K. Liu's Week in Review

Consolidation continued in the cybersecurity space this week with FireEye (FEYE), Palo Alto Networks (PANW), and Zscaler (ZS) all announcing acquisitions to expand the breadth of their respective offerings. FireEye’s acquisition of Verodin for approximately $250 million in cash and stock brings the company a Security Instrumentation Platform enabling customers to automate the simulation of cyberattacks and to audit the effectiveness of existing security controls against those attacks. Verodin has more than doubled the size of its business in the past year and is expected to generate $70 million in billings in 2020. For FY ’19, management raised its revenue and billings guidance slightly to account for the acquisition, but also incorporated $0.05 of dilution to the bottom line. Palo Alto Networks plans to acquire Twistlock and PureSec, leaders in container security and serverless security, respectively. The former is being bought for $410 million in cash, while terms were not disclosed for the latter. Palo Alto Networks also reported fiscal Q3 ’19 results above expectations this week, but provided mixed Q4 guidance reflecting a positive revenue outlook offset by $0.12 per share in dilution arising from a full quarter of expenses associated with another recent acquisition, Demisto, and the two acquisitions just discussed. Tariffs are also anticipated to negatively impact the bottom line by $0.02 per share. Turning to Zscaler, the company posted fiscal Q3 ’19 results above expectations as well and guided Q4 slightly ahead of consensus. During its earnings call, management highlighted the company’s acquisition of Appsulate earlier in the week for $13 million in cash. The pre-revenue company has developed a browser isolation solution that Zscaler plans to integrate into an extensible cloud platform. No revenues are anticipated in FY ’20, but the acquisition will add an incremental $7-$9 million in operating expenses. Outside of the security space, Intuit (INTU) completed a technology tuck-in of its own, acquiring Origami Logic to accelerate its efforts to organize, understand, and use data to deliver personalized recommendations to customers. Upland Software (UPLD) continued to execute upon its M&A strategy, acquiring Kapost for $50 million in cash. Kapost provides a content operations platform used by sales and marketing teams to plan, produce, distribute, and analyze content. The purchase price represents EV/Sales, EV/Recurring revenue, and EV/EBITDA multiples of 3.3x, 3.7x, and 7.1x, respectively. Reflecting anticipated contribution from Kapost, management raised its Q2 and FY ’19 revenue and adjusted EBITDA guidance ranges.

In a week where headlines were dominated by escalating trade tensions, we tracked results from a dozen different companies as the off-calendar earnings season got underway. Despite strong results and solid guidance in most cases, only connected planning provider Anaplan (PLAN) and life-sciences focused Veeva (VEEV) saw meaningful bumps in their respective share prices. On the other side of the coin, Nutanix (NTNX) shares were hit hard on mixed results and a lower outlook. The cloud infrastructure solutions provider experienced a faster shift towards subscription billings than anticipated and remains focused on demand generation activities and salesforce hiring to reaccelerate growth. Nutanix also disclosed that Sunil Potti, Chief Product and Development Officer, is leaving the company to pursue another opportunity, and announced the appointment of Brian Stevens, who most recently served as CTO of Google Cloud, to the company’s Board of Directors. Zuora (ZUO), which aims to bring companies in all industries into the subscription economy, delivered Q1 ’20 results consistent with expectations. However, execution challenges and delays in the integration of two flagship products tempered management’s revenue outlook for the remainder of the year. The company has initiated efforts to realign its strategic accounts organization, revamp its pipeline process, and add new sales leadership. QAD (QADA), the manufacturing enterprise resource planning software vendor whose Explore conference we attended several weeks ago, also reported Q1 ’20 results. While the headline numbers were fine, management noted that cloud bookings trailed internal expectations, thereby putting full year guidance at risk. Management guided Q2 below consensus and left its prior FY ’20 guidance unchanged for now. Shares were down over 10% for the week and are worth a look here, in our opinion. Lastly, we highlighted the drama at Verint (VRNT) a week ago, so we would be remiss if we did not mention the company’s beat and raise this week. The following table highlights each reporting company’s share price performance for the week, results versus expectations, and subsequent Street estimate revisions.

