Ispire Technology Tries Again For U.S. IPO (Pending:ISPR)
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A Quick Take On Ispire Technology
Ispire Technology Inc. (ISPR) has filed to raise $42 million in an IPO of its common stock, according to an S-1 registration statement.
The firm sells branded e-cigarettes and cannabis vaping products under its brand names in major markets worldwide.
While interested investors could make a bullish case for the IPO due to the company’s growth rate, positive cash flow and small operating losses, I’m more cautious about the firm’s near-term prospects.
I’m on Hold for the Ispire Technology IPO.
Ispire Technology Overview
Los Angeles, California-based Ispire Technology Inc. was founded to develop various e-cigarette products and cannabis vaping hardware in regions including the US, Canada and the European Union.
The firm was originally named Aspire Global, based in Shenzhen, China, and filed to go public in the U.S. in August 2021 but did not complete a transaction at that time.
Management is headed by Chairman and CEO Mr. Tuanfang Liu, who has been with the firm since its inception and was previously a founding member of the Canada E-cigarettes Association and has served as the vice-chairman of the European Union E-cigarette Association.
The company’s primary offerings include:
-
Aspire
-
Nautilus
-
Zestquest
-
ISPIRE – cannabis
As of December 31, 2022, Ispire has booked fair market value investment of $74.3 million in equity and $108 million in advances from investors including Pride Worldwide Investment, Honor Epic International, Fortune Genesis Enterprises and others.
Ispire – Customer Acquisition
The firm sells its products through distribution networks in the regions in which it operates.
Ispire has received the majority of its revenues from the United States, however regulatory actions there have reduced the firm’s revenue materially in recent periods.
Sales and Marketing expenses as a percentage of total revenue have varied as revenues have increased, as the figures below indicate:
|
Sales and Marketing |
Expenses vs. Revenue |
|
Period |
Percentage |
|
Six Mos. Ended December 31, 2022 |
4.1% |
|
FYE June 30, 2022 |
6.2% |
|
FYE June 30, 2021 |
5.6% |
(Source – SEC)
The Sales and Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, rose to 4.8x in the most recent reporting period, as shown in the table below:
|
Sales and Marketing |
Efficiency Rate |
|
Period |
Multiple |
|
Six Mos. Ended December 31, 2022 |
4.8 |
|
FYE June 30, 2022 |
4.5 |
(Source – SEC)
Ispire’s Market & Competition
According to a 2021 market research report by Grand View Research, the global market for e-cigarette and vape products was an estimated $15 billion in 2020 and is expected to reach $109 billion by 2028.
This represents a forecast CAGR of 28.1% from 2021 to 2028.
The main drivers for this expected growth are the continued adoption of alternative products to traditional cigarettes by consumers and improved marketing practices by product suppliers.
Also, during the COVID-19 pandemic, sellers focused more on online sales channels and bundling other products with their vaping products to incentivize buying.
Major competitive or other industry participants include:
-
JUUL Labs
-
British American Tobacco
-
Lorillard
-
Imperial Tobacco
-
Japan Tobacco
-
Philip Morris International
-
Altria
-
Others
Ispire Technology Inc. Financial Performance
The company’s recent financial results can be summarized as follows:
-
Growing topline revenue
-
Increasing gross profit but variable gross margin
-
Growing operating losses
-
A swing to 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 December 31, 2022 |
$ 58,840,449 |
24.6% |
|
FYE June 30, 2022 |
$ 88,095,418 |
38.9% |
|
FYE June 30, 2021 |
$ 63,414,783 |
|
|
Gross Profit (Loss) |
||
|
Period |
Gross Profit (Loss) |
% Variance vs. Prior |
|
Six Mos. Ended December 31, 2022 |
$ 9,930,681 |
35.8% |
|
FYE June 30, 2022 |
$ 13,306,040 |
27.7% |
|
FYE June 30, 2021 |
$ 10,415,855 |
|
|
Gross Margin |
||
|
Period |
Gross Margin |
|
|
Six Mos. Ended December 31, 2022 |
16.88% |
|
|
FYE June 30, 2022 |
15.10% |
|
|
FYE June 30, 2021 |
16.42% |
|
|
Operating Profit (Loss) |
||
|
Period |
Operating Profit (Loss) |
Operating Margin |
|
Six Mos. Ended December 31, 2022 |
$ (1,677,656) |
-2.9% |
|
FYE June 30, 2022 |
$ (988,671) |
-1.1% |
|
FYE June 30, 2021 |
$ 3,643,102 |
5.7% |
|
Comprehensive Income (Loss) |
||
|
Period |
Comprehensive Income (Loss) |
Net Margin |
|
Six Mos. Ended December 31, 2022 |
$ (2,808,491) |
-4.8% |
|
FYE June 30, 2022 |
$ (1,991,238) |
-3.4% |
|
FYE June 30, 2021 |
$ 2,928,105 |
5.0% |
|
Cash Flow From Operations |
||
|
Period |
Cash Flow From Operations |
|
|
Six Mos. Ended December 31, 2022 |
$ 8,825,313 |
|
|
FYE June 30, 2022 |
$ (7,557,566) |
|
|
FYE June 30, 2021 |
$ 5,024,329 |
|
(Source – SEC)
As of December 31, 2022, Ispire had $84.3 million in cash and $115 million in total liabilities.
