K. Liu's Week in Review
Following a 13D/A filing by controlling shareholder Dell Technologies (DELL) disclosing merger discussions, Pivotal Software (PVTL) confirmed that the company is negotiating an agreement to be acquired by VMware (VMW) for $15.00 per share in cash, representing a premium of nearly 81% to the close price prior to the disclosure. Assuming an enterprise value of approximately $3.7 billion, the purchase price values PVTL shares at TTM EV/Sales and EV/Subscription revenue multiples of 5.5x and 8.5x, respectively. Of course, there is no assurance that a deal will ultimately be reached. Switching gears to Nuance Communications (NUAN), the company published an investor presentation for its upcoming automotive software spin-off, Cerence Inc., revealing expectations for Cerence to generate non-GAAP revenue of $308-$310 million and adjusted EBITDA of $100-$120 million in FY ’19. The guidance implies a CAGR of 13% in revenue from FY ’16 through FY ’19. Other highlights include a total addressable market estimated to grow from $0.6 billion in 2019 to $4.5 billion by 2025, representing a CAGR of 39%, and total backlog of $1.3 billion, over half of which is expected to be recognized in the next three years.
Two more companies tapped into investor demand for convertible notes this week, raising significant sums in the process. Akamai Technologies (AKAM) priced $1 billion in aggregate principal amount of 0.375% convertible senior notes due 2027 at an initial conversion price of $116.18 per share, representing a 30% premium to the close price prior to the announced offering. The company anticipates net proceeds of $986.9 million (or $1.135 billion if the initial notes purchasers exercise their option to purchase up to an additional $150 million in full), of which $100.0 million is earmarked for the repurchase of AKAM shares from purchasers of the notes at a price of $89.37 per share and another $110.5 million will be put towards the cost of convertible hedge note transactions. The remaining proceeds will be used for working capital and other general corporate purposes. Workiva (WK) priced an offering of $300 million in aggregate principal amount of 1.125% convertible senior notes due 2026 at an initial conversion price of $80.16 per share, representing a premium of nearly 30% to the close price prior to the announced offering. The company anticipates net proceeds of $291.1 million (or approximately $336.0 million if the initial purchasers exercise their option to buy up to an additional $45 million in full), which will also be used for working capital and other general corporate purposes. Separately, Workiva priced a secondary offering of 1,287,038 shares of common stock by selling stockholders comprised of the company’s President and Chief Executive Officer, Chief Technology Officer, Chief Financial Officer, Chief Legal and Administrative Officer, Chief Revenue Officer, and Chief Customer Officer at $56.25 per share, a 9% discount to the close price prior to the announced offering. The underwriter has been granted a 30-day option to purchase up to an additional 193,000 shares. Workiva will not receive any proceeds from the secondary offering.
Only a handful of companies reported this week as the calendar Q2 ’19 earnings season drew to a close. Radcom (RDCM), a network test and monitoring vendor, was the big winner with shares rising 23% for the week after the company’s Q2 results beat and management raised its revenue outlook for the year. Initial contribution from Radcom’s recently announced multi-year agreement with a new strategic customer, Rakuten Mobile, helped boost results. Combined with the renewal of its agreement with AT&T last quarter, the wins provide a path to renewed growth in FY ’20. VIAVI Solutions (VIAV) also outperformed expectations for its fiscal Q4 ‘19 on strength in its Network Enablement (NE) and Optical Security and Performance Products (OSP) segments. Management attributed strong performance in the former to fiber and wireless test products, while the latter was driven by 3D sensing and anti-counterfeiting products. Guidance for Q1 ’20 was in line with consensus. In the security space, Absolute Software (ABT-CA) posted fiscal Q4 revenues and adjusted EBITDA ahead of expectations and guided FY ’20 in line with consensus. The strong finish to the company’s FY ’19 closes out a year of transition in which Absolute completed both a platform modernization and an organizational realignment. Management’s focus is now squarely on innovation and growth from new revenue streams such as persistence-as-a-service, and investments will be made in inside sales and channel support, customer success, and corporate branding and awareness.
