Mr. Randy Dewey reports
BAYLIN TECHNOLOGIES TO HOST FIRST QUARTER 2016 INVESTOR CONFERENCE CALL ON MAY 4, 2016
Baylin Technologies Inc. has released its financial results for the three months ended March 31, 2016. All figures are stated in U.S. dollars unless otherwise noted.
Fiscal first-quarter 2016 highlights:
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Revenues improved by 21.6 per cent to $15.8-million in first quarter 2016 from $13.0-million in fourth quarter 2015. The company's 2015 quarterly revenues grew at a compound growth of 18.7 per cent quarter over quarter since Q1 2015.
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Gross profit improved by 35.9 per cent to $4.2-million in Q1 2016 from $3.1-million in Q4 2015. Gross margin improved by 2.8 percentage points to 26.9 per cent in Q1 2016 from 24.1 per cent in Q4 2015.
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Adjusted earnings before interest, taxes, depreciation and amortization in Q1 2016 were a positive $300,000 compared with $1.5-million loss in Q4 2015.
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Operating expenses, at $4.9-million, continued to decline as the full beneficial impact of the head office transition favourably impacted the current quarter.
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Inventory management continued into Q1 2016, with only a small increase of $300,000 despite the significantly higher volumes in Q1 2016.
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The company net cash declined by $1.4-million during the three months ended March 31, 2016, due to financing the working capital increase associated with the revenue growth.
"We are very pleased to report positive adjusted EBITDA of $300,000 in the first quarter of 2016. While modest, it was in line with our expectations and more importantly reverses the substantial negative adjusted EBITDA reported in the last eight quarters," said Randy Dewey, vice-chairman, president and chief executive officer. "This quarter saw continuation of the upward trend in revenues, making it the fifth quarter of sequential growth. With the higher revenues, our gross profit and gross margin percentages also improved. With the head office move now behind us, our operating expenses declined in this quarter to $4.9-million, which was approximately $1-million lower than Q4 2015."
Mr. Dewey added: "While encouraged by the strong start to the year, led by our more competitive positioning with our major customer and by the growth in other strategically important product lines, there is still more to be accomplished in order to improve profitability and cash flow. Our primary focus remains on controlling operating expenses, improving margins, as well as building a stronger sales culture to achieve growth across all three of our product lines and diversifying our customer base."
SELECTED FINANCIAL INFORMATION
($000s except per-share amounts)
Three months ended March 31,
2016 2015 Fiscal 2015
Revenues $ 15,789 $ 7,955 $ 43,026
Gross profit 4,243 1,029 9,091
(Loss) before income taxes (538) (5,745) (14,074)
Income taxes (49) (5) (596)
(Loss) (587) (5,750) (14,670)
Basic and diluted (loss) per share (0.03) (0.31) (0.78)
EBITDA 184 (3,519) (8,704)
Adjusted EBITDA 296 (2,898) (6,928)
Current assets 27,213 32,406 28,346
Total assets 47,862 58,633 49,574
Current liabilities 16,814 17,457 18,433
Non-current liabilities 1,355 1,521 983
Total liabilities 18,169 18,978 19,416
The company's complete financial statements, and management's discussion and analysis for the three months ended March 31, 2016, are available on the company's website and SEDAR.
Financial summary
Revenues
Revenues in the three months ended March 31, 2016, and 2015 were $15.8-million and $8.0-million, respectively, reflecting an increase of 98.5 per cent year over year. The increase was due primarily to stronger shipments of mobile products, particularly to the company's main customer, and, to a lesser extent, growth in sales of the company's networking products. Sales of infrastructure products in the current quarter were level with the prior year. Compared with the fourth quarter of fiscal 2015, revenues increased by 21.6 per cent in the current quarter.
Gross profit
Gross profit increased to $4.2-million (26.9 per cent of revenues) in the three months ended March 31, 2016. This represented an improvement from Q1 of fiscal 2015, which was $3.1-million (24.0 per cent). The improvement in gross margin (gross profit divided by revenues) in fiscal 2016 was attributable to the higher production volumes (associated with the increased sales) amortized over an equivalent fixed cost base. Compared with the fourth quarter of 2015, gross profit increased by $1.1-million or a 2.8-percentage-point improvement.
