T1V Seeks IPO In Competitive Collaboration Software Market (Pending:THNK)

A Quick Take On T1V

T1V, Inc. (THNK) has filed to raise $16.5 million in an IPO of its units consisting of Class A common stock and warrants, according to an S-1 registration statement.

The firm develops visual collaboration software for a variety of end-user markets.

Given THNK’s small size, growing operating losses, competitive disadvantages, and thin capitalization, I’m on Hold for the IPO.

T1V Overview

Charlotte, North Carolina-based T1V, Inc. was founded in 2007 to create software to enable greater communication and collaboration options for persons and teams in disparate locations.

Management is headed by co-founder, President and CEO Michael Feldman, who has been with the firm since inception in 2007 and was previously co-founder of Digital Optics Corporation before it was acquired by Tessera Technologies.

The company’s primary offerings include:

• ThinkHub – Visual collaboration solution

• T1V Story – Software for brand storytelling.

The company sells its solutions to enterprise, education, healthcare and general commercial markets.

As of September 30, 2022, T1V has booked fair market value investment of $10.2 million in equity from investors, including Ross Annable, IMAF Charlotte, WH&W Private Market, and T1 Investment, LLC.

T1V – Customer Acquisition

The firm focuses its sales and marketing efforts on the verticals of the enterprise, hospital and education markets.

It sells through channel partners as well as through direct sales efforts to end users.

The company’s recent revenue growth has been primarily due to its ThinkHub Room sales for use in hybrid working environments made more popular since the start of the pandemic.

Sales and Marketing expenses as a percentage of total revenue have risen though they still remain small as revenues have increased, as the figures below indicate:

Sales and Marketing	Expenses vs. Revenue
Period	Percentage
Nine Mos. Ended September 30, 2022	1.6%
2021	1.2%
2020	0.9%

Click to enlarge

(Source – SEC.)

The Sales and Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, rose sharply 27.7x in the most recent reporting period, as shown in the table below:

Sales and Marketing	Efficiency Rate
Period	Multiple
Nine Mos. Ended September 30, 2022	27.7
2021	7.8

Click to enlarge

(Source – SEC.)

The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.

THNK’s most recent calculation was 55% as of September 30, 2022, so the firm has performed well in this regard, per the table below:

Rule of 40	Calculation
Recent Rev. Growth %	75%
EBITDA %	-21%
Total	55%

Click to enlarge

(Source – SEC.)

T1V’s Market & Competition

According to a 2021 market research report by Verified Market Research, the global market for visual collaboration software was an estimated $5.7 billion in 2019 and is forecasted to reach $17.2 billion by 2027.

This represents a forecast CAGR of 13.5% from 2020 to 2027.

The main drivers for this expected growth are increasing demand from organizations adopting a more decentralized workforce and workflow as well as improved technology options from vendors.

Also, the North America market is expected to retain the largest market share, while the Asia-Pacific market is expected to grow at a CAGR of over 19% through 2028, according to a report by Research Nester.

Major competitive or other industry participants include:

• Cisco

• Google

• Zoom

• LogMeIn

• GoToMeeting

• Microsoft

• Oblong

• MultiTaction

• Bluescape

• Miro

• Mural

• Figma

• Lucid Software

• Others.

T1V, Inc. Financial Performance

The company’s recent financial results can be summarized as follows:

• Growing topline revenue from a small base

• Fluctuating gross profit

• Dropping gross margin

• Increasing operating losses

• Variable cash used in operations.

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Nine Mos. Ended September 30, 2022	$ 11,061,723	75.2%
2021	$ 9,159,815	9.9%
2020	$ 8,335,918
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Nine Mos. Ended September 30, 2022	$ 5,620,700	66.3%
2021	$ 4,886,479	-4.1%
2020	$ 5,096,726
Gross Margin
Period	Gross Margin
Nine Mos. Ended September 30, 2022	50.81%
2021	53.35%
2020	61.14%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Nine Mos. Ended September 30, 2022	$ (2,272,289)	-20.5%
2021	$ (2,971,637)	-32.4%
2020	$ (1,558,246)	-18.7%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
Nine Mos. Ended September 30, 2022	$ (3,597,765)	-32.5%
2021	$ (3,706,833)	-33.5%
2020	$ (2,550,113)	-23.1%
Cash Flow From Operations
Period	Cash Flow From Operations
Nine Mos. Ended September 30, 2022	$ (681,511)
2021	$ (2,425,010)
2020	$ (893,101)
(Glossary Of Terms.)

