K. Liu's Week in Review
Interesting developments in both the supply chain management and customer engagement software segments this week. First, Amber Road (AMBR) finally succumbed to overtures by E2open and agreed to be acquired for $13.05 per share, equating to an equity value of approximately $425 million. The purchase price values the SaaS provider of global trade management solutions at approximately 5.0x revenues and 6.9x recurring revenues on a TTM basis. E2open had initially sought to acquire Amber Road for $10.50 per share in February 2018. Altai Capital, an investor in both companies, pushed for the merger and ultimately launched a proxy fight as Amber Road resisted. Aside from the major enterprise resource planning vendors, other providers of trade management and compliance solutions include Descartes Systems Group (DSGX) and QAD’s (QADA) Precision Software division. Speaking of Descartes, the company announced an acquisition of its own this week, acquiring CORE Transport Technologies for $21.0 million in cash and potential earn-outs totaling $9.0 million. The acquisition adds shipment scanning and tracking solutions, which should complement Descartes’ earlier acquisition of Velocity Mail and enhance its offerings for both logistics service providers and postal authorities. Moving to the customer engagement space, Pegasystems (PEGA) announced plans to acquire In The Chat, while NICE (NICE) announced its acquisition of Brand Embassy. The acquisitions add digital customer engagement capabilities to each company’s respective platforms, providing support for live chat, text messaging, Apple Business Chat, Facebook messenger, and a host of other digital channels. We believe interest in supporting and selling to customers via messaging channels continues to heat up with players in this space including LivePerson (LPSN), Nuance (NUAN), eGain (EGAN), and Salesforce (CRM). Of note, NICE’s CXone platform continues to fuel strong growth in the cloud, and the company delivered Q1 ’19 results above expectations this week. While management’s revenue expectations remain unchanged for the year, guidance for non-GAAP EPS was raised. Shares of NICE were up 7.5% for the week.
It was a much quieter week for earnings as calendar Q1 ’19 results gave way to the spring conference season. In microcap land, digital accessibility provider AudioEye (AEYE) reported mixed results but reaffirmed prior FY ’19 revenue and bookings guidance, and influencer marketing focused IZEA Worldwide (IZEA) generated lower than anticipated losses on in line revenues. AudioEye’s Q1 revenue and bookings performance met expectations, but management indicated direct sales performed well while indirect contract implementations were slower to ramp. The latter holds significant growth potential, and management remains confident that ongoing implementations as well as expansion of the partner base will contribute more meaningfully as the year progresses. AudioEye also concluded its search for a Chief Financial Officer with the hiring of Sach Barot, who previously served as CFO, Global Operations for Dun & Bradstreet Corporation. Although IZEA’s results held no surprises, management indicated during its earnings call that the company is likely to tap the capital markets again despite a recent equity raise; the proceeds are expected to be put towards a July 2019 payment due on its TapInfluence acquisition. Both CyberArk (CYBR) and Agilysys (AGYS) posted strong results and guidance this week. The former’s privileged access security solutions continue to benefit from the security challenges inherent as enterprises embark on digital transformation initiatives, while the latter’s initiatives to enhance its core hospitality-focused products has paid dividends with record revenues for the fourth consecutive quarter and indications that the streak is likely to continue into its new fiscal year. Despite strong quarterly results from application performance management vendor New Relic (NEWR) and web platform provider Wix (WIX), both stocks were down for the week as their respective outlooks entailed a higher degree of investments than the Street anticipated. New Relic’s management noted that the company’s growth has trended ahead of the intermediate-term model first introduced in 2016 and stated that incremental investments to accelerate the pace of innovation and expand its go-to-market capacity could create enduring value over the long-term. Wix highlighted favorable results from prior investments in its Customer Solutions operations and therefore plans to invest an additional $15 million in FY ’19, which should yield a 3x return via higher collections (aka billings) both this year and next. The following table depicts each reporting company’s stock price performance for the week, actual results versus expectations, and subsequent estimate revisions by the Street for the current fiscal quarter and year.
Aside from AudioEye’s hiring of its new Chief Financial Officer, other executive moves this week included Cornerstone OnDemand’s (CSOD) appointment of Heidi Spirgi as Chief Marketing and Strategy Officer and Avalara’s (AVLR) hiring of Manjula Muthukrishnan as Managing Director of India. Ms. Spirgi joins Cornerstone from The Marcus Buckingham Company, which was acquired by ADP and where she previously served as Senior Vice President of Product and Services. Ms Muthukrishnan joins Avalara from Socion Advisors and will oversee the company’s strategic operations in India.
