Volatus Aerospace Corp. (VOL:TSX; VLTTF:OTCQB) produces integrated drone products for the North American, Latin American, and global markets. The company provides civil, public safety, and defense concerns with integrated security, surveillance, logistics, imaging, and inspection aerial solutions, including equipment sales and support, training, research and development, design, and manufacturing.
The firm’s drone-focused business model also includes equipment sales and support, training, research and development, design, and manufacturing.
The company is also introducing green drone solutions to supplement and replace traditional aircraft and helicopters for long-linear inspection duties overseeing pipelines, energy systems, rail interlinks, and cargo operations.
The firm boasts a professional pilot network of 1,200 certified contract pilots across North America, providing coast-to-coast drone-based solutions for existing industries and new use cases. Provided services include assistance for construction and engineering; infrastructure and telecom; property development and maintenance; environmental forestry wildlife conservation; municipal operations, survey, and landfill.
The Catalyst: New Contract, New Acquisition, New Analyst
On March 6, Volatus announced it had secured an annual recurring contract with a "leading pipeline operator" to expand pipeline right-of-way asset and environmental monitoring surveillance in Eastern Canada. The contract will provide an estimated CA$5 million value over the coming three years.
The company already provides data gathering and analysis services to the oil and gas sector through its subsidiaries Canadian Air National and Synergy Aviation. Operations stretch from Kitimat, British Columbia, to Ottawa, Ontario, covering some 1.6 million kilometers of pipeline annually.
Why This Sector? Ideal for Drone Operations
"Light aircraft and helicopters remain the most common solution for pipeline monitoring, but drones are the future," says Volatus CEO Glen Lynch. "We are enhancing our competitive advantage by introducing drones and electric vertical take-off and landing (eVTOL) aircraft in the months and years ahead to supplement and replace conventional aircraft. This will save our clients money, make processes safer, and reduce greenhouse gas emissions."
"Our oil and gas clients need reliable data," adds Synergy Aviation Vice President of Business Development Ben Ruszkowski. "We provide them with cost-effective, environmentally friendly, and high-quality data solutions to protect their right-of-way assets and the environment using our proprietary technology."
According to Lynch, the drone surveillance sector is growing at a CAGR of 17% and is expected to reach US$58 billion by 2026. Despite these huge numbers, the sector is highly fragmented, with no significant global competition.
The Canadian Association of Petroleum Producers tracks 840,000 kilometers of pipelines across Canada, and the requirements for maintaining pipelines are heavily regulated by Provincial and Federal authorities. Regular aerial surveillance is used to anticipate, prevent, and mitigate environmental hazards and potentially dangerous conditions such as pipeline leaks and erosion, encroachment by vegetation, or third-party activities like construction, digging, and plowing.
According to Lynch, the drone surveillance sector is growing at a CAGR of 17% and is expected to reach US$58 billion by 2026. Despite these huge numbers, the sector is highly fragmented, with no significant global competition.
Why This Company? A Growing Stable of Drone Operations
On March 2, Volatus Aerospace Corp. announced a further expansion of its electric utilities monitoring business in the United States via the acquisition of Sky Scape Industries, LLC.
The acquisition was unsurprising, coming from this seasoned management team with over 120 years of combined aviation experience. Volatus has participated in 16 M&A deals in the past two years with 100% leadership retention. Its average M&A multiple of less than 0.6x revenue.
In what the press release called an "arm’s length definitive agreement to acquire Sky Scape Industries," Volatus staked its claim on the New Jersey-based airborne intelligence data services company.
Since 2014, Sky Scape Industries has used remote sensing techniques to provide comprehensive inspection services for facilities, structures, lines, and right-of-way for power utilities, as well as emergency response for oil and gas and façade inspection services for property management operations.
Echelon’s team believes "the current enterprise valuation discounts the value of [Volatus’] existing portfolio and current revenue run rate, leaving aggressive potential from positive revaluations against both organic and inorganic growth."
Glen Lynch explains that "the addition of Sky Scape brings significant opportunity for margin improvement through synergies with our existing business units. It further expands our service offering and continues growth in core sectors including power utilities, oil and gas, and façade inspection."
David Yoel, CEO of Sky Scape Industries, concurs. "Joining Volatus provides Sky Scape with the resources needed to fully leverage and expand its customer relationships," he says. "The extensive Volatus pilot network, existing fleet of crewed aircraft, helicopters, and drones enhances Sky Scape’s offering, and their expansive sales team will help drive our growth."
Under the terms of the agreement, the total purchase price, subject to an earn-out provision, is approximately CA$845,000, paid as follows: An initial payment of approximately CA$422,500 in the form of newly issued common shares of Volatus Aerospace Corp. The number of VOL shares to be issued will be based on the share price at closing or the prior 30-day VWAP, whichever is higher, with the option to make the first payment in cash in lieu of shares.
The earn-out payment of CA$422,500 (US$310,000) will be payable twelve (12) months after closing in the form of additional Volatus shares issued on the share price of CA$0.65 or the prior 30-day VWAP, whichever is higher. This payment is conditional on Sky Scape retaining approximately CA$1 million worth of inspection contracts already contracted for 2024.
The acquisition is expected to close on March 31.
Why Now? Expansion Leading to Analyst Coverage
All this bullish action from the Volatus team has started to pique interest from established analysts, and one in particular — Rob Goff, Head of Research, Technology, Telecom, and New Media Analysis at Echelon Wealth Partners Inc. — has initiated coverage of the firm. His initial 60-page in-depth report can be viewed here.
The report appears quite bullish, stating that Echelon’s team believes "the current enterprise valuation discounts the value of [Volatus’] existing portfolio and current revenue run rate, leaving aggressive potential from positive revaluations against both organic and inorganic growth. We look for revenue performance and profitability measures to quickly differentiate providers where the sector is often viewed collectively."
"With greater differentiation or discernment, we look for wider valuation ranges across companies with larger, more efficient providers expected to be further empowered through much greater and more efficient access to capital markets. We look for Volatus to emerge in a stronger relative position as these waves unfold. We look for Volatus’ successful emergence to re-align its relative valuation."
Ownership and Share Structure
Streetwise Ownership Overview*
Volatus Aerospace Corp. (VOL:TSX; VLTTF:OTCQB)
Management owns 54.24% of shares. CEO Glen Lynch owns 26.62% of shares, while Chairman of the Board Ian McDougall owns 27%. It has 113.9 million outstanding shares.
There is small institutional participation from firms such as Charles Town and Long State, but no strategic investors of record. 90% is retail.
The company has a market cap of CA$41 million. It has 113,943,079 shares outstanding, as well as 24,954,951 warrants and 5,599,232 options, for a fully diluted base of 144,497.262 shares. Two sets of warrants expire on December 22, 2023, with a third set expiring on October 5, 2024. Management owns 54.24% of the fully-diluted base.
The company had CA$6.8 million in cash reserves, with a monthly burn rate of CA$500,000.
Several influencers also monitor and report on the stock, including Ed Vranic, Bill Cara, and Tim Weintraut.
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Disclosures:
1) Owen Ferguson wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. They members of their household own securities of the following companies mentioned in the article: None. They or members of their household are paid by the following companies mentioned in this article: None.
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