K. Liu's Week in Review
Carbonite (CARB), a provider of data protection services and endpoint security, has agreed to be bought by OpenText (OTEX) for $23.00 per share in cash, a 25% premium to the last closing price preceding the announcement and a 78% premium to the unaffected closing price on the day prior to reports that the company was considering a sale. The purchase price equates to an enterprise value of approximately $1.42 billion and represents TTM EV/Sales and EV/EBITDA multiples of 3.2x and 11.2x, respectively. The acquisition adds yet another cloud platform to OpenText’s product portfolio and bolsters its capabilities in information and endpoint protection. Management also highlighted Carbonite’s reach with small and medium-sized businesses and prosumers through its distribution channel of 14,000 managed security providers (MSPs), value-added resellers (VARs) and original equipment manufacturers (OEMs) as another avenue through which more of OpenText’s solutions could be sold. Next to go may be learning and development solutions provider Instructure (INST), which confirmed the company has received interest from multiple third parties, has commenced a process to explore strategic alternatives, and will no longer host its previously scheduled financial analyst day on December 3. Heading into the weekend, headlines that LogMeIn (LOGM) was engaged in sale talks with a couple of private equity firms also surfaced.
In other news, Mimecast (MIME) expanded the breadth of its email security solutions with the acquisition of DMARC Analyzer, a SaaS solution provider focused on mitigating impersonation and spoofing attacks. The acquisition is not expected to have any material impact on the company’s Q3 or FY ’20 revenue and adjusted EBITDA. Five9 (FIVN) also completed a tuck-in deal, purchasing Whendu’s iPaaS platform for $15.35 million. The acquisition brings the company a no-code, visual application workflow tool with 50 out-of-the-box connectors enabling rapid integration between systems and the creation of custom workflows in contact center environments. While not explicitly for M&A, CyberArk Software (CYBR) bolstered its war chest with a $500 million offering of 0% Convertible Senior Notes due 2024. The Notes have an initial conversion price of $157.53 per share, representing a 36.7% premium to the close price prior to the announcement of the planned offering. Other capital markets activity this week included a secondary offering of 10 million shares of Ceridian HCM Holding, which priced at $53.08 per share, a 3.7% discount to the close price prior to the announcement of the planned offering. Affiliates of Thomas H. Lee Partners and Cannae Holdings offered 5 million shares apiece and will receive all of the proceeds from the sale.
After disappointing Q3 results and a subsequent cut to guidance prompted a massive sell-off in Synchronoss Technologies (SNCR) last week, shares attempted to reverse course this week on news that the company and partner WIT Software have been selected by a new joint venture formed by AT&T, Sprint, T-Mobile, and Verizon to deliver an advanced mobile messaging solution across all four networks. The platform will be based on the Rich Communications Services (RCS) standard and enable rich, personalized interactions between brands and consumers without requiring users to switch between apps. In our view, this initiative lends further credence to the rise of conversational commerce with mobile messaging representing a key battleground. With messaging volumes largely proliferating across third party messaging apps today, recapturing those volumes is critical to the carriers’ aspirations to monetize two-way interactions between brands and consumers. Synchronoss and WIT Software have previously partnered to deliver a similar cross-network platform in Japan, and this win is expected to be far more lucrative with management indicating that the five-year award will contribute more on an annual basis than the $20-$25 million run rate for the entirety of its messaging business in both 2018 and 2019. Already, Synchronoss has incorporated expectations for “high-teens millions” of dollars in Q4 ’19 and expects a similar amount of revenue in 2020 with a subsequent ramp from there driven in part by growth in messaging volumes.
On the earnings front, the remaining calendar Q3 reports were generally well received. In their inaugural earnings calls as newly public companies, both Datadog (DDOG) and Ping Identity Holdings (PING) impressed with upside revenue results, substantial beats on the bottom line, and favorable near-term outlooks. Both highlighted massive addressable markets driven by opportunities to displace incumbent legacy solutions not well suited for modern requirements as well as ample greenfield arising from the adoption of new technologies and services. Website accessibility enabler AudioEye (AEYE) also saw shares rebound on robust bookings growth and commentary from management that the company has no plans to raise additional capital in the near-term. The recent launch of the AudioEye Digital Marketplace, which provides access to the new AudioEye Free and AudioEye Pro pricing tiers, also fueled excitement given the potential for adoption by the millions of smaller websites built on platforms like Wix, Weebly, Shopify and Squarespace. For our notes on the remaining reporters this week, please see the earnings releases section below.
