K. Liu's Week in Review
Heading into the final week of calendar Q1 ’19, two more secondary offerings priced this past week and a couple more acquisitions hit the tape. Recall that Human Capital Management (HCM) software vendor Ceridian (CDAY) announced plans for an underwritten secondary offering last week. The offering was ultimately upsized from 11MM shares to 13MM and priced at $50.50 per share, representing a modest 1.8% discount to the close price prior to the original announcement. All shares sold in the secondary were from affiliates of Thomas H. Lee Partners. In an overnight offering of primary shares, Yext (YEXT) sold 6.1MM shares at a price per share of $21.50, a 6.5% discount to the prior day’s close. Following the underwriter’s exercise of an overallotment option to sell an additional 900k shares, YEXT anticipates generating gross proceeds of $150.5MM. On the M&A front, Atlassian (TEAM) agreed to acquire AgileCraft for $166MM in a cash and stock deal. AgileCraft enables its enterprise customers to build and manage plans for strategic projects and workstreams. The acquisition will contribute only nominally to TEAM’s FY ’19 results and is expected to be dilutive to non-GAAP operating margin both this fiscal year and next. In the insurance software space, Majesco (MJCO) announced the acquisition of the India-based insurance business of its parent company, Majesco Ltd. For $3.5MM.
The pace of earnings releases slowed to a crawl with just a few companies reporting fiscal Q4 ’19 results. Smartsheet (SMAR) was the only one to see a pop post-earnings, although shares ultimately ended the week lower. The collaboration software provider reported Q4 ’19 results ahead of expectations, while guiding FY ’20 mixed versus consensus. Similar to many other high growth SaaS companies throughout this past reporting season, SMAR’s revenue outlook surpassed expectations, but its earnings guidance was more muted. QAD (QADA) also posted Q4 ’19 results above the Street, but its guidance for the coming year disappointed. Management indicated that the company’s professional services backlog needs replenishing, and QADA continues to work through execution issues in EMEA. We have tracked QADA for awhile and believe the manufacturing-focused enterprise resource planning (ERP) vendor warrants a closer look from investors. The company’s next-generation cloud ERP solution is now generally available, which should further aid in its SaaS transition. We plan to attend QADA’s upcoming user conference in May. Turning to Zuora (ZUO), which essentially serves as an ERP vendor for subscription-based businesses, we were surprised to see shares hit hard following a modest Q4 beat and FY ’20 guidance that was largely consistent with expectations. We note that the company’s adoption of ASC 606 for the coming fiscal year optically depressed guidance relative to prior consensus forecasts, but the accounting impact was clearly identified and the company appears on track to deliver upon its longer term aspirations for subscription billings growth of 25%-30%. The table below depicts each company’s stock price performance for the week, results relative to expectations for the quarter reported and subsequent estimate revisions for the current fiscal quarter and year.
Although FedEx (FDX) is certainly not a software vendor, we would be remiss if we did not take this opportunity to discuss the potential implications of its Q3 ’19 miss and subsequent FY ’19 guidance reduction on Stamps.com (STMP). FDX’s management team attributed the challenges to a combination of factors, including lower economic growth in international regions, inclement weather, ongoing investments to expand in e-commerce and transition to six-day deliveries for FedEx Ground, and lower yields arising from a higher mix of lighter weight packages and shorter zones. We remain of the view that FDX’s growth aspirations in e-commerce are well aligned with STMP’s efforts to increase its shipping subscriber base. STMP’s insight into the shipping characteristics of its subscriber base leaves it well positioned to identify volumes that would aid carriers in achieving their desired density in any given zone. FDX’s goal of driving volume growth while reducing the cost of residential deliveries could be met through a reseller arrangement with STMP, in our opinion, given the latter’s ability to direct significant shipping volumes to the carrier without the need for incremental customer acquisition costs. As FDX has previously partnered with ShipStation to extend discounted rates to those subscribers, we believe a more strategic partnership remains a distinct possibility. As it relates to Amazon’s (AMZN) foray into shipping, management again downplayed the threat stating “Amazon represents less than 1.3% of our total revenue, which is substantially lower than what our competitor carries nor is Amazon a threat to our future growth.” Of course, the focus on AMZN’s contribution to its own revenue misses the point of what it could mean if AMZN begins capturing volumes from FDX’s other customers. In any event, we still see a more aggressive push by AMZN into residential delivery as a potential catalyst for carriers to enter into strategic partnerships with STMP over time. Finally, we note that the USPS’ monthly financial data for February was posted earlier today, revealing PC Postage revenues increased 11.4% Y/Y. Of course, the termination of STMP’s incentive agreement with the USPS means the data is less relevant to determining how the quarter is progressing than in the past. That said, STMP continues to participate in revenue shares with resellers and has instituted a surcharge on existing NSA holders utilizing its services, so we view the continued double-digit growth through the first two months of Q1 as a positive data point.
