K. Liu's Week in Review
The United Postal Service’s (USPS) monthly data for April revealed a 54.7% Y/Y increase in PC Postage revenue, marking a significant acceleration from the 13.4% increase in March and the 13.7% increase in the same period last year. This comes as no surprise as management’s commentary during Stamps.com’s (STMP) Q1 earnings call highlighted double-digit growth in U.S. dollar volume processed across all carriers in March and growth north of 50% in April. With UPS instituting a peak surcharge of $0.30 per package for Ground Residential and SurePost Packages, effective May 31, 2020, we think it is safe to say shipping volume growth thus far in May has remained well in excess of levels seen during Q1. The surcharge applies to shippers exceeding their average weekly volumes in February by more than 25,000 packages, so we doubt it has much bearing on the SMB customers served by Stamps.com and UPS’ Digital Access Program but will update if we hear differently. The point, however, is that Stamps.com appears poised for an even stronger quarter than realized in Q1 given holiday-like volumes at this time of year. In fact, PC Postage revenue in April actually exceeded the amount generated in December 2019. Of course, another month remains and with warm weather and a gradual lifting of shelter-in-place orders, some moderation in volume growth should be expected for June. Separately, for those that have followed the Stamps.com saga for some time, the USPS Office of Inspector General (OIG) finally made available a heavily redacted version of its July 23, 2018 report, “Postal Partnerships: the Complex Role of Middlemen and Discounts in the USPS Package Business,” along with recent supplemental responses from the Postal Service and the OIG addressing the back and forth between the two groups on a number of topics arising from the report. While the new USPS reseller agreements make any takeaways from the report a moot point, the diverging views of USPS management and the OIG seemingly mirrored the bull and bear theses for Stamps.com at the time.
The off-calendar reporting season was also back in full swing this week. Within our coverage universe, QAD (QADA) reported fiscal Q1 ’21 results. Our report, “QAD Reports Solid Q1 Performance Amidst Pandemic," has all of the details. Like many other reporting companies to date, QAD outperformed meaningfully on the bottom line as discretionary expenses for travel, entertainment and other marketing events were limited by the COVID-19 outbreak. Coming out of this crisis, we are attuned to whether the software industry has indeed entered a new normal for more virtual sales and marketing initiatives, or whether a return to traditional norms is in the cards. If the latter, then we surmise much of the operating leverage realized today may well reverse course by an even greater degree a year from now. In other words, investors should consider whether margins next year may fall below pre-COVID-19 levels given the combined impact of a year of decelerating growth and a return to more normalized expense levels. Outside of our coverage list, Zscaler (ZS) was the big winner this week due to a strong beat and raise driven by robust demand for its ZPA and ZIA solutions, which enable customers to secure access to both SaaS and internal applications without the need for a VPN. The company also acquired Edgewise Networks, broadening its platform to secure application-to-application communications for public clouds and data centers. VMware (VMW) also comfortably outperformed expectations despite previously withdrawing its guidance in. Box (BOX) too deserves a mention given a solid billings performance and positive near-term outlook reflecting enterprise demand for secure work from home solutions. We also commend Salesforce (CRM) and Workday (WDAY) for their willingness to miss near-term profitability targets to issue one-time payments to employees amidst the pandemic. Faring less well this week, Anaplan (PLAN) shares suffered as delays in securing new digital transformation projects and a slower pace of expansion with existing customers weighed on billings growth in its fiscal Q1 and prompted a lower growth outlook for Q2.
As for other notable developments this week, Agilysys (AGYS), Qualys (QLYS) and Zuora (ZUO) all appointed new Chief Financial Officers. Cerence (CRNC) and Datadog (DDOG) priced convertible senior notes offerings with the former refinancing a portion of its outstanding debt and the latter simply shoring up its working capital position. Finally, Appian (APPN) commenced an underwritten public offering of 2.5 million shares, comprised of 1,931,206 primary shares and 568,794 shares offered by existing stockholders.
Mergers & Acquisitions
Zscaler Acquires Edgewise Networks
Zscaler (ZS) has acquired Edgewise Networks, which leverages AI and machine learning algorithms to secure application-to-application communications for public clouds and data centers.
The acquisition broadens Zscaler’s platform beyond securing connections between users and applications by improving the security of east-west communication within the network.
Terms of the transaction were not disclosed.
Earnings Releases
Anaplan Announces First Quarter Fiscal Year 2021 Financial Results
Anaplan (PLAN) reported Q1 ’21 results above expectations but provided a mixed outlook for Q2.
