IPO and Liquidity Conference

Preparing for the Capital Markets

June 5, 2018
Seattle, WA
Opening remarks

Brian Quinn
Managing Director
Donnelley Financial Solutions

IPO and Liquidity Conference | June 5, 2018

Agenda
2:00 – 2:05 Opening remarks

2:05 – 2:35 IPO and M&A market update

2:35 – 3:15 Working with the SEC

3:15 – 3:30 Break

3:30 – 4:15 Going public: Executing a successful IPO

4:15 – 4:55 Private financing, M&A and secondary transactions

4:55 – 5:00 Closing remarks

5:00 – 6:30 Cocktails and networking

IPO and Liquidity Conference | June 5, 2018

IPO and M&A market update

2:05 – 2:35pm

David Ethridge
Managing Director
PwC

IPO and Liquidity Conference | June 5, 2018

2018 YTD proceeds have already exceeded 2016
full-year proceeds
Key Takeaways IPO Market Issuance – 2012 – 2018 YTD

• 2018 YTD scorecard - 79 IPOs 300 $100

raising $25.8 billion 276 $90
Alibaba
250 Facebook $80
• Q1’18 experienced busiest first $22bn $86.6

Proceeds* ($bn)
$16bn
quarter since 2014 with 47 IPOs 200 $70

# of IPOs
229 181 $60
raising $16.3 billion 169
150 $56.7 $50
• January had 20 IPOs raising 134
$40
$8.5 billion, the most active 100 $42.1 102 $44.2 79
$30
January for IPOs since 2000 $32.6
50 $25.8 $20
• Strong investor demand in $21.6
$10
Q1’18, with 13% of IPOs pricing
0 $0
above the range 2012 2013 2014 2015 2016 2017 2018 YTD
Value Volume

IPO Market Pricing Dynamics – since April 2016 Upsized/(Downsized) – since April 2016
Below In-Range Above Downsized Original Upsized
100% 12%
4% 25% 18% 19% 6% 18% 13% 22% 100%
80% 32% 28% 32% 27% 28% 37% 33% 28% 34%
60% 61%
46% 62% 71%
58% 62% 60% 72% 56% 50%
40% 57% 56% 50% 65% 58% 55% 64%
57% 60%
20% 36% 36%
17% 19% 27% 23% 22% 15% 19%
0% 11% 17% 18% 8% 13% 6% 12% 9% 6%
0%

Source: PwC US Capital Markets Watch and Dealogic. Excludes non-U.S. offerings, non-SEC registrants, SPVs, closed-end funds, offerings with deal values less than $25 million, and offerings that took place on OTC or pink
sheet exchanges. All dual listed IPOs include the US portion only for deal value. As of 6/1/2018. *Proceeds exclude overallotments. (1) Does not include Aslan Pharmaceuticals N/A pricing range.

IPO and Liquidity Conference | June 5, 2018

US IPOs – diverse sector activity continues in 2018

2017 IPO Volume (# of Deals) & Value ($ in billions) 2018 YTD IPO Volume (# of Deals) & Value ($ in billions)

181 IPOs 79 IPOs

$44.2 bn raised $25.8 bn raised

Consumer Consumer Energy,

TMT
Markets TMT Markets Utilities &
33 Mining
20 Energy, 18 7
18% 6
11% Utilities & 23% 9%
$4.6 $3.3 7%
Mining $9.9
$12.3 12 Financial
$1.6 Services
$4.4 7%
10
13%

Financial $4.5
SPAC $4.6
34 Services Industrial
$9.0 Products
19% 26 SPAC
14% 15 $3.1 $1.4 3
19% 4%
$5.3

Pharma & $4.0 Industrial $2.0 Pharma & Life

Life Sciences Products Sciences
42 14 20…
23% 8%

Source: PwC US Capital Markets Watch and Dealogic. Excludes IPOs with deal values under $25 million. As of 6/1/2018.

