RGB Eyes IPO In 2011

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Video-equipment vendor RGB Networks is gearing up for an initial public offering this year, touting a 60% increase in shipments for 2010 and forecasting similar growth in the next 12 months.

According to RGB CEO Jef Graham, the company was profitable for 2010 and ended the year with a record backlog of orders and positive cash flow from operations. While he declined to specify revenue figures for the year, he said RGB has sold nearly $200 million in products and services to more than 200 cable, telco, satellite, over-the-top video and mobile operators in more than 30 countries since 2005.

"As I'm preparing to go to market, I'm trying to illustrate the fact that we're a growing company," Graham said in an interview.

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Compared with some vendors in the cable sector -- Graham called out BigBand Networks, which announced a 9% headcount reduction this week -- RGB is not as dependent on the U.S. cable market. In 2010, 25% of the company's business was non-U.S., mostly in Canada and Latin America. This year Graham expects that to increase to 40%.

To drive its overseas business, RGB in September 2010 hired Simone Sassoli, previously with SeaChange International, as vice president of international sales.

According to Graham, RGB's growth engine will be the Video Multiprocessing Gateway, which is designed to be a carrier-class, highly scalable platform for delivering video to "three screens."

In June 2010, RGB acquired RipCode, a mobile IP video startup, and has since integrated the RipCode audio and mobile video encoding technologies into VMG.

"In the U.S. the first priority is to go to PCs" with video streaming, Graham said. "Internationally the first priority is to go to phones. There are many more operators and more usage of video on phones than there is in the U.S."

RGB has been pondering an IPO for at least three years but with the economic recession tabled those plans until this year. The company has raised $57 million from Comcast, Institutional Venture Partners, Accel Partners, Kleiner Perkins Caufield & Byers and Focus Ventures.

With an IPO, Graham hopes to get a higher valuation than traditional cable-equipment vendors because RGB has relatively high gross margins, which he said are in the "high 60s and low 70s."

RGB, based in Sunnyvale, Calif., has just under 200 employees, after adding about 25 through the RipCode acquisition. "We haven't grown headcount significantly," Graham said.

Graham claimed RGB has already scored big wins with major operators in the U.S. and elsewhere, which he hopes to be able to announce in 2011. He said a fully loaded VMG, capable of delivering 400 simultaneous streams to PCs or mobile devices, is around $1 million.

"I'm getting interesting wins that show you where scalability is important," Graham said. "I'm competing against guys with 1 RU [rack unit] transcoders that basically can't scale."

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