A Quick Take On Silynxcom Ltd.
Silynxcom Ltd. (SYNX) has filed to raise $10 million in an IPO of its ordinary shares, according to an SEC F-1 registration statement.
The firm develops and manufactures tactical communications headsets and communications accessories.
I’m on Hold for the Silynxcom Ltd. IPO, but I note the potentially bullish case for the stock post-IPO from the company’s growing order book and pipeline.
Silynxcom Overview
Netanya, Israel-based Silynxcom was founded to develop in-ear communications headsets for a variety of uses, such as military and law enforcement environments.
Management is headed by Chief Executive Officer Mr. Nir Klein, who has been with the firm since January 2011 and graduated from Tel Aviv University with a B.A. in accounting and economics.
The company’s products integrate with third-party manufacturers of radios that can be used by soldiers in combat or police in law enforcement situations.
As of June 30, 2023, Silynxcom has booked fair market value investment of $21.1 million from investors.
Silynxcom Customer Acquisition
The firm sells its products directly to the Israel Defense Forces (“IDF”) through public bids and through distributors to other markets.
After the commencement of recent hostilities in Israel and Gaza, the firm has received purchase orders totaling $1.825 million for its products to be supplied to the IDF and to police departments in Israel.
Silynxcom has also received:
“inquiries that we believe will likely be converted into purchase orders amounting to an aggregate of approximately $1.48 million. There is no assurance, however, that any of these inquiries will result in purchases of our products or that any further purchase orders will materialize in connection with this war.”
Selling & Marketing expenses as a percentage of total revenue have risen sharply as revenues have increased, as the figures below indicate:
|
Selling & Marketing |
Expenses vs. Revenue |
|
Period |
Percentage |
|
Six Mos. Ended June 30, 2023 |
64.2% |
|
2022 |
9.3% |
|
2021 |
8.9% |
(Source – SEC.)
The Selling & Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling & Marketing expense, rose to 0.6x in the most recent reporting period, as shown in the table below:
|
Selling & Marketing |
Efficiency Rate |
|
Period |
Multiple |
|
Six Mos. Ended June 30, 2023 |
0.6 |
|
2022 |
-3.4 |
(Source – SEC.)
Silynxcom’s Market & Competition
According to a 2021 market research report by Verified Market Research, the global in-ear headphone market was an estimated $30.2 billion in 2020 and is forecasted to reach $133 billion by 2028.
This represents a forecast CAGR (Compound Annual Growth Rate) of 20.33% from 2021 to 2028.
The main drivers for this expected growth are growing consumer demand for improved audio experiences and technological advancements for providing increasing options for consumers and other users.
Also, the introduction of additional features, such as active noise cancellation and near-field communications, along with increased energy efficiency, will drive demand going forward.
Major competitive or other industry participants include the following:
-
Invision AB
-
Savox Communications Ltd.
-
Ops-Core
-
Nihon FalCom Corporation
-
Otto Engineering
-
Sordin AB
-
Racal
-
Peltor (3M).
Silynxcom Financial Performance
The company’s recent financial results can be summarized as follows:
-
Uneven top line revenue growth history
-
Variable gross profit and increasing gross margin
-
A swing to operating loss
-
A swing to cash flow from operations.
Below are relevant financial results derived from the firm’s registration statement:
|
Total Revenue |
||
|
Period |
Total Revenue |
% Variance vs. Prior |
|
Six Mos. Ended June 30, 2023 |
$ 3,096,000 |
56.4% |
|
2022 |
$ 7,264,000 |
-24.2% |
|
2021 |
$ 9,581,000 |
|
|
Gross Profit (Loss) |
||
|
Period |
Gross Profit (Loss) |
% Variance vs. Prior |
|
Six Mos. Ended June 30, 2023 |
$ 1,195,000 |
80.5% |
|
2022 |
$ 2,428,000 |
-24.2% |
|
2021 |
$ 3,202,000 |
|
|
Gross Margin |
||
|
Period |
Gross Margin |
% Variance vs. Prior |
|
Six Mos. Ended June 30, 2023 |
38.60% |
5.2% |
|
2022 |
33.43% |
0.0% |
|
2021 |
33.42% |
|
|
Operating Profit (Loss) |
||
|
Period |
Operating Profit (Loss) |
Operating Margin |
|
Six Mos. Ended June 30, 2023 |
$ (2,328,000) |
-75.2% |
|
2022 |
$ 480,000 |
6.6% |
|
2021 |
$ 813,000 |
8.5% |
|
Net Income (Loss) |
||
|
Period |
Net Income (Loss) |
Net Margin |
|
Six Mos. Ended June 30, 2023 |
$ (2,326,000) |
-75.1% |
|
2022 |
$ 1,798,000 |
24.8% |
|
2021 |
$ (153,000) |
-1.6% |
|
Cash Flow From Operations |
||
|
Period |
Cash Flow From Operations |
|
|
Six Mos. Ended June 30, 2023 |
$ 403,000 |
|
|
2022 |
$ (1,739,000) |
|
|
2021 |
$ 1,619,000 |
|
|
(Glossary Of Terms.) |
(Source – SEC.)