2019-05-31 KLiu Week in Review Data.png

Rounding out the news for the week, communications API provider Twilio (TWLO) tapped the equity markets this week, selling just over 7 million shares of its Class A common stock at $124.00 per share, a 4.0% discount to the close price prior to the announced offering. Should the underwriters exercise their overallotment option, gross proceeds from the offering would reach roughly $1 billion. Also, GoDaddy priced a $600 million offering 5.25% senior notes due 2027. The company plans to utilize the net proceeds from the offering as well as cash on hand to repay $600 million in term loan borrowings under its existing credit agreement.

Mergers and Acquisitions

FireEye Acquires Security Instrumentation Leader Verodin

  • FireEye (FEYE) announced the acquisition of Verodin for $254.4 million, comprised of $129.6 million in cash and approximately 8.4 million shares of FEYE common stock.

  • Verodin’s Security Instrumentation Platform automates the simulation of cyberattacks in an organization’s network and measures the effectiveness of the organization’s security controls against those attacks in order to identify potential gaps in security arising from misconfigured equipment, changes in the IT environment, evolving attacker tactics, and other factors.

  • Verodin is growing in excess of 100% Y/Y and has approximately 90 employees.

  • The acquisition is expected to be accretive to revenue, cash flow from operations, and non-GAAP operating income in 2020, and add approximately $20 million in billings in 2019 and over $70 million in billings in 2020.

  • Reflecting contribution from Verodin, FireEye updated its Q2 ’19 guidance to reflect a modest uptick in revenue and billings and slight dilution to non-GAAP operating margin and EPS.

  • For FY ’19, management’s revised FY ’19 outlook includes increases of approximately $10 million and $20 million in revenue and billings, respectively, to $890.0-$900.0 million and $935.0-$955.0 million, a 100bps decline in non-GAAP operating margin to 4%-5%, and non-GAAP EPS of $0.12-$0.15, reflecting dilution of $0.05.

Intuit Announces Acquisition of Origami Logic

  • Intuit (INTU) has entered into a definitive agreement to acquire Origami Logic, the developer of an advanced data integration, ingestion, and analytics platform.

  • The acquisition supports Intuit’s strategy to become an A.I.-driven expert platform and will accelerate the company’s ability to organize, understand, and use data to deliver personalized insights to customers.

  • Terms of the transaction were not disclosed, and the acquisition is not expected to have a material impact on Intuit’s FY ’19 guidance.

Palo Alto Networks Announces Intent to Acquire Two Companies to Extend Its Cloud Security Leadership

  • Palo Alto Networks (PANW) has entered into definitive agreements to acquire Twistlock and PureSec to bolster its Prisma cloud security strategy.

  • Twistlock, a leader in container security with over 290 customers, is being purchased for $410 million in cash.

  • The purchase price for PureSec, a leader in serverless security, was not disclosed.

  • Both acquisitions are slated to close in Palo Alto Networks’ current fiscal quarter.

Upland Software Acquires Kapost, Raises Guidance

  • Upland Software (UPLD) announced its acquisition of Kapost, which provides a content operations platform used by sales and marketing teams to plan, produce, distribute, and analyze content.

  • Kapost is expected to generate annual revenue of approximately $15.0 million, of which $13.5 million is recurring, and adjusted EBITDA of $7.0 million once fully integrated.

  • The total purchase price of $50 million includes $45 million in cash due at closing and $5 million payable in 12 months, implying EV/Sales, EV/Recurring revenue, and EV/EBITDA multiples of 3.3x, 3.7x, and 7.1x, respectively.

  • Reflecting contribution from Kapost, Upland Software raised its Q2 ’19 guidance to $50.5-$52.5 million in revenue and $17.9-$18.9 million in adjusted EBITDA and increased its FY ’19 guidance to $209.0-$213.0 million and $76.5-$78.9 million in revenue and adjusted EBITDA, respectively.

Notable News

GoDaddy Prices $600 Million Offering of Senior Notes

  • GoDaddy (GDDY) announced the pricing of an offering of $600 million aggregate principal amount of 5.25% senior notes due 2027 issued by its subsidiaries, GoDaddy Operating Company, LLC, and GD Finance Co, Inc.

