xG Technology Announces Results for the Second Quarter of 2018

The Company Achieved $7 million in Cost Reductions; Actions Continue to Strengthen Its Financial Position and Enable Profitable Revenue Growth

News provided by

xG Technology, Inc.

Aug 14, 2018, 18:00 ET

SARASOTA, Fla., Aug. 14, 2018 /PRNewswire/ -- xG Technology, Inc. (Nasdaq: XGTI, XGTIW), whose IMT and Vislink brands are recognized as the global leaders in live video communications in the broadcast, law enforcement and defense markets, announced today its results for the second quarter ended June 30, 2018. The Company also announced today that it achieved $7 million in annual savings from cost reduction initiatives implemented in the second quarter of 2018, which is an increase of $2 million over previous guidance. xG will hold a conference call to discuss second quarter results on Wednesday, August 15, 2018 at 5:00 p.m. Eastern Time (details below).

Second Quarter Results

  • Revenues for the three and six months ended June 30, 2018 were $9.4 million and $19.1 million compared to $14.2 million and $23.6 million in the corresponding periods in 2017.
  • Gross margins increased to 52.4% of revenue in the second quarter 2018, compared to 31.8% of revenue in the second quarter of 2017.
  • Net loss attributable to common shareholders was $6.4 million, or $(0.40) per share in the second quarter of 2018 compared to a net loss of $1.0 million, or $(0.09) per share in the second quarter of 2017. Net loss attributable to common shareholders was $9.7 million, or $(0.62) per share for the six months ended June 30, 2018 compared to net income of $7.3 million, or $0.69 per share for the six months ended June 30, 2017.
  • EBITDA (earnings before interest, taxes depreciation and amortization) was a negative $2.4 million and a negative $3.6 million for the three and six months ended June 30, 2018, respectively.
  • Ended the second quarter 2018 with $2.2 million in cash compared to $2.8 million at December 31, 2017 and $455,000 at the end of the first quarter of 2018.

Taking into account the cost reduction initiatives implemented in the second quarter of 2018, the Company reported the following Non-GAAP Second Quarter Results1:

  • Excluding stock option expense, one-time expenses and discontinued operations, xG reported an adjusted net loss of $749,000.
  • Excluding stock option expense, one-time expenses and discontinued operations xG reported an adjusted EBITDA loss of $224,000 which includes a write-down of $121,000 in non-cash items related to inventory.

"This was a transformational quarter," emphasized Roger Branton, CEO and co-founder of xG Technology, "In the second quarter we took decisive steps to stabilize our business. As a result of these actions, and the traction we have established in our core markets, we are well-positioned for future growth. During the quarter, we achieved $7 million in annual cost savings related to discontinued operations, specifically $6.2 million in labor cost savings and $800,000 in non-labor cost savings. We also identified an additional $1.3 million in non-labor cost savings to be realized over the next year, primarily by reducing the footprint of certain facilities. In addition, in the second quarter we raised $4 million in capital and solved some key supply chain challenges. We received significant new orders during the quarter, entered into collaborations with large government agencies, and signed an agreement with Panasonic to integrate our wireless camera control and 4K technology into Panasonic's studio camera line. We will continue to execute on our plan to achieve profitability, while at the same time focus on driving margin expansion and improving our earnings," concluded Mr. Branton.

