Highlights from Acme Packet's IPO Filing (APKT)

Acme Packet IPO filed an S-1 with the SEC on June 2nd, looking to raise $85 million. Proposed ticker: (APKT). All excerpts are from the full SEC filing:

Company Description

Acme Packet is the leading provider of session border controllers, or SBCs, that enable service providers to deliver secure and high quality interactive communications—voice, video and other real-time multimedia sessions—across Internet Protocol, or IP, network borders. Our Net-Net products, which consist of our hardware and proprietary software, serve as a central element in unifying the separate IP networks that comprise wireline, wireless and cable networks. Service providers can use our products to create a premium service tier that delivers next-generation interactive communications services, such as Voice over IP, or VoIP, with the same quality assurance and security as they historically have offered for voice services over their legacy telephone networks.

SBCs are deployed at the borders between IP networks, such as between two service providers or between a service provider and its business, residential or mobile customers. SBCs are the only network element currently capable of integrating the control of signaling messages and media flows. This capability complements the roles and functionality of routers, softswitches and data firewalls that operate within the same network.

We began shipping our Net-Net products in 2002. Since that time, more than 240 service providers in over 50 countries have purchased our products. We sell our products and support services through approximately 30 distribution partners and our direct sales force.

Key Financial Data

Revenues: APKT revenue grew more than 10X from 2003 to 2005 when annual revenues were $36.12 million. The lion's share of reveues (86-91%) originate from product revenues and the remainder from maintenance and services. In the first quarter of 2005, revenues were $8.4 million and cost of revenues $2.3 million; in the comparable period of 2006, revenues grew more than twofold to $18.9 million and margins increased from 72% to 77%.

Operating loss: In 2005, the company recorded an operating loss of $383k, down from north of $7 million the previous year. Q1 2005 showed a small operating income of $267k; the comparable period in 2006 showed a larger operating income of $6.19 million.

Cash: As of the end of March the company had approximately $22.8 million of cash in its coffers.

Investment to date: Approximately $45 million raised from Menlo Ventures, Advanced Technology Ventures, and Canaan Partners.

Use of proceeds: Working capital and general corporate purposes.

Key Competitors

1. Startup vendors including Netrake, Newport, Nextone
2. Ditech Networks (DITC) via acquisition of Jasomi
3. Juniper Networks (JNPR) via acquisition of Kagoor

Notable Issues To Watch For

Om Malik notes that, while the quarterly numbers are impressive, the SBC market is just not that big: figures from Infonetics Research indicate 2005 global sales of session border controllers were $86 million with the total market pegged to hit $613 million in 2009. As written in the S-1:

Our revenue growth may be constrained by our product concentration and lack of revenue diversification.

We have derived all of our revenue to date from sales of our SBCs, and we expect that our SBCs will account for substantially all of our total revenue for the foreseeable future. Continued market acceptance of these products is critical to our future success. As a result, our business, operating results, financial condition and cash flows could be adversely affected by: any decline in demand for our existing products; the failure of our existing products to achieve continued market acceptance; the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our existing products; technological innovations or new standards that our existing products do not address; and our inability to release enhanced versions of our existing products on a timely basis.

Underwriters

Goldman Sachs, JP Morgan and CS First Boston