This leading provider of on-demand remote connectivity software is used by IT professionals to deliver efficient end-user support and by small businesses to increase mobile worker productivity, a total market opportunity that the firm believes could reach over $10 billion. With businesses' increased focus on cost-effective outsourced IT solutions, LogMeIn has been able to drive rapid growth in both total users and paying accounts by leveraging its free product offerings and low-cost premium services, which are all downloadable from its website. LogMeIn's offering comes on the heels of fellow venture backed on-demand software provider Medidata (MDSO), which priced +14% above its proposed midpoint and jumped +21% on its first day. The company plans to offer 6.7 million shares at a price range of $14-$16, giving it a proposed market cap of $355 million at the midpoint. JPMorgan and Barclays are acting as lead managers, and the deal is expected to price on June 30 and list on the NASDAQ the following day under the ticker 'LOGM.'

Large and rapidly growing user base

Since 2003, over 22.1 million users have downloaded the company's free products, which we believe provides the company with a competitive advantage. Additionally, the firm has had success converting these users into paying customers, with LogMeIn's premium accounts reaching 188k in 1Q09 (up 54% y/y). The efficient and cost-effective nature of remote support has helped drive adoption by IT service providers (68% of 2008 sales), while the large and growing mobile workforce has increased demand for off site access (32%). For example, Best Buy's "Geek Squad" uses LogMeIn's products to help remotely troubleshoot problems with customers' internet-enabled devices such as PCs and televisions.

Compelling Business Model

Since LogMeIn's products are typically sold in the form of annual subscriptions, the company benefits from high revenue visibility (typically has 90% visibility heading into any quarter). In addition, the firm's efficient customer acquisition strategy, which focuses on viral marketing and paid search advertising, has allowed the company to scale margins rapidly (EBITDA margin was 21% in 1Q09 vs. -26% in 1Q08). Further, despite its large free user base, LogMeIn's proprietary scalable platform, "Gravity", has helped the company achieve gross margins of 90%, well above that of most on-demand software companies.

Intel Relationship

In 2007, LogMeIn signed a four year agreement with Intel to deliver remote repair to computers built with Intel hardware. The agreement provides LogMeIn with a minimum $5 million annual payment plus a 50% revenue share up to $50 million (declines to 40% starting in 2010); the company also secured a $10 million investment from the tech giant. While LogMeIn is only collecting slightly above the minimum payments at present, we believe that the collaboration has potential to be a material growth driver and that Intel's investment in the firm adds credibility to the story.

Key Issues

Competition is the key risk to the LogMeIn story, as this small company competes directly with much larger and better capitalized firms, such as Citrix (CTSX), Cisco (CSCO) and Microsoft (MSFT). Also given its lower price point, LogMeIn is dependent on high sales volumes to drive growth. To that end, the company must continue to have success converting free users to premium services, which given the soft IT spending environment could prove challenging (billings growth was flat q/q in 1Q09).

Poised for a strong debut

LogMeIn will be the fourth venture backed firm in 2009 to be added to the FTSE Renaissance IPO Index, which is up over 23% YTD. In a sign of strong demand, the first three venture backed deals that have gone public this year, which include online restaurant reservation services provider OpenTable (OPEN), network management software provider SolarWinds (SWI) and on-demand clinical data software provider Medidata (MDSO), all priced above their proposed price ranges and are among the best performers (avg. 35% return). We expect to see similar strong investor demand for LogMeIn given the company's solid track record of growth and strong free cash flow potential.

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