Two other microcaps that reported this week fared less well. Shares of digital accessibility vendor AudioEye (AEYE) declined sharply despite solid top line results in Q2 and an even more impressive bookings performance. The sell-off was precipitated by a reduction in management’s revenue expectations for the year due to a slower than anticipated ramp in its partner channel and the company’s agreement to reduce the exercise price associated with approximately 1.3 million warrants by 35% in exchange for the early exercise of those warrants. While the early exercise nets the company approximately $2.2 million in cash, we surmise that management’s expectations for cash burn to remain near Q2 levels in 2H ’19 raised fears that further dilution may be on the horizon. IZEA Worldwide (IZEA), which provides a platform connecting marketers and influencers, reported a revenue shortfall accompanied by a larger than anticipated loss in Q2. Management noted that several large marketplace customers delayed or reduced spending levels in the quarter, but expectations are for those customers to increase spending over the remainder of the year. IZEA has also settled its July acquisition obligations with stock, thereby preserving its recently raised cash to fund investments in sales headcount and in its core technology platform in the coming quarters. The following table depicts each reporting company’s share price performance for the week, actual results versus Street expectations for the quarter, and subsequent estimate revisions for the current fiscal quarter and year.
In another busy week for executive appointments, several companies announced new additions to their sales organizations. Brightcove (BCOV), which offers cloud-based solutions for video, hired Brian Froehling as Senior Vice President, Americas Sales. Mr. Froehling will oversee all sales operations in North, Central, and South America and joins the company from CA Technologies where he was Vice President of Sales. Qumu (QUMU), another enterprise video solutions provider, appointed Michele Thomas and Pete Blackhurst as VP Sales, Americas and VP Sales, EMEA, respectively. Ms. Thomas joins Qumu from Ramp where she led North American Sales and Partner Engagement, while Mr. Blackhurst joined the company earlier in the year and has previously led sales teams at Vodafone, Sterling Software and Smart Communications. SS&C (SSNC), a developer of software solutions for the financial services industry, promoted Eamonn Greaves to Global Head of Sales and elevated one of its top-performing sales executives, Rob Stone, to succeed Mr. Greaves’ as Head of Alternative Assets Sales in North America.
As for other executive and board appointments this week, Alteryx (AYX) named Amy Heidersbach, who has previously launched and grown marketplace businesses at Capital One and Paypal, as its Chief Marketing Officer. Domo (DOMO) announced several additions to its team, appointing John Mellor as Chief Strategy Officer, Robert Davy as Vice President of Ecosystem, and Pam Marion as Chief Customer Success Officer. Mr. Mellor joins the company from Adobe (ADBE) where he served as vice president for strategy and business operations for Adobe’s Digital Experience business. Mr. Davy joins from Microsoft (MSFT) where he was general manager of its customer success unit in the financial services industry. Ms. Marion joins the company from SAP SuccessFactors (SAP) where she was chief of staff and senior vice president of strategic programs and customer experience. Tufin (TUFN) appointed Larry Alston and Michal Lewy-Harush as GM of Cloud and CIO, respectively. Cloudera (CLDR) appointed Nicholas Graziano and Jesse Lynn, both employees of Icahn Enterprises, to its Board of Directors after reaching a voting and standstill agreement with Carl C. Icahn. Mr. Graziano will serve on the Mergers & Acquisitions Committee of the Board and Mr. Lynn has been appointed to the CEO Search Committee. Finally, Tenable (TENB) appointed Linda Zecher, CEO of the Barkley Group, to its Board of Directors.
Mergers and Acquisitions
Pivotal In Discussions With VMware Regarding Potential Business Combination
Pivotal Software (PVTL) confirmed that the company is in discussions with VMware (VMW) to be acquired for $15.00 per share in cash, representing an 80.7% premium to the close price prior to the announcement.
The proposed purchase price represents TTM EV/Sales and EV/Subscription revenue multiples of 5.5x and 8.5x, respectively.
The companies remain in negotiations and there is no assurance that a definitive agreement will be reached.
Earnings Releases
Absolute Reports Fiscal 2019 Fourth Quarter and Annual Financial Results
Absolute Software (ABT-CA) reported Q4 ’19 results above expectations and guided FY ’20 in line with consensus.
Total revenue was $25.3 million (+5.0% Y/Y), near the high-end of management’s implied Q4 guidance and slightly above consensus of $25.0 million. Adjusted EBITDA was $4.9 million (19.4% margin), within guidance and ahead of the Street’s $4.6 million. EPS of $0.05 were in line with consensus.
Key metrics: Annual Contract Value (ACV) Base of $98.0 million (+7% Y/Y); Incremental ACV was $2.8 million, of which $2.1 million was from new customers; Net ACV retention rate of 101%.
