K. Liu's Week in Review
Markets capitulated amidst ongoing coronavirus concerns this week, although we were actually encouraged by the willingness of several major sports organizations to suspend play in response to the growing public health crisis. In our view, the ensuing shock was critical in conveying the gravity of the situation in the U.S. and abroad, and we are hopeful that the increased awareness will lead to a more concerted effort on everyone’s part to adhere to public health guidelines, thereby limiting the impact on vulnerable populations. While this has a real economic impact in the near-term, we believe efforts to reduce the spread of COVID-19 now will ultimately provide for a more rapid recovery than would otherwise be the case if concerns had slowly seeped into the public consciousness.
As a byproduct of the market meltdown over the past couple weeks, valuations across the software space suddenly seem more reasonable. Of course, the heightened uncertainty from coronavirus calls into question whether the growth rates and earnings currently anticipated will be achieved. In this regard, we believe companies that generate the majority of their revenue growth from existing customers and already boast strong margins and free cash flow represent the most compelling buying opportunities today. Within our coverage universe, these characteristics apply to both NetScout Systems (NTCT) and Stamps.com (STMP). As NetScout’s growth prospects are levered to 5G deployments and the digital transformation efforts of its existing service provider and enterprise customers, respectively, we believe restrictions on travel and the associated impacts on sales and marketing are unlikely to have much bearing on the company’s ability to meet its targets for the current quarter and sustain growth in the coming fiscal year. With regard to Stamps.com, we believe e-commerce is one area that could actually see a boost from public health guidelines that should prompt most to stay at home as much as possible. Through its strategic relationships with UPS and the United States Postal Service, Stamps.com stands to benefit from its shipping customers’ rising transaction volumes.
Across the broader software landscape, many of those reporting results this week expressed similar sentiments as those over the past couple of weeks. Specifically, the welfare of employees and customers comes first, so plans enabling employees to work remotely and customer contact to occur virtually have been activated in many instances. While the majority have yet to see any impact on their business, the fallout from evolving concerns over the past week prompted more companies to embed some conservatism within their guidance. Of note, both Adobe (ADBE) and Slack (WORK) indicated that limitations on travel and the uncertainty from coronavirus could have a near-term impact on enterprise sales cycles. Oracle’s (ORCL) guidance reflected a larger than usual range to account for any potential impact from coronavirus, and SharpSpring’s (SHSP) outlook was billed as conservative by management. Amongst those that reported, Cloudera (CLDR) stood out as a company making strides in its turnaround efforts as did Synchronoss Technologies (SNCR), which booked several significant wins in 2019 that have the potential to drive meaningful growth in 2020 and beyond.
M&A activity this week included HealthStream’s (HSTM) acquisition of NurseGrid for approximately $25 million in cash and OpenText’s (OTEX) acquisition of XMedius for approximately $75 million in cash. Through its acquisition of NurseGrid, HealthStream adds a highly rated mobile app used by over 260,000 nurses on a monthly basis to manage and share schedules, swap shifts and communicate, as well as an enterprise application enabling managers to publish work schedules to nursing staff, view and approve shift swaps and communicate with their teams. Revenue contribution in 2020 is expected to be nominal at just $0.5 million, while operating income will be reduced by approximately $3.5 million. Turning to OpenText, XMedius adds secure information exchange and unified communications solutions that complement OpenText’s Customer Experience Management and Business Network platforms. XMedius generates approximately $40 million on an annual basis, but as much as 20% of those revenues will not be recognized in the first year due to purchase price accounting adjustments. Also worth noting, Endurance International Group (EIGI), HealthStream and Paycom (PAYC) all put in place new or increased share repurchase authorizations this week.
Mergers and Acquisitions
HealthStream Acquires NurseGrid, #1 Rates and Top Downloaded App for Nurses
HealthStream (HSTM) has acquired NurseGrid for approximately $25 million in cash, inclusive of the 10% equity interest in NurseGrid that HealthStream has held since January 31, 2019.
