K. Liu's Week in Review
Our calendar Q3 ’20 earnings season began with CTG, Inc. (CTG) surpassing Street expectations as the company made further strides in shifting towards a more solutions-centric business. The unexpected return to growth in its IT Solutions segment produced a favorable revenue mix, which in turn drove significant gross margin expansion and strong flow through to the bottom line. A more detailed recap may be found in our report, “Success of Solutions Initiatives Boosts Q3 Results; Raising Price Target from $6.25 to $7.25.”
Outside of our coverage universe, Brightcove (BCOV), which offers solutions enabling organizations to engage with customers, employees and partners via video, provided investors with plenty of reasons to cheer following a strong quarter and outlook. Management highlighted an exceptional sales quarter that surpassed the record levels seen in Q2 and a rebound in the company’s net dollar retention rate back above 100%. New products like Brightcove Beacon and Brightcove Virtual Event Experiences are resonating with customers and prospects, and pipeline growth has remained robust driven by investments in field sales marketing and virtual events. Combined with a significant number of recently added sales reps now becoming productive, Brightcove’s ability to sustain its recent momentum appears promising. In its first quarter post-IPO, Duck Creek Technologies (DCT), a provider of core and ancillary systems enabling property and casualty insurers to run all aspects of their business, also delivered upside results and guidance.
Check Point Software Technologies (CHKP), Citrix Systems (CTXS) and Manhattan Associates (MANH) also posted Q3 ’20 results ahead of expectations but all saw their shares end the week lower. At Check Point, a wider than usual range in its Q4 outlook and a relatively high reliance on product sales may have given investors pause despite an in line guide for the current quarter. Citrix continues to benefit from the shift to work-from-anywhere and actually offered a preliminary outlook for FY ’21 ahead of Street expectations. However, the outlook for next year came with the caveat that growth would be “sharply negative” early in the year due to a difficult compare and the end of perpetual license sales for its Workspace product in Q3 before ramping in the ensuing quarters. Somewhat similarly, Manhattan Associates (MANH) also provided an initial glimpse into its FY ’21 expectations and indicated the results would be back-end weighted. Additionally, Manhattan’s non-GAAP operating margin and earnings are expected to take a step back due to ongoing declines in license sales, the reversal of cost actions taken this year and incremental investments to support the company’s cloud growth opportunity.
Moving to the observability space, Splunk (SPLK) bolstered its suite of solutions with the acquisitions of Plumbr and Rigor. The former adds application performance management solutions spanning auto-instrumentation, Real User Monitoring and application performance insights to Splunk’s Observability Suite, while the latter brings synthetic monitoring and optimization tools used for digital experience monitoring. SolarWinds (SWI) expanded its support for Microsoft and Microsoft Azure environments, agreeing to acquire SentryOne, which provides database performance management and DataOps solutions on SQL Server, Azure SQL Database and the Microsoft Data Platform.
Turning to executive moves for the week, Viavi Solutions (VIAV) announced the resignation of CFO Amar Maletira. He plans to join Rackspace Technology (RXT) as President and CFO and will be succeeded by Pam Avent, VIAVI’s Global Controller, in the interim. In conjunction with the news, VIAVI pre-announced fiscal Q1 ’21 results above expectations. Absolute Software (ABT-CA) appointed Steven Gatoff as its CFO, effective November 10, 2020. He most recently served as CFO of 8x8 (EGHT). Finally, Mimecast (MIME) has a new channel leader after appointing Jonathan Corini as Senior Vice President of Global Channel Sales. He joins the company from Forescout Technologies where he was Vice President of Worldwide Channel Sales.
Mergers and Acquisitions
SolarWinds (SWI) has agreed to acquire SentryOne, which offers database performance monitoring and DataOps solutions on SQL Server, Azure SQL Database and the Microsoft Data Platform.
The acquisition adds complementary solutions to SolarWinds’ existing portfolio of on-premises and cloud-native database management offerings and expands its support for Microsoft and Microsoft Azure environments.
Splunk to Acquire Plumbr and Rigor, Expanding the World’s Most Comprehensive Observability Portfolio
Splunk (SPLK) has acquired Plumbr, a provider of application performance management solutions spanning auto-instrumentation, Real User Monitoring and deep application performance insights.
Splunk has also agreed to acquire Rigor, which offers synthetic monitoring and optimization tools for digital experience monitoring.
The acquisitions expand the breadth of capabilities available as part of Splunk’s Observability Suite.
Earnings Releases
Brightcove Announces Financial Results for Third Quarter Fiscal Year 2020
Brightcove (BCOV) reported Q3 ’20 results above expectations and guided Q4 ahead of consensus.
