Telit swings to losses after tumultuous year for management

Internet of things-focussed company Telit Communications published its results for the year ended 31 December on Monday, reporting that revenues rose slightly to $374.5m from $370.3m.

The AIM-traded firm said cloud and connectivity revenues were up 7% at $27.7m.

Gross margin reduced to 35.1% from 40.3% and gross profit fell to $131.6m from $149.4m in 2016.

Adjusted EBITDA stood at $18.1m - a significant reduction from the $53.3m seen a year earlier - which the board said reflected its lower gross margin and an increase in operating expenses.

Its adjusted EBIT loss was $10.7m, swinging from a profit of $33.1m, with Telit reporting an operating loss of $49.7m, compared to 2016’s profit of $19.4m, which it said included $29.8m of non-recurring expenses.

Adjusted losses before tax were $17.8m, down from a profit of $31.7m, with the firm’s reported loss before tax standing at $56.8m, compared to the reported $17.9m profit last year, with this year’s figure including the $29.8m of non-recurring expenses.

Telit said its adjusted basic loss per share was 16.4 US cents, swinging from earnings per share of 25.4 cents, while its basic loss per share was 41.9 cents, compared to 13.4 cents earnings 12 months earlier.

Negative cash flow from operating activities was $4.8m, compared to $46.8m of positive cash generation in the 2016 financial year.

Net debt as at 31 December stood at $30.2m, growing from $17.7m through the period.

“As a revitalised board following the management overhaul, we have implemented wide-ranging and fundamental changes to the business,” said non-executive chairman Richard Kilsby.

“We are pleased that the early signs are that these changes, especially to the group's activities and cost base, have led to positive operational progress since the beginning of 2018.”

On the operational front, Telit highlighted the acquisition of GainSpan in February last year, which it said added ultra-low power Wi-Fi to its capabilities.

It also reportedly saw strong growth in its automotive business, with new designs in North America and Asia.

A new partnership was formed with Idemia to deliver SimWISE, which the board described as an embedded SIM card within low category 4G modules.

The company received certifications for CAT-1 modules, including VoLTE from the two main mobile operators in US during the year, as well as new LTE CAT-M and CAT-M1 modules.

A new collaboration with Wind River - an Intel company - was also formed to accelerate Industrial internet of things (IIoT) adoption.

Telit rationalised its product portfolio and operating costs during the period, which the board said resulted in a restructuring plan implementation, which would contribute to a $10m reduction in cash expenses in 2018.

There was also a number of corporate developments during the year, including a change in management following the departure of former CEO Oozi Cats and a new board of directors.

Cats resigned from the company after it was alleged in a number of media outlets that he was the same person as Uzi Katz, an Israeli businessman who fled the US after being indicted for wire fraud along with his wife and a business associate in 1992.

Both the Shareprophets blog and the Italian newspaper Il Fatto Quotidiano noted that Cats and Katz had the same birthday and wives named Ruth, leading to Cats’ resignation.

Telit also initiated a cost optimisation plan based on its product and activities review, and also began an integration process of hardware and services business units, which the board said would address its strategy of becoming a leader in end-to-end internet of things solutions.

The board also confirmed the automotive division was being considered for sale, with a range of proposals being evaluated.

“2017 was a very challenging year for Telit - declining revenues and margins in our module business, together with slower than expected growth in our IoT services business and a sharp increase in operating expenses, resulted in poor financial performance,” commented chief executive Yosi Fait.

“With a strong first quarter, I believe that the double-digit growth planned for 2018, together with stabilisation of our gross margins, and cost optimisation we are implementing, should bring a better financial performance and improve our cash flow generation.”