BigBand Files for IPO
LR Cable News Analysis Alan Breznick, Cable/Video Practice Leader, Light Reading 12/26/2006
BigBand, a perennial IPO candidate, plans to have its shares trade on the Nasdaq under the symbol BBND. The company was picked by Light Reading's editors as long ago as 2004 to be among the most likley to go public or be acquired. (See LR Reveals Leading Lights Winners.) But BigBand's filing with the Securities and Exchange Commission (SEC) didn't mention how many shares will be offered. It also didn't specify a price range for the offering, leaving the question of its market valuation up in the air.
Earlier this year, an Israeli press report said the company was looking to reach a market value at nearly $500 million by selling about 25 percent of its stock to the public. (See BigBand Reportedly Ready to IPO.)
BigBand makes equipment and software that enable cable operators and phone companies to deliver digital video, high-speed data, and VOIP services to their subscribers. The Silicon Valley firm is particularly known for its video products, which include gear and software for digital simulcasting, telco TV, and switched broadcast video.
Although the initial S-1 filing doesn't reveal much about BigBand's future plans, the registration statement does tell a good deal about the company's business. Recording its first quarterly profit in the third quarter, the firm reported net income of nearly $1.6 million on $43.1 million in revenue, an improvement from a net loss of $6.8 million on $22.9 million in revenue a year earlier.
For the first nine months of the year, BigBand reported a net loss of $66,000 on $113.6 million in revenue. But that still represented an improvement compared to the loss of $19.7 million on $71.2 million in revenue reported for the first nine months of 2005.
Several large MSOs have accounted for much of BigBand's business this year, including Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), Cox Communications Inc. , and the now-defunct Adelphia Communications . But Verizon Communications Inc. (NYSE: VZ) has abruptly replaced them all as the company's biggest customer, generating 27 percent of the firm's revenues in the first nine months of the year.
Noting that its five biggest customers accounted for 73 percent of its revenues in the first three quarters of the year, BigBand warns potential investors that its "customer base is highly concentrated, and there are a limited number of potential customers for our products." With further industry consolidation and customer concentration expected, the firm relates, "the loss of any of our key customers would likely reduce our revenues significantly."
In another notable risk factor listed in the registration statement, BigBand warns that its accounting firms have warned the company to shore up its internal financial controls. The filing says the company's independent accountants "have identified and reported to us material weaknesses in our internal controls" for the past two years that, "if not properly remediated, could result in material misstatements in our financial statements in future periods and impair our ability to comply with the accounting and reporting requirements applicable to public companies."
Specifically, BigBand disclosed, an independent probe found "numerous instances" in which resellers of the company's products in China, "with the understanding and approval of our China personnel, agreed to provide technical support, extended warranty terms, and potentially other undefined terms without proper documentation and without communicating these arrangements to our legal and finance departments." As a result, the company has deferred about $4.8 million in revenues from its Chinese customers until it can meet all the terms of its contracts.
To guard against similar problems in the future, BigBand said it has doubled its financial staff and upgraded its senior finance personnel. The company said it has also imposed greater controls for its quarterly and annual reports and made changes in its forecasting and budgeting processes, among other things.
BigBand's IPO filing comes as such larger, more entrenched cable tech vendors as Motorola Inc. (NYSE: MOT) and Cisco Systems Inc. (Nasdaq: CSCO) are snapping up digital video specialists to boost their competitive positions. In the most recent move last week, Motorola gobbled up Tut Systems Inc. (Nasdaq: TUTS) for about $39 million.
The move also comes as more privately owned firms seek to take advantage of a bullish stock market by going public. In a story earlier today, the Wall Street Journal reported that the current quarter will end up being the busiest fourth quarter for new issues in seven years.
— Alan Breznick, Site Editor, Cable Digital News