BK Technologies Corp

Question-and-Answer Session

Well. Just jumping into the questions we've received, what's driving your strategy of utilizing the smartphone for broadband connectivity? What are the advantages and also the challenges?

I think I'm going to give James the opportunity to address that question, Jaseson.

Yes. Thanks, John. Our approach of leveraging the smartphone for broadband convergence is really twofold. One is we looked at that situation. The alternative there is incorporating the cellular hardware into our radio as a single device. The one thing that we're -- I think we can all agree to is everyone has a smartphone. They've made that investment already. And we are taking an approach that leverages that investment by integrating through BKRplay or tethering that smartphone to our radio. That's a much more cost-effective approach, we believe. And probably more importantly is the 2 devices or technologies have very different life cycles. As Carlos alluded to in his presentation, we're developing Land Mobile Radio platforms to last for 10-plus years, right, as a life cycle.

Contrast that to cellular, where we're -- we have an expectation that every 2 to 3 years, we're getting a new cell phone that has new technology in it, very short life cycle. So our approach acknowledges that different life cycle model and basically leverages the best of both of those worlds to bring LMR and broadband convergence to our customers in a very cost-effective way.

Perfect. And then a few questions on the competitive landscape, specifically how you compete with the likes of Motorola in the solution space where they are so vertically integrated?

Well, I'd say, in a nutshell, we're really not trying to compete with Motorola. They are extremely large. They're very vertically integrated. They've made a number of acquisitions. Our approach is to bring practical and cost-effective solutions to our customers and primarily in the Tier 3 and the Tier 2 markets, where budgets are generally very constrained. So kind of aligned with our strategy around cost-effective value-based radio platforms.

We're doing the same with our solutions approach and bringing solutions that solve problems for our customers. An example of that was highlighted with LocateOne in my presentation, LocateOne Lite.

Perfect. And then a few questions on the federal government. I'm going to combine them. First part is how dependent is growth on the federal government/spending environment? And then one, wanted you to comment on the federal revenue decline in '24 and '25 and how we should be thinking about the outlook here in '26 and beyond?

Thanks for the question, Jaeson. I'll take that and maybe Stephen can add some more color. So let us go back to 2020 time frame when if you look at our revenue profile, I would say half of our revenue was generated from the federal government. So of that $44 million, half of that came from the federal business.

And last year, we did $86 million. And I believe the percentage was somewhere around 30% or 35% in that range, so substantially less. So as we've grown our business, we really have grown our business outside the federal government more in the state and local side of the business. We do see that as a continued trend as we move forward with expanding our -- the adoption of the 9000 and of course, the upcoming 9500 radio. The primary market for those radios and the primary growth driver is really in the state and local market.

So over time, the percentage of business from federal will decline. Now that being said, if there are opportunities for us to get into agencies because the federal government is a very large purchaser of Land Mobile Radios, we have a very successful position with the U.S. forestry.

If we were fortunate enough to position ourselves with another federal agency, you could see that percentage climb as that new agency onboards with the BK radios.

The other comment I would make is if you're looking at large agencies such as U.S. Forestry or any of the federal governments, A lot of that is budget dependent and moves from year-to-year, and these things get deployed over a period of time.

So I would say that when you're dealing with large customers, the order platform -- order cadence tends to be a little bit lumpy. And so they may get some extra money in 1 year or they may decide to allocate more funds towards Land Mobile Radio in a specific year than another year. That doesn't mean over time, when you look at it on a 5-year basis, I think you would find that the amount of money that they were going to spend was more within that predicted range.

And so I think it's very -- I think looking at historical numbers year-over-year can be very deceiving. And you really have to look at it as a trend over time. And again, we view our growth really being more in the state and local market. So that being said, I'll ask Stephen if he has further comments in terms of where he sees the market growth coming from. Stephen?

Thank you, John. Yes, I would concur with all the statements that John made. The opportunity for growth within our legacy accounts, the federal business that we've enjoyed over the past few decades is really in migration to the new BKR multi-band series. That's where we'll see that growth come in. In terms of number of users, it's really not changing too much. So we would expect the business there to be -- in terms of the number of units being sold to be somewhat stable, up and down a little bit from year-to-year depending upon budgets.

But we have seen quite an interest in adopting the multi-band. And as we pointed out with our state legacy account, Florida, they were willing to pay a 40% premium to have the ability to have the interoperability at their fingertips when they're ready to add those software options.