Mergers and Acquisitions
E2open and Amber Road Announce Definitive Acquisition Agreement
E2open has entered into an agreement to acquire Amber Road (AMBR) for $13.05 per share in cash, representing an equity value of approximately $425 million.
The purchase price values AMBR shares at 5.0x sales and 6.9x recurring revenue on a TTM basis and implies EV/Sales and EV/Recurring revenue multiples of 4.8x and 6.5x, respectively, based on consensus estimates for FY ’19.
E2open initially submitted a proposal to acquire Amber Road for $10.50 per share in cash in February 2018, but withdrew its proposal in March 2018, prompting Altai Capital to launch a proxy fight.
The acquisition is expected to close before the end of Q3 ’19 subject to shareholder and regulatory approval as well as other customary closing conditions.
Descartes Acquires CORE Transport Technologies
Descartes Systems Group (DSGX) announced the acquisition of Core Transport Technologies NZ Limited, an electronic transportation network providing global air carriers and ground handlers with shipment scanning and tracking solutions, for $21.0 million in cash and potential earn-outs in FY ’21 and FY ’22 totaling $9.0 million.
The acquisition complements the company’s prior acquisition of Velocity Mail and enhances Descartes’ offerings for logistics service providers and postal authorities.
Details regarding anticipated financial contribution from the acquisition were not provided.
NICE (NICE) announced its acquisition of Brand Embassy, a leading provider of digital customer engagement solutions, which will be embedded within NICE’s CXone platform.
Brand Embassy adds over 30 customer engagement channels to CXone, including Facebook Messenger, Twitter, Apple Business Chat, WhatsApp, LinkedIn, SMS, email and live chat.
Pegasystems Acquires Leading Digital Messaging Platform Provider In The Chat
Pegasystems (PEGA) announced the acquisition of In The Chat, which provides a digital customer engagement platform encompassing text messaging, social media, live chat, email, messengers, and chatbots.
Neither terms of the transaction nor a financial profile for In The Chat were provided.
Notable News
AudioEye Appoints Sach Barot as Chief Financial Officer
AudioEye (AEYE) announced that Sach Barot will join the company as Chief Financial Officer, effective May 16, 2019.
Mr. Barot most recently served as CFO, Global Operations for Dun & Bradstreet Corporation, where he supported a business generating $1.7 billion in annual revenues.
Manjula Muthukrishnan Joins Avalara as Managing Director of India
Avalara (AVLR) announced that Manjula Muthukrishnan has been appointed Managing Director of Avalara Technologies Private, Ltd., the company’s Indian subsidiary.
Ms. Muthukrishnan joins the company from Socion Advisors and will oversee strategic operations across India, focusing on strengthening Avalara’s end-to-end tax automation offerings to assist customers with navigating the local Goods and Services Tax.
Cornerstone Names Heidi Spirgi as Chief Marketing and Strategy Officer
Cornerstone OnDemand (CSOD) announced the hiring of Heidi Spirgi as Chief Marketing and Strategy Officer.
Ms. Spirgi will lead the company’s global marketing functions and help define the vision for the next generation of the company’s solutions focused on talent experience.
Ms. Spirgi mostly recently served as Senior Vice President of Product and Services for The Marcus Buckingham Company, which was acquired by ADP.
Earnings Releases
Agilysys Fiscal 2019 Fourth Quarter Revenue Rises 14.2% to Record $36.6 Million
Agilysys (AGYS) reported Q4 ’19 results in line with consensus and guided FY ’20 above Street expectations.
Both net revenue of $36.6 million (+14.2% Y/Y) and adjusted EBITDA of $2.4 million (6.5% margin) were in line with consensus. Non-GAAP EPS of $(0.06) were ahead of the Street’s $(0.09).
Strength in Q4 was driven by both new wins as well as competitive displacements, particularly in the gaming industry.
The company has executed on a number of transformational initiatives over the past year, including expanding its R&D and technical services headcount, substantially improving each of its core products, and instituting a more disciplined sales process.
Agilysys has a long runway for growth with Asia and Europe representing significant market opportunities and verticals like gaming; hotels, resorts, and cruises; and food service management holding significant near-term potential.
During the earnings call, management indicated that the strong sales momentum experienced in the latter half of FY ’19 has carried over into Q1 ’20, which should enable Agilysys to post another record quarter in excess of $38.0 million in revenue, which compares favorably with consensus expectations for $37.3 million.