Revenue was $103.8 million (+36.9% Y/Y), above guidance for $102.0-$103.0 million and consensus of $101.9 million. Non-GAAP operating income was $(13.4) million (-12.9% margin), exceeding guidance for a (18.5)%-(17.5)% margin and consensus of $(18.1) million. Non-GAAP EPS of $(0.10) beat consensus of $(0.14).
Key metrics: billings of $96 million (+10% Y/Y); 367 customers (+32% Y/Y) with ARR over $250,000; dollar-based net expansion rate of 117%; remaining performance obligation of $647 million (+37% Y/Y).
Anaplan had a strong start in February as the company converted some of the deals that slipped from Q4 but COVID-19 affected deal flows in the latter half of the quarter as customers delayed budget decisions related to spending on new projects.
New logo deals were most impacted by COVID-19 as were deals in hard hit industries, but the opportunities remain in play.
Management has been pleased with the level and type of pipeline generated over the past four to six weeks.
Q2 guidance for revenue of $103.0-$104.0 million and a non-GAAP operating margin of (16.0)%-(15.0)% (implies non-GAAP operating income of $(16.6)-$(15.5) million) was mixed relative to Street expectations for $109.7 million and $(17.0) million.
Due to the uncertain impact of COVID-19 on the global economy, management withdrew its prior FY ’21 guidance.
Autodesk, Inc. Announces Fiscal 2021 First Quarter Results
Autodesk (ADSK) reported Q1 ’21 results above expectations but lowered its outlook for FY ’21.
Revenue of $885.7 million (+20.4% Y/Y) was within guidance for $880.0-$895.0 million and above consensus of $872.6 million. Non-GAAP operating income was $247.8 million (28.0% margin), exceeding consensus of $225.8 million. Non-GAAP EPS of $0.85 was near the high-end of guidance for $0.80-$0.86 and above consensus of $0.80.
Key metrics: billings of $884 million (+11% Y/Y); net revenue retention rate was within the 110%-120% range; remaining performance obligations (RPO) of $3.5 billion (+27% Y/Y), including current RPO of $2.4 billion (+18% Y/Y).
Renewal rates held steady during the quarter whereas new business slowed in the second half due to COVID-19.
While manufacturing has been impacted by supply chain disruptions, Fusion 360 continues to gain traction amid the pandemic as customers reassess their ability to cope with distributed work, resulting in record new user acquisition in April.
Management expects new business activity in Q2 to be the most impacted by the pandemic but noted that the pipeline continues to be strong and growing.
Q2 guidance for revenue and non-GAAP EPS of $890.0-$905.0 million and $0.86-$0.92, respectively, fell short of Street expectations for $915.1 million and $0.94.
Management lowered its FY ’21 guidance across the board and now anticipates billings of $4.070-$4.220 billion, revenue of $3.675-$3.775 billion, a non-GAAP operating margin of 27.0%-29.0% and non-GAAP EPS of $3.52-$3.90.
Box Reports Revenue of $183.6 Million for Fiscal First Quarter 2021, Up 13 Percent Year-Over-Year
Box (BOX) reported Q1 ’21 results ahead of expectations and raised its FY ’21 non-GAAP EPS guidance on lower revenue.
Revenue of $183.6 million (+12.6% Y/Y) was within guidance for $183.0-$184.0 million and above consensus of $181.9 million. Non-GAAP operating income was $17.2 million (9.4% margin), exceeding consensus of $10.1 million. Non-GAAP EPS of $0.10 beat guidance for $0.04-$0.06 and consensus of $0.05.
Key metrics: billings of $128.1 million (+8.2% Y/Y); closed 40 deals (+21.2% Y/Y) in excess of $100,000; annualized net retention rate of 107%; free cash flow of $39.8 million (21.7% margin); RPO of $722.7 million (+13% Y/Y).
The heightened need for solutions that power remote work benefited sales to existing customers, which contributed over 70% of new bookings during Q1, and Box has also seen momentum in its revamped digital channel.
While management expects to see softness in its small business segment, the company also anticipates continued momentum from enterprise customers expanding to meet their needs for secure remote work solutions.
Q2 guidance for revenue of $189.0-$190.0 million and non-GAAP EPS of $0.12-$0.14 exceeded Street expectations for revenue of $188.2 million and non-GAAP EPS of $0.08.
Management lowered its FY ’21 revenue guidance from $771.0-$777.0 million to $760.0-$768.0 million but increased its non-GAAP EPS outlook from $0.38-$0.44 to $0.47-$0.52.
Descartes Announces Fiscal 2021 First Quarter Financial Results
Descartes (DSGX) reported mixed Q1 ’21 results.
