K. Liu's Week in Review
The United States Postal Service (USPS) reported its fiscal Q1 ’20 results this week for the quarter ending December 31, 2019. Accompanying the news was monthly trial balance data for December, which revealed a 20.4% Y/Y increase in PC Postage revenue and a 10.1% Y/Y increase for the quarter. Consistent with earlier indications from FedEx and UPS, monthly trends in the quarter reflected a shift in revenues from November to December coincident with the later Thanksgiving holiday and subsequent cyber week sales, although the compressed shopping season ultimately had no discernible impact on overall growth during peak season. In this regard, PC Postage revenue growth remained consistent with levels seen in each of the preceding quarters in 2019, and we believe Stamps.com (STMP) is poised to report Q4 ’19 results at least in line with our expectations. Of course, new USPS reseller agreements in effect for 2020 and a lack of clarity into the anticipated ramp of the UPS partnership create some uncertainty with respect to potential guidance for the year. We therefore remain at a hold posture pending the upcoming print. Also affecting a name in our coverage universe this past week was SAP’s extension of support for SAP Business Suite 7, which has implications for QAD (QADA) and other business application vendors in areas like CRM and supply chain management that were chomping at the bit to displace customers being forced onto a new platform.
Upland Software (UPLD) continued to execute upon its M&A strategy, acquiring Localytics for $67.7 million in cash. The addition of Localytics’ mobile app personalization and analytics solutions to Upland’s Customer Experience Management Cloud is expected to enhance its customers’ ability to derive insights into consumer behavior within mobile app experiences and to leverage those insights to deliver personalized experiences across a myriad of digital channels. Management ultimately expects Localytics to contribute annual revenue and adjusted EBITDA of at least $20.0 million and $9.0 million, respectively, but the initial outlook for FY ’20 assumes $13.5 million in revenue and $6.8 million in adjusted EBITDA. Speaking of experience management, Medallia (MDLA) entered into an agreement to acquire video feedback platform, LivingLens, for approximately $26.0 million in cash. The addition of LivingLens will enable Medallia’s customers to leverage video feedback alongside sentiment derived from social, voice, app and web sources.
Another two dozen software companies reported results, which we summarize further below. 2U (TWOU) was the biggest gainer for the week followed by eGain (EGAN) and Endurance International Group (EIGI). Aside from beating expectations, common factors amongst the three were relatively low EV/Sales valuations by software standards, signs of inflection or acceleration in key metrics and upside to earnings expectations in a period when many software vendors continue to trade-off margin gains in pursuit of higher growth. Worth noting, Model N (MODN) and Tenable (TENB) also beat expectations and guided FY ‘20 favorably relative to consensus, yet neither saw much of a lift in shares.
On the other side of the coin, shares of both Manhattan Associates (MANH) and PROS Holdings (PRO) were down approximately 10% for the week. The two companies continue to execute well on their transitions to the cloud, but the lack of upside to FY ’20 revenue expectations for both and a disappointing profitability outlook for the latter prompted a sell-off in each company’s shares. As for other takeaways from this week’s slate of earnings, conversational commerce is shaping up to be a major battleground with Twilio (TWLO) and Zendesk (ZEN) looking to beef up their messaging offerings in 2020. Europe remained a soft spot for those that began to see weakness in Q3 with the U.K. serving as the primary culprit in the region. Finally, payroll-focused vendors are now feeling the impact of last year’s interest rate cuts with float income guided lower for FY ’20 and weighing on profitability given the high flow through to the bottom line.
Mergers and Acquisitions
Experience Management Leader Medallia to Acquire Video Feedback Platform, LivingLens
Medallia (MDLA) has agreed to acquire LivingLens for approximately $26 million in cash.
LivingLens provides a video feedback platform that captures video signals and transforms them to speech, emotion and sentiment to enable better analysis and decision making.
The acquisition is expected to close this month and will enable Medallia’s customers to leverage video feedback alongside social, voice, app and web in the company’s experience management solution.
Upland Software Acquires Localytics, Raises Guidance
Upland Software (UPLD) has acquired Localytics, a leading provider of mobile app personalization and analytics solutions, for $67.7 million in cash.
The acquisition is expected to generate approximately $20 million in annual revenue and at least $9.0 million in adjusted EBITDA once fully integrated.
In conjunction with the announcement, Upland reaffirmed its Q4 and FY ’19 guidance and issued Q1 guidance calling for revenue of $62.8-$65.8 million and adjusted EBITDA of $23.1-$24.5 million.
For FY ’20, management guided to revenue and adjusted EBITDA of $269.5-$281.5 million and $99.2-$104.8 million, respectively, which includes $13.5 million in revenue and $6.8 million in adjusted EBITDA from Localytics.
Earnings Releases
2U, Inc. Reports Results For Fourth Quarter and Full-Year 2019
2U (TWOU) reported Q4 ’19 results ahead of expectations and provided a solid outlook for FY ‘20
Revenue of $163.2 million (+41.8% Y/Y) was near the high-end of guidance and ahead of consensus of $161.4 million. Adjusted EBITDA was $5.0 million (3.0% margin), within guidance of $0.9-$6.9 million and above the Street’s $3.7 million. Non-GAAP EPS of $(0.18) were at the high-end of management’s $(0.28)-$(0.18) guidance and in line with consensus.
Key metrics: Graduate Program full course equivalent enrollments were 41,704 (+20.2% Y/Y) with average revenue per full course equivalent of $2,595 (-7.1% Y/Y); Alternative Credential full course equivalent enrollments were 14,639 (+61.9% Y/Y) with average revenue per full course equivalent of $3,883 (+92.7% Y/Y).
