News

xG Technology Reports Second Quarter and First Half 2017 Results and Conference Call

SARASOTA, FL—August 14, 2017 —xG Technology, Inc. (“xG” or the “Company”) (Nasdaq: XGTI, XGTIW), a leading provider of wireless video solutions to broadcast, law enforcement and defense markets, and private mobile broadband networks for critical communications, announced its second quarter and first half 2017 results. All results are reported in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles (GAAP), except as otherwise indicated below. Management will hold a conference call to discuss these results on Wednesday, August 16, 2017 at 5:00 p.m. Eastern Time (details below).

Key Recent Accomplishments by xG Businesses

  • Record quarterly revenues of $14.2 million and record first half revenues of $23.6 million which contributed to positive cash generated from operations and improved liquidity for the six months ended June 30, 2017.
  • Introduced the Nulinx-IP Compact, a self-contained point-to-point, bi-directional microwave link.
  • Unveiled the new HCAM, the next generation of HEVC 4K UHD wireless camera transmitters.
  • Introduced the SatWare remote reporting computing platform to the North American market.
  • Received an order valued at approximately $1.2 million for wireless camera systems from a major worldwide news organization.
  • Received orders valued at over $700,000 for HD airborne video downlink systems from county law enforcement agencies located in California and Florida and the mid-Atlantic region.
  • Was granted a new patent covering an innovative method for enhancing the resilience of communications systems in the face of harmful interference.
  • Received orders valued at approximately $250,000 from prominent local television stations for high-performance digital microwave systems.
  • Provided wireless camera transmission capabilities to support the live stream broadcast of the largest sailing event in the world.

George Schmitt, CEO and Chairman of the Board of xG Technology, said, “In the second quarter we experienced record revenue among our brands and recorded an impressive string of new business wins in the broadcasting and law enforcement fields, as well as seeing success in new markets, including medical device technology. We also began to aggressively release new products that solidify our technology leadership.”

Mr. Schmitt continued, “Having successfully completed the acquisitions of Vislink and IMT and the integration of operations by our senior management ahead of schedule contributed to positive cash generated from operations and improved our liquidity for the six months ended June 30, 2017. We are now working on consolidating our financial systems in tandem with identifying and seizing profitable new business opportunities. Our record first half year puts us in an excellent position to capitalize on further growth through the remainder of 2017.”

Roger Branton, CFO and co-founder of xG Technology, said, We are pleased to report that we had record quarterly revenue of $14.2 million in Q2 and a record $23.6 million for the first half. An adverse movement in the British Pound to US Dollar exchange rate reduced revenues by approximately $424,000, otherwise revenue was $14.6 million for the quarter. We ended the six months June 30, 2017 with $4.7 million in cash, positive cash flow from operations and a substantial improvement in positive working capital of approximately $18 million.”

Mr. Branton continued, “Our first half results include a preliminary bargain purchase gain prepared by an independent valuation firm related to the Vislink acquisition of $15.5 million, which is an increase for the quarter of $3.7 million. Our results also include significant one-time charges related to purchase price amortization, acquisition related expenses and restructuring expenses that when excluded from our results, we reported positive net income and earnings before interest, taxes, depreciation and amortization.”

GAAP RESULTS

  • Gross margins were 31.8% of revenue in the second quarter 2017, compared to 50.8% of revenue in the second quarter of 2016. (Excluding one-time purchase price amortization charges, gross margins were 44.5% for the second quarter 2017, which was consistent with our current product mix. Please see further explanation in Non-GAAP Results below).
  • Revenues for the three and six months ended June 30, 2017 were $14.2 million and $23.6 million compared to $1.7 million and $2.6 million in the corresponding periods in 2016.
  • For the three and six months ended June 30, 2017, the Company had a net loss of $1 million and net income of $7.3 million, respectively. This compares to net losses of $4.6 million and $8.6 million for the three and six months ended June 30, 2016.
  • Net loss attributable to common shareholders was $1 million, or $(.09) per share in the second quarter of 2017 compared to a net loss of $6.0 million, or $(9.80) per share in the second quarter of 2016. Net income attributable to common shareholders was $7.3 million, or $.69 per share for the six months ended June 30, 2017 compared to a net loss of $10.4 million, or $(25.43) per share for the six months ended June 30, 2016.
  • xG ended second quarter 2017 with $4.7 million in cash compared to $9.1 million at December 31, 2016 and $4.6 million at the end of the first quarter of 2017.
  • Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was a positive $149,000 and $9.9 million for the three and six months ended June 30, 2017.

