BKTI Q3 FY2026 earnings call transcript, November 12, 2026

Good morning, everyone.

Thank you for joining us on our third quarter of 2026 conference call. I'll start by reviewing our operational and financial performance and then turn it over to our Chief Financial Officer, Scott

initiatives. During the quarter, we expanded our partnership with TangoTango, a provider of mission-critical communication software with a $3 million strategic investment that we believe creates opportunities for incremental business and long-term growth. We take a disciplined and opportunistic approach when identifying partnerships that can generate attractive financial returns and drive incremental business for BK. And this investment... fits cleanly in that strategy. We structured the investment as a five-year convertible note, varying 12.5% PIK interest annually, with the potential to convert the investment into equity in Tango Tango and benefit from its future appreciation. Importantly, this is not a passive financial investment. BK has secured a board observer right, providing direct visibility into Tango Tango strategies.

We intend to be an active strategic partner working with Tango Tango's leadership to pursue commercial opportunities, accelerate product integration, and create value for both companies. This combination of financial participation and strategic collaboration positions BK to benefit from Tango Tango's growth while strengthening our competitive position. The investment supports three specific goals that are driving the public safety communications market. It enhances our software stack. We gain exposure to well-established software solutions instead of internally building a competing platform. It adds value to our radio franchise as Tango Tango's customer base of over 1,500 public safety agencies, roughly 1,000 of which are Tier 3 segment. This becomes a new sales channel for BK radios. In tandem, deeper software integration makes our radios more valuable, and it strengthens our position on interoperability. By integrating Interop 1 with Tango Tango, we have another proof point that BK radios function seamlessly across platforms in mission-critical environments. That helps us in discussions with other software providers looking for open communications ecosystems. We believe the commercial opportunity is just as compelling as the financial investment. This is another step in our evolution from a radio manufacturer to a public safety technology company, in line with our Vision 2030 objectives. More broadly, we remain focused on deploying capital in ways that create long-term value for our shareholders, whether through strategic investments in our business or returning capital directly to shareholders. Our growth continues to be driven by an expanding

BKR series footprint across public safety agencies, and our Vision 2030 strategy is focused on two structural market transitions that we believe will define the industry in the years to come. This includes the shift from single-band to multi-band and the evolution from any vehicle to on-person broadband. Federal demand was the key growth driver for the quarter. Over 60% of third quarter revenue came from the US government. The US Forest Service was the largest federal customer with significant orders for both the BKR 5000 handheld radios and our KNG mobile radios. I want to take a moment to discuss the Forest Service deliveries because it shows how we win. During the quarter, we shipped 3,000 of our new BKR 5000 orange radios. Historically, the Forest Service bought our standard black BKR 5000. They informed us that they were losing radios after fire incidents. As radios were getting shared, they had a tendency to get mixed up with other agencies' BKR 5000 fleets. They requested a radio in a distinctive color that is easy to find if dropped or misplaced in the field. Reserved exclusively for the Forest Service, well, BKR 5000 orange is our answer, and it is now their standard. standard radio. Our leadership in wildland fire was built this way. We listened to our customers and solved their real operational problems. We're taking the same customer-focused approach to the broader public safety market with our multi-band BKR series radios. Turning to the BKR 9500, product validation is progressing across several key areas despite the disruption caused by the October 8th roof.

Collapse at our West Melbourne facility. FCC testing is nearing completion, and we expect to receive FCC certification by year end. Our software engineering team continues to test the BKR 9500 software, identifying and resolving issues as part of the normal development process for a new radio platform. Meanwhile, our field engineering team is validating the BKR 9500 on live customer systems. Where performance to date has been excellent. Several BKR 9500 radios are also undergoing accelerated life testing, including testing to destruction in our engineering lab and initial results are positive. In parallel, the supply chain is securing the materials needed to build the first 2000 radios. A substantial portion of these materials have already been received and are safely stored at our Melbourne distribution center. We plan to begin mass production by March of 2027. We also brought a new distribution center online during the quarter with the signing of a lease with east-west manufacturing for a 5,000 square foot BK distribution facility at their facility in El Paso, Texas. It was set up, staffed, and shipping to customers. within the third quarter. The move brings us closer to most of our customers while expediting manufacturing lead times and lowering transportation costs. For context, in the final days of the third quarter, radios produced at east-west Juarez, Mexico facility were trucked over the U.S. border to El Paso, Texas in the morning, turned over to DK, and shipped back out by noon for same day

