xG Technology Announces Results for the First Quarter of 2018

Revenues Increased 4% while Gross Margins Increased 11% YOY

May 15, 2018, 17:25 ET from xG Technology, Inc.

SARASOTA, Fla., May 15, 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 first quarter ended March 31, 2018. Management will hold a conference call to discuss these results on Wednesday, May 16, 2018 at 5:00 p.m. Eastern Time (details below).

First Quarter Results

  • First quarter 2018 revenues increased 4.3% to $9.7 million compared to $9.3 million in the first quarter of 2017.
  • Gross margins increased to 51% in the first quarter of 2018, compared to 40% in the first quarter of 2017.
  • For the first quarter of 2018, net loss attributable to common shareholders was $3.8 million, or $(0.25) per share, compared to net income of $8.3 million, or $0.87 per share in the first quarter of 2017. Excluding stock option expense, discontinued operations and a division held for sale, xG reported a net loss of $501,000 in the first quarter of 2018.
  • EBITDA (earnings before interest, taxes depreciation and amortization) was a negative $2.8 million for the three months ended March 31, 2018. Excluding stock option expense, discontinued operations and a division held for sale, the Company reported adjusted EBITDA loss of $179,000 for March 31, 2018 which includes a write down of approximately $113,000 in non-cash items related to inventory.
  • Ended the first quarter 2018 with $455,000 in cash compared to $2.8 million at December 31, 2017.

First Quarter Non-GAAP RESULTS¹

  • Adjusted revenue was $9.3 million excluding discontinued operations and a division held for sale.
  • Adjusted net loss was $501,000 and adjusted EBITDA loss was $179,000 in the first quarter of 2018 excluding stock option expense, discontinued operations and a division held for sale.

"The accomplishments made during the first quarter reflect our commitment to strategically refocus our efforts on instituting the policies and practices necessary to drive revenue, cut costs and ultimately achieve profitability," said Gary Cuccio, Executive Chairman of the Board and CEO of xG Technology. "I am very pleased to report that our gross margin increased from 40% to 51% while our revenues increased as well. We also continue to lead the industry in product innovation by successfully introducing the Vislink AirPro-75. We look forward to continuing this healthy trend by winning new business, forming strategic partnerships and recognizing potential M&A opportunities that make sense for us. I am excited about leading this team and their ability to execute."

First Quarter 2018 Key Business Highlights

  • The HCAM HEVC 4K wireless camera systems were successfully deployed in their first live outside broadcast events.
  • Received an order in excess of $1 million from leading European outside broadcasting provider AMP Visual TV for HCAM HEVC 4K wireless camera systems and related equipment.
  • Announced a collaboration between its IMT business and Marshall Electronics, a recognized leader in supplying professional cameras and display monitors, to offer a full wireless video solution for live broadcasts and sporting events.
  • Launched the Vislink AirPro-75, a small, lightweight, low-cost, single-button deployment IP satellite data terminal for use with Eutelsat's Tooway™ & ViaSat™ Exede® services.
  • Adjusted EBITDA loss was $179,000 when taking into account previously announced cost reduction initiatives.

"The combination of our revenue increase and our team's renewed focus on cost control helped us deliver improved margins and solid first quarter results," said Roger Branton, xG Technology CFO and co-founder. "The results and our previous announcement on cost reductions are an indication of our ability to transform into a profitable model and of our continued commitment of becoming the industry leading provider of comprehensive video, broadband and satellite solutions for broadcast, sports and entertainment, and public safety markets."