Growth in the ACV Base was driven by an 11% Y/Y increase in the Enterprise portion (55% of Base) and a 15% Y/Y increase in the Government portion (12% of Base), partially offset by a 1% Y/Y decrease in the Education component (33% of Base).
Signed first persistence as a service deal in Q4 and expect to build on this momentum in FY ’20 as the company expands its partner ecosystem.
Heading into FY ’20, the bulk of the company’s platform modernization work is complete, its organizational realignment is done, and management’s focus is now shifting to innovation to drive new growth and revenue streams.
Areas of investment include inside sales and channel support, customer success, and corporate branding and awareness.
Management’s FY ’20 outlook calls for revenue of $103.0-$106.0 million and an adjusted EBITDA margin of 18%-22%, implying adjusted EBITDA of $18.5-$23.3 million, consistent with consensus expectations for $104.4 million in revenue and $19.8 million in adjusted EBITDA.
AudioEye Reports Second Quarter 2019 Results
Total revenue of $2.4 million (+97.2%) was in line with consensus. EPS were $(0.27), below consensus of $(0.19).
Key metrics: bookings of $7.3 million (+140% Y/Y); monthly recurring revenue (MRR) of $774,000; 18 partners and over 1,400 customers at quarter-end; customer retention rate remains in the mid-90s.
Similar to Q1, partner implementations and ramp-up were slower than expected in the quarter.
Expenses were elevated due to consulting, advisory, and infrastructure costs, some of which were one-time in nature.
Subsequent to the end of Q2, AudioEye agreed to reduce the exercise price for warrants to purchase approximately 1.2 million shares from $2.50 to $1.63 per share and to reduce the exercise price for warrants to purchase 85,719 shares from $6.25 to $4.07 per share in exchange for the early exercise of those warrants, adding $2.2 million in cash to the balance sheet.
The company has also negotiated a $2.0 million line of credit with a private lender.
Q3 is expected to be a seasonally slower quarter than Q2 but should still reflect one of the company’s strongest bookings quarters ever followed by more seasonal strength in Q4.
Management raised its FY ’19 bookings guidance from $20.0-$22.0 million to $22.0-$24.0 million but reduced its revenue outlook for the year from $11.0-$13.0 million to $10.0-$11.0 million.
IZEA Reports Q2 2019 Financial Results
IZEA Worldwide (IZEA) reported Q2 ’19 results below Street expectations.
Total revenue was $3.9 million (-4.7% Y/Y), below consensus of $5.4 million. Adjusted EBITDA was $(1.3) million (-32.3% margin), also short of the Street’s $(0.8) million. EPS of $(0.09) missed consensus by a penny.
Gross billings totaled $6.6 million (+35.2% Y/Y) driven by growth in billings from Marketplace Spend Fees, License Fees and Other Revenue, partially offset by declines in Managed Services and Legacy Workflow Fees.
In Q2, IZEA experienced delays or spending adjustments from several of its large marketplace vendors, but many of those customers have indicated spending should return to growth in 2H.
The last cohort of pre-acquisition TapInfluence customers is up for renewal in Q3, and management anticipates SaaS licensing revenue will be higher than Q2 despite some potential churn amongst smaller customers.
The company elected to settle its July acquisition obligations using common shares, leaving a healthy balance sheet in place to fund operations and invest in its core technology platform.
Investments will rise in 2H as IZEA ramps sales headcount both in SaaS and managed services and increases marketing spend.
Radcom Reports Second Quarter 2019 Results
Radcom (RDCM) reported Q2 ’19 results above expectations and raised its revenue outlook for FY ’19.
Total revenues of $8.5 million (-19.7% Y/Y) were well above consensus of $4.9 million. Non-GAAP operating income of $(0.7) million exceeded consensus of $(3.8) million. Non-GAAP EPS of $(0.03) beat consensus of $(0.27).
Q2 results reflected some benefit from the company’s multi-year contract with a new strategic customer, Rakuten Mobile, which aims to disrupt the mobile industry in Japan by building a highly automated network with no specialized hardware.
AT&T, which signed a new three-year contract last quarter, continues to move forward with its transition to NFV and the transformation of its network to a software-centric platform, and now offers 5G services in 19 U.S. cities.
The company maintains an active pipeline, which includes some opportunities that could close this year.
Management raised its FY ’19 revenue guidance from $28.0-$32.0 million to $30.0-$33.0 million.
Management expects growth next year and sees a path to double-digit growth but noted that it’s still too early to assume that level of growth.
