Good morning, ladies and gentlemen, and welcome to the Baylin Technologies second quarter 2023 financial results conference call. At this time, all lines are listen-only mode. 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 10th, 2023. I will now turn the call over to Kelly Myles, Director of Marketing and Investor Relations for Baylin Technologies. Please go ahead.
Good morning. Welcome, everyone. Thank you for joining us this morning for the 2nd quarter 2023 earnings conference call for Baylin Technologies. On the call with us today from Baylin are Leighton Carroll, Chief Executive Officer, and Dan Nohdomi, Chief Financial Officer. They will both 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 2023 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. I 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, the sections entitled Forward-Looking Statements and Risk Factors in our annual information form for the year ended December 31, 2022, and our other filings, which are available on SEDAR. Our Q2 2023 results were released after market close yesterday. The press release, financial statements, as well as the MD&A, are available on SEDAR and on our website at baylintech.com. I will now turn the call over to Leighton.
Thank you, Kelly. We'll provide additional detail about each of our business lines later, but I'd like to highlight the following accomplishments from the second quarter. Despite lower revenue in the quarter, Adjusted EBITDA was CAD 0.1 million positive, the seventh, excuse me, consecutive quarter of positive Adjusted EBITDA and a CAD 0.2 million decrease compared to Q2 of 2022. Notably, our Mobile and Network business, previously referred to as APAC or Asia Pacific, continues to deal with our primary customer's reduction in volume, which has impacted all suppliers in their mobile ecosystem. Despite these external macroeconomic challenges in the quarter, the business, excuse me, demonstrated resiliency in overcoming several challenges to deliver positive results.
Our backlog was $34.5 million at June 30th, 2023, compared to $38.1 million at December 31st, 2022, and $37.7 million at June 30, 2022. The backlog has remained durably above $34 million since Q3 of 2021, despite the challenges in the Mobile and Network business, which has decreased-- has significantly decreased backlog when comparing similar time periods. The backlog in Satcom embedded in particular, continues to m- remain very strong. We are also seeing continued work, excuse me, we are also continuing to work to improve the quality of our backlog, meaning the gross profit associated with each of the purchase orders across all of our businesses.
In recent developments, we've had several notable successes over the past quarter with the placement of our Galtronics subsidiaries, patented multibeam antennas at various events and venues, including Circuit Gilles-Villeneuve in Montreal for the 2023 Formula 1 Canadian Grand Prix, Grand Prix du Canada, the greatest outdoor show on Earth, the Calgary Stampede, throughout Lisbon, Portugal, for the Pope's visit earlier in August to celebrate World Youth Day, Phoenix Park in Dublin for the Bord Bia Bloom Festival, one of Ireland's largest events with some 120,000 attendees, Slane Castle near Dublin for a Harry Styles concert attended by 80,000 people, and various concert venues and locations around Rome and Milan, Italy. Notably, many of these aforementioned events occurred in Europe and represent direct carrier sales in that continent, which is a first for Galtronics.
Our multibeam antennas are uniquely capable of handling high capacity and high-speed throughput in dense customer traffic environments. Additionally, in July of this year, our Advantech Wireless Technologies business launched a new family of Ka-band Solid-State Power Amplifiers and Block Upconverters, SSPAs and SSPBs, respectively, called the K2 Series. These amplifiers are based on a novel ground-up design that is based on the recently launched Genesis platform and employs Gallium Nitride device technology to deliver the highest performance RF of any amplifier in its class. The K2 Series is the first major product led by Advantech's Quebec-based engineering team and fills a significant product coverage gap for our business, namely, Ka-band technology, which is widely used in satellite communications today.
We also announced on May 26th, the company completed a private placement of eight million common shares to its principal shareholder, 2385796 Ontario Incorporated, a corporation over which our Chairman, Jeffrey C. Royer, exercises control and direction over investment decisions. The proceeds of $3.12 million are being used to fund working capital in the business, including for use in our M&N business line. Dan Nohdomi, our CFO, will now comment on our second quarter results.