Perfect. And next question here is, can you talk about the path to 60% gross margins as Motorola equipment tends to be in that 55% to 56% range?

Yes. It's a good question. I would say Motorola's product basket is pretty wide, right? They have a wide portfolio. And contrast that with ours is we're very focused on one part of that portfolio, which is the high-end public safety device market. That, in my opinion, next to software perhaps is the highest margin portion of the product portfolio.

So where we are just laser-focused on the -- on executing on the top end public safety market for devices, our competitor, Motorola has a much broader portfolio, which dilutes the overall gross margin. So while we're targeting 60% on devices, that's the primary focus, and that's where the majority of that profitability that Motorola enjoys as well. They just get diluted from other parts of their portfolio to get down to that 50%, 55%.

Okay. That makes sense. And then can you lay out your go-to-market strategy, how you're approaching the dealer market, how the sales force efficiency is tracking? And then how much do you plan to grow the sales force and dealer network in order to hit the targets?

I think that's a great question for Stephen.

All right. Happy to answer that. I actually had a slide that kind of got jumped over in the process of my challenges here, technical challenges. But we have about 130-plus dealers, and it is part of our program that we're trying to grow out. We also have grown our direct sales.

Now our direct sales works with the dealer, not against the dealer channel. The dealer channel is an extension of our sales team. So we intend to continue to work that. And specifically, I talked about the Tier 3 markets. So we are targeting dealers in those Tier 3 markets as well to get the coverage.

And I think, Stephen, you commented that there are about 870 counties in the Tier 3. Can you comment on the coverage, the dealer coverage within that?

Yes. Thank you, John. That's correct. About 870 Tier 3 counties in the nation. And we have about 80% or just shy of 80% coverage at this time. Getting to that level was a little easier than getting to 100% will probably be a little bit of a challenge, but we're definitely working towards that.

Perfect. And then a question here on your 2030 financial targets. And if they include any acquisition activity or is the doubling in revenue based solely on organic growth?

Yes. It's exclusively organic growth. We look at acquisitions as being something in addition to -- on top of the $170 million.

Got you. And then what is driving the 2026 to 2030 market growth acceleration to 10% from that 7.5% between '21 and '25.

Yes. So first, you look at the market overall, right? I mean we're dealing with public safety and the number of first responders in the market is really directly proportional to population. So you can see as the population grows, the number of first responders grow and then, of course, the need for radio communications grow.

Population growth is not growing at 10% or even 7.5%. I think what you're seeing is really a shift in the average selling price of radios, the value proposition that new technology is bringing. If you look at the average cost of a radio today versus it was, say, 20 years ago, it's probably double that price. And so there is an acceleration of that average selling price over the last few years, and we see that continuing. Now a couple of technologies that are going to be driving that higher ASP. The first one is broadband -- or sorry, multi-band, excuse me. The multi-band adoption rate has been, I would say, very slow over the last 10 years when it was first introduced, primarily because of the price points of those radios.

Today, the customers have more choice at a much more budget-friendly price point, and we see that the adoption rate will go up. And that's actually will be an increase overall to historical pricing. So I think a lot of that is technology-driven. Multi-band is one aspect of that. Another aspect of that is just broadband solutions.

As we look at integrating broadband solutions with LMR to augment the overall solution, there's opportunity to increase pricing and introduce new. So I think that's -- those are 2 key drivers of the technology side that's driving the overall market growth over the next period.

Got you. And then next question also sticks with some of your targets. The revenue target of $170 million and a 35% EBITDA margin equates to about $60 million in EBITDA. And then this question really wants to kind of bridge how you get to that $55 million in free cash flow.

That definitely sounds like a finance question. So I'm going to pass that over to Scott.

Yes. Thank you, John. Thank you for the question. Basically, we think our forecast is reasonable and yet conservative. And so I'll start off with that. But as a part of that, we do have add-backs for basically noncash stock comp -- and then we've also got some -- we will basically have higher spending for research and development.

So we're going to have some benefits on the income tax side. It's really too early to tell what's going to happen 4 or 5 years from now, but we've modeled it out, and I'm comfortable that we'll have a free cash flow of some place in the range of $55 million on $170 million worth of revenue.

Understood. And another question here on the competitive landscape. This time, more on the likes of JVCKENWOOD and some of the cheaper radios out there, how you guys differentiate compared to them?

