Baylin Reports Continued Positive Adjusted EBITDA

Baylin Reports Continued Positive Adjusted EBITDA

Investor Conference Call on August 3, 2017 at 8:00 a.m. EDT.

 

  • Revenue in the second quarter of 2017 was $20.3 million (CAD); a 2% decrease from a year ago.

  • Gross profit and gross margin, both at the highest level in the past 14 quarters, sustained their sequential upward trend.

  • Q2 2017 Operating expenses, adjusted for non-recurring items, at $7.5 million (CAD) are reflective of the continued investment in product development

  • Current quarter Adjusted EBITDA was $0.4 million (CAD); the 6th consecutive quarter of positive result.

 

Toronto, CANADA, August 3, 2017 - Baylin Technologies Inc. (TSX: BYL) (the "Company" or "Baylin"), a global provider of innovative antenna solutions for the networking, mobile and small cell/DAS/BSA markets, today announced its financial results for the six and three months ended June 30, 2017. All figures are stated in Canadian dollars (“CAD”) unless otherwise noted.

Key highlights for the three months ended June 30, 2017:

  • Changed reporting currency to CAD from United States dollars. This change was considered advisable due to (i) our shareholders are primarily Canadian-based, (ii) being a TSX reporting entity with our share price quoted in CAD, the financial information was not explicitly converted from USD to CAD when reading our financial statements and MD&A.
  • Revenue, at $20.3 million (CAD), showed a 2% decline against last year’s comparable quarter, due to a delayed launch of a small cell antenna product related to a large carrier multi-year rollout.
  • Gross profit was $6.8 million (CAD), and gross margin (See Non-GAAP Measures on page 2 of the MD&A) was 33.4%; both at the highest level in the past 14 quarters. Gross margin improved 3.2% over the first quarter of the year as a result of a better product mix and production optimization efforts.
  • Positive Adjusted EBITDA was $0.4 million (CAD), making it the sixth consecutive positive quarter. Certain non-recurring and one-time expenses (“non-recurring items”) were incurred in Q2 fiscal 2017 amounting to $1.5 million (CAD). (See Non-GAAP Measures on page 2 of the MD&A).
  • The company decided to close down R&D efforts in Israel and relocate all design and engineering activities at our new Ottawa, Canada location,
  • Furthermore, the restructuring of the Israeli fixed costs through the closure of our operation in Tiberias, Israel during the quarter is an important effort. An amount of $0.9 million (CAD) has been expensed during the period as a result of the closure. The significant ramp up in the Ottawa R&D center provides improved access to our North American customer base, potential access to the Canadian SR&ED program, and access to a significant talent pool to keep up with our growing demands.

 

Randy Dewey, President and Chief Executive Officer commented, “It is reassuring to see our efforts over the last two years continue to pay off in the form of sequentially improved gross margin, gross profit and adjusted EBITDA. We have continued to make structural changes to place ourselves in a position of strength in our market space. The delay of a small cell antenna product negatively impacted our overall sales growth year on year but we expect to see the upward momentum in sales resume in the second half.”

Mr. Dewey added: “We remain committed to delivering long term profitability by continuing to seek opportunities to reduce costs, improve margins and gain a competitive advantage”

 

Selected Financial Information

(In thousands of Canadian dollars except per share amounts)

 

The Company's complete unaudited consolidated interim financial statements and Management's Discussion & Analysis for the three and six months ended June 30, 2017 are available at baylintech.com/investor-relations/ and www.sedar.com/.

 

Financial Summary

Revenue and Gross Profit

a) Factors Affecting Revenue and Gross Profit

Revenue

Revenue is derived from the sale of our antenna products. Financial results are reported as one reportable segment. The Company manufactures and sells a variety of antenna products such as antennas for mobile handsets and smartphones, networking and telemetry devices, land mobile radios, telematics and wireless infrastructure antennas. Revenue is impacted by the timing of our customer’s product launches, their project deployment plans, and network expansion investment levels by carriers and independent providers.

