Investor Conference Call on October 27, 2016.
- Revenue in Q3 2016 was better than expected at $16.9 million; an increase of 40% versus prior year quarter.
- Fourth consecutive quarter of year over year Revenue growth.
- Gross margin improved to 28% in Q3 2016; up from 23% in the comparable quarter a year ago.
- Operating expenses, adjusted for non-recurring items, were $5.0 million.
- Adjusted EBITDA was also better than expected, growing to $0.6 million; the third consecutive quarter where Adjusted EBITDA was positive and sequentially increasing.
- Cash on hand increased by $1.4 million in Q3 2016, to $9.5 million.
Toronto, CANADA, October 26, 2016 – Baylin Technologies Inc. (TSX: BYL) (the “Company” or “Baylin”), a global provider of innovative antenna solutions for the networking, mobile and wireless infrastructure markets, today announced its financial results for the three and nine months ended September 30, 2016. All figures are stated in United States dollars unless otherwise noted.
Fiscal Q3 2016 Highlights
- Positive momentum carried into the third quarter of fiscal 2016, building on the much improved first half of fiscal 2016.
- Third quarter fiscal 2016 Revenue was $16.9 million, the highest quarterly Revenue amount since becoming a public company in November 2013.
- Year-to-date fiscal 2016 Revenue was up 61%, to $48.4 million, from the comparable nine month period in fiscal 2015.
- In comparison to the second quarter of fiscal 2016, quarter over quarter sequential growth in Revenue was 8%. The growth was led by the Infrastructure and Networking product categories, which grew by 37% and 39%, respectively, while Mobile posted a seasonal quarterly decline of 10%.
- Gross profit increased in the current quarter to $4.7 million; a 73% increase from the $2.7 million generated in the same quarter in fiscal 2015 (gross margin improved by 5 percentage points to 28%). Gross profit also grew, by 7%, from the level posted in the second quarter of fiscal 2016 (gross margin was comparable at 28%). Current year-to-date gross profit was $13.4 million; a 124% increase from the same period in fiscal 2015 (gross margin improved by 8 percentage points to 28%).
- Operating expenses in the current quarter, at $5.2 million, were comparable with the same quarter last year. These expenses in the current quarter, when adjusted for non-recurring items of $0.2 million relating to severance costs, were $5.0 million; an increase of $0.3 million from the second quarter of fiscal 2016 (operating expenses, adjusted for non-recurring items, is a non- GAAP measure).
- Positive Adjusted EBITDA continued into Q3 2016, the third sequential positive quarter. At $0.6 million, Adjusted EBITDA increased from $0.3 million in Q1 of fiscal 2016 and $0.5 million in Q2 of fiscal 2016. This was also an improvement over the comparable quarter last year where the Adjusted EBITDA loss was $1.3 million. Adjusted EBITDA for the nine months ended September 30, 2016 was $1.3 million; an improvement from the comparable period in fiscal 2015 where the Adjusted EBITDA loss was $5.5 million.
- Invested to facilitate further growth, by continuing to hire more engineers and investing $0.7 million in capital equipment in the first three quarters of 2016. The balance of 2016 will see the launch of our new product introduction line in Tempe, Arizona which will improve time to market for new Infrastructure products.
- Continued to improve liquidity in the quarter through (i) improved cash conversion cycle, to 26 days, and(ii) closed the sale and leaseback of our Israel based R&D facility for total sale proceeds are $1.9 million (of which $1.2 million was received in the Q3 2016), with the lease term being for 3 years.
- Increased our Cash position to $9.5 million at the end of Q3 2016; an increase of $2.8 million from March 31, 2016. Also continued to de-leverage the balance sheet, where Debt and lease obligations declined by 56%, to $2.7 million, in the first nine months of 2016.
Randy Dewey, Vice Chairman, President and Chief Executive Officer commented, “With posting another positive and higher Adjusted EBITDA in this current quarter, it makes this the third consecutive quarter where we have reported positive EBITDA and Adjusted EBITDA. We are equally pleased by the increase in the cash on hand, as it further adds to our resiliency and liquidity as we grow. It is encouraging to see the growth in the Infrastructure product category this quarter, evidencing the benefits of the R&D investments made this year.”
Mr. Dewey added: “While these are stronger results than we expected, we again reiterate the need to continue our efforts on increasing profitability and cash flow. Our primary focus remains on controlling operating expenses, improving margins, increasing liquidity, as well as building a stronger sales culture to achieve growth across all three of our product lines and diversifying our customer base.”
