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Based in Milpitas, CA, Gigamon (GIMO) scheduled a $128 IPO with a market capitalization of $561, at a price range mid-point of $19 for Wednesday, June 12, 2013.

Two other new IPOs are scheduled for the week of June 10th. The full IPO calendar is here.

  • S-1 filed June 3, 2013
  • Manager, Joint Managers: Goldman; BofA Merrill; Credit Suisse
  • Co-Managers: Barclays; Raymond James

SUMMARY

GIMO competes with ethernet switch companies Cisco (CSCO), Juniper (JNPR) and Brocade Systems (BRCD) but in a specialized vertical niche, providing enhance traffic visibility.

GIMO's sales are increasing at a much faster rate than its bigger competitors: 2012 revenue was up 43% to $97 million for 2012 vs. 2011. Revenue was up 53% to $26 from $17 for Q1 '13 vs. Q1 '12.

GIMO was profitable from 2010 through 2012, and said the Q1 revenues are almost always lower than Q4 revenues.

OBSERVATIONS

GIMO's gross margin of 79% Is higher than its bigger competitors.

VALUATION

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

2012 year

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Gigamon

$561

5.8

74.7

8.8

9.2

23%

COMPARE

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

Gross

2012 year

Cap

Sls

Erngs

BkVlue

TanBV

Margin

Gigamon

$561

5.8

74.7

8.8

9.2

79%

Cisco Systems

$130,000

2.8

16.2

2.3

4.3

61%

Juniper Networks

$8,900

2.0

47.8

1.3

3.3

62%

Brocade Systems

$2,450

1.1

12.6

1.1

4.8

62%

Glossary

CONCLUSION

Buy GIMO on the IPO based on its internal growth in sales, high gross margins, and record of annual profitability from 2010 through 2012. To put the above conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced earlier:

BUSINESS

GIMO developed an innovative solution that delivers pervasive and dynamic intelligent visibility of traffic across networks. The solution, referred to as Traffic Visibility Fabric, consists of distributed network appliances that enable an advanced level of visibility, modification and control of network traffic.

  • In 2005, GIMO introduced GigaVUE-MP, which offers powerful, intelligent traffic filtration and management capabilities.
  • In 2007, GIMO launched enhancements to these capabilities and introduced our broader Flow Mapping technology.
  • In 2008, GIMO began shipping a 10 Gigabit Fabric solution.
  • In 2010, GIMO introduced next generation packet inspection to enable improved Fabric performance. In addition, in 2011, GIMO launched a 1 Terabit chassis Fabric solution, the GigaVUE H Series chassis, which was the first Terabit capacity Traffic Visibility Fabric appliance for high throughput environments.
  • In 2012, GIMO introduced GigaVUE-VM, a software-only version of our platform for virtualized and cloud-based applications, and GigaVUE-FM, a software-only management offering.

REVENUE

GIMO generates product revenue primarily from sales of perpetual software licenses installed on physical appliances for Traffic Visibility Fabric solutions to channel partners, including distributors and resellers, as well as directly to end-user customers.

GIMO generates services revenue primarily from the sale of maintenance and support services for products. A one-year contract for maintenance and support services is bundled with the initial contract to purchase products. Following expiration of this one-year contract, end-user customers typically purchase maintenance and support contracts that generally have one-year terms.

MARKETING & SALES

GIMO markets and sells products through a hybrid sales model, which combines a high-touch sales organization and an overlay channel sales team that actively assists the extensive network of channel partners throughout the sales process.

SEASONALITY

The first quarter of each year is usually the lowest revenue quarter during the year and product revenue typically declines sequentially from the prior fourth quarter. GIMO believes that comparisons of year-over-year quarterly revenue are more meaningful than comparisons of sequential quarterly revenue due to seasonality in the sale of products and services

INTELLECTUAL PROPERTY

As of March 30, 2013, GIMO had 13 issued patents that expire between 2027 and 2030, and 23 pending patent applications in the United States and four corresponding Patent Cooperation Treaty patent applications.

COMPETITION

GIMO competes either directly or indirectly with large Ethernet switch vendors, such as Cisco Systems, Inc., Juniper Networks, Inc., Brocade Systems Communications, Inc. and Arista Networks, Inc. (Arista is currently a private company).

USE OF PROCEEDS

GIGO expects to net $76 million from its IPO from the sale of 4.5 million shares. Shareholders intend to sell 2.25mm shares.

GIMO intends on using $18.9 million to satisfy obligations to holders of performance units under the 2009 Performance Unit Plan, who are primarily employees.

The balance is allocated for working capital and other general corporate purposes.

Disclaimer: This TXTR IPO report is based on a reading and analysis of GIMO's S-1A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Gigamon