Gross profit

Our gross profit is impacted by selling prices and sales volumes, product mix and the variable costs of goods sold (being direct materials and direct labour). The Company also commenced lean manufacturing processes in order to optimize and reduce its fixed manufacturing costs going forward.

 

b) Fiscal 2017 compared to Fiscal 2016

Revenue was $20.3 million (CAD) in the second quarter of fiscal 2017, a 2.0% decline when compared to Q2 fiscal 2016’s level of $20.8 million (CAD). This decline was largely attributable to the delay of a large Small Cell antenna product roll out. We did have some slight softness in Asia Pacific due to a large customer’s flagship model not selling as well as the previous generation.

For the six months ended June 30, 2017 revenue was $40.1 million (CAD) compared to $41.7 million (CAD) for last year’s comparable period; this represents a decline of 3.7%.

Gross profit was $6.8 million (CAD) in Q2 of fiscal 2017, with an associated gross margin of 33.4%. Both compared favourably with the second quarter of fiscal 2016, where it was $5.9 million (CAD), or 28.3% of Revenue. We note the continued improvement in both gross profit and gross margin, with the current quarter being at their highest levels in the past 14 quarters. We are excited by the upward trend on margins and our ability to right-size the business and get the operating platform to a more flexible model. The improvement in the current quarter versus the comparable quarter a year ago was as a result of product mix and improved utilization of fixed cost.

Gross profit increased to 12.7 million (CAD) (31.7% of Revenue) for the six months ended June30, 2017 from $11.5 million (CAD) (27.6% of Revenue) for the comparable period last year. These improvements are attributable to the same reasons cited in the preceding paragraph.

 

R&D Expenses

 

a) Factors Affecting R&D Expenses

R&D expenses consist primarily of salaries, patent fees, product development costs and other related engineering expenses. Our technological design centers are located in South Korea, United States and Canada. We often incur significant expenditures in the development of a new product without any assurance that our customers’ system designers will ultimately select our product for use in their applications. We are often required to anticipate which product designs will generate demand in advance of our customers expressly indicating a need for that particular design. Even if our customers’ system designers ultimately select our products, a substantial period of time will elapse before we generate revenue relative to the possibly significant expenses we have initially incurred.

 

b) Fiscal 2017 compared to Fiscal 2016

R&D expenses for the second quarter of fiscal 2017 were $3.2 million (CAD) up 32.3% compared to the same quarter of fiscal 2016. The increase was attributable to increased headcount hired to develop products to expand our product lines, particularly the incremental investment in BSA development as well as outside development costs incurred as our internal engineering team is built up to full strength. . We anticipate quarter-over-quarter spending to continue to increase through the balance of fiscal 2017 in comparison to 2016.

R&D for the six months ended June 30, 2017 was $6.2 million (CAD) compared to $4.9 million (CAD) for the six months ended June 30, 2016. The increase in development costs is to augment our product pipeline for the balance of 2017 and beyond.

 

Sales and Marketing

 

a) Factors Affecting Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries, advertising, trade shows, travel costs and other promotional activities. These costs can be material when entering new markets such as the Small Cell/DAS/BSA market and acquiring new customers, requiring meaningful investments to win new business.

 

b) Fiscal 2017 compared to Fiscal 2016

Sales and marketing expenses in the second quarter of fiscal 2017 were $1.4 million (CAD) (6.7% of Revenue) compared to $0.9 million (CAD) for the second quarter of fiscal 2016. The increase is attributable to a strengthened sales force to facilitate better market penetration in the Small Cell/DAS markets as well as the BSA market.

Sales and marketing expenses for the first half of 2017 increased from $2.0 million (CAD) to $2.6 million (CAD) representing a 28.2% increase. The majority of this increase occurred during Q2 of fiscal 2017 and is explained in the preceding paragraph.