Mergers and Acquisitions
Carbonite To Be Acquired by OpenText for $23.00 Per Share
Carbonite (CARB) has agreed to be acquired by OpenText (OTEX) for $23.00 per share in cash, representing an enterprise value of approximately $1.42 billion.
The purchase price represents a 25% premium to the last closing price and a 78% premium to the unaffected closing price on September 5, 2015, which was the day before a media report was published speculating about a potential sale process.
On a TTM basis, the purchase price represents EV/Sales and EV/EBITDA multiples of 3.2x and 11.2x, respectively, and reflects EV/Sales and EV/EBITDA multiples of 2.6x and 9.2x based on consensus estimates for FY ’20.
Carbonite’s Board conducted a comprehensive review of strategic alternatives to maximize shareholder value, which included contacting a number of strategic and financial parties.
OpenText sees the acquisition strengthening its leadership in cloud platforms and end-point security and protection, while also providing a new touch point with customers via Carbonite’s SMB/prosumer channel and products.
OpenText expects the deal to significantly enhance cloud revenues and margins, adjusted EBITDA and cash flows in FY ’21.
Five9 to Acquire Whendu’s iPaaS Platform to Accelerate Enterprise Adoption of Cloud Contact Centers
Five9 (FIVN) has agreed to acquire Whendu’s iPaaS platform, a no-code, visual application workflow tool designed specifically to meet the needs of contact centers.
Whendu has over 50 out-of-the-box application connectors enabling rapid integration between systems and the creation of custom workflows.
Mimecast Announces Acquisition of DMARC Analyzer
Mimecast (MIME) has acquired DMARC Analyzer, a SaaS solution provider offering domain-based message authentication, reporting and conformance (DMARC) setup, management and analysis to protect against phishing and spoofing attacks.
The acquisition is not expected to have a material impact on the company’s Q3 or FY ’20 revenue and adjusted EBITDA.
Earnings Releases
2U, Inc. Reports Results for Third Quarter 2019
2U’s (TWOU) Q3 ’19 results exceeded expectations while the implied guidance for Q4 was mixed relative to consensus.
Revenue of $153.8 million (+43.8% Y/Y) was above management’s $147.6-$152.6 million guidance and consensus of $149.8 million. Adjusted EBITDA was $(10.7) million (-7.0% margin), ahead of guidance for $(18.4)-$(15.4) million and consensus of $(16.8) million. Non-GAAP EPS of $(0.41) also beat guidance of $(0.53)-$(0.49) and consensus of $(0.50).
Excluding $29.2 million in revenue from Trilogy, organic growth was 16.5%.
The company launched over 30 new offerings in Q3 and maintained high student retention across the portfolio.
Graduate Program revenue was $103.4 million (+15% Y/Y), reflecting the scaling of more recent launches somewhat offset by rightsizing of older programs such as 2U’s legacy social work program.
Alternative Credential revenue was $50.4 million (+192% Y/Y) with growth primarily driven by the acquisition of Trilogy as well as growth in short courses; revenue increased 23% on an organic basis.
Key metrics: Graduate Program full course equivalent enrollments of 40,910 (+25% Y/Y); Graduate Program average revenue per full course equivalent enrollment of $2,527 (-8% Y/Y); Alternative Credential full course equivalent enrollments of 14,729 (+65% Y/Y); Alternative Credential average revenue per full course equivalent enrollment of $3,825 (+98% Y/Y).
Restructuring initiatives undertaken thus far reduced costs by $800,000 in Q3 and should reduce the annual run rate of costs by $11-$12 million.