Revenues of $83.7 million (+7.3% Y/Y) were below consensus of $85.5 million. Adjusted EBITDA of $33.0 million (39.4% margin) was ahead of the Street’s $32.1 million. EPS of $0.13 were in line with consensus.
In April, transaction volumes over Descartes’ network were affected by COVID-19, resulting in a recurring revenue run rate 5% lower than expected during a typical month at this time of year.
As the pandemic began to affect the business, Descartes froze hiring of new staff members, banned all travel and paused most external marketing events.
Due to the economic uncertainty arising from COVID-19, Descartes is undertaking a $2 million restructuring that will reduce its global workforce by 5% and see the closure of several office facilities, resulting in annualized cost savings of $6-$7 million.
Baseline revenues for Q2 are estimated at $77.0 million with baseline adjusted EBITDA of $26.5 million.
Majesco Announces Strong Fourth Quarter Product Revenue and Full Year Fiscal 2020 Results
Majesco (MJCO) reported Q4 ’20 revenue, adjusted EBITDA and EPS of $37.9 million (+1.9% Y/Y), $5.1 million (13.5% margin) and $0.08, respectively.
Key metrics: 12-month order backlog of $109.8 million (+13.3% Y/Y); five go-lives in Q4; added eight new clients organically in FY ’20 and had 65 cloud customers at quarter-end.
Majesco’s transition to a product-focused company continued in Q4 highlighted by strong growth in subscription revenue.
The first phase of Majesco’s MetLife project with IBM went live a few weeks ago, and the company has made significant progress in building relationships with other large systems integrators.
While management believes the COVID-19 crisis may prompt customers to shift investments towards cloud and digital experience platforms, deals expected to close in Q1 may be delayed until Q2 given the current environment.
Nutanix Reports Third Quarter Fiscal 2020 Financial Results
Nutanix (NTNX) reported Q3 ’20 results above its pre-announced ranges and consistent with its original guidance.
Revenue of $318.3 million (+10.7% Y/Y) was above the pre-announced range of $312.0-$317.0 million and near the high-end of management’s original guidance for $300.0-$320.0 million. Non-GAAP operating income was $(133.3) million (-41.9% margin), above consensus of $(166.5) million. Non-GAAP EPS of $(0.69) beat consensus of $(0.86).
Key metrics: billings of $383.5 million (+11% Y/Y), including software and support (TCV) billings of $379.7 million (+17% Y/Y); closed 59 deals over $1 million (+31% Y/Y); 16,580 end-customers at quarter-end.
February was business as usual and March and April saw increased demand for end-user computing offerings, although some modernization projects spilled out into future quarters.
Nutanix exceeded its pipeline generation goal for the quarter and indicated the pipeline is significantly larger than a year ago.
Given the company remains in the early innings of transforming the business to a subscription model, there is too much uncertainty in potential new and upsell business to provide Q4 guidance at this juncture.
Nutanix previously withdrew its FY ’20 guidance and CY ’21 business targets in conjunction with its Q3 pre-announcement.
Salesforce Announces Record First Quarter Fiscal 2021 Results
Salesforce (CRM) reported Q1 ‘21 results above consensus but lowered its guidance for FY ’21.
Revenue of $4.865 billion (+30.2% Y/Y) was within guidance for $4.875-$4.885 billion and exceeded consensus of $4.846 billion. Non-GAAP operating income was $635.0 million (13.1% margin), below consensus of $819.4 million. Non-GAAP EPS of $0.70 was in line with guidance for $0.70-$0.71 and a penny above consensus.
Key metrics: remaining performance obligation (RPO) of $29.3 billion (+18% Y/Y), including current RPO of $14.5 billion (+23% Y/Y); revenue attrition rate of less than 9%.
In late March, Salesforce issued a one-time guaranteed commission totaling $140 million to its sales team.
The company has seen continuous improvement in its bookings and pipeline month-to-date, and management indicated the pipelines for Q2 and FY ’21 are really strong.
Q2 guidance for revenue of $4.890-$4.900 billion and non-GAAP EPS of $0.66-$0.67 fell short of Street expectations for $5.034 billion in revenue and $0.75 in non-GAAP EPS.
Management reduced its FY ’21 revenue and non-GAAP EPS guidance from $21.0-$21.1 billion and $3.16-$3.18, respectively, to approximately $20.0 billion and $2.93-$2.95.
Veeva Announces Fiscal 2021 First Quarter Results
Veeva Systems (VEEV) reported Q1 ’21 results above expectations and raised its FY ’21 earnings outlook.