delivery to our customers. While this was an exceptional case, we do expect to be able to deliver to our western customers in two to four days and eastern customers in three to five days, which is a substantial improvement over the current seven to ten-day round-trip lead time through our Melbourne Distribution Center. This is also part of our broader effort to streamline operations and maintain a lean, efficient cost structure. Well before the October weather events, we had committed to reducing our leased footprint at our Melbourne headquarters by approximately 42 percent, from 54,000 to 31,500 square feet, beginning in February of 2027. This planned consolidation reflects our continued focus on operational efficiency, disciplined cost management, and maximizing the profitability of our business and as we grow. With that, I will turn it over to Scott Malmanger, our CFO, to give a more detailed overview of our third quarter financial performance. Go ahead, Scott.

Thank you, John. Sales for the third quarter totaled $25.3 million, an increase of 3.6 percent compared with $24.4 million in the third quarter of 2025. Growth in the quarter was attributable to federal order volumes impacted by budget cycles around the September 30 government fiscal year-end. Gross profit margin in the third quarter was 50.7 percent compared with 49.9 percent in the third quarter of 2025, reflecting favorable product mix and continued robust adoption of the BKR 5000 single band and our higher margin BKR 9000 multiband products. Selling general and administrative expenses for the third quarter increased to 8.4 million compared to 7.3 million in the same quarter last year. The increase in SG&A reflects planned hardware investments in the BKR 9500 and software costs associated with new product and software solutions development. This is in alignment with our Vision 2030 investment strategy aimed at accelerating revenue and margin growth. Operating income was 4.4 million in the third quarter of 2026 with operating margin of 17.5 percent, expanding sequentially from 16.4 percent, although declining from 19.8 percent in the prior year third quarter. on higher revenue. research and development investments. We delivered GAAP net income of 3.7 million or GAAP EPS of 93 cents per share per diluted share compared with net income of 3.4 million or 87 cents per diluted share in the prior year period.

Income tax provisions declined by 527,000 versus the year ago quarter, which reflects an estimated rate of approximately 30% during the third quarter of 2025 compared to an estimated rate of 20% for the third quarter of 2026. Going forward, our estimated normalized federal tax rate will be in the range of 23 to 26% that will depend on the impact of increased R&D tax credits compared with 16% for the full year of 2025. Turning to slide six, our non-GAAP profit trajectory has continued each quarter since the third quarter of 2023. For the third quarter of 2026, we reported non-GAAP adjusted EBITDA of 5.2 million with adjusted EBITDA margin of 20.5%, which compares to 5.3 million and 21.5% in the third quarter of 2025. Non-GAAP adjusted earnings, which adds back non-cash stock-based compensation expenses and non-cash income tax provision expense, was 4.7 million or $1.16 per diluted share. This compares to adjusted earnings of 4.9 million or $1.24 per diluted share. in the third quarter of 2025. Taken together, our profitability has trended strongly, and we believe we are well positioned to sustain that trajectory. Turning to cash generation and capital efficiency, we continue to deliver strong results. In third quarter 2026, we generated after-tax free cash flow.

of $5.2 million, and on a trailing 12-month basis, after-tax free cash flow reached $18.9 million, with a 25% year-over-year increase, outpacing the 11% revenue growth. After-tax free cash flow is a non-GAAP measure that we believe provides useful insight into the company's ability to generate cash after accounting for taxes. This performed- performance underscores the resilience of our cash generation, even as we continue to invest for growth. As in prior quarters, we remain disciplined in how we manage the business, which continues to drive strong cash conversions. Our focus on capital efficiency is steadfast, as evidenced by our return on invested capital of 39.5% for the third quarter of 2020. 2026 on a trailing 12-month basis. Return on invested capital has remained comfortably above the 30% after recovering meaningfully over the last several years and reflects our disciplined cost management. Turning to the balance sheet, we ended the third quarter of 2026 with a strong balance sheet, including $29.2 million in cash. Cash and cash equivalents up from $22.8 million at year-end 2025 and no debt. In addition, we hold a $3 million strategic investment in Tango Tango through a five-year convertible note bearing 12.5% annual PIK interest. Together, these assets underscore our financial strength and provide meaningful flexibility. To invest in growth and return on capital to shareholders.