Click to enlarge

(Source – SEC.)

As of September 30, 2022, T1V had $142,928 in cash and $26.6 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2022, was approximately negative ($2.0 million).

T1V, Inc. IPO Details

T1V intends to raise $16.5 million in gross proceeds from an IPO of its units consisting of Class A common stock and one warrant per share, offering approximately 3.2 million units at a proposed midpoint price of $5.15 per unit.

Class A stockholders will be entitled to one vote per share and Class B shareholders will receive ten votes per share.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $44.8 million, excluding the effects of underwriter over-allotment options.

The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 30.1%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

Management says it will use the net proceeds from the IPO as follows:

approximately $2 million for sales and marketing of ThinkHub Cloud™ product offerings;

approximately $2 million for research and development;

approximately $2.00 million to repay outstanding indebtedness to certain existing creditors, as provided below, including payment of accrued and unpaid interest thereon as well as fees related to conversion of indebtedness into shares of Class A Common Stock upon the completion of this Offering; and

the remainder, if any, for working capital and other general corporate purposes.

Based on our current plans, we believe that our existing cash, together with the net proceeds from this Offering and will be sufficient to fund our operating expenses and capital expenditure requirements until at least […], 2024 (12 months after the completion of this Offering)

(Source – SEC.)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management did not disclose any information about legal proceedings, if any.

The sole listed bookrunner of the IPO is EF Hutton.

Valuation Metrics For T1V

Below is a table of relevant capitalization and valuation figures for the company:

Measure [TTM]	Amount
Market Capitalization at IPO	$54,777,620
Enterprise Value	$44,793,566
Price / Sales	3.94
EV / Revenue	3.22
EV / EBITDA	-14.70
Earnings Per Share	-$0.54
Operating Margin	-21.91%
Net Margin	-43.01%
Float To Outstanding Shares Ratio	30.12%
Proposed IPO Midpoint Price per Share	$5.15
Net Free Cash Flow	-$1,955,652
Free Cash Flow Yield Per Share	-3.57%
Debt / EBITDA Multiple	-0.85
CapEx Ratio	-17.61
Revenue Growth Rate	75.17%
(Glossary Of Terms.)

Click to enlarge

(Source – SEC.)

Commentary About T1V’s IPO

THNK is seeking U.S. public capital market funding for its general corporate growth plans and to pay down debt.

The firm’s financials have generated increasing topline revenue from a small base, variable gross profit but lowered gross margin, growing operating losses and fluctuating cash used in operations.

Free cash flow for the twelve months ended September 30, 2022, was approximately negative ($2.0 million).

Sales and Marketing expenses as a percentage of total revenue have risen as revenue has grown; its Sales and Marketing efficiency multiple rose to 27.7x in the most recent reporting period.

The firm currently plans to pay no dividends and to retain any future earnings for reinvestment into the company’s growth initiatives and operating requirements.

THNK’s CapEx Ratio indicates it has spent lightly on capital expenditures despite its negative operating cash flow results.

The company’s Rule of 40 results have been strong, buoyed by high revenue growth offset partially by operating losses.

The market opportunity for providing visual collaboration software is large and expected to grow at a double-digit rate of growth through 2027, so the firm enjoys strong industry growth dynamics in its favor.

However, the industry features large and well-known technology providers with deep pockets and strong competitive capabilities.

EF Hutton is the sole underwriter, and IPOs led by the firm over the last 12-month period have generated an average return of negative (65.9%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

Risks to the company’s outlook as a public company include the aforementioned high degree of competition from major technology companies and the firm’s thin capitalization.

As for valuation, management is asking investors to pay an Enterprise Value/Revenue multiple of approximately 3.2x.

Given T1V, Inc.’s small size, growing operating losses, competitive disadvantages and thin capitalization, I’m on Hold for the IPO.

Expected IPO Pricing Date: To be announced.