K. Liu's Week in Review

With the holiday season upon us and a new year fast approaching, we were hit by a blizzard of news this week. After formally announcing a review of strategic alternatives in mid-November and cancelling a financial analyst day previously scheduled for this past week, Instructure (INST) agreed to be taken private by Thoma Bravo for $47.60 per share in cash, representing a TTM EV/Sales multiple of 7.6x. As speculation that the company could be sold had already affected the share price even before Instructure’s acknowledgement of a process, the purchase price actually reflects a discount of 10.1% to the close price prior to the announced sale. A day after news of the sale broke, Rivulet Capital, which owns approximately 5.23% of outstanding INST shares, filed a 13D opposing the deal on the basis that the purchase price significantly undervalues the company. Subsequently, Instructure filed an 8-K disclosing that the company had conducted an eleven-month process in which 40 parties were contacted, 19 of which entered into non-disclosure agreements and engaged with the company. Instructure is currently in the midst of a 35-day “go-shop” period in which alternative acquisition proposals may be solicited.

In other M&A news, Endurance International Group (EIGI) sold its SinglePlatform business to TripAdvisor for approximately $51 million in cash, representing a TTM EV/Sales multiple between 1.8x and 1.9x. SinglePlatform enables restaurants to easily publish and manage their menus and other key business information on internet search and discovery sites. Endurance plans to pay down its term loan with the proceeds. In the cybersecurity space, both Check Point Software Technologies (CHKP) and Tenable (TENB) announced tuck-in deals. The former has agreed to acquire Protego, adding serverless security technology to its CloudGuard platform. The latter has acquired Indegy for $78 million in cash, marking an expansion into industrial cybersecurity and a bid to deliver the first unified platform for managing both IT and operational technology (OT) environments.

Turning to earnings, this week felt like peak season for the off-calendar reporting companies given results from 20 companies were on the docket. Investors were apparently hard to impress with only five of the reporting companies seeing shares trade higher for the week despite eight that beat and raise. The stocks that worked largely traded at relatively lower valuations than the group and exhibited improved execution relative to the past few quarters. DocuSign (DOCU) was the only high-flier to trade higher on a beat and raise. Other highly valued companies like Coupa Software (COUP), CrowdStrike (CRWD), Medallia (MDLA), and Zoom Video Communications (ZM) also posted strong results and guidance, yet all saw shares decline for the week. In contrast, Domo (DOMO) and Secureworks (SCWX), which fetched far lower EV/Sales multiples, soared on their upside results and guidance. Domo’s sales execution improved due in part to larger enterprise deals, while Secureworks highlighted traction in software opportunities.

Verint Systems (VRNT) was the only other reporting company to move higher on the week despite posting mixed results and guiding its fiscal Q4 slightly below consensus. The company announced plans to separate into two independent publicly traded companies: one focused on Customer Engagement and the other on Cyber Intelligence. Per management, the Customer Engagement business continues to exhibit strong cloud momentum and is expected to grow double-digits on a perpetual license equivalent basis, while the Cyber Intelligence business is transitioning to a software model faster than anticipated. In conjunction with the planned separation, Apax Partners will invest $400 million in Verint through two tranches of convertible preferred stock, which will ultimately result in the private equity firm owning 11.5%-15.0% of the Customer Engagement business on an as-converted basis when all is said and done. The separation is expected to be completed following the company’s next fiscal year ending January 31, 2021. While management’s initial outlook for FY ‘21 was just shy of consensus expectations, the lower guide largely reflects reduced levels of low-margin hardware and services as the mix of software within the Cyber Intelligence business increases at a faster clip. Additionally, the Board of Directors has authorized a $300 million share repurchase program in effect until the separation occurs.

As for the decliners this week, Elastic (ESTC) shares were hit hard despite upside results for the quarter and an uptick in management’s outlook for the year. A lower billings growth rate appeared to be the source of concern, and was perhaps exacerbated by the company’s presence in the observability market where several notable players focused on application performance management, log management, and tracing are all attempting to make in-roads into adjacent areas, creating noise and competitive concerns in the process. PagerDuty (PD) has also been subject to the market confusion, and the company’s mixed results and outlook were met with a sell-off. Elsewhere, Yext (YEXT) came under pressure as elongating sales cycles attributed to customers pausing to learn more about its recently launched Answers product prompted management to guide its fiscal Q4 below Street expectations.

Two follow-on offerings also priced this week with selling stockholders receiving all of the proceeds. Dynatrace (DT) priced an offering of 27.5 million shares at a price of $24.75 per share, representing an 8.4% discount to the close price prior to the announcement of the planned offering. The selling stockholders have granted the underwriters a 30-day option to purchase up to an additional 4.125 million shares. Tufin Software Technologies (TUFN) priced its secondary offering of 4,279,882 shares at price of $17.00 per share, a 10.9% discount to the close price prior to the announcement of the planned offering. The offering was upsized from 3.5 million shares, and the selling stockholders have granted the underwriters an option to purchase up to an additional 641,982 shares.

Finishing up with notable executive moves this week, Avalara’s (AVLR) Chief Financial Officer, Bill Ingram, plans to retire in March 2020 and will join the company’s Board of Directors. He will be succeeded by Ross Tennenbaum, Avalara’s Executive Vice President of Strategic Initiatives. Secureworks will also have a new Chief Financial Officer after appointing Paul Parrish to the role, effective December 9, 2019. PagerDuty appointed Dave Justice, who most recently served as Executive Vice President, Enterprise Sales at Salesforce (CRM), as its Chief Revenue Officer. Alteryx (AYX) named Scott Davidson, who joins from Hortonworks, as its Chief Operating Officer, while SailPoint’s (SAIL) Chief Operating Officer, Cam McMartin, will transition to the company’s Board at year end. Last but not least, QAD (QADA) appointed Kathy Crusco, Executive Vice President and Chief Financial Officer at Kony, to its Board of Directors.