  • Holders of the notes may require the issuers to repurchase their notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest should certain change of control events occur.

  • The issuers may redeem the notes at a price equal to 100% of the principal amount prior to June 1, 2022 and may redeem the notes at specified prices that decline over time after that date.

  • The issuers may also use the proceeds from one or more equity offerings to redeem up to 40% of the aggregate principal amount of notes prior to June 1, 2022 at a price equal to 105.25% of the principal amount plus accrued and unpaid interest.

  • The company plans to use the net proceeds from the offering along with cash on hand to repay $600 million in aggregate principal amount of term loan borrowings under its existing credit agreement.

Nutanix (NTNX) Appoints Brian Stevens to its Board of Directors

  • Nutanix announced that Brian Stevens will join its Board of Directors effective June 1, 2019.

  • Mr. Stevens most recently served as CTO of Google Cloud and has also held the position of EVP and CTO of Red Hat.

Twilio Announces Pricing of Offering of its Class A Common Stock

  • Twilio (TWLO) priced an underwritten public offering of 7,012,622 shares of its Class A common stock at a price of $124.00 per share, equating to gross proceeds of $869.6 million and a discount of 4.0% from the close price prior to the announcement of the company’s plans to pursue a $750.0 million raise.

  • The underwriters have also been granted a 30-day option to purchase up to an additional 1,051,893 of shares.

  • Net proceeds from the offering are intended to be used for general corporate purposes.

Earnings Releases

Anaplan Announces First Quarter Fiscal Year 2020 Financial Results

  • Anaplan (PLAN) reported Q1 ’20 results ahead of expectations and raised guidance for FY ’20.

  • Total revenue was $75.8 million (+47.1% Y/Y), exceeding management’s guidance of $70.0-$71.0 million and consensus of $70.7 million. Non-GAAP operating income was $(20.1) million (-26.5% margin), above consensus of $(24.5) million. Non-GAAP EPS of $(0.16) beat the Street’s $(0.20).

  • Key metrics: dollar-based net expansion rate of 123%; 279 customers with over $250,000 in annual recurring revenue; average selling price +60% Y/Y; $473 million (+53% Y/Y) in remaining performance obligations at quarter-end.

  • Management believes Anaplan is the leader in a number of industry verticals such as spirits and cosmetics.

  • Broadening the partner ecosystem remains a top priority and the company has formal partnerships in place with Bain, VCG, and McKinsey with A.T. Kearney and Oliver Wyman onboarding this quarter.

  • Management’s Q2 guidance includes revenue of $77.5-$78.5 million and non-GAAP operating margin of (26.5)%-(25.5)%, which implies non-GAAP operating income of $(20.8)-$(19.8) million, exceeding consensus expectations for $74.4 million in revenue and $(22.5) million in non-GAAP operating income.

  • Management raised its prior FY ’19 guidance from $310.0-$314.0 million and (27.0)%-(26.0)% in revenue and non-GAAP operating margin, respectively, to $326.0-$331.0 million and (23.5)%-(22.5)%.

Descartes Announces Fiscal 2020 First Quarter Results

  • Descartes (DSGX) reported Q1 ’20 revenues and adjusted EBITDA generally in line with Street expectations.

  • Revenues of $78.0 million (+16.4% Y/Y) were just shy of consensus of $78.6 million. Adjusted EBITDA was $28.7 million (36.8% margin), above consensus of $27.8 million. EPS of $0.09 were below the Street’s $0.13.

  • FX negatively impacted revenue by $1.7 million, so growth would have been 19% on a constant currency basis.

  • The Visual Compliance acquisition brings more scale in the denied party screening space and is performing ahead of plan.

  • The more recent acquisition of CORE enables customers to accurately track international mail, parcel, and cargo shipments as well as U.S. domestic mail and parcel shipments.

  • Due to the strength from recent acquisitions and continued operating leverage, management anticipates achieving adjusted EBITDA margin of 35%-40% in the quarters ahead versus prior expectations for 32%-37%.

  • Management’s calibration for Q2 is $76 million in visible, recurring, contracted revenues and a baseline of $23.8 million in adjusted EBITDA.