The acquisition adds NurseGrid Mobile, a highly rated app used by over 260,000 nurses on a monthly basis to manage and share schedules, swap shifts, communicate with each other and coordinate both work and non-work activities.
HealthStream also gains the NurseGrid Enterprise application, which is used by healthcare managers to publish work schedules to nursing staff, view and approve shift swaps, and communicate with their teams.
Management’s revised guidance for FY ’20 assumes less than $0.5 million in revenue contribution from NurseGrid and a $3.5 million reduction in operating income to $8.5-$11.0 million.
OpenText (OTEX) has acquired XMedius, a provider of secure information exchange and unified communications solutions, for approximately $75 million in cash.
XMedius boasts over 50,000 installations worldwide and its solutions will complement OpenText’s Customer Experience Management and Business Network platforms.
XMedius generates approximately $40 million in annual revenues, although OpenText anticipates as much as 20% of revenues will not be recognized in the first year due to purchase price accounting adjustments.
Earnings Releases
Adobe (ADBE) reported Q1 ’20 results above expectations and guided Q2 mixed relative to consensus.
Revenue of $3.091 billion (+18.8% Y/Y) exceeded guidance for approximately $3.040 billion and consensus of $3.051 billion. Non-GAAP operating income of $1.245 billion (40.3% margin) was approximately in line with consensus of $1.248 billion. Non-GAAP EPS of $2.27 beat guidance and consensus of $2.23.
Key metrics: net new Digital Media Annualized Recurring Revenue (ARR) of $400 million versus guidance of $360 million; Digital Media ARR was $8.73 billion, including Creative ARR of $7.58 billion and Document Cloud ARR of $1.15 billion; remaining performance obligation of $9.91 billion.
Demand for mobile applications like Photoshop on iPad, Lightroom and Photoshop Express continued to grow with over 35 million new Adobe IDs in Q1.
Document Cloud momentum was driven by strong customer acquisition and an expanding portfolio of PDF mobile and web applications.
Adobe Commerce Cloud saw bookings exceed 50% Y/Y driven by new functionality enabling merchants to natively add high-quality media assets to their websites and create personalized recommendations.
The cancellation of corporate events, including Adobe Summit, due to COVID-19 reduced non-GAAP EPS by $0.07 in Q1.
While Creative Cloud and Document Cloud demand has not been impacted by coronavirus concerns thus far, management expects some enterprises to delay bookings, postpone services implementation and reduce expenses.
Q2 guidance for revenue of approximately $3.175 billion and non-GAAP EPS of approximately $2.35 was mixed versus Street expectations for $3.222 billion in revenue and $2.34 in non-GAAP EPS.
Asure Announces Record Fourth Quarter and Full Year 2019 Results
Asure Software (ASUR) reported mixed Q4 ’19 results and reaffirmed its prior FY ’20 guidance.
Revenue of $17.6 million (+1.4% Y/Y) was above consensus of $17.2 million. Adjusted EBITDA was $(0.7) million (-4.1% margin), below consensus of $2.8 million. Non-GAAP EPS of $(0.10) missed consensus of $0.04.
Per management, consensus included some estimates with a full quarter’s worth of the Workspace business, which was divested a month earlier than reflected in those estimates.
HCM bookings increased 62% Y/Y, and management plans to grow the salesforce from 34 to 55 to 60 by year-end.
Management reaffirmed prior FY ’20 expectations for HCM revenue and adjusted EBITDA of $72.0-$74.0 million and $11.0-$12.0 million, respectively.
Asure aspires to achieve organic revenue growth of at least 10% each year over the long-term, layer in tuck-in acquisitions and see adjusted EBITDA grow faster than revenue, which should result in an adjusted EBITDA margin in excess of 20%.
The Board of Directors has approved a new $5 million stock repurchase program, which is in addition to the approximately 66,000 shares remaining under the company’s current authorization.