Research and development
In dollar terms, R&D expenses increased by 14.3 per cent from the quarter ended March 31, 2015, to the quarter ended March 31, 2016, mainly due to increased head count, which occurred at the end of fiscal 2015 and into the first quarter of 2016. However, as a percentage of revenues, these expenses declined to 11.7 per cent versus 20.3 per cent a year ago. The company increased R&D expenses in fiscal 2016 in order to expand the product pipeline for 2016 and future years. R&D costs in Q1 2016 were $1.8-million, relatively stable when compared with Q4 2015.
Sales and marketing
Sales and marketing expenses of $900,000 declined in the first quarter of fiscal 2016 from $1.2-million in the same quarter in fiscal 2015. Notwithstanding the decline in spending, payroll-related expenses were comparable with last year's first quarter, reflecting the belief that hiring more sales people will yield benefits in driving the company's growth strategy in new business areas, thereby diversifying its revenue base, and penetrating new and growing markets. The overall decrease was primarily attributable to reductions of trade shows, travel expenses and other related expenses as part of the company's cost-reduction initiatives. Sales and marketing decreased in the first quarter of fiscal 2016 from the fourth quarter of 2015 by $600,000 due to compensation accruals in Q4 2015.
General and administrative
G&A expenses for the three months ended March 31, 2016, decreased from the three months ended March 31, 2015, by $400,000. In the first quarter of fiscal 2015, the company incurred management termination costs, including those of the former president and chief executive officer, and other executive management, in the aggregate amount of $600,000.
Adjusted EBITDA
Adjusted EBITDA for the three months ended March 31, 2016, of $300,000 showed a substantial improvement from the $2.9-million EBITDA loss in the comparable quarter a year ago. The improvement was mainly the result of higher revenues and gross profit, as noted above. By comparison, the adjusted EBITDA loss in Q4 2015 was $1.5-million.
Net loss
The loss for the current period was $600,000, a significant reduction from the loss in the comparable period last year of $5.8-million. The improvement was the result of the positive EBITDA in 2016, as described in the management discussion and analysis.
Liquidity
The company net cash declined by $1.4-million during the three months ended March 31, 2016, due to financing the working capital increase associated with the revenue growth.
Outlook
Following fiscal 2015, a year characterized by significant changes made to address the operating losses and negative cash flow incurred in fiscal 2014 and 2015, the first quarter of fiscal 2016 saw a continuation of the growth in revenues and reduction in overall operating cost, leading to the first positive EBITDA quarter in the last eight quarters. Additionally the head-office move to Toronto was completed by the end of the current quarter. The head-office transition costs will smooth over the first half of 2016 as all functions are now fully transitioned. As these costs are now denominated in Canadian dollars, the company expects the overall costs of the Canadian head office to be lower, benefiting from the lower Canadian dollar relative to the U.S. dollar.
In addition to the improved financial results, the market position for the company's products was strengthened as a result of the changes made in 2015. In particular the market position of its mobile product line has substantively improved with its major customer from a year ago, where the momentum created in the latter part of fiscal 2015 carried into the first quarter of fiscal 2016. The company's major customer is having early success with its new product launch, which was the primary factor in the company's revenue growth in the current quarter. The company notes, however, that this customer's product launch was earlier than in prior years, thereby favourably impacting the current quarter, as opposed to the historical later quarter phasing. As a result, the company currently does not expect mobile shipments in the second quarter of fiscal 2016 to be at quite the same level as in Q1 of fiscal 2016.
United States-based telecommunication carriers are predicting growth in network capital spending in 2016, and the company believes its infrastructure products are well positioned to benefit from that occurrence. New mobile customers announced in 2015 have awarded Baylon several projects that it anticipates will positively impact the second quarter of fiscal 2016. As such, the company anticipates revenue growth in its three business units in 2016.
Cost reductions and manufacturing efficiency efforts will continue into 2016, and the company expects these improvements will lead to improved gross margins in the second half of fiscal 2016.
The overarching focus for the board of directors and management in fiscal 2016 is to continue the momentum created in the second half of 2015, while prudently managing its 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 finance increased working capital levels.
Conference call
Baylin will hold a conference call to discuss its 2016 first-quarter financial results on May 4, 2016, at 8 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 vice-president, finance. All interested parties are invited to participate.
Date: May 4, 2016
Time: 8 a.m.
Dial-in number: 647-427-7451 or 888-231-8192
Conference ID No.: 52509242
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