K. Liu's Week in Review
M&A activity this week included a large EdTech transaction and a tuck-in deal in the market for SMB e-commerce solutions. 2U (TWOU), which enables colleges and universities to deliver graduate programs and short courses through a cloud-based SaaS offering, announced that the company has entered into an agreement to acquire Trilogy Education for $750MM, representing a FY ’19 EV/Sales multiple of 5.6x. Trilogy partners with companies and universities to offer technical boot camps, providing in-person and online skills training in coding, data analytics, UX/UI, and cybersecurity. The acquisition brings 2U into an estimated $366B market for lifelong learning and corporate training, and nearly doubles the number of partners in its university portfolio from 36 to 68. Management expects Trilogy to leverage 2U’s expertise in online marketing and delivery as it offers more web-based boot camps. Conversely, 2U should benefit from Trilogy’s experience in providing in-person instruction at scale as the company brings its GetSmarter short courses into more physical settings. Of course, both sides will have the opportunity to cross-sell and up-sell their offerings to their combined customer base. In terms of financing, the $750MM purchase price is comprised of $400MM in cash, of which $250MM will be funded via a new senior secured term loan facility from Owl Rock Capital and the remainder from cash on hand, and $350MM in TWOU stock. Trilogy is expected to generate $135MM in revenue this year and be accretive to adjusted EBITDA next year, but management will await the closing of the acquisition before revising its expectations for FY ‘19. Elsewhere, GoDaddy (GDDY) announced its acquisition of Sellbrite, a multi-channel product listing and inventory management solution geared to SMB merchants selling on Amazon, eBay, Etsy, Jet and Walmart.com. Sellbrite is powering GoDaddy’s newly launched Marketplaces for GoCentral Online Store and should provide ample opportunity to lift the company’s average revenue per user. We note that ChannelAdvisor (ECOM) is the largest provider of multi-channel listing and inventory solutions but targets larger retailers and brands.
While there were no formal earnings releases this week, we had a couple of pre-announcements. NetScout Systems (NTCT), a provider of service assurance solutions to enterprises and service providers, announced preliminary Q4 ’19 results reflecting a revenue shortfall, but profitability consistent with management’s original guidance. The company now anticipates Q4 revenue of approximately $235MM, a $15MM miss largely attributable to delayed revenue recognition on a large service assurance deal with an international carrier. Service provider spending has proven a headwind to growth and the company’s ability to achieve guidance in each of the past two years but despite the Q4 softness, management continues to believe the bottom is near. In this regard, we note that even with lowered expectations, service provider revenues in Q4 on an absolute basis are likely to reflect growth Y/Y. Moreover, a favorable mix of software-only deals and solid contribution from cybersecurity sales were a boon to gross margin and coupled with ongoing cost controls, enabled NetScout to deliver both GAAP and non-GAAP EPS at the midpoint of management’s original guidance. NetScout will report its final Q4 ’19 results on May 7, 2019. Turning to IZEA, the company reported Q1 ’19 bookings increased 18% Y/Y to $7.8MM. Additionally, SaaS licensing revenue committed under contract thus far in 2019 has already outpaced all of 2018 by 38%. As IZEA currently has a preliminary prospectus filed and plans to raise capital, we surmise the company put forth the news to get a deal done sooner than later.
‘Tis the season for proxy filings and with that comes a few proxy fights. One that has been brewing for some time culminated with Altai Capital’s nominations of Marshall Heinberg and Jim Watson to the Board of Directors of global trade management software provider Amber Road (AMBR). Altai Capital also sent a letter to shareholders criticizing the company’s 2018 handling of E2open’s acquisition proposal and excessive executive compensation. Less anticipated, at least from this outsider’s perspective, was Neuberger Berman’s nomination of three candidates for election to the Board of Verint (VRNT), a provider of customer engagement and cyber intelligence solutions. The 2.6% owner had previously recommended two potential Board members in early 2017, one of whom was eventually appointed to the Board by the company. This time around, Verint has vetted four recommended candidates but opted not to move forward with any of them. In moves not associated with any activism, hospitality software provider Agilysys (AGYS) appointed Dana Jones to its Board of Directors. Ms. Jones currently serves as Chief Executive Officer of Sparta Systems and previously held that same role at Active Network. Stamps.com (STMP) formally press released the appointment of ShippingEasy’s Chief Executive Officer Katie May to its Board, but that was already disclosed in an 8-K filing last week.