Management’s revised FY ’19 outlook implies Q4 revenue of $158.5-$163.5 million, in line with consensus of $161.7 million, and adjusted EBITDA and non-GAAP EPS of $0.9-$6.9 million and $(0.28)-$(0.18), respectively, below the Street’s $10.0 million and $(0.07).
While no formal guidance was provided, management anticipates the business arc seen in 2H ’19 will carry through to FY 20.
Absolute Reports Fiscal 2020 First Quarter Financial Results
Absolute Software (ABT-CA) reported Q1 ’20 adjusted EBITDA above expectations and reaffirmed guidance for FY ’20.
Revenue of $25.7 million (+5.6% Y/Y) was in line with consensus. Adjusted EBITDA of $7.1 million (27.6% margin) exceeded consensus of $5.0 million. EPS of $0.08 beat consensus of $0.05.
Absolute continued to see double-digit growth in the enterprise and government sectors, reflecting strong new customer acquisition and significant expansions.
Key metrics: Annual Contract Value (ACV) Base of $99.1 million (+7% Y/Y); Enterprise ACV +11% Y/Y, Government ACV +13% Y/Y, and Education ACV -2% Y/Y; Incremental ACV from new customers was $1.1 million; Net ACV Retention from existing customers was 100%.
From an execution standpoint, management’s focus is on strengthening relationships with OEM partners, accelerating go-to-market efforts with its enterprise software offerings, enabling security and IT teams with actionable insights, and reestablishing strength in the education business.
Errol Olsen is stepping down as CFO later this year, and a search for his successor is underway and should be complete early in 2020.
Management reaffirmed prior FY ’20 expectations for $103.0-$106.0 million in revenue and an adjusted EBITDA margin of 18%-22%, implying adjusted EBITDA of $18.5-$23.3 million.
Asure Software Announces Third Quarter 2019 Results
Asure Software (ASUR) reported mixed Q3 ’19 results and provided its initial FY ’20 outlook for the HCM business.
Revenue of $24.6 million (+4.7% Y/Y) was shy of the Street’s $25.1 million. Adjusted EBITDA of $5.3 million (21.8% margin) was ahead of the $5.0 million consensus estimate. Non-GAAP EPS of $0.11 beat consensus of $0.09.
Human Capital Management (HCM) revenue was ahead of the company’s internal plan, but Workspace revenue was light due to distractions arising from the process to sell the business.
HCM revenue was $17.9 million (+8% Y/Y), of which 94% was recurring, and core HCM bookings increased 38% Y/Y.
Asure added 16 new resellers to the small business payroll family.
Management’s revised FY ’19 guidance for revenue and adjusted EBITDA of $72.0-$73.0 million and $11.0-$12.0 million, respectively, reflects only the HCM business as the $120 million sale of the Workspace Management business to FM:Systems is expected to close in December 2019.
The company plans to add headcount to lay the foundation for double-digit revenue growth in the years ahead and is focused on making its existing 34 HCM sales reps more productive.
Management’s initial FY ’20 revenue and adjusted EBITDA guidance for the HCM business includes $72.0-$74.0 million in revenue and $11.0-$12.0 million in adjusted EBITDA, both of which reflect flattish growth Y/Y.
AudioEye Reports Third Quarter 2019 Results
AudioEye (AEYE) reported solid Q3 ’19 results and reaffirmed prior guidance for FY ’19.
Revenue of $2.8 million (+85.8% Y/Y) was above consensus of $2.6 million. Operating income of $(2.2) million was in line with consensus of $(2.1) million (-77.7% margin). EPS of $(0.27) were a penny short of the Street’s $(0.26).
Key metrics: bookings of $5.7 million (+102% Y/Y); contracts in excess of revenue and deferred revenue was $15.5 million (+140% Y/Y); total customer count was over 3,500 (+150% Y/Y) at quarter-end and currently stands at approximately 4,300; monthly recurring revenue totaled $997,000 (+29% Q/Q).
The launch of the AudioEye Digital Marketplace enables companies of all sizes to easily and affordably accelerate the attainment of accessibility through access to AudioEye Free and AudioEye Pro, the latter of which starts at $12.99 per month.