Free cash flow during the twelve months ended December 31, 2022, was $9 million.
Ispire Technology Inc. IPO Details
Ispire intends to raise $42 million in gross proceeds from an IPO of its common stock, offering six million shares at a proposed midpoint price of $7.00 per share.
In addition, two selling shareholders are offering up to 1.75 million shares of common stock at the IPO price.
No existing shareholders have indicated an interest in purchasing shares at the IPO price.
Assuming a successful IPO, the company’s enterprise value at IPO would approximate $309 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:
to establish manufacturing operations in Vietnam and the United States
for research and development activities, which include our efforts to develop new products and new vaping technology
for the marketing and promotion of our branded products;
together with any proceeds from the over-allotment option, for general administration and working capital.
(Source – SEC)
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, management said it is not aware of any legal proceeding that would have a material adverse effect on its business.
However, the firm has responded to a U.S. FDA document request regarding marketing practices for its Aspire-branded products.
The listed bookrunners of the IPO are US Tiger Securities, TFI Securities and SPDB International.
Valuation Metrics For Ispire
Below is a table of relevant capitalization and valuation figures for the company:
|
Measure [TTM] |
Amount |
|
Market Capitalization at IPO |
$392,000,000 |
|
Enterprise Value |
$309,232,396 |
|
Price / Sales |
3.93 |
|
EV / Revenue |
3.10 |
|
EV / EBITDA |
-69.49 |
|
Earnings Per Share |
-$0.11 |
|
Operating Margin |
-4.46% |
|
Net Margin |
-6.09% |
|
Float To Outstanding Shares Ratio |
10.71% |
|
Proposed IPO Midpoint Price per Share |
$7.00 |
|
Net Free Cash Flow |
$9,038,546 |
|
Free Cash Flow Yield Per Share |
2.31% |
|
Debt / EBITDA Multiple |
-9.10 |
|
CapEx Ratio |
17.36 |
|
Revenue Growth Rate |
24.57% |
(Source – SEC)
Commentary About Ispire’s IPO
ISPR is seeking U.S. public capital market investment to expand its manufacturing base and for other corporate growth efforts.
The company’s financials have produced increasing topline revenue, growing gross profit but fluctuating gross margin, higher operating losses and a swing to cash flow from operations.
Free cash flow for the twelve months ended December 31, 2022, was $9 million.
Sales and Marketing expenses as a percentage of total revenue have varied as revenue has increased; its Sales and Marketing efficiency multiple rose slightly to 4.8x in the most recent reporting period.
The firm has a dividend payable balance to Chairman Liu of $3.4 million and has made no other plans or statements regarding its dividend policy, if any.
The company’s CapEx Ratio indicates it has spent lightly on capital expenditures as a percentage of its operating cash flow.
The market opportunity for e-cigarette and vaping products is forecast to grow rapidly in the coming years, so the firm enjoys strong industry growth dynamics in its favor.
US Tiger Securities is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (65.8%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.
Risks to the company’s outlook as a public company include its exposure to regulatory risks that may negatively impact its growth trajectory in any of the regions in which it operates.
Large areas of the EU have not legalized the recreational use of cannabis and the product remains illegal in many U.S. states.
As for valuation, management is asking investors to pay an Enterprise Value/Revenue multiple of approximately 3.1x.
It appears that management has taken steps to remove the company from its former Chinese operational base to ensure that it does not fall under China’s increasingly strict regulatory restrictions on vaping products.
Its activity in the U.S. has also resulted in revenue reduction there, while its expansion into cannabis vaping products is still in its early stages in Canada and the EU.
So, while the company is taking steps to diversify its revenue streams, it still faces significant regulatory risks in the U.S. and Europe.
Interested investors could make a bullish case for the IPO due to the company’s growth rate, positive cash flow and small operating losses, but I’m more cautious about the firm’s near-term prospects.
I’m on Hold for the Ispire Technology IPO.
Expected IPO Pricing Date: To be announced.