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A Quick Take On Droneify Holdings Limited
Droneify Holdings Limited (DRFY) has filed to raise $6 million in an IPO of its ordinary shares, according to an F-1 registration statement.
The firm is developing a drone platform for use in various business end markets.
Given the excessive pricing of the Droneify Holdings Limited IPO and the firm’s tiny size and limited revenue, I’ll pass on the IPO.
Droneify Overview
Oakville, Canada-based Droneify Holdings Limited was founded to provide drone service, analytics, and hardware for a variety of industries seeking inspections and related services
Management is headed by president and CEO Adam Sax, who has been with the firm since its inception and was previously founded “several successful companies ranging from internet businesses to real estate brokerages to global development firms.”
The company’s primary offerings include:
-
Drone solutions – services
-
Data analytics – software and data tools
-
Drone hardware – advanced hardware for heavy industry and military applications.
As of June 30, 2022, Droneify has booked fair market value investment of $4.6 million from investors.
Droneify – Customer Acquisition
The firm seeks customers across a range of industries including utilities, energy, infrastructure, and construction.
The most common application of drone services is the use of the drone camera for inspections, mapping and surveying and other specialized imaging use cases.
General and Administrative expenses as a percentage of total revenue have fallen as revenues have increased, as the figures below indicate:
|
General and Administrative |
Expenses vs. Revenue |
|
Period |
Percentage |
|
Six Mos. Ended June 30, 2022 |
42.8% |
|
2021 |
45.2% |
|
2020 |
89.4% |
(Source – SEC.)
The General and Administrative efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of General and Administrative spending, rose to 1.4x in the most recent reporting period, as shown in the table below:
|
General and Administrative |
Efficiency Rate |
|
Period |
Multiple |
|
Six Mos. Ended June 30, 2022 |
1.4 |
|
2021 |
0.9 |
(Source – SEC.)
Droneify’s Market & Competition
According to a 2021 market research report by Grand View Research, the global market for commercial drones was an estimated $13.4 billion in 2020 and is forecast to reach $509 billion by the end of 2028.
This represents a forecast CAGR of 57.5% from 2021 to 2028.
The main drivers for this expected growth are strong demand in the real estate and construction industries as well as growing sophistication in the application of technologies for specific use cases.
Also, as a proxy for the overall product and services market, the chart below shows the historical and projected future growth rate of the North America Commercial Drone Market through 2028:
N. America Commercial Drone Market (Grand View Research)
Major competitive or other industry participants include:
Droneify Holdings Limited Financial Performance
The company’s recent financial results can be summarized as follows:
-
Variable topline revenue from a tiny base
-
Increasing gross profit and gross margin
-
Reduced operating loss
-
Fluctuating cash flow from operations.
Below are relevant financial results derived from the firm’s registration statement:
|
Total Revenue |
||
|
Period |
Total Revenue |
% Variance vs. Prior |
|
Six Mos. Ended June 30, 2022 |
$ 118,048 |
151.4% |
|
2021 |
$ 704,553 |
63.0% |
|
2020 |
$ 432,263 |
|
|
Gross Profit (Loss) |
||
|
Period |
Gross Profit (Loss) |
% Variance vs. Prior |
|
Six Mos. Ended June 30, 2022 |
$ 55,719 |
1478.4% |
|
2021 |
$ 117,376 |
135.5% |
|
2020 |
$ 49,840 |
|
|
Gross Margin |
||
|
Period |
Gross Margin |
|
|
Six Mos. Ended June 30, 2022 |
47.20% |
|
|
2021 |
16.66% |
|
|
2020 |
11.53% |
|
|
Operating Profit (Loss) |
||
|
Period |
Operating Profit (Loss) |
Operating Margin |
|
Six Mos. Ended June 30, 2022 |
$ (11,710) |
-9.9% |
|
2021 |
$ (239,123) |
-33.9% |
|
2020 |
$ (519,926) |
-120.3% |
|
Comprehensive Income (Loss) |
||
|
Period |
Comprehensive Income (Loss) |
Net Margin |
|
Six Mos. Ended June 30, 2022 |
$ 20,536 |
17.4% |
|
2021 |
$ (167,667) |
-142.0% |
|
2020 |
$ (582,005) |
-493.0% |
|
Cash Flow From Operations |
||
|
Period |
Cash Flow From Operations |
|
|
Six Mos. Ended June 30, 2022 |
$ 4,141 |
|
|
2021 |
$ 40,124 |
|
|
2020 |
$ (11,239) |
|
(Source – SEC.)
