Earnings call transcript: BK Technologies Q4 2024 shows revenue growth

BK Technologies Inc. (BKTI) reported a solid financial performance for the fourth quarter of 2024, with notable revenue growth and improved margins. The company’s stock saw a significant increase, reflecting investor optimism about its strategic initiatives and future prospects. According to InvestingPro data, BKTI has demonstrated remarkable performance with a 101.58% return over the past year, while maintaining a "GREAT" financial health score of 3.13 out of 5.

Key Takeaways

• Q4 2024 revenue grew by 9.9% year-over-year to $17.9 million.
• GAAP EPS for Q4 surged to $0.93, marking a significant improvement.
• The company has maintained profitability for six consecutive quarters.
• BK Technologies launched new products and services, including the BK1 Solutions suite.
• Manufacturing transition and pricing adjustments are underway to support future growth.

Company Performance

BK Technologies demonstrated robust performance in Q4 2024, driven by increased demand for its communication solutions, particularly in state and local markets. The company continues to strengthen its position in the public safety and first responder communication sectors. Its strategic focus on multi-band radios and interoperability solutions has resonated well with customers, contributing to its sustained growth.

Financial Highlights

• Revenue: $17.9 million, a 9.9% increase year-over-year.
• Full Year Revenue: $76.6 million, up 3.4% from 2023.
• Q4 Gross Margin: 41.2%, improved from 35.1% in Q4 2023.
• Full Year Gross Margin: 37.9%, compared to 30% in 2023.
• Q4 GAAP EPS: $0.93, showing significant growth from the previous year.
• Full Year GAAP EPS: $2.25; Non-GAAP Adjusted EPS: $2.30.

Outlook & Guidance

Looking ahead, BK Technologies targets single-digit revenue growth for 2025, with a focus on achieving at least a 42% gross margin. The company projects a GAAP EPS of over $2.40 and a non-GAAP adjusted EPS of over $2.80 for the year. InvestingPro data shows analysts maintain a Strong Buy consensus with a price target of $40, suggesting potential upside from current levels. Get access to the comprehensive Pro Research Report for deep-dive analysis of BKTI and 1,400+ other US stocks. Strategic initiatives, including the launch of the BKR 9,500 mobile radio and the expansion of BK1 Solutions, are expected to drive future revenue streams. The company is also closely monitoring potential tariff impacts and plans to leverage supply chain flexibility to mitigate risks.

Executive Commentary

CEO John Suzuki expressed confidence in the company’s trajectory, stating, "2024 was a strong year for us, and we believe that we are just getting started." He emphasized the company’s long-term vision, aiming for a 50% gross margin, and highlighted the strategic intent behind BK1 Solutions: "The intent of BK1 is to bring under a single umbrella these different solutions."

Risks and Challenges

• Potential tariff impacts could affect cost structures and profitability.
• The transition of manufacturing processes may encounter operational challenges.
• The reduction in federal government revenue share poses a risk if not offset by growth in state and local markets.
• Competitive pressures in the communication solutions market could impact pricing strategies.
• Macroeconomic factors, such as inflation and supply chain disruptions, remain potential headwinds.

BK Technologies remains focused on innovation and strategic market positioning to navigate these challenges and capitalize on growth opportunities in the coming year.

Full transcript - BK Technologies Inc (BKTI) Q4 2024:

Conference Operator: Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation Conference Call for the Fourth Quarter and Full Year twenty twenty four. This call is being recorded and all participants have been placed on a listen only mode. Following management’s remarks, the call will be open for questions. There is a slide presentation that accompanies today’s remarks, which can be accessed via the webcast. At this time, it is my pleasure to turn the floor over to your host for today, Mr.

John Nesbeth of IMS Investor Relations. Sir, please go ahead.

John Nesbeth, Investor Relations, IMS Investor Relations: Thank you. Good morning, and welcome to our conference call to discuss BK Technologies’ results for the fourth quarter and full year 2024. On the call today are John Suzuki, Chief Executive Officer and Scott Malmager, Chief Financial Officer. I’ll take a moment to read the Safe Harbor statement. Statements made during this conference call and presented in the presentation 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 those forward looking statements. And some of the factors and risks that could cause or contribute to such material differences have been described in the morning’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 do not undertake any duty to update such forward looking statements. Okay. I will now turn the call over to John Suzuki, CEO of BK Technologies. Please go ahead, John.

