Exa Corporation (EXA) is set to go public this week. The company is selling 6.25 million shares, with 4.17 million coming from the company and an additional 2.08 million from current shareholders. Shares are set to price at $11 to $13. After the IPO, there will be 13.2 million shares outstanding. Proceeds from the IPO will be used for working capital, debt repayment, and acquisitions.
Exa Corporation develops, sells, and supports simulation software and services. The company earns revenue from vehicle companies who use Exa's products to test new ideas and vehicles before they hit the market. The company allows customers to save money by using digital testing rather than physical. Exa competes against privately held companies like CD-adapco and ANSYS.
The company's main product is PowerFlow, which is used in several areas and continues to expand. The technology simulates flow problems, wind noise, and aerodynamics. An example in the company's retail roadshow was Agco Corporation (AGCO), the maker of agriculture equipment. Agco uses Exa Corporation to:
· Save product costs
· Reduce the number of physical test stages, 20 per vehicle to 3
· Save millions of dollars in prototype testing costs
· Migrate from physical test, which takes 60 days, to a digital test, which takes 6 days
The company also used heavy duty trucking company Peterbilt as an example. Peterbilt has seen 24% reductions in aerodynamic drag. This saves 12% in highway fuel improvements. In return, Peterbilt saves $5600 per vehicle in fuel savings.
Exa competes in the ground transportation market, which includes vehicles, highway trucks, trains, and off-highway vehicles. Deals are in place with over 90 manufacturers, including 13 of the top 15 passenger vehicle companies. Companies listed in the report were: BMW, Ford, Hyundai, Nissan, Porsche, Jaguar Land Rover, Renault, Toyota, Vokswagen. Notably absent from the list is General Motors.
Growth goals for the future of Exa Corporation are:
· Deepening deployment in our existing customer base
· Adding new customers in the ground transportation market
· Enabling additional applications and solutions
· Penetrating new geographies
· Exploring new vertical markets
· Selectively pursuing strategic acquisitions
In fiscal 2012, Exa reported revenue of $45.9 million. Net income for the year was $14.5 million. Exa reported their first revenue in 1994, and has grown sales every year since. This seems amazing considering events in the World in the financial and stock markets that have happened since the company's first products. The company has been profitable for two straight years.
Revenue is made up of license revenue and project revenue. In fiscal 2012, license revenue was $38.7 million, up from the previous year's $30.6 million. Project revenue was $7.2, a decrease from the prior year's $7.3 million. The company also uses a metric called "License Revenue Renewal Rate" to show how current customers renew or sign up for new projects. The renewal rate was 97% in fiscal 2012, which increased from 2011 (91%) and 2010 (80%). International sales made up 77% of fiscal 2012 sales. The company has 14 offices in 8 countries, including United States, United Kingdom, France, Germany, Italy, Japan, Korea, and China.
One of the biggest positives I see going forward for Exa Corporation is increasing government regulations on vehicles. New greenhouse gas regulations put forth for vehicles could see more vehicles using Exa's technology. Mile per gallon requirements are being put in place for vehicles in the United States. In 2016, vehicles will need to get 35.5 miles per gallon. In 2025, that number increases to 56.2. I argued the same thing for Gentex (GNTX) shares as regulations pass for back up mirrors in all vehicles.
With increasing orders and new government regulations, Exa Corporation may be a great investment going forward. The automobile market is showing signs of strength. New mile per gallon regulations could leave every automobile company to digital testing and using Exa products. Keep an eye on this IPO if it doesn't pop.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.