InCoax carries out a fully guaranteed rights issue of approx. 48 MSEK, brings forward publication of Q2 2020 report, communicates new goals and enters into an agreement on set-off issue of convertible
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InCoax Networks AB (publ) (“InCoax” or “the Company”), which is listed on the Nasdaq First North Growth Market (“Nasdaq First North”), announces that the Company's Board of Directors proposes a new share issue of approximately SEK 48 million with preferential rights for existing shareholders (the "Rights issue"). The terms of the Rights Issue imply that one (1) existing shares provide the right to subscribe for two (2) new shares at a subscription price of SEK 5.25 per share. The subscription price corresponds to a discount to the theoretical share price after separation of subscription rights of approximately 31 percent compared with the volume-weighted price (VWAP) for the period during the last 6 trading days up to and including 22 July 2020. The Rights Issue is 100 percent covered by subscription commitments and guarantee commitments from existing shareholders and external investors.
The Rights Issue is subject to approval at the Extraordinary General Meeting on August 13, 2020. Notice of the Extraordinary General Meeting will be announced in a separate press release.
Due to the Rights Issue, the Board of Directors of InCoax has decided to bring forward the publication of the interim report for the second quarter to 12 August 2020.
Following a strategy review carried out during the spring-summer, the Company has decided to reformulate its financial goals.
In connection with the Rights Issue, the Company has also entered into an agreement with Stiftelsen Norrlandsfonden to carry out a set-off issue in which a claim of approximately SEK 3.2 million that Stiftelsen Norrlandsfonden has on the Company as a result of previously outstanding convertibles is set off to new convertibles.
Background and reason to the Rights Issue
InCoax is a Swedish tech-company that develops and sells products to enable broadband access over coaxial cables, the network that exists in most multi-family homes and which historically has been used primarily for cable TV. In April 2019, after two years of development, the Company launched its first commercial gigabit product aimed at a broader global market.
The product, In:xtnd™ was well received by the market and a number of evaluation projects were initiated. Internal tests and feedback from customers confirmed the product's functionality and performance. Large variation in the structure of customers' networks, with varying degrees of complexity, has however required a need to carry out customer adaptations and extensive tests. This has led to significantly longer evaluation periods than the Company initially anticipated. Customer-specific adaptations cause deeper customer relationships but also require large internal resources and long lead time for volume orders.
As a result, the Company initiated a strategic review in the spring of 2020. The new strategy developed is based on the InCoax MoCA Access 2.5 platform and will more clearly position the Company towards system design and solutions for larger (Tier 1) operators and result in faster commercial breakthroughs. Sales and volume distribution will primarily take place together with partners. In addition, direct sales of hardware (In: xtnd ™) will take place against use cases (mainly Fiber / LAN) where In: xtnd ™ can be implemented without further adaptation. This market segment consists of small and medium-sized fiber operators, ISPs and hotels (Hospitality). The company will in future focus on fewer markets and within these on the customers who have the greatest potential to reach volume with a short lead time.
During the spring-summer, the Company carried out a significant consolidation of its operations to reduce fixed costs. The cost reduction is expected to have full effect during the fourth quarter of 2020 and is estimated to reduce costs by approximately 40 percent, compared to fourth quarter 2019. Several organizational changes have also taken place during the spring and a new CEO, CFO and CSMO have been appointed to prepare and execute the new strategy. The Board of Directors has been strengthened with Kevin Foster, who has deep technical expertise through long experience from leading positions at British Telecom and as long-term chairman of the Broadband Forum (BBF).
An extensive effort to accomplish co-operation with large operators, which is the key part of the Company's new strategy, has during the summer resulted in two orders. In June 2020, the Company received an order for field testing from an expansive American Fiber/LAN operator after conducting lab tests with good results. The operator, which has a presence in more than 10 metropolitan areas, has chosen to place an order for field testing in apartment buildings to evaluate the commissioning process and perceived performance of end users. Equipment for the field tests was delivered in June 2020. In mid-July, the Company entered into a project agreement with a North American Tier 1 operator, with several million addressable subscribers. In the project, InCoax and the operator will, in close co-operation, verify the operator's necessary and desirable functionalities in lab and field tests during the summer/autumn of 2020.
To secure the Company's financing, the Board has decided on the present Rights Issue. Upon full subscription, the Rights Issue is estimated to provide InCoax with approximately SEK 42 million, after deduction of issue costs of approximately SEK 6 million, of which guarantee compensation amounts to approximately SEK 2.5 million. SEK 15.8 million of the Rights Issue relates to set-off of previously granted loans. The issue proceeds are intended to be used as below.
- 50 percent for technical development and support.
- 30 percent against marketing and sales efforts.