Management’s guidance for FY ’20 calls for revenue growth of approximately 11% Y/Y and an adjusted EBITDA increase of approximately 25% Y/Y, implying revenue and adjusted EBITDA of $156.3 million and $12.8 million, respectively. Consensus expectations included revenue of $155.4 million and adjusted EBITDA of $11.5 million.
AEYE: AudioEye Reports First Quarter 2019 Results
AudioEye reported mixed Q1 ’19 results and reaffirmed prior expectations for FY ’19.
Total revenues of $2.0 million (+72.8% Y/Y) were in line with consensus. EPS of $(0.28) miss consensus of $(0.18).
Key metrics: nearly 1,100 customers at quarter-end; 18 established channel partners; cash contract bookings of $3.43 million (+55.9% Y/Y); monthly recurring revenues totaled $686,000 (+11.7% Y/Y).
The direct business is performing well helped by unexpected strength in PDF remediation, while the indirect business is taking slightly longer to ramp due to delays in contract implementations by channel partners.
Signed partnership agreements with Edlio, a CMS provider to K-12 public, private, and charter schools as well as Mopro, which focuses on small businesses across a variety of verticals.
March and April have represented the company’s largest two bookings months in history.
Management reaffirmed its prior FY’19 expectations for $11.0-$13.0 million in revenues and $20.0-$22.0 million in cash contract bookings.
CyberArk Announces Strong First Quarter 2019 Results
CyberArk (CYBR) reported Q1 ’19 results above expectations and raised guidance for FY ’19.
Total revenue was $95.9 million (+33.6% Y/Y), ahead of management’s $91.0-$93.0 million guidance and consensus of $92.4 million. Non-GAAP operating income was $25.5 million (26.5% margin), well above guidance and consensus of $19.3 million. Non-GAAP EPS of $0.56 also beat management’s guidance and the Street’s $0.41.
CyberArk’s business is being driven by major trends including digital transformation strategies; the migration to cloud, hybrid, and modern architectures; and the increasing connectivity among enterprise systems, all of which create security challenges.
The Americas and APJ delivered record revenue in the quarter, while EMEA, which was up mid-teens, was impacted by a strong Q4 bookings performance.
Added 150 new logos in the quarter for a total customer count of approximately 4,600 at quarter-end.
Guidance for Q2 includes revenue of $96.0-$98.0 million, non-GAAP operating income of $22.0-$23.5 million, and non-GAAP EPS of $0.45-$0.48, all exceeding Street expectations for $95.2 million in revenue, $19.6 million in non-GAAP operating income, and $0.42 in non-GAAP EPS.
Management raised its FY ’19 guidance from $411.0-$415.0 million, $92.5-$95.5 million, and $1.94-$2.00 in revenue, non-GAAP operating income, and non-GAAP EPS, respectively, to $415.0-$419.0 million, $100.5-$103.5 million, and $2.10-$2.16.
IZEA Reports Q1 2019 Financial Results
IZEA Worldwide (IZEA) announced Q1 ’19 adjusted EBITDA above expectations on in line revenue.
Total revenue of $4.8 million (+23.0% Y/Y) was in line with consensus. Adjusted EBITDA of $(0.9) million was above consensus of $(1.4) million. EPS of $(0.15) beat the Street’s $(0.19).
As previously announced on April 9, 2019, Q1 bookings totaled $7.8 million and were flat versus the year-ago period.
Gross billings for SaaS services were just over $0.9 million in the quarter, while gross billings for managed services matched revenue of $3.9 million.
The launch of IZEAx 3.0 in April was a key milestone in integrating many of the features and functionality of the acquired TapInfluence platform into IZEAx and is expected to be a catalyst for the migration of TapInfluence customers to IZEAx.
IZEA plans to invest further in marketing activities, sales staff, and engineers to increase its leadership position in the influencer marketing space.
Despite a recent $10 million equity raise, management indicated the company is likely to issue additional equity under its shelf registration for a July 2019 payment due on its TapInfluence acquisition.
NEWR: New Relic Announces Fourth Quarter and Full Fiscal Year 2019 Results
New Relic reported Q4 ’19 results well above expectations, but provided mixed guidance for Q1 and FY ’20.
Revenue of $132.1 million (+34.2% Y/Y) exceeded management’s $126.5-$128.5 million guidance and consensus of $128.1 million. Non-GAAP operating income was $3.8 million (2.9% margin), also above guidance and consensus of $1.4 million. Non-GAAP EPS were $0.13, beating guidance of $0.04-$0.06 and consensus of $0.06.
