July 24, 2007, 5:39 am

OWW - Orbitz Worldwide

all of this week's deals analyzed pre-ipo at http://www.tradingipos.com

While only 35 or so delayed pieces appear annually on the blog, every ipo is in the subscriber section of the site before ipo debut.

OWW - Orbitz Worldwide

OWW - Orbitz Worldwide plan on offering 39.1 million shares at a range of $16-$18. Morgan Stanley, Goldman Sachs, JP Morgan and Lehman are lead managing the deal, six other firms co-managing. Post-ipo OWW will have 88 million shares outstanding for a market cap of $1.497 billion on a $17 pricing. IPO proceeds will be going to parent company Travelport, which is essentially Blackstone(BX). They've structured the bulk of these proceeds directed to Blackstone as debt repayment, but it is essentially a nice payday for the Blackstone controlled Travelport.

This is 'round two' for Orbitz. Orbitz initially went public in December of 2003 under the symbol 'ORBZ'. Orbitz website was originally formed in 1999(and launched in 2001) by a group of major US airlines including American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines and United Air Lines. In 11/04 Orbitz was acquired by Cendant. Cendant combined Orbitz with other online travel sites including cheaptickets.com to form the online segment of Cendant's Travelport. Travelport was then acquired by Blackstone and TCV in 8/06 via a leveraged buyout. Less than a year later, Blackstone is flipping Orbitz Worldwide back onto the public markets. As usual, Blackstone is making out nicely here on the transaction.

Through Travelport, Blackstone will own a 59% stake in OWW post-ipo. As one might imagine through Orbitz leveraged buyout history there is a bit of debt here post ipo, approximately $600 million. Not nearly as high as many similar leveraged buyout flips back onto the market, but a substantial debt presence none the less. In fact since OWW operates in a highly competitive, razor thin margin business the debt on the books is THE difference here between a bottom line profit and a bottom line loss.

From the prospectus:

'We are a leading global online travel company that uses innovative technology to enable leisure and business travelers to research, plan and book a broad range of travel products.'

In addition to Orbitz and cheaptickets, assets include ebookers, HotelClub, RatesToGo and the Away Network and corporate travel brands, Orbitz for Business and Travelport for Business.

Air travel is OWW's largest on-line business segment. Other services include the obvious, hotels, rental cars and vacation packages that are customized by travelers. As Orbitz was originally designed and geared as a site for air travel, OWW feels they are currently under penetrated in the non-air online travel market. In 2006 OWW generated approximately $10 billion in worldwide bookers, 87% of which was US based.

Industry - Online travel is the largest e-commerce category. Approximately 47% of travel bookings in the US were booked online in 2006, and worldwide online travel growth grew by 30% in bookings for the year. While the US is by far the largest online travel segment, growth going forward in online travel is expected to be driven by Europe and Asia.

OWW has approximately 25 million unique users monthly and is the second largest online US travel company. Air travel accounts for 70%-75% of revenues annually. With 87% of revenues derived from the US it is not a stretch here to define OWW as an online US air travel booking entity. Yes OWW is branching out from this base via hotel related and non-US focused travel sites, but still the overwhelming majority of revenues are derived from air travel bookings in the US.

Risks here are obviously any occurrence that slows US air travel. Also competition is fierce in this space with a myriad of travel booking sites including the US airlines own websites. A few of the discount carriers such as Southwest do not make their fares available for OWW's sites either. Personally, I'm always much more comfortable booking directly from the airline site itself. I utilize sites such as Orbitz to locate fares, then I'll go directly to that airlines website to purchase, bypassing the booking fees that Orbits and related sites take.

Direct US competitors include Expedia, Hotels.com and Hotwire, which are owned by Expedia; Travelocity and lastminute.com as well as the airline sites themselves and a myriad of smaller fare aggregators/bookers. Offline competition includes travel agents and travel professional companies such as Liberty and American Express.


$600 million in debt, negative book value post-ipo.

2006 - As OWW has made a number of acquisitions comparing revenues from 2006 to prior periods does not indicate a whole lot. It appears that OWW's organic revenues were up 5%-10% or so for 2006 to $753 million. OWW has something I never like to see in a rather mature company coming public: Operating expenses for 2006 were higher than revenues. So OWW is already in the red before debt servicing charges are added in as 2006 operating margins were negative. Yes a portion of this is due to depreciation & amortization charges, but really OWW's cash flows for '06 were more or less flat as well. Factoring in debt servicing, OWW lost about $1 per share in 2006.

2007 - OWW had positive operating margins for the first quarter of '07(just barely), something they did not manage to do in 2006. Revenues were solid in Q1 and it appears OWW may grow revenues to $850-$900 million in 2007, a 16% increase over 2006. Yes a portion of this is due to acquisitions, and fully expect OWW to lay on additional debt in the future to continue to acquire smaller travel related websites and operations. I would anticipate OWW to be approximately break-even operationally in 2007, with a bottom line net loss of $0.50 due to debt servicing costs.