 

G&A

 

a) Factors Affecting G&A Expenses

G&A expenses consist of costs relating to human resources, legal and finance functions, professional fees, insurance and other corporate expenses.

 

b) Fiscal 2017 compared to Fiscal 2016

G&A expenses for fiscal Q2 2017 were $4.4 million (CAD) representing an increase of $1.5 million (CAD) from the Q2 2016 quarter. Similarly, G&A expenses for the six months ended June 30, 2017 were $1.7 million (CAD) higher than the $5.8 million (CAD) incurred in the six months ended June 30, 2016. The increase in G&A is made up primarily of certain one-time events including a restructure provision and impairment loss recorded for the closure of the Galtronics Israel location amounting to $0.9 million (CAD).

 

Operating loss, EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are non-IFRS measures that we use to assess our operating performance (See Non-GAAP Measures on page 2 of this MD&A). EBITDA and Adjusted EBITDA are reconciled as follows:

Reconciliation to Operating Loss

 

a) Factors Affecting Operating loss, EBITDA and Adjusted EBITDA

Operating loss, EBITDA and Adjusted EBITDA are highly impacted by revenue volumes, the mix of product sales and operating expense overheads. Additionally, in 2017 we incurred $0.8 million (CAD) of incremental R&D related to our entry into the BSA market.

 

b) Fiscal 2017 compared to Fiscal 2016

Operating loss for the three months ended June 30, 2017 was $2.2 million (CAD), compared with an operating loss in the same quarter in fiscal 2016 of $0.3 million (CAD).

Adjusted EBITDA in the second quarter of fiscal 2017 was $0.4 million (CAD) versus $0.7 million (CAD) in the same quarter a year ago. The non-recurring items in the second quarter of fiscal 2017 amounted to $1.5 million (CAD), and were comprised primarily of a restructure provision and an impairment loss recorded during the period related to the closure of the Israeli operations as mentioned above.

Adjusted EBITDA for the first six months ended June 30, 2017 was $0.6 million (CAD) compared to $1.0 million (CAD) for the same period ended June 30, 2016. Non-recurring items comprised mainly of recruiting costs related to the expansion of the leadership team in support of our entry into the BSA market, severance, the Israeli operation restructure provision and impairment loss and sundry other non-recurring activities.

 

Net Loss for the period

 

 

a) Factors Affecting Net Income or Loss

Net loss is influenced by the above noted factors for Operating loss and EBITDA.

 

b) Fiscal 2017 compared to Fiscal 2016

Net loss for the second quarter of fiscal 2017 was $3.2 million (CAD) compared to a net loss of $0.4 million (CAD) for the same quarter in fiscal 2016. Tax expense in Q2 2017 related to withholding taxes. For the six months ended June 30, 2017 the net loss was $4.8 million (CAD), an increase of $3.6 million (CAD) for the six months ended June 30, 2016.

 

OUTLOOK

Baylin management continues to evolve the operating platform of the company to dovetail with the changes and growth of the business. We believe we are addressing the legacy issues. At the same time, the operating platform and long-term outlook of our cost reductions, gross margin improvement strategies, and market expansion opportunities are bearing fruit. The fundamental core elements of the business are trending in the right direction.

In Q2 we experienced a significant delay in a large order of our small cell antenna product line that will have an impact on timing of revenue for this year of approximately $6.5 million (CAD) that will shuffle ahead by one quarter. A large multi-year product rollout did not begin at the time we expected and will experience about 120 days of delay. We have captured that business and have begun shipping that product but the revenue will have a larger impact in 2018.

An evaluation of overall group engineering capabilities resulted in a decision to cease operations at our facility in Tiberias, Israel. Design work being performed at that location has been re-allocated to our US and Canadian locations with an overall fixed cost savings. Activities are currently underway to transfer existing Galtronics Israel assets to other locations within the group. Management remains committed to investing in R&D spending and has spent another $0.4m on Base Station Antenna (BSA) development during the quarter. We expect a stronger second half for Small Cell/DAS as a delayed Small Cell antenna has moved to production and development of new products is ongoing. We remain cautiously optimistic of delivering our first BSA antennas to market in 2018. During the quarter, new sales personnel joined the group in an effort to align more closely with our end customer and add base station antenna knowledge and skills to our DAS, Small Cell and BSA sales team.