VIAVI Announces Fourth Quarter and Year End Fiscal 2019 Results
VIAVI Solutions (VIAV) reported Q4 ’19 results above expectations and guided Q1 ’20 in line with consensus.
Net revenue of $289.7 million (+11.1% Y/Y) was above management’s $268.0-$288.0 million guidance and consensus of $278.0 million. Non-GAAP operating income of $50.9 million (17.6% margin) exceeded consensus of $45.3 million. Non-GAAP EPS of $0.17 beat management’s guidance of $0.14-$0.16 and consensus of $0.15.
The upside was driven by fiber and wireless test products within the Network and Service Enablement (NSE) segment and by 3D sensing and anti-counterfeiting products in the Optical Security and Performance Products (OSP) segment.
Both 5G wireless and upgrades to 400-gig continue to create demand for fiber products, while spending by North American cable providers and data center customers was weaker in the quarter.
NSE revenue of $221.4 million (+6.7% Y/Y) was comprised of $197.3 million (+10.2% Y/Y) in Network Enablement revenue and $24.1 million (-15.4% Y/Y) in Service Enablement revenue, which declined due to an expected runoff in mature service assurance products and weaker demand from data center customers; OSP revenue was $68.3 million (+28.4% Y/Y).
Guidance for Q1 calls for revenue of $273.0-$293.0 million and non-GAAP EPS of $0.14-$0.16, in line with consensus expectations for $283.0 million in revenue and $0.15 in non-GAAP EPS.
Notable News
Akamai Announces Pricing of Offering of Convertible Senior Notes
Akamai Technologies (AKAM) priced $1 billion in aggregate principal amount of convertible senior notes due 2027 and has granted the initial purchasers an option to purchase up to an additional $150 million in principal amount of the notes.
The notes will bear interest at a rate of 0.375% per year and the initial conversion rate will be 8.6073 shares of Akamai common stock per $1,000 principal amount of notes, which represents an initial conversion price of $116.18 per share and a 30% premium to the close price prior to the announced offering.
Akamai anticipates net proceeds of $986.9 million (or $1.135 billion if the initial purchasers exercise their option to purchase additional notes in full) and plans to use $100.0 million to repurchase shares of its common stock from purchasers of the notes in the offering at a price of $89.37 and another $110.5 million to pay the cost of convertible note hedge transactions.
The remaining net proceeds will be used for working capital and other general corporate purposes.
Alteryx Appoints Chief Marketing Officer to Fuel Company Growth
Alteryx (AYX) has appointed Amy Heidersbach as its Chief Marketing Officer.
Ms. Heidersbach will be responsible for the company’s go-to-market strategy and delivering data-driven programs that enable businesses to leverage analytics to accelerate their digital transformation and performance improvement initiatives.
Ms. Heidersbach has launched and grown marketplace businesses at Capital One and Paypal and has built numerous brands in her 20+ years of experience.
Brightcove Appoints New Senior Vice President, Americas Sales
Brightcove (BCOV) announced the appointment of Brian Froehling as Senior Vice President, Americas Sales.
Mr. Froehling will lead sales operations across North, Central, and South America.
He joins the company from CA Technologies where he served as Vice President of Sales.
Cloudera and Carl C. Icahn Announce Agreement
Cloudera (CLDR) announced a voting and standstill agreement with Carl C. Icahn and his affiliates under which Cloudera will appoint two Icahn Enterprises employees, Nicholas Graziano and Jesse Lynn, to its Board of Directors, effective immediately.
Mr. Graziano will be appointed to the Mergers & Acquisitions Committee of the Board and Mr. Lynn will be appointed to the CEO Search Committee.
Cloudera has agreed to expand the size of the Board to 10 members and to limit the size at 10 for the duration of the agreement but may expand the size to 11 upon the hiring and appointment of a new Chief Executive Officer.
The Icahn Group has agreed not to nominate any directors at the company’s 2020 annual meeting of stockholders, to vote all shares in favor of the company’s nominees and the proposal to ratify the appointment of Cloudera’s independent auditor, and to limit its beneficial ownership of Cloudera securities to 20% of outstanding shares.
The Icahn Group currently owns approximately 50.3 million shares, representing 18.36% of outstanding shares.
Domo Expands Management Team, Attracting Senior Leaders from Adobe, Microsoft and SAP
Domo (DOMO) announced the additions of John Mellor as Chief Strategy Officer, Robert Davy as Vice President of Ecosystem, and Pam Marion as Chief Customer Success Officer.
