CoreSite Realty (COR)
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SciQuest (SQI), $63mm IPO
$213mm market cap at price range mid-point of $10.50 |
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Scheduled for Friday, Sept 24 |
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SUMMARY |
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On demand software companies have high price/earnings ratios because
. Business is usually recurring with significant top line revenue visibility |
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. Gross margins are high, 79% in the case of SQI |
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. Inventory is virtually zero because software & services are provided online |
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Valuation |
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. At the price range mid-point of $10.50 SQI would sell for a low price/earnings ratio relative to on demand software companies
. However, see target ‘Markets’ below, which may not offer high growth rates |
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COMPARE/CONTRAST |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
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Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
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SciQuest (SQI) |
$213 |
5.1 |
33 |
5.3 |
6.5 |
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Ariba (ARBA), listed in filing |
$1,640 |
4.6 |
82 |
3.4 |
27.3 |
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Real Page (recent IPO) |
$1,190 |
6.9 |
-992 |
14.5 |
45.2 |
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Priced at $11 Aug 11, up 73% recently to $19.05 |
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BUSINESS |
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On-demand strategic procurement and supplier enablement solution that integrates customers with their suppliers to improve procurement of indirect goods and services. |
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MARKET |
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Based on SQI’s own internal analysis, SQI believes that the current addressable market is $1.0 billion including higher education ($305 million), life sciences ($300 million), healthcare ($175 million) and state and local government ($250 million). |
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"The Global Enterprise Application Market Sizing Report, 2008-2013" see the overall market as a $2.9 billion global opportunity in 2010, growing at an 8% compounded annual growth rate from 2010 through 2013. |
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REVENUES ARE SUBSCRIPTION-BASED |
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. From higher education, life sciences, healthcare and state and local government markets
. Contracts are typically three to five years in length, with total subscription fees typically ranging from $450,000 to $1.5 million ($150,000 to $300,000 per year) and the associated one-time implementation service fees typically ranging from $150,000 to $300,000.
. Sells primarily through direct sales channel and, to a very limited extent, through indirect sales channels
. Over 165 customers operating in 16 countries. Solutions in five languages and 22 currencies. |
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REVENUE DISTRIBUTION |
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Received annually in advance. Implementation service fees received as services are performed, typically within the first three to eight months of contract execution |
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For the years ended December 31, 2007, 2008 and 2009
. Higher education market accounted for 57%, 54% and 56%, respectively, of revenues
. Life sciences market accounted for 36%, 35% and 31%, respectively, of revenues
. Healthcare market accounted for 7%, 9% and 9%, respectively, of revenues
. State and local government markets accounted for 0%, 2% and 4%, respectively, of revenues |
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COMPETITION |
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. Current principal competitors are Ariba (across all of vertical markets other than healthcare), GHX (healthcare only), large enterprise application providers that SQI believes have limited procurement functionality, such as Oracle and SAP, smaller market-specific vendors, and internally developed and maintained solutions.
. In addition, many of SQI’s customers are current users of Oracle and SAP, and integrate SQI’s solution into their ERP system. |
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USE OF PROCEEDS
of $56mm
. $36.2 million (64%) to redeem all preferred stock
. Balance for working capital and general corporate purposes |
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SciQuest |
SQI, C+, 7 |
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Post IPO shares: 10.5mm |
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On demand software |
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June 09 |
June 10 |
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Cary, North Carolina |
2007 |
2008 |
2009 |
6 mos |
6 mos |
IPO Mkt |
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Revenue ($mm) |
$20 |
$30 |
$36 |
$17 |
$21 |
Cap (mm) |
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Gross margin % |
70% |
77% |
79% |
78% |
79% |
$213 |
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Operating margin % |
-25% |
3% |
7% |
10% |
17% |
@$15 |
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Pre-tax income % |
-25% |
4% |
54% |
10% |
16% |
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After-tax income |
-$5.0 |
$1.2 |
$19.4 |
$1.7 |
$3.2 |
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After-tax income % |
-25% |
4% |
54% |
10% |
16% |
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Note: 2009 includes $16mm incme tax benefit |
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VALUATION RATIOS |
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Price/ |
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annualizing June 6 mos |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
% offered |
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for sales & earnings |
Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
in IPO |
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SciQuest (SQI) |
$213 |
5.1 |
33 |
5.3 |
6.5 |
30% |
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SCORECARD |
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Mgt |
Market |
Market Do- |
Proprie- |
Total |
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1-5, 5 is high |
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Growth |
mination |
tary |
rating |
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20 is perfect |
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2 |
2 |
2 |
1 |
7 |
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