Yes. I think Stephen, can address that, Stephen?

Thank you, John. Thank you for the question. And a good question at that. JVCKENWOOD and Tait are highly competitive from a price standpoint. But when the price is equal, customers looking at which is the least risk, which is the easiest to transition to. And our radio has a form factor that's going to be very familiar with them. It's going to feel like the radio that they're used to using at a much higher price point, if I dare say, a Motorola radio. In performance, we put a lot of focus on the performance of the radio as well.

So leveraging our relationships, the size of our company, the way that we can take care of the customer and then putting a radio in their hand, it feels like -- feels like something that they're used to having in their hand. It operates like a radio that they're used to having. It makes it a little bit easier, I would say, to remove price from that equation.

Stephen, if I can just add to what you're saying, right? I mean -- so first, you end up with a -- let's just say it's a Motorola customer, which -- I mean, they own 70% of the market share. So [indiscernible] its,'s a Motorola customer that's that we're talking about.

First, for them to make a decision to move away from Motorola, a company that they've probably purchased radios from for a majority of their career is not a simple one. But they've made a decision because they really need to have a multi-band radio. They want a multi-band radio. They feel they need a multiband radio, but their budget is only allowing them to afford a single-band radio for Motorola solutions.

And so they open up the door, right, to competitors who have multi-band radios that are comparable price to, say, a Motorola single-band radio. The question is, is really when you compete against these other competitors, Tait and say, JVCKENWOOD, what is the distinguishing factors that can actually make a difference in BK's way.

And I wanted to reiterate what you just said because I don't think we can overstate the importance of this. When you're dealing with law enforcement, they hate change, right? And so form factor matters in terms of how they use their radios, the familiarity they have with the radios, especially if they find themselves in a life-threatening situation.

And so when a radio that you give them, if it's a new radio, their first reaction is, I hate it because it's new, right? And then they warm to it if the form factor is very similar to what they've used in the past. And that was one of our key design criteria when we brought the 9000 out to market.

The form factor is very similar to a Motorola APX 8000 radio, and we did that on purpose. And so that the transition from, say, an APX 8000 or an APX 6000, which is their single-band radio to the BKR9000 all-band radio would be a seamless event. In fact, we've given 9000 radios out in the marketplace to first responders and their first reaction is, oh, this looks like a Motorola radio.

And we would ask them, is that a good thing? Or is that a bad thing? And they would say, absolutely, it's a great thing. Because the ability to put those radios in first responders' hands, train them on those radios is almost seamless. Now you contrast that with our competitors of Tait and JVCKENWOOD and you can go online and look at their radios.

There is a distinct difference between the form factors of these radios. And it is that factor in my mind or in our experience, I would say, has been a key factor in the end customer selecting BK. So a little bit longer-winded answer, Jaeson, sorry, but I thought it was a very important point that we need to reinforce.

No, that's helpful. And then the next question is, you addressed it, I think, in a previous question, but this goes back to the gross margin difference between Motorola and specifically how you guys are able to make these radios at such lower cost compared to a competitor with so much more scale.

Yes. So the comment I would make is that we don't produce these radios at a lower cost than Motorola Solutions. If you look at an equivalent radio to ours, I believe that their cost structure is much better than ours because they use a lot more customized integrated components, and they have a lot more volume and manufacturing scale than we have. And so I think that if you look at our gross margin on the 9000 being 60%, then the question people should ask is what the gross margin of Motorola's comparable radios are in the marketplace. It is substantially higher.

Again, it's diluted from the other parts of their broadband. I don't know that for a fact. I don't know what their cost structure is. I don't know what their margins are. I don't have any inside information on that at all. But I do know, right, that these guys use a lot of customized parts.

I do know that they have a lot more volume and a lot more manufacturing scale. So these are reasonable assumptions that I can make. And I know that they sell their price -- their radios at a lot more money than we do. And so I expect that their margins would be much greater than this.

Okay. That's helpful. And then a few questions. I'm just going to combine them here. Looking out to your targets, how much revenue are you expecting from either accessories or BKOne?

So on the accessory side, I think we've said in the past, it's about 30% or 35%. Again, it fluctuates a little bit depending on the middle of fire season, you've got a lot of people coming in asking for more accessories because they're going out on a mission. During the fourth and first quarter when things are dying down, the percentage of accessories is less, but it's in that 30%, 35%.