Second Quarter 2018 Key Business Highlights

  • Implemented a cost reduction program that resulted in annual cost savings of $7 million and identified another $1.3 million to be realized over the next year.
  • Eliminated the routine practice of utilizing shares of the Company's common stock for current compensation of employees, significantly reducing the amount of shares in the market each month. Going forward, the use of shares and derivatives will be tied to and aligned with increases in shareholder value.
  • Received orders valued at over $750,000 for HD (high-definition) airborne video downlink system (AVDS) equipment and related services from law enforcement agencies located in Virginia, Massachusetts, Oregon and California.
  • Received a $2.3 million contract to supply live video transmission equipment to a major professional US sports association, for installation in arenas and configured to capture and distribute live images of in-game action.
  • Was awarded a $1.4 million order to supply airborne video downlink solutions to the U.S Air Force. The contract calls for the supply of transmit and receive systems, ground-based units designed to display real-time video imagery taken by aerial assets, related component and accessories, and training services.
  • Announced a partnership with Panasonic to integrate IMT Vislink's external wireless solution into Panasonic studio cameras.
  • Announced a partnership between IMT Vislink and Frontline Communications to deploy a customized newsnet® electronic news gathering (ENG) vehicle for performing on-site demonstrations at broadcast client locations.
  • Announced a collaboration between IMT Vislink and K2 Unmanned Systems, LLC on the launch of K2's new law enforcement tactical drone. IMT Vislink is providing interoperable, encrypted HD video downlink technology for use with the system.

Financial Results Conference Call Details

xG management will hold a conference call to discuss its Q2 2018 results and provide a corporate update on Wednesday, August 15, 2018 at 5:00 p.m. Eastern Time. To participate in the conference call, please call 1-844-825-9789 (toll free) or 1-412-317-5169 (international call-in) and ask to join the xG Technology call. The call will also be simultaneously webcast. Listeners can access the webcast live through the Company's website at http://www.xgtechnology.com/about-xg-technology/investor-information/. For those who cannot participate in the call, an audio replay will be made available on xG's website.

¹NON-GAAP FINANCIAL MEASURES

We disclose non-GAAP financial measures as we believe they provide useful information on actual operating performance. Readers are cautioned that non-GAAP financial measures do not have any standardized meaning prescribed by U.S. GAAP and therefore may not be comparable to similar measures presented by other companies.

Non-GAAP gross margin excludes the impact of purchase price amortization on the step up of assets as a result of the bargain purchase gain and the impact of foreign exchange gains or losses.

Non-GAAP income (loss) from operations excludes the impact of purchase price amortization related to the Vislink acquisition, acquisition-related expenses and restructuring expenses.

We use the above-noted non-GAAP financial measures for planning purposes and to allow us to assess the performance of our business before including the impacts of the items noted above as they affect the comparability of our financial results. These non-GAAP measures are reviewed regularly by management and the Board of Directors as part of the ongoing internal assessment of our operating performance. Adjusted EBITDA is defined as net income (loss) plus purchase price amortization, acquisition-related expense, restructuring expense, depreciation and amortization, foreign exchange gains or losses and interest expense.

Adjusted EBITDA is a metric used by investors and analysts for valuation purposes and we believe that it is an important indicator of our operating performance.

About xG Technology, Inc.

Technology's IMT and Vislink brands are recognized as the global leaders in live video communications and are trusted suppliers to tier-1 customers in broadcast/sports/entertainment, and law enforcement/public safety/defense markets. Their products have been engineered to deliver high levels of performance, reliability, build quality, extended operating ranges and compact form factors. In the broadcast, sports and entertainment sectors, IMT and Vislink provide high-definition communication links to reliably capture, transmit and manage live event footage. In the law enforcement, public safety & defense markets, IMT and Vislink provide secure video communications and mission-critical solutions to local, national and international agencies and organizations. More information can be found at www.imt-solutions.com and www.vislink.com.

Based in Sarasota, Florida, xG Technology has over 80 patents and pending patent applications. xG is a publicly traded company listed on the NASDAQ Capital Market (symbol: XGTI) For more information, please visit www.xgtechnology.com.

Cautionary Statement Regarding Forward Looking Statements

Statements contained herein that are not based upon current or historical fact are forward-looking in nature and constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements reflect the Company's expectations about its future operating results, performance and opportunities that involve substantial risks and uncertainties. These statements include but are not limited to statements regarding the intended terms of the offering, closing of the offering and use of any proceeds from the offering. When used herein, the words "anticipate," "believe," "estimate," "upcoming," "plan," "target", "intend" and "expect" and similar expressions, as they relate to xG Technology, Inc., its subsidiaries, or its management, are intended to identify such forward-looking statements. These forward-looking statements are based on information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could cause the Company's actual results, performance, prospects, and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.