Thank you, Leighton. I'll provide a summary of our second quarter 2023 results. Revenue of $25.3 million in the second quarter of 2023 was a decrease of $4.8 million, or 16.1% compared to the second quarter of 2022. The decrease was primarily due to a significant reduction in orders from our principal customer in the Mobile and Network M&N business line, partially offset by stronger sales in the embedded antenna and Satcom business lines. Gross margin was 32.5% in Q2 of 2023, compared to 29.9% in Q2 of 2022. Despite gross profit being $8.2 million, which was $0.8 million less than Q2 of 2022.
The improved gross margin resulted from a balanced product mix due to sales from newly launched products that Leighton mentioned earlier, changes in pricing strategy, and a data-driven focus on contribution margin at the business line level. In Q2 of 2023, the improvement was mainly generated by, one, stronger revenue recovery in the Satcom business line despite supply chain constraints. Two, favorable product mix, including the new multibeam and innovative antenna portfolio in the wireless infrastructure business line, and consistent operational efficiency in the embedded antenna business line. Adjusted EBITDA was positive $0.1 million in the second quarter of 2023. Again, the seventh consecutive quarter of positive Adjusted EBITDA.
Adjusted EBITDA decreased by $0.2 million compared to the same quarter last year. This decrease was primarily due to a decrease in gross profit as a result of lower revenue, partially offset by the decrease in operating expenses compared to the prior year period. During the quarter, we recognized government stimulus of approximately $0.4 million, related to the U.S. Employee Retention Tax Credit program, or ERTC, in our satellite communications unit, which was recorded as a reduction of cost of sales and operating expenses. The cash benefit of this tax credit is not expected to be realized until 2024. Net loss was $1.2 million in the second quarter of 2023, compared to a net loss of $4.3 million in the same quarter of 2022.
The net loss this quarter was mainly attributable to an operating loss of CAD 1.3 million. On a per-share basis, a net loss of CAD 0.01 per share in the 2Q 2023, compared to a net loss of CAD 0.05 per share in the 2Q 2022. Net debt was CAD 23.6 million at the end of June 30, 2023, an increase of CAD 2.1 million from December 31, 2022, primarily due to debt, interest payments, and lease payments. The company is working with its lenders to extend the maturity of the credit facilities to provide the company with additional time either to renew the existing credit facilities when they mature or to find alternative credit facilities. Additionally, the company's Chinese subsidiary arranged a new CNY 30 million multiple tranche credit facility with the Bank of Ningbo.
The facility, which is secured by the subsidiary's building, replaced a CNY 17 million secured facility with Shanghai Pudong Development Bank. I'll now turn the call back over to Leighton.
Thank you, Dan. Look, I think it's fair to say we had a mixed quarter. While we exceeded on our Adjusted EBITDA, we had to overcome significant softness in revenue and profitability in the Mobile and Network business. You know, to be honest, I'm actually doing this call from Suwon, South Korea, because we need to work on this business. The flip side of that is this implies that all three of our North American businesses had solid quarters, with our infrastructure division most notably having a series of marquee wins for that business. We expected financial performance in the second quarter to be weaker than the first and previously said it would be the most challenging quarter for our year, but we now expect the third quarter will be similarly challenging.
Although the North American business lines, the North American headquartered business lines continue to perform well generally, our overall performance is being significantly negatively affected by the results of our M&N business. As mentioned previously, this means we are putting all options on the table with respect to the future of that business. In the meantime, we continue to prioritize product mix, research and development, and emphasize products that have unique competitive advantages for the markets we serve. This will lead to higher margins and gross profit while maintaining and growing Adjusted EBITDA over time. The macroeconomic environment, higher interest rates, shortages of materials, and increasing material costs due to supply chain shifts and shortages remain challenges for everyone in the markets we serve.
As a result, and in particular, due to the challenges in our M&N business, we now expect that our 2023 revenue will be below 2022 results. while we are anticipating Adjusted EBITDA to be in line with the prior year, prior year, excuse me, due in large part to improvements in the North American businesses. Now, I'd like to speak a little bit about each of the businesses and what we're doing within, within each of them. The embedded business, end customers have started to see impacts of higher interest rates in some, and the operative word is some, of their end consumer markets. As a result, we have seen, lower volumes on some, but not all products. The businesses also seen slightly lower margins caused by resulting changes in product mix.
