IPO Update: Genius Group Seeks $40 Million U.S. IPO

Mar. 11, 2022 3:03 PM ETGenius Group Limited (GNS)2 Comments1 Like

Summary

  • Genius Group Limited has filed proposed terms for a $40 million IPO.
  • The company provides online and offline educational services.
  • GNS has a lack of focus and high valuation expectations, so I'll watch the IPO from the sidelines.
  • Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Learn More »

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A Quick Take On Genius Group Limited

Genius Group Limited (NYSE:GNS) has filed to raise $40 million from the sale of its common stock in an IPO, according to an amended registration statement.

The company provides a wide range of education services in person and online.

Given the firm's broad market exposure, apparent lack of focus, unusual use of proceeds for an IPO and high valuation expectations, I'm on Hold for the IPO.

Company & Technology

Singapore-based Genius Group was founded to develop education locations and technologies for in-person and online education services globally.

Management is headed by Chairman and CEO Roger Hamilton, who has been with the firm since 2015 and was previously founder of two group subsidiaries.

The company's primary offerings include:

  • GeniusU

  • Entrepreneurs Institute

  • Entrepreneur Resort

  • Education Angels

  • E-Square Education

  • University of Antelope Valley

  • Property Investors Network

Genius Group has received at least $50 million in equity investment from investors.

Customer Acquisition

The company seeks to acquire accredited schools, colleges and universities and integrate them into its platform to scale delivery of their services to a larger market.

The firm's Edtech platform provides students with a wide variety of education and training options, and its assessment products are used by the following firms:

Client List

Client List (SEC EDGAR)

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

General & Administrative

Expenses vs. Revenue

Period

Percentage

Six Months Ended June 30, 2021

48.1%

2020

80.6%

2019

71.4%

(Source - SEC EDGAR)

The General & Administrative efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of General & Administrative spend, swung back into positive territory in the most recent reporting period.

General & Administrative

Efficiency Rate

Period

Multiple

Six Months Ended June 30, 2021

0.6

2020

-0.4

(Source - SEC EDGAR)

Market & Competition

According to a 2020 market research report by Technvaio, the U.S. market for e-learning is forecast to grow by over $21 billion from 2020 to 2024.

This represents a forecast CAGR of 9.8% from 2020 to 2024.

The main drivers for this expected growth are increased consumer demand for more cost-efficient and time-flexible learning programs available on multiple devices rather than having to go to a physical classroom.

Also, the high adoption of mobile devices and the reduction in the cost of Internet bandwidth makes the entry cost for consumers lower than in previous years.

Major competitive or other industry participants include:

  • BYJU

  • Coursera

  • Udemy

  • Udacity

  • LinkedIn Learning

  • Guild Education

  • China East Education

  • Others

Financial Performance

Genius Group's recent financial results can be summarized as follows:

  • Variable topline revenue

  • Reduced gross profit and gross margin

  • Higher operating loss

  • Increased cash used in operations

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

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Six Months Ended June 30, 2021

$ 6,351,731

40.0%

2020

$ 7,633,776

-23.3%

2019

$ 9,949,057

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

Six Months Ended June 30, 2021

$ 1,642,859

-26.8%

2020

$ 3,499,668

-28.9%

2019

$ 4,924,755

Gross Margin

Period

Gross Margin

Six Months Ended June 30, 2021

25.86%

2020

45.84%

2019

49.50%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Six Months Ended June 30, 2021

$ (1,493,423)

-23.5%

2020

$ (2,680,849)

-35.1%

2019

$ (1,038,873)

-10.4%

Net Income (Loss)

Period

Net Income (Loss)

Net Margin

Six Months Ended June 30, 2021

$ (1,629,167)

-25.6%

2020

$ (3,192,314)

-50.3%

2019

$ (1,230,319)

-19.4%

Cash Flow From Operations

Period

Cash Flow From Operations

Six Months Ended June 30, 2021

$ (1,533,350)

2020

$ (2,127,213)

2019

$ (1,285,640)

(Glossary Of Terms)

(Source - SEC EDGAR)

As of June 30, 2021, GNS had $2.1 million in cash and $1.5 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2021, was negative ($2.5 million).

GNS' IPO Details

GNS intends to sell approximately 7.3 million shares of common stock at a proposed midpoint price of $5.50 per share for gross proceeds of approximately $40 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 $132 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 28.5%. 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:

We plan to use approximately $25.1 million of the net proceeds from this offering for strategic acquisitions to cover the cash portion of the acquisition costs for the IPO Acquisitions and the remainder of the net proceeds to ensure sufficient working capital for the acquisitions, development costs of our Edtech platform, working capital, and for general corporate purposes. We do not currently plan to use any of the net proceeds from this offering for additional acquisitions.

The $25.1 million of net proceeds utilized for the cash portion of the Acquisition Costs is made up of the following:

[i] University of Antelope Valley - $24.00 million;

[ii] Property Investors Network - $0.45 million;

[iii] E-Square - $0.67 million.

(Source - SEC EDGAR)

Management's presentation of the company roadshow is available here until the IPO is completed.

Regarding legal proceedings, management did not disclose any characterization of the firm's current exposure to legal claims, if any.

The sole listed underwriter of the IPO is ThinkEquity.

Valuation Metrics For GNS

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

$140,358,807

Enterprise Value

$131,853,875

Price / Sales

14.86

EV / Revenue

13.96

EV / EBITDA

-38.69

Earnings Per Share

-$0.13

Operating Margin

-36.07%

Net Margin

-37.48%

Float To Outstanding Shares Ratio

28.50%

Proposed IPO Midpoint Price per Share

$5.50

Net Free Cash Flow

-$2,537,409

Free Cash Flow Yield Per Share

-1.81%

Revenue Growth Rate

39.97%

(Glossary Of Terms)

(Source - SEC EDGAR)

Commentary About GNS

GNS seeks U.S. public capital market funding to acquire the Antelope Valley University and other corporate growth initiatives.

The company's financials produced fluctuating topline revenue, lowered gross profit and gross margin, increased operating losses and growing cash used in operations.

Free cash flow for the twelve months ended June 30, 2021, was negative ($2.5 million).

General & Administrative expenses as a percentage of total revenue have fluctuated as revenue has varied, and its G&A efficiency multiple was 0.6x in the most recent reporting period.

The firm currently plans to pay no dividends on its capital stock and anticipates that it will retain future earnings to reinvest back into the business.

The market opportunity for providing online and offline educational services is large but the firm faces significant competition from a variety of players.

ThinkEquity is the lead underwriter, and IPOs led by the firm over the last 12-month period have generated an average return of negative (50.7%) 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 that its operations are spread out internationally which presents a variety of challenges.

As for valuation, management is asking IPO investors to pay an EV/Revenue multiple of around 14x, so the IPO appears priced for perfection.

Given the firm's broad market exposure, apparent lack of focus, unusual use of proceeds for an IPO and high valuation expectations, I'm on Hold for the IPO.

Expected IPO Pricing Date: To be announced

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