Results of Operations for the three and nine months ended September 30, 2016 and 2015:
Revenue, Cost of Revenue and Gross Margin
Revenue in the three months ended September 30, 2016 and 2015 were $16.9 million and $12.1 million, respectively, reflecting an increase of 40.1% YOY. The YOY increase was due primarily to stronger shipments of (i) Mobile products, which increased by 79.9% to $8.9 million, and (ii) Infrastructure product, which increased by 41.2 % to $3.5 million, though partially offset by (iii) a decline in Networking product shipments of 3.0%, to $4.5 million, due to the timing of customer demand.
Revenue in the nine months ended September 30, 2016 and 2015 were $48.4 million and $30.0 million, respectively, reflecting an increase of 61.1% YOY. The increase was due primarily to similar factors as noted above. Our main customer accounted for 51%, 52% and 58% of Revenue for Q3, Q2 and Q1 2016, respectively.
Cost of Revenue
Cost of revenue is comprised of variable costs (such as material cost and direct labour) and fixed costs, (such as indirect labour, other manufacturing overheads and depreciation). Variable costs were $9.0 million (53.2% of Revenue) in Q3 of fiscal 2016, versus $6.8 million (56.3% of Revenue) in last year’s comparable quarter. The increase in variable costs of $2.2 million was due primarily to higher Revenue, though the increase was partially mitigated by the product mix. Fixed costs in Q3 of fiscal 2016 were $3.2 million (18.9% of Revenue), versus $2.6 million in the comparable quarter in fiscal 2015 (21.1% of Revenue).
For the nine months ended September 30, 2016, variable costs were $26.4 million (54.5% of Revenue), versus $16.4 million (54.6% of Revenue) in last year’s comparable period. The increase in variable costs of $9.9 million was due primarily to higher Revenue. Fixed costs in the first three quarters of fiscal 2016 were $8.6 million (17.9% of Revenue), versus $7.7 million in the comparable period in fiscal 2015 (25.5% of Revenue). The improved ratio of fixed costs to Revenue was primarily due to the higher production volumes in the first three quarter of fiscal 2016.
Gross profit increased to $4.7 million (27.9% of Revenue) in the three months ended September 30, 2016. In dollar terms, this level showed an increase from both Q1 and Q2 in fiscal 2016 ($4.3 million and $4.4 million, respectively) and 73.3% higher than in the comparable quarter in fiscal 2015 which was $2.7 million (22.5% of Revenue). The improvement in gross margin (gross profit divided by Revenue) in fiscal 2016 was attributable to the higher production volumes (associated with the increased sales) amortized over a relatively fixed cost base.
Gross profit increased to $13.4 million (27.7% of Revenue) in the nine months ended September 30, 2016. This represented an improvement from the comparable period in fiscal 2015 ($6.0 million or 19.9% of Revenue). The improvement in gross margin in fiscal 2016 was attributable to the same factors cited above.
R&D expenses were $2.1 million in Q3 fiscal 2016, compared with $1.6 million in same quarter in fiscal 2015. These expenses were $5.8 million in the first nine months of fiscal 2016, compared with $4.8 million in same period in fiscal 2015. The increased R&D spending in fiscal 2016 was mainly attributable to the increased headcount, in order to expand the product pipeline for 2016 and beyond.
Sales and Marketing Expenses
Sales and marketing expenses of $0.8 million declined in the third quarter of fiscal 2016, from $1.0 million in the same quarter in fiscal 2015. Payroll-related expenses declined YOY due to streamlining senior sales management at the end of Q1 fiscal 2016, though was partially offset by hiring more sales people. Our belief is these investments will yield benefits in driving the Company’s growth strategy in new business areas, thereby diversifying our revenue base and penetrating new and growing markets. There were also decreases in tradeshows, travel expenses and other related expenses as part of the Company’s cost reduction initiatives.
Sales and marketing expenses of $2.3 million in the first nine months of fiscal 2016 declined from $3.3 million in the same period in fiscal 2015. The decrease was attributable to the factors noted above.
General and Administrative
General and Administrative expenses for the three months ended September 30, 2016 decreased from the three months ended September 30, 2015 by $0.1 million, whereas these expenses decreased by $0.6 million in the comparable nine month period, due to the ongoing expense reduction and control initiatives.
Net Income (Loss) for the Period
In the third quarter of fiscal 2016 we recorded an income tax recovery of $0.3 million on account of utilizing previously unrecognized prior year operating losses.
The Company Cash increased by $1.4 million during the three months ended September 30, 2016 to $9.5 million.
