The Offer

Company Overview

ELGP, a high-touch, best-in-class moving, and storage firm, was established in 2013 to provide domestic concierge services and international relocation solutions for private, public, and business clients in the US and Canada. Seven metro areas on the U.S. east coast are the current focus of ELGP. The company's present operating base in Brooklyn, New York, largely serves the seven metro regions that it now services. With a growing fleet of trucks and competent relocation, the staff made up of 27 full-time and 5 part-time personnel, ELGP now serves these markets. Disassembly, packing, unpacking, re-setup, and short-term storage are all included in ELGP's full moving services.

Key Highlights

Primary Offering: 1,250,000 Common Units, each consisting of one share of Class A common stock. After this offering, investors have the option to buy Pre-funded Warrants instead of Class A Shares. These Pre-funded Warrants can be exercised at any time until all of them are fully exercised, with an exercise price of USD0.001 each. The number of Class A Shares offered will be reduced by one for one for each Pre-funded Warrant purchased, and a maximum of 1,250,000 Pre-funded Warrants are available for purchase. The offer will have a net proceeds of USD 3,986,712, or approximately USD4,676,712 if the Underwriter exercises its over-allotment option in full, at an initial public offering price of USD4.00 per Class A Share.

Use of proceeds:

ELGP estimates that, assuming the exercise of any Pre-funded Warrants and without the Underwriter's over-allotment option exercise, the net proceeds from this offering will be approximately 3,986,712 USD. If the Underwriter exercises its over-allotment option in full, this figure would be approximately 4,676,712 USD, based on an initial public offering price of 4.00 USD per Class A Share. These estimates are after deducting anticipated underwriting discounts, commissions, and estimated offering expenses of 613,288 USD, which ELGP is expected to bear.

The intended allocation of the net proceeds (assuming Pre-funded Warrant exercise and no over-allotment option exercise by the Underwriter) is as follows: approximately 27% or 1.1 million USD for general corporate purposes, including working capital; approximately 22% or 0.9 million USD for expanding service lines into additional states and extending cross-border services to Canada; approximately 33% or 1.3 million USD for entry into and development of the storage facility segment, including potential acquisitions; approximately 4% or 0.2 million USD for debt repayment; and approximately 14% or 0.6 million USD for capital expenditures to increase the vehicle fleet and other tooling. ELGP plans to secure additional capital for vehicle fleet expansion and storage facility segment capital requirements through bank financing. Debt repayment relates to trade payables with no specific payment terms.

It's important to note that each 1.00 USD increase (decrease) in the initial public offering price of 4.00 USD per Class A Share would result in a corresponding increase (decrease) of ELGP's net proceeds by approximately 1.15 million USD, assuming the number of Class A Shares and/or Pre-funded Warrants offered remains constant. Additionally, an increase (decrease) of 500,000 in the number of Class A Shares and/or Pre-funded Warrants offered, with no change in the 4.00 USD initial offering price, would result in net proceeds increase (decrease) of 1.84 million USD from this offering.

Dividend policy: All dividends to holders of common stock will be declared and paid at the Board of Directors' discretion and will be based on a variety of factors, including the company's financial situation, earnings, compliance with applicable laws, and any debt agreements to which it is then a party, as well as other factors that the Board of Directors deems relevant.

Industry and competitive analysis

• By 2026, it is anticipated that the U.S. moving services market would reach USD 22.5 billion, expanding at a 5% compound yearly growth rate (CAGR). At 61% of the market, residential moving services are thought to be the industry's largest section, with commercial moving services accounting for 16%. The movement of other items necessitating specialized handling and warehousing services makes up most of the remaining market.

• The COVID-19 epidemic had a devastating impact on the transportation business, as it did on most other industries. However, in regions where lockdowns were required, movers were permitted to continue operating since they provided a necessary service.
• In 2020 and 2021, Americans moved to less-populated places and closer to their family, according to yearly research published by United Van Lines. The survey found that in 2021, 31.8% of Americans who moved did so to be nearer to family, up from 27% in 2020. This shows a new trend emerging as priorities and lifestyle choices change because of the epidemic. Additionally, just 32.5% of Americans relocated for a new job or a job transfer in 2021, down significantly from more than 60% in 2015 and from 40% in 2020.
• IBISWorld projects that the USD 41.5 billion U.S. self-storage industry will develop at a 2.2% compound yearly growth rate and reach USD 44.5 billion by 2024. Job growth, population expansion, rising migration, and baby boomer house downsizing are all growth factors. 10.6% of U.S. households leased a self-storage unit in 2020, up from 6% in 1996, according to the SSA Self-Storage Demand Study 2020.

Financial Highlights (Expressed in USD):

Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022

• Net Income: In the three months ending June 30, 2023, the company reported a net income of USD 45,066, marking a significant 61% decrease compared to the same period in 2022. This reduction is primarily attributed to the company incurring higher professional fees associated with preparing for public company filings and increased stock-based compensation expenses.
• Revenue: Operating revenue for the three months ending June 30, 2023, amounted to USD 1,324,326, indicating a 9% decrease from the USD 1,452,990 recorded in the same period in 2022. The primary reason behind this decline is the shift of government and commercial moving projects from the second quarter of 2023 to the first quarter of the same year.
• Cost of Revenues: The cost of revenues for the three months ending June 30, 2023, stood at USD 649,080, representing a 2% decrease from the USD 663,950 in the same period in 2022. Several components within the cost structure, including courier services, rent expenses, vehicle-related costs, movers' salaries, and other expenditures, had varying impacts on gross margins.
• Operating Expenses: Operating expenses for the three months ending June 30, 2023, amounted to USD 637,893, marking a 16% increase from the USD 547,387 recorded in the same period in 2022. This increase was driven by significant expenses in categories such as salaries, wages, payroll taxes, benefits, postage, printing expenses, rent, and advertising fees.
• Income from Operations: Income from operations in the three months ending June 30, 2023, was USD 37,353, indicating a substantial 85% decrease compared to the same period in 2022.
• Interest and Taxes: Interest expenses decreased by USD 12,748 in the three months ending June 30, 2023, primarily due to the repayment of Britt family short-term loans in November 2022. Furthermore, the company experienced an income tax benefit of USD 8,103 in this period, reflecting an effective tax rate of -21.9%, in contrast to the 48% effective tax rate in the same period in 2022.
• Liquidity and Capital Resources: As of June 30, 2023, the company held USD 516,816 in cash and cash equivalents, with notes payable amounting to USD 213,488. This demonstrates an increase in cash and cash equivalents compared to the figures reported on December 31, 2022.
  

Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022

• As of June 30, 2023, the company's cash and cash equivalents stood at approximately USD 516,816, reflecting an USD 86,636 increase from the end of 2022.
• Operating Activities: For the six months ending June 30, 2023, cash provided by operating activities amounted to USD 220,001, a notable decrease compared to the USD 481,625 reported in the same period in 2022. The reduction of USD 261,624, or 54%, was primarily due to an increase in accounts receivable linked to larger government moving projects.
• Investing Activities: During the six months ending June 30, 2023, the company utilized USD 59,264 in investing activities, contrasting with the USD 1,050 used in the same period in 2022. The increase of USD 58,214 resulted from the purchase of a truck during this six-month period.
• Financing Activities: In the six months ending June 30, 2023, the company reported cash used in financing activities amounting to USD 74,101, a decrease from the USD 205,995 reported in the same period in 2022. This decline was primarily due to reduced expenses related to offering costs.

Key Management Highlights

Risk Associated (High)

Investment in the IPO of “ELGP” is exposed to a variety of risks such as:

• Economic and business risk: The market for residential and commercial moving and storage facilities is quite cyclical, and the company's performance depends on a variety of factors that might be unfavorable. These factors include but are not limited to, general economic instability, turbulence in the residential and commercial real estate markets, fluctuation in fuel costs, and ambiguity around laws directed at the fossil fuel and transportation sectors.
• Stiff competition: The organization faces competitive challenges related to pricing, capacity, and service since the commercial and residential moving sector is extremely competitive and fragmented. The operational sectors of ELGP compete against several residential and commercial moving businesses. The residential and commercial moving business in North America is extremely competitive and dispersed. Some rivals could have better access to resources like equipment, a bigger fleet, a wider range of services, preferential dedicated client contracts, more cash, or other competitive advantages. It may be difficult for ELGP to maintain or increase its profitability due to a variety of competitive reasons.
• Fluctuation in fuel prices and failure of capital investment risks: Due to outside forces beyond the company's control, the cost of diesel and gasoline can change significantly. These forces include but are not limited to, governmental actions, terrorist attacks, pandemics, armed conflicts, the dollar's decline against other currencies, extreme weather, such as hurricanes, and other natural or man-made disasters. Fuel dependence means that major price hikes, shortages, or supply interruptions might have a materially negative impact on the business's operational results and financial health. If the capital investments do not meet customer demand for invested resources or if finance sources for these expenditures become less readily available, ELGP's profitability may be severely negatively impacted.

Conclusion

ELGP's recent financial performance reflects a mix of positive and negative factors. While the company reported a net income of USD 45,066 in the three months ending June 30, 2023, demonstrating profitability, this represents a significant 61% decrease from the same period in 2022, which could be viewed as a downside. The decrease in net income is attributed to higher professional fees and increased stock-based compensation expenses. Similarly, the 9% decrease in operating revenue, amounting to USD 1,324,326, is a concerning trend, primarily due to the shift of moving projects from the second quarter of 2023 to the first quarter. On the positive side, the cost of revenue decreased by 2%, reflecting some cost management. However, operating expenses surged by 16%, driven by various factors, including salaries and advertising fees, which is a notable negative aspect. The substantial 85% decrease in income from operations in the same period further raises concerns. A positive point is the decrease in interest expenses and the income tax benefit in this period, reflecting cost savings and improved tax efficiency.

Looking ahead, ELGP's growth prospects appear promising, with plans to expand service lines, enter the storage facility segment, and increase the vehicle fleet. The company is operating in a growing moving services market with a projected USD 22.5 billion valuation by 2026. Additionally, the impact of the COVID-19 pandemic on the transportation sector had a milder effect on movers, as they were considered essential. Changing societal priorities and trends, with more people moving for family reasons rather than jobs, indicates evolving opportunities. In addition, the self-storage industry, a segment ELGP is considering entering, is forecasted to grow, presenting potential for diversification. However, stiff competition in the industry is a notable risk, and the cyclical nature of the market and fluctuating fuel prices pose additional challenges. Furthermore, ELGP faces potential risks related to capital investments and debt repayment.

Overall, while there are growth prospects, ELGP's performance shows a mix of positive and negative financial trends. Hence, given the financial performance of the company, consistent revenue, decreased net income, industry analysis, use of proceeds, and associated risks “Elate Group Inc (ELGP)” IPO seems “Neutral" at the IPO price.

** ELGP has already been covered as on 23^rd January 2023, but as the company postponed the IPO, an updated report (latest financials) has been released by Kalkine Group.

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