John Suzuki, Chief Executive Officer, BK Technologies: Thank you, John. Thank you, everyone, for joining today. I’ll start by reviewing some of the highlights of our operations and financial results during the quarter and the full year. Then I’ll turn it over to our Chief Financial Officer, Scott Malmanger, for a deeper dive into our financial results. We’ll conclude by opening up the call for a brief Q and A.

We closed 2024 with a strong fourth quarter, ’1 that exceeded our expectation and was characterized by exceptional execution across the organization. Revenue increased 9.9% to $17,900,000 and gross margin continued its upward trend

Conference Operator: to

John Suzuki, Chief Executive Officer, BK Technologies: 41.2%. Fully diluted GAAP EPS increased significantly to $0.93 which was the result of strong execution in the quarter and also included $0.37 related to a onetime noncash benefit from deferred tax asset provisions. Our non GAAP adjusted earnings per share in the quarter was $0.61 per diluted share, a significant increase compared to non GAAP diluted adjusted EPS of $0.2 in the fourth quarter of last year. Q4 represents our sixth consecutive quarter of profitability for the business. The quarter caps off what was a pivotal year for the company.

In 2024, we exceeded our financial and operational targets, delivering revenue of $76,600,000 and gross margin of 37.9%. We had initially expected full year revenue consistent with the $74,000,000 we reported in 2023, and we targeted full year gross margin of 35%. So we’re pleased to have surpassed both of these benchmarks. Also, you remember that on the third quarter call, we upwardly revised our target full year non GAAP adjusted EPS to $1.92 per diluted share. I am pleased to report that we significantly surpassed our revised target, coming in at $2.3 per adjusted diluted share.

Key contributors to the overachievement were the additional upside revenue, higher than expected gross margin and a lower actual taxation rate. All of these items positively impacted net income. On the new order activity side, we saw the BKR 9,000 momentum building from agencies looking for a multi band option at a price point within their budget. We expect this momentum to continue to build in 2025 as we ramp production and deliver more BKR-9000s to the market. We closed the year with a backlog of $21,800,000 at 12/31/2024, ’5 point ’8 million dollars higher than the backlog at 12/31/2023.

We believe that this higher backlog helps set the stage for further growth in 2025. Slide five is an illustration of the progress we’ve made with our gross margin performance, much of which can be attributed to our operational execution, the shift in our product mix to the BKR 9,000 and our cost reduction strategy such as transitioning our manufacturing operations to East West. Fourth Quarter gross margin reached 41.2% and full year gross margin was 37.9%. I do want to take a minute to address the uncertain macroeconomic environment. In terms of tariffs, we, like many other companies, are monitoring the situation closely and we have gamed out several different scenarios and mitigation plans.

Earlier this year, we announced price increases in the range of 5% to 10% on our radio products and certain radio accessories. This new price list was recently accepted by the federal government and becomes effective 04/01/2025, for our reseller network. Initial customer feedback has been supported as we understand why we are increasing our prices. And to date, we have seen no demand change or pushback from the market due to the higher prices. The BK supply chain, like that of all our competitors, is global, with parts manufactured and assembled in numerous countries around the world.

An increase in tariffs will increase our product cost, but it will also increase the product cost for all our competitors. We are not in a position to predict the reach and trajectory of the tariff situation. So our business priority remains on delivering quality radios to the frontline first responders while also delivering profitability to our shareholders. In terms of Dodge, while the federal government remains an important customer, out of the product mix shift to the of the BTR 9,000, we estimate that only 35% of our 2025 revenue will come from the federal government, down from 49% in 2023. The BTR 9,000 is driving this change as more local and state governments are adopting the multi band BTR 9,000 radio.

Nonetheless, there have been recent changes at the federal level. For example, some of our contacts have changed given the recent layoffs, early retirements and incentives to terminate. That said, the BK brand and reputation is very strong within our key federal customers. And regardless of leadership changes, we remain confident that the BK brand will remain the brand of preferred choice. Turning to Slide six.