As for other executive moves this week, insurance software provider Majesco (MJCO) appointed Wayne Locke as its Chief Financial Officer. Mr. Locke joins the company from Capgemini where he was responsible for financial and operational consulting services for insurance organizations. Nuance (NUAN) announced that Robert Dahdah has joined the company as its new Executive Vice President and Chief Revenue officer. Mr. Dahdah joins from Benefitfocus (BNFT) where he had been Executive Vice President of Global Sales. Benefitfocus subsequently announced the appointments of Peter Allen as Senior Vice President, Sales & Strategic Initiatives and Jeffrey Gross as Senior Vice President, Marketing & Branding. Mr. Allen has previously held senior executive positions at Iron Mountain, Alvarez & Marsal, Computer Sciences Corporation, Data Dimensions and Information Services Group. Mr. Gross was most recently Chief Marketing Officer for Axway Technology. That’s all folks!
Mergers and Acquisitions
TWOU: 2U, Inc. to Acquire Trilogy Education, the Leader in Powering University Boot Camps
2U announced that the company has agreed to acquire Trilogy Education for $750MM, comprised of $400MM in cash and $350MM in stock.
Trilogy partners with universities and companies to provide in-person and online skills-based training programs in coding, data analytics, UX/UI and cybersecurity.
The acquisition, which is expected to close within 60 days, expands 2U’s presence into an estimated $366B market for lifelong learning and corporate training, nearly doubles the number of partners in the company’s university portfolio from 36 to 68 and is expected to accelerate its achievement of $1B in revenue by one year from 2022 to 2021.
Trilogy is expected to generate approximately $135MM in revenue in 2019 and be accretive to adjusted EBITDA in 2020.
2U has secured $250MM in debt financing via a senior secured term loan facility from Owl Rock Capital that will be used to help fund the cash portion of the purchase price.
GDDY: Entrepreneurs Can Now Easily Sell Everywhere with the Launch of GoDaddy Marketplaces
GoDaddy announced the acquisition of Sellbrite, which provides software for managing product listings and inventory across multiple selling channels.
Sellbrite is powering GoDaddy’s newly launched Marketplaces for GoCentral Online Store, which enables customers to list and sell their inventory through Amazon, eBay, Etsy, Jet and Walmart.com from a single location.
Neither terms of the transaction nor financial details were provided.
Notable News
AGYS: Agilysys Appoints Dana Jones to Board of Directors
Agilysys announced the appointment of Dana Jones to the company’s Board of Directors.
Ms. Jones currently serves as Chief Executive Officer of Sparta Systems, a provider of supply chain quality management software, and was Chief Executive Officer of Active Network prior to that.
Altai Capital Management, an 8.7% shareholder of Amber Road, announced the filing of its Definitive Proxy Statement seeking the election of Marshall Heinberg and Jim Watson to Amber Road’s Board of Directors.
Altai Capital also sent a letter to shareholders criticizing the company’s handling of a proposed acquisition by E2open in early 2018 for $10.50 per share and its excessive executive compensation.
Benefitfocus announced the appointments of Peter Allen as Senior Vice President, Sales & Strategic Initiatives and Jeffrey Gross as Senior Vice President, Marketing & Branding.
Mr. Allen has held numerous senior executive positions at Iron Mountain, Alvarez & Marsal, Computer Sciences Corporation, Data Dimensions and Information Services Group.