The strong finish to 2019 was driven by more universities launching with 2U, the degree business turning the corner, the short course business slotting new courses and enrolling students in record numbers, and the boot camp business delivering on the strategic value anticipated at the time of acquisition.
The pipeline for future programs is robust, but the 2020 launch cadence has been slowed to five programs to optimize cash flow with growth and profitability; program launches should double at a minimum in 2021.
Guidance for Q1 calls for revenue of $170.0-$180.0 million, adjusted EBITDA of $(18.0)-$(8.0) million and non-GAAP EPS of $(0.57)-$(0.41), generally consistent with consensus expectations for $172.5 million in revenue, $(8.5) million in adjusted EBITDA and $(0.36) in non-GAAP EPS.
Management’s FY ’20 guidance includes revenue of $725.0-$750.0 million, adjusted EBITDA of $(5.0)-$10.0 million and non-GAAP EPS of $(1.42)-$(1.10), comparing favorably with Street expectations for $729.4 million, $(16.0) million and $(1.08), respectively.
8x8, Inc. Reports Third Quarter Fiscal 2020 Financial Results
8x8 (EGHT) reported Q3 ’20 results above expectations and guided Q4 in line with consensus.
Total revenue of $118.6 million (+31.9% Y/Y) was above guidance for $113.5-$114.5 million and consensus of $114.1 million. Non-GAAP operating income of $(16.2) million (-13.7% margin) was slightly ahead of the Street’s $(16.6) million. Non-GAAP EPS of $(0.17) were in line guidance and consensus.
Key metrics: total annual recurring revenue (ARR) of $411.3 million (+33% Y/Y); closed 40 deals with over $100,000 in ARR; 592 (+57% Y/Y) customers with ARR over $100,000 at quarter-end.
Growth drivers in the quarter included success with mid-market and enterprise customers as well as broad-based global demand for both contact center and CPaaS offerings.
Channel bookings increased 62% Y/Y and comprised 54% of new bookings, while contact center bookings increased 90% Y/Y and accounted for 33% of total new bookings.
Modest revenue contribution from the strategic partnership with ScanSource and Poly should begin to materialize in 1H ’21.
8x8 recently realigned its global operations and cost structure, and management remains confident in exiting FY ’21 at a breakeven level on a non-GAAP basis.
Q4 guidance includes revenue of $118.9-$119.4 million and a non-GAAP pre-tax loss of $(14.1) million, which implies non-GAAP EPS of $(0.14), in line with consensus expectations for $119.1 million in revenue and $(0.14) in non-GAAP EPS.
Absolute Reports Fiscal 2020 Second Quarter Financial Results
Absolute (ABT-CA) reported Q2 ’20 adjusted EBITDA ahead of expectations and reaffirmed guidance for FY ’20.
Total revenue was $25.8 million (+5.5% Y/Y), approximately in line with consensus of $25.9 million. Adjusted EBITDA was $6.2 million (24.1% margin), above consensus of $5.3 million. EPS of $0.06 beat consensus of $0.05.
Key metrics: Annual Contract Value (ACV) Base of $100.3 million (+5% Y/Y); Enterprise & Government ACV +12% Y/Y; Education ACV -8% Y/Y; ACV from new customers was $1.3 million; net ACV retention from existing customers was 100%.
Continued strength in enterprise was partially offset by a weaker than anticipated performance in education, which was affected by the realignment of the education sales team and a temporary disruption in buying patterns from a large customer.
The upside in adjusted EBITDA was attributed to ongoing expense management initiatives, deferred spending on IT projects, FX and lower than budgeted headcount.
The Resilience product can now persist and self-heal 39 applications across 34 ISVs.
Absolute has entered into an agreement with ServiceSource (SREV), which will focus on increasing renewal rates and thereby increase sales capacity for new ACV growth across the salesforce.
Guidance for FY ’20 remains unchanged at $103.0-$106.0 million in revenue and an adjusted EBITDA margin of 18%-22%.
Ceridian Reports Fourth Quarter and Full Year 2019 Results
Ceridian HCM Holding (CDAY) reported mixed Q4 ’19 results and guided FY ’20 short of Street expectations.
Total revenue of $221.8 million (+13.9% Y/Y) was within management’s implied guidance and a touch higher than consensus of $221.1 million. Adjusted EBITDA of $44.4 million (20.0% margin) was also within guidance but short of the Street’s $45.5 million. Non-GAAP EPS of $0.08 missed consensus of $0.12.
Key metrics: annual cloud revenue retention rate was 96.3% for 2019; cloud annualized recurring revenue was $582.0 million (+22% Y/Y); 4,363 (+17.3% Y/Y) Dayforce customers live at quarter-end; 3.9 million (+25.8% Y/Y) global active users; TTM Dayforce revenue per customer was $131,171 (+11.5% Y/Y).
Ceridian set new records for the total value of new sales and for the value of customers taken live.
Average revenue per Dayforce customer increased driven by success in the enterprise, major markets and global segments as well as add-on sales to live customers.
Both benefit decision support and learning management have proven to be successful product launches with the former sold to over 180 customers and the latter to over 350 customers.
Areas of investment include Dayforce Wallet, which is expected to have several hundred customers live by year-end, new modules such as employee engagement and poll surveys, and payroll engines for global markets.
Reduced float revenue represents a headwind of approximately $10 million in 2020, much of which flows directly to the bottom line.
Guidance for Q1 includes revenue of $221.0-$223.0 million and adjusted EBITDA of $47.0-$49.0 million, both of which fell short of Street expectations for $227.0 million in revenue and $54.1 million in adjusted EBITDA.
Management’s FY ’20 guidance calls for $903.0-$908.0 million in revenue and $185.0-$190.0 million in adjusted EBITDA, below consensus of $928.0 million and $214.3 million, respectively.