AudioEye added two new partners in the quarter and now has 20 channel partners.
Management reiterated prior FY ’19 guidance for $22.0-$24.0 million in bookings and $10.0-$11.0 million in revenue, implying Q4 revenue of $2.8-$3.8 million versus consensus of $3.0 million.
Management also noted that the company has no need to raise additional capital in the near-term and will provide a more comprehensive update on its plans for 2020, capital requirements and path to profitability in the new year.
The search for a new CEO continues with the company in active discussions with a select list of potential candidates.
AudioEye has appointed investors David Moradi and Jamil Tahir to its Board of Directors.
Datadog Announces Third Quarter 2019 Results
Datadog (DDOG) reported Q3 ’19 results ahead of expectations and guided Q4 above consensus.
Revenue of $95.9 million (+87.7% Y/Y) exceeded consensus of $84.7 million. Non-GAAP operating income was $0.6 million (0.7% margin), well above consensus of $(13.3) million. Non-GAAP EPS of $0.00 beat consensus of $(0.14).
Strength in the quarter was broad-based, reflecting robust new logo additions, continued growth of existing customers, and strong initial uptake of Datadog’s Synthetics product.
Key metrics: 727 (+93% Y/Y) customers with ARR of $100,000 or more; 9,500 (+34% Y/Y) customers at quarter-end; dollar-based net retention rate was over 130%; approximately 50% of customers using two products or more; free cash flow of $(3.7) million (-3.8% margin).
Management estimates the company’s addressable market opportunity at approximately $35 billion as the company offers an integrated platform spanning infrastructure monitoring, application performance management, log management and end user experience monitoring.
Quota-carrying reps increased by 70% Y/Y as of the end of Q3 and further investments in go-to-market are anticipated.
Q4 guidance includes revenue, non-GAAP operating income, and non-GAAP EPS of $101.0-$103.0 million, $(8.0)-$(6.0) million, and $(0.02)-$(0.01), respectively, exceeding consensus expectations for $91.5 million, $(12.7) million, and $(0.05).
IZEA Reports Q3 2019 Financial Results
IZEA Worldwide (IZEA) reported Q3 ’19 revenue and adjusted EBITDA consistent with Street expectations.
Revenue of $4.4 million (-23.7% Y/Y) was in line with consensus. Adjusted EBITDA was $(1.3) million (-28.5% margin), also in line with Street expectations. EPS of $(0.04) were above consensus of $(0.06).
Key metrics: gross billings of $6.7 million (-27.8% Y/Y), included SaaS services gross billings of $3.1 million (-29.7% Y/Y).
Managed services bookings increased 12% Y/Y, while SaaS bookings continued to be negatively impacted by churn in the legacy TapInfluence customer base.
Sales headcount rebounded, increasing 27% on a sequential basis as the company began investing proceeds from its capital raise in May.
The company settled the vast majority of its acquisition costs payable during Q3 and has since settled the remaining balance.
Over the next six months, both the legacy Ebyline and TapInfluence platforms will be shuttered with the best features incorporated in the new IZEAx platform.
NICE Reports Strong Third Quarter 2019 Financial Results Driven by Robust Growth in Cloud Revenue
NICE’s (NICE) Q3 ’19 results and Q4 guidance were generally in line with Street expectations.
Non-GAAP revenue of $387.1 million (+7.9% Y/Y) was within management’s $380.0-$390.0 million guidance and just above consensus of $385.2 million. Non-GAAP operating income of $105.9 million (27.4% margin) was in line with consensus of $106.3 million. Non-GAAP EPS of $1.30 was also within guidance and beat consensus of $1.28.
Cloud revenue increased 27% Y/Y driven by growth in the number of CXone deals each quarter as well as larger deal sizes arising from faster penetration of CXone into very large enterprises.
Attach rates for workforce optimization and analytics also continue to increase, boosting win rates in the process.
Management indicated that EMEA remains healthy and the company has yet to see any weakness from macro conditions.