Mergers and Acquisitions

Check Point Software Extends Leadership in Cloud Security with Unmatched Serverless Protection

  • Check Point Software Technologies (CHKP) has agreed to acquire Protego, a serverless security company that prevents malicious attacks on serverless functions in run time and prevents vulnerable code from being deployed into production.

  • The acquisition is expected to close in Q4 ‘19, and Protego’s serverless security technology will be integrated into Check Point’s Infinity architecture in Q1 ’20.

Instructure Enters Into a Definitive Agreement to be Acquired by Thoma Bravo

  • Instructure (INST) has agreed to be acquired by Thoma Bravo for $47.60 per share in cash, representing an equity value of approximately $2 billion and a TTM EV/Sales multiple of 7.6x.

  • The deal values Instructure at EV/Sales multiples of 7.3x and 6.2x consensus estimates for 2019 and 2020, respectively.

  • The purchase price is a 10.1% discount to the close price prior to the announcement, but also reflects a 12.2% premium to the close price prior to the company’s Q3 ’19 earnings call during which management conveyed plans to evaluate strategic alternatives for its Bridge business.

  • The agreement includes a 35-day “go-shop” period expiring on January 8, 2020.

  • In a subsequent 8-K filing, Instructure disclosed that the company had conducted a comprehensive sale process involving 40 parties, including 19 of which signed non-disclosure agreements, over the span of eleven months.

Tenable Acquires Operational Technology Security Leader Indegy

  • Tenable (TENB) has acquired Indegy, an industrial cybersecurity provider enabling customers to identify, manage, and secure connected operational technology (OT) devices, for $78 million in cash.

  • The combination will enable the company to deliver a single platform for managing both IT and OT security issues.

  • The acquisition will have an immaterial impact on revenue and billings in Q4 ’19 but is expected to reduce non-GAAP EPS by approximately $0.02 and lower GAAP EPS by $0.15-$0.17.

  • In 2020, the impact to the bottom line should moderate somewhat as the sales team begins selling the enhanced IT and OT offering, and Tenable forgoes much of the incremental organic investment in OT that was originally contemplated.

TripAdvisor Acquires SinglePlatform From Endurance International Group To Grow Its Digital Marketing Suite For Restaurants

  • Endurance International Group (EIGI) sold its SinglePlatform business to TripAdvisor for approximately $51 million in cash.

  • SinglePlatform enables restaurants to easily publish and manage their menus and other key business information on internet search and discovery websites.

  • Revenue from SinglePlatform was $28.4 million in 2018 and $20.6 million in the first nine months of 2019.

  • Proceeds from the sale will be put towards the pay down of Endurance’s term loan.

Earnings Releases

Cloudera Reports Third Quarter Fiscal Year 2020 Financial Results

  • Cloudera (CLDR) reported Q3 ’20 results ahead of expectations and guided Q4 above consensus.

  • Revenue of $198.3 million (+66.6% Y/Y) was above guidance of $187.0-$190.0 million and consensus of $189.1 million. Non-GAAP operating income was $(8.2) million (-4.1% margin), well above consensus of $(19.5) million. Non-GAAP EPS of $(0.03) beat guidance of $(0.08)-$(0.06) and consensus of $(0.06).

  • The field team continued to ramp its performance and exceeded expectations across a number of dimensions, and licensing and distribution changes previewed in last quarter’s call are also having a positive impact on the business.

  • Key metrics: annualized recurring revenue (ARR) of $697.4 million (+13% Y/Y) was ahead of management’s $685.0-$695.0 million guidance; added 24 customers with ARR over $100,000 for a total of 977 (+24% Y/Y) at quarter-end.

  • At the Strata Data Conference, the company launched Cloudera Data Platform for public cloud with three cloud native services: Cloudera Data Warehouse, Cloudera Machine Learning, and Cloudera Data Hub.

  • Q4 guidance includes revenue of $200.0-$203.0 million and non-GAAP EPS of $(0.04)-$(0.02), both comparing favorably versus consensus of $197.0 million in revenue and $(0.05) in non-GAAP EPS.

Coupa Software Reports Financial Results for the Third Quarter of Fiscal 2020

  • Coupa Software (COUP) reported Q3 ’20 results above expectations and guided Q4 ahead of consensus.

  • Revenues of $101.8 million (+50.9% Y/Y) exceeded guidance of $95.5-$96.5 million and consensus of $96.2 million. Non-GAAP operating income was $11.6 million (11.3% margin), well above guidance for $3.5-$5.5 million and consensus of $4.9 million. Non-GAAP EPS of $0.20 beat guidance of $0.05-$0.08 and consensus of $0.06.

  • Key metrics: billings of $105.4 million (+54% Y/Y); gross renewal rate and dollar-based expansion rate remained consistent with the past few quarters; free cash flow of $22.1 million (21.8% margin).

  • Cash flows in Q3 benefited from strong performance by the M&A integration team, billings team, and collections team, which drove accelerated customer payments.

  • Coupa’s Business Spend Index for Q4 indicates sentiment has ticked up slightly from the prior quarter but U.S. businesses continue to be cautious about the economy with confidence in financial services slowing and manufacturing still depressed.

