of the 9500, I think it's too early to really talk about more margin profile, but it would definitely be greater than that 35 to 40. A product that we would we would at least try to position that 50 or 55 plus and that compares to the say the 9000 today, which is like 60% plus. So it may or may not come in as as high as the 9000, but it would be still substantially better than than our current portfolio.
spk05: Okay, and how about just revenue contribution rough, you know, just general sizing of that that market versus the other two.
spk03: Yeah, I'm going to defer that when we get a little bit closer, John. We have a we have our goal right for 2025, which does not include this product. I think once we get that, we'll be in a better shape to kind of, you know, give you a forward view on what our next set of goals are for say 2030.
spk05: Great. Okay. Thanks very much. I appreciate it.
spk03: Welcome.
spk06: Thank you. Your next question is coming from Brian Weaver, who's a private investor. Brian, your line is live.
spk01: Hello. Thank you very much for taking my question and congratulations on the quarter. Could you give a little bit of color into what factored into the consistent year over year drop in SG&A for the last quarter? And do you expect any substantial changes to SG&A through your transition? Thank you.
spk02: Thanks for it. Yeah, thanks for the question. Basically, the company incurred costs associated with the ATM, the reverse stock split and costs associated with the introduction of the BKR 9000 product in the first quarter of 2023. We believe those costs were one time non recurring in nature and will not, you know, be occurred happen again in 2024. So I think that pretty much explains the delta between last year and this year. Non recurring items.
spk01: Okay, great. Thank you.
spk06: Thank you very much. Well, we appear to have reached the end of our question and answer session. I will now turn the call back over to John for closing remarks.
spk03: Thank you, Jenny. Thank you all for participating in today's call. We look forward to speaking with you again when we report our Q2. All the best to all of you and have a great day.
spk06: Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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