BK Technologies(BKTI) - 2020 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company reported a Q1 net loss of $1.2 million on decreased assets, but generated positive operating cash flow of $0.9 million due to inventory reduction and took post-quarter actions in response to COVID-19 Condensed Consolidated Balance Sheets Total assets decreased to $35.7 million as of March 31, 2020, driven by lower inventory, while stockholders' equity declined due to the net loss and stock repurchases Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $22,275 | $23,886 | | Inventories, net | $10,937 | $13,513 | | Total Assets | $35,712 | $37,940 | | Total Current Liabilities | $8,565 | $9,376 | | Total Liabilities | $14,070 | $14,664 | | Total Stockholders' Equity | $21,642 | $23,276 | Condensed Consolidated Statements of Operations Net sales grew 42.5% to $10.9 million in Q1 2020, significantly narrowing the operating loss to $0.85 million despite an investment loss Q1 2020 vs Q1 2019 Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Sales, net | $10,889 | $7,644 | | Operating loss | $(848) | $(2,318) | | Net loss | $(1,192) | $(1,318) | | Net loss per share-basic and diluted | $(0.09) | $(0.10) | Condensed Consolidated Statements of Cash Flows The company generated $0.9 million in cash from operations in Q1 2020, a significant turnaround from the prior year, driven by a $2.5 million decrease in inventories Q1 2020 vs Q1 2019 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $915 | $(2,308) | | Net cash used in investing activities | $(131) | $(829) | | Net cash used in financing activities | $(514) | $(591) | | Net change in cash and cash equivalents | $270 | $(3,728) | Notes to Condensed Consolidated Financial Statements Notes detail significant events including the COVID-19 impact, large USFS orders, a new credit facility, an investment loss, and post-quarter PPP loan and workforce reduction actions - The company's operating subsidiary received orders totaling approximately $4.9 million from the U.S. Forest Service (USFS) in February and March 2020[37][38] - The company has an investment in 1347 Property Insurance Holdings, Inc. (PIH) which had a fair value of $2.3 million as of March 31, 2020, and an unrealized loss of $306,000 was recognized in Q1 2020[51] - On January 30, 2020, the company entered into a new $5.0 million revolving line of credit with JPMorgan Chase Bank, which was undrawn as of March 31, 2020[70][75] - Subsequent to quarter end, the company received a $2.2 million PPP loan on April 13, 2020, but decided to repay the full amount on April 24, 2020, following new SBA guidance[86][87] - On May 4, 2020, the company implemented an 18% workforce reduction to cut costs due to the uncertain business environment from COVID-19, incurring approximately $221,000 in severance costs[88] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the 42.5% sales growth driven by federal demand, improved gross margins, a reduced operating loss, and the significant uncertainty and responsive actions related to COVID-19 Executive Overview & COVID-19 Impact The company outlines its two-way radio business and details the significant operational and financial uncertainties posed by the COVID-19 pandemic, including responsive cost-cutting measures - The company designs, manufactures, and markets two-way land mobile radios under the BK Radio (government/public safety) and RELM (business/industrial) brands[97][99] - The COVID-19 pandemic poses significant challenges, and while manufacturing remains open as an "essential business," the company has implemented cost-reduction measures, including an 18% workforce reduction[103][107] Results of Operations Q1 2020 net sales rose 42.5% to $10.9 million with improved gross margins and lower relative SG&A expenses, leading to a substantially reduced operating loss of $848,000 Q1 2020 vs Q1 2019 Key Metrics | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Sales | $10.9M (+42.5%) | $7.6M | | Gross Margin % | 35.8% | 31.9% | | SG&A Expenses | $4.7M | $4.8M | | Operating Loss | $(0.85)M | $(2.3)M | - The increase in net sales was primarily due to strong demand from federal customers like the U.S. Forest Service, contrasting with an unusually low Q1 2019 affected by a federal government shutdown[118] - Engineering and product development expenses decreased by 4.8% to $2.0 million as development activities for the new BKR Series migrated to the internal engineering team[128] Liquidity and Capital Resources Liquidity improved with positive operating cash flow of $0.9 million from inventory reduction, a new $5.0 million credit facility, and post-quarter actions to preserve capital - Net cash provided by operating activities was $0.9 million, a significant improvement from the $2.3 million used in the prior year, mainly due to a $2.5 million decrease in net inventories[141][142] - Financing activities in Q1 2020 used $514,000, consisting of $252,000 for dividends and $243,000 for stock repurchases[145] - The company secured a $5.0 million credit agreement with JPMC, with approximately $3.2 million available as of March 31, 2020[149][153] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls during the quarter - The President and Chief Financial Officer evaluated disclosure controls and procedures and concluded they were effective as of March 31, 2020[159] - No material changes in internal control over financial reporting occurred during the first quarter of 2020[160] PART II - OTHER INFORMATION Risk Factors The primary risk factor update centers on the COVID-19 pandemic's potential material adverse impact on operations, supply chain, and financial condition - The COVID-19 pandemic is expected to have a material adverse impact on business and financial performance, with uncertainty regarding its duration and severity[164][165] - Risks include operational disruptions, supply chain delays, increased freight costs, and potential for reduced customer orders and delayed payments[167][169][170] - In response to the economic downturn from the pandemic, the company has restructured operations, including reducing its workforce by approximately 18%[167] Issuer Purchases of Equity Securities The company repurchased 101,813 shares for approximately $240,000 in Q1 2020 under a program that terminated in April 2020 and was not renewed Q1 2020 Share Repurchases | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2020 | 36,155 | $2.94 | | Feb 2020 | 20,963 | $2.72 | | Mar 2020 | 44,695 | $1.72 | | Total | 101,813 | $2.36 | - The company's stock repurchase program terminated in April 2020 and has not been renewed[173] Exhibits This section indexes all exhibits filed with the Form 10-Q, including governance documents, agreements, and certifications