  • Management’s Q4 guidance includes revenue of $101.5-$102.5 million, non-GAAP operating income of $3.0-$4.5 million, and non-GAAP EPS of $0.03-$0.06, exceeding consensus expectations for $99.4 million, $0.6 million and $(0.01), respectively.

CrowdStrike Reports Record Fiscal Third Quarter Financial Results

  • CrowdStrike Holdings (CRWD) reported Q3 ’20 results above expectations and guided Q4 ahead of consensus.

  • Revenue of $125.1 million (+88.5% Y/Y) was above guidance of $117.1-$119.5 million and consensus of $118.8 million. Non-GAAP operating income was $(16.5) million (-13.1% margin), exceeding guidance for $(27.7)-$(26.1) million and consensus of $(25.7) million. Non-GAAP EPS of $(0.07) beat guidance of $(0.12)-$(0.11) and consensus of $(0.11).

  • Key metrics: net new ARR was $77.9 million; ARR was $501.7 million (+97% Y/Y); added 772 net new subscription customers for a total of 4,561 (+112% Y/Y); dollar-based net retention rate exceeded 120%; free cash flow of $7.0 million (5.6% margin).

  • Growth in ARR was driven by another strong quarter of new logo acquisition in both enterprise and SMB as well as expansion business and low churn within the existing customer base.

  • CrowdStrike’s platform strategy is gaining momentum with customers as evidenced by the percentage of customers adopting four or more cloud modules now exceeding 50% and those with five or more increasing to 30%.

  • Guidance for Q4 includes revenue of $135.9-$138.6 million, non-GAAP operating income of $(21.6)-$(19.7) million, and non-GAAP EPS of $(0.09)-$(0.08), all exceeding consensus of $127.2 million in revenue, $(25.6) million in non-GAAP operating income, and $(0.11) in non-GAAP EPS.

Descartes Announces Fiscal 2020 Third Quarter Results

  • The Descartes Systems Group (DSGX) reported Q3 ’20 results in line with Street expectations.

  • Revenue of $83.0 million (+18.6% Y/Y) was in line with consensus of $82.9 million. Adjusted EBITDA of $31.5 million (37.9% margin) was slightly above the Street’s $31.1 million. EPS of $0.11 were in line with consensus.

  • Visual Compliance continues to contribute nicely to growth and remains ahead of plan for the year.

  • Management remains excited about the opportunity to connect brokers and carriers to match freight capacity with demand.

  • Going forward, 80% to 90% of adjusted EBITDA should continue to convert to operating cash flow.

  • Management’s calibration for Q4 includes $79.3 million in baseline revenues and $25.4 million in baseline adjusted EBITDA.

  • The company continues to see a number of acquisition opportunities to expand the geographic reach, functional capabilities, trade data, and content for the community of participants on its network.

  • Descartes continues to see sustainable long-term growth in adjusted EBITDA in the 10%-15% range.

DocuSign Announces Third Quarter Fiscal 2020 Financial Results

  • DocuSign (DOCU) delivered Q3 ’20 results above expectations and guided Q4 favorably versus consensus.

  • Revenue of $249.5 million (+39.9% Y/Y) beat guidance of $237.0-$241.0 million and consensus of $239.5 million. Non-GAAP operating income was $16.9 million (6.8% margin). Non-GAAP EPS of $0.11 was near the high-end of management’s implied guidance and above consensus of $0.03.

  • Strong demand for core eSignature solutions and growing adoption of the broader portfolio of Agreement Cloud products continued in Q3.

  • Key metrics: added 25,000 new customers for a total of 562,000 paying customers; 401 (+41% Y/Y) customers with ACV over $100,000; billings of $269.4 million (+36.1% Y/Y) were near the high-end of guidance for $260.0-$270.0 million; net dollar retention rate of 117%; free cash flow of $(14.1) million (-5.7% margin).

  • DocuSign introduced two new Agreement Cloud products in Q3: DocuSign Negotiate and DocuSign CLM.

  • Management’s Q4 guidance includes billings of $346.0-$356.0 million and revenue of $263.0-$267.0 million, which was above consensus of $260.4 million, and implies non-GAAP EPS of $(0.03)-$0.13 versus consensus of $0.05.

Domo Announces Fiscal 2020 Third Quarter Financial Results

  • Domo (DOMO) reported Q3 ’20 results above expectations and guided Q4 ahead of consensus.

  • Revenue was $44.8 million (+21.5% Y/Y), above guidance for $41.5-$42.5 million and consensus of $41.8 million. Non-GAAP operating income was $(21.2) million (-47.3% margin). Non-GAAP EPS of $(0.85) beat management’s $(1.04)-$(1.00) guidance and the Street’s $(1.01).

  • The strong results were driven by solid core sales execution, including the closing of several large enterprise deals, and management was pleased with the increase in both average deal sizes and salesforce productivity in the enterprise segment.

  • Key metrics: billings of $44.4 million (+14.5% Y/Y); gross retention rate of 90%; net revenue retention rate remains over 100% for all groups; free cash flow of $(21.2) million (-47.4% margin).

  • Creating more predictable new enterprise business remains a priority.

  • Domo has promoted Ian Tickle, SVP and GM of EMEA, to Chief Revenue Officer, succeeding Dean Germeyer who will transition out this quarter.

  • Guidance for Q4 calls for revenue of $45.0-$46.0 million and non-GAAP EPS of $(0.98)-$(0.94), both of which compared favorably with Street expectations for $43.9 million in revenue and $(0.98) in non-GAAP EPS.