Note - OWW has been experiencing the past two quarters lower revenue per transaction. It appears they're getting squeezed a bit on their transaction fees. As I mentioned above, this is a very competitive sector and that will not change going forward.

Conclusion - a quick flip leveraged buy-out related ipo with a negative bottom line. I rarely recommend a leveraged buyout related quick flip ipo. Why? The leveraged buyout entity is essentially sucking out capital to profit themselves and that profit usually comes at the expense of the future public shareholders. OWW is an interesting combination of a number of online travel sites, primarily of course Orbitz itself. There is some value here. It is simply not an ipo for me. Orbitz struggled as a public company the first go round after pricing and opening enthusiastically. I'm not certain we need the leveraged quick-flip version of the Orbitz ipo a second time. Pass in range here, I'm simply not interested.

July 21, 2007, 8:07 pm

LIMC - Limco-Peidmont

As alway analysis pieces on every ipo every week available to subscribers at http://www.tradingipos.com

disclosure - at date of blog post(7/20/07), tradingipos.com does have a position in LIMC at an average of $12.60 per share.

following analysis piece was completed for sunscribers 7/08/07

LIMC - Limco-Piedmont

LIMC - Limco-Piedmont plans on offering 4 million shares at a range of $9.50 - $11.50. Majority owner TAT Technologies(TATTF) will be selling 1/2 a million shares in the offering. Oppenheimer and Stifel are co-leading the deal. Post-ipo LIMC will have 12.5 million shares outstanding for a market cap of $131 million on a $10.50 pricing. IPO proceeds will be used for general corporate purposes.

Pre-ipo, LIMC is a wholly owned subsidiary of TAT Technologies(TATTF). With this ipo TATTF is spinning off LIMC and will retain a 65% stake in LIMC post-ipo. It does not appear the TATTF is in a hurry to spin off the remainder of their ownership stake. TATTF has actually agreed to a one year lock-up arrangement instead of the usual 180 day lock-up period. If TATTF plans on divesting the remainder of their LIMC interests, it doesn't appear as if we'll get an announcement to that effect for at least a year. By agreeing to the extended lock-up period, it appears to me that TATTF plans on holding their majority stake in LIMC indefinitely.

From the prospectus:

'We provide maintenance, repair and overhaul, or MRO, services and parts supply services to the aerospace industry.'

LIMC operates four FAA certified repair stations. Two are located in Tulsa, Oklahoma, and the other two are located in Kernersville and Winston-Salem, North Carolina. The four service centers provide aircraft component maintenance, repair and overhaul services(MRO) for airlines, air cargo carriers, maintenance service centers and the military. In addition LIMC also is an equipment manufacturer of heat transfer equipment for airplane manufacturers and operates a parts services division that provides inventory management and parts services for commercial, regional and charter airlines and business aircraft owners.

As the name would suggest, Limco-Piedmont is the result of two merged operations, Limco and Piedmont. Limco bought Piedmont in 7/05.

MRO Services - 61% of revenues in first quarter of 2007. Government regulations and manufacturing specs require aircraft to undergo MRO servicing at regular intervals, usually each three to five years of service. Warranty covers the first one to five years of aircraft components, LIMC's MRO services usually 'kick in' after the warranty expires. LIMC specializes in the repair and overhaul of heat transfer components for the aerospace industry, special air conditioning units for military operations, APUs, propellers, landing gear and pneumatic ducting, which is used to channel air through the air conditioning and other pneumatic systems on the aircraft. LIMC works on aircraft and components from all the major manufacturers including Boeing, Airbus, Lockheed Martin, General Dynamics and GE.

Parts Servicing - 39% of revenues in first quarter of 2007. LIMC supplies parts to approximately 500 commercial, regional and charter airlines and business aircraft owners.

Sector - MRO/parts servicing growth for aircraft is being fueled by the aging and growing worldwide aircraft fleet. 74% of the world aircraft fleet is 5+ years old. Global air travel is also expected to grow by 4%-5% annually over the next five years. While not a swift growing niche, the MRO component services sector generates over $8 billion in worldwide revenues and is expected to grow 4% annually over the next 5 years.

LIMC's five largest MRO customers account for 20% of revenues. Customers include Bell Helicopter, Fokker, Hamilton Sundstrand, KLM Royal Dutch Airlines NV, Lufthansa Technik AG, PACE Airlines, Piedmont Airlines and the U.S. Government. LINC derives nearly 10% of their revenues from the US Government, primarily Department of Defense related.

