AgiiPlus Begins U.S. IPO Rollout Plan (Pending:AGII)

A Quick Take On AgiiPlus

AgiiPlus Inc. (AGII) has filed to raise an undisclosed amount in an IPO of its Class A ordinary shares, according to an F-1 registration statement.

The firm provides flexible office leasing and connected software capabilities to clients in China and Singapore.

While revenue is growing, AGII hasn’t generated gross profit in the past two years and its financial information is outdated.

When we learn more about the IPO, I’ll provide an update.

AgiiPlus Overview

Shanghai, China-based AgiiPlus was founded to utilize an asset-light model to lease flexible office/co-working facilities while providing enterprise software solutions as a bundled option.

Management is headed by founder, Chairman and CEO Dr. Jing Hu, who has been with the firm since inception in 2016 as Shanghai Distrii and was previously at Greenland Holdings, including as Executive Vice President and Chief Architect where he led 20 real estate development projects.

The company’s primary offerings include:

• Flexible office leasing

• Smart building management

• Enterprise software

• Other business services

AgiiPlus has booked fair market value investment of $70.4 million as of December 31, 2021, from investors including City Connected Communities Pte, J.distrii Global, China Lodging Holdings, King Inspiration, Junzi Holding and Ningbo Nayun.

AgiiPlus – Customer Acquisition

The firm markets its service offerings through its internal business development efforts and partner referrals.

The company had 60 locations in six cities within China and one location in Singapore, as of December 31, 2021.

Selling expenses as a percentage of total revenue have remained stable as revenues have increased, as the figures below indicate:

Selling	Expenses vs. Revenue
Period	Percentage
2021	10.3%
2020	10.2%

Click to enlarge

(Source – SEC)

The Selling efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling spend, was 2.5x in the most recent reporting period. (Source – SEC)

AgiiPlus’s Market & Competition

According to a 2020 market research report by Ken Research, the market for flexible workspace in China was estimated to grow at a CAGR of 38.3% from 2018 to 2025.

However, the report was completed before the onset of the COVID-19 pandemic, which has negatively impacted the industry since its onset.

While the industry is making a comeback in regions not affected by recent lockdowns, future demand growth may come from not only expansion, but also from consolidation through M&A along with a rise in revenue from additional services.

Major competitive or other industry participants include:

• Regus

• Ucommune

• Mydream+

• Kr Space

• Soho

• Compass Offices

• People2

• Atlas

• Servioffice

• The Executive Centre

• Others

AgiiPlus Financial Performance

The company’s recent financial results can be summarized as follows:

• Growing topline revenue

• Reduced gross loss

• Lowered negative gross margin

• High and increasing operating losses

• Growing cash flow from operations.

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
2021	$ 72,057,000	34.7%
2020	$ 53,502,150
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
2021	$ (10,605,000)	-15.1%
2020	$ (12,484,800)
Gross Margin
Period	Gross Margin
2021	-14.72%
2020	-23.34%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
2021	$ (46,015,000)	-63.9%
2020	$ (35,280,000)	-65.9%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
2021	$ (60,628,000)	-84.1%
2020	$ (36,024,450)	-50.0%
Cash Flow From Operations
Period	Cash Flow From Operations
2021	$ 10,348,000
2020	$ 7,301,100
(Glossary Of Terms)

Click to enlarge

As of December 31, 2021, AgiiPlus had $15.1 million in cash and $537.7 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2021, was negative ($6.7 million).

AgiiPlus IPO Details

AgiiPlus intends to raise an undisclosed amount in gross proceeds from an IPO of its Class A ordinary shares.

Class A ordinary shareholders will be entitled to one vote per share and Class B shareholders will have 15 votes per share.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

approximately 25% to 30% […] for enhancing our technology capability;

approximately 55% to 60% […] for business expansion, including organic growth of our geographic coverage, and mergers and acquisitions opportunities, although we have not identified any specific investments or acquisition opportunities at this time; and

approximately 10% to 20% […] million for other operating purposes.

(Source – SEC)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management said the firm is currently ‘involved in an ongoing litigation with Zhonglian Runshi over a lease agreement.[…for] rental payment, liquidated damages and other types of expenses totaling approximately RMB24.30 million (US$3.81 million).’

The sole listed bookrunner of the IPO is Tiger Brokers.

Commentary About AgiiPlus’s IPO

AGII is seeking U.S. public capital market investment to fund its corporate growth initiatives and general working capital needs.

The company’s financials have produced increasing topline revenue, lowered gross loss, reduced negative gross margin, increasing operating losses and higher cash flow from operations.

Free cash flow for the twelve months ended December 31, 2021, was negative ($6.7 million).

Selling expenses as a percentage of total revenue have remained stable as revenue has increased; its Selling efficiency multiple was 2.5x in the most recent reporting period.

The firm currently plans to pay no dividends and intends to retain any future earnings for reinvestment back into the firm’s growth and operating initiatives.

AGII’s trailing twelve-month CapEx Ratio indicates it has spent heavily on capital expenditures as a percentage of its operating cash flow.

The market opportunity for providing flexible office space and related services in China is large but undergoing significant turbulence due to ongoing lockdowns in regions affected by the COVID-19 virus and government policies.

Like other firms with Chinese operations seeking to tap U.S. markets, the firm operates within a WFOE structure or Wholly Foreign Owned Entity. U.S. investors would only have an interest in an offshore firm with interests in operating subsidiaries, some of which may be located in the PRC. Additionally, restrictions on the transfer of funds between subsidiaries within China may exist.

The recent Chinese government crackdown on IPO company candidates combined with added reporting and disclosure requirements from the U.S. has put a serious damper on Chinese or related IPOs resulting in generally poor post-IPO performance.

Prospective investors would be well advised to consider the potential implications of specific laws regarding earnings repatriation and changing or unpredictable Chinese regulatory rulings that may affect such companies and U.S. stock listings.

Tiger Brokers is the sole underwriter and there is no data on IPOs led by the firm over the last 12-month period.

The primary risks to the company’s outlook are the uncertain nature of government lockdown policies in its areas of operation and the ongoing uncertainty with respect to Chinese company listings on U.S. stock exchanges.

When we learn more about management’s pricing and valuation assumptions, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.