Elastic N.V. Reports Strong Second Quarter Fiscal 2020 Results

  • Elastic (ESTC) reported Q2 ’20 results above expectations and raised guidance for FY ’20.

  • Revenue of $101.1 million (+59.0% Y/Y) was above guidance of $95.0-$97.0 million and consensus of $96.4 million. Non-GAAP operating income was $(18.4) million (-18.2% margin), ahead of consensus of $(22.2) million and guidance for a -23.5% to -21.5% non-GAAP operating margin. Non-GAAP EPS of $(0.22) beat guidance of $(0.32)-$(0.30) and consensus of $(0.31).

  • Key metrics: billings of $125.3 million (+41.5% Y/Y); 9,700 (+10.2% Y/Y) subscription customers; 525 (+10.5% Y/Y) customers with ACV over $100,000; net expansion rate in excess of 130%.

  • Growth was fastest in the APJ region followed by EMEA, while the U.S. saw strength in several areas but also experienced delays in the federal government business.

  • SaaS revenue of $20.6 million (+106% Y/Y) was fueled by strength in the monthly SaaS business, which comprises nearly half of SaaS revenue and almost 10% of total revenue.

  • In Q2, Elastic completed its acquisition of endpoint security company, Endgame, and introduced Elastic Endpoint Security, a new product which integrates the company’s acquired endpoint protection platform with Elastic’s search technology stack.

  • Guidance for Q3 includes revenue of $106.0-$108.0 million and non-GAAP EPS of $(0.36)-$(0.34), which was mixed versus Street expectations for $105.9 million in revenue and $(0.32) in non-GAAP EPS.

  • Management raised its FY ’20 guidance across the board and now anticipates revenue, non-GAAP operating margin, and non-GAAP EPS of $415.0-$417.0 million, -23.0% to -22.0%, and $(1.24)-$(1.17), respectively.

Guidewire Software Announces First Quarter Fiscal year 2020 Financial Results

  • Guidewire Software (GWRE) reported Q1 ’20 results ahead of expectations and reiterated guidance for FY ’20.

  • Total revenue of $157.0 million (-12.9% Y/Y) was above management’s $149.0-$153.0 million guidance and consensus of $151.7 million. Non-GAAP operating income was $7.1 million (4.5% margin), exceeding guidance for $(3.0)-$1.0 million and consensus of $(0.2) million. Non-GAAP EPS of $0.13 beat guidance of $0.01-$0.05 and consensus of $0.03.

  • Key metrics: annual recurring revenue (ARR) was $463 million (+1% Q/Q); 12 customers went live for the first time on 25 products and two completed major version upgrades; 43% of new software sales were subscription versus 26% last year.

  • The company remains in the early stages of a multiyear transition from self-managed to Guidewire Cloud and thus expects cloud demand in FY ‘20 to be weighted towards the back half of the year.

  • Advanced Product Designer, a low-code configuration tool enabling insurers to rapidly design, simulate, and deploy new insurance products, and Jutro, a framework for rapidly designing and developing digital apps, will be available to Guidewire Cloud customers in fiscal Q3 and to self-managed customers in fiscal Q4.

  • Guidance for Q2 includes revenue and non-GAAP operating income of $162.0-$166.0 million and $5.0-$9.0 million, respectively, well below consensus expectations for $188.6 million and $25.2 million.

  • Management reiterated prior FY ’20 guidance for $759.0-$771.0 million in revenue and $96.0-$108.0 million in non-GAAP operating income but pulled its non-GAAP EPS guidance as the company evaluates the base-erosion and anti-tax abuse (BEAT) regulation issued earlier in the week.

  • Management remains comfortable with prior expectations for ARR growth of 14% to 16% this year.

Medallia Reports Record Third Quarter Fiscal 2020 Financial Results

  • Medallia (MDLA) reported Q3 ’20 results above expectations and guided Q4 and FY ’21 above consensus.

  • Revenue of $103.1 million (+27.0% Y/Y) exceeded guidance of $95.0-$97.0 million and consensus of $96.2 million. Non-GAAP operating income was $(2.0) million (-2.0% margin), ahead of guidance for $(4.5)-$(3.5) million and consensus of $(4.3) million. Non-GAAP EPS of $(0.01) beat consensus of $(0.04).

  • The outperformance was attributed to the timing of new bookings in the quarter, a $700,000 revenue contribution from two acquisitions completed in the quarter, and strong demand for both managed services and implementation services.

  • Key metrics: 698 enterprise customers at quarter-end, of which 44 came from acquisitions; added 41 customers on an organic basis; dollar-based net retention rate on a TTM basis was 118%; remaining performance obligations of $585.7 million.

  • Nearly 60 large customers have subscribed to Medallia’s employee experience platform.

  • Medallia added ten partners in Q3 and also closed its first deals with newly signed strategic ISVs, Adobe and ServiceNow.

  • Guidance for Q4 includes revenue of $103.2-$105.2 million, non-GAAP operating income of $(4.5)-$(3.5) million, and non-GAAP EPS of $(0.04)-$(0.03), comparing favorably with consensus of $101.5 million, $(4.6) million, and $(0.04), respectively.

  • Management’s initial FY ’21 outlook calls for revenue of $474.0-$483.0 million, above consensus of $466.6 million.

PagerDuty Announces Third Quarter Fiscal Year 2020 Financial Results

  • PagerDuty (PD) reported mixed Q3 ’20 results and provided a mixed outlook for Q4.

