Mr. Leighton Carroll reports

BAYLIN ANNOUNCES FINANCIAL RESULTS FOR THE THIRD QUARTER OF 2023

Baylin Technologies Inc. has released its financial results for the three and nine months ended Sept. 30, 2023.

Third quarter summary:

• Revenue of $23.5-million in the third quarter of 2023, a decrease of $6.5-million or 21.5 per cent compared with the third quarter of 2022. The decrease was primarily due to production volume reductions in the mobile and network, embedded antenna, and wireless infrastructure business lines, partially offset by stronger sales in the Satcom business line.
• Gross margin was 31.2 per cent in the third quarter of 2023 compared with 26.4 per cent in the third quarter of 2022 despite gross profit of $7.3-million being $600,000 less than the third quarter of 2022. The improved gross margin resulted from a balanced product mix due to sales from newly launched products, changes in pricing strategy and a data-driven focus on contribution margin at the business line level. In the third quarter of 2023, the improvement was mainly generated by: (i) stronger revenue recovery in the Satcom business line; (ii) favourable product mix, including 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) of ($800,000) in the third quarter of 2023, a decrease of $900,000 compared with the third quarter of 2022. The decrease in adjusted EBITDA was primarily due to the decrease in gross profit as a result of lower revenue, partially offset by the decrease in operating expenses compared with the prior-year period.
• Net loss of $3.4-million in the third quarter of 2023 compared with a net loss of $4.9-million in the third quarter of 2022. The net loss in the third quarter of 2023 was mainly attributable to an operating loss of $2.8-million. On a per-share basis, a net loss of four cents per share in the third quarter of 2023 compared with a net loss of six cents per share in the third quarter of 2022.
• Net debt was $26.4-million as at Sept. 30, 2023, an increase of $5.0-million from Dec. 31, 2022, mainly due to an increase in non-cash working capital, debt interest payments and lease payments.
• Backlog was $32.4-million at Sept. 30, 2023, compared with $38.1-million at Dec. 31, 2022, and $37.4-million at Sept. 30, 2022. The decrease was primarily due to a lower level of backlog in all the business lines, particularly in the mobile and network business line, as a result of across-the-board production volume reductions at its principal customer.

Selected financial information

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

A copy of the company's unaudited interim condensed consolidated financial statements for the three and nine months ended Sept. 30, 2023, and corresponding management's discussion and analysis, is available under the company's profile on SEDAR+.

Outlook

The business challenges facing the company during the second quarter continued in the third quarter of 2023, resulting in lower revenue, gross margin and adjusted EBITDA compared with the second quarter and interrupting the company's run of seven consecutive quarters of positive adjusted EBITDA. The company expects the rest of the year will be similarly challenging. While its overall performance continues to be significantly negatively affected by the results of its M&N business line, it is also experiencing softness in its embedded antenna and wireless infrastructure business lines. Satcom's performance remains in line with expectations.

It continues to prioritize product mix, emphasizing products that generate higher margins and gross profit, with a view to maintaining and increasing adjusted EBITDA, even at the expense of higher revenue. The macroeconomic environment, increased material costs due to inflationary pressures and the effect of high interest rates remain an issue for the business. These factors are expected to affect the volume of orders and revenue, as well as cause pushouts of orders from customers. It expects these conditions will continue for the rest of 2023. As a result of these continuing challenges, particularly in the M&N business line, it expects that its principal performance measures of revenue and adjusted EBITDA for 2023 will be below the corresponding amounts for 2022 offset by an improvement in gross margin.

Embedded antenna business line

The embedded antenna business line is currently being impacted by lower volumes driven by the macroeconomic environment, as well as lower margins caused by changes in product mix. It expects the embedded antenna business line will continue to perform reasonably well in 2023 but at reduced levels from 2022, which was an exceptionally strong year. Its performance depends on the ability of the home networking, public safety and automotive markets to remain resilient in the face of the economic slowdown and inflationary pressures. The number of active bids for 2024 projects is, however, at a record level for the business.

Wireless infrastructure business line

The company expects the wireless infrastructure business line will continue its performance for the rest of 2023 with materially higher improvements in gross margin but lower revenue compared with 2022. This reflects 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, which operate wireless mobile networks for their customers. It is seeing some pullback on spending by wireless carriers and infrastructure customers broadly but has managed to increase and take market share by focusing on its unique competitive advantages. It does expect to see carriers begin spending on small cells by 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 its customers continuing the momentum seen at the end of 2022.

Given the capital build cycles of satellite operators and others in the Satcom ecosystem, this has been of benefit to the business in 2023, and the company expects it will continue into 2024. It further expects that its new Genesis line of solid-state power amplifiers will generate significant interest from commercial clients, particularly those in the aviation and maritime industries. Importantly, the Genesis line is consistent in architecture, meaning it will allow the business to simplify supply chain over time and thereby improve efficiencies in manufacturing. However, there are indications that satellite Internet access through low Earth orbit satellites provided by satellite installation constellations is having a disruptive effect on some services provided by its customers, particularly in the cruise and maritime industries. In addition, the interest rate environment is having an impact on expenditures by some commercial Satcom companies.

The company continues to see opportunities for growth in sales for military and other government-related uses, which represent the balance of this business line, as many Western countries continue to maintain high levels of defence and scientific spending. It has recently completed multiple technology upgrades within its product portfolio, which are expected to generate additional sales.

Over all, the company expects revenue and adjusted EBITDA in 2023 will be stronger than 2022. The Satcom business line continues to demonstrate a strong order book with improving margins. In the meantime, it continues to take steps to improve production efficiencies in its facilities to address the backlog and improve overall revenue attainment. To alleviate some of the production backlog in its Kirkland, Que., facility, it has begun production of high-power amplifiers in its State College, Pa., 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 the global economic slowdown and continuing inflation, which have made consumers in major markets such as North America hesitant to upgrade their devices, as well as competitive pressures faced by the customer. Global shipments of smart phones are expected to experience a year-over-year decline in 2023 and to be the lowest in many years. 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. The company has hired a new president, and it continues to focus on reducing or eliminating operating and other costs. It has also been working to diversify its revenue base, but other potential revenue-generating projects have been hampered by the adverse economic environment, and any resulting benefit is not likely to be seen until 2024. Finally, the M&N business's largest customer for mobile devices has publicly stated that it expects to see improving demand in 2024.

Given these continuing challenges, management is continuing to evaluate its various options for the business, including whether it should remain part of the company's core long-term strategy.

Investor conference call

Baylin will hold a conference call on Nov. 9, 2023, at 8 a.m. ET, to discuss its financial results for the three and nine months ended Sept. 30, 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:  Nov. 9, 2023

Time:  8 a.m. ET

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

Conference ID No.:  62200684

Rapid connect:  To instantly join the conference call by phone, please register and be connected into the conference call automatically.

Webcast:  This call is also on webcast.

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.