NON-GAAP RESULTS

  • Gross margins were 44.5% of revenue in the second quarter 2017, compared to 50.8% of revenue in the second quarter of 2016.
  • Revenues for the three and six months ended June 30, 2017 were $14.6 million and $24.3 million compared to $1.7 million and $2.6 million in the corresponding periods in 2016.
  • For the three and six months ended June 30, 2017, the Company had a net income of $3 million in the second quarter and net income of $15 million for the six months ended June 30, 2017. This compares to net losses of $4.6 million and $8.6 million for the three and six months ended June 30, 2016, respectively.
  • Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) was $3.8 million and $17 million for the three and six months ended June 30, 2017, respectively.

NON-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 preliminary 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.

Financial Results Conference Call

xG management will hold a conference call to discuss xG’s Q2 2017 results on Wednesday, August 16, 2017 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 https://vislinktechnologies.com/about-xg-technology/investor-information/. For those who cannot participate in the call, an audio replay will be available on xG’s website.

About xG Technology, Inc.

xG Technology’s brands provide wireless video solutions to broadcast, law enforcement and defense markets, and private mobile broadband networks for use in challenging environments. xG’s brand portfolio includes Integrated Microwave Technologies (IMT), Vislink, and xMax.

IMT has pioneered advanced digital microwave systems and is a trusted supplier to broadcast, sports and entertainment, and MAG (Military, Aerospace & Government) markets. Their products are recognized for their high level of performance, reliability, build quality, extended operating ranges and compact form factors. More information about IMT can be found at www.imt-solutions.com. Vislink specializes in the wireless capture, delivery and management of secure, high-quality, live video, and serves broadcast & media and public safety & surveillance markets. More information about Vislink can be found at https://www.vislink.com/.

xMax is a secure, rapid-deploy mobile broadband system that delivers mission-assured wireless connectivity in demanding operating environments. It was designed to serve as an expeditionary and critical communications network for use in unpredictable scenarios and during fluid situations, making it ideal for disaster response, emergency communications, and defense applications. More information about xMax can be found at https://vislinktechnologies.com/system-overview/. In addition to the above business lines, xG has a dedicated Federal Sector Group (xG Federal) focused on providing next-generation spectrum sharing solutions to national defense, scientific research and other federal organizations. Additional information about xG Federal can be found at https://vislinktechnologies.com/technology/xg-federal/.

Based in Sarasota, Florida, xG Technology has over 100 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
daniel.carpini@xgtechnology.com

xG TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)

 

June 30, 2017
(unaudited)
December 31,
2016
ASSETS
Current assets
Cash $ 4,656 $ 9,054
Accounts receivable, net 10,393 1,369
Inventories, net 18,669 2,722
Prepaid expenses and other current assets 1,879 111
Total current assets 35,597 13,256
Property and equipment, net 4,172 771
Intangible assets, net 8,236 5,872
Total assets $ 48,005 $ 19,899
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 10,366 $ 1,606
Accrued expenses 4,183 1,813
Accrued interest 132 269
Due to related parties 1,633 96
Deferred revenue and customer deposits 189 186
Obligation under capital leases 43 58
Derivative liabilities 1,373 1,183
Total current liabilities 17,919 5,211
Long-term obligation under capital leases, net of current portion 36 49
Convertible note payable 2,000 2,000
Total liabilities 19,955 7,260
Commitments and contingencies
Stockholders’ equity
Preferred stock – $0.00001 par value per share: 10,000,000 shares authorized as of June 30, 2017 and December 31, 2016; 0 shares issued and outstanding as of June 30, 2017 and December 31, 2016
Common stock, – $0.00001 par value, 100,000,000 shares authorized, 11,621,229 and 7,606,518 shares issued and 11,621,227 and 7,606,516 outstanding as of June 30, 2017 and December 31, 2016, respectively
Additional paid in capital 229,772 221,960
Accumulated other comprehensive gain 348
Treasury stock, at cost – 2 shares at June 30, 2017 and December 31, 2016, respectively (22 ) (22 )
Accumulated deficit (202,048 ) (209,299 )
Total stockholders’ equity 28,050 12,639
Total liabilities and stockholders’ equity $ 48,005 $ 19,899

 

 

xG TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS EXCEPT NET LOSS PER SHARE DATA)

 