  • Revenue of $42.8 million (+36.9% Y/Y) was above guidance for $41.5-$42.5 million and the Street’s $42.1 million. Non-GAAP operating income was $(9.3) million (-21.9% margin), below consensus of $(8.2) million. Non-GAAP EPS of $(0.10) was at the low-end of guidance of $(0.10)-$(0.09) and missed consensus by a penny.

  • Upside on the top line was driven by strong new customer acquisition, new product adoption, and healthy growth in international geographies, particularly EMEA.

  • Key metrics: 12,436 (+15% Y/Y) customers; 303 (+49% Y/Y) customers with ARR over $100,000; dollar-based net revenue retention rate was 129%; free cash flow of $2.3 million (5.3% margin).

  • Although PagerDuty front loaded sales hires in the first half of the year, those salespeople were not ramped as quickly or effectively in territories with significant expansion upside, which impacted productivity and pressured expansion revenue.

  • The company has since doubled down on sales enablement leadership, programs and tools to ramp new reps faster and has continued to simplify and differentiate its platform and messaging in a noisy market.

  • Management’s Q4 guidance calls for revenue of $44.5-$45.5 million, above consensus of $43.8 million, and non-GAAP EPS of $(0.07)-$(0.06), below consensus of $(0.05).

Salesforce Announces Record Third Quarter Fiscal 2020 Results

  • Salesforce (CRM) reported Q3 ’19 results above expectations but provided a mixed Q4 outlook.

  • Revenue of $4.513 billion (+33.0% Y/Y) exceeded guidance of $4.440-$4.450 billion and consensus of $4.447 billion. Non-GAAP operating income was $874.0 million (19.4% margin), above consensus of $774.5 million. Non-GAAP EPS of $0.75 beat guidance of $0.65-$0.66 and consensus of $0.66.

  • Key metrics: dollar attrition remained below 10%; current remaining performance obligations (RPO) of $12.8 billion (+28% Y/Y); RPO of $25.9 billion (+22% Y/Y); free cash flow of $128.0 million (2.8% margin).

  • Subscription and support growth was 15% for Sales Cloud, 24% for Service Cloud, 32% for Marketing and Commerce Cloud, and 73% for Platform and Other, which included $308 million from the Tableau acquisition and $185 million from MuleSoft.

  • During the quarter, Salesforce introduced two new industry clouds: Manufacturing Cloud and the Consumer Goods Cloud.

  • The number of partner-certified individuals increased 20% Y/Y as did the number of customer installs of AppExchange listings.

  • Guidance for Q4 includes revenue of $4.743-$4.753 billion, above consensus of $4.677 billion; non-GAAP EPS of $0.54-$0.55, below consensus of $0.61; and an increase in current RPO of approximately 21% Y/Y.

  • Management also guided for Q1 ’21 revenue of $4.800-$4.835 billion, in line with consensus of $4.823 billion.

Secureworks Reports Third Quarter Fiscal 2020 Results

  • Secureworks (SCWX) reported Q3 ’20 results above expectations and guided Q4 ahead of consensus.

  • Revenue of $141.3 million (+6.2% Y/Y) exceeded guidance of $135.0-$137.0 million and consensus of $136.0 million. Adjusted EBITDA was $5.8 million (4.1% margin), well above consensus of $0.4 million. Non-GAAP EPS of $0.01 beat guidance of $(0.04)-$(0.03) and consensus of $(0.03).

  • Key metrics: monthly recurring revenue of $36.9 million; revenue retention rate of 99%; average revenue per customer of $108,000 (+8.5% Y/Y).

  • While the headline results exceeded expectations, management noted that the annual value of sales contracts closed in the quarter was below internal expectations and the prior quarter.

  • The total pipeline value remained flat versus Q2, but the mix of opportunities is shifting towards the company’s new software offerings and early-stage opportunities have increased both in terms of volume and dollar value.

  • Red Cloak Threat Detection and Response as well as the new Managed Detection and Response offering are both available to Dell customers through the Dell SafeGuard and Response portfolio.

  • Guidance for Q4 includes revenue of $138.0-$140.0 million and non-GAAP EPS of $(0.01)-$0.00, exceeding consensus expectations for $137.1 million in revenue and $(0.03) in non-GAAP EPS.

Slack Announces Record Third Quarter Fiscal Year 2020 Results

  • Slack (WORK) reported Q3 ’20 results above expectations and guided Q4 in line with consensus.

  • Revenue of $168.7 million (+59.7% Y/Y) exceeded management’s $154.0-$156.0 million guidance and consensus of $156.1 million. Non-GAAP operating income was $(18.1) million (-10.7% margin), well above guidance for $(49.0)-$(47.0) million and consensus of $(47.9) million. Non-GAAP EPS of $(0.02) beat guidance of $(0.09)-$(0.08) and consensus of $(0.08).

  • Key metrics: added 101 paid customers with over $100,000 in annual recurring revenue for a total of 821 (+67% Y/Y) at quarter-end; 105,000 (+30% Y/Y) paid customers at quarter-end; billings of $186.1 million (+47% Y/Y); net dollar retention rate of 134%; free cash flow of $(19.1) million (-11.3% margin).

  • Workflow Builder was launched in mid-October and enables non-technical users to create and manage simpler workflows.

  • Shared channels, which allow two Slack-using companies to create a channel that is shared between them and extend messaging between users at both organizations, have seen explosive growth with 26,000 paid customers in just a half quarter.

  • Slack continues to invest in international expansion, particularly within the direct sales organization.

