IPO Preview: Intrusion Begins $10 Million IPO Effort

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Intrusion (INTZ) hopes to raise $10 million in an IPO of its common stock, according to an S-1 registration statement.

The firm provides cybersecurity products and services to U.S. government agencies and enterprises.

INTZ is a tiny firm that has been negatively impacted by the Covid-19 pandemic but seeks to broaden its customer base with a new intrusion detection product.

Richardson, Texas-based Intrusion was founded to develop a database of global IP addresses and related information for monitoring cyber threat sources.

Management is headed by president and Chief Executive Officer Mr. Jack Blount, who has been with the firm since May 2020 and was previously CIO in the U.S. federal government and founder of a strategic consultancy for various organizations.

The company’s primary offerings include:

  • TraceCop - IP database
  • Savant - Network data mining
  • Shield - Intrusion detection (in development)

Intrusion has received at least $58 million from investors including ARS Investment Partners, Patsy Paxton, Michael Paxton, Julie Paxton Puckett and Mark Paxton. The Paxtons collectively own 50.2% of company stock pre-IPO.

The firm markets its products through an in-house direct sales force and through value-added reseller organizations.

Intrusion counts as customers a variety of 'U.S. Federal government entities, state and local government entities, large and diverse conglomerates, manufacturing entities, and other customers.'

Sales & Marketing expenses as a percentage of total revenue have fluctuated as revenues have varied.

The Sales & Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales & Marketing spend, dropped to a negative (3.8x) in the most recent reporting period.

According to a 2020 market research report by ResearchAndMarkets, the market for U.S. government cyber security is expected to grow by $11.5 billion from 2020 to 2024.

This represents a forecast CAGR of 11.0% during the period.

The main drivers for this expected growth are increasing cyber security budgets at all levels of government due to greater cyber threat activity domestically and from abroad.

Major competitive or other industry participants include:

  • Niksun
  • NetScout (NTCT)
  • Fireeye (FEYE)
  • Darktrace

Management says its TraceCop product has 'limited competitors,' although it expects competition to emerge in the future, albeit with 'only a portion of the functions that we are able to perform with TraceCop.'

Intrusion’s recent financial results can be summarized as follows:

  • Sharp drop in topline revenue
  • Reduced gross profit and gross margin
  • A swing to operating loss and negative operating margin
  • A swing to cash used in operations

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

intrusionpl

Source: Company registration statement

As of June 30, 2020, Intrusion had $2.9 million in cash and $3.5 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2020, was $853,000.

Intrusion intends to raise $10 million in gross proceeds from an IPO of its common stock, although the final amount may differ.

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

We intend to use the net proceeds from this offering, together with our existing cash, to complete the development of our Intrusion Shield product offering, to promote and market the Intrusion Shield product, to develop sales and distribution channels to sell our products to a customer base comprised of commercial customers who are distinct from and our historical customer base of governmental and regulatory customers, and for general and administration expenses.

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

The sole listed bookrunner of the IPO is B. Riley FBR.

Commentary

Intrusion is seeking public market financing to continue product development for its Shield product.

The firm’s financials indicate a sharp drop in topline revenue for the first six months of 2020, likely due to the negative effects of the Covid-19 pandemic on its sales and operations.

Sales & Marketing expenses have fluctuated as revenue has varied; its Sales & Marketing efficiency rate turned sharply negative in the most recent reporting period, mirroring the sharp drop in topline revenue.

The market opportunity for providing cybersecurity solutions to all levels of U.S. government agencies is large and expected to grow substantially in the years ahead, as cyber threats proliferate.

B. Riley FBR is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 49.5% since their IPO. This is a top-tier performance for all major underwriters during the period.

Intrusion is a tiny firm in a big market with large players. It provides a few niche products and seeks to broaden its offerings with its Shield product under development.

Management hopes to also broaden its customer base in the process.

When we learn more IPO details, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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