The company, as a part of its capital allocation plan, established a Rule 10B5-1 non-discretory stock repurchase program in September 2025. During the third quarter of 2026, the company completed no repurchases of its common stocks as per the conditions of the plan. Subsequent. To quarter end, the company completed an additional repurchase under the program. Also subsequent to the quarter end, on November 11th, our Board of Directors authorized an increase of $5 million to our existing share repurchase program. BK's total repurchase program authorization is now $10 million, with approximately $8.4 million remaining available for future. Purchases, $3.4 million of which is reserved for the 10B5-1 plan. Working capital improved to $48.8 million as of September 30th, 2026, compared with $37.3 million as of December 31st, 2025. Shareholders' equity increased to $56.3 million, compared with $37.3 million. Paired with $44.7 million on December 31st, 2025. In closing, our strong cash generation gives us substantial financial flexibility to invest in the business, pursue strategic opportunities, and return capital to shareholders. I will now turn the call back over to John, who will provide our 2026 outlook and strategic priorities.

Subsequent to the quarter end on October 8th, we experienced a partial roof collapse at our West Melbourne, Florida headquarters during a severe thunderstorm. The partial collapse occurred after business hours, and thankfully no employees were injured. The collapse was directly over our IT server room and took down key business systems, including our customer support lines. Our team was on site within minutes, and we activated our emergency recovery plan within the first hour. About 90% of the second floor where our headquarters staff work was saturated or moderately affected by water. About 75% of the first floor was also affected, including production, customer service, and engineering. The recovery moved quickly. Within 24 hours, IT has restored our basic business systems, including customer phone support. We moved the customer service repair and the BKR 9000 production line into our adjacent distribution building, which was not affected. We quarantined any suspect equipment and material and expedited replacements. Both operations are back up and running. Our SMT area and engineering accelerated life test lab We Hello, my name is The BKR 9000. We have a number of classes and data out of the WVU team developed before the 4-7000 program. So that's why we're working all the same. The WVU team is ready to go to the office. So you want to do it. I want to keep my注意 are already very well.

We're not affected and are operating again. Both are critical to the BKR 9500 production readiness. The timing and our footprint helped. Most of our production had already moved to east-west, so less production was exposed. Our El Paso move freed up space in our distribution building, and because the event happened early in the quarter, we've had more time to recover. As of this morning, November 12, roof repairs are underway. We expect to move customer service repair and the BKR 9000 production back into the headquarters by mid-January. With the second floor, staff expects to return in the February to March 2027 timeframe. Turning to our outlook for the full 2026, we now expect revenue of $85 million. This slight downward revision... reflects the impact of the lower fourth quarter BKR 9000 shipments due to the production disruption. We expect BKR 9000 output to return to pre-October 8th levels during the first quarter of 2027 and the affected orders to ship as production recovers. We continue to expect gross margin of 50% or better for the full year. GAP EPS is expected to be $2.40 per diluted share and none GAP adjusted EPS is expected to be $3.15 per diluted share. Our revised EPS guidance does not take into account the receipt of potential recoveries under our business interruption insurance as well as potential refunds on tariffs we previously paid. The amount and timing of those recoveries are not yet known including whether they'll be recognized in 26 or 27 and will update the market as

we have more clarity on these items. Consistent with our practice in prior years, we expect to provide full year 2027 financial guidance during our fourth quarter earnings call in March. Based on what we know today, we do not expect the October 8th event to materially affect our anticipated financial performance in 2027. Importantly, the affected BKR 9000 orders have been deferred BKR 9000 orders have been deferred. Not lost. We expect to fulfill them as production returns to normal during the first quarter. Development of the BKR 9500 also remains on track with mass production plan for March 2027. While this incident was disruptive to our business, we remain confident in our ability to execute our long term strategy. No one can predict when adversity will strike. What matters most is how we respond. I'm incredibly proud of our Melbourne team who showed that we can rise to the occasion when it counts. We are grateful for all the support we have received from the City of West Melbourne, our landlord, and especially our employees, partners, and customers. At this time, I will return the call to Tom for Q&A. Tom?

Your next question is coming from Robert Van Voorheef from Vanitya Capital. Robert, your line is live. Please go ahead.

