Baylin Technologies Inc. (BYL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Bayland Technologies Second Quarter. to the 2022 Financial Results Conference Call. At this time, all lines are in listen-only mode. And following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 6, 2026. I'll now turn the call over to Kelly Miles, Director, Investor Relations of Valen Technologies. Please go ahead.

Thank you. Hello and welcome everyone. Thank you for joining the call this morning to review our second quarter 2026 financial results. On the call today from Baylin are Leighton Carroll, Chief Executive Officer and Cliff Gary, Chief Financial Officer. We will be available for questions at the end of the presentation. Before we begin, let me make it clear that our comments today may include forward-looking statements and information and answers to questions that could imply future expectations about the prospects and financial performance of the business for 2026 and beyond, and could include the use of non-IFRS measures. These statements are subject to risks, uncertainties and assumptions. Accordingly, actual performance could differ materially from statements made or information provided today, so you should not place undue reliance on them. We also do not intend to update forward-looking statements or information except as required by law. We ask that you read our legal disclaimers and explanation of the use of non-IFRS measures and refer you to the risks and assumptions outlined in our public disclosures. In particular, this section is entitled Forward-looking Statements and Risk Factors in our Annual Information Form for the year ended December 31, and our other filings which are available on CDAR+. Our Q2 2026 results were released after market close yesterday. The press release, financial statements and MD&A are available on CDAR+, as well as our website at balintech.com. I would now like to turn the call over to Leigh.

Thank you, Kelly. And thanks everyone for being here. It's early and I appreciate you guys starting your day with us. This past quarter was one of the most important quarters in our history. It's certainly one of the busiest. In the span of a few weeks, we closed the acquisition of Kalos, restructured our debt, and cleaned up a big piece of our capital structure. So there's a lot to cover. But Let me start with the headline. We ended the quarter with record backlog of $61 million, the highest in Baylor's 40-plus year history. This is up from $20.4 million at the end of last year. This tells you a lot about where the business is headed. Underneath it, our operations held up. Revenue was $22 million, essentially flat, with $22.5 we did a year ago. Gross margin improved 47.1%, and we delivered $3 million of adjusted EBITDA, our 10th consecutive quarter of positive adjusted EBITDA. Now, we did report a net loss of $3.2 million. The loss is the cost of doing what we just did. The acquisitions and expenses, the higher financing costs from a new credit facility the underlying business getting weaker, the positive adjusted EBITDA should be an indication of that. I want to spend some time on chaos because it's the most exciting thing to that to happen to the companies in year in years then I'll come back to take you through each of our business lines and talk about what we're seeing for the second half So on K-List, May 29th, we completed the acquisition. They're headquartered in Sweden, operations all over the world, great RF technology for a net purchase price of $42 million. It now operates as K-List, a Galtronics company. And for clarity, Galtronics is one of the sub-brands underneath that. Let me tell you why I'm so enthusiastic about the acquisition. of friends world-class art engineering and a portfolio of products we simply didn't have advanced antenna systems are conditioned that or in some type of day rf conditioning gnss synchronization solutions for cellular service including an anti-jamming capability that has military um capabilities associated with it, and industry-leading test and measurement tools. And critically, there is zero product overlap with our goutronics business. This isn't a deal where you buy a competitor and cut costs and talk about synergies. This is legitimately pure expansion. We've roughly doubled the number of things we sell to our customers overnight. We added geography, and we added engineering talent. It also deepens our relationships with tier one characters and OEMs across the board. across the world and it plugs straight into some powerful tailwinds. European Defense Communications and the Global Buildup of RF infrastructure, in particular European RF, which is behind in the lifecycle of their buildup than we are here in North America. And the early proof points are real. In the first month with us, Kalis booked $12.6 million in new purchase orders alone and contributed strong revenue in June under the Bayland umbrella. Based on what we're seeing in orders and margins, our expectation is K-List will outperform its internal budget for the second half of the year. The work is now on the integration, cross-selling or combined customers, unifying our sales channel and finding supply chain efficiencies. That's exactly where our focus is. And to the Calist team joining us, many of you may be listening this morning. I want to say welcome. We didn't acquire you to change who you are. We did it because of how good you are and what we can do together. Welcome to the Bayland family.