You can see how our focus on margin improvement has resulted in adjusted net income growth dating back to the fourth quarter of fiscal twenty twenty three. You can really see from this chart how the revenue shift, outsourcing of our manufacturing and cost reduction efforts have driven exponential improvement in our profitability of our business, and we expect to see profitability continue to improve over the long term. Here, we provide a longer term vision view of the transformation of the BK’s business. On an annual basis, we have steadily grown revenue with a CAGR of 19% to 76.6% in 2024. Annual non GAAP adjusted EBITDA and adjusted net income have dramatically improved as well with a breakthrough into profitability in the full year 2023.

We built on that progress in 2024 with full year non GAAP adjusted EBITDA of $10,400,000 and non GAAP full year adjusted net income of $8,500,000 In sum, 2024 was a strong year for us, and we believe that we are just getting started. With that, I will now turn the call over to Scott Melmanger, CFO, to take a deeper dive into our fourth quarter and full year financial results. Scott?

Scott Malmager, Chief Financial Officer, BK Technologies: Thanks, John. Sales for the fourth quarter totaled $17,900,000 an increase of 9.9% compared to the $16,300,000 for the same quarter last year. Full year revenue increased to $76,600,000 from $74,100,000 in 2023. Gross profit margin in the fourth quarter was 41.2% compared to 35.1% in the fourth quarter of twenty twenty three and improved sequentially from 38.8% in the third quarter of twenty twenty four. Gross margin for the full year was 37.9% compared to 30% in 2023, exceeding our full year margin target of 35%.

Selling, general and administrative expenses or SG and A for the fourth quarter totaled approximately $5,200,000 compared with $5,300,000 for the same quarter last year. Full year SG and A decreased to $21,200,000 compared with $23,000,000 in 2023. Operating income totaled $2,200,000 compared with operating income of $400,000 in the fourth quarter of twenty twenty three. Full year 2024 operating income was $7,800,000 dollars compared with an operating loss of $777,000 in the previous year. We recorded net income of $3,700,000 or GAAP EPS of $1.03 per basic and $0.93 per diluted share in the fourth quarter of twenty twenty four compared with a net income of $290,000 or 0.08 per basic and diluted share in the prior year period.

For the full year, net income was $8,400,000 or GAAP EPS of $2.35 per basic and $2.25 per diluted share compared with a net loss of $2,200,000 or $0.65 per basic and diluted share in fiscal twenty twenty three. As John mentioned in his prepared remarks, included in GAAP EPS for the fourth quarter and fiscal year of 2024 was a one time non cash income tax benefit related to deferred tax assets that added $0.37 and $0.27 per share respectively. The deferred tax provision was due to the release of a $3,600,000 valuation reserve allowance on net operating loss carryforwards. Non GAAP adjusted earnings, which adds back net realized, non realized gain or loss on investments, stock based compensation expenses, severance expenses and excludes the one time non cash income tax benefit related to deferred tax asset provisions was $2,400,000 or non GAAP adjusted EPS of 0.67 per basic share and $0.61 per diluted share in the fourth quarter of twenty twenty four. This is compared with non GAAP adjusted earnings of $704,000 or $0.2 per basic and diluted share in the fourth quarter of twenty twenty three.

For the full year, non GAAP adjusted earnings totaled $8,500,000 or $2.4 per basic and $2.3 per diluted share compared with adjusted earnings of approximately $3,000 or breakeven non GAAP adjusted EPS in 2023. We reported non GAAP adjusted EBITDA of $2,800,000 in the fourth quarter of twenty twenty four compared with non GAAP adjusted EBITDA of $1,300,000 in the fourth quarter of twenty twenty three. Non GAAP adjusted EBITDA for the full year 2024 was $10,400,000 compared with non GAAP adjusted EBITDA of $1,500,000 for the full year 2023. Based on the analysis of all available evidence, both positive and negative, the company has concluded that it currently does have the ability to generate sufficient taxable income in the necessary periods to utilize the benefits for the NOL deferred tax assets. Given our improvement in profitability that NOL carry forward has been recognized as of 12/31/2024.