Revenue was $49.1 million (+3.5% Y/Y), exceeding guidance for $46.0-$47.0 million and consensus of $46.3 million. Adjusted EBITDA was $5.9 million (11.9% margin), ahead of guidance for $0.8-$1.3 million and consensus of $1.0 million. Non-GAAP EPS of $0.11 beat guidance for $(0.02)-$(0.01) and the Street’s $(0.02).
Key metrics: 3,381 customers (-9% Y/Y) at quarter-end, including 2,267 premium customers (-4% Y/Y); average annual subscription revenue per premium customer was $89,000 (+5% Y/Y); recurring dollar retention rate was 101%.
Q3 was an exceptional sales quarter that built on and exceeded the record sales posted in Q2, reflecting the strategic decisions and investments made over the past 2.5 years and the increasingly essential role video plays in enabling organizations to connect with customers, employees and partners.
Gross renewal rates improved from recent quarters but the increase in the dollar retention rate mostly reflected strong upsell activity; building a stronger, more predictable renewal business to improve retention rates is a major area of focus.
A focus on global field marketing and custom virtual events has fueled robust pipeline growth across all regions, and a significant number of new sales reps added this year are quickly becoming productive.
Brightcove Beacon, which enables any organization to maintain an OTT offering, continues to see tremendous success with both deal volume and average deal size exceeding expectations.
Virtual events momentum is building, and Brightcove has partnered with the three largest event planning companies: Cvent, RainFocus and Jack Morton.
Q4 guidance for revenue of $49.5-$50.5 million, adjusted EBITDA of $4.2-$4.7 million and non-GAAP EPS of $0.07-$0.08 exceeded Street expectations for $46.0 million, $1.6 million and $(0.01), respectively.
Check Point Software Technologies Reports Third Quarter 2020 Financial Results
Check Point Software Technologies (CHKP) reported Q3 ’20 results ahead of Street expectations and guided Q4 in line.
Revenue of $509.0 million (+3.7% Y/Y) was above consensus of $504.1 million. Non-GAAP operating income was $265.0 million (52.1% margin), exceeding consensus of $244.8 million. Non-GAAP EPS of $1.64 beat the Street’s $1.53.
Results were ahead of expectations due to healthy growth in network security products and strength in strategic areas like cloud sales, which increased high double-digits, and emerging solutions built on the Infinity architecture.
The government, telecommunications, technology and healthcare verticals all produced strong results and significant increases in the number of transactions over $1 million.
Check Point’s next major software version release will be available shortly and features autonomous threat prevention capabilities, automatic hardware and core allocation on the gateway, and rapid policy installation.
Q4 guidance for revenue of $525.0-$575.0 million and non-GAAP EPS of $2.00-$2.18 was consistent with Street expectations for revenue of $555.2 million and non-GAAP EPS of $2.09.
Citrix Reports Third Quarter 2020 Financial Results
Citrix Systems (CTXS) reported Q3 ’20 results above consensus and guided FY ’21 ahead of Street expectations.
Revenue was $767.2 million (+4.7% Y/Y), above guidance for $750.0-$760.0 million and consensus of $758.7 million. Non-GAAP operating income was $220.6 million (28.8% margin), above consensus of $202.3 million. Non-GAAP EPS of $1.38 beat guidance for $1.20-$1.25 and consensus of $1.25.
Key metrics: subscription ARR was $1.03 billion (+53% Y/Y); SaaS ARR was $630 million (+36% Y/Y); Citrix Cloud paid subscriber growth was 8.3 million (+36% Y/Y); subscription bookings comprised 70% of total bookings; future committed revenue of $433 million (+20% Y/Y).
The strong performance was driven by the Citrix Workspace as companies sought to ensure a safe, secure and productive work experience regardless of where their people work.
Q3 was the last quarter in which the Citrix Workspace was broadly available under the perpetual license model, and Workspace will primarily be sold as a SaaS or on-premises subscription going forward.
Management expects to finish the year with 85%-90% of total bookings coming from subscriptions.
Q4 guidance for revenue of $775.0-$785.0 million and non-GAAP EPS of $1.25-$1.35 was mixed relative to Street expectations for revenue of $787.8 million and non-GAAP EPS of $1.32.
Management’s preliminary outlook for FY ’21 includes revenue growth of approximately 4%, implying revenue of $3.328-$3.338 billion, and non-GAAP EPS of $6.20-$6.40, both of which compared favorably with Street expectations for revenue of $3.274 billion and non-GAAP EPS of $6.18.