I appreciate it. I want to thank the team for their strong execution this quarter and our public safety customers for the trust they place us every day. With a strengthening balance sheet, expanding opportunities in software and services, and a product roadmap aligned with the market's evolving needs, we believe BK Technologies is well positioned for continued success. I look forward to speaking with you again on our next earnings call, conference call. All the best to all of you and have a great day. Thank you. This does conclude today's conference call. You may disconnect at this time and have a wonderful day. Thank you.

Thanks again for your participation.

$3.4 million of which is reserved for the 10B-5-1 plan. Working capital improved to $48.8 million as of September 30th, 2026, compared with $37.3 million as of December 31st, 2025.

Shareholders' equity increased to $56.3 million, compared with $44.7 million on December 31st, 2025. In closing, our strong cash generation gives us substantial financial flexibility to invest in the business, pursue strategic opportunities, and return... ...earn capital to shareholders. I will now turn the call back over to John, who will provide our 2026 outlook and strategic priorities.

Subsequent to the quarter end on October 8th, we experienced a partial roof collapse at our West Melbourne, Florida headquarters during a severe thunderstorm. The first... A partial collapse occurred after business hours and thankfully no employees were injured. The collapse was directly over our IT server room and took down key business systems, including our customer support lines. Our team was on site within minutes and we activated our emergency recovery plan within the first hour. About 90% of the second floor where our headquarters staff work was saturated or moderately affected by water. About 75% of the first floor was also affected, including production, customer service, and engineering. The recovery moved quickly. Within 24 hours, IT has restored our basic business systems, including customer phone support. We moved the customer service repair and the BKR 9000 production line into our adjacent distribution building, which was not affected. We quarantined any suspect equipment and material and expedited replacements. Both operations are back up and running. Our SMT area and engineering accelerated life test lab were not affected and are operating again. Both are... critical to the BKR 9500 production readiness. The timing and our footprint helped. Most of our production had already moved to east-west, so less production was exposed. Our El Paso move freed up space in our distribution building, and because the event happened early in the quarter, we have had time...we've had more time to recover.

As of this morning, November 12th, roof repairs are underway. We expect to move customer service repair and the BigCare 9000 production back into the headquarters by mid-January. With the second floor, staff expects to return in the February to March 2027 timeframe. Turning to our outlook for the full 20... We now expect revenue of $85 million. This slight downward revision reflects the impact of the lower fourth quarter BKR 9000 shipments due to the production disruption. We expect BKR 9000 output to return to pre-October 8th levels during the first quarter of 2027 and the affected orders to ship as production recovers. We continue to... We expect gross margin of 50% or better for the full year. GAAP EPS is expected to be $2.40 per diluted share and non-GAAP adjusted EPS is expected to be $3.15 per diluted share. Our revised EPS guidance does not take into account the receipt of potential recoveries under our business... ...interruption insurance, as well as potential refunds on tariffs we previously paid. The amount and timing of those recoveries are not yet known, including whether they'll be recognized in 26 or 27, and we'll update the market as we have more clarity on these items. Consistent with our practice in prior years, we expect to provide full year 2027 financial guidance during our fourth quarter earnings... to call in March. Based on what we know today, we do not expect the October 8th event to materially affect our anticipated financial performance in 2027. Importantly, the affected BKR 9000 orders have been deferred, not lost. We expect to fulfill them as production returns to normal during the first quarter. Development of the BKR 9500

the BKR 9500. also remains on track with mass production planned for March 2027. While this incident was disruptive to our business, we remain confident in our ability to execute our long-term strategy. No one can predict when adversity will strike, and what matters most is how we respond. I'm incredibly proud of our Melbourne team who showed that we can rise to the occasion that we can rise to the occasion. When it counts, we are grateful for all the support we have received from the City of West Melbourne, our landlord, and especially our employees, partners, and customers. At this time, I will return the call to Tom for Q&A. Tom?

Robert Van Voorhees from Vanitya Capital. Robert, your line is live. Please go ahead.

I appreciate it. I want to thank the team for their strong execution this quarter and our public safety customers for the trust they place us every day. With a strengthening balance sheet, expanding opportunities in software and services, and a product roadmap aligned with the market's evolving needs, we believe BK Technologies is well positioned for continued success. I look forward to speaking with you again on our next earnings conference call. All the best to all of you, and have a great day. Thank you. This does conclude today's conference call. You may disconnect at this time and have a wonderful day.

Thank you once again for your participation.