Mr. Leighton Carroll reports

BAYLIN ANNOUNCES FINANCIAL RESULTS FOR FISCAL 2023

Baylin Technologies Inc. has released its financial results for the three and 12 months ended Dec. 31, 2023. All amounts are stated in Canadian dollars unless otherwise indicated.

The company has hired an investment banker to facilitate the divestiture of its mobile and network (M&N) business line in this calendar year. As a result, for the purpose of reporting our results, continuing operations now comprise three business lines: (a) embedded antenna; (b) wireless infrastructure; and, (c) satcom, while the M&N business line is being reported as held for sale.

Fiscal year summary:

• Revenue from continuing operations of $73.0-million in fiscal 2023, a decrease of $5.2-million or 6.6 per cent compared with fiscal 2022. The decrease was primarily due to a decrease in sales volumes in the embedded antenna and wireless infrastructure business lines compared with the prior fiscal year, partially offset by an increase in sales volumes in the satcom business line;
• Gross margin from continuing operations of 38.9 per cent in fiscal 2023 compared with 36.9 per cent in fiscal 2022, despite gross profit from continuing operations of $28.4-million being $500,000 less than fiscal 2022. The improved gross margin resulted from a balanced product mix, including sales of newly launched products, changes in pricing strategy and a data-driven focus on contribution margin at the business line level. In fiscal 2023, the improvement was mainly generated by: (i) stronger revenue recovery in the satcom business line; (ii) favourable product mix, including the new multibeam and innovative antenna portfolio in the wireless infrastructure business line; and (iii) consistent operational efficiency in the embedded antenna business line;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations of negative $200,000 in fiscal 2023, a decrease of $1.2-million compared with $1.0-million in fiscal 2022. The decrease in adjusted EBITDA from continuing operations in fiscal 2023 was primarily due to the decrease in revenue and gross profit as discussed above, partially offset by a decrease in operating expenses compared with the prior fiscal year;
• Adjusted EBITDA from discontinued operations of negative $2.3-million in fiscal 2023, a decrease of $2.6-million compared with $300,000 in fiscal 2022. The decrease in adjusted EBITDA from discontinued operations was mainly due to the decrease in revenue and gross profit of the M&N business line as a result of across-the-board production volume reductions at its principal customer in fiscal 2023;
• Net loss from continuing operations of $8.2-million in fiscal 2023 compared with a net loss of $12.7-million from continuing operations in fiscal 2022. The net loss from continuing operations in fiscal 2023 was primarily due to an operating loss of $5.4-million, interest expenses and income tax expenses. On a per-share basis, a net loss of 10 cents per share in fiscal 2023 compared with a net loss of 16 cents per share in fiscal 2022;
• Net loss from discontinued operations of $5.6-million in fiscal 2023 compared with a net loss of $4.2-million from discontinued operations in fiscal 2022. The net loss from discontinued operations in fiscal 2023 was mainly due to an operating loss of $5.0-million as well as other finance expenses in the M&N business line. On a per-share basis, a net loss of six cents per share in fiscal 2023 compared with a net loss of five cents per share in fiscal 2022;
• Net debt from continuing operations of $12.8-million as at Dec. 31, 2023, a decrease of $10.3-million from Dec. 31, 2022, mainly attributable to a decrease in non-cash working capital in fiscal 2023, as well as full repayment of the company's term loan from proceeds of a rights offering and a private placement of preferred shares in December, 2023;
• Backlog from continuing operations of $31.2-million at Dec. 31, 2023, compared with $35.2-million at Dec. 31, 2022. The decrease was due to a lower level of backlog across all business lines as a result of a challenging macroeconomic environment during fiscal 2023. Backlog increased to $34.7-million at March 13, 2024, as a result of increased order intake levels across all business lines in the first quarter of 2024.

Fourth quarter summary:

• Revenue from continuing operations of $16.1-million in the fourth quarter of 2023, a decrease of $4.3-million or 20.8 per cent compared with the fourth quarter of 2022. The decrease in revenue in the fourth quarter of 2023 was mainly due to the reasons noted above;
• Gross margin from continuing operations of 35.2 per cent in the fourth quarter of 2023 compared with 34.2 per cent in the fourth quarter of 2022 despite gross profit from continuing operations of $5.7-million being $1.3-million less than the fourth quarter of 2022. The improved gross margin in the fourth quarter of 2023 was primarily attributable to stronger revenue recovery and favourable product mix in the satcom business line;
• Adjusted EBITDA from continuing operations of negative $2.0-million in the fourth quarter of 2023, a decrease of $2.6-million compared with the fourth quarter of 2022. The decrease in adjusted EBITDA from continuing operations in the fourth quarter of 2023 was mainly due to the decrease in revenue and gross profit as discussed above;
• Adjusted EBITDA from discontinued operations of negative $700,000 in the fourth quarter of 2023, a decrease of $700,000 compared with the fourth quarter of 2022. The decrease in adjusted EBITDA in the fourth quarter of 2023 from discontinued operations was mainly due to the reasons noted above;
• Net loss from continuing operations of $6.9-million in the fourth quarter of 2023 compared with a net loss of $4.4-million from continuing operations in the fourth quarter of 2022. The net loss from continuing operations in the fourth quarter of 2023 was primarily due to an operating loss of $5.3-million, as well as interest expenses. On a per-share basis, a net loss of seven cents per share in the fourth quarter of 2023 compared with a net loss of six cents per share in the fourth quarter of 2022;
• Net loss from discontinued operations of $1.1-million in the fourth quarter of 2023 compared with a net loss of $200,000 from discontinued operations in the fourth quarter of 2022. On a per-share basis, a net loss of one cent per share in the fourth quarter of 2023 compared with a net loss of close to nil per share in the fourth quarter of 2022.

