Good morning, ladies and gentlemen, and welcome to the BK Technologies Corporation Conference Call for the Third Quarter 2022. This call is being recorded. [Operator Instructions]. 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 my pleasure to turn the floor over to your host for today, John Nesbett of IMS Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to our conference call to discuss BK Technologies results for the third quarter 2022. On the call today are John Suzuki, Chief Executive Officer; and Scott Malmanger, Chief Financial Officer. I'll take a moment to read the safe harbor statement. Statements made during this conference call and presented in the presentation that are not based on historical facts or forward-looking statements. Such statements include, but are not limited to, projections and 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 of the factors and risks that could cause or contribute to such material differences have been described in this morning's press release and the BK filings with 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. Okay. I will now turn the call over to John Suzuki, CEO of BK Technologies. Go ahead, John.

Thank you, everyone, for joining today. I'll start by reviewing some of the highlights of our operations and financial results during the quarter. Then I'll turn it over to our Chief Financial Officer, Scott Malmanger for a deeper dive into our financials. We'll conclude by opening up the call for a brief Q&A. We saw a significant booking activity driven by our BKR 5000 and which resulted in record bookings of $28 million in the quarter. This represents our third consecutive quarter, achieving record bookings. And year-to-date, for the first 9 months of 2022, we recorded bookings of $62.8 million, which surpasses full year 2021 bookings. That said, our top line performance was impacted by Hurricane Ian, which caused shipment and delivery delays during the last week in the quarter, which I'll detail a bit later. We continue to make progress towards the launch of our next-generation BKR 9000 multi-band device. During the quarter, we completed our second manufacturing build of the product and encountered some issues which are being addressed. Nonetheless, we have maintained our targeted launch date to occur during the fourth quarter of 2022. We believe this product has tremendous potential, because its multi-band capabilities will provide opportunities in several new market verticals. With this expanded exposure, our potential addressable market will be exponentially larger. Finally, our new Software as a Service or SaaS business unit, which launched last February, has developed and launched our first SaaS service InteropONE. A new Push-to-Talk over cellular service, which enables game-changing universal interoperability to first responders in the public safety sector. Our BKR 5000 radio continues to see strong traction in the marketplace. As I just mentioned, we achieved record bookings of $28 million in the third quarter of 2022 and almost $63 million in bookings in the first 9…

Thanks, John. The following is a summary of our financial and operating results for the period ending September 30, 2022. The sales for the third quarter totaled approximately $11.9 million compared with $12.6 million for the same quarter last year. As John mentioned, Hurricane Ian impacted shipments and deliveries in the quarter resulted in an approximately $1.5 million in revenue shifting from the third quarter to the fourth quarter. Importantly, third quarter bookings reached a record of $28 million, and we have received bookings of $63 million in the first 9 months of 2022. Gross profit margins as a percentage of sales in the third quarter were 19% compared to 33% for the third quarter last year. This was primarily due to cost increases in material and freight related to supply chain constraints as compared to the third quarter of 2021. We have begun to see an easing in the supply chain constraints, and we're optimistic we will continue to see sequential margin improvement approaching historical levels by the end of the year. Selling, general and administrative expenses or SG&A for the third quarter totaled approximately $4.6 million compared with $4.5 million for the same quarter last year. Operating loss totaled $2.4 million compared with an operating loss of about $370,000 for the third quarter of last year. In the quarter, we recognized the realized and unrealized noncash gain of approximately $76,000 on the investment in our FG Financial Group compared to an unrealized loss of about $2.2 million in the third quarter of 2021. As of September 30, 2022, working capital totaled approximately $14.6 million, of which approximately $9.4 million is comprised of cash, cash equivalents, and trade receivables. This quarter marks the 26th consecutive payment of quarterly dividends to shareholders under our capital return program. That concludes my remarks.

Thanks, Scott. With the tremendous market appeal of the BKR 5000, the launch of InteropONE and the impending launch of our BKR 9000 multiband radio. As we move through to close 2022 and look forward, BK has a lot to be excited about. We continue to target the achievement of our annual revenues exceeding $100 million by 2025. And we anticipate that our new products and our enhanced manufacturing capabilities in Melbourne will help drive higher margins in the business. With that, we will now move to the question-and-answer portion of the conference. Operator, we are now ready to open the floor for questions.