The significant changes made in Fiscal 2015, meant to address the operating losses and negative cash flow incurred in fiscal 2014 and 2015, were meaningful contributing factors to the significantly improved financial results in the first nine months of fiscal 2016. The third quarter of fiscal 2016 saw a continuation of year-over-year (“YOY”) growth in (i) Revenue and gross profit, (ii) gross margin expansion and (iii) reduction in overall operating costs, leading to the first sequential positive EBITDA quarters since our Initial Public Offering in November 2013.
Another significant contributing factor to our improved financial results in the first nine months of fiscal 2016 was the improved market position of our Mobile product line with our major customer relative to a year ago. The momentum created in the latter part of fiscal 2015 carried into the first three quarters of fiscal 2016, where this product line’s year-to-date Revenue increased by 157% from a year ago.
U.S.-based telecommunication carriers are predicting growth in network capital spending in 2016, and we believe our Infrastructure products are well positioned to benefit from that occurrence. This is evidenced by the stronger Infrastructure shipments in fiscal 2016 relative to fiscal 2015, which increased by 24% year-over-year (“YOY”).
The fourth quarter of every fiscal year experiences some seasonality within two product lines of our business. The fourth quarter this year will be no different, though the seasonal impact could be somewhat greater due to several projects that were delayed. We remain positive about our momentum. While any softness we may experience in Q4 is expect to be seasonally related, we believe the financial metrics will continue to be positive during the balance of fiscal 2016.
Cost management, manufacturing efficiency and product line rationalization are a focus in fiscal 2016 and will continue into fiscal 2017, though management will consider selective investments in order to facilitate continued growth.
While the Board of Directors and management are encouraged by the year-to-date positive EBITDA result, the over-arching focus in fiscal 2016 has not changed; that is continuing the momentum created in fiscal 2016 and 2017 while prudently managing our liquidity. Exploring new opportunities in the Mobile market, continuing to diversify and expand the Networking customer portfolio and further expanding the Infrastructure product portfolio will be the primary focus. Also, management will explore opportunities to increase its capital resources and liquidity in light of the anticipated growth and consequential requirement to fund increased working capital levels.
- Download Baylin Interim Condensed Consolidated Financial Statements as of September 30, 2016
- Download PDF Management’s Discussion & Analysis for nine months ended September 30, 2016
Baylin will hold a conference call to discuss its 2016 three and nine month financial results on October 27, 2016, at 8:00 a.m. (ET). The call will be hosted by Randy Dewey, Vice-Chairman, President and Chief Executive Officer, James Newell, Chief Financial Officer and Clifford Gary, Corporate Controller and VP Finance. All interested parties are invited to participate.
DATE: October 27, 2016
TIME: 8 a.m.
DIAL IN NUMBER: 647-427-7450 or 888-231-8191
CONFERENCE ID#: 71263861
WEBCAST DETAILS: Webcast URL (EN):
(1) Non-IFRS Measures
Baylin uses EBITDA and Adjusted EBITDA to measure its financial performance and its future ability to generate and sustain earnings. EBITDA refers to earnings before interest (finance expenses, net), taxes, depreciation, and amortization and discontinued operations. Adjusted EBITDA refers to EBITDA less items of an exceptional nature outside of the ordinary course of business. Such items include, but are not limited to, certain exceptional, non-recurring share-based compensation, capital gains and losses, restructuring costs, recognition of significant provisions and other significant non-cash transactions. We do not believe these items reflect the underlying performance of our business. EBITDA and Adjusted EBITDA are non-IFRS performance measures. Besides net earnings, EBITDA and Adjusted EBITDA are useful complementary measures of pre-tax profitability and are commonly used by the financial and investment community for valuation purposes.
Forward Looking Statements
Certain statements in this news release, including all statements that are not historical facts, contain forward-looking statements and forward-looking information within the meaning of applicable securities laws. Often, but not always, forward-looking statements or information can be identified by words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes” or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Regarding forward-looking statements and information contained, we have made numerous assumptions. Although our management believes that the assumptions made and the expectations represented by such statement or information are reasonable, there can be no assurance that any forward-looking statement or information referenced will prove accurate. Forward-looking statements and information are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statement or information. Such risks, uncertainties and other factors include those risks identified in Baylin’s annual information form dated March 20, 2015 filed on SEDAR at www.sedar.com.
Although we have attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Also, many of the factors are beyond the control of Baylin. Readers should not place undue reliance on forward-looking statements or information. Baylin undertakes no obligation to reissue or update any forward-looking statements or information because of new information or events after the date except as required by law. All forward-looking statements and information are qualified by this cautionary statement.
Baylin (TSX: BYL) is a leading global technology company with over 38 years of experience in designing, producing and supplying innovative antennas for the mobile, Networking and wireless infrastructure industries. 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.
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