Management remains confident in exceeding $1 billion in revenue in 2021 and delivered an adjusted EBITDA margin over 30% longer term.
Check Point Software Technologies Reports 2019 Fourth Quarter and Full Year Financial Results
Check Point Software Technologies (CHKP) reported Q4 ’19 results above consensus and guided FY ’20 in line.
Total revenues of $543.8 million (+3.5% Y/Y) were within guidance of $527.0-$557.0 million and modestly above consensus of $542.5 million. Non-GAAP operating income was $279.7 million (51.4% margin), ahead of consensus of $277.7 million. Non-GAAP EPS of $2.02 were within guidance of $1.93-$2.04 and above the Street’s $1.99.
Security subscription revenues reached $164 million (+12% Y/Y) driven by CloudGuard and Infinity deals, which saw growth in the double-digit and triple-digit range, respectively; Check Point now boasts over 2,500 cloud customers.
Changes to field operations in 2019 will continue in 2020 as Check Point evolves its business and consumer relationships to target cloud buyers, the C-suite, and CIOs and CSOs involved with the broader cybersecurity landscape.
Margins will be negatively impacted by current FX rates and acquisitions made over the past year, which will reduce non-GAAP EPS by $0.06 and $0.03-$0.04, respectively, in FY ‘20.
Q1 guidance includes revenue and non-GAAP EPS of $475.0-$495.0 million and $1.37-$1.43, respectively, which was mixed relative to Street expectations for $490.4 million in revenue and $1.46 in non-GAAP EPS.
Management’s guidance for FY ’20 includes revenues of $2.00-$2.10 billion and non-GAAP EPS of $6.25-$6.65, in line with consensus expectations for $2.07 billion in revenue and $6.44 in non-GAAP EPS.
The company also announced an expansion of its share repurchase program by an additional $2 billion.
Dassault Systèmes (DSY-FR) reported mixed Q4 ’19 results and provided a mixed outlook for FY ’20.
Non-IFRS revenue of €1.212 billion (+17.6% Y/Y) was at the high-end of management’s guidance and approximately in line with consensus of €1.217 billion. Non-IFRS operating income was €407.8 million (33.6% margin), below consensus of €434.7 million. Non-IFRS EPS of €1.20 beat guidance of €1.05-1.10 and consensus of €1.11.
Strength in the quarter came from the Americas, reflecting continued adoption of subscriptions, the acquisition of Medidata and contribution from Centric PLM and IQMS, whereas spending from automotive supply chain customers remained soft.
Q1 guidance includes non-IFRS revenue of €1.145-€1.175 billion, a non-IFRS operating margin of 28.5%-29.5% (implies operating income of €326.3-€346.6 million) and non-IFRS EPS of €0.90-€0.95, which was below consensus of €1.209 billion in revenue, €373.3 million in non-IFRS operating income and €0.98 in non-IFRS EPS.
Management’s FY ’20 guidance includes non-IFRS revenue, operating margin and EPS of €4.84-€4.89 billion, 31.0%-31.5% (implies operating income of €1.50-€1.54 billion) and €4.15-€4.20, respectively, which was mixed relative to consensus of €4.93 billion, €1.53 billion and €4.10.
Dassault achieved its 2014-2019 five-year plan to double non-IFRS EPS to €3.50 and is now engaged on its 2018-2023 objective to reach non-IFRS EPS of €6.00.
The company’s multi-decade ambition is to develop its leadership in life science and healthcare, invest further to extend its leadership in manufacturing industries and make advances in infrastructure and cities.
eGain (EGAN) reported Q2 ’20 results above expectations and raised its non-GAAP EPS guidance for FY ’20.
Revenue of $18.2 million (+2.5% Y/Y) was above guidance for $17.2-$17.7 million and consensus of $17.6 million. Non-GAAP operating income was $2.6 million (14.1% margin), exceeding consensus of $0.4 million. Non-GAAP EPS of $0.08 beat guidance of $0.01-$0.02 and consensus of $0.01.
Key metrics: SaaS revenue of $14.0 million (+18.7% Y/Y) was ahead of guidance for $13.3-$13.7 million; 87% of revenues are now derived from SaaS and professional services; TTM gross retention in the low 90% range and net retention above 100%.
The financial services vertical continues to be the fastest growing area for the company, while Europe slowed down and could represent heightened attrition risk going forward.
Interest in the recently launched Sales Advisor solution has been encouraging with over 25 demos conducted thus far.
eGain has entered into an OEM agreement with Avaya, enabling Avaya to offer its cloud-based digital engagement capabilities to Avaya Workspace for Elite customers.
Q3 guidance includes revenue of $17.5-$17.8 million, below consensus of $18.7 million, and non-GAAP EPS of $0.00-$0.01, in line with the Street’s $0.01.
For FY ’20, management indicated that revenue would be at the lower end of its prior $72.0-$73.6 million range and raised its non-GAAP EPS guidance from $0.00-$0.06 to $0.10-$0.14.
Endurance International Group Reports 2019 Fourth Quarter and Full Year Results
Endurance International Group (EIGI) reported Q4 ’19 results above expectations and issued solid guidance for FY ’20.
Revenue was $277.2 million (-1.8% Y/Y), slightly ahead of the Street’s $276.6 million. Adjusted EBITDA of $78.2 million (28.2% margin) exceeded consensus of $70.5 million. EPS of $0.07 beat consensus of $(0.08).
Key metrics: total subscribers of approximately 4.766 million (-0.3% Y/Y); average revenue per subscriber was $19.34 (-0.8% Y/Y); free cash flow was $32.1 million.
Adjusting for the divestiture of SinglePlatform in December, revenue would have declined 1% Y/Y, while total subscribers would have increased modestly.
In digital marketing, the focus is turning to customer success with Constant Contact being positioned as a business that helps customers grow their relationships and their businesses.
