Kalray’s intelligent processors soon to go public

Kalray’s intelligent processors soon to go public
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Grenoble, May 25, 2018.

Launch of IPO on Euronext Growth Paris

  • Capital increase: approximately €35.7M[1]
  • Subscription commitments received: €22.8M, incl. €12.4M through shareholder convertible bonds[2]
  • Received subscriptions by new shareholders: Definvest (Bpifrance and  French Ministry of the  Armed Forces), Financière Arbevel and Alliance Ventures BV (Renault-Nissan-Mitsubishi)
  • Indicative price range: between €17.66 and €23.88
  • Subscription period: from May 25 to June 6, 2018 inclusive (Open-Price Offer) and from May 25 to June 7, 2018 at midday (Global Offering)
  • Company awarded the “Innovative company” label and eligible securities PEA-PME

Kalray, a pioneer in processors for new intelligent systems, has announced the launch of its initial public offering to list its company shares for trading on the Euronext Growth market in Paris.

On May 24, 2018, the French Financial Markets Authority (AMF) has granted the visa number 18-196 on the prospectus made up of the “Document de Base” registered under no. I.18-042 on May 16, 2018 and a securities note (including a summary of the prospectus).

The pioneer of intelligent processors

Founded in 2008, as a spin-off of the leading French national lab CEA (“Commissariat à l’Énergie Atomique”, the French Alternative Energies and Atomic Energy Commission) and the outcome of nearly 10 years of R&D and significant investment in the order of €60M, Kalray designs and markets[3] a new generation of “intelligent” processors. Intelligent processors, firmly protected by 23 patent families [4], have the capability to analyze on the fly, and in an intelligent manner, a very large flow of information, and to react and make decisions in real time. These intelligent processors are being extensively deployed in fast-growing sectors such as next-generation computer networks, autonomous vehicles, healthcare equipment, as well as drones and robots.

Based on its “MPPA®” (Massively Parallel Processor Array) architecture, which is unique and patented, and which allows for the miniaturization of a supercomputer on a single chip, the Kalray intelligent processors offer a set of performance criteria that address the challenges raised by the new generation of intelligent systems, namely:

  • considerable computing power, equivalent to 2,000 mainstream computers
  • very low energy consumption suited to integration into confined embedded systems
  • data analysis on the fly and in a deterministic manner
  • the capacity to process a large number of critical functions simultaneously
  • upstream integration of security in the design process thanks to technical partnerships with a number of leaders in the aerospace and defense sectors
  • an open and easily programmable system

Disruptive technology key for intelligent data centers and intelligent cars

The company has evolved in two stages. The first stage was the development and refining of the technology, which was carried out until 2014. In the second stage, from 2015 onwards, the company has been focusing on two high-potential growing markets, intelligent data centers and intelligent cars, in order to build a competitive offering for each one.

These two high-growth markets, forecasted to grow by over 50% per year for the next five years[5], open up business opportunities in the very short term (as early as 2019 for data centers) and in the medium term (starting in 2021/2022 for intelligent vehicles).

For data centers, Kalray’s KTC (“Kalray Target Controller”), an intelligent storage solution, has just been certified[6] by an independent certification body in April 2018, a prerequisite to launch volume production of the solution. For intelligent cars, major technological choices will be made by both manufacturers and component suppliers over the next 18 months. This is borne out by the fact that the intelligent Kalray processor has already been integrated into the SYMBIOZ[7] concept car[8], released by Renault at the end of 2017 and designed to process several critical algorithms related to autonomous driving.

Products endorsed and supported by leading manufacturers

Kalray has already made significant headway in these two target markets, each with a potential of over €1b by 2022 (data center[9]) and 2025 (intelligent car[10]).

On the market of data centers, three server manufacturers are currently in the integration[11] phase of the Kalray solution and the qualification[12] of their own product for a launch in early 2019. The Kalray solution is also being evaluated by other very large storage server and data center manufacturers, global leaders which may design in Kalray’s technology over the next few months for very high-volume production from 2020 onwards.

On the market of intelligent cars, the Kalray processor is currently in the evaluation phase with seven potential customers, including five car manufacturers out of the top 10 worldwide. It is also integrated into a project aimed at defining a new electronic architecture for all vehicles of one the top-3 global automobile manufacturers.

This momentum is reflected in the strong financial and strategic backing of industry leaders. The leading venture capital funds who have committed to supporting Kalray (ACE Management, CEA Investissement, EUREKAP! and Inocap Gestion) were joined in 2017 by the Safran investment fund, MBDA (the joint-venture between Airbus, BAE Systems and Leonardo), the Asian investment fund Pengpai and, more recently, the Renault-Nissan-Mitsubishi Alliance Ventures and the Definvest fund managed by Bpifrance on behalf of the French Ministry of the Armed Forces. These endorsements firmly validate the Kalray technology, but they also vouch for its strategic interest for these key players beyond business prospects.

