K. Liu's Week in Review
Instructure’s (INST) plan to be taken private by Thoma Bravo for $47.60 per share in cash faced further resistance this week as 7.5% shareholder Praesidium Investment Management issued an open letter to the Board of Directors expressing its view that the purchase price undervalues the company. Praesidium does not believe the deal provides adequate value to stockholders due to a rushed process, potential conflicts of interest, and a desired outcome by management, and therefore plans to vote against the sale. After rumors that LogMeIn (LOGM) was in talks with private equity to sell the company surfaced a month ago, Bloomberg reported this week that Francisco Partners and Elliott Management are in advanced discussions to take the company private in a deal valued at over $4.0 billion. Dealreporter subsequently indicated that the transaction value could exceed $4.5 billion.
As for deals that have actually closed, SolarWinds (SWI) acquired VividCortex for $117.5 million in cash. The acquisition extends SolarWinds’ database performance management coverage to modern databases such as Amazon Aurora, MongoDB and Redis, which are typically used in cloud-native applications. Management anticipates nominal revenue contribution in 2020 along with earnings dilution, but noted that VividCortex expands the company’s addressable market by approximately $2 billion and should exhibit meaningful growth. In the security space, Fortinent (FTNT) acquired Security Orchestration, Automation and Response (SOAR) platform vendor CyberSponse for $28.0 million in cash. CyberSponse will be integrated into the Fortinet Security Fabric, enabling customers to consolidate a myriad of security alerts across various point solutions, automate analysis and other repetitive tasks, and respond to incidents in real-time. Lastly, RealPage (RP) acquired Investor Management Services, a platform for investor relations management that will be integrated with the RealPage AIM platform.
In earnings news, MongoDB (MDB) delivered fiscal Q3 ’20 results above expectations and guided Q4 ahead of consensus. The company’s cloud database offering, Atlas, continues to see rapid adoption and now comprises 40% of revenue. Atlas revenue increased 185% Y/Y in Q3, reaching a revenue run rate of $175 million. Adobe (ADBE) also reported quarterly results above expectations this week, reflecting strong adoption of the company’s subscription offerings throughout the quarter. Management noted that demand has accelerated further following the Adobe MAX conference. Net new Digital Media annualized recurring revenue (ARR) outpaced Street expectations in both the quarter and the outlook, and management’s FY ’20 revenue and non-GAAP EPS guidance was in line with consensus. Oracle (ORCL) was the only other company to report this week, posting mixed results but reaffirming prior expectations for FY ’20. Management highlighted strong growth in SaaS, particularly from Fusion ERP and NetSuite ERP, as well as adoption of its Autonomous database. Oracle continues to expect revenue growth to accelerate versus the prior year period and believes EPS should grow at a double-digit clip for the foreseeable future.
Elsewhere, Everbridge (EVBG) priced an offering of $375.0 million aggregate principal amount of 0.125% convertible senior notes due 2024 with an initial conversion price of $112.36 per share, representing a 33.2% premium to the close price prior to the announcement of the offering. The initial purchasers of the notes have also been granted an option to purchase up to an additional $75.0 million. Net proceeds from the offering are expected to total $363.7 million (or $436.6 million if the initial purchasers exercise their option in full), a portion of which will be put towards capped call transactions and the repurchase of Everbridge’s existing 1.50% convertible senior notes due 2022. Salesforce (CRM) named Bret Taylor President and Chief Operating Officer, a role in which he will lead the company’s global product vision, engineering, security, marketing and communications. He was previously co-founder and former CEO of Quip, which was acquired by Salesforce in 2016. Finally, ShotSpotter (SSTI) appointed three new vice presidents focused on customer success and sales. Paul Reeves joins the company as Vice President of Customer Success, Joe Rodriguez joins as Vice President of Sales, and Phil Dailly has been promoted from Regional Sales Director to Vice President of Sales, Solutions Group.
Mergers and Acquisitions
Fortinet Acquires SOAR Provider CyberSponse
Fortinet (FTNT) has acquired CyberSponse, a leading Security Orchestration, Automation and Response (SOAR) platform, for $28.0 million in cash.
CyberSponse’s SOAR platform enables customers to consolidate security alerts from numerous point solutions into a single platform, automate the analysis of alerts and other repetitive tasks, and coordinate a response to incidents that occur.
