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Summary

  • Offers gift cards and other options through a global e-commerce rewards network.
  • One customer has accounted for over 30% of revenue for each of the past three years.
  • Top line revenue compared to the year earlier period grew only 18% for 2013 and 16% for 2012.

Based in Dublin, Ireland, Globoforce (Pending:THNX) scheduled a $75 million IPO on the Nasdaq with a market capitalization of $457 million at a price range midpoint of $17 for Friday, March 21, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: J.P. Morgan, Credit Suisse, UBS Investment Bank, Stifel

Co-Managers: Raymond James

End of lockup (180 days): Wednesday, September 17, 2014

End of 25-day quiet period: Tuesday, April 15, 2014

Summary
THNX offers gift cards and other options through a global e-commerce rewards network.

One customer has accounted for over 30% of revenue for each of the past three years. THNX intends to broaden its customer base.

Top line revenue compared to the year earlier period grew only 18% for 2013 and 16% for 2012.

Gross margin is only 20%.

And the loss % of revenue increased to -3.5% for 2013 from -1.2% for 2012.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

2013 yr

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Globoforce Ltd

$457

2.4

-70.4

21.4

21.3

16%

Conclusion

The rating on THNX is positive+ because it appears to have a moderate first mover advantage. THNX needs to add more customers and reduce its dependence on the customer that accounts for 30% of revenue.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

THNX offers gift cards and other options through a global e-commerce rewards network.

The majority of THNX's revenue is recognized when its clients' employees redeem their awards through its global e-commerce rewards network, primarily for gift cards, and THNX delivers the redeemed item.

THNX derives its billings primarily from recognition awards processed through its solution and associated transaction fees.

THNX provides a cloud-based, social recognition software solution that organizations use to engage their employees worldwide to create alignment with values and advance company goals and culture.

Customer concentration
THNX has generated the majority of revenue from several large clients, with the top client representing 35%, 32% and 31% of total revenue for the years ended December 31, 2011, 2012 and 2013, respectively.

Growth plan
Historically, THNX focused on the most complex and large global organizations.

More recently, THNX expanded sales efforts to companies with an employee base of 2,500 or more who have corporate human resources, or HR, functions located in North America.

HNX recently hired additional salespeople to target these organizations.

Growth expenses
R&D
During 2011 THNX decided to substantially increase investment in research and development personnel and third-party contractors to accelerate development efforts, which resulted in a 114% increase in research and development expense.

Although we have continued to increase our investment in product innovation, our research and development costs have decreased as a percentage of total revenue since 2011.

Sales & marketing
During the last three years, THNX expanded sales and marketing personnel and marketing program costs at a more rapid pace than associated revenue growth. This significant investment resulted in a 42%, 52% and 30% increase in sales and marketing expense over the previous year for 2011, 2012 and 2013, respectively.

G&A
During 2012 and 2013, THNX hired additional general and administrative personnel and incurred additional professional fees expense in 2013 as it prepared to become a public company. This resulted in an increase in general and administrative expense of 29% in 2012 compared to 2011 and 48% in 2013 compared to 2012.

Seasonal
THNX historically experienced seasonal variations in revenues as a result of increased recognition award issuances and redemptions in the fourth calendar quarter.

As a result, revenue in the fourth quarter is generally higher than in other quarters.

Historical milestones
THNX started operations in 1999, and its headquarters are in Dublin, Ireland.

THNX's social recognition solution has been successfully adopted in complex environments throughout the world.

As of December 31, 2013, THNX's client base consisted of more than 100 companies, with more than 1.9 million users located in more than 140 countries using THNX's solution in 29 languages and dialects. THNX had 240 employees as of December 31, 2013.

In addition, the delivery of THNX's social recognition solution includes various activities such as website configuration, hosting, upgrades, software functionality for award processing and call-center support.

The billings for these various activities, which are derived primarily from THNX's transaction fees, are recorded as solution and services revenue over the service period of the contractual arrangement with its clients.

THNX tends to have multi-year contracts, however, billings and revenue are contingent upon the issuance of awards, as its agreements with its clients typically do not contain minimum commitments.

Dividend Policy

No dividends are planned.

Competition

THNX faces competition from other incentive and recognition providers and traditional non-strategic recognition solutions, internally developed solutions designed to support the needs of a single organization, as well as from third-party human resource application providers.

THNX's primary competition is from traditional incentive vendors such as BI Worldwide, Maritz and O.C. Tanner, which have historically focused on incentives such as length-of-service awards or "employee of the month" programs rather than rewarding actions on a real-time basis and have typically offered rewards from catalogs of merchandise as opposed to offering gift cards and other options through a global e-commerce rewards network.

5% stockholders

Entities affiliated with Atlas Venture 31.4%

Entities affiliated with Balderton Capital I, L.P.41.5%

Eric Mosley 10.8%

Patricia Burke 5.3%

Use of proceeds

THNX expects to net $38.8 million from its IPO. Proceeds are allocated as follows:

  • for working capital and other general corporate purposes, including the funding of THNX's sales and marketing activities and the costs of operating as a public company, as well as further investment in the development of its proprietary technologies.

Disclaimer: This THNX IPO report is based on a reading and analysis of THNX's S-1 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: Globoforce