The Stock Exchange market with a €100M revenue target for 2022

The company has begun to market its processors so that its customers and prospects may validate the Kalray technology and later design it into their own products. It is now ready to enter a new development phase: the commercial ramp-up, on a large scale, of products fitted with Kalray processors from 2019 onwards. The company target for 2022 is revenue in excess of €100M[13] and a breakeven restated operating income[14] by 2020[15].

Kalray relies in particular on an agile organization and the ability to easily switch to large-scale production thanks to a fabless business model, allowing the outsourcing of its production, namely to world-leader TSMC.

Thus, the net proceeds of the raised funds to be subscribed in this transaction (estimated at €21.2M for a total fundraising of €35.7M in mid-range) will provide the company with the financial means necessary to implement its strategy, namely:

  • 60%, approximately, to finance the Company’s product roadmap, especially do develop and place on the market new generations of intelligent processors, including Coolidge 1 from 2019
  • 40%, approximately, for large-scale commercial deployment that includes the growth of the sales team as well as the working capital requirements as per a strong increase in revenue

Important subscription commitments received

Kalray has received subscription commitments for a total amount of €22.8 M, which corresponds to 63.8 % of the capital, increase, including:

  • €6.3M in cash from current shareholders (CEA Investissement, Helea, Compagnie du Planay, Inocap Gestion, Safran Corporate Ventures)
  • €4M in cash from new shareholders (Bpifrance/Definvest et Financière Arbevel)
  • €12.4M through offset of receivables related to the repayment of the convertible bond loan issued in April 2018[16]

Should the Offer be limited to 75 % of its initial amount, the subscription commitments would represent 99.9% of the transaction, which might have an impact on the liquidity of the shares.

Availability of the Prospectus

Copies of the prospectus as approved by the AMF on May 25, 2018 under visa number 18-196, which is made up of the “Document de Base” registered by the AMF under no. I.18-042 and a securities note (including a summary of the prospectus), are available free of charge, and on request, from the company headquarters, 180, avenue de l’Europe, 38330 Montbonnot-Saint-Martin, France, and on the Kalray (www.kalray-bourse.com) and AMF company websites (www.amf-france.org).

Risk factors

The company draws the attention of the public to Chapter 4 (“Risk factors”) of the prospectus registered with the AMF, especially in relation to dependent patents (section 4.5.1), as well as to Chapter 2 (“Risk Factors related to the Offer”) of the securities note, especially those risks related to a shortage of subscriptions which may shift the company’s development plan, and possibly its objectives too.

Financial intermediaries and counsels

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Find out more on www.kalray-bourse.com

Company’s share capital before the transaction

Limited company whose share capital amounts to €23,593,710 as divided into 2,359,371 shares.

Listed on

Euronext Growth – ISIN: FR0010722819- Mnemonic: ALKAL

Indicative price range

Between €17.66 and €23.88 per share

Terms of the offer

A maximum of 1,718,826 new shares that may be increased to a maximum of 1,976,649 shares if the full extension option is exercised and a maximum 2,273,146 shares in case the full over-allotment option is exercised.

Gross amount of the transaction

Approximately €35.7M of the gross proceeds from the issuance of new shares (including €12.4M through offset of receivables and €23.3M in cash) that may be increased to a maximum of €41.1 if the full extension option is exercised and a maximum of €47.2M in case the full over-allotment option is exercised (on the basis of the median price of the indicative price range, i.e. €20.77 per share).

Net amount of the transaction

The net proceeds of the fundraising amounts to €33.6M in mid-range (without exercising the extension or over-allotment option), made up of:

  • €12.4M by incorporating the receivables stemming from the anticipated repayment of the convertible loan issued in April 2018
  • And €21.2M paid out in cash

Offer structure

  • a retail public offering in France carried out as an Open-Price Offer (OPO), mainly proposed to private legal persons
  • a global offering mainly intended for institutional investors, in and outside of France (except, notably, the United States, Canada, Japan and Australia)

If there is sufficient demand in the Open-Price Offer (OPO), the final number of shares allocated in response to orders placed under the terms of the OPO shall amount to at least 10% of the initial amount of the capital increase (excluding the potential exercise of the extension and over-allotment options).

The orders will be broken down based on the requested number of shares:

  • Fraction of A1 order: 1 to 150 shares
  • Fraction of A2 order: over 150 shares

The fractions of the A1 order will be given preferred treatment in comparison to fractions of the A2 order in the event that all the orders cannot be met.