  • Descartes maintains a strong acquisition pipeline, has $85 million in capacity remaining on its line of credit, and has also filed a preliminary shelf prospectus for up to $750 million in the event additional capital is needed.

  • While the long-term target for adjusted EBITDA growth is 10%-15%, growth in FY ’20 should reach the mid- to high-20% range due to the scale of Visual Compliance.

Nutanix Reports Third Quarter Fiscal 2019 Financial Results

  • Nutanix (NTNX) reported mixed Q3 ’19 results and guided Q4 below Street expectations.

  • Revenue of $287.6 million (-0.6% Y/Y) fell short of management’s $290.0-$300.0 million guidance and consensus of $297.2 million. Non-GAAP operating income of $(104.8) million (-36.4% margin) was slightly ahead of the Street’s $(105.4) million. Non-GAAP EPS of $(0.56) beat management’s $(0.60) guidance and consensus of $(0.58).

  • Billings of $346.0 million (-1.5% Y/Y) also missed management’s $360.0-$370.0 million guidance.

  • Management noted that the company’s transition to subscription is ahead of schedule, field execution is improving in terms of pipeline and sales hiring, and customers love the company’s products and customer service.

  • Subscription billings accounted for 65% of total billings versus 41% in the prior year 57% in the prior quarter.

  • Key metrics: 13,190 end-customers at quarter-end; closed 50 deals in excess of $1 million; over 600 customers purchased new term-based licenses; 23% of deals included Essentials and Enterprise offerings.

  • Nutanix disclosed that Sunil Potti, Chief Product and Development Officer, is leaving to pursue another opportunity.

  • Management’s guidance for Q4 includes revenue of $280.0-$310.0 million, billings of $350.0-$380.0 million, and non-GAAP EPS of $(0.65), below consensus expectations for $332.9 million in revenues and $(0.49) in non-GAAP EPS.

Palo Alto Networks Reports Fiscal Third Quarter 2019 Financial Results

  • Palo Alto Networks (PANW) reported Q3 ’19 results above expectations but provided mixed guidance for Q4.

  • Total revenue of $726.6 million (+28.0% Y/Y) surpassed management’s $697.0-$707.0 million guidance and consensus of $703.8 million. Non-GAAP operating income was $151.8 million (20.9% margin), slightly ahead of the Street’s $150.5 million. Non-GAAP EPS of $1.31 beat management’s $1.23-$1.25 guidance and consensus of $1.25.

  • The recently introduced DNS Security Service, a subscription offering, is already gaining traction.

  • The introduction of Prisma brings Palo Alto’s cloud solutions into a single integrate suite, enabling customers to address SaaS, API-based, and in line cloud security across all vectors.

  • As new products and delivery mechanisms are SaaS-based and consumed as annual subscriptions as opposed to multi-year deals, management is focused on maximizing recurring revenues despite the impact to total billings.

  • Q3 billings increased 13% Y/Y to $821.9 million with dollar-weighted contract duration declining by four months Y/Y due to strength in the cloud business and fewer multi-year deals.

  • A full quarter of expenses from the Demisto acquisition as well as the pending acquisitions of Twistlock and PureSec are expected to have a $0.12 per share impact on EPS in Q4 with tariffs further reducing EPS by $0.02.

  • Management’s Q4 guidance calls for total revenue of $795.0-$805.0 million and non-GAAP EPS of $1.41-$1.42, which was mixed relative to consensus of $792.8 million in revenue and $1.55 in non-GAAP EPS.

QAD Reports Fiscal 2020 First Quarter Financial Results

  • QAD (QADA) reported solid Q1 ’20 results but indicated its full year outlook may be at risk due to lower cloud bookings.

  • Total revenue of $78.0 million was at the low-end of management’s $78.0-$79.0 million guidance and approximately in line with consensus of $78.3 million. Adjusted EBITDA of $0.9 million (1.2% margin) was ahead of the Street’s $(0.8) million. Non-GAAP EPS of $(0.03) also exceeded consensus of $(0.12).

  • Investments in sales and marketing to increase lead generation and add new business development capabilities is already benefiting the pipeline, but new deals are taking a bit longer to close.

