IPO Report: Xtera Communications (XCOM)

Francis Gaskins |

Xtera Communications IPO, Xtera Communications IPO date, Xtera Communications IPO price, stocks to buy now, small-cap stocks, IPOs this week

Xtera Communications (XCOM) is a leading provider of high-capacity, cost-effective optical transport solutions, supporting the high growth in global demand for bandwidth. The company is based in Based in Allen, TX.

Two other companies is scheduled to IPO for the week of Nov 2. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Needham & Company, Cowen and Company, BMO Capital Markets
Co-managers: None

End of lockup (180 days): Wednesday, May 4, 2016
End of 25-day quiet period: Tuesday, December 1, 2015

XCOM scheduled a $55 million IPO with a market capitalization of $176 million at a price range midpoint of $10 for Friday, Nov. 6, 2015 on Nasdaq.

Xtera Communications (XCOM) IPO Summary

XCOM is a leading provider of high-capacity, cost-effective optical transport solutions, supporting the high growth in global demand for bandwidth.

XCOM sells its high-capacity optical transport solutions to telecommunications service providers, content service providers, enterprises and government entities worldwide to support their deployments of long-haul terrestrial and submarine optical cable networks.

Xtera Communications (XCOM) IPO Valuation

Glossary

Accumulated deficit (mm)

.

.

-$378

     

Per share dilution

.

.

-$7.05

     
             

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Xtera Communications (XCOM)

$176

-13.2

-10.1

3.0

3.4

31%

Annualizing June 9 mos

       
             

Xtera Communications (XCOM) IPO Conclusion

Neutral

Never made money

Accumulated deficit -$378mm

June 6 mos

. 136% rev growth

. Lost -23% on rev

. Product gross profit dropped to 17% from 39%

. Products acct for 91% of rev

. Six customers generated 96% of revenue

. Increasing reliance on low margin turnkey sales

Price to bk of 3

P/E of -10 indicates high cash burn rate relative to market cap

Xtera Communications (XCOM) Business

XCOM is a leading provider of high-capacity, cost-effective optical transport solutions, supporting the high growth in global demand for bandwidth.

XCOM sells its high-capacity optical transport solutions to telecommunications service providers, content service providers, enterprises and government entities worldwide to support their deployments of long-haul terrestrial and submarine optical cable networks.

XCOM believes that its proprietary Wise Raman optical amplification technology allows for capacity and reach performance advantages over competitive products that are based upon conventional EDFA technology.

Customer Concentration

XCOM provided solutions to more than 15 customers in the fiscal years ended September 30, 2013 and 2014, and more than 20 customers during the nine months ended June 30, 2015.

For the fiscal years ended September 30, 2013 and 2014, 76.9% of revenue was generated by eight customers and 88.7% of revenue was generated by six customers, respectively. 

For the nine months ended June 30, 2015, 96.0% of revenue was generated from six customers.

Gross Margins

Tturnkey solutions have lower margins, because XCOM deploys third-party products and services to provide those solutions.

XOM anticipates that turnkey solutions will represent a significant percentage of product revenue in the fiscal years ending September 30, 2016 and 2017.

Tax Loss Carry Forward

As of September 30, 2014, XCOMs federal net operating loss carry forward was $204.0 million, which will begin to expire in 2018.

Solutions

XCOM’s solutions are capable of spanning over 1,500 kilometers, with capacity of 64 Terabits per second, or Tbit/s. XCOM’s solutions are purpose-built to be flexible according to varying customer demands of capacity, reach and cost.

he modular nature of XCOM’s solutions allows for capital-efficient capacity expansion over time, as the customer’s bandwidth needs grow.

XCOM believes its leadership in high-performance optical solutions positions it to continue to win new customers, expands its footprint within existing customers and ultimately, assists its customers in preparing for the increasing demands on their networks.

XCOM has developed a solution-oriented sales model to remove potential bottlenecks within its deployments.

Turnkey Solutions

With its turnkey solutions, XCOM oversees project planning, partner management and installation of the projects in which its products are utilized. XCOM’s capability and expertise serving as a turnkey solution provider has been a key differentiator for its in recent years, particularly in submarine projects.

Track Record

XCOM has an extensive operating track record, having deployed its solutions for more than 10 years in 60 countries across five continents for customers, including Cable & Wireless Communications plc, the Defense Information Systems Agency, GlobeNet Inc., Vodafone Group Plc and Wittel Comunicações Ltda.

Due to its outsourced manufacturing model, XCOM believes that it has the capability to support high revenue growth, while controlling operating costs.

Xtera Communications (XCOM) Intellectual Property

XCOM’s portfolio of patents was originally built around Raman optical amplification that offers, compared to traditional EDFA-based amplification equipment, a wider optical amplification spectrum, improved noise performance for higher Optical Signal-to-Noise Ratio, or OSNR, and distributed amplification within the line fiber for extending the span between intermediate sites.

Has more than 180 U.S. and foreign patents and patent applications.

These three elements are instrumental to enabling efficient high-capacity optical networking on long distances in field conditions.

Raman optical amplification is a key technology for 100 Gbit/s and beyond channel rates as the OSNR requirements become more stringent when the channel rate increases.

XCOM designed its optical networking platform from the ground up to combine different optical amplification schemes, ranging from simple EDFA to Wise Raman amplification.

As a result, XCOM’s amplifier offers high efficiency and capacity and reach performance due to the integration of the different optical amplification technologies.

Xtera Communications (XCOM) Competition

XCOM’s primary competitors in the submarine market include Alcatel-Lucent Submarine Networks, SAS, Coriant GmbH, Huawei Marine Networks Co., Limited, NEC Corporation and TE Subcom, a TE Connectivity Ltd. company.

In the terrestrial market, XCOM’s primary competitors include Alcatel-Lucent S.A., Ciena Corporation, Huawei Technologies Co. Ltd., Infinera Corporation and Coriant GmbH.

Many of XCOM’s competitors have significantly more financial, technical, marketing and other resources than XCOM has, may devote greater resources to the promotion, sale and support of their technology than XCOM can, have more extensive customer bases than XCOM has and have longer operating histories and greater name recognition than XCOM has.

In addition, many of XCOM’s competitors expend a greater amount of funds on research and development. However, XCOM believes its reach, capacity and current 100Gbps capabilities allow it to differentiate ourselves both in terms of technology and price.

Xtera Communications (XCOM) 5% Shareholders Pre-IPO

Entities affiliated with ARCH Venture Partners     13.1%

Entities affiliated with New Enterprise Associates            23.4%

Entities affiliated with Sevin Rosen Funds          8.3%

Entities affiliated with VantagePoint Venture Partners      6.2%

Entities affiliated with The Wellcome Trust    15.5%        

Jon R. Hopper              7.3%

Jon W. Bayless             9.3%

Clinton W. Bybee          13.1%

Xtera Communications (XCOM) Dividends

No dividends are planned.

Xtera Communications (XCOM) IPO Use of Proceeds

XCOM expects to receive $49 million from its IPO and use it for the following:

for working capital and other general corporate purposes, including to finance its expected growth, develop new products or fund capital expenditures. XCOM may also use a portion of the net proceeds to repay borrowings under its credit facility or term loan, or to expand its existing business through acquisitions of other businesses, products or technologies. However, XCOM does not have agreements or commitments for any specific repayments or acquisitions at this time.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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