And going forward, we expect to be realizing a more standard tax rate range of 21% to 26%. Our balance sheet improved considerably in 2024 and puts us in a strong position to support our growth initiatives. As of 12/31/2024, we have approximately $7,100,000 of cash and cash equivalents and no debt. Working capital improved to approximately $23,000,000 at the December compared with $16,800,000 at 12/31/2023. Shareholders’ equity increased to $29,800,000 compared with $21,300,000 at 12/31/2023.

I will now turn the call back over to John.

John Suzuki, Chief Executive Officer, BK Technologies: Thanks, Scott. As we begin to move through 2025, we have identified certain operational and financial goals in keeping with our growth strategy. With our visibility today from a financial performance perspective, we’re targeting 2025 revenue to reflect single digit growth with a growth with a gross margin of at least 42%. We are targeting 2025 full year GAAP diluted EPS in excess of $2.4 and 2025 full year non GAAP diluted adjusted EPS in excess of $2.8 In line with our strategy to grow brand recognition and our exposure to additional market verticals, we plan to increase our investments in sales and marketing to further accelerate the BKR nine thousand adoption rate. Likewise, we expect to increase our investment in R and D and build up our engineering capabilities to strengthen our software expertise and offerings.

As I mentioned on previous calls, we are ramping development of our new multi band BTR 9,500 mobile radio, which will be designed for installation in first responder vehicles and will be marketed as a companion radio to our BKR nine thousand multiband portable radio. We expect to begin recognizing revenue from the BKR 9,500 in 2027. Turning to our final slide. Earlier this month, we announced the rebranding and expansion of our SaaS business unit to be known going forward as BK1 Solutions. Interoperability between communication devices and platforms has long been a challenge for the public safety market.

The mission for BK1 is to provide rapidly deployable solutions, which significantly increase the effectiveness of the public safety response and maximize first responder safety. Solutions will be comprised of SaaS, software applications and certain hardware applications that help solve the interoperability problem. The BK1 family of offerings include: InteropOne, our push to talk over broadband service, enabling on demand creation of ad hoc user groups that can include anyone with an active smartphone LocateONE, an on premise solution providing real time tracking of personnel and assets via GPS functionality and RelayOne, a rapidly deployable portable repeater kit designed to extend range and facilitate interoperability between different types of public safety and military radios. And we have additional offerings in various stages of development that we’re excited to add to the BK1 brand. We believe that our solutions will improve public safety interoperability, attracting both new and existing customers as we drive sales for BK1 as well as our BKR Series radios.

In closing, BK executed exceptionally well in 2024, and we made excellent progress establishing solid operational and financial foundations. We’re confident that BK Technology is well positioned to continue its growth trajectory and drive enhanced results and value for our shareholders through 2025 and beyond. With that, we can open up the call for questions. Ali?

Conference Operator: Thank Thank you. Our first question is coming from Jason Schmidt with Lake Street Capital. Your line is live.

Jason Schmidt, Analyst, Lake Street Capital: Hey guys, thanks for taking my questions and congrats on some really strong results here. John, just curious if you could discuss how order activity has been year to date. And then just given the macro backdrop, if you’re seeing any sales cycles start to lengthen?

John Suzuki, Chief Executive Officer, BK Technologies: So in terms of our first quarter order volume, I would say it’s in line with expectations. Typically, our order cycles are seasonal with Q2 and Q3 being our larger order intakes and then Q4, Q1 being lighter. In terms of this year, I would say it was in line of expectations. The second question really deals with more so on the federal government than it is on the state and local. The federal government budget was just the continuing resolution that just passed, which is good news because that means our federal customers have funding through the balance of the year.

This year, it’s actually happened a little bit later than it has in previous years. And so where we probably would have seen some earlier orders on the federal side in the first quarter, funds weren’t really available. And so now we’re expecting those funds to start flowing in the second quarter and so on. But the funds are there. They’ve been released, but with a slight delay.

Jason Schmidt, Analyst, Lake Street Capital: Okay. That’s really helpful. And then if you could just update us on kind of where you’re seeing the most interest for the 9,000?