  • QAD closed 15 cloud deals this quarter with 10 of those being conversions of existing customers.

  • While cloud bookings were characterized as strong, management indicated the performance fell short of internal goals, creating a higher risk of QAD missing its full year guidance, which was left unchanged.

  • Guidance for Q2 calls for total revenue of $77.0-$79.0 million and implies non-GAAP EPS of $(0.06)-$(0.00), both of which were below consensus of $82.9 million in revenue and $0.04 in non-GAAP EPS.

  • Management reaffirmed its prior FY ’19 guidance calling for $330.0-$335.0 million in revenue, including $110.0-$112.0 million in subscription revenue, and non-GAAP pre-tax income of $10.0-$13.0 million.

Veeva Announces Fiscal 2020 First Quarter Results

  • Veeva (VEEV) reported Q1 ’20 results ahead of expectations and raised its guidance for FY ’20.

  • Total revenues of $244.8 million (+25.2% Y/Y) exceeded management’s $238.0-$239.0 million guidance and consensus of $238.7 million. Non-GAAP operating income was $93.5 million (38.2% margin), also above management’s guidance and consensus of $85.3 million. Non-GAAP EPS were $0.50, beating management’s $0.44-$0.45 guidance and the Street’s $0.45.

  • Subscription revenue outperformed due to strong bookings growth, favorable linearity of those bookings, and a tailwind from the adoption of ASC 606.

  • Added nearly 50 new Vault customers and won its first top 20 enterprise deal for CDMS.

  • Outside of life sciences, Veeva is concentrating on consumer goods, chemicals, and cosmetics, and recently announced a new application, Vault Claims, to manage the lifecycle of product claims from creation to approval to marketing usage.

  • Management’s Q2 guidance includes revenue of $259.0-$260.0 million, non-GAAP operating income of $94.0-$95.0 million, and non-GAAP EPS of $0.48-$0.49, all of which exceeded Street expectations for $249.5 million in revenues, $88.7 million in non-GAAP operating income, and $0.46 in non-GAAP EPS.

  • Management raised its FY ’20 guidance from $1.025-$1.030 billion, $365.0-$370.0 million, and $1.91-$1.94 in revenues, non-GAAP operating income, and non-GAAP EPS, respectively, to $1.045-$1.050 billion, $385.0-$390.0 million, and $2.01-$2.03.

Verint Announces Strong Q1 FY2020 Results and Outlook

  • Verint (VRNT) reported Q1 ’20 results above expectations and raised guidance for FY ’20.

  • Non-GAAP revenue of $324.2 million (+11.0% Y/Y) exceeded consensus of $316.7 million. Non-GAAP operating income of $62.3 million (19.2% margin) was well ahead of the Street’s $38.8 million. Non-GAAP EPS of $0.73 beat consensus of $0.63.

  • Customer engagement revenue increased 15.8% Y/Y constant currency, while Cyber Intelligence increased 7.0% Y/Y.

  • The SaaS and Managed Services mix was approximately 75%-25% in Q1.

  • Management provided further details regarding its acquisition of ForeSee, noting that the company had generated losses of $12 million and $15 million, respectively, in 2017 and 2018; had customer renewal rates in the low-60s in Verint’s Q4 ’19 and in the low-50s during Q1 ’20 as the business declined rapidly following its parent company’s bankruptcy; and is expected to contribute $30-$40 million in revenue this year.

  • Revenue in Q2 is expected to increase approximately $10 million sequentially and yield non-GAAP EPS of approximately $0.80, generally consistent with Street expectations for $331.9 million in revenue and $0.83 in non-GAAP EPS.

  • Management raised its FY ’20 revenue and non-GAAP EPS guidance ranges from $1.370 billion +/- 2% and $3.60, respectively, to $1.375 billion +/- 2% and $3.65.

  • Verint also introduced three-year targets calling for FY ‘22 non-GAAP revenue and EPS of $1.65 billion and $4.70, respectively.

VMware Reports Fiscal Year 2020 First Quarter Results

  • VMware (VMW) reported Q1 ’20 results above expectations and reaffirmed prior guidance for FY ’20.

