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Ondas Networks Files For U.S. IPO – Seeking Alpha

Quick Take

Ondas Networks (OTCQB:ONDS) has filed to raise gross proceeds of $46 million from a U.S. IPO, according to an S-1 registration statement.

The firm provides wireless radio technologies for mission-critical IoT (Internet of Things) and other wireless applications.

ONDS seeks to provide the software-defined wireless market with a more cost-effective system.

Company & Technology

Sunnyvale, California-based Ondas Networks was founded in 2006 to provide wireless data radio technologies for IoT applications in the electric utilities, oil & gas, water, rail, transportation as well as government industries.

Management is headed by Chairman and CEO Eric A. Brock, who has been with the firm since 2017 and was previously Portfolio Manager at Clough Capital Partners.

Ondas’ lead product is FullMAX, a software defined radio [SDR] system consisting of a wireless base station, fixed and mobile remote radios as well as supporting technology for wide-area broadband networks that enable secure industrial-grade connectivity.

The company’s SDR equipment is fully IEEE 802.16s compliant, has the ability to use frequencies between 30 MHz and 6 GHz, and has a wide coverage of up to 30 miles away from the tower.

Management calculates the total area coverage per FullMAX tower to be up to 2,800 square miles and compares it to the average of 4G tower, which they claim to be around 28 square miles.

“For example, to cover a territory of over 10,000 square miles may require only four FullMAX towers compared with more than 350 typical 4G towers, depending on the topography of the region.”

Besides their FullMAX technology, Ondas provides network design, RF planning, product training and spectrum consulting, technical support and related software.

Below is an overview image of the company’s target industries and applications:

Customer Acquisition

Ondas markets its products to critical infrastructure providers through a direct sales force, third-party resellers, customer referrals, consultant referrals, trade show attendance, general marketing efforts as well as public relations.

Sales and marketing expenses as a percentage of revenue increased dramatically in 2018, per the table below:

Sales & Marketing

Expenses vs. Revenue

Period

Percentage

2018

1524.9%

2017

183.2%

Sources: Company registration statement andIPO Edge

The sales efficiency rate, defined as how many dollars of additional gross profit are generated by each dollar of sales & marketing spend, was 0.4 in the most recent year, as shown in the table below:

Sales & Marketing

Efficiency Rate

Period

Multiple

2018

0.4

2017

Sources: Company registration statement and IPO Edge

Market & Competition

According to a recent market research report by MarketsAndMarkets, the global software defined radio wireless broadband industry is expected to reach $30 bill by 2022,

This represents an 8.63% CAGR between 2017 and 2022.

The land-based commercial segment is expected to lead demand growth due to increased investment by private operators in improved technologies.

Major competitors that provide or are developing software-defined wireless technologies include:

Source: Sentieo

The company’s technology is, according to their website, cheaper to install than LTE 4G or 5G networks due to the lower costs of the radio frequency spectrum and provides larger coverage of up to 30 miles from a tower.

Financial Performance

ONDS’s recent financial results can be summarized as follows:

  • Low and dropping topline revenue
  • Decreasing gross profit
  • Increasing gross margin
  • Higher operating losses
  • Increased cash used in operations

Below are relevant financial metrics derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

2018

$190,029

-30.7%

2017

$274,403

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

2018

$150,664

-22.6%

2017

$194,635

Gross Margin

Period

Gross Margin

2018

79.28%

2017

70.93%

Operating Profit (Loss)

Period

Operating Profit (Loss)

EBITDA Margin

2018

-$8,435,533

-4439.1%

2017

-$2,394,337

-872.6%

Cash Flow From Operations

Period

Cash Flow From Operations

2018

-$8,517,263

2017

-$2,630,482

Sources: Company registration statement and IPO Edge

As of December 31, 2018, the company had $1.1 million in cash and $17.5 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2018, was a negative ($9.1 million).

IPO Details

ONDS intends to raise $46.0 million in gross proceeds from an IPO of its common stock, not including customary underwriter options.

Per the firm’s latest filing, it plans to use the net proceeds from the IPO as follows:

We currently expect that we will use the net proceeds from this offering, together with our existing cash and cash equivalents, as follows: (1) to continue research and development future configurations of our FullMAX platform; (2) to build product inventory to support expected increased levels of customer sales activity; (3) to repay the principal and accrued interest on outstanding debt of [an as-yet undisclosed amount] and (4) for other general corporate purposes.

Management further states that it believes the IPO net proceeds together with its cash on hand will fund the company ‘through at least the next twelve months.’

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

There are no listed underwriters for the IPO.

Expected IPO Pricing Date: To be announced.

An enhanced version of this article on my Seeking Alpha Marketplace research service IPO Edge includes my full commentary and opinion on the IPO.

Members of IPO Edge get the latest IPO research, news, and industry analysis. Get started with a free trial!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.


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