Tag Archives: Technology Stock IPOs

SecureWorks
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SecureWorks: Security Hybrid

SecureWorks SecureWorks (NASDAQ: SCWX), based in Atlanta, Georgia, is the newest addition to our Battle Road IPO Review Software coverage. The company provides managed IT security services and subscription software to over 4,300 companies in 59 countries. For the fiscal year ending January 31, 2017, Consensus estimates call for revenue of $425 million (up 25 percent from the prior year) and a loss per share of $0.32. For FY’18, revenues are expected to rise by 20 percent to $509 million, while its loss is expected to narrow to $0.10 per share.

SecureWorks priced its 8 million Class A share IPO at $14 per share on the NASDAQ on April 21, 2016, below an expected range of $15.50 to $17.50 per share, thus becoming the first technology IPO of 2016, ending a significant drought. The company is a spin out from Denali Holdings (formerly Dell). Denali continues to own 70 million Class B shares, along with 98 percent of the voting rights. The IPO, which raised over $100 million for the company was led by Bank of America Merrill Lynch, Morgan Stanley, Goldman Sachs, J.P. Morgan, and 13 other securities underwriters-investment banks. At a recent share price of $14, SCWX’s market cap is roughly $1.3 billion.

Founded in 1999, and acquired by Dell in 2011, SecureWorks is something of a hybrid between a software company, and an IT services company. SecureWorks offers a broad range of managed security services and software solutions designed to protect companies against security threats, with an emphasis on early warning and detection of suspicious activity stemming from security breaches, the introduction of malware, and threats from hackers. The company’s more than 4,300 customers are represented across a wide range of industries, including banks, telecom service provers, healthcare services and product companies, and retail chains. Bank of America was its largest customer last year, accounting for nine percent of revenue.

In the most recent quarter, SecureWorks continued to improve its gross margin, which reached 50 percent from 43 percent last year, assisted by the growing percentage of revenues driven by subscriptions, which totaled more than 80 percent last year. At the same time, the company narrowed its operating loss from $26 million in the prior year, to $19 million. Post IPO SecureWorks has a strong balance sheet with $124 million in cash and no debt. SCWX trades in the second half of our Battle Road IPO Review Software sector coverage.

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Atlassian: Team Player

Atlassian logoOne of the more intriguing enterprise software IPOs of the last number of months is Atlassian (NASDAQ: TEAM), a company which focuses on team-oriented custom software development. Founded in Sydney, Australia in 2002, the company is led by co-CEOs Mike Cannon-Brookes and Scott Farquhar.  Fiscal Year 2016 (ending June 30th) Consensus revenue and EPS estimates call for $458 million and $0.33. This implies revenue growth of 40 percent over fiscal year 2015, though we note that the company executed a couple of tuck-in acquisitions in that year.

Atlassian made its debut on the NASDAQ on December 10, 2015, at a price of $21.00 per share.  The offering featured 22 million Class A common shares, all of which came from the company, enabling it to raise roughly $430 million. Investment banks Goldman Sachs and Morgan Stanley were the lead underwriters of the stock offering, with Allen & Company, UBS Securities, and Jefferies, Canaccord Genuity, JMP Securities, Raymond James, and William Blair all fighting for a share of the IPO pot. Atlassian, recently trading in the vicinity of $22, carries a market cap of roughly $4.7 billion.

Atlassian’s mission calls for the power to “unleash the potential in every team,” in this case software developer teams focused on customized software for corporations, government agencies and non-profits. Each of the more than 20 software products offered by Atlassian helps teams complete, organize, and discuss their work. Atlassian offers a portfolio of software tools that include JIRA, for team planning and product management, Confluence, for team content creation and sharing, HipChat, for team messaging and communication, Bitbucket for team code sharing and management, and JIRA Service Desk, for team services and support applications.

Atlassian’s products are built for teams of all sizes, and are utilized in almost every industry.  Atlassian boasts over five million monthly users, and over 57,000 customers, including 79 of the Fortune 100, and 273 of the Fortune 500.  Roughly 30 percent of sales comes from subscriptions, 50 percent from maintenance, 15 percent from perpetual licenses, and five percent from other.

Post-IPO, Atlassian has a strong balance sheet with over $700 million in cash, and no debt. To learn more about how Atlassian screens relative to its software peers, please contact Battle Road Research.