[Operator Instructions]. Your first question is coming from Zach Lewis with Partners. Q - Unidentified Analyst First off, can you help us understand how backlog translates to revenue in the fourth quarter?

Thanks for the question, Zach. I think the best way to answer that question is this way. If you look at our 9 months revenue and divide it by the number of radios shipped, you get about $2,000 per radio. Obviously, there is revenue mix and other factors that can move the number around a bit, but that is a fair number to use. You can then take that number and multiply it by the 10,650 radios that we expect to ship in the fourth quarter and get the low end of the revenue that we can reasonably realize in the fourth quarter. As you can see, it can be potentially a very good quarter.

And then just one more. You disclosed a strong backlog of $42 million. Can you help us understand how we should think about when you realize that backlog?

So this is John, Zach. So I think, as Scott mentioned, right, we're planning to ship over 10,000 radios in the fourth quarter. We plan to keep that production rate through the first half of 2023. The goal is to burn down our current backlog and get back to normal lead times, which was 30 days. In fact, I'd like to get to a point where I actually have radios on the shelf to respond to customer demand. We anticipate that we'll maintain this elevated rate certainly through Q4 and Q1 and as we move into Q2 or the first half of 2023.

Your next question is coming from Brett Reiss with Janney Montgomery Scott.

John, Scott. I know you don't give guidance on earnings and margins. But John, you did say your thought margins by December 2022 would approach historic margins. So this quarter, the margins were 19% last -- comparing it to the quarter last year, it was 33%. Is that where margins are heading or -- in the fourth quarter? Or is that more aspirational?

No, I think it's what we're seeing, right? So we had been talking about the supply chain pressure for most of the year. We've also been talking about the things that we've been doing to mitigate that. Those mitigation actions are now in place and started with production in September and going through October. So I believe our statement was that we were going to be at historic levels by December of this year. So we hold by that. So if you look at what we did on average, I think, for gross margins in '21, it was in the mid-30s line. So that's kind of where we expect to be at the December time frame. And when you blend that over a quarter and then over the year, obviously, that's different. But on a go-forward basis, that's where we believe we'll end the year.

Okay. Now looking into 2023, when your revenue mix is going to include the higher-margin 9,000 radio, the gravitational pull of margins upward once that becomes more meaningful in your revenue mix, what are we looking at? Could it raise margins 300 basis points, 500 basis points? Can you give us any sense of that, if possible?

So your statements are all correct, right? So what I will say is we still have more runway on our current portfolio to improve margins. And because of the volumes that we have that certainly is a focus of ours because we think that will drive the fastest profitability. So there's still runway to improve upon what we would expect to see in December. So I'll make that first statement. The second statement with the 9000, it does command much higher margins. But the volume mix between our current portfolio and the 9,000 as it relates to '23, the percentage of the 9,000 revenue is going to be substantially small compared to the balance of the portfolio. So even though I'm coming in at a very high margin or a lot higher margin, than the 5,000, just the amount of tonnage that we're doing in our current portfolio is going to be pretty significant in '23. I think you'll start seeing from a margin impact, more of a margin impact in '24 as the mix of 9,000s to, say, 5,000s becomes closer.

And since the story is getting a lot more interesting and exciting, any chance for expanded research coverage by other shops?

Yes. I mean, clearly, that's what we desire. We've had a lot of interest in the company. We're certainly doing a lot outreach. I tell the story that we believe we're in an inflection point. And I think you're seeing with our backlog at $42 million, the fact that our production is now ramped up, the fact that we got 3,900 radios out in October, I mean, tells a story that this thing is ramped up. And so I think with that story and some actual execution that they can visibly see, I think, we'll get more and more interest and more coverage.

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to management for any closing remarks.

Thank you all for participating in today's call. We look forward to speaking with you again when we report our Q4 and year-end 2022 results in March of 2023. All the best to all of you, and have a great day.

Thank you, ladies and gentlemen. 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.