Investor Conference Call on May 11, 2023 at 8:00 a.m.
ET
TORONTO, May 10, 2023
/CNW/ - Baylin Technologies Inc. (TSX: BYL) (the "Company" or
"Baylin"), a diversified global wireless technology company focused
on the research, design, development, manufacture, and sale of
passive and active radio frequency
products, satellite communications products, and supporting
services, today announced its financial results for the three
months ended March 31, 2023. All amounts are stated in
Canadian dollars unless otherwise indicated.
FIRST QUARTER SUMMARY
- Revenue of $25.1 million in the
first quarter of 2023, a decrease of $5.9
million or 18.9% compared to the first quarter of 2022. The
decrease was primarily due to a significant reduction in orders
from its primary customer in the Mobile and Network ("M&N")
business line, partially offset by stronger sales in the Wireless
Infrastructure and Satcom business lines.
- Gross margin was 30.5% in the first quarter of 2023 compared to
26.0% in the first quarter of 2022 despite gross profit of
$7.7 million being $0.4 million less than the first quarter of 2022.
The improved gross margin resulted from a balanced product mix due
to new product sales, changes in pricing strategy, and a data
driven focus on contribution margin at the business line level. In
the first quarter of 2023, the improvement was primarily generated
by: (i) revenue recovery and favourable product mix including our
new multibeam and innovative small cell antennas in the Wireless
Infrastructure business line; (ii) enhanced production efficiency
and favourable product mix in the Satcom business line despite
supply chain constraints; and, (iii) consistent operational
efficiency in the Embedded Antenna business line.
- Adjusted EBITDA(2) of $0.9
million in the first quarter of 2023, the sixth consecutive
quarter of positive Adjusted EBITDA. Adjusted EBITDA increased by
$0.7 million compared to the first
quarter of 2022. The increase in Adjusted EBITDA was mainly due to
improving gross margins through both new product sales and pricing
changes, as well as a decrease of $0.9
million in operating expenses (excluding lease termination
gain and impairment recovery). Adjusted EBITDA increased in the
first quarter of 2023 despite the decrease in gross profit compared
to the prior year period.
- Net loss of $1.2 million in the
first quarter of 2023 compared to a net loss of $3.1 million in the first quarter of 2022. The
net loss in the first quarter of 2023 included a lease termination
gain and impairment recovery of $2.7
million as a result of completing the lease transfer of the
MMU facility in Vietnam to a third
party. The net loss in the first quarter of 2023 was primarily
attributable to interest and other finance expenses despite having
an operating income of $0.4 million.
On a per share basis, a net loss of $0.01 per share in the first quarter of 2023
compared to a net loss of $0.04 per
share in the first quarter of 2022.
- Net debt(3) was $22.6
million as at March 31, 2023,
an increase of $1.2 million from
December 31, 2022, mainly due to debt
interest payments and lease payments.
- Backlog(4) was $35.2
million at March 31, 2023 and
$36.4 million at April 30, 2023 compared to the backlog level of
$38.1 million at December 31, 2022 and $38.2 million at March 31,
2022. The decrease was primarily due to a significant lower
level of backlog in the Mobile and Network business line as a
result of across-the-board production volume reductions at its
principal customer.
RECENT DEVELOPMENTS
Convertible Debentures
Amendment
The Company is also announcing today a proposal to amend the
terms of its 6.5% Extendible Convertible Unsecured Debentures due
July 10, 2023 (the "Debentures") to
(i) extend the maturity date of the Debentures from July 10, 2023 to June 30,
2026, (ii) increase the interest rate on the Debentures from
6.5% to 8.5%, effective June 30,
2023, (iii) reduce the conversion price of the Debentures
from $3.85 to $1.00 per common share of the Company, and
(iv) amend the definition of "Change of Control" to permit
the Company's Chairman of the Board of Directors, Jeffrey C. Royer, and related parties to acquire
66 2/3% or more of the common shares of the Company without it
constituting a Change of Control (the "Amendments"). The Amendments
are subject to approval of the Toronto Stock Exchange (the
"TSX").
