Morning Report: Why Is This Company Going Public?

Morning Report: CompuLab just filed to go public. What is it, and should it go public?

CompuLab, an Israeli computer company, has filed to go public on the Nasdaq exchange. The offering may raise as much as $23 million, according to its F-1 document. If successful, the company will trade under the symbol “CPUL.”

The offering begs a question and then implies another. We’ll answer them in sequence. First:

Why Is CompuLab Going Public With Numbers Like These?

CompuLab, self-described of “global developer and manufacturer of embedded computer systems, fan-less ‘Mini PCs’ and a line of recently developed powerful fan-less computing systems,” shrank last year.

That’s an odd comment for an IPO, but here are the numbers:

• CompuLab 2014 revenue: $23.37 million
• CompuLab 2015 revenue: $27.78 million
• CompuLab 2016 revenue: $21.96 million

As we can see, CompuLab didn’t merely shrink on a sequential-year basis but also compared to its result from two years ago. That means 2016, the most recently reported financial period in its F-1, was its smallest year at least since 2013. That is not, as they say, the sort of narrative you want to advance when going public.

To its credit, CompuLab turned a real profit in 2016. Instead of losing $120,000, as it did in 2015, or $614,000, like it did in 2014, the firm made $1.4 million in 2016. Sadly, when you scope out a touch, we find that the company’s non-GAAP profit metrics paint a less rosy picture.

(Falling revenue and a weaker non-GAAP profit story than GAAP? Is everything upside down?)

To that end, here are the company’s 2015 and 2016 adjusted profit metrics, take one:

• CompuLab 2015 EBIDTA: $3.93 million
• CompuLab 2016 EBITDA: $3.78 million

And, stripping out even more expense, here’s take two:

• CompuLab 2015 adjusted EBITDA: $4.66 million
• CompueLab 2016 adjusted EBITDA: $4.16 million

Those are not strong numbers in that they point down. When you take a company public, you want the opposite.

Did the company have a good start to 2017, perhaps showing a better growth narrative? It isn’t clear as the F-1 document is devoid, so far as we can see this morning, of recent financial results. Instead, it tells you that the year ended six months ago was lackluster.

Why is this company going public? Twitter yielded two answers to that this morning:

Both are cynical, but I can’t come up with better reasons.

In our opening riff together, I promised a second question that we’d answer. It’s simple enough: Why does this company think that it can go public? Likely because the market seems very open to companies with, say, uncertain profit profiles (Carvana!), nascent revenue streams and odd costs (Snap!), deeply unprofitable companies with suffering market comps (Cloudera!) and more.

Why wouldn’t a small PC maker that actually makes money think it has a shot?

As always, the kicker is that if CompuLab thinks it can get out with its revnue declines laid bare, why the hell aren’t stronger companies pulling the trigger.

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