Baylin Technologies Inc. (BYL.TO) is a diversified global wireless technology management company. Baylin focuses on research, design, development, manufacturing and sales of passive and active radio-frequency products and services.
BYL operates in four main divisions which combined have a total addressable market (TAM) of over $15B. These are Embedded Antennas ($5.7B), Infrastructure Antennas ($7.5B), Satellite Connectivity Products($4.0B), Mobile Antennas ($0.9B). Embedded and Infrastructure Antennas are the largest and fastest growing segments.
Baylin also has an impressive list of industry leading clients in North America and across the world.
BYL serves its client through three subsidiaries: Galtronics, Advantech and Alga.
Galtronics
Baylin’s first subsidiary is a "pure play" antenna company. It specializes in RF engineering: mobile, small cell, DAS and BSA /infrastructure and embedded antenna solutions.
For Galtronics, Embeded Antennas are a growing segment as many company are moving to this solutions. Moreover, many Telcom and Broadcast companies are moving to enhance their capacities for their devices and clients' needs.
Cellular IoT (cIoT) are also an area of specialization for the company. Galtronics is among a handful of vendors that are certified with global carriers. In addition, the rising demand in extended network coverage, along with initiatives like "smart cities" and the trend of responsible energy management are driving factors.
Advantech
Baylin acquired Advantech in January 2018 . Advantech's expertise is in broadband communications as a solution provider for Commercial, Critical Infrastructure & Government and Military clients.
Alga
Baylin purchased Alga in July 2018. Alga, synergistic to Advantech, is a major supplier of Radio Frequency (RF) and Microwave Solid State Power Amplifiers (SSPAs), Pulsed Amplifier for Radar Applications, Transmitter and Transceiver products as well as RF Passive Components and systems.
Both Advantech and Alga products are designed, assembled in a research/manufacturing facility in Montreal, Canada.
Commercial applications for both companies are a) In Flight Connectivity via SATCOM, b) SATCOM on the sea (Cargo and Fishing Ships), c) 5G Cellular Network Expansion (SATCOM for Backhaul) among others. Advantech and Alga also have applications in Critical infrastructure, Government and Military. For instance, expanding military retooling by NATO countries, and the upgrade of infrastructure of communication networks in US and EU are growth drivers.
Coverage was initiated on September 2020.
News Releases
Nov. 11 - Financial Results for the Third Quarter of 2020: Although COVID-19 is continuing to have an impact on financial results in the fourth quarter of 2020 which will likely result in a softer quarter than the third quarter of 2020, we nevertheless expect the financial performance in the second half of 2020 to be better than the first half.
Wireless Infrastructure business line has been impacted from COVID-19. The outlook for 2021 with this business line has improved significantly for three major reasons: 1) The new 5G spectrum auction will be concluded by the U.S. FCC in December 2020; 2) 2020 projects that were delayed but are now scheduled for 2021; and ,3) The new carrier supplier status win for small cells for which revenue is expected to commence in the first quarter of 2021.
Nov. 24 - Announces $5 Million Best Efforts Private Placement Financing: Entered into an agreement with Paradigm Capital Inc. (the "Lead Agent") on behalf of a syndicate of agents for total proceeds of up to approximately $5 million, consisting of up to 6,666,700 units of the Company (the "Units") at a price of $0.75 per Unit (Warrant at $1.05).
The net proceeds will be used for repayment of outstanding debt and for general working capital purposes. It is anticipated that certain directors and officers of the Company will purchase a minimum of $1.1 million and a maximum of $1.9 million of the Units pursuant to the Offering. The Offering is expected to close on or about December 15, 2020.
Nov. 30 - Mails Notice to Holders of its Convertible Debentures:To: Holders of $17,250,000 6.5% Extendible Convertible Unsecured Debentures due July 10, 2023 of Baylin Technologies Inc. We, Baylin Technologies Inc., are offering holders of our 6.5% Extendible Convertible Unsecured Debentures (the "Debentures") an option to elect to receive our common shares in payment of interest due on the Debentures on the interest payment date on December 31, 2020 as an alternative to cash interest. Holders who exercise the option will receive common shares at 85% of their current market price on the December 31 interest payment date; however, the shares will be subject to a restriction on resale for a period of four months after that date. Holders who do nothing will receive their regular interest payment in cash on December 31, 2020.