While on the topic of e-commerce, news that Instagram would offer an in-app checkout option also captured headlines earlier this week, particularly given the implications for e-commerce platform providers like Shopify (SHOP) and others if brands opt to rely on Instagram for their digital store fronts. At this juncture, we consider Instagram merely another marketplace that online sellers will look to leverage as opposed to providing a viable substitute to SHOP, Adobe’s Magento Commerce Cloud, Square’s revamped Online Store following its integration of Weebly or a host of other e-commerce platforms. Pinterest, which filed its IPO today, could also emerge as another channel for merchants targeting digital window shoppers. The heightened interest in visual commerce should also prompt investors to look at Monotype (TYPE), which acquired a content curation platform in 2016. While TYPE’s acquisition of Olapic has been much maligned, the stars may finally be aligning for brands to invest more in tools enabling visual commerce.
As usual, we conclude with a roundup of executives moves for the week. Brightcove (BCOV) announced the addition of Billy O’Riordan as Senior Vice President, International Sales. Mr. O’Riordan previously served as CA Technologies’ General Manager of Global Services. Blackline (BL) appointed Marketo’s former global president, Mika Yamamoto, to its Board of Directors. Carbon Black (CBLK) named Steven Webber Chief Financial Officer. He previously served in that capacity and as Chief Operating Officer at BackOffice Associates. MJCO promoted Manish Shah, who joined the company during its acquisition of Cover-All Technologies, to President and Chief Product Officer, and also announced the addition of Jim Miller from CA Technologies as the company’s Chief Revenue Officer. Last but not least, YEXT appointed George Murphy as SVP, Strategic Alliances. Mr. Murphy most recently served as Global Head of Alliances and Channels at Baker Hughes, a GE company.
Mergers and Acquisitions
MJCO: Majesco Acquires Insurance Software Business in India
MJCO announced the acquisition of the India-based insurance software business from its parent company, Majesco Limited, for $3.5MM.
No other financial details were provided.
TEAM: Atlassian to Acquire AgileCraft to Help Executives Align Strategy to Execution
TEAM announced that the company has entered into a definitive agreement to acquire AgileCraft for $166MM, comprised of $154MM in cash and the remainder in TEAM restricted shares.
AgileCraft provides agile planning software, enabling enterprises to build and manage plans for strategic projects and workstreams.
The acquisition is expected to close in April and contribute approximately $1MM-$2MM in revenue to the company’s FY ’19, reduce TEAM’s non-IFRS operating margin by approximately 50bps and be dilutive to FY ’20 operating margin as well due in part to fair value adjustments to acquired deferred revenue.
Notable News
BCOV: Billy O’Riordan Joins Brightcove as Senior Vice President, International Sales
BCOV announced the appointment of Billy O’Riordan as Senior Vice President, International Sales.
Mr. O’Riordan will lead the company’s sales organizations in Australia, Southeast Asia and EMEA.
He previously served as CA Technologies’ General Manager of Global Services, a $300MM operation with teams in 80 countries, and prior to that was Senior Vice President, Global Services at AppDynamics.