Marketing spend within the web presence segment has been shifted to the Bluehost and HostGator brands, and management plans to increased marketing investments in both brands during 2020.
New products were added to the domain business in 2019, and the company will continue to refine and integrate its site builder, e-commerce and email offers throughout this year.
Management’s FY ’20 guidance calls for revenue of $1.085-$1.110 billion and adjusted EBITDA of approximately $300.0 million, comparing favorably with consensus expectations for $1.1 billion in revenue and $292.1 million in adjusted EBITDA.
FireEye Reports Financial Results for Fourth Quarter and Full Year 2019
FireEye (FEYE) reported Q4 ’19 results above expectations and guided FY ’20 profitability ahead of consensus.
Revenue of $235.1 million (+8.1% Y/Y) exceeded guidance of $224.0-$228.0 million and consensus of $226.4 million. Non-GAAP operating income of $16.8 million (7.1% margin) was above consensus of $10.3 million and guidance for a 3.0%-5.0% operating margin. Non-GAAP EPS of $0.07 beat guidance of $0.03-$0.05 and consensus of $0.04.
Key metrics: billings of $274.2 million (+3.4% Y/Y) were below guidance of $285.0-$295.0 million; ending annual recurring revenue (ARR) of $587 million (+6% Y/Y).
Billings fell short of expectations due to a shorter average contract length as FireEye’s business is transforming from appliance-based solutions to platform and cloud-based products, security validation offerings and Mandiant services.
Each of the company’s cloud security solutions posted healthy growth in ARR with cloud endpoint exceeding 100% Y/Y.
The next phase of FireEye’s transformation involves unifying its products, customer success, marketing and sales organizations under Bill Robbins, the appointment of Peter Bailey as Chief Operating Officer and the retirement of Travis Reese.
Priorities for 2020 include being the best in the world at incident response, red teaming and threat intelligence; extending the company’s dynamic threat detection and expertise to defend cloud-based infrastructure; delivering Expertise On Demand seamlessly through technology; and being the best at security validation.
Guidance for Q1 ’20 includes billings of $165.0-$175.0 million, revenue of $222.0-$226.0 million, non-GAAP operating margin of (5.0)%-(3.0)% and non-GAAP EPS of $(0.05)-$(0.03), which was mixed relative to Street expectations for $223.5 million in revenue, $1.5 million in non-GAAP operating income and $0.00 in non-GAAP EPS.
Management’s FY ’20 guidance calls for billings of $930.0-$950.0 million, revenue of $930.0-$950.0 million, a non-GAAP operating margin of 5.0%-6.0% and non-GAAP EPS of $0.20-$0.24 versus consensus of $949.2 million in revenue, $39.0 million in non-GAAP operating income and $0.15 in non-GAAP EPS.
Fortinet Reports Fourth Quarter and Full Year 2019 Financial Results
Fortinet (FTNT) reported Q4 ’19 results above expectations and provided FY ’20 revenue guidance ahead of the Street.
Total revenue of $614.4 million (+21.2% Y/Y) was ahead of guidance for $595.0-$610.0 million and consensus of $603.3 million. Non-GAAP operating income was $164.9 million (26.8% margin), above consensus of $156.3 million and guidance for a 25.5%-26.0% non-GAAP operating margin. Non-GAAP EPS of $0.76 beat guidance of $0.69-$0.71 and consensus of $0.70.
Key metrics: billings of $802.3 million (+23.6% Y/Y) exceeded guidance for $750.0-$765.0 million; 64 (+36% Y/Y) deals over $1 million; 469 (+29% Y/Y) deals over $250,000; free cash flow of $143.2 million.
The strong results were driven by Fortinet’s advanced FortiGate technology with SPU and Secure SD-WAN, integrated Security Fabric platform and hybrid multi-cloud offerings.
The fabric and cloud segments both contributed over 30% growth followed by network security at 18% growth.
Over 21,000 companies use Fortinet’s Secure SD-WAN solution and 70% of top-tier service providers offer the solution.
The two tuck-in acquisitions completed in Q4 contributed less than 1% to revenue and reduced operating margin by approximately 50 basis points; management anticipates a headwind of 100 basis points to Q1 and FY ’20 operating margins.
Guidance for Q1 includes billings of $635.0-$655.0 million, revenue of $555.0-$565.0 million, a non-GAAP operating margin of 19.0%-20.0% and non-GAAP EPS of $0.50-$0.52, which was mixed relative to consensus expectations for $555.5 million in revenue, $120.9 million in non-GAAP operating income and $0.55 in non-GAAP EPS.
Management’s FY ’20 outlook calls for billings of $3.025-$3.075 billion, revenue of $2.525-$2.555 billion, a non-GAAP operating margin of 23.5%-24.5% and non-GAAP EPS of $2.70-$2.73, comparing favorably with the Street’s $2.471 billion in revenue, $610.9 million in non-GAAP operating income and $2.71 in non-GAAP EPS.
From 2020-2022, organic billings and revenue is expected to be at least 15% in each of the next three years and non-GAAP operating margin is expected to average at least 25% over this period.
Majesco (MJCO) reported fiscal Q3 ‘20 revenue of $37.2 million (+3.8% Y/Y), adjusted EBITDA of $5.0 million (13.4% margin) and EPS of $0.09.
Key metrics: 63 total cloud customers; $16.3 million in revenue from cloud-based customers; nine go-lives in Q3; 12-month order backlog was $101.7 million at quarter-end.
The company continues to see an acceleration in its cloud business, reflecting both cloud wins and a reduced project implementation timeline.
The acquisition of InsPro Technologies will strengthen Majesco’s depth in the voluntary group and worksite benefit market and also advance the company’s partner strategy as Capgemini has already selected Majesco’s L&A cloud platform as their standard and runs a large TPA business on InsPro’s platform.
