K. Liu's Week in Review
With the dawn of calendar Q2 ’19 upon us, earnings took a back seat to M&A this week with several tuck-in deals announced. Instructure (INST), a learning management system provider primarily focused on the education market, entered into an agreement to buy MasteryConnect for $42.5MM, which includes INST shares valued at $12.3MM. MasteryConnect has partnered with Instructure since 2016 and provides formative and interim assessments to over 14,000 school districts in the U.S. In conjunction with the announcement, Instructure also reaffirmed management’s prior guidance for FY ’19, which calls for revenue of $256.0MM-$260.0MM and non-GAAP EPS of $(0.65)-$(0.59). In a technology buy, Altair (ALTR), which provides simulation software to aid in product design and development, acquired Cambridge Collaborative’s SEAM® software. Altair plans to integrate the acquired technology with its HyperWorks platform, enabling engineers and designers to leverage the statistical energy analysis embedded within the software to identify and solve noise and vibration issues early in the design cycle. In the data science and analytics realm, Alteryx (AYX) announced the acquisition of ClearStory Data, which provides technology to intelligently automate the processing of large datasets. Finally, security analytics and automation vendor Rapid7 (RPD) announced the acquisition of NetFort, a provider of network monitoring, visibility and analytics solutions. NetFort’s capabilities will be integrated with Rapid7’s Insight cloud, improving the ability of security and IT teams to detect attacks, investigate incidents and gain visibility into devices that pose a risk.
Speaking of network monitoring, EXFO (EXFO) was the only company in our universe reporting quarterly results this week. The company delivered Q2 ’19 results above consensus. Both bookings and sales increased in the mid-teens although much of the growth was attributable to the acquisition of Astellia, which was reflected in the strong performance from EXFO’s Service Assurance, Systems and Services group. Management highlighted strength in both Europe and North America with the former benefiting from deployments of fiber-to-the-home and fiber-to-the-prem, and the latter driven by densification at the network edge whereby the deployments of small cells and antennas prompt subsequent deployments of fiber. We believe much of the initial investment in 5G networks is likely to remain focused on densification of the network edge given that a host of new use cases are predicated upon the ability of billions of devices being able to connect to the networks of tomorrow. Turning back to EXFO, management’s Q3 guidance was a little light with consensus situated at the high-end of anticipated sales and EPS short of the Street. Regardless, management reaffirmed its prior adjusted EBITDA targets for the year. The table below depicts EXFO’s share price performance for the week, actual results versus consensus, and subsequent consensus estimate revisions for the current quarter and fiscal year.
Harkening back to our missive on visual commerce a fortnight ago, Monotype (TYPE) announced this week that Walmart had selected its visual content collection and curation platform, Olapic, for its Connected Content Partner Program. While the program officially launched in January, the relationship is not new per se as Walmart originally introduced its Connected Content Partner Program in September 2018. As depicted in the visual accompanying that announcement, Olapic was one of three partners selected for syndicating user generated content. Walmart’s intent with the program is to help its suppliers scale the amount of product-oriented content available to Walmart’s catalog and those of other retailers. With customers now shopping across multiple channels, including digital, in-store and even via voice, having the right product content available in the right channel becomes critical to driving conversion. In this regard, Olapic is positioned as the platform of choice for visual user generated content, which provides Monotype with the opportunity to tap into Walmart’s extensive supplier base for new customers. We believe the selection of Olapic also provides significant validation for the underlying technology as Walmart has a longstanding relationship with Bazaarvoice, which was also included as a partner for user generated content and has been used to manage product reviews and visual content on Walmart’s own website.
As usual, we conclude with notable executive moves for the week. Veeva Systems (VEEV) announced the addition of Tom Schwenger as President and Chief Operating Officer. Mr. Schwenger joins from Accenture, where he led the Northeast Products Industries Practice. SPS Commerce (SPSC) announced that Melvin Keating and Michael McConnell will not stand for re-election to the company’s Board of Directors following the expiration of an agreement with Legion Partners, which had nominated the two directors in 2018. While not formally announced via press releases, 8-K filings from Anaplan (PLAN), Brightcove (BCOV) and Stamps.com (STMP) also disclosed executive and Board changes this week. Anaplan announced the departure of its Chief Revenue Officer, Steven Birdsall, effective April 12, 2019. Mr. Birdsall had been appointed the company’s Chief Revenue Officer just over a year ago. Brightcove disclosed Derek Harrar had notified the Board of Directors of his intent to resign as a member effective April 11, 2019. Finally, Stamps.com appointed Katie May to the company’s Board of Directors. Ms. May joined Stamps.com in July 2016 as part of the acquisition of ShippingEasy, where she had served as Chief Executive Officer and remains the General Manager today.