  • Revenue was $2.266 billion (+12.8% Y/Y), exceeding management’s $2.245 billion guidance and consensus of $2.246 billion. Non-GAAP operating income was $667.0 million (29.4% margin), above consensus of $656.0 million. Non-GAAP EPS of $1.32 beat management’s guidance of $1.27 and consensus of $1.28.

  • Billings increased 25.0% Y/Y to $2.407 billion and were up 20.2% Y/Y excluding the impact of cloud credits reclassification.

  • Hybrid cloud subscription and SaaS comprised over 12% of revenue and grew 35% Y/Y.

  • EMEA and Asia Pacific posted strong results in the quarter with North America trailing after record growth in Q4 ’19.

  • Important agreements with key partners Amazon Web Services, Dell, and Microsoft were announced during the quarter.

  • Exited Q1 with $48 million of license backlog versus $147 million at the end of the prior quarter; vSAN license bookings increased over 50% Y/Y with total customers surpassing 20,000; EUC license bookings increased in the low-teens Y/Y; core SDDC license bookings also increased in the low-teens Y/Y; cloud management license bookings increased strong double-digits Y/Y; and compute license bookings grew in the mid-single digits.

  • Guidance for Q2 includes revenue of $2.425 billion, non-GAAP operating margin of 32.6%, which implies non-GAAP operating income of $790.6 million, and non-GAAP EPS of $1.55, not too dissimilar from consensus expectations for $2.433 billion in revenue, $792.5 million in non-GAAP operating income, and $1.56 in non-GAAP EPS.

  • Management reaffirmed prior FY ’20 expectations for revenue of $10.030 billion, a non-GAAP operating margin of 33%, and non-GAAP EPS of $6.49.

  • The Board of Directors has approved the repurchase of up to $1.5 billion of Class A shares, which is in addition to the remaining $243 million authorized as part of an ongoing $1.0 billion share repurchase program announced in August 2017.

Workday Announces Fiscal 2020 First Quarter Financial Results

  • Workday (WDAY) reported Q1 ’20 results above expectations and raised its FY ’20 outlook.

  • Total revenues of $825.1 million (+33.4% Y/Y) were above management’s $812.0-$814.0 million guidance and consensus of $814.2 million. Non-GAAP operating income of $107.7 million (13.1% margin) was also above management’s guidance for a 13.0% non-GAAP operating margin and consensus of $105.8 million. Non-GAAP EPS of $0.43 beat consensus of $0.41.

  • Momentum for Workday HCM remained strong as organizations continue their transitions to the cloud.

  • Workday Financial Management also saw momentum continue with over 50% growth in customers and net new ACV growth.

  • Added approximately 150 standalone Adaptive deals and 50 deals representing both platform sales and planning add-ons.

  • Key metrics: subscription revenue backlog of $6.8 billion (+30.0% Y/Y); net retention in excess of 100%.

  • Management’s Q2 guidance includes subscription and professional services revenue of $746.0-$748.0 million and $124.0 million, respectively, and non-GAAP operating margin of 10.0%, which was mixed relative to consensus expectations for $864.7 million in total revenues and $100.7 million in non-GAAP operating income.

  • Management raised its FY ’19 subscription revenue guidance from $3.030-$3.045 billion to $3.045-$3.060 billion, maintained its professional services guidance of $500 million, and left its non-GAAP operating margin guidance of 12.3% unchanged.

Yext, Inc. Announces Record First Quarter Fiscal 2020 Results

  • Yext (YEXT) reported Q1 ’20 results above expectations and raised the low-end of its FY ’20 revenue guidance.

  • Revenue of $68.7 million (+34.8% Y/Y) was above management’s guidance of $66.0-$67.0 million and consensus of $66.7 million. Non-GAAP operating income of $(6.0) million (-8.8% margin) also beat the Street’s $(10.0) million. Non-GAAP EPS of $(0.05) were ahead of management’s $(0.11)-$(0.09) guidance and consensus of $(0.10).

  • Key metrics: signed 50 new logos in enterprise; net revenue retention in both enterprise and mid-market was consistent with last quarter’s levels; remaining performance obligations totaled $256 million.