Selected financial information

An attached table discloses selected financial information for the periods indicated.

A copy of the company's consolidated financial statements for the three and 12 months ended Dec. 31, 2023, and corresponding management's discussion and analysis (the MD&A) are available under the company's profile on SEDAR+.

Recent developments

Products

Galtronics multibeam antennas continue to demonstrate their class-leading performance, building on earlier successes in 2023 and now into 2024. Notably, they were chosen for Allegiant Stadium in Los Vegas, Nev., host venue for the 2024 Super Bowl. The antennas are uniquely able to handle large-scale events and venues in a cost-effective manner for wireless carriers. Additionally, they offer comparable performance to lens-type technology at a more economical price point and provide beam stability across frequency bands to ensure a better user experience. Galtronics is the only company approved by the three major U.S. telecom carriers for these innovative products, opening up additional revenue opportunities for the remainder of 2024.

Satcom continues to expand and develop its solid-state power amplifier systems. Summit III, its latest system, is based on the compact and soft-fail redundant Genesis amplifier, which is available in Ku-band architecture of 200 watts to 500 watts and also a C-band architecture in 500 watts. In February, 2024, Satcom received an order for the first phase of a direct-to-home satellite broadcast network from a major cable operator in India. The first phase of the order consists of four 3.2-kilowatt Summit III systems, each comprising eight 500-watt C-band amplifiers with an order value of approximately $2.7-million. The second phase of the order is expected in late spring, 2024, and the third phase of the order is expected in March, 2025.

Credit facilities

The company agreed with its principal lenders, Royal Bank of Canada and HSBC Bank Canada, to further amendments to the credit agreement governing the credit facilities, including an extension to the maturity date of the revolving facility from March 31, 2024, to June 30, 2024.

Financings

In December, 2023, the company completed two financings -- a rights offering and a private placement.

On Nov. 10, 2023, the company announced an offering of rights to shareholders of record of its common shares on Nov. 21, 2023, under which holders were entitled to receive one right for each common share held, resulting in the issuance of 88,547,818 rights. Each right entitled the holder to purchase one common share at a subscription price of 19 cents, a 17.4-per-cent discount to the closing price of the common shares on the Toronto Stock Exchange on the day before the announcement. The rights offering expired on Dec. 19, 2023. The purpose of the rights offering was to raise proceeds to repay term indebtedness under the company's credit facilities.

The company received subscriptions for 62,186,516 common shares, including subscriptions for 54,626,763 common shares, from 2385796 Ontario Inc., the company's largest shareholder (the principal shareholder), and a related party of the principal shareholder, resulting in proceeds to the company of approximately $11.8-million.

On Dec. 29, 2023, the company completed a private placement of a new series of its preferred shares to the principal shareholder. The principal shareholder subscribed for 68,000 10 per cent cumulative redeemable retractable Series A preferred shares at a price of $25 per share, resulting in proceeds to the company of $1.7-million.

The company used the proceeds from the rights offering and the private placement to repay in full-term indebtedness owed to its principal Canadian lenders, which was due on Dec. 29, 2023.

Outlook

The company continued to navigate a challenging macroeconomic environment during the fourth quarter of 2023, resulting in lower revenue, gross margin and adjusted EBITDA than each of the previous three quarters. While the company's overall performance continued to be significantly negatively affected by the results of the M&N business line, Baylin also experienced softness in its embedded antenna and wireless infrastructure business lines. Satcom's performance remained in line with expectations.

Baylin continues to prioritize product mix, emphasizing products that generate higher margins and gross profit, with a view to maintaining and growing adjusted EBITDA. The macroeconomic environment and the effect of high interest rates are expected to remain an issue for Baylin's business in the short term. These factors could affect the company's volume of orders and revenue, as well as causing pushouts of orders from customers. However, the company expects to see signs of improvement across all business lines in 2024, particularly in the embedded antenna business line, starting in the first quarter of 2024.

The company is continuing its efforts to recapitalize its balance sheet by reducing indebtedness and refinancing its revolving credit facility. The repayment of its term indebtedness at 2023 year-end was a major milestone in those efforts. Moving forward, the company is looking to replace its current revolving facility with an asset-based loan, which will reduce annual debt service costs by eliminating annual principal payments, freeing up cash for investment in the business.