Cloudera Reports Fourth Quarter and Fiscal Year 2020 Financial Results
Cloudera (CLDR) reported Q4 ’20 results above consensus and guided FY ’21 ahead of Street expectations.
Revenue was $211.7 million (+46.5% Y/Y), exceeding guidance for $200.0-$203.0 million and consensus of $201.8 million. Non-GAAP operating income was $11.0 million (5.2% margin), exceeding consensus of $(10.2) million. Non-GAAP EPS of $0.04 beat guidance for $(0.04)-$(0.02) and consensus of $(0.03).
Key metrics: annualized recurring revenue (ARR) of $731.2 million (+11% Y/Y); added 27 customers with ARR over $100,000 for a total of 1,004 customers with ARR over $100,000; RPO was $877 million (+10% Y/Y).
The strong results reflected the wind down of merger and integration activities and customer enthusiasm for the new product roadmap, and ARR outperformed due to existing customers expanding agreements at a higher rate.
Cloudera continues to see improved execution, increased stability in the business and good traction with key growth initiatives, including positive momentum for CDP Public Cloud adoption.
The next phase of Cloudera’s transformation entails moving from a mostly on-premise enterprise data management vendor to a true hybrid multi-cloud data platform company, a refined digital customer engagement model, an updated operating model and upgraded partnerships with the public cloud providers.
The Board of Directors has authorized the repurchase of up to $100 million of Cloudera’s common stock.
Q1 guidance includes revenue of $202.0-$207.0 million, leaving consensus of $206.9 million near the high-end, and non-GAAP operating income and EPS of $(3.0)-$2.0 million and $(0.01)-$0.01, respectively, above the Street’s $(10.7) million and $(0.03).
Management’s FY ’21 guidance for $860.0-$880.0 million in revenue, $82.0-$92.0 million in non-GAAP operating income and $0.25-$0.29 in non-GAAP EPS compared favorably with consensus of $866.3 million, $(2.3) million and $(0.01), respectively.
DocuSign Announces Fourth Quarter and Fiscal Year 2020 Financial Results
DocuSign (DOCU) reported Q4 ’20 results above expectations and guided FY ’20 favorably versus consensus.
Revenue was $274.9 million (+37.6% Y/Y), exceeding guidance for $263.0-$267.0 million and consensus of $266.5 million. Non-GAAP operating income was $20.8 million (7.6% margin), well above consensus of $8.9 million. Non-GAAP EPS of $0.12 were near the high-end of management’s implied guidance of $(0.03)-$0.13 and beat consensus of $0.05.
Key metrics: billings of $366.9 million (39.9% Y/Y) beat guidance for $346.0-$356.0 million; total customer count of approximately 589,000 (+33% Y/Y), including 437 (+41% Y/Y) with ACV over $300,000; net dollar retention rate was 117%.
DocuSign continues to see strong growth in its core eSignature offerings and increasing interest in upsells amongst its customers for the broader Agreement Cloud suite.
The pending acquisition of Seal Software is not reflected in guidance but should not have a meaningful top or bottom-line impact anyway given its size relative to DocuSign.
Q1 guidance calls for $280.0-$284.0 million in revenue versus consensus of $275.6 million, implies non-GAAP EPS of $0.02-$0.18 versus consensus of $0.08 and includes billings of $279.0-$289.0 million.
Guidance for FY ’20 calls for $1.272-$1.276 billion in revenue versus the Street’s $1.216 billion, implies non-GAAP EPS of $0.17-$0.76 versus consensus of $0.42 and includes billings of $1.210-$1.214 billion.
Domo Announces Fourth Quarter and Fiscal 2020 Financial Results
Domo (DOMO) reported Q4 ’20 results ahead of expectations but guided FY ’21 below consensus.