  • Guidance for Q2 includes revenue of $70.8-$71.8 million and non-GAAP EPS of $(0.14)-$(0.12), falling short of Street expectations for $71.8 million in revenue and $(0.10) in non-GAAP EPS.

  • Management raised the low-end of its FY ’20 revenue guidance from $295.0-$300.0 million to $297.0-$300.0 million and left prior non-GAAP EPS guidance of $(0.44)-$(0.40) unchanged.

Zscaler Reports Third Quarter Fiscal 2019 Financial Results

  • Zscaler (ZS) reported Q3 ’19 results ahead of expectations and raised guidance for FY ’19.

  • Revenue of $79.1 million (+61.0% Y/Y) exceeded management’s $74.0-$75.0 million guidance and consensus of $74.9 million. Non-GAAP operating income was $6.1 million (7.7% margin), also above management’s guidance and consensus of $0.8 million. Non-GAAP EPS were $0.05, beating management’s guidance and consensus of $0.01.

  • Key metrics: billings of $84.7 million (+55% Y/Y); remaining performance obligations totaled $497 million (+63% Y/Y); dollar-based net retention was 118%.

  • Management plans to continue investing aggressively given an estimated total addressable market of $20.3 billion.

  • Adoption of Zscaler’s premium ZIA transformation bundle remains strong and is increasing as a percentage of ARR, and ZPA continues to see significant interest following its introduction a few years ago.

  • Earlier this week, Zscaler acquired Appsulate, a pre-revenue browser isolation company whose technology will be integrated into an extensible cloud platform, for approximately $13 million in cash; Appsulate is not expected to generate any revenues in Q4 or 2020, but will increase operating expenses by $7-$9 million in 2020.

  • Management’s Q4 guidance includes total revenue of $81.0-$83.0 million, non-GAAP operating income of $0-$2.0 million, and non-GAAP EPS of $0.01-$0.02, which compared favorably with consensus expectations for $78.9 million in revenue, $0.3 million in non-GAAP operating income, and $0.01 in non-GAAP EPS.

  • Management raised its FY ’19 guidance across the board, calling for billings of $379.0-$381.0 million, revenue of $298.0-$300.0 million, non-GAAP operating income of $17.0-$19.0 million, and non-GAAP EPS of $0.16-$0.18.

Zuora Reports First Quarter Fiscal 2020 Results

  • Zuora (ZUO) reported solid Q1 ’20 results but reduced its revenue outlook for FY ’20.

  • Total revenue was $64.1 million (+22.2% Y/Y), within management’s $63.5-$64.5 million guidance and approximately in line with consensus of $64.2 million. Non-GAAP operating income was $(12.5) million (-19.5% margin), above guidance and consensus of $(14.4) million. Non-GAAP EPS of $(0.11) also beat management’s guidance and consensus of $(0.13).

  • Key metrics: 546 customers (+24% Y/Y) with annual contract value (ACV) greater than $100,000; dollar-based retention rate of 110%; $9.7 billion (+34% Y/Y) in transaction volume through Zuora’s billing platform.

  • Newer reps have been less than half as productive as Zuora’s more experienced reps and product integration between Billing and RevPro has taken longer than anticipated, prompting the company to slow the pace of RevPro implementations in Q1.

  • Changes to the company’s approach to sales, including a realignment of the strategic account organization, a revamp of the pipeline process, and new sales leadership, have tempered expectations for the remainder of the year.

  • Marc Diouane will transition from his current role of President to advisor to Zuora’s Chief Executive Officer, and a search for his replacement is underway.

  • The integration of Zuora’s two flagship products is critically important and is expected to be completed by the end of Q3.

  • Management’s Q2 guidance calls for $66.0-$68.0 million in revenue, $(15.5)-$(14.0) million in non-GAAP operating income, and $(0.15)-$(0.13) in non-GAAP EPS, all of which were below Street expectations for $71.2 million in revenue, $(12.2) million in non-GAAP operating income, and $(0.11) in non-GAAP EPS.

  • For FY ’20, management lowered its revenue guidance from $289.0-$293.5 million to $268.0-$278.0 million and maintained its non-GAAP operating income and EPS guidance of $(49.0)-$(45.0) million and $(0.44)-$(0.40), respectively.