IPO and Liquidity Conference | June 5, 2018

US IPOs continue to outperform the broader US
markets, led by TMT sector
2017 IPO Price Changes (%) 2018 YTD IPO Price Changes (%)

Consumer Markets 4%
Consumer Markets 17%

Energy, Utilities & Mining 10% Energy, Utilities & Mining 21%

Financial Services 12% Financial Services 11%

Health Services N/A Health Services N/A

Industrial Products 33% Industrial Products 1%

Pharma & Life Sciences 35% Pharma & Life Sciences 17%

TMT 39% TMT 52%

All IPOs 27% All IPOs 24%

Offer to current Offer to current

S&P = 19% S&P = 1%

Source: PwC US Capital Markets Watch and Dealogic. 2017 IPO returns as of 12/29/2017. 2018 YTD IPO returns as of 5/31/2018. All IPOs returns exclude SPACs.

IPO and Liquidity Conference | June 5, 2018

US IPO market conditions are favorable in 2018

• 2018 started strong and has maintained momentum despite extreme volatility
• 79 IPOs 2018 YTD raising $25.8 billion
o Busiest January since 2000 with a total of 20 IPOs
o Pharma & Life Sciences sector leads IPO activity in 2018, followed by TMT
• Keys to success in 2018
o YTD IPO returns of 24% vs. 1% from the S&P 500
o Strong Q1 earnings with 78% of S&P 500 reporting a positive EPS surprise(1)
• Potential challenges to continued strength
o Short term
o Geopolitical concerns
o Medium/Long term
o Potential volatility from mid-term elections
o Valuation levels vs. earnings (S&P 500 P/E trading at 17.1x on forward earnings compared
to the 10-year average of approximately 15.0x)
o The fed raised rates in March and expects inflation to increase in the coming months

Source: (1) S&P Capital IQ as of 5/18/2018.

IPO and Liquidity Conference | June 5, 2018

Working with the SEC

2:35 – 3:15pm

Wayne Carnall
Partner and Former Chief Accountant at the SEC
PwC

IPO and Liquidity Conference | June 5, 2018

Cost/benefit analysis of being a registrant

Benefits
• Proceeds from issuance Costs
• Wealth for company developers • Bankers’ commission
• Wealth for original investors • Legal fees
• Wealth for employees • Auditor fees
• Acquisition currency • Accounting advisor fees
• Credibility for suppliers • Other professional fees
• Name recognition and publicity
• etc.

IPO and Liquidity Conference | June 5, 2018

Cost/benefit analysis of being a registrant

• Many of the professional fees are recurring

• Other compliance costs – hard & soft
• Management time
• Conflicts between management’s and investor’s objectives
• Restatements
• Risk of regulatory action by the SEC’s Division of Enforcement
• Risk of private litigation

IPO and Liquidity Conference | June 5, 2018

Recent developments to encourage IPOs

• JOBS Act
• FAST Act
• The Chairman’s goal of increasing IPOs
• Guidance issued by the Division of Corporation Finance
- Confidential submissions
- Omission of certain financial information
• Rule 3-13 of Regulation S-X

IPO and Liquidity Conference | June 5, 2018

The Commission

Chairman Commissioners

Jay Clayton Kara Stein Michael Robert Hester Peirce

(Independent) (Democrat) Piwowar Jackson Jr. (Republican)
(Republican) (Democrat)

IPO and Liquidity Conference | June 5, 2018

Staff organization structure

SEC

Office of the Chief Division of Corporation

Division of Enforcement
Accountant Finance

Wes Bricker William Hinman Stephanie Avakian &

Chief Accountant Director Steven Peikin
Sagar Teotia – Kyle Moffatt, Co-Directors
Deputy Chief Accountant – Chief Accountant Open
Accounting Patrick Gilmore Chief Accountant
Marc Panucci – Deputy Chief Accountant
Deputy Chief Accountant – Lindsay McCord
Professional Practice Deputy Chief Accountant
Jenifer Minke-Girard Craig Olinger
Interim Deputy Chief Special Assistant to the
Accountant - International Chief Accountant

IPO and Liquidity Conference | June 5, 2018

Selected Contents of Form S-1 - Prospectus

• Risk Factors
• Description of business
• Financial statements
• Management’s discussion and analysis (MD&A)

IPO and Liquidity Conference | June 5, 2018

Risk Factors – Item 503 of Regulation S-K

… a discussion of the most significant

factors that make an offering speculative or
one of high risk… Do not present risks that
could apply to any issuer or any offering.