Mr. Gross was previously Chief Marketing Officer for Axway Technology.
MJCO: Majesco Appoints Finance and Operations Expert Wayne Locke as New CFO
Majesco announced that Wayne Locke has joined the company as its new Chief Financial Officer with responsibility for all operational, commercial, financial and investor relations functions.
Mr. Locke joins from Capgemini, where he was responsible for financial and operational consulting services for insurance organizations.
With the appointment of Wayne Locke, prior CFO Farid Kazani will lead Majesco’s Group Finance Function as Managing Director and Group CFO.
NUAN: Nuance Appoints Robert Dahdah as Executive Vice President and Chief Revenue Officer
Nuance announced that Robert Dahdah has joined the company and will serve as Executive Vice President and Chief Revenue Officer with responsibility for the global sales organization, executing Nuance’s go-to-market strategy and accelerating pipeline growth across key vertical markets.
Mr. Dahdah joins from Benefitfocus, where he served as Executive Vice President of Global Sales.
STMP: Stamps.com Appoints Katie May to Board of Directors
Stamps.com announced the appointment of Katie May to the company’s Board of Directors.
Ms. May is currently the CEO of ShippingEasy.com, which she has led since 2012 and was acquired by Stamps.com in 2016.
VRNT: Verint Files Preliminary Proxy in Response to Neuberger Berman’s Nomination of Three Directors
Verint announced the filing of a preliminary proxy statement in response to Neuberger Berman’s nomination of three board candidates for election at the company’s 2019 Annual Meeting of Stockholders.
Neuberger Berman owns 2.6% of Verint’s outstanding shares and has previously recommended candidates for Verint’s Board, including Penelope Herscher, who was appointed to the Board in April 2017.
According to Verint’s timeline of events, the company has vetted five director candidates proposed by Newberger Berman since January 2019, two of whom withdrew from the process and the remaining candidates rejected by Verint.
Newberger Berman subsequently nominated three candidates for election, including one that was originally included in the January 2019 group, another that was first recommended by Newberger Berman in early 2017 and rejected by Verint at that time, and one new candidate not previously considered by the company.
Earnings Releases
IZEA: IZEA Reports Q1 Bookings of $7.8 Million, Up 18% YoY
IZEA reported Q1 ’19 bookings of $7.8MM, an increase from $6.6MM in the year-ago period.
Approximately 38% of bookings were from a combination of software licensing and marketing spend.
SaaS licensing bookings increased over 1000% Y/Y and SaaS licensing revenue committed under contract for 2019 is already 38% higher than the amount for all of 2018.
NetScout announced preliminary Q4 ’19 results that were mixed relative to management’s guidance and consensus.
Q4 revenue is expected to be approximately $235.0MM, representing a $15.0MM shortfall relative to guidance and below the Street’s $249.1MM estimate. Non-GAAP EPS is expected to be around the midpoint of management’s originally implied guidance for Q4 of $0.59-$0.64 and should therefore meet consensus of $0.61.
The top line miss was mostly attributable to delayed revenue recognition on a large service assurance project for an international mobile operator, but profitability was still in line due to a favorable product mix that boosted gross margin as well as ongoing cost controls enacted by the company.
While NetScout did not provide specific guidance ranges for FY ’20, the company expects organic growth for both revenue and EPS in the coming fiscal year.
NetScout will announce its final Q4 ’19 results and host its earnings call on Tuesday, May 7, 2019. The earnings call will be held at 8:30am ET that day and may be accessed by dialing (785) 424-1667 with the conference ID “NTCTQ419”.
Disclosure(s):
The analyst, a member of the analyst’s household, and/or an account in which the analyst exercises discretion hold(s) a long position in the common stock of NetScout Systems (NTCT).
The analyst, a member of the analyst’s household, and/or an account in which the analyst exercises discretion hold(s) a long position in the common stock of Stamps.com (STMP).