K. Liu's Week in Review

Coming off a holiday-shortened week in which Broadcom (AVGO) was reportedly close to acquiring Symantec (SYMC) for north of $15 billion and subsequently rumored to also be considering a deal for privately-held Tibco, we expected more fireworks this week. Instead, it was another week of respite ahead of the upcoming Q2 earnings season. Of note, Aspen Technology (AZPN) capped off the week with an agreement to acquire Montreal-based Mnubo, adding artificial intelligence (AI) and analytics infrastructure technology used by industrial companies to build and deploy internet of things (IoT) applications quickly and at scale. The company also disclosed its June 2019 acquisition of Sabisu, a UK-based provider of data visualization and workflow solutions to enable real-time decision support. AspenTech expects the acquisitions to accelerate the distribution of embedded AI throughout its products and enable customers to continuously improve the design, operation, and maintenance of their industrial assets through automation.

Earlier this week, EXFO (EXFO) reported its fiscal Q3 ’19 results, delivering adjusted EBITDA ahead of expectations on in line sales. The company’s slight Y/Y revenue increase was driven by another solid quarter of growth for its Test and Measurement segment, partially offset by a low-double digit decline in its Service Assurance, Systems and Services (SASS) segment. The former continues to be driven by strong demand for 100G/200G/400G optical transport solutions, while the latter remains pressured by delayed decisions as customers evaluate how best to transform their network architectures to virtualized 5G infrastructures. Bookings declined in the mid-single-digit range Y/Y, resulting in book-to-bill below 1.0. However, management noted that a $4 million SASS deal closed shortly after quarter-end, which would have boosted book-to-bill above that threshold. Nonetheless, guidance for Q4 fell short of Street expectations although EXFO remains on track to deliver on prior FY ’19 expectations for $24 million in adjusted EBITDA. As it relates to NetScout Systems (NTCT), we believe EXFO’s SASS performance suggests service provider spending on network monitoring solutions has yet to improve, which is consistent with NetScout’s expectations for headwinds to persist until the latter half of its FY ’20. In this regard, EXFO’s CEO Philippe Morin believes service providers will begin to “massively deploy new radio equipment for the standalone 5G standard” in 2020, opening the door for purchases of RAN optimization and geolocation solutions. Mr. Morin does not anticipate significant spending on network monitoring until “mid- to late-2020 when commercial deployments of 5G networks become more commonplace and there is a critical mass of subscribers who will require a flawless quality of experience.” NetScout has previously cited success in securing 5G calibration deals as well as several initial deals for 5G radio access monitoring, so the service provider spending cycles anticipated by EXFO appear reasonable and consistent in our view. We remain comfortable with our estimates for NetScout at this juncture.

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As for other notable developments this week, MicroStrategy (MSTR) disclosed that both Kevin Norlin, Senior Executive Vice President, Worldwide Sales, and Stephen Holdridge, Senior Executive Vice President, Worldwide Services had resigned. The company’s current Chief Operating Officer and Chief Financial Officer, Phong Le, has assumed responsibilities for Worldwide Sales and Services, and MicroStrategy has commenced a search for a new Chief Financial Officer. Nutanix promoted Sammy Zoghlami, the company’s sales lead in Southern Europe, to Senior Vice President of Sales for the EMEA region. Benefitfocus (BNFT) named current Board member Stephen Swad as its new Chief Financial Officer. Palo Alto Networks (PANW) appointed Jean English at its new Chief Marketing Officer, replacing René Bonvanie who has stepped away for health reasons and will assume a new role as Executive Vice President of Strategic Accounts. Finally, Oracle (ORCL) announced the election of Rona Fairhead to its Board of Directors.

Mergers and Acquisitions

Aspen Technology Acquires Mnubo and Sabisu to Deliver Scalable AI-Driven Solutions for the Smart Enterprise

  • Aspen Technology (AZPN) has agreed to acquire Mnubo, a provider of artificial intelligence and analytics infrastructure that enables industrial companies to assemble and deploy internet of things applications, for C$102 million.

  • AspenTech also announced that the company acquired Sabisu in June 2019, adding capabilities for data visualization and workflow to deliver real-time decision support.