The Company will be soliciting written consents (the "Consent
Solicitation") and proxies (the "Proxy Solicitation", and together
with the Consent Solicitation, the "Solicitation") from holders of
the Debentures (the "Debentureholders") to approve the Amendments
by way of extraordinary resolution (the "Extraordinary
Resolution"). In the case of the Consent Solicitation, the
Extraordinary Resolution will pass (and the Amendments will be
approved) if the Company receives valid consents in favour of the
Extraordinary Resolution representing at least 66 2/3% of all the
Debentures outstanding. There is currently $5.115 million principal amount of Debentures
outstanding.
In addition to but concurrently with the Consent Solicitation,
the Company will also be soliciting proxies as part of the Proxy
Solicitation for use in connection with a proposed meeting of
Debentureholders to be held on June 20,
2023 (the "Meeting") at which Debentureholders will be asked
to approve the Amendments. If the Consent Solicitation achieves the
requisite level of support to approve the Amendments, the Meeting
will be cancelled. If not, the Company will proceed with the
Meeting. At the Meeting, the Extraordinary Resolution will pass
(and the Amendments will be approved) if the Company receives the
favourable votes of holders of at least 66 2/3% of the principal
amount of the Debentures present in person or represented by proxy
at the Meeting.
The Company has retained Kingsdale Advisors to act as
information and solicitation agent for the Solicitation. The
Company will be arranging to send to Debentureholders a
solicitation statement and related materials in connection with the
Solicitation and the Meeting. The Company will issue a press
release to advise when these materials have been filed under the
Company's profile on SEDAR at www.sedar.com.
Payment of Convertible Debentures in Common Shares at
Maturity
The Debentures mature on July 10,
2023 (the "Maturity Date"). In addition to payment in cash,
the Company has the right to repay the Debentures in its common
shares at 95% of their market price at the Maturity Date (the
"Common Share Repayment Right"). The Company intends to exercise
the Common Share Repayment Right and elect to repay the principal
amount of the Debentures on the Maturity Date by issuing common
shares to Debentureholders, as it is permitted to do under the
terms of the Debentures, rather than repay the Debentures in cash,
subject to receipt of any required regulatory approvals, including
the TSX. The number of common shares to be issued would be equal to
the principal amount of the Debentures then outstanding divided by
95% of the current market price of the common shares (which would
be calculated based on the volume weighted average trading price of
the common shares on the TSX for the 20 consecutive trading days
ending five days before the Maturity Date).
The Common Share Repayment Right is effectively conditional on
the outcome of the Solicitation. If the Extraordinary Resolution is
passed and the Amendments become effective before the Maturity
Date, the Common Share Repayment Right will not occur and will be
withdrawn.
If the Extraordinary Resolution is not passed, the Company
will proceed with the Common Share Repayment Right and repay the
Debentures in common shares in accordance with the terms of the
Debentures.
Private Placement of Common Shares
The Company's principal shareholder, 2385796 Ontario Inc. (the
"Principal Shareholder"), a corporation over which our Chairman of
the Board of Directors, Jeffery C.
Royer, exercises control and direction over investment
decisions, has agreed to subscribe on a private placement basis for
common shares of the Company, subject to a maximum number of
8,000,000 common shares and maximum proceeds to the Company of
$4 million. The common shares will be
issued at a price based on the 5-day volume-weighted average
trading price of the common shares on the TSX. Subject to TSX
approval, the private placement is expected to close around
May 22, 2023. The proceeds from the
private placement will be used to fund working capital in the
business, including for use in the Mobile and Network business
line. The Principal Shareholder and a related party currently hold
approximately 58% of our outstanding common shares. Assuming the
private placement results in the issuance of 8,000,000 common
shares, the Principal Shareholder and related party would hold
approximately 61.8% of our outstanding common shares after giving
effect to the private placement.