Competition - LIMC is a rather small player and competes directly with larger manufacturers whom also service their manufactured components. These include various segments of Honeywell, as well as Standard Aero Group, Aerotech, AAR, and a number of others.

LIMC's future growth strategies include expanding to additional MRO services as well as continuing to grow Western Europe based revenues. I would expect LIMC to utilize the ipo cash to make future acquisitions that assist them in their growth efforts. Fully expect one or more acquisitions here paid in LIMC's first year public.

70% of 2006 revenues derived from companies located in the US, 30% internationally.


$2 per share in cash, no debt. LINC does not plan on paying dividends.

3 X's book value on a $10 1/2 pricing.

LIMC has swiftly grown revenues since the mid 2005 acquisitions of Piedmont. In conjunction with the acquisition, LIMC instituted a number of cost cutting initiatives to reduce redundancies between the two companies.

Revenues in 2006 were $59 million. LIMC, which has been profitable since 2002, earned a fully taxed $0.38.

2007 - LIMC had a strong first quarter. Revenues should hit $90 million in 2007, an impressive 52% revenue increase from 2006. LIMC attributes recent quarterly revenue growth from both existing customers as well as winning new MRO/parts services contracts. Both increased due to LIMC receiving FAA approval to expand MRO services to include a greater number of aircraft components. Gross margins are not strong in this sector. I would expect 2007 gross margins to hit the 23%-25% area. GSA expenses should hit 10% levels of revenues. Operating margins then should be in the 14% ballpark. Net margins for full year should be in the 8%- 9% ballpark. This is slightly higher then LIMC has booked in recent quarters and is attributable to debt paid off on ipo as well as pre-ipo stock compensation charges. Earnings per share should be $0.60-$0.65. On a pricing of 10 1/2, LIMC would be trading 17 X's 2007 earnings.

Conclusion - Market cap on ipo here gives LIMC plenty of room for growth. LIMC his hitting on all cylinders the 2 quarters leading into the ipo, booking two strongest quarters in corporate history. The gross margins in this sector are rather thin and this is not traditionally a high growth sector. Those two factors mean you do not pay fat multiples for this type of company. However coming at a $131 market cap(on a $10 1/2 pricing) and 17 X's 2007 earnings with a strong year to year growth rate this is an easy recommend in range. I like this ipo in the $9 1/2 - $11 1/2 range quite a bit actually. Strong recommend here, there is plenty of market cap room here for substantial appreciation going forward.

Note - While I would doubt 2008 revenues will grow at close to the pace of 2007 revenues, I fully expect LIMC to utilize the ipo cash to acquire one or more smaller component service companies

July 4, 2007, 3:13 pm

SHOR - ShorTel


This analysis piece was done for http://www.tradingipos.com subscribers on 6/23 well before Mitel filed a patent infringement suit against SHOR. On site we've been discussing post-suit in subscribers forum section.

Also tradingipos.com does own shares in SHOR at an avg of $10.10, again as posted on forum section of susbcribers site real-time on tuesday 7/3.

SHOR - ShorTel

SHOR - ShorTel plans on offering 7.9 million shares at a range of $8.50 - $10.50. Lehman and JP Morgan are lead managing the deal, Piper Jaffray, JMP, and Wedbush co-managing. Post-ipo SHOR will have 41.3 million shares outstanding for a market cap of $392 million on a $9.50 pricing. IPO proceeds will be utilized for working capital and general corporate purposes.

Crosspoint Venture Partners will own 22% of SHOR post-ipo. Note that Lehman and JP Morgan related venture funds will own a combined 22% of SHOR post-ipo also.

From the prospectus:

'We are a leading provider of Internet Protocol, or IP, telecommunications systems for enterprises. Our systems are based on our distributed software architecture and switch-based hardware platform which enable multi-site enterprises to be served by a single telecommunications system. Our systems enable a single point of management, easy installation and a high degree of scalability and reliability, and provide end users with a consistent, full suite of features across the enterprise, regardless of location.'

Enterprise IP communications systems. Products consist of ShoreGear switches, ShorePhone IP telephones and ShoreWare software applications. SHOR sells 9 switch products and 5 different IP phone systems. SHOR sells their products through 3rd party sales channels(resellers). As of 3/31/07, SHOR has sold to 4,500 enterprise customers through 400 different channel partners.

Of note, SHOR's enterprise IP telecommunications systems received PC Magazine’s Best of the Year 2005 Editors’ Choice designation. In addition for the past four years IT executives surveyed by Nemertes Research, an independent research firm, have rated ShoreTel highest in customer satisfaction among leading enterprise telecommunications systems providers. These two nuggets make this SHOR ipo at least worth a closer look.