John Suzuki, Chief Executive Officer, BK Technologies: Yes, it’s in the state and local market for sure. The thing with the state and local market is they do operate in multiple bands. Typically the primary communication system for the city or the county or the state operates at the 800 megahertz frequency band. If you compare that to, say, Wildland Fire, which operates in a completely different band at the 150 megahertz, so you have customers that are especially our Wildland Fire customers who when they’re on mission for Wildland Fire need to operate at the 150 band. But when they go home and they start doing their day job, they need a radio that can operate at the 800 band.

So having a multi band radio, where you have one radio that basically fits both missions is very attractive to them and the fact that our price point is within their budget is what’s helping us drive sales.

Jason Schmidt, Analyst, Lake Street Capital: Got you. And then just a last one from me and I’ll jump back into queue. Looking at the solutions business and kind of incorporating the SaaS and software applications, how should we think about the timeline before the software initiative becomes a bigger part of the P and L?

John Suzuki, Chief Executive Officer, BK Technologies: Yes, that’s a good question, Jason. I think we’re still putting our

Oren Hirschman, Analyst, AIGH: foot in

John Suzuki, Chief Executive Officer, BK Technologies: the water just to kind of take a temperature. We’ve learned a lot over the last couple of years since we introduced InteropOne, and we continue to learn about solutions. And I’ll give you a short example. One of the wildland customers that we had, he was telling us about how he was looking at INTEROP one to coordinate communications on Fair and Wildland Firefighter. So he is responsible for some logistics and he has contractors that come in.

He’s not quite sure who they’ll be, but when he forms this team, he’ll use INTEROP one as a way to communicate to them. He’s also looking at using LocateONE so that he can actually identify on a map where these water trucks are at any point in time. And so that’s a good example where you have two solutions that can be combined together to provide an overall solution for a problem that he’s having, right? How do I communicate with these with my subcontractors and how do I know where they are? So we see a lot of those needs in the marketplace and I think there’s a lot of siloed solutions to deal with one or two parts of that solution.

The intent of BK1 is to bring under a single umbrella these different solutions, but give the customer the look and feel and the user interface that he’s really dealing with one solution that has different aspects. So all of that it’s going to take us time to get traction in the marketplace. My hope is as we finish 2025 and set our vision for 02/1930, we’ll provide some clarity in terms of how big we think the solutions business could be for BK.

Jason Schmidt, Analyst, Lake Street Capital: Okay, that’s helpful. Thanks a lot guys.

John Suzuki, Chief Executive Officer, BK Technologies: Thanks Jason.

Conference Operator: Thank you. Our next question is coming from Sameer Patel with Ashkeladden Capital. Your line is live.

Sameer Patel, Analyst, Ashkeladden Capital: Hey, congrats on a great finish to the year. It sounds like a good start to 2025. I’ll start with one for Scott. Kate, would you be able to walk back from your adjusted EPS guidance to adjusted EBITDA? Any important kind of inputs into that particularly?

I think you mentioned tax rate. I wasn’t sure if that applied to this year’s guidance or more generally.

Scott Malmager, Chief Financial Officer, BK Technologies: Yes. It was basically for the fourth quarter. We had the valuation reserve allowance that was basically a non book entry. So we were able to recognize that and that kind of flowed through. So that was the significant adjustment there to get from a GAAP to a non GAAP basis.

If you look at the chart, you’ll the non GAAP reconciliation, you can see the detail there. And then it’s the standard stuff that’s going to be recurring stock based comp, non cash stock based comp and then basically the depreciation, amortization, the standard type adjustments.

Sameer Patel, Analyst, Ashkeladden Capital: Okay. So just to be clear that $2.8 figure implies something in that 21% to 26% tax range?

Scott Malmager, Chief Financial Officer, BK Technologies: Correct. That is correct.

Sameer Patel, Analyst, Ashkeladden Capital: Okay. So that’s a full I just wanted to make sure there’s no so that’s a fully taxed EPS number?

Scott Malmager, Chief Financial Officer, BK Technologies: Yes, you’re correct.