Mr. Mellor joins the company from Adobe where he served as vice president for strategy and business operations for Adobe’s Digital Experience business, and he will be responsible for shaping Domo’s corporate strategy and positioning.
Mr. Davy joins from Microsoft where was general manager of its customer success unit in the financial services industry, and he will assume responsibility for the build out and support Domo’s ecosystem.
Ms. Marion joins the company from SAP SuccessFactors where she served as chief of staff and senior vice president of strategic programs and customer experience.
Nuance Posts Investor Presentation for Cerence
Nuance Communications (NUAN) posted an investor presentation providing additional information on its upcoming automotive software spin-off, Cerence Inc.
Cerence’s TAM is expected to increase from $0.6 billion in 2019 to $4.5 billion in 2025, reflecting a CAGR of 39%.
Cerence is expected to generate non-GAAP revenue of $308-$310 million, representing a CAGR of 13% over the past three years, and adjusted EBITDA of $100-$120 million in FY ‘19.
Cerence has a backlog in excess of $1.3 billion, over half of which is expected to be recognized in the next three years.
Qumu Appoints Two New Executives to Lead Sales for the Americas and EMEA
Qumu (QUMU) has appointed Michele Thomas as VP Sales, Americas and Pete Blackhurst as VP Sales, EMEA.
Ms. Thomas will lead the sales and channel teams in the Americas and joins the company from Ramp where she was the North American Sales and Partner Engagement leader.
Mr. Blackhurst, who joined the company earlier in the year, leads the sales and channel teams in EMEA and has previously led sales teams at Vodafone, Sterling Software, and Smart Communications.
SS&C Announces New Sales Leadership Appointments
SS&C Technologies Holdings (SSNC) has appointed Eamonn Greaves to Global Head of Sales.
Rob Stone will succeed Mr. Greaves as Head of Alternative Assets Sales in North America.
Mr. Greaves has been with the company since 2012 when SS&C acquired GlobeOp, and Mr. Stone has been a top-performing sales executive at the company for 10 years.
Tenable Appoints Linda Zecher to Board of Directors
Tenable announced the appointment of Linda Zecher to the company’s Board of Directors.
Ms. Zecher currently serves as CEO and managing director of the Barkley Group, a consulting firm focused on digital transformation, and also serves on Hasbro’s Board of Directors.
Tufin Hires Larry Alston as GM of Cloud and Michal Lewy-Harush As CIO in Latest Round of Hires
Tufin (TUFN) announced the additions of Larry Alston as Cloud General Manager and Michal Lewy-Harush as CIO.
Mr. Alston will be responsible for the company’s cloud-native business and has previously held a number of senior and executive management roles at Teradata, Altisource, FuseSource, IONA, and Excelon.
Ms. Lewy-Harush joins the company from Gett, where she served as CIO.
Workiva Announces Pricing of Private Offering of $300 Million of 1.125% Convertible Senior Notes
Workiva (WK) priced an offering of $300 million in aggregate principal amount of Convertible Senior Notes due 2026.
The notes will bear interest at a rate of 1.125% per year and have an initial conversion rate of 12.4756 shares per $1,000 principal amount of the notes, representing an initial conversion price of approximately $80.16 per share and 29.5% premium to the close price prior to the announcement of the offering.
The company has also granted the initial purchasers a 13-day option to purchase up to an additional $45 million aggregate principal amount of the notes.
Workiva anticipates net proceeds from the offering of approximately $291.1 million (or approximately $336.0 million if the initial purchasers exercise their option to purchase additional notes in full), which are expected to be put towards working capital and other general corporate purposes.
Workiva Prices Secondary Offering by Selling Stockholders
Workiva (WK) priced a secondary offering of 1,287,038 shares by selling stockholders at $56.25 per share, representing a 9.1% discount to the close price prior to the announced offering.
The underwriter has also been granted a 30-day option to purchase up to an additional 193,000 shares.
The selling stockholders include Martin Vanderploeg, Ph.D., President and Chief Executive Officer; Jeffrey Trom, Ph.D., Chief Technology Officer; J. Stuart Miller, Chief Financial Officer; Troy Calkins, Chief Legal and Administrative Officer and Corporate Secretary; Scott Ryan, Chief Revenue Officer; and Mithum Banarjee, Chief Customer Officer.
Workiva will not receive any proceeds from the offering.
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).