As of June 30, 2023, Silynx had $376,000 in cash and $3.3 million in total liabilities.
Free cash flow during the twelve months ending June 30, 2023, was $18,000.
Silynxcom’s IPO Details
Silynxcom intends to raise $10 million in gross proceeds from an IPO of its ordinary shares, offering two million shares at a proposed midpoint price of $5.00 per share.
No existing shareholders have indicated an interest in purchasing shares at the IPO price.
Assuming a successful IPO, the company’s enterprise value at IPO would approximate $21.3 million, excluding the effects of underwriter over-allotment options.
The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 33.3%.
The company will be a “controlled company” by Nasdaq’s rules.
Its election to be an “emerging growth company” and as a “foreign private issuer” will allow the firm to provide less information about its operations and financial results to public shareholders.
Such company stocks have generally performed poorly post-IPO.
Management says it will use the net proceeds from the IPO as follows:
approximately $1.0 million for research and development;
approximately $2.0 million for marketing and business development; and
the remainder for working capital and general corporate purposes.
(Source – SEC.)
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, management said the firm is not the subject of legal proceedings that would have a material adverse impact on its financial condition or operations.
The sole listed bookrunner of the IPO is ThinkEquity.
Valuation Metrics For Silynxcom
Below is a table of relevant capitalization and valuation figures for the company:
|
Measure [TTM] |
Amount |
|
Market Capitalization at IPO |
$30,000,000 |
|
Enterprise Value |
$21,293,000 |
|
Price / Sales |
3.58 |
|
EV / Revenue |
2.54 |
|
EV / EBITDA |
-13.56 |
|
Earnings Per Share |
-$0.24 |
|
Operating Margin |
-18.74% |
|
Net Margin |
-18.34% |
|
Float To Outstanding Shares Ratio |
33.33% |
|
Proposed IPO Midpoint Price per Share |
$5.00 |
|
Net Free Cash Flow |
$18,000 |
|
Free Cash Flow Yield Per Share |
0.06% |
|
Debt / EBITDA Multiple |
-0.12 |
|
CapEx Ratio |
2.50 |
|
Revenue Growth Rate |
56.36% |
|
(Glossary Of Terms.) |
(Source – SEC.)
Commentary About Silynxcom’s IPO
SYNX is seeking U.S. public capital market investment for its &RD and general corporate purposes.
The firm’s financials have produced variable topline revenue growth history, uneven gross profit and increasing gross margin, recent operating loss and cash flow from operations.
Free cash flow for the twelve months ending June 30, 2023, was $18,000.
Selling & Marketing expenses as a percentage of total revenue have risen sharply as revenue has grown; its Selling & Marketing efficiency multiple rose to 0.6x in the most recent reporting period.
The firm currently plans to pay no dividends and does not anticipate paying dividends in the foreseeable future.
The market opportunity for in-ear headphones is large and expected to grow at a high rate of growth in the coming years as consumers and other users take advantage of new technologies to improve their function.
Business risks to the company’s outlook as a public company include the unpredictability of the current conflict in Israel and Gaza and its potential positive or negative effects on the firm’s order book.
Another concern is the firm’s topline revenue contraction in 2022, although it did continue to make a profit during that period.
Management is seeking an Enterprise Value/Revenue multiple of approximately 2.54x, which appears reasonable given the company’s high recent growth rate.
While I’m more cautious given the company’s small size and uneven revenue history, less risk-averse investors could make a case for the company and stock due to its growth prospects in the near term.
I’m on Hold for the SYNX IPO, but I understand the potentially bullish case for the stock post-IPO.
Expected IPO Pricing Date: To be announced.
Read the full article here