Sameer Patel, Analyst, Ashkeladden Capital: Okay, okay, perfect. That’s fine. Second one, I guess for both of you all, look, I mean your guidance seems fairly conservative. Obviously, last year you beat it by a pretty wide margin. And then just looking at this year, I mean, you’re trailing bookings around $85,000,000 You talked about a 5%, ten % price increase going through.

Should we expect that guidance is sort of subject to revision as you go through the year and get more tangible data points on how things are progressing?

John Suzuki, Chief Executive Officer, BK Technologies: Hey, Sameer. It’s John Suzuki. So yes, we’re actually in some very uncertain times, right? I think that if the tariffs hold off, that would be a reasonable expectation that we’d be raising guidance throughout the year. But I can’t tell you today, right, what’s going to happen on April 2 or May 3 and so on, right?

So we need to be prepared. We started that by the price increases, but as you know, it takes a while for price increases to affect your backlog. So we expect to see those price increases impacting our financials more in the third quarter than the second quarter because most of our backlog does not include those price increases. So it’s impossible for us to predict, right, what’s going to happen this year. But we’ve done is put a benchmark out there.

We’ve made our best assumptions. And then as the situation on the ground changes, we will continue to update the market.

Sameer Patel, Analyst, Ashkeladden Capital: Okay, perfect. And I think in response to Jason’s question, did I hear you say that at the end of twenty twenty five, you’re kind of going to put out some and you set up multiyear targets looking out to 02/1930?

John Suzuki, Chief Executive Officer, BK Technologies: Yes. We had when I first started with the company in ’twenty one, we set out what we call Vision 2025. So that was revenue, gross margin and EBITDA targets. At the end of this year, when we review the full year, I’ll compare it against that Vision 2025 number and then set what we would call 02/1930 vision. And at that point, I think we will provide some more clarity between what I would say our core business, our core radio business versus what the potential is for our solutions business.

Sameer Patel, Analyst, Ashkeladden Capital: Okay. That makes sense. And I mean you’re going to fall a little short of that 2025 target, but considering all the macro headwinds you faced, I think you’ve done a really admirable job. Maybe one final one just on that press release you put out about the InteropOne order from a State Forestry Agency. If you could just provide maybe some more color on the background kind of scope of that order.

I’m sure you’re limited in kind of what you can say specifically, but just any color would be helpful just as we think about the SaaS business growing?

John Suzuki, Chief Executive Officer, BK Technologies: Yes. I think it was a great example of so we were working with the clients, doing a pilot and then Hurricane Helen hit. And they were, I guess, surprised by the amount of damage that it took place. But they were thrilled, right, because we had the pilot communication system up, INTERRAP1, how effective it was during that whole crisis and how many how they were able to get everyone on a common channel, in essence, right, whether they had a smartphone or they had an LMR radio, just the ability to assess damage and to communicate action plans was very effective. And the customer had commented that he had trialed a number of similar systems in the past and he felt that InteropOne was the one solution that met their needs and subsequently they placed an order for it.

So to me, it tells me again, there’s nothing better than doing field trials. And if there’s an incident that occurs during that, that really drives home the points. And do

Sameer Patel, Analyst, Ashkeladden Capital: you have like is there can you share anything about the number of users or just roughly the size of that order?

John Suzuki, Chief Executive Officer, BK Technologies: Yes. I would prefer not because we went to the customer. Yes. And initially, they said they would, but then they as it gets up higher in the organizations, they tend not to do those things. So I promise that I wouldn’t do it.

Sameer Patel, Analyst, Ashkeladden Capital: Understood. Appreciate the time. I’ll turn it over for other questions. Thank you so much.

John Suzuki, Chief Executive Officer, BK Technologies: Thanks, Sameer.

Conference Operator: Thank you. Our next question is coming from Oren Hirschman with AIGH. Your line is up.

Oren Hirschman, Analyst, AIGH: Hi. Congratulations on all the progress. Keeping in mind that a lot of the backlog today doesn’t include the price increase. Is there still can you continue to show margin improvement even in advance of the price increase beginning to hit the numbers? Is there still more to go with the existing plan versus any tariff related backlash based on where we are today in the world?