Manhattan Associates Reports Record Fourth Quarter and Full Year 2019 Revenue
Manhattan Associates (MANH) reported Q4 ’19 results above expectations and raised its FY ’20 non-GAAP EPS guidance.
Total revenue of $152.9 million (+5.9% Y/Y) was above consensus of $147.6 million. Non-GAAP operating income was $33.4 million (21.8% margin), exceeding consensus of $26.5 million. Non-GAAP EPS of $0.40 beat guidance and consensus of $0.31.
Key metrics: remaining performance obligations (RPO) of $171.7 million (+123.0% Y/Y); retention rate remained over 95%.
Per management, Manhattan continued to see strong interest in subscription models for WMS, SCALE, transportation, omnichannel and inventory, but a few deals slipped into January.
The cloud pipeline continues to grow faster than license, and over 50% of the global pipeline reflects new logos.
Competitive win rates remained near 70% with approximately 30% of cloud licensing sales from new customers, and the retail, consumer goods and food and beverage verticals comprised the majority of cloud revenues in Q4.
After increasing R&D investments approximately 20% to $81 million last year, management plans to invest $88 million in R&D during FY ’20.
Manhattan exited 2019 with approximately 70 quota-carrying reps and plans to reach the high-70s or 80 by year-end.
Management narrowed its FY ’20 revenue guidance from $643.0-$658.0 million to $644.0-$656.0 million, issued non-GAAP operating margin expectations for 20.0%-20.5% and raised its non-GAAP EPS guidance from $1.50-$1.57 to $1.53-$1.60; the company also anticipates an increase in RPO to $265.0-$275.0 million by year-end.
MobileIron Announces Fourth Quarter 2019 Results
MobileIron’s (MOBL) Q4 ’19 results missed expectations and guidance for FY ’20 fell short of consensus.
Revenue was $54.1 million (-0.1% Y/Y), within guidance of $53.0-$56.0 million but shy of the Street’s $54.8 million. Non-GAAP operating income of $1.6 million (3.0% margin) was near the low-end of guidance for $1.5-$4.9 million and below consensus of $3.1 million. Non-GAAP EPS of $0.01 missed consensus of $0.03.
Key metrics: ARR of $179.5 million (+10.4% Y/Y) was near the lower end of management’s $179.0-$182.0 million guidance; renewal rate was approximately 90%; net dollar retention rate was 104%; free cash flow was $(0.3) million.
Much like the prior quarter, results were dampened by softness in Europe.
Access and Threat Defense have been upsold to about 10% of MobileIron’s Unified Endpoint Management customer base.
MobileIron will complete its transition to a recurring revenue model in 2020 with the transition to subscription entailing the end of perpetual license sales as of the end of Q2 and the formal launch of efforts to convert customers to the cloud.
The transition to recurring revenue is expected to result in an acceleration in ARR growth and a slowdown in revenue growth beginning in Q3 ’20 with growth in revenue and ARR expected to converge in 2H ’21.
Q1 guidance includes revenue of $46.0-$49.0 million and implies non-GAAP operating income of $(9.1)-$(7.8) million, below consensus of $49.3 million and $(3.8) million, respectively.
Management’s FY ’20 guidance calls for a 12%-16% increase in ARR, revenue of $195.0-$105.0 million and a non-GAAP operating margin of (10)%-(5)%, falling short of Street expectations for $215.9 million in revenue and $0.9 million in non-GAAP operating income.
Model N Announces First Quarter Fiscal Year 2020 Financial Results
Model N (MODN) reported Q1 ’20 results above expectations and raised the midpoint of its FY ’20 guidance ranges.
Revenues of $38.4 million (+9.4% Y/Y) were ahead of guidance for $37.0-$37.4 million and consensus of $37.2 million. Non-GAAP operating income was $4.6 million (12.0% margin), exceeding guidance of $2.9-$3.3 million and consensus of $3.1 million. Non-GAAP EPS of $0.12 beat guidance of $0.05-$0.07 and consensus of $0.06.
Model N recently reached an important milestone with over 70% of customers in the cloud using an average of 2.4 cloud applications per customer.
In 2020, management expects continued improvement in growth and profitability driven by a maturing go-to-market strategy, ongoing sales momentum and mission-critical products.
Q2 guidance for $38.8-$39.2 million in revenue, $1.4-$1.8 million in non-GAAP operating income and $0.01-$0.03 in non-GAAP EPS was mixed relative to consensus of $37.9 million in revenue, $2.6 million in non-GAAP operating income and $0.05 in non-GAAP EPS.
Management raised its FY ’20 revenue outlook from $152.0-$155.0 million to $154.0-$156.0 million and increased the low-end of its prior non-GAAP operating income and EPS guidance ranges, which now call for $12.0-$14.0 million and $0.25-$0.31, respectively.
New Relic Announces Third Quarter Fiscal Year 2020 Results
New Relic (NEWR) reported mixed Q3 ’20 results and guided Q4 profitability below Street expectations.
Revenue of $153.0 million (+23.4% Y/Y) was above guidance of $148.0-$150.0 million and consensus of $149.2 million. Non-GAAP operating income was $3.0 million (2.0% margin), at the low-end of management’s $3.0-$4.0 million guidance and short of the Street’s $3.8 million. Non-GAAP EPS of $0.09 missed guidance of $0.12-$0.13 and consensus of $0.12.
Key metrics: 926 $100K+ Paid Business Accounts; 62% of ARR from Enterprise Paid Business Accounts; dollar-based net expansion rate of 109%.
Following the launch of New Relic One at the end of Q2, the primary focus in Q3 was to train the sales teams to sell the platform and educate customers about new capabilities such as logs, serverless, metrics, traces and programmability.