- 20 percent for working capital
Financial goals
As part of the strategy change, the Company has decided to deviate from previously communicated financial targets of reaching SEK 50 million in sales in 2020, SEK 300 million in sales in 2021 and SEK 1,000 million in sales in 2023 and the EBIT margin target of 10 percent in 2021 and more than 20 percent EBIT in 2022 and going forward. The Company remains of the opinion that a commercial breakthrough is expected in 2021 and to a significant extent in collaboration with distribution partners where InCoax's future revenues may come partly in the form of license revenue. The Company has therefore chosen to communicate the following financial goal:
Goal 2021: Volume deliveries to at least two Tier-1 operators and achieve a positive cash flow on a monthly basis in the second half of 2021.
Terms and Conditions for the Rights Issue
The Rights Issue means that InCoax's share capital will be increased by a maximum of SEK 2,286,866.25 through a new issue of a maximum of 9,147,465 shares. The right to subscribe for shares shall with preferential rights vest on those who on the record date for the Rights Issue are registered as shareholders in the Company, whereby holding one (1) existing share in the Company entitles to one (1) subscription rights and two (2) subscription rights entitle to subscribe for one (1) new shares.
If not all shares are subscribed for by exercise of subscription rights, allotment of the remaining shares shall be made within the highest amount of the Rights Issue: firstly, to those who have subscribed for shares by exercise of subscription rights (regardless of whether they were shareholders on the record date or not) and who have applied for subscription of shares without exercise of subscription rights and if allotment to these cannot be made in full, allotment shall be made pro rata in relation to the number of subscription rights that each and every one of those, who have applied for subscription of shares without exercise of subscription rights, have exercised for subscription of shares; secondly, to those who have applied for subscription of shares without exercise of subscription rights and if allotment to these cannot be made in full, allotment shall be made pro rata in relation to the number of shares the subscriber in total has applied for subscription of shares; and thirdly, to those who have provided underwriting commitments with regard to subscription of shares, in proportion to such underwriting commitments. To the extent that allotment in any section above cannot be done pro rata, allotment shall be determined by drawing of lots.
The record date at Euroclear Sweden AB for the right to participate in the Rights Issue is August 20, 2020. The subscription price amounts to SEK 5.25 per new share, which means that the Rights Issue, upon full subscription, will provide InCoax with approximately SEK 48 million before issue costs.
Registration for subscription of shares with the support of subscription rights shall take place through simultaneous cash payment during the subscription period August 24, 2020 – September 7, 2020. Registration for subscription of shares without support of subscription rights shall take place during the same period on a special application form, or, as far as the notification is concerned, in accordance with instructions from the respective bank or trustee.
Through the Rights Issue, the share capital in the Company increases by a maximum of SEK 2,286,866.25, from SEK 4,573,732.75 to 9,147,465 SEK, by issuing a maximum of 9,147,465 shares. The number of shares thus increases from 18,294,931 to a maximum of 27,442,396 shares. The dilution effect for the shareholders who choose not to participate in the Rights Issue amounts to a maximum of 33 percent of capital and votes, based on the number of shares and votes in the Company before registration of the Rights Issue.
Subscription rights that are not exercised during the subscription period become invalid and lose their value. Trading in subscription rights is expected to take place on Nasdaq First North from August 24, 2020 to September 3, 2020.
Subscription and guarantee commitments
The Company's three largest shareholders Saugatuck Invest AB, Norrlandspojkarna AB and BLL Invest AB, which together represent approximately 50 percent of the share capital, have committed to subscribe for shares for at least SEK 7.5 million each, a total of SEK 22.5 million, corresponding to approximately 47 percent of the Rights Issue. Of the subscription commitments, SEK 15.8 million relates to set-off of previously granted loans. No compensation is paid for these subscription commitments. In addition, the Company has entered into agreements with a small number of external investors on a commitment to guarantee an amount of up to a total of SEK 25.5 million in the Rights Issue, corresponding to approximately 53 percent of the Rights Issue. A cash commission of ten (10) percent is paid for these guarantee commitments. The rights issue is thus 100 percent covered by subscription commitments and guarantee commitments. Subscription commitments and guarantee commitments have not been secured via a prior transaction, bank guarantee or the like.
Preliminary timetable for the Rights Issue
August 13, 2020 Extraordinary General Meeting
August 18, 2020 Last day of trading in the share with the right to participate in the Rights Issue
August 20, 2020 Record date for participation in the Rights Issue
August 20, 2020 Publication of the prospectus (expected)
August 24 - September 7, 2020 Subscription period
August 24 – September 3, 2020 Trading in subscription rights
September 10, 2020 Estimated date for publication of the outcome of the Rights Issue
Extraordinary General Meeting
An Extraordinary General Meeting for resolution on the Board of Directors’ proposal for the present Rights Issue as set out above will be held on August 13, 2020, at 12.00 p.m. in Gävle. Notice of the Extraordinary General Meeting will be published through a separate press release.
