A Primer on Silynxcom

The company is on a tear..

Introduction

• Silynxcom Ltd. (SYNX) is an Israeli company specializing in the design, manufacture, and sale of ruggedized tactical communication headsets and accessories.

• The company started listing through an IPO in January 2024 with 1.25M shares at $4 (and an additional 187K for the same price).

• Its products are known for seamless integration with professional-grade radios, enabling clear communication while ensuring hearing protection and situational awareness. These solutions are widely adopted in high-stress environments like combat zones, police operations, and industrial sites.

• Silynxcom focuses on the In-Ear Headset (IEH) subsegment of the sound protection personal tactical communication market, serving military, law enforcement, and disaster recovery professionals.

Market

From the 20F:

• According to a report from Market Research Future, the IEH (In-Ear Headset) market is the segment that will grow at a very significant 42% CAGR from 2021-2027. This is the segment that SYNX is specializing in.

Products

For a detailed description, see here, but we can distinguish the following categories:

• In-Ear Headsets (IEH): The Protego PRO (with external microphone connectivity) and the Protego STD offer high-quality communication, multi-directional hearing, and active sound protection while maintaining user comfort and compatibility with various headgear.

• Single-Sided Headsets (SST): Eagle, Falcon, and HSI models, designed for diverse mounting and usage scenarios.

• Push-To-Talk and Communication Controller Products: Clarus (controls up to two communication networks) and Fortis (controls up to four networks).

• Communication Cables and Connectors: Featuring the proprietary Quick Disconnect Connector (QDC) technology, enabling seamless integration with various communication devices.

Competitive advantage

Its IEH devices solve several problems at once (20F):

• Ambient noise awareness: Users must be able to hear sounds in their surrounding environment.

• Clear communication: Users must be able to hear and speak clearly while using communication devices.

• Sound protection: Users need protection from potentially harmful sounds like explosions or gunshots.

Which leads to its competitive advantage, from the 20F (our emphasis):

These requirements seemingly contradict each other. However, our In-Ear Headsets incorporate our electronically enhanced hearing technology along with our active sound protection technology that cuts off or compresses potentially harmful sounds, such as explosions or gunshots... Our “talking from the ear” technology detects minute air movements (naturally created in the ear canal when a person speaks) and converts them into audio signals.

The company has several capabilities that make it stand out:

• Its IEH technology offers superior comfort, clarity, and sound protection compared to traditional Over-the-Ear Headsets.

• Ability to tailor designs and manufacture products in small batches with short lead times.

• Its strong distributor network provides local knowledge and feedback from "in-the-field" experiences.

• Delivering high performance at competitive prices.

• A proven track record with a strong customer base, including elite military units like the US Navy SEALs, UK Special Air Service, and Israeli Defense Forces.

And there is this (20F, our emphasis):

In contrast to Over-the-Ear Headsets, our In-Ear Headset not only does not limit our customers, given its size, but it can also be worn with additional head or face gear, such as a protective mask, breathing apparatus or respirator, which may be critical for the safety of our customers. Furthermore, our In-Ear Headset may be used with any type of helmet, including full-cut ballistic helmets, full-face riot helmets, driving helmets and other helmets that supply better head and face protection, protecting our customers while they navigate precarious situations.

• The company keeps improving its technology and adapting it to new environments, like recently for armored personnel carrier crews and other heavy military vehicles.

Growth

The company has multiple avenues for growth:

• Leveraging its technology

• Winning new customers

• Partnerships

• New segments

• Geographic expansion

Leveraging its technology

• The company can use its QDC (Quick Disconnect Connector) technology, currently sold to manufacturers of over-the-ear headsets, as a springboard to cross-sell its in-ear headsets and accessories. This approach can help them convert existing customers using over-the-ear headsets to their in-ear solutions.

• It could license elements of its in-ear headset technology to manufacturers of over-the-ear headsets. This would allow them to tap into the larger market for over-the-ear headsets while generating additional revenue streams.

• Selling into additional segments (see below) is another way to leverage its technology.

• The company also introduces new products like the innovative headset to enhance drone detection for armored vehicle crews a couple of weeks ago. Given the dramatically increased role of drones in modern warfare, this product seems very promising to us.

Partnerships

• The company has multiple partnerships, with OEMs like 3M Peltor to bundle products and expand market reach. They modify and resell Peltor's Over-the-Ear headsets by integrating its QDC connector and other technology, enabling the company to enter the high-end Over-the-Ear segment.

• The company's solutions are incorporated into those of other companies, like Elbit (7K soldier systems) and Gentex (protective gear for firefighters and hospitals).

Customers

• The company has important customers and is winning new ones regularly:

• There are multiple additional new orders (the IR presentation is from July) from law enforcement and security agencies, multiple orders from the IDF, the US Army, and even from the Finnish Police.

New segments

• The company is targeting additional segments like construction, factory, and mining sectors, as well as professional cycling and motorsports where there is a similar need to communicate in noisy and challenging environments while protecting hearing.

• Silynxcom has already achieved some traction in these markets. They have secured sales to companies like Gentex Corporation, Exelon Corporation, Nucor Corporation, and Glencore Mining.

Geographical expansion

• Silynxcom's main markets are Israel and Europe while they have an increasing presence in the US and are targeting Southeast Asia and Latin America.

Finances

• The company touts strong finances. Revenue grew 73% to $5.35M in H1/24, gross profit rose 121% to $2.65M, and gross margin expanded nearly 1100bp to 49.5%.

• While the company reported an operating profit of $267K (a big improvement from the $2.33M loss in H1/23), it still produced a net loss of $696K, but this was entirely the result of the $879K listing cost. Non-IFRS net income was positive and expanded 27% to $611K.

• The company had $3.6M in cash and equivalents, $8.9M in inventories, and another $2M in receivables while having just under $1M in accounts payable.

• Cash from operations for H1 was a negative $640K but that was all due to changes in working capital.

Valuation

• With 6.6M shares outstanding (fully diluted), the company has a market cap of $33M (at $5 per share) and an EV of $29.4M which on an estimated $11.5M FY24 revenue yields an EV/S of 2.55x.

• Providing they can continue to grow at 50%+ this year and produce an FY25 revenue of $17.25M the stock trades at 1.7x EV/S, still very reasonable for a company growing at 50%+, producing gross margins of 50% and at breakeven, despite the huge rally.

• As with any small stock, there are risks, the economy could slow significantly (although military spending is less likely to be affected, given what's happening in the world), and a competitor might come up with a better and/or cheaper alternative and growth will slow down at some point, perhaps sooner than we would like to see.

• But given that the company has considerable growth momentum, has sufficient cash, and isn't bleeding much, if any cash, we're not overly concerned at this stage, given the modest valuation there is a degree of safety.

Conclusion

• The company has a lot going for it, unique technology that is finding its way into an increasing number of its products and those of partners, selling into a huge TAM that is growing rapidly and with plenty of additional segments to enter. Valuation is modest, the only negative we can think of is that there aren't any recurring revenues so they’ll have to sell ever more stuff to keep growing, which might become a tall order at some point.

The upshot: We advised a buy at $4 for our investment group on Seeking Alpha mid-December 2024 but it since won two additional orders (here and here) and introduced a very promising new product, so there is substance behind the rally.