Sector - This is a fairly large sector with an estimated $17 billion in overall worldwide enterprise telephony systems equipment revenues. The past few years has seen a shift by enterprises from separate voice and data networks to a single IP network for both. SHOR operates in the voice and date IP niche, expected to grow 19% annually, far outpace overall enterprise telephony growth. It is estimated that currently voice and data IP systems equipment market alone will be nearly $8 billion by 2010. As would be expected there is substantial competition in the space. The usual communications equipment players all offer some form of enterprise IP telecommunications equipment including Cisco, 3Com, Alcatel-Lucent, Inter-Tel Incorporated, Mitel Networks Corporation (which recently announced plans to acquire Inter-Tel Incorporated) and Nortel. In addition Microsoft is entering the space and appears to be developing an IP partnership with Nortel in which Nortel will produce IP-based communications equipment that will be integrated with the Microsoft systems and Office Communicator.

SHOR's IP solution. Many of SHOR's competitors offer a hybrid IP telecommunications solution, meshing it with existing legacy communications equipment and products. SHOR offers switch-based IP telecommunications systems for enterprises that address the limitations of hybrid and server-centric IP systems. SHOR lists the usual benefits in these prospectus including scalability, ease of use, reliability etc...A few highlights:

1) Personal Call Manager allows end users to control their phones from their PCs, regardless of their location, and integrates with enterprise software applications, such as Microsoft Outlook and salesforce.com.

2)IT management via anywhere use browsers.

3) SHOR believes their system costs less to install and operate.

In these filings every company states why their products are superior. In this case, SHOR has PC Magazine and four year's worth of IT managers' recognition to back their claims up. It would appear from gross margins below and awards that SHOR may indeed offer a superior product.

Historically SHOR has sold their products to small and medium size enterprises. A key growth strategy going forward in FY '08 is to begin selling into larger companies.


$2 a share in cash, no debt.

SHOR's fiscal year ends on 6/30 annually. FY '07 ends 6/30/07.

Revenues have increased sequentially each quarter for over two years. I always like to see this. Revenues past four quarters(ending 3/31/07) were(in millions) $19, $20.5, $22.5 and $26 million.

FY '07(ending 6/30/07)

2 quick points. SHOR has booked more stock compensation expenses in FY '07 then they will post-ipo. I smoothed this out a bit by 'pro forma'ing' the stock comp numbers for FY '07 cutting them slightly. SHOR does not have excessive options dilution in their future and stock compensation charges annually should be around $1 million, while for FY '07 pre-ipo they'll be in the $2.5 million ballpark.

2nd point is taxes. SHOR has substantial deferred losses as they did not shift into profitability until FY '06. Their effective tax rate for FY '07 and FY '08 should be in the 10% ballpark.

Revenues for FY '07 with one quarter to go should be in the $97 million ballpark, a strong 60% increase over FY '06. Gross margins for this type of highly competitive communications equipment sector are very strong at 62%. Gross margins are up in FY '07 from FY '06 56%. SHOR attributes this to the release of higher margin products. We've seen a slew of very aggressively valued networking equipment ipos with 40% gross margins, SHOR here in what should be a somewhat commoditized sector is doing something very right to be garnering 62% gross margins.

Operating expense margins have risen pretty evenly with revenues. Ideally you want to see expenses decreasing as a % of revenues as revenues increase. With SHOR we're not seeing that quite yet. for the past four quarter operating margin expense ratio has been in the 52%-55% of revenue range. Going forward I'd like to see SHOR be able to lower that operating expense ratio. That will be a key to future profit growth.

Operating margins for FY '07 were 8%. Plugging in taxes, earnings per share should be $0.17.

FY '08(ending 6/30/08) - If the past three years are indicative, SHOR should continue to grow revenues sequentially each quarter. I would estimate FY '08 revenues in the $120-$125 ballpark, a 25% increase over FY '07. Gross margins should be in the 60% ballpark again. I'd like to see operating expense ratio dip. However I'm not going to plug in much of an operating expense ratio dip as they've not demonstrated they've been able to do that past four quarters. Operating margins should be in the 9%-10% ballpark. Earnings per share should be in the $0.25 - $0.30 range. On a pricing of $9.50, SHOR would be trading 34 X's FY '08 earnings.

Conclusion - The only negative here is that earnings have not quite caught up yet with valuation on ipo. Still a number of things to like here: 1)Award winning product; 2) Gross margins actually increasing in a very competitive sector; 3) Quarter to quarter top and bottom line growth; 4) A valuation on ipo, that would make them very attractive buyout candidate; 5) Directly benefiting from the enterprise switch(pun!) from legacy communications systems to an integrated single platform all IP network.

Definite recommend here in range. I like this one quite a bit in single digits. I've no idea if this works initially, but mid-term plus I can envision SHOR much higher down the line due to the factors

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