Dynex Power Reports Unexpected Second Quarter Loss

August 29, 2017 by Paul Shepard

Dynex Power Inc. today announced its financial results for the second quarter and six months ended June 30th, 2017. The gross margin was 8.6% of revenue in the second quarter of 2017 compared to a negative gross margin of 1.3% of revenue in the second quarter of 2016.

For the year to date, gross margin was 16.1% compared to 5.5% in the corresponding period of last year. The improvement in gross margin in 2017 reflects increased revenues in a high fixed cost business; however it remains below the range targeted by management.

Second quarter revenue of $11.5 million was 27% higher than the corresponding quarter of last year. This increase was despite an 8% strengthening of the Canadian Dollar exchange rate against Sterling. In Sterling terms, revenue increased by 38%.

For the year to date, revenue was $3.7 million or 19% higher than in the first half of 2016 (36% higher in Sterling terms). This reflected significant increases in bipolar sales and services, which more than offset smaller reductions in sales of IGBT modules, die and power assemblies.

The combination of other income, expenses and costs represented 18.5% of revenue in the second quarter and 18.7% of revenue for the year to date compared to 21.7% and 19.1% in the corresponding periods in 2016.

The absolute level of such expenditure increased by $151,000 in the second quarter and $624,000 for the year to date compared to the corresponding periods of last year, reflecting changes to the management team, increased research and development costs and the cost of a small redundancy exercise to rebalance resources in the business.

As a consequence of these results, the Company recorded a loss before tax of $1.1 million compared to a loss before tax of $2.1 million in the corresponding quarter of last year. For the year to date, a loss before tax of $590,000 was recorded compared to a loss before tax of $2.6 million for the corresponding period of last year.

Tax recoveries reduced the net loss for the second quarter to $944,000 or $0.01 per share, compared with a net loss of $1.7 million, or $0.02 per share, in the same period of last year. For the year to date the net loss was $538,000 or $0.01 per share compared to $2.2 million or $0.03 per share, a reduction of 75%.

Clive Vacher, President and Chief Executive Officer commented, "We are pleased by the revenue growth. We have demonstrated that with hard work, the revenue opportunities are there.

"At the same time, we are not happy with the loss. The product mix demand from our customers resulted in a low gross margin, at 8.6%. In addition, the close-out of some power assemblies projects with budget overruns, together with higher R&D expense, negatively impacted the quarter.

"Despite these constraints, Dynex has demonstrated strong first-half revenue growth of 19% over 2016, which was even stronger - a 36% increase - on a constant-currency basis, as we place more focus on commercial results and operational execution. Losses have been cut by over 75% in the same period. But we won't be satisfied until we produce consistent profits.

"We are, however, happy with the progress of our turnaround plan. We have five work streams and each is showing improvements, thanks to the commitment and hard work of all our employees. We have launched some new market-leading products, with more new products on their way in the second half of the year. Operational and quality performance continues to improve, and the company is aligned around a clear strategy. While there is a lot more work to do, the direction of travel is good."

Liu Ke'an, the Chairman of Dynex, said, "The loss in the second quarter was not what had been expected, but the numbers show considerable improvement in the performance of the business. The team at Dynex is strongly focused on the goal of sustained profitability, and I am confident the detailed plans are being executed efficiently to achieve this. I remain fully behind the change program at Dynex and look forward to positive developments going forward."