In terms of BKOne, I mean it's still relatively new to the portfolio. And I think the -- again, the value in the portfolio is not that it's just going to be this huge revenue stream as competitive to the radio revenue stream. To be honest, the revenue stream on the revenue is the lion's share of our business and very profitable. BKOne is profitable, but it's not a significant part of the revenue portion. Now as we go forward over the next 5 years, but more importantly, the next -- when I look at Vision 2035, 2040, right, as broadband becomes more relevant in public safety communications from a first responder's standpoint when they're out outside the vehicle, right? I do think that the opportunity there is greater every year as we go forward.

So part of the reason why we're making this investment in there is because we do see this shift in public safety's interest in using broadband and there is value. We've seen it in the vehicles where they brought broadband communications to the vehicle, how that's made the first responders' safer and more efficient. As we look forward, it's really about when that first responder steps out of the vehicle. He is carrying a smartphone. I think we saw some Verizon studies where 60% of the first responders are being issued with agency paid smartphones, and that percentage continues to climb over time.

So I can't tell you where we're going to be on the solutions side of the business in BKOne as a percentage of the revenue. I would suspect, if I look at the next 5, 10, 15 years, the radio portion will still be a significant part just because the industry doesn't like to give up their radios. But I do see that side of it growing, and it's becoming -- it will become more material. And customers are asking today, what is your broadband strategy? And how do these things work together? And that's why James and the team has been very focused and very successful, I will say, in communicating to the market on how we are doing it a little bit differently than our competitors.

Perfect. Appreciate that color. And this next question, I assume, relates more to manufacturing and supply chain. Can you scale without breaking the model?

I'm going to let Stephen, since he just picked up the operations group, so it's fresh in his mind, I'm sure.

Yes. Thank you, John. Thank you for the question. Yes, we absolutely can. And we already are. We proved that in 2025 that it's scalable, and we continue to work on our relationships and -- with our contract manufacturers, suppliers in general to make sure that they're prepared to grow with us as well. And I'm very happy to report that I have no concerns at all that we'll continue to improve the scalability of the model that we began about 2.5 years ago, I think, when this all started.

Yes. Just to add, I mean, our partner EastWest Manufacturing has been great. They have numerous facilities around the world, including in the U.S., Canada, Mexico and Asia. And the versatility for us to be able to leverage their manufacturing scale across the globe is fantastic. And the reality is we are a fairly good sized customer for them given the size of their business and our business, which is good because they actually pay attention to us, and they want us to help us grow and they are a shareholder as well. And so I think that our interests are very much aligned and they're excited about Vision 2030 and our growth prospects.

And next question here is on how you guys view the LMR and broadband markets and if you think they're competing technologies?

That sounds like James Teel question. James?

Yes. Thanks for the question. No, we don't view them as competing technologies. In fact, we believe that as we've discussed, broadband today is augmenting LMR in a very positive way. And we don't see that changing in the foreseeable future. And even when broadband is more integrated into the public safety operations, I'll go back to what John was talking about with form factor around the device. We don't see that form factor going away anytime soon. Some of you -- you hear you'll never see a firefighter go into a burning building with their smartphone. And we believe that. We believe that, that LMR radio form factor is going to be here for the foreseeable future.

That's helpful. And the next question is on your backlog ending '25. And then looking here in the first half of '26, which key contracts or agencies are you expecting to materialize?

Yes. So first, I would say, again, if you start looking at it year-over-year, quarter-over-quarter, there's lumpiness in the order volume and then large orders that we get from some key customers, so U.S. Forestry, we get orders every year. It's usually in the Q2, Q3 timeframe. Those deliveries can take 5 or 6 months to make a delivery -- to convert to revenue. And so the order profile for large customers will vary a lot from year-to-year. But if you take it out on a 5-year view, you'll see that it smooths out, and it's pretty consistent.

So as I look in 2026, clearly, we expect orders from one of our key customers in the federal side, U.S. Forestry. They have been assigned budgets, but the timing of the release of those funds and the process they have to go through, again, historically has been in Q2 and Q3, and we expect that to be replicated in '26.

Got you. And how does the BKR 9500 drop-in replacement strategy reduce customer upgrade costs?

I'm going to kind of shift that to Carlos since he hasn't had a question and then maybe get a follow-up from Stephen. Maybe I can do the cleanup on the end, I don't know. Let's go. Carlos?