As of June 30, 2022, Droneify had $37,608 in cash and $552,991 in total liabilities.
Free cash flow during the twelve months ending June 30, 2022, was $97,228.
Droneify Holdings Limited IPO Details
Droneify intends to raise $6 million in gross proceeds from an IPO of its ordinary shares, offering approximately 923,000 shares at a proposed midpoint price of $6.50 per share.
No existing shareholders have indicated an interest in purchasing shares at the IPO price.
The company is also registering 1.5 million shares for potential resale by selling shareholders via a Resale Prospectus.
Assuming a successful IPO, the company’s enterprise value at IPO would approximate $49.5 million, excluding the effects of underwriter over-allotment options.
The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 10.7%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.
Management says it will use the net proceeds from the IPO as follows:
Proposed Use Of IPO Proceeds (SEC)
(Source – SEC.)
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, Droneify Holdings management says it is not aware of any legal proceedings that would have a material adverse effect on its financial condition or operations.
The sole listed bookrunner of the IPO is Boustead Securities.
Valuation Metrics For Droneify
Below is a table of relevant capitalization and valuation figures for the company:
|
Measure [TTM] |
Amount |
|
Market Capitalization at IPO |
$55,845,621 |
|
Enterprise Value |
$49,518,491 |
|
Price / Sales |
72.00 |
|
EV / Revenue |
63.84 |
|
EV / EBITDA |
-1243.40 |
|
Operating Margin |
-5.13% |
|
Net Margin |
4.72% |
|
Float To Outstanding Shares Ratio |
10.74% |
|
Proposed IPO Midpoint Price per Share |
$6.50 |
|
Net Free Cash Flow |
$97,228 |
|
Free Cash Flow Yield Per Share |
0.17% |
|
Revenue Growth Rate |
151.36% |
(Source – SEC.)
Commentary About Droneify’s IPO
Droneify Holdings Limited is seeking U.S. public capital market investment to fund further R&D efforts and for its general corporate working capital needs.
The company’s financials have generated fluctuating topline revenue from a tiny base, growing gross profit and gross margin, lowered operating loss and variable cash flow from operations.
Free cash flow for the twelve months ending June 30, 2022, was $97,228.
General and Administrative expenses as a percentage of total revenue have dropped as revenue has grown; its General and Administrative efficiency multiple rose to 1.4x in the most recent reporting period.
The firm currently plans to pay no dividends and expects to retain any future earnings to reinvest back into the firm’s growth and working capital requirements.
The company is incorporated in the Cayman Islands, which has restrictions on the circumstances under which dividends may be paid.
The market opportunity for providing drone products and services is large and expected to grow at a very high rate of growth in the coming years, so the firm enjoys strong industry growth dynamics in its favor.
However, competition is intense and the company is still in the development stage for some of its products, so is well behind existing and well-funded market participants.
Boustead Securities is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (65.2%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.
As for valuation expectations, management is asking investors to pay an Enterprise Value/Revenue multiple of approximately 63.8x, an extremely high valuation for a company with little revenue.
Given the excessive pricing of the IPO and the firm’s tiny size and limited revenue, I’ll pass on the Droneify Holdings Limited IPO.
Expected IPO Pricing Date: To be announced.
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