Francisco and Elliott Are in Talks to Buy LogMeIn
Bloomberg reported that private equity firm Francisco Partners and hedge fund Elliott Management have teamed up in a bid to take LogMeIn (LOGM) private for over $4 billion.
Sources indicated the firms are in advanced discussions and a deal could be announced in the coming weeks.
Praesidium Investment Management Sends Letter to Instructure Board of Directors
In a letter to Instructure’s (INST) Board of Directors, Praesidium Investment Management, a 7.5% shareholder, expressed its view that the sale of the company to Thoma Bravo for $47.60 per share in cash undervalues the company.
Praesidium does not believe the Board ran a full and fair process to maximize value for shareholders and highlighted inconsistencies in the company’s prior actions and statements, as well as potential conflicts of interest, that suggest the sale process was rushed to achieve a desired outcome.
Praesidium intends to vote against the current deal.
RealPage Acquires Investor Management Services
RealPage (RP) has acquired Investor Management Services, which provides an investor relationship management platform with an investor dashboard, investor portal to manage investor relations, and a waterfall engine for distributions.
Investor Management Services will be integrated with the RealPage AIM platform.
SolarWinds (SWI) has acquired VividCortex, a cloud-based database performance management provider focused on databases typically used in cloud-native applications, for $117.5 million in cash.
The acquisition extends the company’s coverage for monitoring database assets beyond Microsoft SQL and Oracle to major open source databases such as MySQL, PostgreSQL, Amazon Aurora, MongoDB, and Redis.
While VividCortex had great technology, the company lacked a route to market, which SolarWinds will provide.
The acquisition will not contribute meaningfully to revenue in 2020 and will be dilutive to earnings.
Earnings Releases
Adobe Surpasses $11 Billion in Annual Revenue
Adobe (ADBE) reported Q4 ’19 results above expectations and guided FY ’20 in line with the Street.
Revenue of $2.992 billion (+21.4% Y/Y) exceeded guidance of approximately $2.970 billion and consensus of $2.973 billion. Non-GAAP operating income of $1.274 billion (42.6% margin) was ahead of consensus of $1.265 billion. Non-GAAP EPS of $2.29 beat guidance of $2.25 and consensus of $2.26.
Global interest and subscription adoption were strong throughout the quarter and accelerated after Adobe MAX.
Other Q4 highlights included strong growth in content and commerce solutions; adoption of Adobe Experience Platform, Audience Manager, and Real-Time Customer Data Platform; and momentum in the Marketo business.
Key metrics: net new Digital Media Annualized Recurring Revenue (ARR) was $539 million for a total of $8.40 billion at quarter-end, including $7.31 billion in Creative ARR and $1.09 billion in Document Cloud ARR; remaining performance obligation was $9.82 billion.
Guidance for Q1 includes revenue of approximately $3.04 billion, just shy of the Street’s $3.08 billion, and non-GAAP EPS of approximately $2.23, in line with consensus.
Management’s FY ’20 guidance calls for approximately $13.15 billion in revenue and $9.75 in non-GAAP EPS, in line with Street expectations for $13.158 billion in revenue and $9.75 in non-GAAP EPS.
MongoDB, Inc. Announces Third Quarter Fiscal 2020 Financial Results
MongoDB (MDB) reported Q3 ’20 results above expectations and guided Q4 ahead of consensus.
Revenue of $109.4 million (+52.5% Y/Y) exceeded management’s $98.0-$100.0 million guidance and consensus of $99.8 million. Non-GAAP operating income was $(14.3) million (-13.0% margin), ahead of guidance for $(16.5)-$(15.5) million and consensus of $(16.1) million. Non-GAAP EPS of $(0.26) beat guidance of $(0.29)-$(0.27) and consensus of $(0.28).
Outperformance in the quarter was driven by broad-based strength from both Atlas and Enterprise Advanced as well as positive demand trends in all major regions; rapid adoption of Atlas remains the largest contributor to growth.
Key metrics: added over 900 customers for a total of over 15,900 customers at quarter-end, including 1,900+ direct sales customers and 14,200+ MongoDB Atlas customers; 688 (+40.4% Y/Y) customers with $100,000 or more in annualized monthly recurring revenue; net expansion rate remained over 120%; free cash flow of $(13.1) million (-12.0% margin).
