A Look at the FundamentalsIMP secured a $125 million contract and is on its way to potentially increasing that contract size before the end of Q4 as well as securing another similar sized contract before the end of 2015. Let's assume, all said and done, IMP secures $225 million of work. The contracts should likely be front end loaded when revenued or cash flowing, meaning the company should be generating more income and cash in 2016 than in 2017. Let's assume the company generates $125 million of revenue in 2016 (ignoring Q4 for simplicity).
Gross margins for the business are high. No one really knows, but looking at past quarters, I estimate margins should be approximately 60%. SG&A will surely need to be ramped up given the added work required for the two SDIs as well as continued development of the company's Orion platform, which will require additional staff (engineers and sales reps). I assume SG&A could increase to $8 million per quarter.
In 2016, given the company will have the balance sheet to invest in the Orion platform, it is possible that the business generates $15 million of software sales. Gross margins on those should be very high.
Putting that all together, IMP may have revenues of $140 million, gross margins of $87 million, and EBITDA of $55 million in 2016. So far, that is higher than the current market cap.
The share count is a little of a mistery given the royalty is likely to get converted into shares. To date, there are 124 million fully diluted shares outstanding. There's two ways to think of how the royalty gets converted (1) Vertex first loan tranch of $8 million could be matched in shares (meaning 8 million shares issued @ $1) or (2) Vertex's 17.5% royalty would be approximately half of the company's net income margin, so the company could be issuing a whole bunch of shares to equate value. Who knows, but let's assume 40 million shares are issued.
IMP should also like to shore up its balance sheet (as it should) to help reinvest in its equipment, staff, and repay debt. I don't assume it'll require much equity, but we could expect an issuance above $1/share (otherwise I would assume the company would seek other sources of financing).
All said and done, IMP could be generating $55 million EBITDA and have 180 million share fd. I'm reluctant to apply a high multiple to 2016 EBITDA (despite a growing software business) as the year will reflect the earnings of two large one-time contracts. If I were to apply a 8x EV/EBITDA multiple on 2016, that would translate into a $2.40/share valuation.
IMP has some very attractive assets (some admired by other larger companies). I would not think the company will remain a standalone entity for much longer...
Stop trying to predict day-to-day fluctuations. Buy this for the long run.