Presentation of quarterly report for the second quarter of 2020
Due to the Rights Issue, the Board of Directors of InCoax has decided that the interim report for the second quarter of 2020 will be published on August 12, 2020 instead of August 28, 2020 as previously planned.
Prospectus
Full terms and conditions for the Rights Issue as well as other information about the Company will appear in the prospectus that is expected to be published by the Company on or around August 20, 2020.
Agreement on set-off issue of convertibles
Stiftelsen Norrlandsfonden (“Norrlandsfonden”) has a claim on the Company of SEK 3,245,786.25 attributable to previously outstanding convertibles that expired on April 30, 2020. The company has entered into an agreement with Norrlandsfonden to settle the debt through a set-off issue of new convertibles. The offset issue is intended to be completed in August 2020. The new convertibles will run at an annual interest rate of 5 percent and have a term of 5 years. During the term, the convertibles can be converted into shares at a conversion price that will amount to 110 percent of the volume-weighted average price for the Company's shares during July 2020.
Financial and legal advisors
Västra Hamnen Corporate Finance AB is a financial advisor and Setterwalls Advokatbyrå AB is legal advisor to InCoax in connection with the Rights Issue.
This information is such information as InCoax Networks AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 08:00 CET on July 23, 2020.
Important information
The information in this press release does not contain or constitute an offer to acquire, subscribe or otherwise trade in shares, warrants or other securities in InCoax. No action has been taken and measures will not be taken to permit a public offering in any jurisdictions other than Sweden. Any invitation to the persons concerned to subscribe for shares in InCoaxl will only be made through the EU Growth Prospectus that InCoax estimates to publish around August 20, 2020.
The information in this press release may not be released, distributed or published, directly or indirectly, in or into the United States, Australia, Canada, Japan or any other jurisdiction in which such action would be unlawful or would require registration or any other measures than those required by Swedish law. Actions in violation of these restrictions may constitute a violation of applicable securities laws. No shares, warrants or other securities in InCoax have been registered, and no shares, warrants or other securities will be registered, under the United States Securities Act of 1933, as amended (the “Securities Act”) or the securities legislation of any state or other jurisdiction in the United States and no shares or other securities may be offered, sold or otherwise transferred, directly or indirectly, in or into the United States, except under an available exemption from, or in a transaction not subject to, the registration requirements under the Securities Act and in compliance with the securities legislation in the relevant state or any other jurisdiction of the United States.
Within the European Economic Area (“EEA”), no public offering of shares, warrants or other securities (“Securities”) is made in other countries than Sweden. In other member states of the EU, such an offering of Securities may only be made in accordance with the Prospectus Regulation (EU) 2017/1129 (the “Prospectus Regulation”). In other member states of the EEA which have implemented the Prospectus Regulation in its national legislation, any offer of Securities may only be made in accordance with an applicable exemption in the Prospectus Regulation and/or in accordance with an applicable exemption under a relevant national implementation measure. In other member states of the EEA which have not implemented the Prospectus Regulation in its national legislation, any offer of Securities may only be made in accordance with an applicable exemption under national law.
This communication is only being distributed to and is only directed at persons in the United Kingdom that are (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) or (ii) high net worth entities, and other persons to whom this announcement may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “Relevant Persons”). This communication must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which this communication relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. Persons distributing this communication must satisfy themselves that it is lawful to do so.
This press release may contain forward-looking statements which reflect the Company’s current view on future events and financial and operational development. Words such as “intend”, “expect”, “anticipate”, “may”, “believe”, “plan”, “estimate” and other expressions which imply indications or predictions of future development or trends, and which are not based on historical facts, are intended to identify forward-looking statements. Forward-looking statements inherently involve both known and unknown risks and uncertainties as they depend on future events and circumstances. Forward-looking statements do not guarantee future results or development and the actual outcome could differ materially from the forward-looking statements.
For more information:
Jörgen Ekengren, CEO, InCoax Networks AB
jorgen.ekengren@incoax.com
+46 73- 899 55 52
About InCoax Networks AB
InCoax Networks AB (publ) is innovating the future of broadband access. InCoax MoCA Access 2.5 platform provides the next generation cost-efficient multi-gigabit Fiber Access Extension solutions to the world’s leading telecom, cable- and broadband service providers. To keep updated on corporate information, visit incoax.com. Augment Partners AB, tel. +46 8-505 651 72 info@augment.se, is acting as the company’s Certified Adviser.