Investor Business Daily's article this past week
New Issue America
IPO Investors Get Another Crack At VoIP Market
BY AMY REEVES
INVESTOR'S BUSINESS DAILY
Posted 10/2/2006
Acme Packet Inc.
Burlington, Mass.
(781) 328-4400
acmepacket.com
Lead underwriters:
Goldman Sachs
Offering price: $6.50-$7.50
Expected date: week of Oct. 9
Ticker: APKT
THE BUZZ
Over the summer, Vonage (VG) gave the initial public offering market its most spectacular flop in quite a while. What did
that do for the image of Vonage's business?
The voice over Internet protocol (VoIP) market is a booming field. According to a recent report by TeleGeography, the
industry's second-quarter revenue jumped 173% over the prior year to $607 million.
IPO investors may also remember that before Vonage, there was Cbeyond, (CBEY) which priced at 12 on Nov. 1 and now
trades above 27. A key difference from Vonage: It's making money.
The same goes for Acme Packet. It might sound like something Wile E. Coyote would use to chase down the Road Runner,
but actually the firm provides the VoIP market with gadgets called session border controllers, or SBCs. These devices police
traffic between networks. So if an Internet system is behind a firewall, the controllers can allow the desired messages across
without compromising security. They can also connect people using different VoIP providers — important in a market that's
still fragmented.
The session border controller market seems to be growing as fast as the VoIP market. Infonetics Research estimates it will
grow from just $86 million last year to $613 million in 2009.
THE COMPANY
Acme Packet was founded in 2000. It developed the Net-Net family of SBCs and started shipping in the second half of 2002.
It sells its hardware, directly and through distributors, and licenses its software. It also derives income from maintenance.
Since SBCs work as components of larger systems, Acme partners with telecoms to develop integrated solutions that use
Acme's technology. Better-known partners include Alcatel, (ALA) Ericsson, (ERIC) Nokia (NOK) and UT Starcom.
(UTSI)
Overall, about 300 service providers in 55 countries have used Acme's products.
RISKS/CHALLENGES
Acme Packet has a short operating history, and an even shorter history of profitability. A question is how well it can handle
its growth.
The session border controller market is young and subject to change. The firm's prospectus notes that its customers may
develop other ways of dealing with the problems that SBCs are designed to solve.
The field has other players, including some that have been bought by much bigger companies.
The company is not diversified in its product line or customer base. So far it has a single brand, and 38% of its revenue
comes from its top three customers.
Acme's products have a long and variable deployment cycle, ranging from six months to two years. This could lead to
lumpiness and unpredictability in quarterly results.
Acme's customers are generally much bigger than Acme itself and have substantial negotiating leverage.
THE RESULTS
Since Acme reported its first revenue in 2003, sales ramped quickly to reach $36 million last year. In the first half of this
year, revenue more than doubled over the prior year to $38 million.
After breaking even last year, the firm turned profitable in the first half, clocking 21 cents a share.
USE OF PROCEEDS
Acme Packet expects to net $49.9 million from the offering of 8 million shares, with an added $11.2 million if the
underwriters exercise their options. The company has no specific plans for the money, but says it may fund acquisitions,
capital expenditures and investments.
THE MANAGEMENT
Andrew Ory
President, chief executive and director
Co-founder. Previously he co-founded Priority Call Management and ran it from 1991 to 1999, when it was bought by LHS
Group.
Patrick MeLampy
Chief technology officer and director
Co-founded the company after serving as vice president of engineering at Priority Call Management.
Keith Seidman
Chief financial officer
Joined in 2001 after two years as CFO of Spotfire. He also held the same job at Priority Call Management and Duracraft,
where he helped engineer its IPO and buyout by Honeywell. (HON) |