Revenue was $46.2 million (+17.2% Y/Y), ahead of guidance for $45.0-$46.0 million and consensus of $45.7 million. Non-GAAP operating income was $(21.1) million (-45.7% margin), above consensus of $(24.0) million. Non-GAAP EPS of $(0.85) beat guidance for $(0.98)-$(0.94) and consensus of $(0.96).
Key metrics: billings of $65.0 million (+13.5% Y/Y); gross retention rate of 91%; net revenue retention rate of 120% in the North American enterprise business; 55% of customers under multi-year contracts.
Domo’s better than anticipated Q4 performance was driven by higher renewal rates, stronger upselling into the installed base and the entirety of the business delivering results above expectations.
The enterprise team capped off a record 2H and the corporate team produced the largest amount of new ACV business for the company with only minimal contribution from large deals.
Management believes the subscription gross margin can exceed 80% over the long-term.
Q1 guidance for revenue of $46.0-$47.0 million and non-GAAP EPS of $(1.08)-$(1.04) was mixed relative to Street expectations for $46.9 million in revenue and $(0.86) in non-GAAP EPS.
Management’s FY ’21 guidance includes revenue and non-GAAP EPS of $192.0-$198.0 million and $(3.32)-$(3.22), respectively, below consensus of $198.4 million and $(2.76).
Medallia Reports Record Fourth Quarter Fiscal 2020 Financial Results
Medallia (MDLA) reported Q4 ’20 results above expectations and issued FY ’21 profitability targets above consensus.
Revenue of $110.1 million (+27.5% Y/Y) was above guidance for $103.2-$105.2 million and consensus of $104.5 million. Non-GAAP operating income was $3,000 (0.0% margin), exceeding guidance for $(4.5)-$(3.5) million and consensus of $(4.0) million. Non-GAAP EPS of $0.00 beat guidance for $(0.04)-$(0.03) and consensus of $(0.03).
Key metrics: subscription billings of $360.8 million (+24.6% Y/Y); 757 (+39% Y/Y) enterprise customers at quarter-end; TTM net revenue retention rate of 119%; remaining performance obligation of $679 million (+44% Y/Y).
SaaS revenue growth benefited from the timing of new bookings in the quarter as well as stronger than anticipated bookings in December.
The acquisitions of LivingLens and Crowdicity enable Medallia to disrupt the face-to-face field market research business, which management believes represents a $12 billion per annum market opportunity.
Productive sales capacity increased 40% in FY ’20, and Medallia will continue to focus on a vertical go-to-market organization.
Q1 guidance includes revenue of $109.0-$111.0 million, non-GAAP operating income of $(2.3)-$(1.3) million and non-GAAP EPS of $(0.02)-$(0.01), comparing favorably versus consensus of $109.3 million, $(2.5) million and $(0.02), respectively.
Management reaffirmed its prior FY ’21 revenue guidance of $474.0-$483.0 million and issued non-GAAP operating income and EPS guidance of $1.0-$5.0 million and $(0.01)-$0.02, respectively, above consensus of $(2.1) million and $(0.02).
Oracle Announces Fiscal 2020 Third Quarter Financial Results
Oracle (ORCL) reported Q3 ’20 results above expectations and provided a mixed outlook for Q4.
Revenue of $9.796 billion (+1.9% Y/Y) was within guidance for $9.710-$9.900 billion and above consensus of $9.766 billion. Non-GAAP operating income was $4.357 billion (44.5% margin), also above consensus of $4.314 billion. Non-GAAP EPS of $0.97 were at the high-end of guidance and beat the Street by a penny.
The quarter was driven by product and customer momentum in both applications and infrastructure.
In the applications portfolio, Fusion apps were up 32%, Fusion ERP was up 38%, Fusion HCM was up 27%, NetSuite ERP was up 26%, vertical SaaS was up high single digits and data cloud was up low single digits.
Oracle expects the cloud ERP software market to be 2x to 3x larger than the on-premise ERP software market and boasts over 7,000 Fusion ERP customers and 21,000 NetSuite ERP customers.
