Baylin Technologies ($BYL.TO) FINS Review

Q3 2024 (2 / 5)

First official paid subscriber request and also my first look at Baylin Technologies as far as I recall. Let’s dig in.

The one year chart is rather sexy but the five year, not so much although it finally broke out of a 4.5 year downtrend near the end of September.

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Balance Sheet:

A lackluster start with a current ratio sub 1 at .86 that consists of $3.7M in cash, $14.1M in receivables, $15.5M worth of inventory, $7.1M of assets for sales and $3M in other short term assets against more than $50.7M of liabilities due in the next year including $9M of liabilities related to those assets up for sale. That sale was completed post financials but could not find where the details of the sale were disclosed.

A/R is up 60% from the start of the year and I find it awfully disappointing that the company does not produce an aging report. As of their quarter end their cash position only made up 8.5% of their current assets, not very liquid although the asset sale post financials will assist.

Baylin has $18M in short term debt from a revolving facility with the terms of that loan recently extended until Jan 2025, and I would expect them to extend it further before then. They also have a longer term loan of $682k originating out of China and $4M in convertible debentures. These debentures tell quite the tale, originating in June of 2018 for a total of $17.25M when the stock was in the $3.30 range with a $3.85 conversion price and 6.5% interest. In May of 2021, $12.1M converted to an amended price of $1.11. In June of last year, the remaining were amended once again to $1 in addition to increasing the interest rate from 6.5% to 8.5%.

Cash Flow:

The company had a decent quarter generating $1.6M in operational cash flow but overall through nine months have burned $1.2. Exponentially better than the $7.5M last year though three quarters, but still what I would call “messy”. Overall their cash position has depleted by 25% from the start of the year. The influx of cash from the sale of their M&N operations will give a big assist to a soft balance sheet and investors will see how that shakes out at the time of their annual filings.

Share Capital:

• 151.2M shares outstanding with 71% dilution in the past twelve months

• 11.2M options outstanding with about 8.5M currently ITM

• 4.8M DSU’s outstanding under a very unusual 12% Omnibus plan, the majority of which to the CEO. 1.85M in 2023 valued at $724k

• Big insider ownership of 74% although much of that ownership percentage came very cheap last December at 24 cents.

Income Statement:

Baylin achieved $20.7M in revenue in Q3, a 23% increase over the comparable quarter, and through nine months are up to $62.8M on the revenue line, 10% better than the same stage a year ago. The company has relatively attractive margins with a big improvement in Q3 to 46.1%, nearly 700 basis points better than last year. YTD sits at 42.2%, 220 basis points better than 2023. They have also converted relatively well on their expenses, which grew by only small single digits in both the quarter and YTD. Unfortunately, due to costs from their debt and losses from other discontinued operations the company is still quite a ways from profitability, with a net loss of $2.27M in the quarter, and $6.6M YTD, which is almost a million worse than a year ago.

Overall:

I have to admit, this review was pretty painful, so much so that I’m now into some pre dinner alcohol. The disclosure is lacking and the format is absolutely dreadful. The notes section does not correlate back to any of the statements making it very difficult to get through.

Despite the improvements they have made this year, their net losses are nearly 3/4 of a million per month and more than 10% of revenues.

I already mentioned how the format of these financials are simply ass, but the longest section within these financials are a Litigation and Contingent Liabilities section that spans three pages - something you never want to see. I’d urge you to give that a read on your own time.

I’ve used this word already above but to sum up the company in one word, I’d call it messy. I don’t invest in messy. With all the discontinued operations and additional assets for sale, I’m not sure they have figured out who they want to be yet. There may be an attractiveness of the price to sales ratio, but by any other metric coupled with the cash burn and unprofitability suggests it’s a dog for now. There may be a day, but for me it ain’t today.

Two stars.

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from company’s I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.