Despite these headwinds, we expect the embedded antenna business line to continue to perform well this year, but at reduced levels from 2022, which was an exceptionally strong year, to be fair, a record year. Its performance depends on home networking, public safety, and automotive, and those markets to remain relatively resilient in the face of economic pressures and inflationary pressures. Thus far, we have been managing through this and hitting targets. Moreover, I would add, we have been adding new product and new product launches with new customers to offset some of the softness we've seen in other markets.
Despite the short-run issue for embedded, the number of active bids, and this is important, for 2024 projects, is at a record level, which means what we are doing in terms of how we do our business, our competitive positioning and the opportunities we are being brought into, if that's at record levels, that speaks to the direction we're going within this business. We are already developing several Wi-Fi 7 programs and working with several new potential customers, which, if successful, will lead to future growth for the business line in 2024 and beyond. The wireless infrastructure business is really kind of an interesting story. Broadly, the market is soft. You know, that is, I think, true for everyone in infrastructure generally. All three of the large U.S. carriers have had layoffs. Ericsson recently announced layoffs. Crown Castle has announced layoffs. That sounds terrible.
All of these examples are in North America. The reality is that's, this story is not inconsistent with the rest of the world. Why is that interesting? It actually sounds terrible. It's interesting because in a clearly down market for infrastructure, our Galtronics business has actually been growing and more importantly, seeing improvements in its margin profile. In fact, the infrastructure business had its best quarter since I joined the company, a little over 2 years ago. The reason that this has happened is the launch of a lot of the new products that we put out there and the significant gains in market share that we've attained for each of those. Moreover, it is not just where we've been, but where we're going. You know, the proverbial Wayne Gretzky, where's the puck gonna go?
To that end, currently underway, we are currently underway, excuse me, with another major US carrier trialing our multibeams. Presuming things go as we expect, we will be approved this year, and this will allow us to open another additional major customer through the successful product family. And speaking of revenue mix, 2022 Small Cells were our main revenue driver for infrastructure, which in large part matched North American carrier behavior. In 2023, multibeams are our number one antenna category. In fact, Small Cells, they're not number two. This is interesting only in that we see not only future opportunities for multibeam sales as we continue to penetrate the market, but we also expect to start seeing carriers to regain, resume spending on Small Cells as they begin to work on densifying C-band in specific geographies in 2024 and beyond.
In other words, while we all want better, I am confident we have positioned ourselves to for where the proverbial puck will be in 2024 and 2025. That said, we expect the wireless infrastructure business to continue to perform for the remainder of this year with some improvement in revenue, but materially higher Adjusted EBITDA compared to 2022. Now to Satcom. Satcom has been interesting as well. The commercial side of the business has been seeing slowing sales velocity, in large part due to the higher, higher interest rate environment and its impacts. This is interesting in that we expect there will be some unevenness in the market as SES and Intelsat, and to a lesser extent, Telesat, will receive $9 billion in C-band spectrum clearing incentive money from the FCC for all of their work to clear that spectrum.
We expect these funds will be, in part, reinvested into their businesses and create further opportunity for our business. In other words, while the commercial side of Satcom has seen slowing demand in the past two quarters, we expect that there will be continued capital spending by customers, given the broader incentives flowing into the ecosystem starting in Q4 this year. By the way, even with this slowing commercial spend, the Satcom business, our Satcom business, unlike some of our competitors, continues to maintain near record high level of purchase orders. Sales for military and other government-related uses, which represent a significant portion of this business, continue to show resiliency as many Western countries continue to main, maintain, excuse me, high levels of defense spending.
As an example, even outside of defense spending, we're currently manufacturing products that will be deployed in support of the Artemis space mission in the coming few months. If you're into things like space and technology and a little geeky like me, for me, that's pretty cool stuff. Moreover, we've had record level of bid activity in Satcom, and while we don't expect to win everything we bid on, we do expect to see some progress in landing larger programs in the back half of this year and into 2024. Finally, we continue to make technology upgrades within our Satcom product portfolio, which we expect to generate additional sales. Our new Genesis line of solid-state amplifiers have generated significant interest from commercial clients, particularly those in aviation and maritime.