John Suzuki, Chief Executive Officer, BK Technologies: Good question, Oren. So let me try and characterize the year as we see it, right? So our first quarter is basically done and we are going to experience healthy margins in the first quarter because we didn’t have any tariffs. And we’ll talk about that in about six weeks. I would say we’re pleased with the quarter and it’s in line with what our expectations were.

As I go into Q2 and if we get a 25% tariff, that’s a pretty significant tax that we put on there. Most of the backlogs we have does not include the price increases. And therefore, we expect that our gross margin will probably drop below certainly below what we’re seeing in Q1, and probably drop below that 42%. So that if you take what we expect in Q1 versus what we would expect under Q2 with the tariffs, we’d probably be in line with that 42% for the first half of the year. As I look in the second half of the year, the price increases will kick in, plus we do have some additional cost operational cost improvements.

And our belief is for the second half of the year, we will be floating around that 42% mark. So that’s just the simple math. Now a lot of things can affect that product mix, for example, can affect that dramatically. Our assumptions on what’s being tariffed could be different. So we just we put a stake in the ground.

And like I said, if the situation changes, we will provide updates to the market.

Oren Hirschman, Analyst, AIGH: Okay. And in terms of the 9,000, obviously, huge TAM compared to where we’ve been at before. If I just look at the 9,000 growth for under the current conservative base case scenario, if I just look at the 9,000 growth, can we safely assume that the 9,000 is growing significantly faster than the rest of the business and that’s the growth driver? Yes. And in terms of the margins, the gross margins on the $9,000 with tariff, without tariff, however you want to put it, how are you seeing those in terms of being premium gross margins, kind of being more specific than you want to be?

John Suzuki, Chief Executive Officer, BK Technologies: Yes. I would say, historically, what we said is the 9,000 was going to be a 60% gross margin product. Now that’s before any tariffs, right? So parts of these of the 9,000, these parts are sourced globally. So depending on what those tariffs, if any, come into play, that will have an impact on our gross margin for that product.

Oren Hirschman, Analyst, AIGH: That will obviously being offset partially or math doesn’t quite work because of the difference whether if you’re increasing price or zero gross margin, but part of that would be offset by the higher price once that kicks in?

John Suzuki, Chief Executive Officer, BK Technologies: Yes.

Oren Hirschman, Analyst, AIGH: Okay. My last question just on the software side of things. Typically, until now software has just been a driver to try and promote more radio usage to promote the 9,000. Are we hearing from you that there’s also so you have to signing up sounds like a real commercial customer and I know you have a few smaller ones. Is it also a revenue source that we could view it as keeping in mind it’s still small?

Obviously, it has a very high gross margin also.

John Suzuki, Chief Executive Officer, BK Technologies: Yes, I think the optimal word is small, but yes, because we’ve now added two more products into our portfolio. When you’re dealing with the SaaS business, the revenue is very low, but it’s just reoccurring. When you’re dealing with a product like LocateONE, which is an on premise software solution, the sale is a one time sale plus support costs, right, ongoing support costs, but that’s a much higher revenue number. RelayOne is more of a hardware product solution and again, it’s a higher revenue product. So you’ll start seeing or we’ll start seeing from BK1 solutions much higher revenues in this year than if we had just focused on INTEROPP1.

Oren Hirschman, Analyst, AIGH: Got it. But does InteropOne have its merit as its own SaaS business or it’s still really just a driver of 9,000 sales?

John Suzuki, Chief Executive Officer, BK Technologies: Yes. No, it has its own SaaS business. We monitor that. I just look at the benefit of that still. I mean, it’s not making money on its own.

It is still losing proposition, even with the customers we have on there. But if you look at it as a marketing tool and our ability for it to drive 9,000 sales, it’s more than pays for itself.

Oren Hirschman, Analyst, AIGH: Can you see though the possibility how it gets based on your pipeline, how it actually gets to be breakeven or profit center on its own?

John Suzuki, Chief Executive Officer, BK Technologies: Yes, absolutely. No doubt.

Oren Hirschman, Analyst, AIGH: Okay. Thanks so much.

