BK Technologies Corp. (formerly RELM Wireless Corporation) — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2013; filed August 12, 2013. The filing identifies the registrant as RELM Wireless Corporation, while the request metadata identifies BK Technologies Corp.
Business Context and Reporting Period
The company develops and sells land mobile radio products, including P25 digital products, serving public-safety, government, and other markets. Sales to U.S. government agencies represented 21.9% of second-quarter sales and 34.9% of first-half sales. The filing states that results are unaudited and may not be indicative of full-year results.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2013 | Three Months Ended June 30, 2012 | Six Months Ended June 30, 2013 | Six Months Ended June 30, 2012 |
|---|---|---|---|---|
| Net sales | $6.191 million | $9.327 million | $13.264 million | $13.696 million |
| Gross margin | 43.9% | 49.7% | 44.9% | 46.0% |
| Operating income | $378,000 | $2.016 million | $877,000 | $1.343 million |
| Pretax income | $409,000 | $2.011 million | $888,000 | $1.333 million |
| Net income | $197,000 | $1.246 million | $602,000 | $845,000 |
| Diluted EPS | $0.01 | $0.09 | $0.04 | $0.06 |
- P25 product sales were $3.6 million, or 58.6% of second-quarter sales, and $8.4 million, or 63.4% of first-half sales.
- SG&A expense was $2.339 million in the quarter and $5.075 million for the first six months. SG&A increased as a percentage of sales to 37.8% and 38.3%, respectively.
- Net cash used in operating activities was $434,000 for the first six months, compared with $1.825 million of cash provided in the prior-year period.
- Capital expenditures and capitalized software totaled $377,000, including $289,000 of capitalized software.
- Cash and cash equivalents were $5.804 million at June 30, 2013, compared with $6.581 million at December 31, 2012.
- Working capital was approximately $24.2 million, compared with $23.6 million at December 31, 2012.
- The company had no borrowings under its secured revolving credit facility, approximately $3.028 million of borrowing availability, and a $5 million maximum facility subject to borrowing-base limitations. The facility matures December 31, 2014.
Material Changes Versus the Prior Comparable Period
- Second-quarter sales declined approximately 33.6%, while first-half sales declined approximately 3.2%. Management attributed the quarterly decline to delayed conversions of sales opportunities and the absence of certain large state, local, and international orders recorded in the prior-year quarter.
- Gross margin decreased 5.8 percentage points in the quarter and 1.1 percentage points for the six months, reflecting lower sales, reduced manufacturing volumes, and under-absorption of fixed manufacturing and support costs.
- Second-quarter operating income fell to $378,000 from $2.016 million; first-half operating income fell to $877,000 from $1.343 million.
- Second-quarter net income declined to $197,000 from $1.246 million. First-half net income declined to $602,000 from $845,000.
- Accounts receivable increased to $3.528 million from $2.062 million at year-end, contributing to negative operating cash flow. Management attributed the increase to sales made later in the period that had not completed collection.
- Inventory declined to $12.873 million from $13.345 million. The reserve for slow-moving, excess, or obsolete inventory increased modestly to approximately $2.868 million.
- U.S. government sales decreased to $1.356 million in the quarter from $3.781 million in the prior-year quarter. Government receivables were $588,000 at June 30, 2013, compared with $2.757 million at the same date in 2012.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that many delayed sales opportunities remained viable, but the filing provides no specific revenue or earnings guidance.
- Management expects that higher sales volumes, increased P25 product sales, and manufacturing improvements could support future gross-margin improvement.
- Management believes cash, anticipated operating cash flow, and available borrowing capacity are sufficient for foreseeable working-capital needs, but cautions that economic conditions could limit access to capital.
- The company had $7.122 million of net deferred tax assets, primarily related to net operating loss carryforwards. Federal NOLs were $8.263 million and state NOLs were $15.430 million, with expirations beginning in 2018. A $366,000 valuation allowance remained, and additional allowances may be required if future losses occur.
- The company had approximately $2.814 million of purchase orders outstanding to suppliers. No material legal claims were pending as of June 30, 2013.
- The Board authorized up to $2.5 million of share repurchases through December 31, 2013, but no shares had been repurchased through June 30, 2013.
- Principal risks include dependence on U.S. government spending, competition and technological change in land mobile radio, reliance on contract manufacturers and foreign suppliers, inventory levels, utilization of deferred tax assets, customer and sales volatility, access to capital, intellectual-property matters, and maintenance of the NYSE MKT listing.
- Management reported that disclosure controls were effective as of June 30, 2013 and that there were no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm the registrant’s corporate name and ticker history, because the filing is under RELM Wireless Corporation while the request identifies BK Technologies Corp.
- Assess whether delayed sales opportunities converted after June 30, 2013 and whether government-related demand recovered.
- Monitor gross-margin trends, manufacturing-volume utilization, and the mix of P25 products.
- Review collection of the increased accounts receivable and the company’s ability to generate positive operating cash flow.
- Evaluate the realizability of deferred tax assets and the potential for future valuation-allowance changes.
- Verify borrowing-base availability, facility covenants, maturity terms, and any subsequent use of the revolving credit facility.
- Check subsequent filings for share repurchases under the $2.5 million authorization and for changes in customer concentration or supplier commitments.