The text of Mr. Simpson's original writeup follows:
• • •
Dynavox plans on offering 9.375 million shares at a range of
$15-$17. Assuming over-allotments, the deal size will be 10.8
million shares. Piper Jaffray and Jefferies are leading the deal,
William Blair and Wells Fargo are co-managing. Post-ipo DVOX will
have 31 million shares outstanding for a market cap of $496 million
on a pricing of $16. 1/3 of the proceeds will go to debt repayment,
the remainder will go to insiders.
Vestar will own 35% of DVOX post-ipo and will control voting
interests via a separate share class.
From the prospectus:
'We develop and market industry-leading software, devices and
content to assist people in overcoming their speech, language or
learning disabilities. Our proprietary software is the result of
decades of research and development and our trademark- and
copyright-protected symbol sets are more widely used than any
other in our industry.'
DVOX is a leader in two areas for assistive technologies: speech
generating technologies and special education software.
DVOX is the largest provider of speech generating technology. Users
communicate through synthesized or digitized recorded speech. Users
are those who are unable to speak, such as adults with amyotrophic
lateral sclerosis, or ALS, often referred to as Lou Gehrig's
disease, strokes or traumatic brain injuries and children with
cerebral palsy, autism or other disorders. Devices can be
controlled/used via touch or even via tongue, head or eye
movements. 82% of revenues are derived from DVOX's speech
Special Education software - 18% of revenues. Used by children with
cognitive challenges, such as those caused by autism, Down syndrome
or brain injury; physical challenges, such as those caused by
cerebral palsy or other neuromuscular disorders; as well as by
children with learning disabilities, such as severe dyslexia.
DVOX's proprietary symbol sets are the most widely used for
creating symbol-based activities and materials in the industry.
Funding generally comes from federal sources.
I like this statement in the S-1: 'We believe that our speech
generating technologies can transform the lives of those who have
significant speech, language, physical or learning challenges by
enabling their communication.'
Two most recent products are the EyeMax eye-tracking accessory and
the highly portable Xpress speech generating device.
Speech generating products are sold via a direct sales force
focused on speech language pathologists. Special education software
is sold via internet and direct mail.
Products are sold in the US, Canada and Great Britain.
- 20 million adults and children in the US suffer from conditions
that may lead to speech impairment. DVOX believes the annual new
market for speech products is $1.8 billion in their geographic
market. DVOX does believe this potential end market is currently
under- penetrated. Growth drivers include a growing awareness among
speech pathologists and the underserved population. DVOX believes
speech generating products are only now achieving mass awareness. A
big reason for this are technological advances making the products
far more accurate and user friendly.
***I have a feeling that speech generating products are only now
beginning to reach 'tipping point' stage. With the aging US
population coupled with technological advances in the products
themselves, this is a fantastic growth spot over the next 10+
years...and DVOX is far and away the market leader. Assuming the
financials look at least okay, this is a very unique, interesting
and strong ipo.
Special Education Software
- In the US, 6 million students are deemed to require special
education with a market opportunity of $1 billion+ annually. DVOX
believes higher education standards, coupled with increased special
education funding, are the growth drivers for their Special Ed
- A large chunk of DVOX's revenues are derived from the public
school system as well as Medicaid and Medicare. With budget
shortfalls, each of the preceding is finding itself in 'cutback'
mode. This could stall growth somewhat, particularly in DVOX's
special education segment. I doubt very much that funding cutbacks
are going to affect the speech generating segment, however, as
there are few voice communication alternatives out there currently
for those without speech.
: From the S-1: 'Within our particular areas of speech generating
technology and interactive software for students with special
educational needs, we believe we are the largest player and have no
dominant competitors.' Rarely do you see in a prospectus a
statement this strong when describing the competition.
$30 million in net debt post-ipo. Expect DVOX to pay this down via
cash flows going forward. Debt not enough to impede operations.
Fiscal year ends 6/30 annually. FY '10 ends 6/30/10.
Revenues have increased annually for at least five years in a row.
DVOX has been profitable since at least FY '05.
- Revenues are stronger in the back half of the fiscal year, with
the 4th quarter (6/30) being the strongest. In FY '09 33% of
revenues were derived in the 4th quarter of the fiscal year.
(ended 6/30/09) - Revenues of $91 million, a 12% increase over FY
'08. Gross margins were strong at 73%. Operating expense ratio of
52%, operating margins of 21%. Solid margins here. Plugging in debt
servicing and full taxes, net margins were 11 1/2%. EPS of $0.34.
- Strong start to the fiscal year for DVOX through the first 2
quarters of the fiscal year. Keep in mind that DVOX's strongest
quarters are to come and DVOX should post a strong number in the
***Revenues should grow a strong 37% to $125 million. As I noted
above, DVOX's speech generating products appear to be hitting
critical mass as revenues in that spot are accelerating strongly
here in FY '10.
Gross margins are improving as are operating expense ratios,
although the latter only slightly. Gross margins should be 75%.
Operating expense ratio of 51%, putting operating margins at a
quite healty 24%.
Debt servicing should eat up 9% of revenue, well below my 20%
threshold. Again, I would expect this debt to be erased altogether
sometime in FY '11.
Net after tax/debt margins of 15%. Earnings per share of $0.63. On
a pricing of $16, DVOX would trade 25 X's FY '10 earnings.
- Really is just a guess here until we see the 6/30 quarter, which
will set the tone for FY '11. Let us take a guess though. I do not
expect another 30%+ quarter as some of that strength is due to easy
recession year comparisons in FY '09. Note though that even in a
tough economic climate, DVOX grew FY '09 revenues 11%. I would peg
FY '11 growth around 20%, a conservative number. Gross margins have
gone about as far as they can, I think, at 75%. Operating margins
should improve slightly as should net margins. On 16 1/2% net
margins and 20% revenues growth, DVOX would earn $0.80 per share.
On a pricing of $16, DVOX would trade 20 X's FY '11 earnings.
- Market leader in what should be a nice growth area over the next
decade. Strong recommend in range here, I like this ipo quite a
bit. DVOX looks poised to have a great future, very reasonable
market cap in range when we take into account the potential here
going forward. This one has the potential and the look of a long
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