Revenues of $337.1 million (+37.7% Y/Y) exceeded guidance for $327.0-$328.0 million and consensus of $319.7 million. Non-GAAP operating income was $129.7 million (38.5% margin), above guidance for $117.0-$118.0 million and consensus of $113.7 million. Non-GAAP EPS of $0.66 beat guidance for $0.59-$0.60 and consensus of $0.58.
Q1 was a very active quarter for Commercial Cloud with 10 new SMB logos for Veeva CRM and a record number of wins for OpenData; strong services revenue primarily reflected Vault demand.
Due to COVID-19, in-person events have largely stopped and advertising is down, resulting in reduced expectations for the Physicians World and Crossix areas of the business.
Q2 guidance for revenue, non-GAAP operating income and non-GAAP EPS of $339.0-$341.0 million, $126.0-$128.0 million and $0.63-$0.64, respectively, exceeded Street expectations for $332.7 million, $118.5 million and $0.60.
Management reduced its FY ’21 revenue guidance slightly from $1.400-$1.405 billion to $1.380-$1.395 billion but increased its non-GAAP operating income and non-GAAP EPS expectations from $500.0 million and $2.50, respectively, to $500.0-$510.0 million and $2.50-$2.55.
VMware Reports Fiscal Year 2021 First Quarter Results
VMware (VWM) reported Q1 ’21 results above expectations and guided Q2 consistent with consensus.
Revenue of $2.734 billion (+11.6% Y/Y) was above consensus of $2.638 billion and consistent with management’s original guidance, which was withdrawn in late March. Non-GAAP operating income was $818.0 million (29.9% margin), exceeding consensus of $652.6 million and guidance for a 25.1% margin. Non-GAAP EPS of $1.52 beat the Street’s $1.20 and prior guidance for $1.27.
Q1 saw strong revenue performance from EUC, Carbon Black and VeloCloud as well as VMware Cloud on AWS.
VMware is uniquely positioned to help customers enable their employees to work remotely with Workspace ONE, work more securely with Carbon Black, increase connectivity with VMware SD-WAN and scale applications with VMware Cloud.
Q2 guidance for revenue of $2.800 billion, a non-GAAP operating margin of approximately 28.0% and non-GAAP EPS of $1.44 was consistent with Street expectations for $2.783 billion in revenue, $773.7 million in non-GAAP operating income and $1.44 in non-GAAP EPS.
VMware previously withdrew its FY ’21 guidance on March 26, 2020 but noted that mid-single digit revenue growth along with a 28.0% non-GAAP operating margin are reasonable expectations for the year.
Workday Announces Fiscal 2021 First Quarter Financial Results
Workday (WDAY) reported mixed Q1 results and raised its FY ’21 non-GAAP operating income guidance on lower revenue.
Revenues of $1.018 billion (+23.4% Y/Y) exceeded guidance for $1.010-$1.012 billion and consensus of $1.002 billion. Non-GAAP operating income was $130.5 million (12.8% margin), slightly below consensus of $135.7 million and guidance for a 15.0% non-GAAP operating margin. Non-GAAP EPS of $0.44 missed consensus of $0.48.
Key metrics: subscription revenue backlog of $8.19 billion (+20% Y/Y); gross retention over 95%; net retention over 100%.
Highlights included a stellar performance from the medium enterprise team and momentum for the back-to-base team, which generated over 50% new ACV growth spanning products such as Financials, Adaptive Planning, Learning and Prism Analytics.
The onset of COVID-19 resulted in a higher-than-normal amount of pushouts, particularly in highly affected industries.
Management noted that prospect engagement has improved since April and pipeline growth has been healthy.
To help support employees during the crisis, a one-time cash bonus equivalent to two weeks of pay was made to all nonexecutive employees in April, which added $79 million in unanticipated expenses to the quarter.
Q2 guidance for revenue of $1.041-$1.043 billion and a non-GAAP operating margin of approximately 19% (implies non-GAAP operating income of $197.8-$198.2 million) was mixed versus consensus of $1.047 billion in revenue and $148.0 million in non-GAAP operating income.
Management lowered its FY ’21 revenue guidance from $4.335-$4.350 billion to $4.170-$4.190 billion but raised its non-GAAP operating margin target from 14.5% to 16.0%.
Zscaler Reports Third Quarter Fiscal 2020 Financial Results
Zscaler (ZS) reported Q3 ’20 results above expectations and guided Q4 ahead of consensus.
Revenue of $110.5 million (+39.7% Y/Y) was above guidance for $105.0-$107.0 million and consensus of $106.4 million. Non-GAAP operating income was $8.3 million (7.5% margin), exceeding guidance for $1.0-$3.0 million and consensus of $2.2 million. Non-GAAP EPS of $0.07 beat guidance for $0.01-$0.03 and the Street’s $0.02.