  • Guidance for Q4 includes revenue of $172.0-$174.0 million, in line with consensus of $173.0 million; non-GAAP operating income of $(36.0)-$(34.0) million, above consensus of $(40.7) million; and non-GAAP EPS of $(0.07)-$(0.06), in line with consensus of $(0.06).

Smartsheet Inc. Announces Third Quarter Fiscal Year 2020 Results

  • Smartsheet (SMAR) reported Q3 ’20 results above expectations and guided Q4 revenue ahead of consensus.

  • Revenue of $71.5 million (+53% Y/Y) was above guidance of $69.0-$70.0 million and consensus of $69.8 million. Non-GAAP operating income was $(20.7) million, ahead of guidance for $(23.0)-$(22.0) million and consensus of $(22.0) million. Non-GAAP EPS of $(0.15) beat guidance of $(0.19)-$(0.18) and consensus of $(0.18).

  • Key metrics: billings of $83.5 million (+52% Y/Y); 83,139 domain-based customers; 8,421 (+51% Y/Y) customers with ACV of $5,000+; 770 (+114% Y/Y) customers with ACV of $50,000+; 279 (+120% Y/Y) customers with ACV of $100,000+; average ACV per domain-based customer of $3,286 (+48% Y/Y); dollar-based net retention rate was 134%.

  • One year after introducing accelerators, Smartsheet now has ten in market, including recently launched solutions for GDPR, marketing shared services, events and campaign management.

  • Achieving FedRAMP authorization has stimulated interest in Smartsheet from various federal agencies and departments.

  • Q4 guidance includes revenue of $77.0-$78.0 million, above consensus of $76.3 million, and non-GAAP operating income and EPS of $(21.5)-$(19.5) and $(0.17)-$(0.16), respectively, in line with consensus of $(20.1) million and $(0.16).

Verint Announces Q3 FY2020 Results

  • Verint (VRNT) beat on the bottom line in Q3 but guided Q4 and FY ’21 slightly below consensus.

  • Non-GAAP revenue of $331.1 million (+7.5% Y/Y) was shy of the Street’s $334.3 million. Non-GAAP operating income was $74.4 million (22.5% margin). Non-GAAP EPS of $0.94 beat consensus of $0.85.

  • Key metrics: new SaaS ACV of $15.6 million (+131.0% Y/Y); new perpetual license equivalent bookings of $69.9 million (+19.1% Y/Y); non-GAAP SaaS revenue of $52.9 million (+70.8% Y/Y).

  • Verint continues to see strong cloud momentum in the Customer Engagement segment, while the transition to a software model is progressing ahead of plan in the Cyber Intelligence segment.

  • With the Customer Engagement business approaching $1 billion in annual revenue and the Cyber Intelligence business approaching $500 million in annual revenue, management believes both businesses will benefit from separating and becoming two independent publicly traded companies.

  • Approximately 18% if non-GAAP expenses in Q3 were shared service expenses, but Verint plans to split these expenses into each business as the company works towards its separation into two companies.

  • Expectations for the Customer Engagement business remain unchanged, but with Cyber Intelligence transitioning to software at a faster clip, management anticipates lower levels of hardware and services than previously guided.

  • Management lowered its FY ’20 non-GAAP revenue guidance from $1.375 billion +/- 2% to $1.360 billion +/-2% and maintained its prior non-GAAP EPS guidance of $3.65, implying a Q4 revenue midpoint and non-GAAP EPS of $373.4 million and $1.01, respectively, versus consensus of $382.2 million and $1.23.

  • Management’s initial outlook for FY ’21 calls for revenue growth of approximately 7% to $1.426-$1.484 billion, leaving consensus of $1.485 billion just above the high-end, and non-GAAP EPS of approximately $4.00 versus consensus of $4.03.

Workday Announces Fiscal 2020 Third Quarter Financial Results

  • Workday (WDAY) reported Q3 ’20 results above expectations but provided a mixed outlook relative to consensus.

  • Revenues of $938.1 million (+26.2% Y/Y) exceeded management’s $915.0-$920.0 million guidance and consensus of $920.8 million. Non-GAAP operating income was $142.6 million (15.2% margin), above consensus of $98.3 million and guidance for a 10.5% non-GAAP operating margin. Non-GAAP EPS of $0.53 beat consensus of $0.37.

  • Upside in the quarter was attributed to strong sales execution and a significant improvement in linearity as well as the push-out of some marketing and hiring spend into Q4.

  • Key metrics: over 3,000 customers and 42 million users at quarter-end; subscription revenue backlog of $7.19 billion (+21.8% Y/Y); net retention over 100%; free cash flow of $202.8 million (21.6% margin).

  • Workday now has approximately 800 Financial Management customers and added 200 new planning-first customers along with approximately 50 new platform and upsell deals to new and existing customers.

  • The pending acquisition of Scout RFP is not expected to have a material impact on revenue in Q4.

  • Guidance for Q4 includes revenue of $962.0-$964.0 million and non-GAAP operating income of $101.9-$102.2 million, which was mixed relative to consensus of $957.9 million in revenue and $122.4 million in non-GAAP operating income.

  • Management’s preliminary outlook for FY ’21 includes subscription revenue of approximately $3.73 billion (+21% Y/Y), of which Scout RFP comprises less than 1% of that growth, and a non-GAAP operating margin of approximately 14%, which assumes 1.5 points of dilution from Scout RFP.

Yext, Inc. Announces Third Quarter Fiscal 2020 Results

  • Yext (YEXT) reported mixed Q3 ’20 results and guided Q4 below consensus.