  • The acquisitions will accelerate the distribution of embedded artificial intelligence throughout AspenTech’s solutions and support the automation of data-driven decision making, enabling customers to continuously improve the design, operation and maintenance lifecycle of industrial assets.

Earnings Releases

EXFO reports third quarter results for fiscal 2019

  • EXFO reported solid Q3 ’19 results, but guided Q4 below consensus.

  • Sales of $73.6 million (+1.9% Y/Y) were in line with guidance of $70.0-$75.0 million and consensus of $73.5 million. Adjusted EBITDA of $7.9 million (10.7% margin) exceeded consensus of $5.2 million. EPS of $0.00 were below the Street’s $0.04.

  • Bookings totaled $69.6 million (-4.8% Y/Y), resulting in a book-to-bill ratio of 0.95.

  • Test and Measurement sales increased 9.0% Y/Y to $54.4 million driven by demand for 100G/200G/400G optical transport solutions in the communications service provider market as well as high-end instruments from the acquisition of Yenista Optics; Test and Measurement bookings declined 3.7% Y/Y to $50.2 million.

  • Service Assurance, Systems and Services (SASS) sales declined 12.2% Y/Y to $19.5 million as customers continue to evaluate how to optimally transform network architectures into virtualized 5G infrastructures; SASS bookings declined 5.5% Y/Y to $19.6 million.

  • A $4 million SASS order was secured early in Q4 and would have boosted book-to-bill above 1.0 had it closed in Q3.

  • Management’s guidance for Q4 includes sales of $66.0-$71.0 million and EPS of $(0.02)-$0.02, falling short of consensus expectations for $74.2 million in revenue and $0.07 in EPS.

  • Management remains confident in achieving prior FY ’19 expectations for $24.0 million in adjusted EBITDA.

Notable News

Benefitfocus Appoints Current Board Member and Veteran Technology Finance Executive, Stephen Swad, as CFO

  • Benefitfocus (BNFT) has appointed Stephen Swad to the role of Chief Financial Officer.

  • Mr. Swad currently serves on the company’s Board of Directors and joins the company from Vox Media where he has served as Chief Financial Officer since January 2016.

MicroStrategy Discloses Departure of Two Senior Executives

  • In an 8-K filing, MicroStrategy (MSTR) disclosed the resignations of Kevin Norlin, Senior Executive Vice President, Worldwide Sales and Stephen Holdridge, Senior Executive Vice President, Worldwide Services.

  • The company’s Chief Operating Officer and Chief Financial Officer, Phong Le, will assume responsibilities for leading Worldwide Sales and Services, effective immediately.

  • MicroStrategy has begun a search for a new Chief Financial Officer to allow for Mr. Le to focus on his new responsibilities, although he will remain Chief Financial Officer until a successor is identified.

Oracle Names Rona Fairhead to the Board of Directors

  • Oracle (ORCL) announced that Rona Fairhead has been elected to the company’s Board of Directors, increasing the size of the Board to 15 directors.

  • Mrs. Fairhead most recently served as Minister of State for Trade and Export Promotion, Department for International Trade in the United Kingdom, and prior to that, she served as Chair of the British Broadcasting Corporation Trust.

Palo Alto Networks Welcomes Jean English as New Chief Marketing Officer

  • Palo Alto Networks (PANW) appointed Jean English at its Chief Marketing Officer, effective August 1, 2019.

  • Ms. English most recently served as Senior Vice President and Chief Marketing Officer at NetApp.

  • The company’s current Chief Marketing Officer, René Bonvanie, has stepped away to manage a chronic illness and will assume a new role as Executive Vice President of Strategic Accounts.

Sammy Zoghlami Appointed as Senior Vice President of Sales in EMEA Region

  • Nutanix (NTNX) announced the appointment of Sammy Zoghlami as Senior Vice President of Sales for Europe, the Middle East, and Africa.

  • Mr. Zolghani previously served as the company’s sales lead in Southern Europe and will now have responsibility for sales and customer support, strategic business development and strategy, management of Nutanix’s offices and operational teams in each EMEA country, and partnerships, alliances and channel activities in the region.

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).