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Double-Take makes profit and goes for IPO

The replication market must be good.

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Double-Take Software has sprung an IPO on us. It's announced the pricing of its initial public offering of 7,500,000 shares of its common stock at $11.00 per share, (before underwriting discounts and commissions). The offering is expected to close on 20th December 2006. Hopefully it will be a very happy Christmas for the stockholders inside the company.

The Double-Take replication product is a near-standard in Windows server data replication. It can be used to replace the transfer of tapes in disaster recovery and business continuance scenarios.

Double-Take was founded in 1991, and then known as NSI Software. It rebranded itself in July this year and adopted the name of its key product. It recorded net losses of $8 million in both 2003 and 2004. A US SEC Filing showed a net loss of $3.8 million in 2005. At least this is going in the right direction.

In the first quarter of this year it recorded a $400,000 net profit. This is in the context of $80 million venture capital funding and an accumulated deficit of $97.6 million.

Venture capitalists are probably quite keen to get a profit from their investment in the company. This is indicated by a recent change in CEO. A Dean Goodermote was appointed in March 2005. He replaced one of the co-founders of the then NSI Software, Don Beeler. Goodermote was at that time a venture partner in ABS Capital Resources, a VC firm with investments in NSI. Beeler also resgned as Chairman and was said to be staying on as an adviser. He is now an independent consultant advising on corporate strategy. Hopefully he has some stock. (He was listed as a Series B stockholder.)

I read this as the VCs getting impatient for a profitable exit and installing their own man to make the company ready, able and acceptable as an IPO candidate.

So Goodermote renamed the company and mooted an IPO last August, before Double-Take had actually made any profit. How long Goodermote stays as CEO after the IPO is a debatable point. Where do his loyalties lie?

It has made a profit now. In the nine months to September 30th, 2005m, it lost $1.165 million. But in the same nine months of this year it recorded a $5.045 million profit. So that was that job done.

However, the prospectus noted that this $5 million net profit was: "before dividends and accretion attributable to preferred stock. As of September 30, 2006, we had an accumulated stockholders’ deficit of $54.6 million."

There's no denying that Goodermote has orchestrated quite a significant financial turnaround.

The prospectus states: "The storage replication market is large and growing. In 2006, International Data Corp., or IDC, a market research firm, estimated in its Worldwide Storage Replication Software 2006-2010 Forecast, Mar 2006 Doc #200998, that the worldwide storage replication software market would grow from $2.1 billion in sales in 2005 to $4.2 billion in 2010, representing a compound annual growth rate of approximately 15%. IDC further estimated that sales in the Windows server sub-segment of this market, which our software currently addresses, would increase at a compound annual growth rate of approximately 25%, from $310 million in 2005 to $940 million in 2010."

The market prospects for Double-Take, with its 10,000 existing customers, look good.

The competing suppliers look good too. The prospectus identifies: "The market for our software is intensely competitive. Our primary competitors include EMC Corporation (Legato), Neverfail Group, Ltd., Symantec Corporation (Veritas) and CA, Inc. (XOsoft Inc.)."

The shares have begun trading on the NASDAQ Stock Market under the trading symbol 'DBTK.' The company is looking to net itself $48.2 million.

I'm not recommending anything at all here. But if you fancy a punt and want to join in, a copy of the prospectus may be obtained from: Cowen and Company, LLC Prospectus Department at ADP, 1155 Long Island Avenue, Edgewood, New York, 11717, phone number +1 631-254-7106, or Thomas Weisel Partners LLC at One Montgomery Street, Suite 3700, San Francisco, California 94104, phone number +1 415-364-2500. The prospectus will also be available on the Securities and Exchange Commission website.

Happy Christmas Double-Take.

PS. Isilion is also running its IPO.


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