BK Technologies Corp (BKTI) 2025 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the BK Technologies Corporation conference call for the third quarter of 2025. This call is being recorded. 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 now my pleasure to turn the floor over to your host for today, Jen Belideau of IMS Investor Relations. Please go ahead.

Thank you. Good morning and welcome to our conference call to discuss BK Technologies’ results for third quarter 2025. On the call today are John Suzuki, Chief Executive Officer, and Scott Malmanger, Chief Financial Officer. I will take a moment to read the safe harbor statements. Statements made during this conference call and presented in the presentation 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 those forward-looking statements, and some of the factors and risks that could cause or contribute to such material differences have been described in this morning’s press release and in BK’s filings with the US 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. All right. With that out of the way, I’ll turn the call over to John Suzuki, CEO of BK Technologies. Go ahead, John.

Thank you, Jen. Good morning. Thank you, everyone, for joining today. I’ll start by reviewing some of the highlights of our operations and financial results during the third quarter, and 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&A. This was an excellent quarter for our business, highlighted by significant revenue growth of 21% to $24.4 million, driven primarily by robust order activity from federal customers, including multiple purchase orders totaling $12.9 million from the USDA Forest Service. Gross margin improvement to 49.9% compared to 38.8% in the third quarter of 2024, primarily affecting the ongoing shift in the product mix to our higher margin BKR 9000 multiband radio. This revenue growth and gross margin improvement, coupled with ongoing cost management, drove a 46% increase in net income to $3.4 million, or $0.87 per diluted share. On a non-GAAP basis, fully diluted adjusted EPS was $1.27 in the third quarter of 2025, compared with fully diluted adjusted EPS of $0.71 in the third quarter 2024. We also significantly strengthened our cash position in the quarter with cash and cash equivalents totaling $21.5 million, compared with $7.1 million at year-end 2024, and have no debt. This gives us the flexibility to deploy capital thoughtfully through pursuing that. Offer the highest return on invested capital, whether through new product innovation, strategic partnerships, or technology investments that strengthen our long-term competitive position in our core public safety communication markets.

Over the past four years, we have seen consistent improvement in the gross margins of our business as we have reduced costs, outsourced manufacturing to our partner EastWest, and launched our higher margin BKR 9000 multiband radio. We continue that trend in the third quarter, delivering a sequential increase in our gross margin of 250 basis points as compared to the second quarter of 2025. As the BKR 9000 multiband radio continues to gain traction among our customers, the radio’s higher price point and margin profile are favorably impacting our gross margin performance. Price increases implemented in the first half of 2025 benefited our third quarter margin as well, though some tariff exposure in Asia slightly offset these improvements. With the progress we’ve made to date, we are confident in our ability to exceed our stated gross margin target of 47% for the full year. Growing demand for our BKR series radios has driven both sequential and year-over-year revenue growth. We achieved revenue growth of 21% in the third quarter compared to the prior year period, primarily driven by strong federal order activity that included multiple purchase orders from the USDA Forest Service for a total of $12.9 million. Additionally, our BKR 9000 is performing well in the market. We are on pace to deliver between two and three times the amount of BKR 9000 multiband radios in 2025 as we did in 2024. Our particularly strong third quarter revenue growth also benefited from the increased amount of finished goods that we imported in the first half of the year to mitigate the impact of tariffs on our shipments, which allowed us to ship more radios in the quarter. All in all, a great quarter for the company with continued strong execution by the team. With that, I’ll turn it over to Scott Malmanger, CFO, to give a more detailed overview of our third quarter financial performance. Go ahead, Scott.

Thanks, John. My prepared remarks will focus on the third quarter results. For a full review of year-to-date results, please consult the press release issued earlier today or the earnings presentation posted on our website. Sales for the third quarter totaled $24.4 million, an increase of 21% compared to the $20.2 million in the third quarter of 2024. As John mentioned, gross profit margin in the third quarter was 49.9% compared with 38.8% in the third quarter of 2024, reflecting tariff-related price increases and improved sales mix as the BKR 9000 continues to gain traction in the market. Selling, general and administrative expenses, or SG&A, for the third quarter increased to $7.3 million compared to $5.2 million for the same quarter last year. SG&A expense for the quarter includes non-cash stock compensation expense of approximately $600,000.