BL: Former Marketo Global President Mika Yamamoto Joins BlackLine Board of Directors
BL announced that Mika Yamamoto has joined the company’s Board of Directors, effective April 1, 2019.
Ms. Yamamoto was most recently global president at Marketo and prior to that, served as SAP’s chief digital marketing officer.
CBLK: Carbon Black Appoints Steve Webber As Chief Financial Officer
CBLK announced that Steve Webber has been appointed Chief Financial Officer.
Mr. Webber previously served as Chief Operating Officer and Chief Financial Officer at BackOffice Associates, and prior to that was Chief Financial Officer at Cynosure.
CDAY: Ceridian Announces Upsizing and Pricing of Secondary Public Offering
CDAY announced the pricing of its previously announced underwritten public offering of shares held by affiliates of Thomas H. Lee Partners L.P. at a public offering price of $50.50 per share, a 1.8% discount to the close price prior to the proposed offering.
The number of shares offered was upsized from 11MM to 13MM, and the underwriters have also been granted a 30-day option to purchase up to an additional 1.95MM shares of CDAY common stock at the public offering price.
CDAY will not receive any proceeds from the offering.
MJCO: Majesco Announces Expansion of Leadership Team
MJCO announced the promotion of Manish Shah to President and Chief Product Officer and the appointment of Jim Miller as Chief Revenue Officer.
Mr. Shah joined MJCO in 2015 as part of the merger with Cover-All Technologies and previously served as Executive Vice President of the product organization.
Mr. Miller joins MJCO from CA Technologies, where he held multiple roles from 1997 until November 2018, including Senior Vice President, Sales and Vice President, Business Unit Strategy.
YEXT: Yext Announces Pricing of Proposed Offering of Common Stock
YEXT priced an overnight offering of 6.1MM shares of its common stock at a price of $21.50 per share, representing a 6.5% discount to the prior day’s close.
The underwriter was also granted a 30-day option to purchase up to an additional 900k shares of common stock, which was subsequently exercised in full.
YEXT anticipates generating gross proceeds of approximately $150.5MM from the offering, inclusive of the 900k additional shares.
YEXT: Yext Appoints George Murphy as SVP, Global Strategic Alliances
YEXT announced the appointment of George Murphy to SVP, Global Strategic Alliances.
Mr. Murphy previously served as Global Head of Alliances and Channels at Baker Hughes, a GE company, and prior to that spent over ten years at Salesforce in various leadership roles spanning client delivery, customer success, and strategic alliances and channels in the U.S. and Latin America.
Earnings Releases
QADA: QAD Reports Fiscal 2019 Fourth Quarter and Full Year Financial Results
QADA reported Q4 ’19 results ahead of expectations, but guided FY ’20 below consensus.
Total revenue was $82.7MM (+2.4% Y/Y), above consensus of $81.6MM. Adjusted EBITDA was $6.8MM (8.2% margin), also exceeding consensus of $4.7MM. Non-GAAP EPS were $0.29, beating the Street’s $0.08.
Key metrics: received orders from 47 customers representing over $500k in combined billings; 21 orders in excess of $1MM; added 23 customers to the cloud, comprised of 11 conversions and 12 brand new; closed 10 license deals in excess of $200k.
By geography, North America finished the year strong, Asia Pacific and Latin America had the fastest growth in cloud and EMEA was disappointing.
By vertical, life sciences and automotive remain strong while industrials, electronics, consumer products and food and beverage lag behind.
Over 30 customers are deploying Channel Islands with ten already live.
Heading into FY ’20, the cloud funnel is up 25% Y/Y, and QADA plans to add close to 100 people to sales and marketing.
Management’s Q1 guidance calls for $78.0MM-$79.0MM in revenue and non-GAAP pre-tax income of $(2.2)MM-$(1.4)MM, which implies non-GAAP EPS of $(0.16)-$(0.11). Consensus was higher at $87.2MM in revenue and $0.08 in non-GAAP EPS.