Subscription commitments

The total of subscription commitments received by the company amounts to €22.8 M, which is broken down as follows:

2018 OC holders have committed to placing a subscription order to the amount of receivables they will hold after the anticipated repayment of the 2018 OCs (accrued interest and non-conversion premium included), namely €12.4M, i.e. 34.7 % (excluding the exercise of the extension and over-allotment options, on the basis of a price matching the midpoint of the indicative price range of the Offer price, i.e. €20.77). These irrevocable commitments will be exclusively carried out by offsetting receivables, bearing in mind these orders will met fully and as a priority. The profit of a conversion premium highlights a disparity of prices which amounts to a 17.4 % discount from the Offer price (mid-range price).

On May 24, 2018 when the prospectus was approved, five company shareholders have irrevocably committed to subscribe to the increase in capital up to a total amount of €6.3M, which represents 17.7 % of the current capital increase.

On May 24, 2018 when the prospectus was approved, two company investors that are not company shareholders have irrevocably committed to subscribe to the increase in capital up to a total amount of €4M, which represents 11.2 % of the current capital increase.

Company’s lock-up commitment

  • Company’s lock-up commitment: 180 days
  • Share conservation commitment

Shares in question:

  • 1% of existing shares prior to the Offer
  • 6% of shares originating from dilutive instruments (BSA and BSPCE)
  • 100% of subscribed shares through offset of receivables related to the repayment of the convertible loan issued in April 2018 (accrued interest and non-conversion premium included).

Duration : 365 days, following the settlement/delivery date.

Indicative calendar

May 24, 2018 Approval of the prospectus by the AMF (Visa)
May 25, 2018 Launch of the Open-Price Offer (OPO) and of the Global Offering
June 6, 2018 Closing of the OPO (5 pm for counter subscriptions and 8 pm for online subscriptions)
June 7, 2018 Closing of the Global Offering (midday, Paris time)

Fixing of the Offer price and potential exercise of the extension option

June 11, 2018 Settlement/delivery of the OPO and of the Global Offering
June 12, 2018 Start of trading of company shares on Euronext Growth

Beginning of the possible stabilization period

July 6, 2018 Deadline for the exercise of the over-allotment option

End of the possible stabilization period

[1] Gross proceeds of the initial Offer based on the median price of the indicative price range, i.e. €20.77 per share, excluding the potential exercise of the extension and over-allotment options (of which €23.3M in cash and €12.4M through offset of receivables).
[2] Disparity in prices: offset of receivables related to the repayment of the convertible loan issued in April 2018 (€10,252K in cash, €95K in accrued interest and a €2,069K non-conversion premium revealing a discount of 17.4 %). See note 5.3.4 of the operation note.
[3] Kalray has begun to market its processors so that its customers and prospects may validate the technology and design their own products.
[4] Including 2 families with an exclusive global patent granted by the CEA until December 31, 2026, bearing in mind that if the list of licensed components remains compliant, and short of substantial modifications to the business plan, the parties are committed to maintaining the application of the financial conditions as they exist on the date of expiry. When the cumulative amount of royalties paid by the company reaches € 1.5M, KALRAY will have an option to purchase all, or part of the specific patents granted, exercisable at any time. The Parties shall meet as early as possible to agree on a cost price that cannot be superior to the amount of royalties that would have been paid out to the CEA had no purchase been carried out in the years following the exercise of the purchase option until the expiry of the current license, for the relevant patents, based on a realistic business plan, and having deducted the maintaining costs in effect which the CEA should have covered for the period in question.
[5] Sources: JP Morgan (www.marketwatch.com/story/want-to-invest-in-self-driving-cars-check-out-the-chips-2016-08-26) and NVMe Market Sizing – G2ME Report, 2017
[6] NVMe-OF certification granted by the independent University of New Hampshire InterOperability Laboratory (UNH-IOL) body
[7] Video available online: www.youtube.com/watch?v=cMRLjAgONK0
[8] Experimental car produced in limited numbers to demonstrate a technology, elements of design or usage
[9] Sources: “Serverless DPDK Public Report “– CAVIUM and G2ME NVMe Market Report, 2017
[10] Source: JP Morgan, www.marketwatch.com/story/want-to-invest-in-self-driving-cars-check-out-the-chips-2016-08-26
[11] Integration phase: the customer has opted for the Kalray solution and initiated his own internal procedure to develop his offering prior to placing the first orders.
[12] The qualification phase is used to take all the conformity tests before placing the product on the market.
[13] €7.4M of operating revenue in 2017, including €0.8M in board and development platform sales, €4.4M of capitalized production and €2,1M of subsidies
[14] Operating income (-€7,6M€ in 2017) + Tax Research Credit (+€2.0M€ in 2017)
[15] -€4.7M in 2017
[16] Including a nominal €10,252K, €95K of accrued interest and a €2,069 non-conversion premium, which reveal indirectly, a subscription price with a 17.4 % discount as against the Offer price.