On August 6, 2025, the company issued 39,250 shares of common stock at a closing price of $38.27. Related to restricted stock unit grants, RSUs, issued in 2023. For performance-based compensation around the BKR 9000 radio. Expenses in the quarter also included our continued investment in sales, marketing, and engineering. Operating income was $4.8 million in the third quarter of 2025, representing an operating margin of 19.8%. This compares to an operating income of $2.6 million in the third quarter of 2024, or an operating margin of 12.9%. The company achieved GAAP net income of $3.4 million, or GAAP EPS of $0.93 per basic and $0.87 per diluted share in the third quarter of 2025, compared with net income of $2.4 million, or $0.67 per basic and $0.63 per diluted share in the prior year period.

Non-GAAP adjusted earnings, which adds back net realized and unrealized loss on investments, non-cash stock-based compensation expenses, non-cash income tax provision expense, and severance expenses was $5 million, or $1.35 per basic and $1.27 per diluted share in the third quarter of 2025. This is compared with an adjusted earnings of $2.7 million, or $0.75 per basic and $0.71 per diluted share in the third quarter of 2024. We reported non-GAAP adjusted EBITDA of $5.3 million in the third quarter of 2025. A substantial increase over the non-GAAP adjusted EBITDA of $3.1 million in the third quarter of 2024. Third quarter 2025 adjusted EBITDA margin was 21.5%. It represents our second consecutive quarter of adjusted EBITDA margin greater than 20%. On slide 7, you can see our enhanced profitability metrics dating back to the first quarter of 2024.

While profitability has consistently improved overall, we did recognize a slight decrease in adjusted earnings on a sequential basis related to a provision for income taxes of approximately $1.5 million in the quarter, which is related to the year-to-date R&D tax credit adjustment related to the Big Beautiful bill signed in July. Overall, our profitability trend has been strong, and we anticipate continued profitability growth as product mix shifts and we increase BKR 9000 sales. Our balance sheet continues to improve as well. At September 30, we had $21.5 million of cash, which, as John mentioned, is a significant improvement over our year-end 2024 cash position of $7.1 million, as well as no debt. Working capital improved to $33.8 million at September 30, 2025, compared with $23 million at December 31, 2024. Shareholders’ equity increased to $41 million compared to $29.8 million at December 31, 2024.

The strong and improving balance sheet gives us the flexibility to deploy capital thoughtfully to continue to strengthen our long-term competitive position in our core public safety communications markets. To conclude, we’re very pleased with our third quarter results, and we believe that we’re favorably positioned to execute on a long-term strategy of delivering enhanced value to our shareholders. I will now turn the call back over to John for closing remarks.

Thanks, Scott. With the federal government still shut down, I thought it would take a moment to address the business impact. We have received letters from some of our federal customers asking us to hold shipments while the shutdown is ongoing. Of course, we are complying with these instructions. With that being said, we will continue to execute with the intent to make the planned deliveries by year-end, since, in our opinion, it is unlikely the shutdown will extend to the close of the year. In the extreme case, where the federal government shutdown does persist, the business is prepared to pivot product deliveries to fulfill other state and local customer orders. At this point, we believe we have mitigated the federal government shutdown risk as we remain focused on closing out a very strong year of operation execution for the business. We continue to be highly confident in our stated targets for the full year, which are high single-digit revenue growth, full-year gross margin of 47% or greater, full-year GAAP EPS of $3.15, and full-year non-GAAP adjusted EPS of $3.80. Lastly, we continue to make meaningful progress on the development of the BKR 9500 multiband mobile radio, a companion radio to the BKR 9000, with revenue expected in 2027. We look forward to carrying the momentum that we’ve built year-to-date through Q4 as we close out what should be an exceptional year for the company. With that, I will now open the call for questions. Kelly.

(Operator Instructions)

Your first question is coming from Jason Schmidt with Lake Street Capital Markets. Please pose your question. Your line is live.

Hey, guys. Thanks for taking my questions, and congrats on the really strong results. John, I want to start with your comments on the government shutdown. Curious if you think any orders got pulled into Q3 in anticipation of this. I guess relatedly, just want to clarify that the outlook for the full year takes into account any continued friction here.