Dec. 15 - Completes $5 Million Private Placement Financing and Announces Amendments to its Credit Facility: Completed its previously announced private placement offering of 6,666,700 units of the Company at $0.75 per Unit (Warrant $1.05). The proceeds will be used to repay outstanding debt and for general working capital purposes.
Dec. 15 - Shareholder Increases Interest: 2385796 Ontario Inc. (238) has subscribed for 1,333,600 Units of Baylin, each Unit comprised of one common share (common shares) of Baylin and one-half of a common share purchase warrant ("Warrants") of Baylin at a subscription price of $0.75 per Unit for a subscription price of $1,000,200.
After giving effect to the private placement, Mr. Royer exercises control or direction over 20,520,324 common shares, representing 43.2% of the 47,549,013 common shares outstanding (on an undiluted basis).
Dec 31 - Issues Common Shares To Fund Debenture Interest: Issued 451,070 common shares to holders of its 6.5% Convertible Unsecured Debentures, representing 59% of the Debentures, who elected to receive common shares in lieu of cash interest payable on the Debentures on the December 31, 2020 interest payment date. These common shares represent less than 1% of Baylin's outstanding common shares. The balance of the interest was paid in cash.
Jan. 26 - Comments on Unusual Market Activity: While the Company does not normally comment on market activity, at the request of IIROC, the Company confirms that it is not aware of any undisclosed material change in its business that would account for the recent increase in the market price and level of trading volume of its common shares.
Feb. 3 - Announces Receipt of Purchase Orders from a Major US Carrier Totaling Over $2M CAD: A subsidiary: Advantech Wireless Technologies Inc. (AWT), has received purchase orders totaling over $2 million dollars for its Redundant Frequency Converters and Redundant Solid-State Amplifiers from a major US telecom carrier.
The AWT equipment will be used to connect remote communities in rural parts of the United States via C-Band satellite communications. This hardware will allow internet connections to provide critical communication services, including life-saving emergency dispatch for medical incidents, fire services, 5G and 4G LTE and local Wi-Fi communications.
Feb. 8 - Announces Favourable Court of Appeal Ruling: Ontario Court of Appeal recently upheld the Company's appeal of a lower court ruling related to a dispute with Mr. David Gelerman, a former director of the Company.
The Court of Appeal ruled in the Company's favour on all aspects of the appeal. The Court found that there was no oppressive conduct on the part of the Company or its directors.
Feb. 18 - Announces New Customer Awards of Up To $7.0 Million for Galtronics Korea: A major Asian ODM client that commenced working with Galtronics on seven mobile phone models in 2020 has awarded an additional five new models to Galtronics for 2021, with incremental revenue of $5.1 million expected in the second half of 2021.
Galtronics has also won supplier status with a major global electronics company, resulting in awards for eight of its personal computers. Revenue of $1.9 million from these awards is also expected in the second half of 2021.
Feb. 22 - Announces Acceleration of Warrant Expiry Date: The Warrants will now expire at 4:30 pm (Toronto time) on March 25, 2021. Warrants that have not been exercised by then will automatically be void and cease to have any effect.
Each whole Warrant entitles the holder to purchase one common share of the Company at a price of $1.05. If all the Warrants are exercised, the gross proceeds to the Company will be approximately $3.5 million.
Mar. 10 - Announces Financial Results for Fiscal 2020:
Mar. 11 - Announces Proposed Amendment to its Convertible Debentures: Announced today that it will be seeking the approval of holders of its 6.5% Extendible Convertible Unsecured Debentures due July 10, 2023 (TSX:BYL.DB) to amend the conversion price of the Debentures at an extraordinary meeting of holders to be held on April 8, 2021.
The conversion price of the Debentures is currently $3.85, which is significantly higher than the current trading price of the common shares of the Company. The Amendment would change the conversion price to a price based on the current market price of the common shares at the time the Amendment becomes effective and remain in effect for 30 days.
Holders then have an opportunity to convert their Debentures during that 30-day period at the new conversion price.
Mar. 17 - Shareholder Increases Interest in Baylin Technologies: Mr. Jeffrey C. Royer, Chairman of the Board of Baylin Technologies Inc. ("Baylin"), announced that 2385796 Ontario Inc. ("238") has exercised 666,800 common share purchase warrants ("Warrants") at an exercise price of $1.05 per Warrant to acquire 666,800 common shares of Baylin.