I'll now turn it over to you. Thank you, Leighton, and good morning, everyone. I'll start with the second quarter 2026 financial highlights. Revenue for the second quarter was $22 million compared to $22.5 million in the second quarter of 2025, a decrease of half a million dollars or 1.9%. The decrease is primarily attributable to lower sales volume in the Satcom business line due to softer market conditions. in the quarter. This was partially offset by the inclusion of one month of revenue from Calus following the completion of that acquisition at the end of May, 2026. Gross profit was $10.4 million, essentially in line with the prior year quarter. Gross margin improved to 47.1% compared to 46.3%. In the second quarter of 2025, the results included the recognition of $1.3 million of tariff refunds as to cost a good salt. This was partially offset by lower gross margins in the SECCOM due to the reduced sales volumes. Adjusted EBITDA was $3 million compared to $3.4 million in the prior year period. Adjusted EBITDA was lower year over year. Valen remained adjusted EBITDA positive for the 10th consecutive quarter. We view this as a meaningful indicator of the resilience of the business, particularly given the softer demand in SATCOM and the transitional activity associated with the K-LIS acquisition. Net loss for the quarter was 3.2 million compared to a net income of $1.1 million in the second quarter of 2025. The increase in current period net loss was driven primarily by acquisition-related expenses of $2.1 million and higher foreign exchange losses included in finance expense. Operating loss was $0.8 million in the quarter compared to operating income of $1.8 million in the second quarter of 2025, reflecting the impact of the acquisition expenses related to the K-list consumption. Thank you. Moving to the six months ended 30 June 2026. For the first six months of 2026, revenue was 38.1 million compared to 41.3 million in the same period of 2025. The decrease of 3.2 million dollars or seven, a decrease of 3.2 million dollars or 7.8%. The year-to-date decline was driven principally by lower SATCOM sales volumes, while the positive contribution from K-List began only late in the second quarter. Gross profit for the six-month period was $17 million compared to $18.4 million in the prior year period. Gross margin remained relatively consistent at 44.8% compared to 44.5% in the first half of 2025, supported by the same factors that benefited the second quarter margin. adjusted EBITDA for the first six months was 3.1 million compared to 4.1 million in the first half of 2025 due to the impact of the lowest SATCOM revenues mentioned previously net loss for the six-month period was 5.5 million compared to a net loss of 1 million in the by year period. With reference to liquidity and the balance sheet, net debt was $11.1 million at 30th of June, 2026, which was down $1.3 million from December 31, 2025. During the quarter, we restructured our debt by entering into a new term credit facility with the SAP Group and retiring our revolving credit facility with Royal Bank of Canada. First advance under the new facility was drawn in May and was used to repay the RBC facility, fund a portion of the Taylor's acquisition and support general corporate purposes. As part of the financing structure, the company remains focused on compliance with its liquidity and EBITDA covenants. $47.4 million K-list purchase price was made up of $10.6 million of cash, $21.6 million of deferred cash compensation, and the issuance of $15.2 million of share capital. The deferred cash compensation is reflected as a short-term liability on our statement of financial position. The company also converted the debentures with the face value of $5.1 million to shares during the quarter and exchanged the $4 million Series A and Series B preferred shares for common shares. In summary, Q2 was a transformational quarter for Balin. We completed the K-list acquisition and delivered positive adjusted EBITDA for the 10th consecutive quarter.

I'll now turn the call back to Leighton. Thank you, Cliff. Now let me walk through each of the business lines and what we're seeing for the back half of the year. For wireless infrastructure, revenue was steady versus the first quarter and a touch below what was an extremely strong prior year. We're seeing order intake beginning to slow in the third quarter, mainly because some of the North American carriers are pushing out their capital spending. We expect the business to be softer in 2025, though, in very solid territory. And importantly, we're maintaining very strong margins. The exciting part is also what's next. We're commercializing new derivatives of our patented multi-beam technology and have already had several carriers asking for trials. And when you combine our multi-beams, small cells, and other products with Calus's base station antennas, excuse me, RF conditioning, synchronization, and test and measurement, we can now go to Mark Merkert with a genuine end-to-end offering. expect carriers to resume meaningful infrastructure spending in 2027 and as that cycle happens we feel that we are very well positioned the custom antenna solutions also formerly called embedded had a reasonable quarter and importantly we improved margins and adjusted evita versus a year's year ago some customers are pushing out orders due to macro uncertainty, i.e., in some cases, chipset availability. So we expect the second half to be a little softer than the first, but the full year should be comparable to 2025, and our active bid pipeline remains very, very solid. Statcom certainly had a challenging quarter on reduced demand for its specialized custom products. The irony of that is that the pipeline was always substantial, in fact, at record levels. But I'm optimistic because in the second quarter, it doesn't turn into revenue, obviously. Our backlog jumped dramatically. It literally more than doubled with the number of new orders came in. It included multi-million dollar orders for Genesis amplifiers. This is our new technology. Repeat orders from customers who have fallen in love with the quality of the product. As customers move from our legacy products to the new Genesis line, we expect margins to improve. This helps us with high-power broadcast, government, and defense customers. The second half won't fully offset the first, so the full-year SATCOM will be below 2025, but certainly the second half of 2025. 2025 is going to be better and the direction of the business and the growth in their backlog gives me confidence about where this business will be going. A quick word about the macroeconomics, because it is creating an impact. Oil and fuel prices remain elevated given the situation in the Middle East. AI data center demand has driven up costs and shifted some spending with some customers, and we are seeing a lot of challenges with and electrical components. Our team has done a good job managing costs and making sure that we are disciplined in the way that we procure cost, price, protect our margins, and importantly, where we invest in R&D. And on tariffs, we've mitigated the impact well in the IEPA refunds this quarter for the infrastructure unit for a genuine tailwind. We actually expect that Calus will also see IEPA refunds in its future. So let me bring this together. We entered the second half with the strongest backlog in our history, a transformational new business in Kalos that's already producing a cleaner balance sheet, 10 straight quarters of positive adjusted EBITDA, and the opportunity to drive growth and really, really see bailing. and perform for the long term. Our job is now simple to say and hard to do well. We have to convert the backlog to revenue and earnings, integrate Calus the right way, focus on our customers, and drive our margins. To our employees, including our new colleagues at KALIS, thank you. To our customers and shareholders, thank you for your trust. We're excited about what we're building, and we're grateful you're along for the ride with us. That concludes our formal remarks, operator. We would be pleased to take any questions.