IPO and Liquidity Conference | June 5, 2018

Financial statement requirements

• The Issuer
• The Predecessor
• Other Financial Statements
- Rule 3-05 – Acquired Business
- Rule 3-09 – Equity Affiliates
- Rule 3-10 – Guarantor
- Rule 3-16 – Collateralization
• SEC’s Disclosure Effectiveness Project
• JOBS Act
• FAST Act

IPO and Liquidity Conference | June 5, 2018

GAAP and MD&A

IPO and Liquidity Conference | June 5, 2018

Available information

• Comment Letters
• Compliance and Disclosure Interpretations
• CF Disclosure Guidance
• SEC Staff Review of Common Financial Issues Facing Smaller
Issuers
• Areas of Frequent Staff Comment – Financial Institutions
• Best Practices for Working with the SEC Staff
• Financial Reporting Manual

IPO and Liquidity Conference | June 5, 2018

The financial reporting manual

• Document prepared by the

Division of Corporation Finance
– interpretive guidance on
various reporting and disclosure
issues

• Updated periodically and posted

on SEC’s website

IPO and Liquidity Conference | June 5, 2018

Why you will feel like Aron Ralston when
preparing your S-1

IPO and Liquidity Conference | June 5, 2018

Ten tips for a successful offering

1) Assemble the best team of advisors

2) Own the process – use advisors, but don’t relinquish ownership
3) Be realistic in your timing to complete the registration process
4) Identify any processing or legal issues that should be addressed with the
Assistant Director Group or Chief Counsel
5) Identify any accounting/reporting issues that should be addressed with
CF-OCA and/or OCA
6) Draft the document for the investor – not the SEC Staff
7) Critically review the registration statement for internal consistency and
consistency with external communications
8) Ensure the registration statement is complete before submission
9) Engage with the SEC Staff in a professional manner
10)View the S-1 as the beginning – not the end – of the cost of being a public
company
IPO and Liquidity Conference | June 5, 2018
What does the staff look for during its review?

Compliance
Compliance with
with GAAP regulatory
requirements

Consistency
Consistency
with other
within the
public
document
information

IPO and Liquidity Conference | June 5, 2018

SEC comment letter themes

Number of Form 10-K and Form 10-Q

SEC comment letters by year of
origination
16,000
13,968
Revenue 14,000
Compliance
recognition 11,183
12,000
9,530
10,000 8,604

Internal Non-GAAP 8,000 6,349 6,073

5,400
control 6,000
4,000
MD&A – 2,000
Loss Recurring general,
results of ops,
-
2010 2011 2012 2013 2014 2015 2016
contingencies
themes liquidity

2017 Comment letter trends

Goodwill &
Segments 2017 2016
impairments
Rank Topic Rank
1 Non-GAAP 5
Business Income 2 Compliance 3
combinations taxes 3 MD & A 1
4 Revenue Recognition 2
5 Business Combination/Impairment 4

IPO and Liquidity Conference | June 5, 2018

Responding to comment letters
10 suggestions

1) DO NOT RUSH in responding

2) Get input from your accountants and lawyers
3) Evaluate timing implications
4) Call the SEC Staff if you do not understand the question
5) Draft the response considering it will become public
6) DO NOT CUT and PASTE responses from other letters
7) Respond completely to the question
8) Provide technical support for the accounting/disclosure
9) Request the involvement of others on the SEC Staff when appropriate
10)What not to do on phone calls or e-mail communications

IPO and Liquidity Conference | June 5, 2018

Break

3:15 – 3:30pm

15 minutes

IPO and Liquidity Conference | June 5, 2018

Going public: Executing a successful IPO

3:30 – 4:15pm

Moderators:
Mike Nordtvedt | Partner, Wilson Sonsini
Stephen Sommerville | Partner, PwC

Panelists:
Jenny Ceran | CFO, Smartsheet Inc.
Anthony Kappus | General Counsel, Redfin

IPO and Liquidity Conference | June 5, 2018

Private financing, M&A and
secondary transactions

4:15 – 4:55pm

Moderator:
Patrick Schultheis | Partner, Wilson Sonsini

Panelists:
Monica Williams | Zillow Group, VP FP&A and Treasury
Brett Miller | Vice President, Goldman Sachs
Randall Hopkins | Senior Managing Director, NASDAQ

IPO and Liquidity Conference | June 5, 2018

Closing remarks

Megan King
Senior Manager
PwC

IPO and Liquidity Conference | June 5, 2018