Zeltiq Aesthetics' IPO: A Barometer Of The Risk Appetite Of IPO Investors

| About: ZELTIQ Aesthetics, (ZLTQ)
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In the wake of Ubiquiti's (NASDAQ:UBNT) encouraging debut last week, ZELTIQ Aesthetics (NASDAQ:ZLTQ) is scheduled to raise $105 million in the only deal on the IPO calendar this week. The medical technology company, which markets the CoolSculpting System for fat reduction in the hip area, has filed to offer 7 million shares (4% insider) at a range of $14 to $16 per share. ZELTIQ plans to list on the NASDAQ under the symbol "ZLTQ". J.P. Morgan and Goldman, Sachs & Co. are the lead managers on the deal, which is expected to price on Tuesday after the market close.


The CoolSculpting System is a non-invasive, 60-minute procedure that reduces stubborn fat bulges in the hip area using controlled cooling. Without causing damage to surrounding tissues, CoolSculpting lowers the temperature of fat cells in the treated area, causing them to die and eventually be absorbed by the body's immune system. ZELTIQ, which has regulatory approval to market CoolSculpting in the US and 45 international markets, had installed 629 Systems and sold 134,000 procedures as of June 30, 2011. Benefiting from rising demand worldwide for aesthetic procedures, the company plans to use aggressive marketing programs to target 5,000 dermatologists, plastic surgeons and aesthetic specialists, as well as publicize its brand directly to consumers. It also intends to seek regulatory approval in additional markets, expand its sales force and pursue other marketable indications with the FDA (e.g. abdomen, thighs, back and chest).


ZELTIQ, which employs a direct sales force in North America (74% of 1H11 sales) and distributors in EMEA (11%), Asia-Pacific (9%) and South America (6%), generates revenue from both System sales (69%) and procedure fees (31%). In the 1H11, the company generated $32 million in revenue (+377% from the year-ago period), expanded gross margins to 61% and broke even on an EBITDA basis. Management targets long-term gross margins of 78% as ZELTIQ boosts utilization rates and benefits from a mix shift toward higher-margin procedure fees. With an accumulated deficit of $75 million, however, ZELTIQ is still in the early stages of commercializing its product, and rising sales and marketing expenses will likely keep it unprofitable in the near term. Intensifying competition in the aesthetics product market is another risk, particularly in the face of a weak consumer spending environment.


If completed, ZELTIQ will be the second company to go public since the IPO market shutdown began in mid-August. Though ZELTIQ's large addressable market opportunity and growth prospects are strong selling points, its short track record boosts execution risk. The company's initial performance will be viewed as a barometer of the risk appetite of IPO investors and closely watched by other candidates planning to go public in the coming months.