For the Three Months Ended For the Six Months Ended
June 30, June 30,
2017 2016 2017 2016
Revenue $ 14,218 $ 1,655 $ 23,553 $ 2,584
Cost of revenue and operating expenses
Cost of components and personnel 9,695 814 15,266 1,240
Inventory valuation adjustments (23 ) 42 76 110
General and administrative expenses 6,441 2,377 12,989 4,413
Research and development expenses 2,511 1,542 4,385 3,202
Amortization and depreciation 1,143 1,512 2,132 2,867
Total cost of revenue and operating expenses 19,767 6,287 34,848 11,832
Loss from operations (5,549 ) (4,632 ) (11,295 ) (9,248 )
Other income (expense)
Changes in fair value of derivative liabilities 27 (1,773 ) (190 ) (1,260 )
Offering expenses (158 ) (158 )
Gain on bargain purchase 3,691 2,237 15,530 2,749
Gain on debt and payables extinguishments 1,090 3,990
Other expense (253 ) (58 ) (253 ) (57 )
Interest expense, net (47 ) (198 ) (531 ) (671 )
Total other income 4,508 50 18,546 603
Net income (loss) $ (1,041 ) $ (4,582 ) $ 7,251 $ (8,645 )
Dividends and deemed dividends (1,438 ) (1,808 )
Net income (loss) attributable to common shareholders $ (1,041 ) $ (6,020 ) $ 7,251 $ (10,453 )
Basic earnings (loss) per share $ (0.09 ) $ (9.80 ) $ 0.69 $ (25.43 )
Diluted earnings (loss) per share $ (0.09 ) $ (9.80 ) $ 0.69 $ (25.43 )
Weighted average number of shares outstanding:
Basic 11,405 614 10,500 411
Diluted 11,405 614 10,500 411
Comprehensive loss:
Net income (loss) $ (1,041 ) $ (4,582 ) $ 7,251 $ (8,645 )
Unrealized gain on currency translation adjustment 365 348
Comprehensive income (loss) $ (676 ) $ (4,582 ) $ 7,599 $ (8,645 )

 

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.

Q2 2017 RECONCILIATION OF GAAP to NON-GAAP RESULTS

 

Purchase Acquisition Non
GAAP Price Related, Foreign GAAP
In thousands of US$ Q2 Amortization Restructuring Exchange Q2
Revenue $14,218 $424 $14,642
Cost of revenue and operating expenses
Cost of components and personnel 9,695 (1,577) 8,118
Inventory valuation adjustments (23) (23)
General and administrative expenses 6,441 (1,317) 5,124
Research and development expenses 2,511 (47) 2,464
Amortization and depreciation 1,143 (421) 722
Total cost of revenue and operating expenses 19,767 (1,998) (1,364) 16,405
Income (loss) from operations (5,549) 1,998 1,364 424 (1,763)
Other income (expense)
Changes in fair value of derivative liabilities 27 27
Gain on bargain purchase 3,691 3,691
Gain on debt & payables extinguishments 1,090 1,090
Other expense (253) 253
Interest expense, net (47) (47)
Total other income 4,508 253 4,761
Net income (loss) $(1,041) $1,998 $1,617 $424 $2,998
EBITDA $149 $1,577 $1,617 $424 $3,767
(Earnings before interest, taxes, depreciation & amortization)

 

 

xG TECHNOLOGY, INC.

FIRST HALF 2017 RECONCILIATION OF GAAP to NON-GAAP RESULTS

 

Purchase Acquisition Non
GAAP Price Related, Foreign GAAP
In thousands of US$ Q1 & Q2 Amortization Restructuring Exchange Q1 & Q2
Revenue $23,553 $771 $24,324
Cost of revenue and operating expenses
Cost of components and personnel 15,266 (1,934) 13,332
Inventory valuation adjustments 76 76
General and administrative expenses 12,989 (3,657) 9,332
Research and development expenses 4,385 (333) 4,052
Amortization and depreciation 2,132 (754) 1,378
Total cost of revenue and operating expenses 34,848 (2,688) (3,990) 28,170
Income (loss) from operations (11,295) 2,688 3,990 771 (3,846)
Other income (expense)
Changes in fair value of derivative liabilities (190) (190)
Gain on bargain purchase 15,530 15,530
Gain on debt & payables extinguishments 3,990 3,990
Other expense (253) 253
Interest expense, net (531) (531)
Total other income 18,546 253 18,799
Net income (loss) $7,251 $2,688 $4,243 $771 $14,953
EBITDA $9,914 $1,934 $4,243 $771 $16,862
(Earnings before interest, taxes, depreciation & amortization)

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