Credit Facilities
Canadian Credit Facility
In May 2023, the Company and its
lenders (Royal Bank of Canada and
HSBC Bank Canada) agreed to further amendments to the Company's
credit facilities, among others, to change the minimum liquidity
covenant. The Company is now required to maintain minimum liquidity
of $3 million until May 31, 2023 and $4
million thereafter until maturity of the credit
facilities.
China Credit Facility
The Company's Chinese subsidiary is arranging a new 30 million
Chinese Yuan multiple-tranche secured credit facility with Bank of
Ningbo. The facility, which will
be secured by the subsidiary's building, will replace the 17
million Chinese Yuan secured facility with Shanghai Pudong
Development Bank and increase liquidity by approximately
$2.5 million.
SELECTED FINANCIAL INFORMATION
The table below discloses selected financial information for the
periods indicated.
(in $000's except
per share amounts)
|
|
|
Three Months Ended
March 31,
|
|
|
2023
|
|
2022
|
Change
|
Change
|
|
|
|
|
|
|
$
|
|
$
|
$
|
%
|
|
|
|
|
|
Profit and
Loss
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
25,127
|
|
30,974
|
(5,847)
|
(18.9 %)
|
|
|
|
|
|
Gross profit
|
7,665
|
|
8,056
|
(391)
|
(4.9 %)
|
|
|
|
|
|
Gross margin
|
30.5 %
|
|
26.0 %
|
4.5 %
|
N/A
|
|
|
|
|
|
Net loss
|
(1,166)
|
|
(3,073)
|
1,907
|
(62.1 %)
|
|
|
|
|
|
Basic and diluted net
loss per share
|
($0.01)
|
|
($0.04)
|
$0.03
|
(75.0 %)
|
|
|
|
|
|
EBITDA(1)
|
2,321
|
|
(246)
|
2,567
|
N/A
|
|
|
|
|
|
Adjusted
EBITDA(2)
|
877
|
|
224
|
653
|
> 100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
As at
|
|
|
As at
|
As at
|
|
|
|
|
March 31,
2023
|
|
March 31,
2022
|
Change
|
Change
|
March 31,
2023
|
December
31,
2022
|
Change
|
Change
|
|
|
$
|
|
$
|
$
|
%
|
$
|
$
|
$
|
%
|
|
Balance Sheet and
Other
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
50,132
|
|
60,713
|
(10,581)
|
(17.4 %)
|
50,132
|
50,453
|
(321)
|
(0.6 %)
|
|
Total assets
|
72,702
|
|
89,993
|
(17,291)
|
(19.2 %)
|
72,702
|
74,384
|
(1,682)
|
(2.3 %)
|
|
Current
liabilities
|
66,197
|
|
63,225
|
2,972
|
4.7 %
|
66,197
|
65,505
|
692
|
1.1 %
|
|
Non-current
liabilities
|
9,657
|
|
17,921
|
(8,264)
|
(46.1 %)
|
9,657
|
12,139
|
(2,482)
|
(20.4 %)
|
|
Total
liabilities
|
75,854
|
|
81,146
|
(5,292)
|
(6.5 %)
|
75,854
|
77,644
|
(1,790)
|
(2.3 %)
|
|
Net
debt(3)
|
22,589
|
|
17,373
|
5,216
|
30.0 %
|
22,589
|
21,437
|
1,152
|
5.4 %
|
|
Backlog(4)
|
35,181
|
|
38,216
|
(3,035)
|
(7.9 %)
|
35,181
|
38,067
|
(2,886)
|
(7.6 %)
|
|
(1)
|
See "Non-IFRS
Measures". EBITDA refers to operating income (loss) plus
depreciation and amortization.
|
(2)
|
See "Non-IFRS
Measures". Adjusted EBITDA refers to EBITDA plus the sum of: a)
acquisition expenses; b) fair value step-up of inventory acquired
as part of an acquisition; c) expenses for litigation relating to
acquisition agreements; d) expenses relating to planned
restructuring following an acquisition; e) impairment of fixed and
intangible assets (including goodwill) following an acquisition; f)
expenses to permanently close or relocate a facility, shut down a
line of business, eliminate positions; g) expenses related to
corporate re-organization; and, h) non-cash
compensation.
|
(3)
|
See "Non-IFRS
Measures". Net debt refers to total bank indebtedness less cash and
cash equivalents.
|
(4)
|
See "Non-IFRS
Measures". Backlog refers to the value of unfulfilled purchase
orders placed by customers.
|
A copy of the Company's unaudited interim condensed consolidated
financial statements for the three months ended March 31, 2023 and corresponding management's
discussion and analysis (the "MD&A") are available under the
Company's SEDAR profile on www.sedar.com.