Nearly 100 deals were secured for New Relic Logs in its first quarter on the market, two of which were seven-figure deals.
The New Relic Platform Pricing program enables customers to commit to a certain level of spend that is then spread across whichever products they want, providing the flexibility to use the right product at the right time.
New Relic added nearly 100 net new hires in Q3 and plans to continue adding capacity in Q4.
Guidance for Q4 includes revenue of $154.0-$156.0 million, in line with consensus of $155.1 million, and non-GAAP operating income and EPS of $(2.0)-$0 million and $0.02-$0.06, respectively, below consensus of $1.5 million and $0.08.
Nuance Announces First Quarter 2020 Results
Nuance Communications (NUAN) reported Q1 ’20 results above expectations and raised its FY ’20 non-GAAP EPS guidance.
Non-GAAP revenue of $418.3 million (-0.4% Y/Y) was above management’s guidance of $400.0-$416.0 million and consensus of $406.6 million. Non-GAAP operating income was $110.7 million (26.5% margin), ahead of the Street’s $100.7 million. Non-GAAP EPS of $0.27 beat guidance of $0.22-$0.26 and consensus of $0.23.
Upside in the quarter was driven in part by the closure of larger license deals originally anticipated for later in the year.
Nuance continued to make progress in its pivot to the cloud driven by a strong Dragon Medical cloud performance and contribution from new cloud solutions, PowerScribe One and CDE One.
The international direct salesforce has increased by 20% over the past few months as the company continues to execute on its international market expansion for Dragon Medical cloud.
Enterprise generated record revenue driven by increasing demand for customer engagement solutions across both digital and voice channels.
Subsequent to quarter-end, Nuance repurchased 1.1 million shares and announced the redemption of $47 million of its 2.75% convertible debentures.
For Q2, management’s guidance calls for non-GAAP revenue of $353.0-$367.0 million and non-GAAP EPS of $0.15-$0.19, in line with consensus of $356.8 million and $0.18, respectively.
Management reaffirmed its prior FY ’20 revenue guidance of $1.495-$1.535 billion and increased its non-GAAP EPS guidance from $0.80-$0.88 to $0.82-$0.90.
Paycom Software, Inc. Reports Fourth Quarter and Year-End 2019 Results
Paycom (PAYC) reported Q4 ’19 results above expectations and provided a mixed outlook for FY ’20.
Revenues of $193.4 million (+28.7% Y/Y) were ahead of guidance for $188.5-$190.5 million and consensus of $190.4 million. Adjusted EBITDA was $78.6 million (40.6% margin), also above guidance of $72.0-$74.0 million and consensus of $73.0 million. Non-GAAP EPS of $0.86 beat consensus of $0.78.
Key metrics: annual retention rate for 2019 was 93% versus 92% last year; 26,527 clients at year-end with data stored for over 4.9 million client employees.
The company ended 2019 with 50 sales teams and is focused on increasing productivity and sales capacity within its existing teams during 2020.
Paycom is kicking of 2020 with the launch of what management views as one of its most significant product developments of the past two years: Manager on-the-Go, which is built into the company’s existing mobile app and provides leaders with 24/7 accessibility to essential manager-side functionality.
Leads in January were up 600% Y/Y, so the company plans to continue spending aggressively on marketing.
Guidance for Q1 includes revenue of $240.0-$242.0 million and adjusted EBITDA of $113.0-$115.0 million, falling short of Street expectations for $248.2 million in revenue and $126.7 million in adjusted EBITDA.
Management’s FY ’20 guidance calls for revenue of $911.0-$913.0 million and adjusted EBITDA of $384.0-$386.0 million, which was mixed relative to consensus of $908.5 million in revenue and $386.4 million in adjusted EBITDA.
Paylocity Announces Second Quarter Fiscal Year 2020 Results
Paylocity (PCTY) reported solid Q2 ’20 results and raised its FY ’20 revenue outlook.
Total revenue was $132.4 million (+23.5% Y/Y), above guidance for $129.5-$130.5 million and consensus of $130.2 million. Adjusted EBITDA was $30.3 million (22.9% margin), within guidance for $30.0-$31.0 million but shy of the Street’s $30.8 million. Non-GAAP EPS of $0.36 beat consensus of $0.29.
Paylocity had a very strong sales quarter in its target market, and management noted that through the first half of the year, the sales team is off to their best start in quite some time.
Unit strength continues to come from clients with less than 50 employees and momentum remains healthy in the core and upper end of the company’s market.
Channel referrals represented 25% of new business in the quarter.
Q3 guidance includes $168.5-$169.5 million in revenue, above consensus of $167.6 million, and $63.8-$64.8 million in adjusted EBITDA, in line with consensus of $64.3 million.
Management raised its FY ’20 revenue guidance from $567.0-$569.0 million to $572.5-$573.5 million and maintained prior adjusted EBITDA expectations for $163.5-$165.5 million.
PROS Holdings, Inc. Reports Fourth Quarter and Full Year 2019 Financial Results
PROS Holdings (PRO) reported mixed Q4 ’19 results and guided FY ’20 below Street expectations.
Total revenue of $66.2 million (+25.8% Y/Y) was above guidance of $63.9-$64.4 million and consensus of $64.2 million. Adjusted EBITDA was $(4.6) million (-7.0% margin), below guidance of $(3.0)-$(2.0) million and consensus of $(2.5) million. Non-GAAP EPS of $(0.11) missed guidance of $(0.10)-$(0.08) and consensus of $(0.09).
Key metrics: Annual Recurring Revenue (ARR) of $219.8 million (+16% Y/Y); gross renewal rate was 93% for 2019; subscription revenue of $40.2 million (+42% Y/Y) was above guidance of $38.6-$39.1 million; free cash flow of $11.0 million.