John Suzuki, Chief Executive Officer, BK Technologies: Thank you, Warren.

Conference Operator: Thank you. We have another question from Sameer Patel with Ascalatin Capital. Your line is live.

Sameer Patel, Analyst, Ashkeladden Capital: Hey, I just wanted to follow-up on the tariffs piece and I respect and understand that this is a very calling it a moving target might be an understatement. First of all, just to confirm, based on what you said, so your goods would fall into that not compliant with the USMCA category, so they’d be subject to the full tariffs?

John Suzuki, Chief Executive Officer, BK Technologies: So our products do comply with the USMCA. So in the first quarter, we paid zero tariffs.

Sameer Patel, Analyst, Ashkeladden Capital: Okay. So they are in that category. Okay. That’s good to hear. And then second would be, I mean, you mentioned mitigation strategies other than the price increase.

I mean, what would you look to do if those became sort of more permanent? I mean, I know you talked about, for example, being able to do a little bit more assembly in Melbourne.

John Suzuki, Chief Executive Officer, BK Technologies: Yes, certainly that’s an option. The advantage that we have with our partnership with East West is they have a number of different factories around the world. And so we would have to assess, right, where the administration is applying the tariffs and then overlay that where East West has manufacturing facilities. But we’ve already engaged with them. I mean, we can pick up these lines and move them to another facility.

Now that takes six months, nine months potentially to move a supply chain. But if we deem that the tariff coming out of that particular country is more expensive than operating or moving the line to a country with a lower tariff or no tariff. That’s just an economic decision. It’s one we don’t take lightly because it takes six months to nine months to move a supply chain. And the last thing you want to do is move it just to find that the administration has changed their mind on the tariff.

So it’s something that we just have to watch and monitor. There are definite options. Our best case is to get our costs continue to get our costs down and then where we have to continue to raise our price. As I mentioned in the script, this is not unique to BK, right? If you listen to our competitors’ announcements, they’re experiencing the same thing.

We all have global supply chains and we will all be impacted by tariffs. And I believe that we just need to be monitoring the situation and then taking the appropriate actions to preserve our profitability. Will it be rocky in the interim? It could be because tariffs can be implemented within forty eight hours. Trying to get price increases adopted into the market can take two or three months or longer if it’s dealing with the federal government.

So there’s always a lag in that aspect. But at the end of the day, we do believe it’s going to get settled out and we want to be in the most optimal position once the trade issues settle down.

Sameer Patel, Analyst, Ashkeladden Capital: That makes a lot of

John Suzuki, Chief Executive Officer, BK Technologies: sense. Yes. Sorry, go ahead. Yes. Our long term version remains the same, right?

We want to get to 50% gross margins. We think we can do that.

Sameer Patel, Analyst, Ashkeladden Capital: Yes. So it sounds I mean, you’re just waiting to see how it plays out and it sounds like you have a lot of good options. It’s more just again, you don’t want to be making a seven month decision based on something the administration has changed 12 times in the past three days?

Jason Schmidt, Analyst, Lake Street Capital: Right.

Sameer Patel, Analyst, Ashkeladden Capital: Yes, perfect. Okay. And then just a final note, did you pull forward any inventory or production in Q1 kind of ahead of the implementation date?

John Suzuki, Chief Executive Officer, BK Technologies: Well, I would say we tried to. So it was certainly on our mind and we tried to do that. The actual result was not the same. Yes. We did our inventory, as you’ll see, went down.

I would love our finished goods inventory to skyrocket it up to mitigate some of that risk, but we just couldn’t pull it off.

Sameer Patel, Analyst, Ashkeladden Capital: Understood. All right. Thanks for the time.

Conference Operator: Thank you. As we have no further questions on the lines at this time, I would like to hand it back over to management for closing remarks.

John Suzuki, Chief Executive Officer, BK Technologies: Thank you, Ali. Thank you all for participating in today’s call. We look forward to speaking with you again when we report our first quarter results. All the best to all of you and have a great day.

Conference Operator: Thank you. Ladies and gentlemen, this does conclude today’s call. You may disconnect your lines at this time and have a wonderful day. And we thank you for your participation.

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