For FY ’20, management’s guidance includes $330.0MM-$335.0MM in total revenue and non-GAAP pre-tax income of $10.3MM-$13.3MM, implying non-GAAP EPS of $0.37-$0.49. Consensus called for total revenue of $349.6MM and non-GAAP EPS of $0.52.
SMAR: Smartsheet Inc. Announces Fourth Quarter and Full Fiscal Year 2019 Results
SMAR reported Q4 ’19 results above expectations, but provided mixed guidance for Q1 and FY ’20.
Total revenue was $52.2MM (+58.2% Y/Y), above management’s $49.0MM-$50.0MM guidance and consensus of $49.7MM. Non-GAAP operating income was $(8.5)MM (-16.3% margin), well above management’s $(16.0)MM-$(14.0)MM guidance and consensus of $(14.4)MM. Non-GAAP EPS were $(0.07), beating guidance of $(0.15)-$(0.13) and consensus of $(0.14).
Key metrics: 78,959 domain-based customers at year-end; 444 (+135% Y/Y) customers with ACV of $50k or more, including 147 customers with ACV greater than $100k; average ACV per domain-based customer of $2,454 (+50% Y/Y); dollar-based net retention rate was 134%.
In FY ’20, SMAR plans to expand its Accelerator portfolio into new solution areas, including construction, corporate governance and marketing.
The company’s expansion into newer markets and industries also remains on track.
Guidance for Q1 includes $54.0MM-$55.0MM in revenue, $(20.0)MM-$(19.0)MM in non-GAAP operating income and $(0.15)-$(.13) in non-GAAP EPS. Consensus called for $52.6MM in revenue, $(14.2)MM in non-GAAP operating income and $(0.14) in non-GAAP EPS.
For FY ’20, management guided to revenues of $253.0MM-$257.0MM, above consensus of $243.8MM. However, non-GAAP operating income and non-GAAP EPS guidance of $(65.0)MM-$(60.0)MM and $(0.59)-$(0.55), respectively, were below the Street’s $(55.3)MM and $(0.52).
ZUO: Zuora Reports Record Fourth Quarter and Full Year Fiscal 2019 Results
ZUO reported Q4 ’19 results slightly above expectations, and guided FY ’20 in line when excluding the impact of an accounting change.
Total revenue was $64.1MM (+28.6% Y/Y), above management’s $62.3MM-$63.3MM guidance and consensus of $62.8MM. Non-GAAP operating income was $(11.6)MM (-18.1% margin), near the high-end of management’s $(12.5)MM-$(11.5)MM guidance and above the Street’s $(11.8)MM. Non-GAAP EPS of $(0.11) were also at the high-end of management’s guidance and in line with consensus.
Key metrics: added 22 customers in Q4 with ACV of $100k or more and ended with 526 (+27% Y/Y) customers with ACV of $100k or more; dollar-based retention rate of 112%; $10.8B (+56% Y/Y) in transaction value processed.
Management expects subscription billings to track subscription revenue growth with Q1 billings growth approaching 30% and ranging from 25%-30% over the long-term.
Management’s Q1 guidance under ASC 605 was $65.0MM-$66.0MM in revenue, $(14.5)MM-$(13.5)MM in non-GAAP operating income and $(0.13)-$(0.12) in non-GAAP EPS, leaving consensus of $66.0MM in revenue, $(13.6)MM in non-GAAP operating income and $(0.13) in non-GAAP EPS towards the higher end.
For FY ’20, management’s guidance under ASC 605 calls for $293.0MM-$297.5MM in revenue, $(49.0)MM-$(45.0)MM in non-GAAP operating income and $(0.44)-$(0.40) in non-GAAP EPS, in line with Street expectations for $294.2MM in revenue, $(48.7)MM in non-GAAP operating income and $(0.46) in non-GAAP EPS.
Guidance under ASC 606 for Q1 and FY ‘20 was slightly lower than the amounts referenced above, but was not comparable to consensus forecasts.
Disclosure(s):
The analyst holds a long position in Brightcove (BCOV).
The analyst holds a long position in Stamps.com (STMP).