The overall database business grew 5% with the cloud database business growing triple digits.
Q4 guidance includes revenue growth of -2% to +2% Y/Y, implying revenue of $10.913-$11.358 billion versus consensus of $11.360 billion, and non-GAAP EPS of $1.20-$1.28, in line with consensus of $1.23.
The Board of Directors has increased the company’s share repurchase authorization by $15.0 billion.
Slack Announces Fourth Quarter and Fiscal Year 2020 Results
Slack (WORK) reported Q4 ’20 results above expectations and guided FY ’20 generally in line with consensus.
Revenue was $181.9 million (+49.1% Y/Y), above guidance for $172.0-$174.0 million and consensus of $174.1 million. Non-GAAP operating income was $(23.1) million (-12.7% margin), exceeding guidance for $(36.0)-$(34.0) million and consensus of $(35.1) million. Non-GAAP EPS of $(0.04) beat guidance for $(0.07)-$(0.06) and consensus of $(0.05).
Key metrics: billings of $254.7 million (+47% Y/Y); added 5,000 net new paid customers for a total of 110,000 (+25% Y/Y) at quarter-end; 893 (+55% Y/Y) paid customers with annual recurring revenue (ARR) over $100,000; 70 (+79% Y/Y) paid customers with ARR over $1 million; 132% net dollar retention rate.
Customer retention for paid customers with over $100,000 in ARR has been in the high-90% range, while retention for customers with ARR between $1,000 and $100,000 is in the low to mid-90% range; these cohorts collectively account for 95% of ARR.
Priorities for FY ‘21 include expanding Slack’s leadership in the enterprise segment, accelerating growth in SMB and self-serve and expanding the shared channels feature set.
Management noted that guidance reflects a higher degree of uncertainty than usual as the current environment has created increased interest in remote work and Slack’s solutions but also carries the risk of hesitation around purchasing decisions.
Q1 guidance for $185.0-$188.0 million in revenue, $(42.0)-$(38.0) million in non-GAAP operating income and $(0.07)-$(0.06) in non-GAAP EPS was slightly below Street expectations for $188.4 million, $(37.9) million and $(0.07), respectively.
FY ’21 guidance for $842.0-$852.0 million in revenue, non-GAAP operating income of $(130.0)-$(120.0) million and non-GAAP EPS of $(0.21)-$(0.19) was generally consistent with consensus of $854.5 million, $(137.3) million and $(0.21).
SharpSpring Reports Fourth Quarter and Full Year 2019 Results
SharpSpring (SHSP) reported Q4 ’19 results generally in line with consensus and guided FY ’20 revenue above expectations.
Revenue of $6.1 million (+19.0% Y/Y) was ahead of guidance for $5.8-$5.9 million and consensus of $6.0 million. Adjusted EBITDA was $(1.9) million (-31.0% margin), in line with consensus. Non-GAAP EPS of $(0.19) missed consensus by a penny.
Key metrics: added over 300 new SharpSpring customers expected to generate $2.3 million in annual recurring revenue; approximately 2,000 agency customers, over 500 direct customers and over 9,000 total businesses on the SharpSpring Marketing Automation Platform at quarter-end; average monthly net revenue attrition of 1.9%; net revenue retention of 97%.
Customer acquisition cost in Q4 was approximately $9,900, and management continues to believe the lifetime value of agency customers should be $40,000 to $50,000 on average.
Margin compression in the quarter arose from a few integration items related to the Perfect Audience acquisition, investment in customer support and onboarding and additional headcount to fully staff the account management team.
In January, SharpSpring instituted a price increase of $75 per month applicable to a targeted segment of its agency customers.
Guidance for FY ’20 calls for revenue of $30.0-$31.0 million, above consensus of $29.7 million.
Synchronoss Technologies (SNCR) reported mixed Q4 ’19 results and provided a mixed outlook for FY ‘20.