OUTLOOK
The Company has now achieved six consecutive quarters of
positive Adjusted EBITDA and consistently improved gross margins
since the first quarter of 2022. The North American business lines
continue to perform well generally but overall performance is being
negatively affected by the results of our Mobile and Network
business line. We continue to prioritize product mix, emphasizing
products that generate higher margins and gross profit, with a view
to maintaining and growing Adjusted EBITDA, even at the expense of
higher revenue. The macroeconomic environment, shortages in
materials and increased material costs due to supply chain
challenges and chipset shortages remain an issue for our business.
These factors are expected to continue to cause delays in both the
production and the delivery of our products as well as push-outs of
orders from customers. We had expected that these disruptions would
begin to ease over the second half of 2022, but now anticipate that
they will continue into the first half of 2023. The ongoing war in
Ukraine could continue to
exacerbate supply chain disruptions. As a result of these
continuing challenges, we continue to expect that our 2023 results
will be generally consistent with 2022 results for revenue and
Adjusted EBITDA in spite of the growth in the Company's backlog of
purchase orders and improving margins.
Embedded Antenna Business Line
We continue to expect the Embedded Antenna business line will
perform strongly in 2023 although at slightly reduced levels from
2022, reflecting more normalized purchasing patterns. We expect the
home networking, public safety and automotive markets to remain
resilient despite the economic slowdown and inflationary pressures,
in part, due to continued positive momentum in request for
proposals and ongoing bidding activity.
Wireless Infrastructure Business Line
We expect the Wireless Infrastructure business line will
continue to perform strongly in 2023 with improvements in both
revenue and Adjusted EBITDA compared to 2022. We expect that
Stadium and DAS deployments will strengthen, particularly for use
in stadiums and other venues requiring in-building wireless. We
also expect that our new higher margin multibeam and innovative
antenna portfolio will open up new global opportunities to drive
sales with wireless carriers and third party operators who operate
wireless mobile networks for their customers.
Mobile and Network Business Line
The Mobile and Network business line continues to face
significant challenges due to large production volume reductions at
its principal customer. Those reductions reflect a contraction in
this customer's smartphone market in 2023, due in part to the
global economic slowdown and continuing inflation, as well as
competitive pressures faced by the customer. Management took steps
to limit the adverse effect this has had on the business by
reducing or eliminating operating and other costs. Management has
also been working to diversify the M&N business in order to
reduce its dependency on its principal customer. We expect to
benefit from additional revenue-generating Network projects as well
as begin to see a recovery in the Mobile business in the second
half of 2023. In the meantime, management continues to seek
financial support for the business in South Korea and elsewhere and to evaluate the
Company's various options for the business, including a
determination of whether it should remain part of the Company's
core long-term strategy.
Satcom Business Line
The commercial side of the Satcom business line continues to
demonstrate consistent demand with capital spending by our
customers continuing the momentum seen in the fourth quarter of
2022. Given the capital build cycles of satellite operators and
others in the Satcom ecosystem, we expect this will continue to
benefit the business in 2023. We expect that our new Genesis line
of solid-state power amplifiers will generate significant interest
from commercial clients, particularly those in the aviation and
maritime industries.
Sales for military and other government-related uses, which
represents the balance of this business line, will continue and
potentially increase in 2023, as many western countries have
dramatically increased their defence spending. We have recently
completed multiple technology upgrades within our product
portfolio, which are expected to generate additional sales.