Management reaffirmed its FY ’19 non-GAAP revenue guidance of $1.563-$1.583 billion and raised its non-GAAP EPS guidance to $5.13-$5.33, implying Q4 revenue and non-GAAP EPS of $416.6-$436.6 million and $1.40-$1.60, respectively, consistent with consensus expectations for $430.1 million and $1.53.
Ping Identity Reports Third Quarter 2019 Results, Provides Outlook for Full Year 2019
Ping Identity Holding (PING) reported Q3 ’19 results above expectations and guided Q4 revenue ahead of consensus.
Revenue was $61.8 million (+44.9% Y/Y), above consensus of $55.0 million. Adjusted EBITDA was $13.8 million (22.4% margin), easily exceeding consensus of $5.8 million. Non-GAAP EPS of $0.13 also beat consensus of $0.01.
Key metrics: ARR was $206.7 million (+23% Y/Y); customer count exceeded 1,300 at quarter-end; dollar-based net retention was 115%; unlevered free cash flow was $8.1 million year-to-date (4.7% margin).
Ping Identity serves an addressable market estimated at $25 billion, comprised of legacy identity solutions unable to meet the enterprise requirements for modern hybrid cloud environments and greenfield opportunity driven by the adoption of new technologies and use cases like customer identity, multi-factor authentication, identity of things, and API security.
The Ping Identity platform is comprised of six solutions: single sign-on, multi-factor authentication, access security, directory, data governance, and API intelligence.
Guidance for Q4 includes revenue of $64.7-$66.7 million, above consensus of $63.4 million, and unlevered free cash flow of $(11.9)-$(10.8) million.
Management’s FY ’19 guidance calls for ARR of $222.1-$223.1 million, total revenue of $239.3-$241.3 million, and unlevered free cash flow of $(3.8)-$(2.7) million.
ShotSpotter Reports Third Quarter 2019 Financial Results
ShotSpotter (SSTI) reported mixed Q3 ’19 results and guided Q4 and FY ’20 below consensus.
Revenues of $10.0 million (+8.4% Y/Y) were below consensus of $10.9 million. Adjusted EBITDA of $2.3 million (22.7% margin) was in line with consensus. EPS of $0.04 beat consensus by a penny.
The company was on the cusp of closing securing a few material contracts in Q3 that ultimately had their final signings pushed into the future for a variety of reasons, resulting in the addition of just 20 gross miles, which was below internal expectations.
Las Vegas was expected to add 17.5 miles of expansion in Q3, but most of the deployment was delayed into Q4.
Key metrics: added 11 net new “go-live” square miles of coverage; lost nine miles from three customers that did not renew; 696 miles live in 99 cities and 11 campuses and sites at quarter-end; 720 miles and 12 campuses and sites under contract.
The pipeline for core ShotSpotter Flex services continues to grow, while ShotSpotter Missions is gaining traction and close to making measurable revenue contributions to the company’s overall results.
ShotSpotter has established a sales overlay organization to develop and maintain deep functional consultative sales expertise in each of the company’s offerings, which will collaborate with territory sales directors to drive adoption.
Management lowered its FY ’19 revenue guidance from $42.0-$45.0 million to $40.0-$40.5 million, implying Q4 revenue of $10.2-$10.7 million versus consensus of $12.1 million.
For FY ’20, management introduced guidance calling for revenues of $48.0-$50.0 million, below consensus of $56.6 million, and ongoing profitability on a GAAP basis with both gross margin and net margin expected to expand.
Tufin Announces Third Quarter 2019 Results
Tufin Software Technologies (TUFN) reported Q3 ’19 results ahead of expectations and guided Q4 in line with consensus.
Revenue of $25.6 million (+32.4% Y/Y) was within guidance of $24.0-$26.0 million and above consensus of $25.1 million. Non-GAAP operating income of $(5.1) million (-19.8% margin) was also within guidance and ahead of the Street’s $(5.4) million. Non-GAAP EPS of $(0.17) were in line with consensus.
Tufin continues to see momentum with large enterprises drawn to its automation capabilities, integrations and scalability.