Q4 was a record migration quarter and PROS exceeded its total migrations target for 2019.
Services gross margin fell short of plan in Q4 as the company utilized partners at a higher than anticipated level to meet customer deliveries.
Management remains focused on four strategic pillars: leading AI innovation, accelerating market adoption and customer expansions, delivering an incredible customer experience and helping the company’s people learn and grow.
Guidance for Q1 includes revenue of $65.5-$66.0 million, adjusted EBITDA of $(12.0)-$(11.5) million and non-GAAP EPS of $(0.23)-$(0.22), falling short of Street expectations for $66.2 million, $(3.2) million and $(0.09), respectively.
Management’s FY ’20 guidance calls for ARR of $257.0-$259.0 million, revenue of $288.5-$290.5 million and adjusted EBITDA of $(13.6)-$(11.6) million, below consensus of $292.2 million in revenue and $(3.5) million in adjusted EBITDA.
SolarWinds Announces Fourth Quarter 2019 Results
SolarWinds (SWI) reported mixed Q4 ’19 results and guided FY ’20 in line with consensus.
Non-GAAP revenue of $249.4 million (+12.5% Y/Y) was near the low-end of guidance for $249.0-$254.5 million and below consensus of $251.7 million. Adjusted EBITDA was $122.9 million (49.3% margin), above guidance for $120.0-$122.0 million and consensus of $120.6 million. Non-GAAP EPS of $0.24 beat guidance of $0.22-$0.23 and consensus of $0.22.
Key metrics: Total ARR of $845 million (+19% Y/Y), of which Subscription ARR was $370 million (+31% Y/Y); 900 (+22% Y/Y) customers with over $100,000 in TTM spend; maintenance renewal rate of 94%; subscription net retention of 105%.
Subscription revenue increased 28% Y/Y due to strong performance by the MSP business and solid contribution from SolarWinds’ service desk, or ITSM, products.
License sales were short of management’s expectations as execution issues affecting a portion of North American installed base sales masked a positive performance in the international business as well as sales to new customers, government and education customers in North America.
Guidance for Q1 includes non-GAAP revenue, adjusted EBITDA and EPS of $243.5-$248.5 million, $108.0-$112.0 million and $0.20-$0.21, respectively, in line with consensus of $244.2 million, $110.7 million and $0.20.
Management’s FY ’20 non-GAAP revenue, adjusted EBITDA and EPS guidance of $1.035-$1.055 billion, $475.0-$485.0 million and $0.88-$0.91, respectively, was also in line with Street expectations for $1.05 billion, $481.2 million and $0.88.
Tenable Announces Fourth Quarter and Full Year 2019 Financial Results
Tenable’s (TENB) Q4 ’19 results beat expectations and its FY ’20 guidance compared favorably versus consensus.
Revenue of $97.0 million (+29.0% Y/Y) was ahead of guidance for $93.5-$94.5 million and consensus of $94.2 million. Non-GAAP operating income was $(11.1) million (-11.5% margin), at the high-end of management’s $(12.0)-$(11.0) million guidance and above consensus of $(12.3) million. Non-GAAP EPS of $(0.11) were also at the high-end of guidance for $(0.12)-$(0.11) and a penny above consensus.
Key metrics: current billings of $125.0 million (+28.5% Y/Y); added 461 new enterprise platform customers and 52 net new six-figure enterprise platform customers.
Upside in Q4 was attributed to the closure of some larger deals earlier in the quarter as well as strong sales execution both domestically and abroad.
Lumin, an analytics solution for measuring cyber risk exposure, became generally available at the end of Q3, and management is very pleased with the reception thus far.
The acquisition of Indegy had an immaterial impact on revenue and billings in the quarter, but added $1.5 million in expenses for the month that it was owned.
Q1 guidance includes revenue, non-GAAP operating income and non-GAAP EPS of $100.0-$101.0 million, $(18.0)-$(17.0) million and $(0.19)-$(0.18), respectively, which was mixed versus consensus of $100.2 million, $(13.0) million and $(0.12).
Management’s FY ’20 revenue and non-GAAP operating income guidance of $435.0-$440.0 million and $(38.0)-$(33.0) million, respectively, were ahead of the Street’s $434.7 million and $(42.2) million projections, while non-GAAP EPS expectations for $(0.41)-$(0.36) were in line with consensus of $(0.38).
Twilio Announces Fourth Quarter and Full Year 2019 Results
Twilio (TWLO) reported Q4 ’19 results above expectations but provided a mixed outlook for FY ’20.
Total revenue of $331.2 million (+62.1% Y/Y) exceeded guidance for $311.0-$314.0 million and consensus of $312.8 million. Non-GAAP operating income was $(3.0) million (-0.9% margin), ahead of guidance for $(6.0)-$(5.0) million and consensus of $(5.2) million. Non-GAAP EPS of $0.04 beat guidance of $0.01-$0.02 and consensus of $0.02.
Key metrics: Base revenue of $306.6 million (+64.7% Y/Y) was above guidance for $300.0-$302.0 million; 179,000 (+178.4% Y/Y) active customer accounts; dollar-based net expansion rate was 124% versus 147% last year.
Several notable deals were highlighted during the earnings call, including a Flex deal with a Fortune 100 company searching for a new way to engage with their customers via conversational commerce.
Although the Verizon A2P program is now live, management’s outlook does not incorporate any revenue benefit or margin impact from A2P fees.
Guidance for FY ’20 reflects an ambitious investment plan to disrupt the customer engagement software market, including the opening of a R&D center of excellence in India, investments in systems and infrastructure, investments in the go-to-market team and Flex, and structural changes to reduce stock-based compensation.