After giving effect to these acquisitions, Mr. Royer exercises control and direction over 21,570,942 common shares, representing approximately 44.2% of the 48,769,960 common shares outstanding.
Apr. 8 - Announces Amendment to its Convertible Debentures: Holders of its 6.5% Extendible Convertible Unsecured Debenture have approved an amendment to the Debentures to reduce, for a period of 30 days, the conversion price of the Debentures from $3.85 to a current market price at the time the Amendment becomes effective.
The Company intends to seek approval of its shareholders at its annual and special meeting of shareholders scheduled for May 11, 2021. Shareholder approval is required under TSX rules because the Amendment could result in (i) the number of common shares issuable on conversion of all the Debentures exceeding 25%, and (ii) the number of common shares issuable on conversion of Debentures to insiders of the Company exceeding 10%, of the number of common shares outstanding.
The Amendment will not become effective until TSX and shareholder approvals have been obtained.
Apr. 22 - Announces Release of New LTE and 5G Multibeam Antenna Line: its subsidiary Galtronics USA has launched a new line of multibeam base station antennas supporting Global and North American specifications.
The Galtronics multibeam antennas are already proving effective in traffic-heavy environments. In Q1 2021 a Tier 1 US carrier successfully deployed multiple multibeam antennas at one of North America's top six busiest airports.
Apr. 27 - Announces Approval of Macro Base Station Antennas for 5G by Tier 1 Carrier: Two new base station antennas by a Tier 1 US carrier for use in its 5G macro deployments. The antennas are by Galtronics USA, Baylin's subsidiary.
May 10 - Announces Financial Results for the First Quarter of 2021
May 11 - Announces Voting Results from the 2021 Annual and Special Meeting of Shareholders
Amendment of Convertible Debentures
The New Conversion Price will be determined based on the volume-weighted average trading price of the common shares of the Company on the TSX for the five consecutive trading days ending on May 19, 2021.
Summary
Financing
In late November a private placement of up to about $5M (6,666,700 units) at $0.75 per Unit (Warrant at $1.05) was announced. Two weeks later the offer was closed. Note, Insiders purchased approximately $1.1M (20%) of the Units.
On the same day the financing closed, it was reported that most of the purchase ($1.0M) came from the Chairman.
After giving effect to the private placement, Mr. Royer exercises control or direction over 20,520,324 common shares, representing 43.2% of the 47,549,013 common shares outstanding (on an undiluted basis).
Debentures
Late November, Baylin sent a notice to "Holders of $17,250,000 6.5% Extendible Convertible Unsecured Debentures due July 10, 2023" with the an option to elect to receive common shares in payment of interest due on the interest payment date on December 31, 2020 as an alternative to cash interest. December 31, 2020, Baylin reported it had issued 451,070 common shares to these holder representing 59% of the Debentures, who elected to receive common shares.
In early March, another proposed amendment to Debenture was suggested. This time, change the previous conversion price ($3.85) to a price based on the current market price of the common shares at the time the Amendment becomes effective and remain in effect for 30 days. This changed required shareholder approval at an extraordinary meeting. Yesterday, Baylin reported the voting results which confirmed that the amendment were adopted by 64.33%.
Warrants
In late February, Baylin elected to accelerate the warrant under the Common Share Purchase Warrant Indenture dated December 15, 2020 since the price had been higher than $1.40 for 20 consecutive trading days.
Each whole Warrant entitles the holder to purchase one common share of the Company at a price of $1.05. If all the Warrants are exercised, the gross proceeds to the Company will be approximately $3.5 million.
In March, Baylin reported that Mr. Jeffrey C. Royer, Chairman of the Board of Baylin Technologies Inc. had exercised 666,800 common share purchase warrants at $1.05 per Warrant to acquire 666,800 common shares of Baylin.
After giving effect to these acquisitions, Mr. Royer exercises control and direction over 21,570,942 common shares, representing approximately 44.2% of the 48,769,960 common shares outstanding.
Innovation and Approvals.