The Tufin Orchestration Suite has been added to the GSA Schedule 70, enabling the company to sell to the entire U.S. federal government as well as to state and local government.
Growth in the EMEA and APAC regions declined sequentially, but management indicated this was more reflective of quarterly variability in the closure of seven-figure deals as opposed to macro weakness, which the company has not experienced.
Guidance for Q4 calls for revenue of $34.0-$38.0 million and non-GAAP operating income of $0-$3.0 million, in line with consensus expectations for $35.9 million in revenue and $2.1 million in non-GAAP operating income.
Wix Reports Third Quarter 2019 Results
Wix (WIX) reported Q3 ’19 results shy of consensus and guided Q4 revenue below Street expectations.
Revenue of $196.8 million (+26.5% Y/Y) was at the midpoint of management’s $196.0-$198.0 million guidance but short of the Street’s $197.6 million. Non-GAAP operating income was $12.3 million (6.2% margin), below consensus of $15.4 million. Non-GAAP EPS of $0.41 beat consensus of $0.33.
Key metrics: collections of $205.9 million (+26.5% Y/Y) were at the high-end of management’s $204.0-$206.0 million guidance; added 114,000 net subscribers for a total of 4.41 million (+15.0% Y/Y); added 5.5 million registered users for a total of 159.5 million (+16.8% Y/Y); free cash flow of $29.2 million (14.9% margin).
Future collections from the existing cohort of customers is expected to be in excess of $6 billion over the next eight years.
The company recently launched its newest vertical offering, Wix Fitness, targeting one of the fastest growing categories.
Q4 guidance includes $204.0-$206.0 million in revenue, below consensus of $207.1 million, and $222.0-$225.0 million in collections.
2019 revenue would have been $10 million higher and collections would have been $12 million higher if not for FX headwinds.
Management raised the low-end of its FY ’19 collections and free cash flow guidance ranges, which now stand at $828.0-$831.0 million and $124.0-$126.0 million, respectively.
Notable News
Ceridian Announces Pricing of Secondary Public Offering
Ceridian HCM Holding (CDAY) announced that affiliates of Thomas H. Lee Partners and Cannae Holdings priced an offering of 10 million shares at a purchase price of $53.08 per share, a 3.7% discount to the close price prior to the announcement of the planned offering.
The selling stockholders each offered 5 million shares and will receive all of the proceeds from the offering.
CyberArk Software (CYBR) priced an offering of $500 million aggregate principal amount of 0% Convertible Senior Notes due 2024 at an initial conversion price of approximately $157.53 per share, representing a 36.7% premium to the close price prior to the announcement of the planned offering.
The initial purchasers have been granted a 13-day option to purchase up to an additional $75 million aggregate principal amount of the Notes.
The offering is expected to generate net proceeds of approximately $487 million (or $560 million if the initial purchasers exercise their over-allotment option in full), of which $46.7 million will be put towards the cost of capped call transactions and the remainder used for working capital or other general corporate purposes.
Instructure Announces Review of Strategic Alternatives
Instructure (INST) has commenced a process to explore strategic alternatives in response to interest received from multiple third parties.
These alternatives may include remaining a standalone public company, going private, or being acquired by a strategic partner.
No formal timetable has been established and the company’s previously scheduled financial analyst day on December 3 has been canceled.
Synchronoss Technologies (SNCR) is working with a new joint venture formed by the four largest domestic mobile operators to deliver an advanced mobile messaging experience across all four networks.
The platform is based on the Rich Communications Services (RCS) standard and has the potential to enable rich, personalized interactions between brands and consumers via messaging without the need to switch between apps.
Synchronoss is partnering with WIT Software to develop the platform and has previously worked with WIT Software to deliver a similar cross-operator platform in Japan.
The five-year agreement is expected to generate revenue in excess of the entirety of Synchronoss’ advanced messaging business, which generated $20-$25 million in revenue in 2018 and 2019, on both an annual and total contract value basis.
Included in Q4 and 2019 guidance is the first payment to be received from the JV, amounting to the high-teens millions of dollars, and a similar amount will be recognized in 2020 and subsequently build from there.