Q1 guidance includes revenue of $335.0-$338.0 million, non-GAAP operating income of $(25.0)-$(22.0) million and non-GAAP EPS of $(0.11)-$(0.09), which was mixed versus consensus of $329.2 million, $0.3 million and $0.04, respectively.
Management’s FY ’20 outlook calls for $1.475-$1.490 billion in revenue, $(60.0)-$(50.0) million in non-GAAP operating income and $(0.20)-$(0.14) in non-GAAP EPS, which was also mixed relative to the Street’s $1.466 billion in revenue, $24.3 million in non-GAAP operating income and $0.24 in non-GAAP EPS.
VIAVI Announces Second Quarter Fiscal 2020 Results
VIAVI (VIAV) reported Q2 ’20 results above expectations and guided Q3 in line with consensus.
Net revenue of $313.7 million (+2.2% Y/Y) exceeded management’s $292.0-$312.0 million guidance and consensus of $303.1 million. Non-GAAP operating income of $67.9 million (21.6% margin) was well ahead of the Street’s $56.9 million. Non-GAAP EPS of $0.23 beat guidance of $0.18-$0.20 and consensus of $0.19.
Both the Network and Service Enablement (NSE) and the Optical Security and Performance Products (OSP) segments delivered strong results in Q2.
Within NSE, network enablement revenue increased 3.8% Y/Y due to strong performance in fiber, wireless and cable products, while service enablement revenue rose 10.6% Y/Y on strength in data center products.
As anticipated, OSP revenue fell 4.4% Y/Y due to expected declines in the core OSP business, partially offset by growth in 3D sensing products.
Demand for 5G lab test equipment is expected to remain robust throughout the current calendar year followed by a ramp in demand for 5G field test instruments in late 2020 or early 2021.
Guidance for Q3 includes revenue of $268.0-$288.0 million and non-GAAP EPS of $0.13-$0.15, in line with Street expectations for $275.3 million in revenue and $0.14 in non-GAAP EPS.
Zendesk Announces Fourth Quarter and Fiscal Year 2019 Results
Zendesk (ZEN) reported strong Q4 ’19 results but provided a mixed outlook for FY ’20.
Revenue of $229.9 million (+33.5% Y/Y) was ahead of management’s $226.0-$2280 million guidance and consensus of $227.6 million. Non-GAAP operating income was $11.6 million (5.1% margin), also above guidance of $8.0-$10.0 million and consensus of $9.7 million. Non-GAAP EPS of $0.10 were in line with consensus.
Key metrics: 157,000 (+15% Y/Y) paid customer accounts; 43% of Support ARR generated by customers with 100 or more agents; dollar-based net expansion rate of 116%; remaining performance obligations of $641 million (+57% Y/Y).
The Zendesk Suite now has over 6,000 paid customer accounts, driving considerable growth and higher average deal sizes.
Investments will be made in 2020 to foster the company’s move upmarket; to enhance the Sunshine CRM platform, Sunshine Conversations and enterprise motions; and to broaden its work with valued partners.
Q1 guidance calls for revenue of $237.0-$242.0 million and non-GAAP operating income of $5.0-$9.0 million, in line with Street expectations for $237.7 million in revenue and $8.6 million in non-GAAP operating income.
Management’s FY ’20 guidance includes revenue and non-GAAP operating income of $1.050-$1.070 billion and $43.0-$53.0 million, respectively, which was mixed relative to consensus of $1.058 billion and $62.4 million.
Notable News
Chris Kaddaras Promoted to EVP of Global Sales
Nutanix (NTNX) promoted Chris Kaddaras to Executive Vice President of Global Sales, a role in which he will lead the worldwide sales organization as well as sales operations, technical sales, inside sales, OEM sales and channel sales.
Mr. Kaddaras joined Nutanix in October 2016 as Vice President and Head of EMEA, was promoted to Senior Vice President and General Manager of EMEA in 2018 and assumed the role of Senior Vice President of Sales for the Americas in 2019.
Dassault Systèmes Appoints Pascal Daloz Chief Operating Officer
Dassault Systèmes (DSY-FR) has appointed Pascal Daloz to the newly created role of Chief Operating Officer with responsibility for leading the Operations Executive Committee and orchestrating decision-making for all strategic functions.
Mr. Daloz has been the company’s Chief Financial Officer since 2018 and will remain in that role as well.
OpenText Announces Pricing of Senior Unsecured Fixed Rate Notes to Refinance Outstanding Debt
OpenText (OTEX) priced the offerings of $1.8 billion in total aggregate principal amount of senior unsecured fixed rate notes, comprised of $900 million aggregate principal amount of 3.875% senior unsecured notes due 2028 and $900 million aggregate principal amount of 4.125% senior unsecured notes due 2030.
The offerings were upsized from initial plans to raise a total aggregate principal amount of $1.6 billion.
Net proceeds from the offerings will be used to refinance $1.55 billion in outstanding debt, including $800 million aggregate principal amount of OpenText’s notes due 2023 and $750 million drawn under its current revolving credit agreement.
Tenable Appoints Mark Thurmond as Chief Operating Officer
Tenable (TENB) has appointed Mark Thurmond as Chief Operating Officer, a role in which he will lead the company’s global sales, professional services and technical support teams.
Mr. Thurmond joins the company from Turbonomic where he served in the same capacity.
Upland Software Names Rod Favaron President and Chief Commercial Officer
Upland Software (UPLD) has appointed Rod Favaron as President and Chief Commercial Officer, effective March 1, 2020.
Mr. Favaron is currently a member of Upland’s Board and was previously Chairman and CEO of Spredfast from 2011-2018.
In his new role, Mr. Favaron will lead Upland’s go-to-market operations, including sales, marketing and customer success.
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 Stamps.com (STMP).