FOR MORE INFORMATION

xG Technology:
Daniel Carpini
941-953-9035
[email protected]

Investor Relations:
John Marco
CORE IR
516-222-2560
[email protected]

xG TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT PER SHARE DATA)



June 30,

December 31,


2018

2017


(unaudited)



ASSETS







Current assets







    Cash

$

2,185

$

2,799

    Accounts receivable, net

5,357


8,337

    Inventories, net

16,016


14,753

    Prepaid expenses and other current assets

704


626

    Total current assets

24,262


26,515

    Property and equipment, net

2,744


3,237

    Intangible assets, net

5,577


6,894

    Total assets

$

32,583

$

36,646

LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities







    Accounts payable

$

8,084

$

10,918

    Accrued expenses

2,945


3,150

    Convertible note payable

2,000


2,000

    Convertible promissory notes, net of discount of $508 and $0, respectively

3,492


—

    Due to related parties

691


998

    Deferred revenue and customer deposits

1,642


634

    Obligation under capital leases

10


18

    Derivative liabilities

2,533


2,399

    Total current liabilities

21,397


20,117

    Long-term obligation under capital leases, net of current portion

24


30

    Total liabilities

21,421


20,147

Commitments and contingencies







Stockholders' equity







Preferred stock – $0.00001 par value per share:  10,000,000 shares authorized as of June 
     30, 2018 and December 31, 2017; 0 shares issued and outstanding as of June 30, 2018 
     and December 31, 2017

—


—

Common stock – $0.00001 par value per share, 100,000,000 shares authorized, 
     16,674,874 and 14,897,392 shares issued and 16,674,872 and 14,897,390 outstanding 
     as of June 30, 2018 and December 31, 2017, respectively

—


—

    Additional paid in capital

240,220


235,819

    Accumulated other comprehensive income

328


354

    Treasury stock, at cost – 2 shares at June 30, 2018 and December 31, 2017, 
       respectively

(22)


(22)

    Accumulated deficit

(229,364)


(219,652)

  Total stockholders' equity

11,162


16,499

Total liabilities and stockholders' equity

$

32,583

$

36,646

The accompanying notes are an integral part of these condensed consolidated financial statements.

xG TECHNOLOGY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE (LOSS) INCOME

(IN THOUSANDS EXCEPT NET (LOSS) INCOME PER SHARE DATA)



For the Three Months Ended

For the Six Months Ended


June 30,

June 30,


2018

2017

2018

2017

Revenue

$

9,424

$

14,218

$

19,157

$

23,553

Cost of revenue and operating expenses















    Cost of components and personnel

4,487


9,695


9,277


15,266

    Inventory valuation adjustments

121


(23)


234


76

    General and administrative expenses

6,028


6,441


11,860


12,989

    Research and development expenses

2,925


2,511


5,367


4,385

    Impairment charge

168


—


168


—

    Amortization and depreciation

818


1,143


1,705


2,132

    Total cost of revenue and operating expenses

14,547


19,767


28,611


34,848

    Loss from operations

(5,123)


(5,549)


(9,454)


(11,295)

Other (expense) income















    Changes in fair value of derivative liabilities

605


27


1,654


(190)

    Gain on bargain purchase

—


3,691


—


15,530

    Gain on debt and payables extinguishments

—


1,090


—


3,990

    Other income (expense)

38


(253)


38


(253)

    Interest expense, net

(1,903)


(47)


(1,950)


(531)

    Total other (expense) income

(1,260)


4,508


(258)


18,546

Net (loss) income

$

(6,383)

$

(1,041)

$

(9,712)

$

7,251

















Basic (loss) earnings per share

$

(0.40)

$

(0.09)

$

(0.62)

$

0.69

















Diluted (loss) earnings per share

$

(0.40)

$

(0.09)

$

(0.62)

$

0.69

















Weighted average number of shares outstanding:
































Basic

16,154


11,405


15,555


10,500

















Diluted

16,154


11,405


15,555


10,500

















Comprehensive (loss) income:















Net (loss) income

$

(6,383)

$

(1,041)

$

(9,712)

$

7,251

Unrealized (loss) gain on currency translation adjustment

(109)


365


328


348

















Comprehensive (loss) income

$

(6,492)

$

(676)

$

(9,384)

$

7,599

The accompanying notes are an integral part of these condensed consolidated financial statements.