The Satcom business line continues to demonstrate a strong order
book with improving margins, but production continues to be
affected by supply chain constraints, chipset shortages and
component delays. In the meantime, we continue to take steps to
improve production efficiencies in our facilities in order to
address the backlog and improve overall revenue attainment. In
order to alleviate some of the production backlog in our
Kirkland, Quebec facility, we are
starting production of high-power amplifiers in our State College, Pennsylvania facility.
INVESTOR CONFERENCE CALL
Baylin will hold a conference call on May
11, 2023 at 8:00 a.m. (ET) to
discuss its financial results for the three months ended
March 31, 2023. The conference call will be hosted by
Leighton Carroll, Chief Executive
Officer, Dan Nohdomi, Chief
Financial Officer, and Daniel Kim,
Executive Vice President of Corporate Development. All interested
parties are invited to participate using the dial-in details
provided below.
Date:
May 11, 2023
Time:
8:00 a.m.
(ET)
Dial-in
Number:
888-664-6392 or 416-764-8659
Conference ID#: 54226823
Rapid Connect: To instantly
join the conference call by phone, please use the following URL to
easily register and be connected into the conference call
automatically: https://emportal.ink/3LS6Cib
Webcast:
This call is also on webcast and can be
accessed at: https://app.webinar.net/OV1weGPa0bq
FORWARD-LOOKING INFORMATION AND STATEMENTS
This press release includes forward-looking information and
forward-looking statements (together, "forward-looking statements")
within the meaning of applicable securities laws.
Forward-looking statements are not statements of historical
fact. Rather, forward-looking statements are disclosure
regarding conditions, developments, events or financial performance
that we expect or anticipate may or will occur in the future
including, among other things, information or statements concerning
our objectives and strategies to achieve those objectives,
statements with respect to management's beliefs, estimates,
intentions and plans, and statements concerning anticipated future
circumstances, events, expectations, operations, performance or
results. Forward-looking statements can be identified generally by
the use of forward-looking terminology, such as "anticipate",
"believe", "could", "should", "would", "estimate", "expect",
"forecast", "indicate", "intend", "likely", "may", "outlook",
"plan", "potential", "project", "seek", "target", "trend" or "will"
or the negative or other variations of these words or other
comparable words or phrases and is intended to identify
forward-looking statements, although not all forward-looking
statements contain these words.
The forward-looking statements in this press release include
statements concerning the effect of the macroeconomic environment
on our business, the outlook for our business lines, including the
effect of shortages in materials and increased material costs and
supply chain and other disruptions on their financial performance
and the growth in our backlog. Forward-looking information and
statements are based on certain assumptions and estimates made by
us in light of the experience and perception of historical trends,
current conditions, expected future developments, including
projected growth in sales of passive and active radio frequency and
satellite communications products, and supporting services, and
other factors we believe are appropriate and reasonable in the
circumstances, but there can be no assurance that such assumptions
and estimates will prove to be correct.
Many factors could cause our actual results, level of activity,
performance or achievements or future events or developments to
differ materially from those expressed or implied by the
forward-looking statements, including the risk factors discussed in
the Company's most recent Annual Information Form, which is
available under the Company's profile on SEDAR at www.sedar.com.
All the forward-looking statements made in this press release are
qualified by these cautionary statements and other cautionary
statements or factors in this press release. There can be no
assurance that the actual results or developments will be realized
or, even if substantially realized, will have the expected
consequences to, or effects on, the Company. Unless required by
applicable securities law, the Company does not intend and does not
assume any obligation to update any forward-looking statements.
NON-IFRS MEASURES
This press release includes a number of measures that are not
prescribed by International Financial Reporting Standards ("IFRS")
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
business activities. While management of the Company believes that
non-IFRS measures provide 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 IFRS. For further information, see "Non-IFRS
Measures" on page 3 of the MD&A.
ABOUT BAYLIN
Baylin Technologies Inc. is a diversified global wireless
technology company focused on the research, design, development,
manufacture, and sale of passive and active radio frequency
products, satellite communications products, and supporting
services.
SOURCE Baylin Technologies Inc.