  • Revenue of $76.4 million (+30.3% Y/Y) was near the high-end of management’s $75.5-$76.5 million guidance and in line with consensus. Non-GAAP operating income was $(21.7) million (-28.5% margin), slightly below consensus of $(20.6) million. Non-GAAP EPS of $(0.19) was at the low-end of guidance for $(0.19)-$(0.18) and below consensus of $(0.18).

  • The launch of Yext’s Answers product disrupted sales execution in the quarter as customers excited about the product slowed deal cycles to learn more about it.

  • Key metrics: closed 88 (+24% YY) deals with at least $100,000 in total contract value; 1,766 (+46% Y/Y) mid-market and enterprise customers; net retention was 107%; remaining performance obligations of $251.8 million.

  • Per management, the company has never seen a stronger pipeline and market demand for the Yext Search Experience Cloud.

  • Yext now has 250 quota-carrying reps with 45% joining this year, leaving management excited about the future.

  • Q4 guidance calls for revenue of $79.0-$81.0 million and non-GAAP EPS of $(0.15)-$(0.13), missing consensus expectations for $83.9 million in revenue and $(0.08) in non-GAAP EPS.

Zoom Video Communications Reports Third Quarter Results for Fiscal Year 2020

  • Zoom Video Communications (ZM) reported Q3 ’20 results above expectations and guided Q4 ahead of consensus.

  • Revenue of $166.6 million (+84.9% Y/Y) exceeded guidance of $155.0-$156.0 million and consensus of $154.8 million. Non-GAAP operating income was $21.3 million (12.8% margin), also exceeding guidance of $6.0-$7.0 million and consensus of $6.9 million. Non-GAAP EPS of $0.09 beat guidance and consensus of $0.03.

  • The outperformance reflected both the acquisition of new customers, which accounted for approximately 61% of the growth in subscription revenue versus a year ago, and expansion of Zoom’s footprint within existing customers.

  • Key metrics: 74,100 (+67% Y/Y) customers with over 10 employees; 546 (+97% Y/Y) customers with over $100,000 in TTM revenue; TTM net dollar expansion rate of 130%; remaining performance obligations of $517 million (+102% Y/Y); free cash flow of $54.7 million (32.9% margin).

  • International expansion remains a key multiyear growth initiative, and revenue from the APAC and EMEA regions rose 98% Y/Y in aggregate.

  • Zoom Phone is initially being targeted at existing customers as many remain on legacy PBX solutions.

  • Management’s Q4 guidance includes revenue of $175.0-$176.0 million, non-GAAP operating income of $17.0-$18.0 million, and non-GAAP EPS of $0.07, all of which exceeded Street expectations for $165.1 million in revenue, $8.9 million in non-GAAP operating income, and $0.04 in non-GAAP EPS.

Zscaler Reports First Quarter Fiscal 2020 Financial Results

  • Zscaler (ZS) delivered Q1 ’20 results ahead of expectations and raised its FY ’20 revenue and billings guidance.

  • Revenue of $93.6 million (+47.9% Y/Y) was ahead of management’s $89.0-$90.0 million guidance and consensus of $89.7 million. Non-GAAP operating income of $2.9 million (3.1% margin) was above guidance for $(1.0)-$0 million and consensus of $(0.3) million. Non-GAAP EPS of $0.03 beat guidance of $0.00-$0.01 and consensus of $0.01.

  • Adoption of the ZIA transmission bundle continues to grow, and ZPA remains the company’s fastest growing product.

  • Key metrics: billings of $88.3 million (+36.7% Y/Y); dollar-based net retention rate of 120%; remaining performance obligations of $555 million (+35% Y/Y); free cash flow of $9.4 million (10.1% margin).

  • Management highlighted Gartner’s recent research note on a new product category, Secure Access Service Edge (SASE), which validates Zscaler’s original vision and is aligned with the company’s product architecture.

  • Improving sales execution to scale the company beyond $1 billion in revenue remains the primary focus, and the company is ahead of plan in building a new sales process and enablement program to deliver consistent, high-level execution in the field.

  • Q2 guidance includes revenue of $97.0-$100.0 million, non-GAAP operating income of $3.0-$4.0 million, and non-GAAP EPS of $0.03, which was mixed relative to consensus of $97.4 million in revenue, $5.3 million in non-GAAP operating income, and $0.04 in non-GAAP EPS.

  • Management raised its FY ’20 revenue and billings guidance from $395.0-$405.0 million and $490.0-$500.0 million, respectively, to $405.0-$413.0 million and $500.0-$510.0 million, and increased the low-end of its non-GAAP operating income and EPS guidance, which now stand at $15.0-$18.0 million and $0.13-$0.15, respectively.

Zuora Reports Third Quarter Fiscal 2020 Results

  • Zuora (ZUO) reported Q3 ’20 results above expectations and guided Q4 generally consistent with consensus.

  • Revenue of $71.8 million (+17.1% Y/Y) was ahead of management’s $69.0-$71.0 million guidance and consensus of $70.4 million. Non-GAAP operating income was $(7.3) million (-10.1% margin), exceeding guidance for $(10.5)-$(9.5) million and consensus of $(10.0) million. Non-GAAP EPS of $(0.06) beat guidance of $(0.10)-$(0.09) and consensus of $(0.09).

  • Key metrics: 586 (+16% Y/Y) customers with ACV of $100,000 or more; dollar-based retention rate of 106%; billings of $61.8 million (+22% Y/Y) benefited from early renewals and a higher mix of annual billings; growth efficiency index was 2.2 and may increase in the near-term; $11.2 billion (+29% Y/Y) in transaction volume processed; free cash flow of $(5.1) million.