Yeah. September 30th was the year-end for the fiscal year for the federal government. They do not have money that is associated with the new year, and that is why there is the shutdown. Any of the orders that were planned for the last year’s fiscal year had to be spent or issued in terms of purchase orders by September 30th, midnight timeframe. In terms of our case, all the orders that we were expected did get processed. Some of them got processed late on the 30th, but they all did come in. It would be very unusual to get an order, to pull in an order in our business, because, again, those funds have not been approved, and so they could not generate an order for the new fiscal year. Sorry, I forgot the second part of your question.

Just for the full-year guidance accounts for sort of the continued shutdown.

Yeah. The first thing I would say is we don’t believe that the shutdown is going to extend through the end of the year. Our planning is that we continue to drive the material and stage the orders for shipment because our customers still need that material. There’s just nobody there to receive them, right? Hence the letters to hold the shipments. We believe that the shutdown will—the government will open before the end of the year. Once they open, then we’ll be getting approval to ship. That’s what our belief is, and that’s what we’re working towards. Now, that doesn’t mean that’s going to happen. There is the outside chance that the shutdown does extend through the end of the year.

We put a mitigating plan in place that we could redirect that material to fulfill on other state and local orders. All in all, we believe we’re very confident. Regardless of what happens with the shutdown, in terms of our overall revenue guidance.

Okay. That’s helpful. Just looking at gross margin, understanding some of the step back here in Q4 is related to lower revenue. Anything else that we should be aware of that would sort of drive that sequential decline in gross margin?

So, We didn’t comment on a sequential decline in gross margin in the fourth quarter, Jason. I’m not understanding your question.

Okay. So gross margin should be able to remain stable from Q3?

Yeah, that's our belief.

Yeah. I think what you were referring to was the decline in our operating income or our net income. That’s due to the tax event related to the Big Beautiful bill. It’s basically an adjustment, a year-to-date adjustment for the R&D tax credits as part of the Big Beautiful bill that was passed in July.

Okay. No, understood. Just with sort of that gross margin outlook for the full year being 47%, I mean, obviously that was maintained. Just given the Q3 performance, the outlook for the full year probably is you’re feeling a little bit better on that gross margin line. That’s a fair assessment?

Yeah. That’s fair. We just didn’t update it. I think our year-to-date is 48-something. 48.2 is the first nine months, so. Typically, your margins are higher in the first and fourth quarter because typically the margins are affected by federal orders, the more aggressive pricing, which is usually in quarters two and three. Now, a lot of that’s just been skewed over the years just because we’ve been making other improvements. You really haven’t seen that dynamic. At some point, the margins will start to level off, and you’ll see that dynamic a little bit more with more aggressively priced products being shipped to the federal government in more of that Q2, Q3 timeframe.

Okay. Appreciate the call, you guys. Thanks a lot.

Your next question is coming from Samir Patel with Askalon Capital. Please pose your question. Your line is live.

Hey, guys. Congrats on a really nice quarter. Scott, I wanted to ask about cash flow, which has been really strong this year, and particularly in this quarter. I noticed that you’ve actually kind of had some working capital favorability, and your cash from ops has exceeded adjusted EBITDA, if I’m looking at that right. Maybe you can just help me think through over the next few years as you continue to grow. Just how much how you think about working capital and cash from operations as compared to your income statement metrics, basically the cash conversion.

Yeah. Thanks for the question. Basically, I think. We have significant operating leverage. I think that’s the best way to explain it. We have seen incremental expenses in our SG&A for investments in sales, marketing, and engineering on the new products that are under development. There is going to be some incremental improvement as our revenues grow with the mix of the 9000. I would say a significant amount of the gross margin improvement will fall through to the bottom line.

Yeah. Sorry, I apologize. Maybe I wasn’t clear. I was asking more about the cash flow and just receivables, payables, inventories, and just as you grow the business, how much you expect to need in working capital. Because this year, it doesn’t seem like you’ve really, in fact, it’s been a contributor as opposed to a detractor, even though you’ve grown revenues a little bit.