Reconciliation of GAAP to Non-GAAP Results

Our financial statements are prepared in accordance with US GAAP on a basis consistent for all periods presented. In addition to results reported in accordance with US GAAP, we use non-GAAP financial measures as supplemental indicators of our operating performance. We disclose non-GAAP measures as we believe that these measures provide better information on actual operating results.

Readers are cautioned that non-GAAP financial measures do not have any standardized meaning prescribed by US GAAP and therefore may not be comparable to similar measures presented by other companies.

xG TECHNOLOGY, INC.

RECONCILIATION OF GAAP to NON-GAAP RESULTS

QUARTER ENDING JUNE 30, 2018



       Stock



 Non

          GAAP

       Option

One-Time

    Discontinued

GAAP

In thousands of US$

          Q2

      Expense

   Expenses

      Operations

  Q2

Revenue

$9,424

$ (26)

$9,398

                Gross margin

52.4%


52.3%







Cost of revenue and operating expenses





    Cost of components and personnel

4,487


4,487

    Inventory valuation adjustments

121


121

    General and administrative expenses

6,029

(613)

(880)

4,537

    Research and development expenses

2,925

(1,047)

(758)

1,120

    Impairment charge

168

(168)

    Amortization and depreciation

817

-

-

(337)

480

Total cost of revenue and operating expenses

14,547

(1,660)

(2,143)

10,745







Income (loss) from operations

(5,123)

1,660

2,117

(1,347)







Other income (expense)





    Changes in fair value of derivative liabilities

605


605

    Other expense

38


38

    Interest expense

(1,903)

-

1,858

-

(45)

Total other income (expense)

(1,260)

-

1,858

-

598







Net income (loss)

$(6,383)

$1,660

$1,858

$2,117

$(749)






EBITDA

$(3,663)

$1,660

-

$1,780

$(224)

xG TECHNOLOGY, INC.

RECONCILIATION OF GAAP to NON-GAAP RESULTS

SIX MONTHS ENDING JUNE 30, 2018



       Stock



 Non

          GAAP

       Option

One-Time

    Discontinued

GAAP

In thousands of US$

          H1

      Expense

   Expenses

      Operations

  H1

Revenue

$19,157

$ (427)

$18,730

                Gross margin

51.6%


50.9%







Cost of revenue and operating expenses





    Cost of components and personnel

9,277

(84)

9,193

    Inventory valuation adjustments

234

-

234

    General and administrative expenses

11,861

(1,023)

(63)

(1,663)

9,112

    Research and development expenses

5,367

(1,451)

-

(1,759)

2,157

    Impairment charge

168

-

-

(168)

-

    Amortization and depreciation

1,704

-

-

(674)

1,030

Total cost of revenue and operating expenses

28,611

(2,474)

(63)

(4,348)

21,726







Income (loss) from operations

(9,454)

2,474

63

3,921

(2,996)







Other income (expense)





    Changes in fair value of derivative liabilities

1,654


1,654

    Other expense

38


38

    Interest expense

(1,950)

-

1,858

-

(92)

Total other income (expense)

(258)

-

1,858

-

1,600







Net income (loss)

$(9,712)

$2,474

$1,921

$3,921

$(1,396)






EBITDA

$(6,058)

$2,474

63

$3,247

$(274)

SOURCE xG Technology, Inc.

Related Links

http://www.xgtechnology.com

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