Apptio Inc. (Nasdaq: APTI) expects to raise $84 million in its upcoming IPO. Based in Bellevue, Washington, Apptio provides cloud-based technology business management (TBM) solutions to companies around the world.

Apptio will offer 6.0 million shares at an expected price range of $13 to $15. If the underwriters price the IPO at the midpoint of that range, APTI will have a market value of $534.6 million. This assumes 37,285,839 shares (Total Class A and B common stock to be outstanding after the IPO) + 900,000 shares (underwriters' option).

APTI filed for the IPO on August 26, 2016.

Lead Underwriters: BofA Merrill Lynch, Goldman Sachs, and J.P. Morgan Securities

Underwriters: Barclays Capital, Jefferies LLC, Pacific Crest Securities, and RBC Capital Markets

Business Summary: Provider of Cloud-based Technology Business Management Solutions

(Source: SEC Filings)

According to its SEC Filings, Apptio provides cloud-based TBM solutions to companies around the world. Its platform and SaaS applications allow IT leaders to analyze, optimize and plan technology investments; in addition, Apptio provides the capability to benchmark operational and financial performance among competitors.

Apptio's TBM solutions include adaptive data management and standard IT operating model and taxonomy for how IT costs are captured, categorized and allocated to business services. Apptio's solutions also include visual modeling, a calculation engine that enables the models to be applied across massive data sets.

Use of IPO Proceeds & Growth Prospects

Apptio intends to use the net proceeds of this IPO to pay down a $20.2 million loan facility and for general corporate purposes and working capital.

In its SEC S-1 filing, Apptio noted that most of its revenue is generated within North America. The company is now focusing on expanding its international client base. Revenue derived from clients outside of North America has grown from 19% to 22%, then 24% of total revenue in 2014, 2015, and the six months ended June 30, 2016 respectively.

In addition, Apptio has expanded its target customer base. Previously, the company and its direct sales force focused on enterprises with annual IT budgets of $100 million on up. Starting in 2014, Apptio expanded its target client base to include a broader range of companies with annual IT budgets of less than $100 million. Apptio expects continued growth from this segment. A significant portion of its revenue growth from the last few years was due to new customers.

Financial Highlights: Growing Revenues, High Costs

Apptio provided the following figures from its financial documents for the years ended December 31:

As of June 30, 2016:

21% revenue growth in 2014-2015 is promising, with a diverse mix of subscription and professional services revenues. Net losses have been consistent, along with a significant current deficit. Apptio notes that it expects to incur losses for the foreseeable future and may not be able to achieve or sustain profitability. In 2015, operating expenses were 92% of total revenues.

Executive Management Overview

Mr. Sachin Gupta co-founded Apptio and has served as CEO since October 2007. His previous experience includes positions at Opsware, iConclude, Performant, and Rational Software. Mr. Gupta holds a Bachelor's Degree in Computer Science from University of South Carolina.

Co-founder and CFO Kurt Shintaffer has been the company's CFO since March 2015. His previous experience comes from senior positions at Pacific Edge Software, iConclude, Opsware, and Ernst & Young. Mr. Shintaffer holds a B.A. degree in Business Administration from University of Washington and is a Certified Public Accountant (inactive).

Potential Competition: VMware and ServiceNow

Although Apptio considers itself the leading provider of TBM solutions, it noted in its filings that VMware (NYSE:VMW) and ServiceNow (NYSE:NOW) compete directly with Apptio. In addition, as the marketplace attracts new entrants, companies such as Microsoft (NASDAQ:MSFT) and Oracle (NASDAQ:ORCL) may provide additional competition.

The below chart assumes Apptio prices at the midpoint of its proposed range and relies on sales for 2015.

Conclusion: Consider A Modest Allocation At IPO

While we are concerned about the company's losses, APTI has pioneered the Technology Management Solutions and has shown there is a strong demand for customers. The company has generated consistent growth in sales, subscriptions, and customer base. In addition, tech IPOs have performed well so far in 2016, and we expect this trend to continue with APTI. We hear the deal is already oversubscribed and continues to build.

We recommend investors consider a modest allocation.