Management believes the company remains in the early stages of a once-in-a-generation shift in database technology and is confident in its ability to capture a meaningful share of the $64 billion global database software market.
Atlas, a cloud database offering, grew 185% Y/Y to reach a $175 million revenue run rate and now comprises 40% of total revenue versus 21% last year and 37% last quarter.
Guidance for Q4 includes revenue of $109.0-$111.0 million, non-GAAP operating income of $(16.5)-$(15.5) million, and non-GAAP EPS of $(0.29)-$(0.27), all exceeding consensus expectations for $105.5 million in revenue, $(17.3) million in non-GAAP operating income, and $(0.28) in non-GAAP EPS.
Q2 FY20 GAAP EPS Up 14% To $0.69 and Non-GAAP EPS Up 12% to $0.90
Oracle (ORCL) reported mixed Q2 ’20 results and reiterated prior expectations for FY ’20.
Revenues of $9.614 billion (+0.5% Y/Y) were within guidance of $9.562-$9.753 billion but just shy of the Street’s $9.648 billion. Non-GAAP operating income was $4.042 billion (42.0% margin), slightly below consensus of $4.091 billion. Non-GAAP EPS of $0.90 beat guidance of $0.87-$0.89 and consensus of $0.88.
SaaS revenues increased double digits in all regions except for EMEA with growth in Latin America and Japan especially strong.
Oracle now has over 7,000 Fusion ERP customers and 20,000 NetSuite customers, resulting in strong revenue growth for Fusion ERP (+37% Y/Y) and NetSuite ERP (+29% Y/Y).
With higher growth Cloud Services and License Support now comprising over 70% of revenue, management remains encouraged that overall revenue growth will further accelerate as the business mix continues to shift in that direction.
Management highlighted internal efficiencies arising from the adoption of its own cloud offerings, which are being communicated to customers interested in digital transformation and also support Oracle’s expectations for margins to expand and EPS to grow double digits for the foreseeable future.
Guidance for Q3 includes revenue growth of 1%-3% to $9.71-$9.90 billion and non-GAAP EPS of $0.95-$0.97, leaving consensus of $9.85 billion in revenue and $0.97 in non-GAAP EPS closer to the high-end.
For FY ’20, management continues to expect revenue growth ahead of last year’s pace and double-digit EPS growth.
Notable News
Everbridge Announces Pricing of $375 Million Convertible Notes Offering
Everbridge (EVBG) priced an offering of $375.0 million aggregate principal amount of 0.125% convertible senior notes due 2024 with an initial conversion price of approximately $112.36 per share, a 33.2% premium to the close price prior to the announcement of the planned offering.
The company has also granted the initial purchasers a 13-day option to purchase up to an additional $75.0 million aggregate principal amount of the notes.
Net proceeds from the offering are expected to total $363.7 million (or $436.6 million if the initial purchasers exercise their option to purchase additional notes in full).
Everbridge plans to utilize $37.4 million of the proceeds to pay for capped call transactions, repurchase $23.0 million aggregate principal amount of its existing 1.50% Convertible Senior Notes due 2022 for $57.8 million, and potentially finance the redemption or settlements upon conversion of all of the 2022 notes in November 2020.
The remaining proceeds will be used for general corporate purposes or potential acquisitions.
Salesforce Names Bret Taylor President & Chief Operating Officer
Salesforce (CRM) has appointed Bret Taylor as its President and Chief Operating Officer, a role in which he will lead the company’s global product vision, engineering, security, marketing and communications.
Mr. Taylor was previously co-founder and former CEO of Quip, which was acquired by Salesforce in 2016.
ShotSpotter (SSTI) has appointed Paul Reeves as Vice President of Customer Success and Joe Rodriguez as Vice President of Sales, and promoted Phil Dailly from Regional Sales Director to Vice President of Sales, Solutions Group.
Mr. Reeves previously ran his own customers success consultancy, Customer Kaizen, where he advised SaaS companies on how to improve renewal rates and cultivate word-of-mouth recommendations through customer success.
Mr. Rodriguez is a former police officer and joins the company from Deccan International where he led the sales team.
Mr. Dailly has been with ShotSpotter for nine years and will now oversee a group of senior level product sales specialists.