To that end, we have already sold several to commercial customers, given the inherent benefits of our new technology. Additionally, with the launch of the K2 product family, which is based on Genesis, we have added a new frequency band to our portfolio and one that is widely used in commercial satellite communications. While we've made several announcements for new technology this year, there are several more in development which we believe will drive future growth for that business. Overall, we expect 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, production continues to be affected by supply chain constraints, chipset shortages, and component delays. In the meantime, excuse me.
In the meantime, we continue to take steps to improve production efficiencies in our facilities in order to address the backlog and improve revenue attainment. We will also be looking at cost control and operational efficiencies as a major theme in Satcom through the end of the year. You guys, give me a second. I'm gonna take a sip of water. I've been talking, talking pretty quickly here. Finally, with the Mobile and Network business, previously referred to as Asia Pacific or mobile, the M&N business line continues to face significant challenges due to production volume reductions, at its principal customers. These reductions, excuse me, reflect a contraction in the customer smartphone market, due in part to the global economic slowdown and continuing inflation, as well as competitive pressures faced by the customer.
Global shipments of smartphones are expected to experience a year-over-year decline in 2023. The customer is also facing weaker demand for its other products, such as tablets, smartwatches, and other wirelessly connected devices. Management has been taking steps to limit the adverse effect that this has had on the business by reducing and eliminating operating and other costs. We have also been working to diversify its revenue base, but other potential revenue-generating projects, have been, have been challenging to bring to production this year, and we will not see them really start to get their legs until 2024. Given the ongoing challenges, management is continuing to evaluate the various options for this business, including whether it should remain part of the company's core long-term strategy.
Reflecting on the quarter, I'm happy with the improvements in gross margin percentage, and the adjusted EBITDA in the aggregate for our North American businesses. Having, having a situation like we're dealing with, with the Mobile and Network business, that has been unfortunately more negative than we anticipated, and yet still being on the positive side of the ledger, of the ledger, excuse me, is something I'm very happy about. That said, the improvements in margin structure in our North American businesses are indicative of what we've been working on to transform, transform this company. The new products focus on market entry and delivering real value where we play well, will lead our business to better times. We are on a good trajectory and I remain confident that our best is ahead of us.
None of this, none of this would be possible without the commitment of our people. I am grateful for their continued commitment and engagement and the sense of urgency shown by our employees worldwide. That concludes our formal remarks. Operator, would you please take questions?
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. If your question has been answered and you would like to withdraw, please press star followed by two. If you're using a speakerphone, please lift your hands before pressing any keys. One moment please while we compile the roster. Your first question comes from Daniel Rosenberg with Paradigm Capital. Please go ahead.
Hi, good morning. I guess my first question is around how you're viewing the total entity of. You know, you have a few divisions that are operating well, but one that's lagging. How do you view the route to positive cash flow? Is it continued execution on one? Are you waiting for it to turn around in mobile? Or are you thinking about, you know, doubling down on the growth areas and, and kind of just, you know, maintenance type operation on the mobile side?
Well, everything you just said was pretty spot on, but there, there's one additional wrinkle in all of that. Let me, let me walk through this. We're, we're really focused on setting ourselves up for growth. Growth is, you know, unfortunately, it's not overnight, and some of the work that we do to set ourselves up for success doesn't materialize in the immediate quarter. A lot of times you have to understand where the market is going, where you have competitive advantage, where you, where you spend your RD dollars, and you may be planning for a couple of quarters out. A lot of the success we've had, you know, particularly in the three North American headquartered businesses-...
These are still early days, and in that regard, I'm actually pretty excited about what we think will happen in 2024 and 2025, even though we're starting to see some of the fruits of our labor now. With respect to the mobile division, in the short term, because of the sizes, excuse me, the nature of the issue, which is in many respects, customer volume-led, it is very short-term focused, tactical, cost containment, how do we manage through, and how do we get to the point where we've added additional revenue streams to offset the dependency that that business has? In the short term, it is how do you compartmentalize and minimize in one area, where you maximize and set the table for future growth in the other.
