2010.32 RealD gets closer to its IPO
On June 28, RealD filed an amendment to its S-1 registration statement in preparation for its IPO. This amendment has the kinds of details – the shares to be sold, valuation range, selling shareholders – that suggest the company is ready to take this offering on the road. I would expect this roadshow to begin asap.
This registration statement amends the company’s filing on April 9, 2010. Please refer to our previous post on that filing.
Highlights of the amendment are as follows:
- Expected offering size and valuation. The company is proposing to sell 6 million new shares at a price range of $13-15 per share. At $14 per share, the offering generates $84 million in gross proceeds ($75 million net). This is a lot less than some people’s estimates of $200 million based on the April filing, but it certainly does the job.
- At $14 per share, the implied pre-money valuation for the company is $725 million. That valuation includes the impact of warrants and options granted to employees, key exhibitors and others.
- In addition to the 6 million shares to be sold by the Company, existing shareholders are looking to sell 4.75 million shares. Most existing shareholders are selling a portion of their holdings – Michael Lewis and Josh Greer (the founders), Shamrock, Pequot and others.
- The company’s March quarter was huge. RealD did $113 million in gross revenue in the nine months ending December 2009. Just in the March 2010 quarter, the company’s gross revenue exceeded $76 million. Avatar was the primary driver of this spike in revenues, which the company warns will not be repeated in the June quarter.
- The company’s rapid deployment continues. Just between March 26 and June 1, RealD’s deployed screen count increased from 5,321 to 5,966 (up 12%). The 14,000 screen deployment by Digital Cinema Implementation Partners (discussed in our April RealD post) will represent dramatic growth. The cost is that the company is forecasting $40 – 50 million of capex in the March 2011 fiscal year.
- Growth creates its own challenges. For example, the company’s freight and logistics expense grew $16 million in the March 2010 year to handle the logistics of eyewear. Further, the company forecasts that it will spend $4 – 7 million in the June and September quarters to cover expedited shipping of eyeglasses and to build eyeglass inventory. The logistics of handling expensive 3D eyewear remain a difficult operational challenge for the company and exhibitors.
- RealD sees continued growth in the 3D movie pipeline. They estimate that 23 3D movies will be released in 2010 and 33 will be released in 2011. By comparison, there were 27 3D releases in the entire 2005-2007 three-year period.
- RealD’s board is going Hollywood. Upon the consummation of the IPO, Frank Biondi Jr., James Cameron and Sherry Lansing are all joining the board. Biondi has served as CEO of both Universal Studios and Viacom. James Cameron, of course, is the force behind Titanic and Avatar. Sherry Lansing is a longtime Hollywood player who was once president of production at 20th Century Fox.
- The company has sharply raised its own estimate of its value. Remember per our April post that RealD has to account for the warrants it issued to exhibitors by estimating the value of its stock as those warrants vest. As of March 2010, management estimated the company’s per-share value to be $23.07, up 65% in only three months. This does create the anomalous situation that RealD is preparing to sell stock to the public at a significant discount (35 – 43%) to the board’s estimate of value.
- Don’t let them confuse you with a stock split! The company has effected a 3-for-2 stock split since its April filing, so any quick per-share comparisons are risky unless you are clear on whether you are talking pre-split or post.
With the Dow Industrials down 268 points yesterday and 92 points today, perhaps RealD’s biggest near-term worry is the market. Stay tuned for the roadshow!
