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Kalkine IPO Report

Should You Subscribe to the IPO of Elate Group Inc.?

Jan 23, 2023

The Offer

Company Overview

ELGP, a high-touch, best-in-class moving, and storage firm, was established in 2013 to provide domestic concierge services and international relocation solutions for private, public, and business clients in the US and Canada. Seven metro areas on the U.S. east coast are the current focus of ELGP. The company's present operating base in Brooklyn, New York, largely serves the seven metro regions that it now services. With a growing fleet of trucks and competent relocation, the staff made up of 27 full-time and 5 part-time personnel, ELGP now serves these markets. Disassembly, packing, unpacking, re-setup, and short-term storage are all included in ELGP's full moving services.

Key Highlights

Primary Offering: 1,333,334 Common Units, each of which consists of two Warrants, each of which is exercisable for the purchase of one share of Class A Common Stock. Each Pre-funded Unit will have two Warrants and a Pre-funded Warrant with an exercise price of USD 0.001 to buy one share of Class A common stock. Each Pre-funded Unit costs USD 0.001 less than the price per Common Unit being offered to the public in this offering as the purchase price. The Pre-funded Warrants will become instantly exercisable and may be used at any moment up until they are all fully utilized. The Warrants contained inside the Common Units are immediately exercisable, have an exercise price equal to 100% of the public offering price of one Common Unit, and have a five-year expiration period.

Use of proceeds:

ELGP estimates that the net proceeds to the company from this offering will be approximately USD 7,103,382 (without over-allotment), or approximately USD 8,253,721 if the Underwriter exercises its over-allotment option in full, assuming an initial public offering price of USD 6.25 per Common Unit (the midpoint of the estimated price range). If any Pre-funded Warrants are exercised, but none of the Warrants are exercised, and if the Underwriter does not exercise the over-allotment option, ELGP plans to use the net proceeds of this offering as follows: (i) roughly 28%, or USD 2 million, for general corporate purposes, including working capital; (ii) roughly 21%, or USD 1.5 million, set aside for expanding current service lines into new states and extending cross-border services into Canada; (iii) roughly 33%, or USD 2.3 million, set aside for entering, developing, and enhancing the storage facility segment, which may include potential acquisitions of existing facilities; and (iv) approximately 3%, or USD 200,000, set aside for repayment of non-related party indebtedness. (v) around 15%, or USD 1.1 million, will go toward capital expenses for expanding our fleet of vehicles and another tooling.

Dividend policy: All dividends to holders of common stock will be declared and paid at the Board of Directors' discretion and will be based on a variety of factors, including the company's financial situation, earnings, compliance with applicable laws, and any debt agreements to which it is then a party, as well as other factors that the Board of Directors deems relevant.

Industry and competitive analysis

  • By 2026, it is anticipated that the U.S. moving services market would reach USD 22.5 billion, expanding at a 5% compound yearly growth rate (CAGR). At 61% of the market, residential moving services are thought to be the industry's largest section, with commercial moving services accounting for 16%. The movement of other items necessitating specialized handling and warehousing services makes up most of the remaining market.

  • The COVID-19 epidemic had a devastating impact on the transportation business, as it did on most other industries. However, in regions where lockdowns were required, movers were permitted to continue operating since they provided a necessary service.
  • In 2020 and 2021, Americans moved to less-populated places and closer to their family, according to yearly research published by United Van Lines. The survey found that in 2021, 31.8% of Americans who moved did so to be nearer to family, up from 27% in 2020. This shows a new trend emerging as priorities and lifestyle choices change because of the epidemic. Additionally, just 32.5% of Americans relocated for a new job or a job transfer in 2021, down significantly from more than 60% in 2015 and from 40% in 2020.
  • IBISWorld projects that the USD 41.5 billion U.S. self-storage industry will develop at a 2.2% compound yearly growth rate and reach USD 44.5 billion by 2024. Job growth, population expansion, rising migration, and baby boomer house downsizing are all growth factors. 10.6% of U.S. households leased a self-storage unit in 2020, up from 6% in 1996, according to the SSA Self-Storage Demand Study 2020.

Financial Highlights (Expressed in USD):

  • Increased revenue: Operating revenue increased by USD 26,283 or almost 1% to USD 3.93 million for the nine months that ended on September 30, 2022, from USD 3.91 million for the same period in 2021. During that time, there wasn't much growth in revenue.
  • Decreased net income: In comparison to the same six-month period in 2021, net income for the nine months ended September 30, 2022, was USD 78,790. This decline in net income was primarily the result of an increase in operating costs, which included higher fuel, referral fees, depreciation expenses, salaries, and other variable costs, as well as an increase in professional fees for preparing public company filings. In comparison to the nine months that ended September 30, 2021, the income from operations for the nine months ended September 30, 2022, was USD 231,297, a drop of USD 0.876 million, or 79%. In comparison to the same time in 2021, net income for the three months that ended on September 30, 2022, was 51,349, down USD 395,017, or 88%.
  • Liquidity and capital resources: Cash provided by operating activities was USD 875,483 for the nine months ended September 30, 2022, as opposed to USD 1,280,300 for the same period in 2021. The decline in net income was brought on by the rise in operational expenditures, which totaled USD 404,816, or 32%, of the reduction. The company had cash and cash equivalent of USD 1.44 million and notes outstanding of USD 1.25 million as of 30 September 2022.

Key Management Highlights

Risk Associated (High)

Investment in the IPO of “ELGP” is exposed to a variety of risks such as:

  • Economic and business risk: The market for residential and commercial moving and storage facilities is quite cyclical, and the company's performance depends on a variety of factors that might be unfavorable. These factors include but are not limited to, general economic instability, turbulence in the residential and commercial real estate markets, fluctuation in fuel costs, and ambiguity around laws directed at the fossil fuel and transportation sectors.
  • Stiff competition: The organization faces competitive challenges related to pricing, capacity, and service since the commercial and residential moving sector is extremely competitive and fragmented. The operational sectors of ELGP compete against several residential and commercial moving businesses. The residential and commercial moving business in North America is extremely competitive and dispersed. Some rivals could have better access to resources like equipment, a bigger fleet, a wider range of services, preferential dedicated client contracts, more cash, or other competitive advantages. It may be difficult for ELGP to maintain or increase its profitability due to a variety of competitive reasons.
  • Fluctuation in fuel prices and failure of capital investment risks: Due to outside forces beyond the company's control, the cost of diesel and gasoline can change significantly. These forces include but are not limited to, governmental actions, terrorist attacks, pandemics, armed conflicts, the dollar's decline against other currencies, extreme weather, such as hurricanes, and other natural or man-made disasters. Fuel dependence means that major price hikes, shortages, or supply interruptions might have a materially negative impact on the business's operational results and financial health. If the capital investments do not meet customer demand for invested resources or if finance sources for these expenditures become less readily available, ELGP's profitability may be severely negatively impacted.

Conclusion

ELGP’s performance was moderate in the nine months ended September 30, 2022, with revenue improved by just 0.67% and net income witnessed a decline of ~83%. The sharp decline in net income was primarily because of 15.9% surge in cost of revenue and 58% jump in operating expenses. Further, the company operates in a highly competitive and fragmented environment, which exposes them to competitive pressures pertaining to pricing, capacity, and service.

Hence, given the financial performance of the company for the nine months ending September 30, 2022, industry analysis, use of proceeds, and associated risks “Elate Group Inc (ELGP)” IPO seems “Neutral" at the IPO price.


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

Kalkine Media LLC, an affiliate of Kalkine Equities LLC, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.