The other thing I would throw out there, though, is part of where we've been from a free cash flow positive perspective, has been based on the credit structure that the business has been under, really since I got here, and obviously since before I was here. The lending structure that we had was built based on a set of assumptions tied to, in many respects, what the acquisitions were thought to be, not what they actually turned out to be. To that end, we've been working, and it's been a two-year journey to rebuild credibility with our lenders, which I, I feel pretty confident I can say we have done, and we are now actively looking at recapitalizing the balance sheet and changing the lending structure in, in a way that I think will materially improve our free cash, our, our journey to free cash flow.
That's not done. That, that work is gonna be over the coming couple quarters. It, it has, for lack of a better way to put it, absolute focus for Dan and myself as almost a moral imperative, because as good as the business operation work and the technology work that's been done has been, we need to do this to help jumpstart our ability to get to that free cash flow position. It's a combination of both is, is, I think, the correct answer.
Then, I guess what follows and, you know, if the macro outlook is kind of how you see and, you know, there's some potential for some larger wins down the road, you know, you said-- you mentioned 2024, 2025. Is there a, a goal for break even on a cash basis, cash flow basis?
Well, if, and, and Dan will probably chuckle. If you, if you work for me, you know I can't have them soon enough, and I, and I can be impatient. I wanna have it happen as soon as humanly possible. I, I do believe we can get there in 2024, and to be honest, I'm gonna. I would say all of us inside of the company are busting it to, to make that happen. We, we wanna see this company live up to its potential. We want to continue to do what we're doing, and to see it really prove itself out. Part of that journey is crossing, crossing over that, you know, that, that threshold to say, "Hey, we're now free cash flow positive. We're on the upswing.
We're continuing the journey." That's job one, and I, and I do think we can get there in 2024. It will take some work to get there, but that is where I think we will be.
In terms of, you mentioned some kind of record-level bids. You know, could you square away kind of the quantum and, you know, recognizing that, you know, nothing's guaranteed, and it's not expected that you win every bid you, you bid on, but just an understanding of how big the potential is here?
Yeah. Oh, boy, it's hard. I'm gonna be purposely coy on this. You know, our embedded business has been a terrific, terrific business. I would suggest that forward-looking bid activity when I got here, we were probably doing, you know, 50, 60 projects, and that doesn't give you a good sense of revenue, but it does speak to a pretty healthy volume. We're currently running at about 100 bid projects, inclusive on bidding on home automation for several new, very large, multi-billion dollar customers that are meaningful in that business. Within the SATCOM business, the SATCOM business really affords us the opportunity to have the largest bidding opportunity, given some of these programmatic, military, and government contracts.
We are-- we have bids submitted in the, let's just say, easily tens of millions of dollars, and I don't mean ten, and I don't mean 40. A large number of large, programmatic, multi-year bids, and, you know, we're not going to win all of them. There's no way. We do think we have a good chance at several of these, and the team has done a lot of great work at rebuilding the brand, rebuilding the technology, and, and having a legitimate shot at getting some of these bids over the, over the finish line. No promises, but, I'm, I'm excited, and I'm, I'm hoping to have a press release in our future where people, people will say, "Wait a minute, what did they just do?" That would be pretty cool.
Understood. Thanks for taking my questions. I'll pass the line.
Thank you. There are no further questions at this time. You may proceed.
All right. Guys, like I said, it's a bit of a mixed quarter. We have a business unit that is having some challenges. I'm literally doing this call from Korea. There's a reason I'm here. Flip side of that is I'm very proud of, honestly, even in the Mobile and Network business, of the level of effort that all of our employees have put in. I'm very proud of the work of our infrastructure team, of our embedded team, of our Satcom team, the level of innovation that we've had and seeing it start to get some of the fruits of that labor. Realize it's not the financial results that we would like to have, but we're gonna keep, keep, keep chugging at this, and I remain confident that there's some good stuff in our future.
I appreciate the time, everyone.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.