Friday, August 29, 2008
Interview: NetQOS Eyes IPO, Maybe
Privately funded companies rarely share their earnings reports. After all, such disclosure isn't necessary, or expected. So when NetQoS, an Austin-based provider of network performance management products and services, issued a press release Tuesday touting its Q1 and Q2 2008 revenues, a few eyebrows here at TexasTechPulse.com started heading for Oklahoma.
To better understand the situation, we spent a half hour Wednesday chatting with Steve Harriman, NetQoS' vice president of marketing. Here's what he had to say about his company's unforeseen candor.
What were
the motivations behind Tuesday morning's revenues report?
Steve Harriman: It's definitely a fair question. The first thing I should say is, we just didn't have a blowout quarter and then issue a press release. We've been growing at that rate since inception, back in ‘99. We've had double-digit growth for a long time. And if we were a public company and we were issuing guidance, I'd have to say, looking forward, it looks equally strong.
Ah, yes, if you were a public company …. Is that what this is about?
Steve Harriman: We're now getting to a critical mass. If you want to do projections from the revenues that we announced this week, typically, Q3 and Q4 are even stronger than in the first half of the year. So our $60 million target for this year is certainly attainable.
As a company reaches that size, it's certainly no longer in the startup category. We're at that size where we have to consider future options. We have no current plans and nothing underway, but you start to think about the possibility of a public offering. Today's economic climate is not particularly conducive, but, obviously, a public offering is something that takes a lot of planning and preparation. We are very much in that phase.
You say you have no current plans to go public, but then you say you're in that phase of “planning and preparation” for a public offering. Which is it?
Steve Harriman: We have no dates set to go public.
However, Joel Trammell, our CEO, wants the company to act more as a public company and be accountable for its performance as a public company must be. We've already done a significant amount of work in making sure that we are compliant with SEC regulations and all the various odd things that you have to do to sort of move along that path.
So it was at his request that we wrote this release. That's not to say that we'll publish such a release every quarter, but it's something we might do every half year.
Now that you've gone and touted your success, telling the world about your first-half revenues of $25.6 million and your 29 consecutive quarters of double-digit, year-over-year growth, is there any fear that you might've created a monster of expectation?
Steve Harriman: [Senior Public Relations Manager Chandra Hosek] and I talked at length before issuing this release. You do set an expectation by doing so. It's not something we're required to do.
Without being flip about it, I guess we feel good about the future, There are no guarantees, but, as we look at the business today and the coming six months, we feel good about it, even in a down economy.
So that double-digit growth streak isn't in jeopardy of being snapped by this downturn?
Steve Harriman: I don't think the technology sector has been particularly hard hit. But, even so, in the tech sector, if you deliver products with which people can do more with less, then economic downturns can actually be very lucrative. We haven't seen any sort of downturn and, as we look at our pipeline, we're where we need to be and then some.
So I expect we will continue to do this on a semi-annual basis. It's certainly a discipline that Joel Trammell would like to see us exhibit.
Has NetQoS coveted an IPO for years?
Steve Harriman: Not really. To be very frank, we don't think every day about going public. We're trying to grow this company profitably as best we can. When you do that, good things happen.
IPOs are costly, too. They're a tremendous strain on the organization. [Going public] is not something you do lightly by any means.
But in the interests of our shareholders and in the interests of continuing to grow the company, [an IPO] is certainly an offer worth considering.
What sort of indicators is NetQoS looking for?
Steve Harriman: One of the things we watch is the IPO market. There aren't too many companies going public these days. It's not a particularly good time. I'm not clairvoyant—I can't predict when it's going to change—but we're certainly going to watch the conditions.
The reason you do it, of course, is to raise cash, to fund future growth, and we don't see any big need, any urgent need, to do that. We will continue to [grow] organically without any major cash infusion. There's a lot of market available to us. We don't have to rush into this.
That said, we could accelerate growth by going public. With such an infusion of capital, we could go after some bigger acquisitions and pursue more aggressive global expansion by placing bodies overseas and setting up infrastructure there. That's something we're already doing, but prudently and cautiously. We could accelerate that with more cash in hand.
So is NetQoS merely waiting for the economy to improve before going public?
Steve Harriman: That's certainly a requirement. Until then, we will continue to grow organically. We're entering the sweet spot for an IPO—$60 million in revenues projected this year, maybe $80-$90 million next year, and we're profitable. In the old days—not too long ago, really—you didn't have to be profitable.
And I can't really say much more than that.
We appreciate all that you have said, Steve. And thanks for meeting with us on short notice.