In late April. Baylin disclosed the release of New LTE and 5G Multibeam Antenna Line by Galtronics USA. Baylin reported that a Tier 1 US carrier successfully deployed it in Q1 2021 at one of North America's top six busiest airports.
Also in late April, Baylin reported the approval of Macro Base Station Antennas for 5G by Tier 1 Carrier: Two new base station antennas for use in its 5G macro deployments. The antennas are from Galtronics USA.
Purchase Orders
In February, Advantech Wireless Technologies Inc. (AWT), received purchase orders totaling over $2 million dollars for its Redundant Frequency Converters and Redundant Solid-State Amplifiers from a major US telecom carrier.
Also in February, A major Asian ODM client that has worked with Galtronics (seven mobile phone models in 2020) has awarded an additional five new models to Galtronics for 2021; $5.1M of revenue is expected in the second half of 2021.
Galtronics has also won supplier status with a major global electronics company, resulting in awards for eight of its personal computers. Revenue of $1.9 million from these awards is also expected in the second half of 2021.
Earnings
FY2020 was a difficult. Although Revenue and Gross Profit were significantly down from both FY 2019 and FY 2018, Baylin managed to report an Net Loss lower than FY2019. Specifically, Q1 and Q2 2020 were much lower YoY.
Q3 2020 edged Q3 2019 but subsequent decline in revenue were reported in both Q4 2020 and Q1 2021.
Baylin reported that COVID-19 continues to have a profound impact on revenue with slower than expected recovery.
Also, the company reported incurred a $2M loss in Q1 20201 due to an unsuccessful attempt at diversifying it product lines (ie. antenna for consumer product). However, despite a weak Q1 2021 performance, Baylin remains optimistic:
1. Completion of the 5G spectrum auction (Dec. 2020) may spur new investments across our carrier partners; 2. Several projects delayed in 2020 are now scheduled for 2021; 3. New carrier supplier status wins for small cells for which revenue commenced in the first quarter of 2021; and, 4. BSA wins with a Tier 1 North American carrier.
Meanwhile, Baylin continues not to provide a firm guidance.
In short
A total of 19 releases were issued in the last eight months. Only 4 (21%) covered purchase orders (2) and product development (2). In addition to raising funds ($5M) (2), most of the releases were related to Debenture Conversion (4), Shareholder Interest (2), and Warrant Acceleration (1). In total these account for 9 or 47% of all releases. Granted, the release related to the financial matters are mandated. However, it also somewhat reflects in proportion Baylin's focus.
Needless to say, an ample amount of financial restructuring has been implemented in the past eight months. Most of it seems to be geared at cleaning the balance sheet but it also helped consolidate ownership of the majority shareholder.
Ownership of Mr. Royer is at 44.2% and does not include the incoming Debenture Conversion from $3.85 to the current market prices which were approved recently.
These activities are interesting in context to the short form base shelf prospectus for $100M proposed a year ago which cited multiple use including (i) capital expenditures, including to support ongoing research and development activities, (ii) working capital, (iii) debt reduction, (iv) acquisitions and (v) general corporate purpose.
Note that Baylin's growth in recent years were a direct result of acquisitions. However, the sense now is that Baylin is perhaps positioning itself as a target as opposed to being a growth aggregator. The March 2021 investor presentation specifically states: The Company has not actively focused on M&A opportunities recently due to balance sheet constraints.
Time will tell but as a reminder...
Multiple players, but consolidation awaits Telecom Operators' Technology
Unlike the mobile phone industry, RF front end component manufacturers in the telecom infrastructure industry are numerous and specialized. A lot of different technological platforms are used, leading to a wide variety of components being available. In this fragmented industry, very few acquisitions have been seen lately and there has been little investment in start-ups. This is due to the fact that the industry is still unsure about the choices telecom operators will make in terms of deployment. - EverythingRF: Active & Passive Antenna Systems Market (November 2019).
More importantly, the question at this time is whether Baylin will really be able to turn things around in FY 2021. The company communicates "optimism" without guidance that the second half of 2021 may be promising.
As noted below, the price target for the company has been revised downward by 2 of 3 analyst in the past 6 months.
Source: MarketBeat
Today Baylin closed at $1.12 cents (S1) and though Raymond James issued a $1.75 price target, investors should expect the debenture conversion to add pressure on the price, especially in the absence of significant order announcements.
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