Revenue was $90.6 million (+10.3% Y/Y), within guidance for $89.8-$96.8 million but shy of the Street’s $91.6 million. Adjusted EBITDA was $6.5 million (7.2% margin), within guidance for $2.9-$8.9 million and above consensus of $4.8 million. Non-GAAP EPS of $(0.06) beat consensus of $(0.42).
Organic subscriber growth at Verizon was in the low teens during 2019, and contracts were renewed with legacy cloud customers BT, Proximus and SFR last year and early this year.
The cloud deal with AT&T, the launch of TracFone Cloud and the launch of Synchronoss’ cloud service on Assurant’s Pocket Geek application adds another 21 million subscribers to the company’s total addressable market.
The RCS advanced messaging contract win with the Cross-Carrier Messaging Initiative (CCMI) will drive meaningful licensing revenue in 2020 and beyond; Synchronoss is already seeing upside in the total minimum contract value.
Per management, if the company simply executes on the wins booked in 2019, Synchronoss should see profitable growth in 2020 given the quality of the pipeline.
Management anticipates delivering another $15 million in incremental cost savings in 2020.
Guidance for FY ’20 includes revenue of $320.0-$340.0 million and adjusted EBITDA of $25.0-$35.0 million, which was mixed relative to consensus of $342.7 million in revenue and $29.0 million in adjusted EBITDA.
Zuora Reports Fourth Quarter and Full Year Fiscal 2020 Results
Zuora (ZUO) reported mixed Q4 ’20 results and issued a mixed outlook for FY ’21.
Revenue of $70.4 million (+11.1% Y/Y) was below guidance for $71.0-$72.5 million and consensus of $72.0 million. Non-GAAP operating income was $(10.5) million (-14.9% margin), in line with guidance for $(11.0)-$(10.0) million and consensus of $(10.6) million. Non-GAAP EPS of $(0.09) were at the high-end of guidance and a penny above consensus.
Professional services revenue was limited in Q4 by timing delays that deferred revenue into future quarters as well as an effort to push more work to global system integration partners.
Key metrics: billings of $74.5 million (+25% Y/Y); added 38 customers with annual contract value (ACV) of at least $100,000 for a total of 624 (+19% Y/Y) at quarter-end; dollar-based retention rate of 104%; $13.1 billion (+21% Y/Y) in transaction volume through Zuora’s billing platform in Q4.
Management highlighted improved sales productivity and better win rates as key drivers for a record bookings quarter in Q4.
Early renewals and a higher mix of annual billings each contributed approximately two percentage points to billings growth.
Management indicated it is too early to discern the impact of coronavirus, which has not been incorporated into guidance.
Q1 guidance for $70.5-$73.0 million in revenue, $(12.0)-$(10.5) million in non-GAAP operating income and $(0.11)-$(0.10) in non-GAAP EPS fell short of the Street’s $74.2 million, $(10.0) million and $(0.09), respectively.
Guidance for FY ’21 includes revenue of $300.0-$307.0 million, non-GAAP operating income of $(33.0)-$(28.0) million and non-GAAP EPS of $(0.29)-$(0.25), which was mixed versus consensus of $324.0 million in revenue, $(32.2) million in non-GAAP operating income and $(0.27) in non-GAAP EPS.
Tyler Sloat, Chief Financial Officer, will be leaving next month to join another company.
Notable News
Endurance International Group Announces $40 Million Share Repurchase Authorization
Endurance International Group Holdings (EIGI) announced that its Board of Directors has approved a $40 million share repurchase program.
HealthStream Announces Share Repurchase Authorization
HealthStream announced that its Board of Directors has approved a new $30 million share repurchase program that will terminate on the earlier of March 12, 2021 or when the funds have been exhausted.
Paycom Software, Inc. Announces Increased Stock Repurchase Plan
Paycom Software (PAYC) announced that its Board of Directors has increased its existing stock repurchase plan to $250 million and extended the authorization through March 12, 2022.
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).
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).