Hindenburg Research is short shares of iLearningEngines, Inc. (NASDAQ:AILE).
- iLearningEngines (NASDAQ:AILE) is a self-described “AI-powered learning automation” software company based in Bethesda, Maryland that was incorporated in 2010 and went public via a SPAC deal in April 2024.
- The company claims to be a fast growing and high margin “early pioneer in enterprise AI” operating in the corporate and educational learning space. We disagree. We suspect both the company’s revenue and expenses are largely fake.
- iLearningEngines was borderline insolvent when it merged with a desperate SPAC sponsor that was quickly running out of time to get a deal done. It had just $800,000 in cash and $22 million in debt prior to the merger.
- Nearly all of company’s revenue and expenses (~96% of revenue and ~100% of CoGs in 2022) seem to be run through an undisclosed related party, an unnamed “Technology Partner”.
- In November 2023, prior to the IPO, the SEC specifically asked if the “Technology Partner” was a related party. The company responded to the SEC that it “is not a related party”.
- We unmasked the “Technology Partner” as a UAE-based entity named Experion Technologies, based on our analysis of documents associated with a debt transaction. We believe the entity is an undisclosed related party and that iLearningEngines has lied to the SEC.
- The American contact for “Technology Partner” Experion was listed as none other than the CEO of iLearningEngines, according to a web capture from 2020. A 2022 web capture listed the American address for Experion as the personal residence of iLearningEngines’ CEO.
- The latest Indian corporate records for Experion’s India affiliate list current iLearningEngines senior employees as directors and shareholders. UAE corporate records from June 2024 indicate Experion is partially owned by the brother of iLearningEngines’ senior director of channel partnerships.
- Earlier UAE corporate records from 2019 indicate Experion was headed by iLearningEngines’ President and Chief Business officer and its AVP of business development.
- Despite claiming to generate vast and growing revenue, iLearningEngines has no obvious industry presence, doesn’t name key customers or partners and does not appear to do the volume of business it claims.
- For example, iLearningEngines claims its Indian market has an annual revenue run rate of $216 million. The financials for its sole Indian subsidiary reported ~$853,471 in revenue for its latest fiscal year, or ~99.4% less than iLearningEngines’ claimed revenue in the country.
- iLearningEngines’ auditor Marcum LLP was fined $3 million in June 2023 by the Public Company Accounting Oversight Board (PCAOB) for significant audit quality control issues.
- The SEC also charged Marcum LLP in 2023 for widespread audit deficiencies in connection with SPAC audits and separately fined it $10 million. We think Marcum has yet again failed to uphold basic auditing standards.
- We believe the majority of iLearningEngines’ revenue doesn’t exist, and that its relationship with the mystery “Technology Partner” is merely a conduit for falsifying its financials. We do not expect it will remain a public company for long.
Initial Disclosure: After extensive research, we have taken a short position in shares of iLearningEngines, Inc. (NASDAQ:AILE). This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report.
Background & Basics:
iLearningEngines (NASDAQ:AILE) is a self-described “AI-powered learning automation” software company based in Bethesda, Maryland that was incorporated in 2010 and went public via a SPAC deal in April 2024.[1] It quickly reached a peak market value of around $1.5 billion in July before fading to around $500 million as of this writing.
The company claims to be an “early pioneer in enterprise AI” operating in the corporate and educational learning space, and boasts more than 1,000 enterprise customers and 4+ million licensed users for its “AI-led automation” offering. [Pg. 14]
(Source: iLearningEngines Q2 2024 Investor Presentation [Pg. 14])
In its investor presentation, it describes its AI platform:
“iLearningEngines is an out-of-the-box AI platform that empowers customers to ‘productize’ their institutional knowledge and generate and infuse insights in the flow-of-work to drive mission critical business outcomes.” [Pg. 3]
According to company President Balakrishnan AP, iLearningEngines has achieved a trailing 5-year compounded annual growth rate (“CAGR”) of 48%, which culminated in record full-year 2023 revenue of $420.6 million.
In its most recent Q2 2024 results, iLearningEngines reported 34% year-over-year revenue growth and a 69% gross profit margin.
Overall, iLearningEngines presents itself as a fast-growing, asset-light, high-margin AI pioneer that “stands out in the market” with “a rare combination of scale, growth and profitability,” per its investor presentation. [Pg. 10]
(Source: iLearningEngines November 2023 Investor Presentation [Pg. 10])
Curiously, despite its scale, Maryland corporate records show that the company’s principal office is located in a Maryland suburb at what appears to be the personal residence of its CEO, Harish Chidambaran.[2]
The official address for its headquarters, as listed in its SEC filings, leads to a single office suite in Bethesda, Maryland, which is shared by many companies and appears to be a virtual/co-working space.[3]
Background: iLearningEngines Was Borderline Insolvent When It Merged With A Desperate SPAC Sponsor That Was Quickly Running Out Of Time To Get A Deal Done
iLearningEngines went public via a special purpose acquisition company (“SPAC”) merger with Arrowroot Acquisition Corp (“Arrowroot”).[4]
Arrowroot originally began trading in March 2021, raising $287.5 million with the intent to seek out a merger candidate in the enterprise software industry. [Pg. 158] By February 2023, on the tail end of the SPAC boom, Arrowroot struggled to identify a suitable merger target and extended its deadline to close a business combination from March 4, 2023 to July 6, 2023. [Pg. 1]
Against this ticking clock, Arrowroot and iLearningEngines announced a merger the next month, in April 2023.
Just prior to the deal closing, the still-private iLearningEngines was in a dire financial state, reporting just $800,000 in cash, $22 million in debt, and an accumulated deficit of $47.1 million as of March 2024.
The merger closed the next month, on April 16th, 2024, valuing the combined company at $1.4 billion.[5]
By the close of the merger, funds in the SPAC’s trust account had declined 98%, from $287.5 million to $5.9 million, due to most stockholders electing to redeem their shares for cash instead of becoming investors in the newly merged entity.[6]
Read the full report here by Hindenburg Research