Financial Results Conference Call Details

xG management will hold a conference call to discuss its Q1 2018 results and provide a corporate update on Wednesday, May 16, 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.

xG 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 are recognized for outstanding performance, reliability and 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.

xG is also the developer of xMax, a secure, rapid-deploy mobile broadband system that delivers mission-assured wireless connectivity in demanding operating environments. xMax was specifically designed to serve as an expeditionary and critical communications network for use in unpredictable scenarios and during fluid situations. This makes it a compelling solution for disaster response, emergency communications, and defense applications. More information about xMax can be found at http://www.xgtechnology.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 http://www.xgtechnology.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

Investor Relations: John Marco CORE IR 516-222-2560 johnm@coreir.com

xG TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT PER SHARE DATA)

March 31,

December 31,

2018

2017

(unaudited)

ASSETS

Current assets

Cash

$

455

$

2,799

Accounts receivable, net

6,652

8,337

Inventories, net

16,192

14,753

Prepaid expenses and other current assets

875

626

Total current assets

24,174

26,515

Property and equipment, net

2,926

3,237

Intangible assets, net

6,317

6,894

Total assets

$

33,417

$

36,646

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

$

10,451

$

10,918

Accrued expenses

3,556

3,150

Convertible note payable

2,000

2,000

Due to related parties

943

998

Deferred revenue and customer deposits

915

634

Obligation under capital leases

10

18

Derivative liabilities

662

1,271

Total current liabilities

18,537

18,989

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

27

30

Total liabilities

18,564

19,019

Commitments and contingencies

Stockholders' equity

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

Common stock – $0.00001 par value per share, 100,000,000 shares authorized, 14,959,784 and 14,897,392 shares issued and 14,959,782 and 14,897,390 outstanding as of March 31, 2018 and December 31, 2017, respectively

Additional paid in capital

238,052

237,140

Accumulated other comprehensive income

437

354

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

(22)

(22)

Accumulated deficit

(223,614)

(219,845)

Total stockholders' equity

14,853

17,627

Total liabilities and stockholders' equity

$

33,417

$

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

March 31,

2018

2017

Revenue, net

$

9,733

$

9,335

Cost of revenue and operating expenses

Cost of components and personnel

4,790

5,571

Inventory valuation adjustments

113

99

General and administrative expenses

5,832

6,548

Research and development expenses

2,442

1,874

Amortization and depreciation

887

989

Total cost of revenue and operating expenses

(14,064)

(15,081)

Loss from operations

(4,331)

(5,746)

Other income (expense)

Changes in fair value of derivative liabilities

609

(217)

Preliminary gain on bargain purchase

11,839

Gain on debt extinguishment

2,900

Interest expense

(47)

(484)

Total other income

562

14,038

Net (loss) income

$

(3,769)

$

8,292

Basic (loss) earnings per share

$

(0.25)

$

0.87

Diluted (loss) earnings per share

$

(0.25)

0.84

Weighted average number of shares outstanding:

Basic

14,948

9,585

Diluted

14,948

9,925

Comprehensive (loss) income:

Net (loss) income

$

(3,769)

$

8,292

Unrealized gain (loss) on currency translation adjustment

437

(17)

Comprehensive (loss) income

$

(3,332)

$

8,275

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 MARCH 31, 2018

Stock

Discontinued

Non

GAAP

Option

Operation/

GAAP

In thousands of US$

Q1

Expense

Division for Sale

Q1

Revenue

$9,733

$ (401)

$9,332

Gross margin

50.8%

49.6%

Cost of revenue and operating expenses

Cost of components and personnel

4,790

(84)

4,706

Inventory valuation adjustments

113

113

General and administrative expenses

5,832

(411)

(1,157)

4,264

Research and development expenses

2,442

(404)

(1,001)

1,037

Amortization and depreciation

887

-

(612)

275

Total cost of revenue and operating expenses

14,064

(815)

(2,854)

10,395

Income (loss) from operations

(4,331)

815

2,453

(1,063)

Other income (expense)

Changes in fair value of derivative liabilities

609

-

-

609

Interest expense, net

(47)

-

-

(47)

Total other income (expense)

562

-

-

562

Net income (loss)

$(3,769)

$815

$2,453

$(501)

EBITDA

$(2,835)

$815

$1,841

$(179)

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SOURCE xG Technology, Inc.



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