Innovative Eyewear Seeks IPO For Consumer Smartglasses Ramp Up

A Quick Take On Innovative Eyewear

Innovative Eyewear (LUCY) has filed to raise $15 million in an IPO of its units consisting of common stock and warrants, according to an S-1/A registration statement.

The firm designs and sells technology-enabled glasses for consumer use.

LUCY is still extremely small and may struggle to get distribution and consumer buy-in for such a specialty product concept at the retail level.

The IPO is very highly priced, so I’m on Hold for the LUCY IPO.

Company & Technology

Miami, Florida-based Innovative was founded to license eyeglass computing and related technologies from Lucyd Ltd., a UK-based technology company.

Management is headed by co-founder and CEO Harrison Gross, who has been with the firm since inception in August 2019 and was previously CEO of Lucyd Ltd., licensor of the company’s primary technologies.

The company’s primary offering is its Lucyd Lyte glasses with 56 lens types and 12 styles of product.

Innovative has booked fair market value investment of $3.3 million as of September 30, 2021.

The firm has not disclosed any company level ESG initiatives.

Innovative – Customer Acquisition

The firm markets its product through a variety of ecommerce channels as well as through retailers of various types and sizes.

The company’s primary ecommerce point of sale is its website, lucyd.co, which offers the full range of its product line.

Sales and Marketing expenses as a percentage of total revenue have trended higher as revenues have increased, as the figures below indicate:

Sales and Marketing	Expenses vs. Revenue
Period	Percentage
Nine Mos. Ended Sept. 30, 2021	217.7%
2020	268.0%
2019	60.7%

(Source)

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, rose to 0.4x in the most recent reporting period, as shown in the table below:

Sales and Marketing	Efficiency Rate
Period	Multiple
Nine Mos. Ended Sept. 30, 2021	0.4
2020	0.3

(Source)

Innovative’s Market & Competition

According to a 2021 market research report by Allied Market Research, the global market for AR/VR smart glasses was an estimated $8.3 billion in 2019 and is forecast to reach $33 billion by 2027.

This represents a forecast CAGR of 16.6% from 2020 to 2027.

The main drivers for this expected growth are demand from industrial use cases and gaming applications.

Also, the chart below shows the relative position changes for various segments utilizing smart glasses.

Major competitive or other industry participants include:

• Bose

• Amazon

• Snapchat

• Ray-Ban

Innovative Eyewear Financial Performance

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

• Sharply growing topline revenue from a tiny base

• A swing to positive gross profit and gross margin

• Increasing operating losses

• Growing 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	$ 415,185	1136.0%
2020	$ 56,997	1082.3%
2019	$ 4,821
Gross Profit (Loss)
Period	Gross Profit (Loss)
Nine Mos. Ended Sept. 30, 2021	$ 82,807
2020	$ (17,269)
2019	$ (2,914)
Gross Margin
Period	Gross Margin
Nine Mos. Ended Sept. 30, 2021	19.94%
2020	-30.30%
2019	-60.44%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Nine Mos. Ended Sept. 30, 2021	$ (1,825,440)	-439.7%
2020	$ (765,338)	-1342.8%
2019	$ (109,427)	-2269.8%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
Nine Mos. Ended Sept. 30, 2021	$ (1,859,094)	-447.8%
2020	$ (768,184)	-185.0%
2019	$ (109,427)	-26.4%
Cash Flow From Operations
Period	Cash Flow From Operations
Nine Mos. Ended Sept. 30, 2021	$ (810,446)
2020	$ (40,263)
2019	$ –
(Glossary Of Terms)

(Source)

As of September 30, 2021, Innovative had $65,056 in cash and $665,595 in total liabilities.

Free cash flow during the twelve months ended September 30, 2021, was negative ($920,699).

Innovative Eyewear IPO Details

Innovative intends to raise $15 million in gross proceeds from an IPO of 2.85 million of its units consisting of common stock and one warrant per share; the warrant will be exercisable immediately but no exercise price has been disclosed.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

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 $34 million, excluding the effects of underwriter over-allotment options.

The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 31.85%. 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:

(Source)

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

Regarding outstanding legal proceedings, management says the firm is ‘not currently subject to any material legal proceedings.’

The sole listed bookrunner of the IPO is Maxim Group.

Valuation Metrics For Innovative

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

Measure [TTM]	Amount
Market Capitalization at IPO	$47,099,110
Enterprise Value	$34,026,960
Price / Sales	107.39
EV / Revenue	77.58
EV / EBITDA	-16.72
Earnings Per Share	-$0.22
Operating Margin	-463.91%
Net Margin	-472.23%
Float To Outstanding Shares Ratio	31.85%
Proposed IPO Midpoint Price per Share	$5.25
Net Free Cash Flow	-$920,699
Free Cash Flow Yield Per Share	-1.95%
Revenue Growth Rate	1135.96%
(Glossary Of Terms)

(Source)

Commentary About Innovative’s IPO

LUCY is seeking public investment to continue its commercialization efforts for its flagship smart glasses products.

The firm’s financials have shown growing topline revenue from a tiny base, a swing to positive gross profit, growing operating losses and increasing cash used in operations.

Free cash flow for the twelve months ended September 30, 2021, was negative ($920,699).

Sales and Marketing expenses as a percentage of total revenue have trended higher as revenue has increased; its Sales and Marketing efficiency rate rose to 0.4x in the most recent reporting period.

The firm currently plans to pay no dividend on its shares and anticipates that it will use any future earnings for company investment.

The market opportunity for smart glasses is large and expected to grow at a strong rate over the coming years, although much of that growth may be in industrial/business sectors rather than consumer use.

Maxim Group is the sole underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 99.5% since their IPO. This is a top-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is the strong competitive landscape against which it must compete.

As for valuation, management seeks an Enterprise Value / Revenue multiple of over 77x, which effectively means the IPO is priced for perfection.

To sweeten the offering, management is offering one warrant for each share purchased, although we don’t know the exercise price.

This structure has become a trend lately for micro-cap IPOs, but the jury is out on whether that will be an effective long-term strategy.

In any event, the company is still extremely small and may struggle to get distribution and consumer buy-in for such a new product concept at the retail level.

I’m on Hold for the LUCY IPO.