Embedded antenna business line

The embedded antenna business line was adversely affected by macroeconomic conditions in 2023, especially in the fourth quarter, resulting in materially lower sales volumes, a result that was reflected industrywide. The company was also affected by lower margins caused by changes in product mix. These conditions are not likely to recur in 2024 and Baylin expects to see a slow recovery in demand for embedded products, including as service providers shift from Wi-Fi 6 to Wi-Fi 7. The company is already seeing evidence of increased demand. For now, it expects the embedded antenna business line will continue to perform reasonably well in 2024, in line with 2023. Its performance depends on the ability of the home networking, public safety and automotive markets to remain resilient in the face of the economic pressures. The number of active bids for 2024 projects remains at a very strong level for the business.

Wireless infrastructure business line

Baylin expects the wireless infrastructure business line will perform well in 2024, up from 2023, with improvements in revenue, gross margin and adjusted EBITDA. The company is looking to build on the sales success of its higher-margin multibeam and innovative small-cell antennas, as well as the strong pace of stadium deployments. It expects that its new higher-margin multibeam and innovative small-cell antennas will open up new global opportunities to drive sales with wireless carriers and third party operators that operate wireless mobile networks for their customers. Baylin is continuing to expand into new markets, particularly in areas in Europe, where it has not previously had sales. Although the company experienced some pull-back on spending by wireless carriers and infrastructure customers broadly in the fourth quarter of 2023, it expects to continue to grow and take market share by focusing on its unique competitive advantages. The company does expect to see increased spending by carriers on small cells in 2024, which will drive further volumes for the business.

Satcom business line

The satcom business line continues to demonstrate consistent demand with capital spending by Baylin's customers.

Satcom benefited from the capital build cycles of satellite operators and others in the satcom ecosystem in 2023. The company saw that major programmatic opportunities continued to be resilient, particularly for high powered amplifiers, and it expects this will continue in 2024. Baylin does see softness in the commercial lower-power market, but given its focus on higher-power opportunities, the business will continue to have resiliency in the coming year. Baylin further expects that its new Genesis and Summit lines of solid-state power amplifiers will generate sales from clients due to the improvements in performance, monitoring and failover they provide over the company's older technology and its competition. Importantly, these new amplifiers are consistent in architecture, meaning they will allow the business to simplify supply chain over time and thereby improve efficiencies in manufacturing.

Baylin continues to see opportunities for growth in sales for military and other government-related uses as many western countries continue to maintain high levels of defence and scientific spending. Given the technology upgrades within its product portfolio, the company expects to continue its strong sales volumes while it works to improve its overall margin attainment.

Over all, Baylin expects revenue and adjusted EBITDA in 2024 will be incrementally stronger than 2023. The satcom business line continues to demonstrate a strong order book with improving margins. Improving production efficiencies in its facilities in order to address the backlog and improve overall revenue attainment remains an important priority, particularly in the Kirkland, Que., facility. In order to alleviate some of the production backlog in that facility, Baylin has begun production of high-power amplifiers in its State College, Penn., facility.

Mobile and network (formerly, Asia-Pacific) business line

The M&N business line continues to face significant challenges due to continuing large production volume reductions at its principal customer. Those reductions reflect a contraction in the customer's smart phone market, due in part to consumers upgrading their smart phones with less frequency, as well as competitive pressures faced by the customer. Global shipments of smart phones experienced a year-over-year decline in 2023 although demand increased in the fourth quarter. The customer is also facing weaker demand for its other products such as tablets, smart watches and other wirelessly connected devices.

Management has been taking steps to limit the adverse effect this has had on the M&N business. Baylin continues to focus on reducing or eliminating operating and other costs while work is done to diversify the revenue base. M&N has been awarded other revenue-generating projects, but several have been hampered by the adverse economic environment in the Korean market and any resulting benefit is not likely to be seen until the second half of 2024.

Given these continuing challenges, the company has hired an investment banker to facilitate the divestiture of the M&N business line in this calendar year.

Investor conference call

Baylin will hold a conference call on March 21, 2024, at 8 a.m. ET, to discuss its financial results for the three and 12 months ended Dec. 31, 2023. The conference call will be hosted by Leighton Carroll, chief executive officer, and Dan Nohdomi, chief financial officer. All interested parties are invited to participate using the dial-in details provided below.

Date:  March 21, 2024

Time:  8 a.m. ET

Dial-in number:  888-664-6392 or 416-764-8659

Conference ID No:  73479294

Rapid connect:   To instantly join the conference call by phone, please register on-line to be connected into the conference call automatically.

Webcast:  The call will also be webcast.

Non-IFRS (international financial reporting standards) measures

This news release includes a number of measures that are not prescribed by IFRS and as such may not be comparable with similar measures presented by other companies. Baylin believes these measures are commonly employed to measure performance in its industry and are used by analysts, investors, lenders and interested parties to evaluate financial performance and the company's 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 section of the MD&A (management's discussion and analysis).

About Baylin Technologies Inc.

Baylin 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.

We seek Safe Harbor.