  • All paused implementations related to the integration of RevPro and Billing have been restarted, and Zuora plans to start cross-selling RevPro into its existing Zuora Billing customer base once these customers are operationally live.

  • Nearly 100 customers have adopted platform capabilities since the launch of Zuora Central Platform six months ago.

  • Guidance for Q4 calls for revenue of $71.0-$72.5 million, leaving consensus of $72.4 million near the high-end; non-GAAP operating income of $(11.0)-$(10.0) million, leaving consensus of $(10.9) million near the low-end; and non-GAAP EPS of $(0.11)-$(0.09) versus consensus of $(0.10).

Notable News

Alteryx Strengthens its Executive Team with Newly Created Chief Operating Officer Role

  • Alteryx (AYX) has appointed Scott Davidson as the company’s Chief Operating Officer, a role in which he will be responsible for corporate development, information technology, enterprise applications, and human resources.

  • Mr. Davidson joins the company from Hortonworks where he most recently served as COO and Chief Financial Officer.

Avalara Chief Financial Officer Bill Ingram to Join Board of Directors and Ross Tennenbaum to Become Chief Financial Officer on March 31, 2020

  • Avalara’s (AVLR) Chief Financial Officer, Bill Ingram, plans to retire March 31, 2020 and will join the Board of Directors.

  • Mr. Ingram will be succeeded by Ross Tennenbaum, Avalara’s Executive Vice President of Strategic Initiatives.

Dynatrace Announces Pricing of Follow-On Offering by Selling Stockholders

  • Dynatrace (DT) announced pricing of an underwritten public offering of 27.5 million shares by selling stockholders at a price of $24.75 per share, representing an 8.4% discount to the close price prior to the announcement of the planned offering.

  • The underwriters have also been granted a 30-day option to purchase up to an additional 4.125 million shares.

  • Dynatrace will not receive any proceeds from the offering.

PagerDuty Appoints New Chief Revenue Officer

  • PagerDuty (PD) has hired Dave Justice as its Chief Revenue Officer.

  • Mr. Justice joins the company from Salesforce where he most recently served as Executive Vice President, Enterprise Sales.

QAD Appoints Senior Financial Executive Kathy Crusco to Board of Directors

  • QAD (QADA) has appointed Kathy Crusco, Executive Vice President and Chief Financial Officer at Kony Inc., to its Board of Directors, where she will serve on the company’s Audit and Governance Committees.

  • Prior to joining Kony, Ms. Cruso was Executive Vice President, Chief Operating Officer, and Chief Financial Officer at Epicor Software, and she currently serves on the boards of Poly (PLT) and Calix (CALX) as well.

SailPoint Announces the Transition of Cam McMartin from Chief Operating Officer to SailPoint Board of Directors

  • SailPoint Technologies Holdings (SAIL) announced the transition of Cam McMartin from Chief Operating Officer to the company’s Board of Directors at the end of 2020.

  • Mr. McMartin joined the company in 2011 as Chief Financial Officer and became Chief Operating Officer in May 2019 upon the appointment of incoming CFO Jason Ream.

  • His responsibilities will be assumed by the company’s leadership team.

Secureworks Appoints Paul Parrish as Chief Financial Officer

  • Secureworks (SCWX) named Paul Parrish as its new Chief Financial Officer, effective December 9, 2019, succeeding Wayne Jackson who had previously announced plans to depart the company by year-end.

  • Mr. Parrish joins the company from CIOX Health where he served as CFO during the company’s business model transition from services to SaaS.

Tufin Announces Upsizing and Pricing of Secondary Public Offering of Ordinary Shares

  • Tufin Software Technologies (TUFN) priced a secondary offering of 4,279,882 shares at a public offering price of $17.00 per share, representing a 10.9% discount to the close price prior to the announcement of the planned offering.

  • All of the shares sold are being offered by selling stockholders, and Tufin will not receive any proceeds from the offering.

  • The offering was upsized from original plans to sell 3.5 million shares.

  • The selling stockholders have also granted the underwriters an option to purchase up to an additional 641,982 shares.

Verint Announces Plan to Separate into Two Independent Publicly Traded Companies

  • Verint Systems (VRNT) announced a plan to separate the company into two independent companies: one comprised of the customer engagement business and the other comprised of the cyber intelligence business.

  • The separation of the company is expected to be completed shortly after Verint’s fiscal year ending January 31, 2021.

  • Verint plans to implement the separation through a tax-free distribution of common stock of a new entity that will hold the cyber intelligence business.

  • In conjunction with the separation plan, Apax Partners has agreed to invest up to $400 million in Verint, comprised of two tranches of $200 million each in convertible stock.

  • The first tranche of Series A convertible preferred stock will be purchased during the quarter ending April 30, 2020 and will have an initial conversion price of $53.50, representing a 17% premium to the volume-weighted average price of VRNT shares over the 45-day period prior to the signing date.

  • The second tranche of Series B convertible preferred stock will be purchased shortly after the separation with the initial conversion price based on the volume-weighted average price of VRNT shares over a 20-day period following the separation.

  • Both tranches of convertible preferred stock will have an initial dividend rate of 5.2% that drops to 4.0% over time.

  • Apax’ ownership in Verint on an as-converted basis will be approximately 5% after the initial investment and will rise to 11.5%-15.0% following the Series B investment.

  • The Board of Directors has also authorized a $300 million share repurchase program through the period ending on or shortly before the planned separation.