DigitalGlobe shares to launch today

Sources: Longmont company prices IPO at $19, raises $279.3M

By Alicia Wallace, Thursday, May 14, 2009

LONGMONT, Colo. — After waiting 13 months in the wings, DigitalGlobe Inc. is launching into the public market.

The Longmont-based provider of high-resolution satellite imagery priced its initial public offering at $19, which was above the previously estimated range, and raised $279.3 million through the sale of 14.7 million shares, according to news reports and IPO site Renaissance Capital.

Shares of DigitalGlobe Inc. are expected to begin trading today on the New York Stock Exchange under the symbol "DGI." The offering will help cover operational costs as the company plans to launch its next-generation satellite and take more precise and up-to-date photos.

While the deal is not huge by historical standards, analysts say it's another sign of life being breathed back into an IPO market that had the wind knocked out of it when the markets took a nose dive last fall.

"We're very optimistic that we're starting to see a turnaround in the IPO market," said Jacqueline Kelley, Ernst & Young LLP's Americas IPO leader.

DigitalGlobe is the fifth company to go public this year, and its offering is the third-largest nationwide during the past 12 months, according to data from Renaissance Capital, of Greenwich, Conn.

The deal was led by underwriters Morgan Stanley and JP Morgan. An affiliate of Morgan Stanley, which acted as a placement agent for DigitalGlobe's 2006 offering of its common stock, is expected to own more than 14.3 million shares after the offering, or about 32 percent of the company. Other institutional investors include Beach Point Capital, Hitachi Software and Ball Technologies Holding Corp.

Most of the proceeds will go toward DigitalGlobe shareholders, with the company expecting to receive less than $20 million.

Of the four other companies to go public so far this year -- Rosetta Stone (RST), Bridgepoint Education (BPI), Changyou.com (CYOU) and Mead Johnson Nutrition (MJN) -- only Bridgepoint is trading below its IPO price.

"We've had some pretty solid companies come out (in the IPO market)," said Matt Therian, an analyst with Renaissance Capital. "These are profitable companies, have good cash flows, the kinds of companies we'd expect to come out when there's rough sledding."

And DigitalGlobe is no exception to that, he said.

''Overall demand pretty robust'

With the U.S. government as its No. 1 customer, and its images being used by the likes of Google, Microsoft and Nokia, DigitalGlobe saw its revenue increase nearly 82 percent to $275.5 million in 2008.

DigitalGlobe's net income before taxes nearly tripled to $91.9 million.

Revenue during the first three months of 2009 slipped to $67.2 million, from $68.8 million the first quarter of 2008.

"It looks like the top line revenue is not as strong ... but the overall demand for what they offer is apparently pretty robust," said Francis Gaskins, publisher of IPODesktop.com.

In April, the U.S. government announced plans to buy more satellite imagery from those in the commercial sector.

Defense and intelligence agencies use DigitalGlobe's imagery to identify anything from ground-based armor and naval vessels to drug crop production and other illicit activities. Disaster response teams can compare real-time images with historical images to evaluate ground conditions. Companies in the private sector use the images for online and mobile mapping programs, real estate listings and even next-generation video games.

DigitalGlobe officials cite a research report that tagged the remote sensing market at $7.3 billion in 2007 and predicted it to grow to $9.9 billion.

But it hasn't always been smooth sailing for the company that was founded as EarthWatch in 1994.

Its first satellite, EarlyBird 1, suffered a power system failure that caused a loss of communications four days after its launch in 1997. Plans for a second EarlyBird were nixed.

In 2000, the first iteration of QuickBird failed to achieve orbit.

The next year, however, the Longmont company successfully launched its QuickBird satellite, followed in 2007 by WorldView-1.

Every day, the satellites can collect up to 1 million square kilometers of imagery, an area DigitalGlobe officials tout is larger than the combined land mass of France and Germany. The company's ImageLibrary also can hold more than 660 million square kilometers of Earth imagery.

Most of WorldView-1's capabilities trump those of its younger sibling in terms of black-and-white resolution, collection capacity, agility and design life. On the flip side, QuickBird has the ability to capture 2.44-meter multispectral images.

Another WorldView

But DigitalGlobe continued to look ahead -- considering increasing demand from the government, a growing number of potential commercial applications and new multi-spectral and high-resolution satellites from competitors GeoEye and SPOT Image -- and announced it was moving forward with WorldView-2.

Slated to launch in September or early October, WorldView-2 is expected to nearly double collection capabilities, allow for same-day revisits to a specific geographic area, have a "more robust color palette," and enable enhanced analysis of non-visible characteristics on the Earth's surface and underwater, DigitalGlobe officials said in a filing with the Securities and Exchange Commission.

Funding for WorldView-2 was among the goals for DigitalGlobe's initial public offering, the company said in April 2008.

A lot has changed during the past 13 months. The company waited out a frozen IPO market and was able to fund the construction through the issuance of senior notes. Now, DigitalGlobe intends to use proceeds from its offering to fund its operations.

However, an unsuccessful launch could permanently cause DigitalGlobe's revenue to buckle, officials said, noting that QuickBird and WorldView-1 are expected to reach their end-of-lives in 2010 and 2018, respectively.

"With this kind of a company, you have to look at the overall," IPODesktop's Gaskins said. "I think it'll do fine. I think if their launch is successful in fact, then it's an easy win."