The networking product line had some softness in Q1 that recovered to some degree in Q2 but is expecting a stronger second half as new platforms begin ramping up and efforts continue to extend the customer base.

Asia Pacific’s (formerly Mobile) outlook remains stable with consistent revenues from our existing customers combined with continued efforts to identify new opportunities to further reduce our reliance on a major customer.

Cost reduction and rationalization efforts will continue for the remainder of 2017 in an effort to hold the margin gains we have achieved during the first half. Operational cost control will remain tight and we remain committed to the initiatives started in 2015 of investing in new product development while at the same time controlling spending, optimizing manufacturing efficiencies and managing liquidity closely.

Conference Call

Baylin will hold a conference call to discuss its fiscal 2017 three month financial results on August 3rd, 2017, at 8:00 a.m. (ET). The call will be hosted by Randy Dewey, President and Chief Executive Officer, and Clifford Gary, VP Finance and Corporate Controller. All interested parties are invited to participate.

 

DATE:                          August 3rd, 2017

TIME:                           8 a.m.

DIAL IN NUMBER:        647-427-7450

888-231-8191

CONFERENCE ID#:       54268947

WEBCAST DETAILS:   Webcast URL (EN):

http://event.on24.com/r.htm?e=1349673&s=1&k=CD3B5CA713B2FEEDC131AF3807E00AEA

 

FORWARD-LOOKING STATEMENTS

Certain statements in this Press Release constitute “forward-looking” statements that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, objectives or achievements of the Company, or industry results, to be materially different from any future results, performance, objectives or achievements expressed or implied by such forward looking statements. The forward-looking statements in this Press Release include, but are not limited to, statements regarding the Company’s expected product pipeline, plans to expand the Company’s business into new markets, the Company’s ability to achieve organizational efficiencies, and other statements regarding the Company’s plans and expectations in 2017. These statements reflect our current views regarding future events and operating performance and are based on information currently available to us, and speak only as of the date of this Press Release. These forward-looking statements involve a number of risks, uncertainties and assumptions and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such performance or results will be achieved. Those assumptions and risks include, but are not limited to, the Company’s ability to successfully allocate capital as needed and to develop new products, as well as the fact that our results of operations and business outlook are subject to significant risk, volatility and uncertainty. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including the factors identified in the “Risk Factors” section of the Company’s Annual Information Form dated March 9, 2017. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described in this Press Release as intended, planned, anticipated, believed, estimated or expected. Unless required by applicable securities law, we do not intend and do not assume any obligation to update these forward-looking statements.

 

(1) NON-GAAP MEASURES

This press release includes a number of measures that are not prescribed by Canadian generally accepted accounting principles ("GAAP") and as such may not be comparable to similar measures presented by other companies. We believe these measures are commonly employed to measure performance in our industry and are used by analysts, investors, lenders and interested parties to evaluate financial performance and our ability to incur and service debt to support our business activities. The measures we use are specifically defined (See Non-GAAP Measures on page 2 of the MD&A).

While we believe that non-GAAP measures are helpful supplemental information, they should not be considered in isolation as an alternative to net income, cash flows generated by operating, investing or financing activities, or other financial statement data presented in accordance with GAAP.

 

About Baylin

Baylin (TSX: BYL) is a leading global technology company with over 39 years of experience in designing, producing and supplying innovative antennas. We strive to meet our customers' needs by being their trusted partner from initial design to production with an extensive portfolio of custom engineered solutions and leading edge off-the-shelf antenna products.

SOURCE Baylin Technologies Inc.

For further information please contact Investor relations:

investor.relations@baylintech.com

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