Sky Technologies Aims For $18 Million IPO

Feb. 09, 2022 12:33 PM ETSKYX Platforms Corp. (SKYX)8 Comments

Summary

  • Sky Technologies has filed proposed terms for an $18 million IPO.
  • The firm is commercializing an advanced power plug and related smartphone app system.
  • SKYX management is seeking excessive valuation multiples that assume flawless execution of its transition to a new line of products and related fast revenue ramp.
  • I'll watch the IPO from the sidelines.
  • Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Learn More »

Modern Living Room And Open Plan Kitchen At Night With Neon Lights.

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A Quick Take On Sky Technologies

Sky Technologies (NASDAQ:SKYX) has filed to raise $18 million in an IPO of its common stock, according to an S-1/A registration statement.

The firm provides plug-and-play electric outlet technologies for the home.

Management is seeking excessive valuation multiples that assume flawless execution of its transition to a new line of products and related fast revenue ramp.

Given the ultra-high valuation expectations, I'll pass on the IPO.

Company & Technology

Johns Creek, Georgia-based Sky was founded to develop a universal power plug device and related management app that makes it easier to install light fixtures and ceiling fans.

Management is headed by Chief Executive Officer John P. Campi, who has been with the firm since 2014 and was previously Chief Procurement Officer at Chrysler.

The company's primary offerings include:

  • Sky Plug & Receptacle

  • SkyHome App

Sky has booked fair market value investment of $54.5 million as of September 30, 2021 from investors including Motek 7 SQL, Strul Associates and Steven Siegelaub.

The firm has disclosed no company-specific ESG initiatives.

Sky - Customer Acquisition

The firm expects to distribute and sell its products through an omni-channel approach.

Management expects its primary customers to be 'retail consumers, retail showrooms, builder residential/commerce, hotels, OEM and licensing.'

Selling, G&A expenses as a percentage of total revenue have risen sharply as revenues have decreased, as the figures below indicate:

Selling, G&A

Expenses vs. Revenue

Period

Percentage

Nine Mos. Ended Sept. 30, 2021

2959.3%

2020

3342.0%

2019

432.7%

(Source)

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, was 0.0x in the most recent reporting period, as shown in the table below:

Selling, G&A

Efficiency Rate

Period

Multiple

Nine Mos. Ended Sept. 30, 2021

0.0

2020

-0.4

(Source)

Sky's Market & Competition

According to a 2021 market research report by Mordor Intelligence, the global market for smart home products and related services was an estimated $79 billion in 2020 and is expected to reach $314 billion by 2026.

This represents a forecast CAGR of 25.3% from 2021 to 2026.

The main drivers for this expected growth are a desire by consumers for greater home operation efficiency and convenience and improved technology options by suppliers.

Also, mobile wireless operators such as T-Mobile (TMUS) plan to enter the market, with a 5G-based home network offering planned by 2024.

Major competitive or other industry participants include:

  • Casainc

  • Global Electric

  • Designers

  • Minca

  • Fountain

  • Enbrighten

  • NBG

  • Minka

  • Hampton Bay

  • Hunter

  • Fanomation

  • Smart Home software and system providers

  • Others

Sky Technologies' Financial Performance

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

  • Contracting topline revenue

  • Reduced gross loss

  • Lowered operating losses

  • Variable cash used in operations

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

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Nine Mos. Ended Sept. 30, 2021

$ 106,577

-57.2%

2020

$ 258,376

-93.2%

2019

$ 3,809,752

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

Nine Mos. Ended Sept. 30, 2021

$ (24,022)

-90.0%

2020

$ (244,657)

-193.8%

2019

$ 260,722

Gross Margin

Period

Gross Margin

Nine Mos. Ended Sept. 30, 2021

-22.54%

2020

-94.69%

2019

6.84%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Nine Mos. Ended Sept. 30, 2021

$ (3,241,244)

-3041.2%

2020

$ (8,985,977)

-3477.9%

2019

$ (16,329,999)

-428.6%

Net Income (Loss)

Period

Net Income (Loss)

Net Margin

Nine Mos. Ended Sept. 30, 2021

$ (3,946,300)

-3702.8%

2020

$ (9,372,311)

-8793.9%

2019

$ (16,882,905)

-15841.0%

Cash Flow From Operations

Period

Cash Flow From Operations

Nine Mos. Ended Sept. 30, 2021

$ (2,833,094)

2020

$ (3,129,293)

2019

$ (6,186,889)

(Glossary Of Terms)

(Source)

As of September 30, 2021, Sky had $2.2 million in cash and $12.8 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2021, was negative ($3.7 million).

Sky Technologies' IPO Details

Sky intends to raise $18 million in gross proceeds from an IPO of its common stock, offering 1.5 million shares at a proposed midpoint price of $12.00 per share.

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

Assuming a successful IPO, the company's enterprise value at IPO would approximate $951 million, excluding the effects of underwriter over-allotment options.

The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 1.85%. 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:

We intend to use the net proceeds from this offering, including any net proceeds from the underwriters' exercise of the over-allotment option to purchase additional shares from us, for general corporate purposes.

(Source)

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

Regarding outstanding legal proceedings, management says there are no legal proceedings against the company.

The sole listed bookrunner of the IPO is The Benchmark Company.

Valuation Metrics For Sky

Below is a table of relevant capitalization and valuation figures for the company:

Measure [TTM]

Amount

Market Capitalization at IPO

$972,820,560

Enterprise Value

$951,199,788

Price/Sales

8402.46

EV/Revenue

8215.72

EV/EBITDA

-132.24

Earnings Per Share

-$0.10

Operating Margin

-6212.63%

Net Margin

-6749.09%

Float To Outstanding Shares Ratio

1.85%

Proposed IPO Midpoint Price per Share

$12.00

Net Free Cash Flow

-$3,693,410

Free Cash Flow Yield Per Share

-0.38%

Revenue Growth Rate

-57.23%

(Glossary Of Terms)

(Source)

Commentary About Sky's IPO

SKYX is seeking public capital market funding for its general unspecified corporate requirements.

The company's financials have generated contracting topline revenue, lowered gross loss, reduced operating losses and uneven cash used in operations.

Free cash flow for the twelve months ended September 30, 2021, was negative ($3.7 million).

Selling, G&A expenses as a percentage of total revenue has jumped as revenue has contracted; its Selling, G&A efficiency rate was 0.0x in the most recent reporting period.

The firm currently plans to pay no dividend on its common stock and anticipates that future earnings will be reinvested in the company. Class A preferred shareholders are accruing a 6% annual interest rate, paid quarterly.

The market opportunity for smart home products is very large and is expected to grow at a high rate of growth in the coming years, so the firm enjoys strong industry growth dynamics in its favor.

The Benchmark Company is the lead underwriter, and IPOs led by the firm over the last 12-month period have generated an average return of negative (43.8%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

The primary risk to the company's outlook is the current transition from an earlier version of its product to its next-generation product and related smartphone app.

As for valuation, management is seeking excessive valuation multiples that assume flawless execution of its transition to a new line of products and related fast revenue ramp.

Given the ultra-high valuation expectations, I'll pass on the IPO.

Expected IPO Pricing Date: February 9, 2022

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