Elevai Labs Seeks Micro-IPO Despite Little Revenue

A Quick Take On Elevai Labs, Inc.

Elevai Labs, Inc. (ELAB) has filed to raise $7.5 million in an IPO of its common stock, according to an SEC S-1 registration statement.

The firm develops and sells topical aesthetic skincare products.

Given management's excessive valuation assumptions, little revenue and growing losses, my opinion on the IPO is bearish [Sell].

Elevai Overview

Newport Beach, California-based Elevai Labs, Inc. was founded to develop aesthetic skincare products from human umbilical cord-derived cells.

Management is headed by co-founder, President and CEO Jordan R. Plews, PhD, who has been with the firm since its inception in 2020 and was previously part of Pfizer's bioprocess development group.

The company's primary offerings include the following:

• Empower serum.

• Enfinity serum.

The firm's products are only available through physician clinics or medically directed businesses with a medical professional on staff, such as medical spas.

Management is also evaluating its products to promote healthy hair growth, appearance, fullness and thickness.

As of June 30, 2023, Elevai has booked fair market value investment of $5.15 million from investors, including BWL Investments, GB Capital, JP Bio Consulting, Hatem Abou-Sayed MD, and Hongyu Wang.

Elevai Customer Acquisition

The company sells its product through a B2B business model and through distribution agreements.

Elevai has not yet made any international sales, except for product sales made by its Canadian and Vietnamese distributors.

Office and Administrative expenses as a percentage of total revenue have remained well above revenue as revenues have creased, as the figures below indicate:

(Source - SEC)

The Office and Administrative efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Office and Administrative expense, fell to 0.3x in the most recent reporting period, as shown in the table below:

(Source - SEC)

Elevai's Market & Competition

According to a 2023 market research report by Grand View Research, the global market for skin care products was an estimated $136 billion in 2022 and is forecast to reach $196 billion by 2030.

This represents a forecast CAGR of 4.7% from 2023 to 2030.

The main drivers for this expected growth are growing demand for face creams, body lotions and sunscreens for protective and aesthetic purposes.

Also, the e-commerce channel is expected to increase market growth due to increasing ease of purchase and product delivery.

The chart below shows the historical and projected future growth trajectory of the U.S. skin care products market by type of product:

Major competitive or other industry participants include the following:

• L'Oréal S.A.

• SkinMedica.

• ZO Skin Health.

• PCA Skin.

• EltaMD.

• Dermalogica and Murad.

• Alastin Skincare.

Elevai Labs, Inc. Financial Performance

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

• Growing topline revenue from a tiny base.

• Increasing gross profit but variable gross margin.

• Higher operating losses.

• Growing cash used in operations.

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

(Source - SEC).

As of June 30, 2023, Elevai had $601,265 in cash and $1.7 million in total liabilities.

Free cash flow during the twelve months ending June 30, 2023, was negative ($2.8 million).

Elevai Labs, Inc. IPO Details

Elevai intends to raise $7.5 million in gross proceeds from an IPO of its common stock, offering 1.5 million shares at a proposed price of $5.00 per share.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

The firm will be a smaller reporting company and emerging growth company and will take advantage of reduced reporting requirements. This will likely result in significantly reduced information available to public investors.

Assuming a successful IPO, the company's enterprise value at IPO would approximate $81 million, excluding the effects of underwriter over-allotment options.

The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 8.66%. The stock may be subject to high volatility in the market due to the small float size.

Management says it will use the net proceeds from the IPO as follows:

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

Regarding outstanding legal proceedings, management said there are 'no active legal proceedings pending or threatened against the Company.'

The sole listed book runner of the IPO is Univest Securities.

Valuation Metrics For Elevai

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

(Source - SEC).

Commentary About Elevai's IPO

ELAB is seeking U.S. public capital market investment to fund its general working capital needs.

The firm's financials have produced increasing topline revenue from a tiny base, growing gross profit but variable gross margin, higher operating losses and cash used in operations.

Free cash flow for the twelve months ending June 30, 2023, was negative ($2.8 million).

Office and Administrative expenses as a percentage of total revenue have remained well above revenue; its Office and Administrative efficiency multiple fell to 0.3x in the most recent reporting period.

The firm currently plans to pay no dividends and to keep any future earnings for its future operations and growth initiatives.

ELAB's recent capital spending history indicates it has continued to spend on capital expenditures despite its operating cash use.

The market opportunity for skin care products is large and expected to grow at a moderate growth rate in the coming years.

Business risks to the company's outlook as a public company include its tiny size and lack of revenue base.

Management is seeking an Enterprise Value/Revenue multiple of approximately 78.55x, an extremely high figure for a company with little revenue.

Given management's excessive valuation assumptions, little revenue and growing losses, my outlook on the IPO is bearish [Sell].

Expected IPO Pricing Date: To be announced.

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