BK Technologies Corporation 2026 Q2 Earnings Call

Good morning and welcome to our conference call to discuss the BK Technologies results for the second quarter of 2026. On the call today are John Suzuki, the Chief Executive Officer, and Scott Malmanger, the Chief Financial Officer. Before we begin, I would like to take a moment to read the safe harbor statement. Statements made during this conference call are presented in this presentation that are not based on historical facts or 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 these forward-looking statements and some other factors and risks that could cause or contribute to such material differences have been described in this morning's press release and BK's filings in 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 we do not undertake any duty to update such forward-looking statements. With that, I will now turn the call over to John Suzuki, CEO of BK Technologies. John, please go ahead. Thank you, Corbin.

Good morning, everyone, and thank you for joining us on our second 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 Malmanger, for a deeper dive into our financial results for the quarter. Following a discussion of the financial results, I will provide our fiscal year 2026 outlook and outline the strategic priorities for our roadmap. We will conclude by opening the call for a brief Q&A. Our second quarter results continued to reflect successful execution of our Vision 2030 strategy and demonstrate the strength of the business model we are building. For the first half of the year, we delivered double-digit revenue growth, generated another record cash balance, and are steadily marching towards our Vision 2030 objectives.

Second quarter revenue grew 10.6% to $23.4 million, extending our trailing 12-month revenue growth to 15.7%, and gross margin expanded 445 basis points to 51.9%. That performance was driven by strong demand from state and local public safety agencies for our BKR series radios, particularly the BKR 9000 handheld multiband radio, and growing adoption for our BK ONE solutions. In tandem with our top-line trajectory, we continue to prioritize targeted investments behind new products and solutions. Leveraging the powerful combination of top-line growth and favorable product mix, pre-tax income remained stable year-over-year at $4 million, despite a $2.4 million year-over-year increase in operating expenses. Our net income for the quarter was $3.2 million, or $0.79 per diluted share, and compares with $3.7 million or $0.96 per diluted share in the second quarter of last year.

The variation in our bottom line was driven almost entirely by a $560,000 year-over-year increase in our income tax provision and not by any softness in our underlying business. On a non-GAAP basis, adjusted EPS was $1.01 per diluted share. We closed the quarter with a record $29.9 million in cash and no debt, a significant increase from $22.8 million at the end of 2025 and up $1 million sequentially. This growing cash position provides us with balance sheet strength to keep investing in products and solutions our customers demand. Our trailing 12-month after-tax free cash flow reached $19 million, up 49% year-over-year and continuing to outpace revenue growth, which underscores the operating leverage in our business model.

Our growth continues to be driven by expanding BKR series footprint across public safety agencies, and we continue to advance our position to address two structural market transitions that we believe define the industry in the years to come. The first is the shift from single band to multiband radios. With millions of public safety first responders operating across the U.S. today, the majority are communicating on private single-band LMR systems and cannot talk to neighboring or federal agencies directly without a multiband radio solution. That transition is still early, represents a multiyear tailwind for multiband BKR 9000, and now the BKR 9500 in-vehicle multiband radio. The second is the evolution from in-vehicle to on-person broadband. The vast majority of public safety vehicles are already connected via broadband. But the moment a first responder steps out of the vehicle, that connectivity has historically been lost.

Our strategy to address this constraint is to tether the BKR series radio to the smartphone. Our purpose-built solution closes that connectivity gap, and we believe represents a substantial growth runway to target within our Vision 2030 roadmap. Specifically to the 9500, our BKR 9500 multiband in-vehicle radio made its public debut in April to wide acclaim. Since the introduction, we have received purchase orders in excess of 200 radios from a variety of customers. This is especially exceptional since customers have placed these radio orders sight unseen. On the development side, we recently submitted the 9500 for FCC testing and expect to receive FCC approval in early 2027. In parallel, we will begin the transition from our lab to manufacturing and conduct both accelerated life and customer field testing.

While I am extremely pleased with achieving the FCC submission milestone, we still have a lot of work to do before we can ship customer radios. That being said, we remain highly confident that we will start customer deliveries in the first half of 2027. With BKRplay, our patent-pended tethering solution, we completed initial customer beta testing this quarter with positive feedback, particularly around the ease of switching between LMR and InteropONE cellular communication modes and the reliability of the Bluetooth link. We will continue beta testing through the balance of the year with a broader set of customers and are targeting its general release for January of 2027. We are also continuing to build out our software ecosystem.

Our recently announced licensing agreement with Tango Tango extends our patented InteropONE technology into one of the country's largest push-to-talk over cellular networks, expanding our reach to more than 1,500 public safety agencies and over 35,000 active users. This creates a pathway for recurring licensing fees over time, while also promoting BKRplay and our BKR series multiband platform to the Tango Tango customer base. With that, I will turn it over to Scott Malmanger, our CFO, to give a more detailed view of our second quarter financial performance.

Go ahead, Scott. Thank you, John.

Sales for the second quarter totaled $23.4 million, an increase of 10.6% compared to $21.2 million in the second quarter of 2025. Growth in the quarter was attributable to broad-based gains across state and local agencies. Gross profit margin in the second quarter was 51.9%, compared with 47.4% in the second quarter of 2025, reflecting favorable product mix and continued robust adoption of our higher margin BKR 9000. Selling, general, and administrative expenses for the second quarter increased to $8.3 million, compared to $6 million in the same quarter last year. The increase in SGA reflects higher engineering costs associated with new product and solution development to accelerate growth, which is in alignment with our Vision 2030 investment strategy. SGA expense for the quarter also includes non-cash stock-based compensation expense of approximately $512,000.

Operating income was $3.8 million in the second quarter of 2026, with operating margin of 16.4%, expanding sequentially from 15.4%, although declining from 18.9% in the prior year second quarter on higher research and development investments. We delivered GAAP net income of $3.2 million, or GAAP EPS of $0.79 per diluted share, compared with net income of $3.7 million or $0.96 per diluted share in the prior year period. Income tax provisions increased by $560,000 versus the year ago quarter, which impacted diluted EPS by about $0.14 per share, while our pre-tax income remained stable at $4 million. The company's effective tax rate for the second quarter of 2026 was about 21%. As we look forward to 2026, our estimated tax rate of 26% compares with 16% for the full year of 2025. With the higher rate reflecting the normalization of our tax profile and profitability increases.

The diluted EPS impact from a higher estimated effective tax rate is forecasted to be approximately $0.42 per share in 2026, compared with the fiscal year 2025 rate. Turning to slide 6, our profit trajectory dates back 12 quarters to the third quarter of 2024. For the second quarter of 2026, we reported non-GAAP adjusted EBITDA of $4.5 million, with an adjusted EBITDA margin of 19.4%, which is somewhat lower than the 20.9% rate on $4.4 million of adjusted EBITDA for the second quarter of 2025. Non-GAAP adjusted earnings, which adds back non-cash stock-based compensation expenses and non-cash income tax provision expense, was $4.1 million, or $1 per diluted share. This compares to adjusted earnings of $5.1 million, or $1.30 per diluted share in the second quarter of 2025.