IPO Update: Visionary Education Technology Aims For $23 Million IPO

A Quick Take On Visionary Education Technology Holdings

Visionary Education Technology Holdings Inc. (VEDU) has filed to raise $22.5 million from the sale of its common shares in an IPO, according to an amended registration statement.

The company provides education services to students in online and offline environments in Canada.

The small firm is growing quickly, but management is seeking a valuation at IPO that assumes continued ultra-high growth and profitability.

I’m on Hold for the IPO due to excessive valuation expectations by management.

Company

Markham, Canada-based Visionary was founded to provide educational services to domestic and international students studying in Canada.

Management is headed by Chairman and CEO Dr. Thomas Traves, who has been with the firm since 2021 and was previously president of Brock University and Dalhousie University.

The company’s primary offerings include:

Visionary has booked fair market value investment of $666,000 as of September 30, 2021 from investors including founder Fan Zhou, Ying Wagn, Yamin Han and Qiasha He.

Visionary Education – Customer Acquisition

The firm has pursued partnerships with other educational networks connected to domestic and international students.

Management plans to grow through more partnerships, enhancing student learning success through advanced student management techniques and further develop its international marketing capacities.

General & Administrative expenses as a percentage of total revenue have trended lower as revenues have increased, as the figures below indicate:

General & Administrative	Expenses vs. Revenue
Period	Percentage
Six Mos. Ended Sept. 30, 2021	4.4%
FYE March 31, 2021	1.7%
FYE March 31, 2020	8.2%

(Source)

The General & Administrative efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of General & Administrative spend, fell to a still impressive in the most recent reporting period, as shown in the table below:

General & Administrative	Efficiency Rate
Period	Multiple
Six Mos. Ended Sept. 30, 2021	8.6
FYE March 31, 2021	51.4

(Source)

Visionary’s Market & Competition

According to a 2021 market research report by IBISWorld, the Canadian educational services sector has grown by an average annual rate of 5.2% from 2015 to 2020.

Employment has grown by 7.1% per year during the period and the number of businesses has grown by 4.8%, to 35,419 businesses in 2020.

Also, wages in 2020 totaled $6.6 billion versus $4.2 billion in 2015, making it a very large sector in the Canadian economy.

Major competitive or other industry participants include:

• Private schools

• Public schools

• Online education

Visionary Education’s Financial Performance

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

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

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Six Mos. Ended Sept. 30, 2021	$ 3,238,624	60.1%
FYE March 31, 2021	$ 7,725,221	728.3%
FYE March 31, 2020	$ 932,707
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Six Mos. Ended Sept. 30, 2021	$ 1,753,060	60.6%
FYE March 31, 2021	$ 4,265,774	640.1%
FYE March 31, 2020	$ 576,384
Gross Margin
Period	Gross Margin
Six Mos. Ended Sept. 30, 2021	54.13%
FYE March 31, 2021	55.22%
FYE March 31, 2020	61.80%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Six Mos. Ended Sept. 30, 2021	$ 875,024	27.0%
FYE March 31, 2021	$ 3,728,786	48.3%
FYE March 31, 2020	$ 381,207	40.9%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
Six Mos. Ended Sept. 30, 2021	$ 638,348	19.7%
FYE March 31, 2021	$ 2,913,646	90.0%
FYE March 31, 2020	$ 241,738	7.5%
Cash Flow From Operations
Period	Cash Flow From Operations
Six Mos. Ended Sept. 30, 2021	$ 1,784,309
FYE March 31, 2021	$ 4,439,717
FYE March 31, 2020	$ 273,631
(Glossary Of Terms)

(Source)

As of September 30, 2021, Visionary had $255,083 in cash and $24.6 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2021, was negative ($13 million).

VEDU’s IPO Details

VEDU intends to sell 5 million shares of common stock at a proposed midpoint price of $4.50 per share for gross proceeds of approximately $22.5 million, not including the sale of customary underwriter options.

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

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (excluding underwriter options) would approximate $181 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 12.5%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

Approximately $4.5 million on PPP projects.

Approximately $3 million on MTM course development and program partnerships with other universities

Approximately $5 million at the vocational education level, including training equipment purchases, renovations of facilities, and promotions and professional trainer recruitments.

Approximately $2 million on global market development and distribution channel establishments.

Approximately $1.3 million for staff development.

Approximately $1.1 million for working capital.

$500,000 to be held in escrow for 18 months from the closing of the offering to cover potential indemnification claims by the Underwriters.

(Source)

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

Regarding outstanding legal proceedings, management says the firm is not currently a party to any legal proceedings that would have a material adverse effect on its financial condition or operations.

The sole listed underwriter of the IPO is Joseph Stone Capital.

Valuation Metrics For VEDU

Below is a table of the firm’s relevant capitalization and valuation metrics at IPO, excluding the effects of underwriter options:

Measure [TTM]	Amount
Market Capitalization at IPO	$180,000,000
Enterprise Value	$181,021,974
Price / Sales	20.13
EV / Revenue	20.25
EV / EBITDA	50.24
Earnings Per Share	$0.06
Operating Margin	40.30%
Net Margin	29.27%
Float To Outstanding Shares Ratio	12.50%
Proposed IPO Midpoint Price per Share	$4.50
Net Free Cash Flow	-$13,023,064
Free Cash Flow Yield Per Share	-7.24%
Revenue Growth Rate	60.09%
(Glossary Of Terms)

(Source)

Commentary About Visionary Education

VEDU seeks to raise public capital market funding to pay down debt and for a variety of corporate development initiatives.

The firm’s financials show increasing topline revenue, growing gross profit but lower gross margin, lowered operating profit and variable cash flow from operations.

Free cash flow for the twelve months ended September 30, 2021, was negative ($13 million).

Sales and Marketing expenses as a percentage of total revenue have trended lower as revenue has increased and its Sales and Marketing efficiency multiple fell to 8.6x in the most recent reporting period.

The firm currently plans to pay no dividends on its capital stock and anticipates that it will use any future earnings to reinvest back into its growth plans.

The market opportunity for educational services in Canada is moderate and the expected growth rate is in the middle single-digits.

Joseph Stone Capital is the lead underwriter and the only IPO led by the firm over the last 12-month period has generated a return of negative (82.3%) since its IPO. This is a bottom-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is the continued threat of pandemic variants on its in-person operations.

As for valuation, management is seeking an EV/Revenue multiple of 20.25x. A basket of publicly held education stocks compiled by the NYU Stern School’s valuation expert Dr. Aswath Damodaran indicated an average EV/Sales of 2.72x in January 2022.

So, even though the tiny firm is growing quickly, management is seeking a valuation at IPO that assumes continued ultra-high growth and profitability.

I view this assumption as excessive and I’m on Hold for the IPO due to high valuation expectations by management.

Expected IPO Pricing Date: To be announced.