Okay. Thanks for the clarification. Yeah. I think you are correct that. Basically, we have favorable terms for our AP. The cash collection cycle still remains very strong. We will see improvement in the cash cycle itself just due to the timing of the payables and the receivables. We will also expect to continue to reduce our inventory, but that’s not a straight path. It’s going to depend on what we have for finished goods for the sales increases.

Okay. So basically, as you look out over the next few years, you don’t think you need to invest in working capital. You think it should be pretty clean from income statement to the cash flow statement?

Yeah.

Perfect. Okay. The second question, I just wanted to make sure I understood the comments you made, John, about your mitigation plan for the shutdown. I guess, if I’m understanding this correctly, and just tell me if I’m not, you have a backlog of state and local orders for, I guess, the same radios that you’d be shipping to the federal government. If you don’t have the ability to ship those federal orders this quarter, you’re basically going to pivot, ship those same products to state and local customers this quarter instead of next quarter. I guess whenever the government reopens, you would kind of go back and ship those orders to the federal government. You’re saying that essentially it wouldn’t be a material impact to revenue because you’re kind of just changing out delivery slots.

Is that the right way to understand what you said?

That's that's correct, Samir.

Okay. Perfect. That’s all I have for right now. I’ll just get back in the queue and let you know if I have anything else. Thanks.

Thank you, Samir.

Your next question is coming from Robert Van Voorhis with Vanita Capital Management. Please pose your question, your line is live.

Hey, guys. Good morning. Great quarter. I actually just had a few questions. One is a follow-up on the one that Samir just asked, actually. John, is the right interpretation of that dynamic that we are actually currently undershipping demand? Because if all of our, if the mitigation is just to ship the state and local orders if the shutdown continues as opposed to the federal ones, does that mean actually if we could ship everything in this Q4, then we would have meaningfully higher demand than what would be maybe implied? If you understand what I’m asking.

Yeah. Yeah. Sure. I do. So there are two aspects. One is we plan our material with our production facilities. We did drive our finished goods a little stronger this year because of the potential tariff increase. So, we’ve been carrying that a little bit higher than normal, I would say, but that’ll deplete out to the fourth quarter. We do plan our material for the quarter, right? It’s not like you can just pivot on a dime and drive more material in. It’s very difficult to do that. The other part of it is the customers. Although the material may match here at the customers, those customers have been promised material in certain timeframes.

Some of it is going back to those customers and saying, "Yeah, I know I promised you in January, but would you accept it in December?" There is a little bit of work. It’s not as simple as saying, "Oh, I’ve got all this extra demand. Let’s just go ahead and ship." You have to have the material to fulfill that larger demand. Of course, the customers have to be willing to accept those deliveries.

Okay. Got it. That makes sense. I just have maybe two more questions. The first one is just on gross margin. I know our goal for a few years now has been getting to 50%. Clearly, we’re already there. We still have more room to go on the 9000 in terms of fulfilling demand in the out years. Longer term, John, it sort of seems like, at least to my eye, that 50% is not really the ultimate goal. I mean, do you have any comments on where you really want to see it long term?

Yeah. That was certainly our goal to hit 50% by 2025. We were hoping that we would get that for the full year. It will end up very close. In terms of where we see the margin profile going forward, we will be talking about our vision 2030. One element of that is further margin expansion. I’ll just leave it at that because I don’t want to get ahead of myself. We’ll be talking about that at the March timeframe when we do our Q4 investor call.

Okay. Got it. Thanks for that. My last question is just on sort of capital allocation and our plans with the cash. I know previously we had alluded to the fact that we might do some M&A. I just want to ask a bit more directly. How are we thinking about the risk profile with that M&A? I mean, in terms of maybe size and what sort of return metrics we would be looking at? I mean, are we going to be acquiring technology that maybe is loss-making now and then in the future is not going to be as we roll it in? How do we think about it?

I think I’m going to defer that question, if you don’t mind, till the March timeframe. Because part of our vision 2030 is really, I mean, we’re projecting over the next five years to generate a fair amount of cash. I think it’s more appropriate to kind of defer it to that time because then the question becomes more material, right? You’re going to generate this cash. What do you plan to do with it? What kind of companies are you looking at? I think it’s better if we have that discussion then. That way I can provide a more thoughtful answer.