Key metrics: 858 (+22.0% Y/Y) paid business accounts in excess of $100,000; 61% of ARR from enterprise paid business accounts versus 54% last year; dollar-based net expansion rate of 131%; over 2,300 enterprise paid business accounts at fiscal year-end with an average ARR in excess of $140,000; total paid business accounts down slightly Y/Y from 17,000 to 16,900.
Separately, the company also introduced New Relic One, an extension of its platform providing DevOps teams with a comprehensive view of all data and dependencies critical to managing the performance of their digital systems.
New Relic has trended ahead of its intermediate-term model introduced in 2016 and management believes the company can create enduring value by increasing its go-to-market capacity and increasing its pace of innovation.
Acquisitions in each of the past two quarters have accelerated the R&D model objective by nearly two years, and the company plans to release three new paid SKUs to address serverless computing, logging and AIOps in FY ’20.
Management’s Q2 guidance calls for $138.0-$140.0 million in revenue, $0.5-$1.5 million in non-GAAP operating income, and $0.07-$0.08 in non-GAAP EPS, which was mixed versus consensus expectations for $138.5 million in revenue, $8.8 million in non-GAAP operating income, and $0.18 in non-GAAP EPS.
For FY ’20, management guided for revenue of $600.0-$607.0 million, non-GAAP operating income of $20.0-$25.0 million, and non-GAAP EPS of $0.54-$0.62, also mixed versus the Street’s $601.4 million in revenue, $45.5 million in non-GAAP operating income, and $0.86 in non-GAAP EPS.
NICE (NICE) reported Q1 ’19 results above Street expectations and raised its non-GAAP EPS guidance for FY ’19.
Non-GAAP revenues of $377.9 million (+11.9% Y/Y) were within management’s $370.0-$380.0 million guidance and above consensus of $374.9 million. Non-GAAP operating income of $97.0 million (25.7% margin) exceeded consensus of $91.0 million. Non-GAAP EPS were $1.18, above management’s $1.05-$1.15 guidance and the Street’s $1.11.
Non-GAAP cloud revenue increased 29.5% Y/Y to $137.0 million driven by multiple seven-figure deals for CXone as well as several seven-figure transactions for X-Sight Essentials.
NICE is ushering in a new era in CX with the introduction of smart digital conversations, which will be augmented by the acquisition and integration of Brand Embassy.
Management’s Q2 guidance includes non-GAAP revenues of $373.0-$383.0 million and non-GAAP EPS of $1.16-$1.26, in line with Street expectations for $377.6 million in revenues and $1.18 in non-GAAP EPS.
Management reaffirmed its prior FY ’19 guidance for revenues of $1,558-$1,582 million and raised its guidance for non-GAAP EPS from $5.08-$5.28 to $5.11-$5.31.
WIX: Wix Reports First Quarter 2019 Results
WIX reported mixed Q1 ’19 results and lowered its FY ’19 free cash flow outlook despite an uptick in its revenue and collections guidance.
Revenue was $174.3 million (+26.5% Y/Y), above management’s $172.0-$173.0 million guidance and consensus of $173.0 million. Non-GAAP operating income was $(2.2) million (-1.2% margin), below consensus of $1.5 million. Non-GAAP EPS of $0.03 missed consensus of $0.05.
Collections increased 25.5% Y/Y to $200.4 million, also exceeding management’s $196.0-$197.0 million guidance.
Key metrics: added over 180,000 net premium subscribers for a total of 4.2 million (+20.6% Y/Y) at quarter-end; new registered users totaled 6.6 million in the quarter, reaching a total of 148.4 million (+18.5% Y/Y); average revenue per subscription was $168 (+9.1% Y/Y); average collections per annual, full-priced subscription package was $217 (+24.7% Y/Y).
Expansion of the company’s Customer Solutions operations will require an upfront investment of approximately $15 million in 2019, but management anticipates the effort will yield at least 5% growth in collections in both 2019 and 2020, equating to a 3x return on investment.
Management’s Q2 guidance includes $182.0-$184.0 million in revenue, in line with consensus of $183.7 million, and collections of $197.0-$199.0 million.
For FY ’19, management raised its revenue guidance from $755.0-$761.0 million to $758.0-$763.0 million, increased its collections guidance from $817.0-$827.0 million to $822.0-$830.0 million, and lowered its free cash flow outlook from $135.0-$140.0 million to $122.0-$126.0 million.