Duck Creek Technologies Announces Fourth Quarter and Full Year Fiscal 2020 Financial Results
Duck Creek Technologies (DCT) reported Q4 ’20 results above expectations and guided FY ’21 ahead of consensus.
Revenue of $58.3 million (+21.7% Y/Y) exceeded consensus of $53.5 million. Adjusted EBITDA was $3.0 million (5.2% margin), above consensus of $(0.4) million. Non-GAAP EPS of $0.02 beat the Street’s $(0.02).
Key metrics: SaaS ARR was $95.6 million (+85% Y/Y); SaaS net dollar retention was 117%; signed eight Duck Creek OnDemand wins; over 60 carriers to date have deployed Duck Creek OnDemand.
Management attributed the strong performance to increasing market demand and diligent execution by the team.
Property and casualty insurance carriers currently spend over $80 billion on IT systems annually, of which approximately $15 billion represents Duck Creek’s addressable market opportunity.
The company remains in investment mode and plans to expand its global sales footprint and engagement efforts.
Q1 guidance for revenue of $55.0-$56.0 million, adjusted EBITDA of $0-$1.5 million and non-GAAP EPS of $(0.01)-$0.00 was ahead of Street expectations for $54.3 million, $(2.0) million and $(0.03), respectively.
Management’s FY ’21 guidance includes $244.0-$249.0 million in revenue, $3.0-$5.0 million in adjusted EBITDA and $(0.04)-$(0.02) in non-GAAP EPS, exceeding consensus of $241.9 million, $(1.6) million and $(0.10), respectively.
Manhattan Associates Reports Third Quarter 2020 Results
Manhattan Associates (MANH) reported Q3 results above expectations but provided a mixed outlook for Q4 and FY ‘21.
Revenue of $149.8 million (-7.7% Y/Y) was above consensus of $138.9 million. Non-GAAP operating income of $44.1 million (29.4% margin) exceeded consensus of $33.5 million. Non-GAAP EPS of $0.51 beat the Street’s $0.39.
Key metrics: 161 go-lives in Q3; competitive win rates remain above 70%; 25% of license and cloud deals from net new customers; signed two new Manhattan Active Warehouse Management deals; RPO of $257 million (+69% Y/Y).
The upside was attributed to broad revenue outperformance across all business lines and a focus on expense management.
Cloud opportunities comprised over 80% of the global bookings pipeline at the end of Q3 and approximately 45% of the pipeline reflects net new logos.
Management remains encouraged by the level of activity within the pipeline, particularly with respect to Manhattan’s Active Warehouse Management solution, and noted that the company is off to a solid start in Q4.
Management raised its FY ’20 guidance for revenue, non-GAAP operating margin and non-GAAP EPS to $574.0-$579.0 million, 23.5%-24.0% and $1.62-$1.66, implying Q4 revenue of $134.7-$139.7 million, non-GAAP operating income of $24.6-$28.7 million and non-GAAP EPS of $0.30-$0.34 versus consensus of $137.4 million, $35.1 million and $0.36, respectively.
Preliminary guidance for FY ’21 includes revenue of $585.0-$625.0 million, non-GAAP operating margin of 20.0%-21.0% and non-GAAP EPS of $1.37-$1.54, falling short of Street expectations for $621.1 million, 23.1% and $1.68, respectively.
Notable News
Absolute Appoints Steven Gatoff as Chief Financial Officer
Absolute (ABT-CA) has appointed Steven Gatoff as Chief Financial Officer, effective November 10, 2020.
Mr. Gatoff joins the company from 8x8, Inc. (EGHT) where he also served as Chief Financial Officer.
Mimecast Strengthens Commitment to the Channel with Appointment of New Global Leader
Mimecast (MIME) has appointed Jonathan Corini as Senior Vice President of Global Channel Sales, a role in which he will be responsible for the strategy and execution of Mimecast’s channel program.
Mr. Corini joins the company from Forescout Technologies where he served as Vice President of Worldwide Channel Sales.
VIAVI Announces CFO Resignation and Preliminary Fiscal First Quarter 2021 Results
Viavi Solutions (VIAV) announced the resignation of Chief Financial Officer Amar Maletira, who is leaving the company to join Rackspace Technology (RXT) as President and Chief Financial Officer.
Pam Avent, the company’s Global Controller, has been named interim CFO.
VIAVI also pre-announced Q1 ’21 revenue and non-GAAP EPS of $282.0-$284.0 million and $0.18-$0.19, both of which exceeded prior guidance for revenue of $258.0-$282.0 million and non-GAAP EPS of $0.14-$0.16.
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).