Key metrics: billings of $131.3 million (+55.1% Y/Y); net retention rate was 119%; free cash flow of $9.1 million (8.2% margin).
Customers are increasingly purchasing ZIA and ZPA together as both are needed to enable employees to work from anywhere securely with a great user experience.
The company saw exceptional strength for its ZPA service with 10x growth in usage during the quarter as many new and existing customers deployed hundreds of thousands of new users.
In Q3, Zscaler hired a record number of field sales reps; built out strong sales leadership at the regional director, regional VP and area VP levels; increased sales productivity; generated strong pipeline; and recruited cloud-focused channel partners.
Q4 guidance for revenue of $117.0-$119.0 million, non-GAAP operating income of $2.0-$4.0 million and non-GAAP EPS of $0.02-$0.03 was ahead of Street expectations for $114.4 million in revenue, $1.5 million in non-GAAP operating income and $0.02 in non-GAAP EPS.
Notable News
Agilysys (AGYS) Announces Chief Financial Officer Transition
Agilysys (AGYS) has appointed Dave Wood, the company’s current Vice President – Corporate Strategy & Investor Relations, as Chief Financial Officer, effective June 1, 2020.
Mr. Wood, who has held a number of roles since joining Agilysys in 2011, succeeds Tony Pritchett, who is leaving to pursue other opportunities.
Appian Announces Proposed Public Offering of Class A Common Stock
Appian (APPN) has launched an underwritten public offering of 2.5 million shares of its Class A common stock, of which 1,931,206 shares are being offered by the company and 568,794 shares are being offered by existing stockholders.
Box (BOX) has appointed Carl Bass, who served as CEO of Autodesk (ADSK) from 2006 until 2017, to its Board of Directors.
Mr. Bass’ appointment stems from Box’s agreement with Starboard Value to identify and appoint one additional independent director prior to the 2020 annual shareholder meeting.
Cerence Inc. Prices Offering of $150 Million 3.00% Convertible Senior Notes due 2025
Cerence (CRNC) priced an offering of $150.0 million aggregate principal amount of 3.00% convertible senior notes due 2025 with an initial conversion price of $37.42 per share, representing a 13.2% premium to the close price prior to the announcement of the planned offering.
The company has also granted the initial purchasers an option to purchase up to an additional $25.0 million aggregate principal amount of notes.
Net proceeds are expected to total $144.8 million (or $169.1 million if the initial purchasers exercise their option in full), of which Cerence will use to repay a portion of its borrowings under its senior secured term loan credit facility.
Check Point Software Technologies Appoints New Board Chairman and Lead Independent Director
Check Point Software Technologies (CHKP) has appointed Vice Chairman Jerry Ungerman as Chairman of the Board and current director Guy Gecht as Lead Independent Director of the Board.
Mr. Ungerman, who served as Check Point’s President from 2001-2005 and has served as Vice Chairman since 2005, succeeds Marius Nacht, a Check Point founder and Chairman of the Board, who decided not to stand for reelection at the upcoming annual general meeting.
Datadog Announces Pricing of Upsized Offering of $650 Million Convertible Senior Notes
Datadog (DDOG) priced an offering of $650.0 million aggregate principal amount of 0.125% convertible senior notes due 2025 with an initial conversion price of $92.30 per share, representing a 38.1% premium to the close price prior to the announcement of the planned offering.
The offering was upsized from initial plans to offer $550.0 million, and the company has granted the initial purchasers of the notes an option to purchase up to an additional $97.5 million aggregate principal amount of notes.
Net proceeds are expected to total $634.2 million (or $729.4 million if the initial purchasers exercise their option in full), of which a portion will be used to pay the cost of capped call transactions with the remainder for working capital and other general corporate purposes.
Qualys Appoints Joo Mi Kim as New Chief Financial Officer
Qualys (QLYS) has appointed Joo Mi Kim as Chief Financial Officer, succeeding Melissa Fisher who is leaving the company at the end of the month to pursue another opportunity.
Ms. Kim previously served as Vice President of FP&A and Investor Relations at Qualys from 2016-2018 and most recently served as Chief Financial Officer of Impact.
Zuora Appoints SAP Cloud Executive as Chief Financial Officer
Zuora (ZUO) has appointed Todd McElhatton as Chief Financial Officer, effective June 22, 2020.
Mr. McElhatton is currently Senior Vice President and Chief Financial Officer of SAP Cloud Business Group.
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 Box Inc. (BOX).
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).