Mergers and Acquisitions
ALTR: Altair Acquires Cambridge Collaborative’s SEAM® Software; Expanding Solver Portfolio
Altair announced the acquisition of Cambrdge Collaborative’s SEAM® software, adding high-frequency noise and vibration predictive technology to Altair’s HyperWorks platform.
The statistical energy analysis embedded into the acquired software enables engineers and designers to identify and solve noise and vibration problems early in the design cycle.
Neither terms of the transaction nor historical financial details were provided.
AYX: Alteryx Acquires ClearStory Data to Accelerate Innovation in Data Science and Analytics
Alteryx announced the acquisition of privately-held ClearStory Data, which provides technology that intelligently automates the processing of large data sets.
Alteryx highlighted ClearStory Data’s technical expertise in scalable compute, data profiling and auto inference.
Neither terms of the transaction nor financial metrics were provided.
INST: Instructure to Acquire Partner MasteryConnect to Launch New Era of Innovative Assessment
Instructure has entered into an agreement to acquire MasteryConnect, which designs and delivers formative and interim assessment models that support personalized and mastery-based learning, for $42.5MM, of which $12.3MM is comprised of INST shares.
Headquartered in Salt Lake City, MasteryConnect was founded in 2009 and is utilized by teachers in over 14,000 U.S. school districts.
The transaction is expected to close within the next seven days.
In conjunction with the 8-K filing for the acquisition, Instructure reaffirmed its prior FY ’19 guidance calling for revenue of $256MM-$260MM and non-GAAP EPS of $(0.65)-$(0.59).
RPD: Rapid7 Acquires NetFort to Bring Network Traffic Visibility and Analytics to its Insight Cloud
Rapid7 announced the acquisition of NetFort, a network monitoring, visibility and analytics vendor.
NetFort’s capabilities will be integrated into Rapid7’s Insight cloud, and the added capabilities are expected to further bolster the ability of Insight cloud to manage risk, detect and stop attacks, and orchestrate security operations.
Terms of the transaction were not disclosed, but Rapid7 indicated that the acquisition is not expected to have any meaningful impact on the company’s CY ’19 annualized recurring revenue growth, revenue, non-GAAP operating income and non-GAAP EPS guidance.
Notable News
SPSC: SPS Commerce Announces Changes to its Board of Directors
SPS Commerce announced that Melvin Keating and Michael McConnell will not stand for re-election to the Board of Directors at this year’s annual meeting.
The two directors were previously nominated to the company’s Board by Legion Partners in 2018, but with the expiration of the agreement between SPS Commerce and Legion Partners, the Board will be comprised of seven directors following the annual meeting.
TYPE: Walmart Selects Olapic to Join Its Connected Content Partner Program
Walmart has selected Olapic’s visual content collection and curation platform for its Connected Content Partner Program.
The Connected Content Partner Program officially launched in January and is designed to make it easier for retailers, suppliers and content service providers to collaborate and syndicate content across their various shopping channels.
VEEV: Industry Veteran Tom Schwenger to Join Veeva as President and COO
Veeva Systems announced that Tom Schwenger will join the company as president and COO in September 2019 and lead strategy, sales and services.
Mr. Schwenger currently leads Accenture’s Northeast Products Industries Practice, which includes life sciences and related industries.
Earnings Releases
EXFO: EXFO reports second quarter results for fiscal 2019
EXFO reported Q2 ’19 results above consensus and reaffirmed its FY ’19 adjusted EBITDA target.
Total sales of $73.9MM (+14.2% Y/Y) were within management’s $70.0MM-$75.0MM guidance and above consensus of $72.7MM. Adjusted EBITDA of $8.8MM (11.9% margin) also exceeded consensus of $5.7MM. EPS of $0.09 beat consensus of $0.05 and matched the high-end of management’s $0.05-$0.09 guidance.
Bookings increased 16.0% Y/Y to $76.1MM, of which $10.3MM was attributable to the acquisition of Astellia. Excluding contribution from Astellia, bookings were flat Y/Y and sales increased 2.6% Y/Y.
Key business drivers include densification of the network edge in North America where small cells and new antennas are being deployed followed by fiber deployments, while Europe is performing well due to fiber-to-the-home and fiber-to-the-prem.
Management’s Q3 guidance calls for $70.0MM-$75.0MM in sales and $(0.04)-$0.00 in EPS, which includes non-cash expenses amounting to $0.05 per share, implying $0.01-$0.05 on a non-IFRS basis. Consensus estimates included $74.6MM in sales and $0.07 in non-IFRS EPS.
EXFO remains on plan to achieve its FY ’19 goal of $24.0MM in adjusted EBITDA.
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 Brightcove (BCOV).
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).