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should at any time you have a question, please press the star followed by the one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the hands up before pressing any keys. One moment please for your first question. And your first question comes from Daniel Rosenberg from Peregrine. Please go ahead.

Hi, good morning Leighton, Cliff. My first question is just on the backlog. I was curious of how far that gives you visibility in terms of when that can convert to revenue. Just trying to understand if that's a one year outlook or a second half outlook. What does.

look like in terms of translating to revenue? Yes. Good morning, Daniel. Nice to hear from you. So the backlog in the $61 million, And obviously a very healthy bump of that is Kalis. With the Kalis acquisition and seeing these 12.6 million in new purchase orders come in, another very healthy dose of that growth was in our Satcom division. and the amount of recent sales that they've had on the new product line. K-less is very similar to our infrastructure line, meaning they can turn... disorders into revenue relatively quickly. That's not an overnight thing and certainly with some of the volumes for some of their products it will take time. But a lot of that backlog that came from KALOS, it will be produced this year. They backed up their 12.6 with a very solid order intake month in July, as an example. So they're seeing continued demand, and it's, you know, it's for us working with the new Calus team, it's going to be turning the crank as hard as we can to drive value. On the SATCOM side, I would say 50% of the big bump is going to be this year. 50% will run into likely late Q1 of next year, potentially Q2. So a lot of this is in our near-term future. And then obviously with the character of the custom antenna line, that business has a pretty good backlog number, but that tends to go over time and is constantly refreshed. I do anticipate a lot of this backlog will be produced this year. year and it sets us up for a really solid beginning to 2027 as well.

Thanks for that. So I guess that explains kind of the outlook. You kept your 26, outlook stable. So, confidence there. I'm curious beyond that, as you think about 27, understanding you can't give too much guidance here, but directionally, how you think about the business outlook as we look to next year?.

Yes, I'm excited about what we're building with KLS. Part of what you do when you do an acquisition like this, particularly with the lack of product overlap, is it is great to suddenly have a whole bunch of new product that we didn't have before and combine forces. You still have to introduce your new capabilities to customers in some cases, for example, Verizon, they will want certifications on certain gear before they will purchase from you. just closed basically at the end of May and got started at the beginning of June. it would tell you that this year is kind of, you know, backlog in execution and integration, but it's also set at the table for that cross-selling opportunity that should be in full swing by 2027. So I think from the infrastructure and the Cato side, you know, It provides a really good opportunity to drive further growth off of 26 and 27. On the SATCOM side, we obviously had a choppy first half of the year and have been working pretty consistently you take costs out of the business, streamline things, you move to a leaner, both product architecture and cost structure. But given the purchase order volume that's starting to materialize and the size of the pipeline, I actually see, you know, maybe most importantly on the bottom line, our SAC division led by defense spending in many respects, seeing much, much better profitability in 27 than it did in 26. The custom maintenance group, They are the ones where some of our end customers are fighting for chipsets. that causes some slowness, but that's not going to last forever. You know, and the team has done a really remarkable job of managing cost structures and preserving margins. I see custom antennas returning to kind of its normal trajectory. As I've said before, it's never going to hockey stick up or down, but it makes really good margins and good money, and it should be at a bit of an elevation.