Yep. That’s perfectly reasonable. Okay. Thanks. Appreciate it.

Once again, if you do have any questions or remaining comments, please press star one at this time. Your next question is coming from Aaron Martin with AIGH Investment Partners. Please pose your question. Your line is live.

Hi. Good morning, guys. Congratulations on a great quarter. Scott, I’ll start first with you on the tax. I understood it’s almost $1.5 million. You call it as a catch-up. How should we think about the non-GAAP tax rate going forward?

That I think is going to be pretty much at the rate. It depends a lot on the Big Beautiful bill and the treatment for the R&D tax credits because there’s going to be an acceleration function. Depending on our tax experts to give us some good guidance there. What we’ve guided to in the past is a rate in the range of 24-26% for income taxes.

Got it. So, which means there wasn’t that much of a catch-up in this quarter that was close to a true tax rate?

There was quite a bit. If you look at what we had for year to date in June, I think it was something like a 14% rate. The third quarter was definitely a catch-up. I think year to date now the rate that we had was about 20%. So, it’s trending towards the 26%. That’s correct.

Got it. Okay. John, going back again to hash out this shutdown. And your handling of it. How much, I guess, roughly what percentage of your backlog is federal versus state versus other agencies?

I don’t have that number. Off the top of my head, Aaron. We did make quite a bit of deliveries to the federal government in the third quarter, which helped us achieve that $24 million. I don’t have it. We would have to get back to you. I don’t want to guess.

Okay, I mean.

It's easy. The majority is state and local, right? The majority, it, that's.

Got it. That’s what I was going to say. It’s not 70% federal, 30%.

Yeah. I think it’s, yeah, it’s like 25-35%. We thought we would do about 35% federal business this year, which we’re. Yeah. We’re. We probably would be less than that, maybe. Depending on the shutdown, how that goes.

Got it, but.

Yeah, the majority of the backlog is state and local.

And then I’m going to nitpick you a little bit on the 9000. You talked about confidence in the 9000 being shipping two to three times the number of radios in 2025 than up from 2024. In the past, the language of use was three times revenue. I don’t know if this is, should we be taking this as a different language there? What should I take from that?

Yeah. Actually, I don’t remember using three times revenue. I think the last few calls we’ve been saying two to three times as many units. But the units’ average pricing, I think we talked about, was about $2,500. That’s consistent, so.

Okay. So, no change there. On your expectations for the 9000 growth?

No.

Okay, great. Congratulations, on the progress.

Thank you, Aaron.

Samir Patel has a follow-up question. Please pose your question. Your line is live. Samir, your line is live.

Apologies. I was on mute. Hey, I just wanted to go back to gross margins and a comment you made in response to the last question. First of all, you had elevated federal orders in Q3 relative to Q1 and Q2, correct?

Yes,

Okay. But you also saw, I mean, you saw a pretty significant step up in margin. From 47.4% in Q2 to 50%-ish around in Q3. As you had the price increases, the mix, etc. But that was with, I guess, the headwind of having more of those federal orders, which are your lower margin product and your best pricing, correct?

Right.

So, on a like-for-like basis, I mean, if you’re looking at, on a mix, if you’re trying to just separate out kind of the structural margin of the business, I mean, your mix, it seems like the margin in the quarter was, I guess, even stronger. And two, I think Robbie asked the question earlier about gross margins. I mean, that should give you confidence that even with a heavy federal quarter, if you’re hitting 50%, then if you kind of average it over the year and look at more of your growth, obviously coming from the state and local, I mean, surely you should be pushing well into the 50s. Is that a reasonable interpretation?

Yes.

Very expansive as always in your answers. Thanks, John. Appreciate it.

Thank you, Samir.

There are no additional questions in queue at this time. I would now like to turn the floor back to John Suzuki for closing remarks.

Thank you, Kelly. Before I close the call, I would like to also mention that Scott and I will be attending the 14th Annual Roth Technology Conference this month on November 19 at the Hard Rock Hotel in New York City. With that, I wish you all the best and have a great day.

Thank you everyone. 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.