K. Liu's Week in Review
Coupa Software (COUP) was active on a number of fronts, reporting a strong start to its FY ’21, pricing an upsized convertible debt offering and acquiring BELLIN Group to extend its reach into treasury management. New bookings were back-end loaded with April exhibiting improvement over March, but renewals remained consistent with prior quarters and expansion with existing customers was above historical rates. Guidance assumes ongoing challenges in the macroeconomic environment for at least the next two quarters before some relief in Coupa’s fiscal Q4. Regardless, management guided Q2 ahead of Street expectations and raised its outlook for FY ‘21. Subsequent to its earnings release, Coupa priced an offering of $1.2 billion aggregate principal amount of 0.375% Convertible Senior Notes due 2026, of which a portion of the proceeds will be put towards the repurchase of its outstanding convertible notes due 2023. Also worth noting, Coupa’s Executive Vice President of Products, Raja Hammoud, was appointed to PROS Holdings (PRO) Board of Directors, filling the vacancy left by Les Rechan, who resigned earlier in the year to become PROS’ Chief Operating Officer.
Adobe (ADBE) and Verint Systems (VRNT) were also out with results this week. For the former, the decision to accelerate the elimination of lower margin, transaction driven offerings in its Advertising Cloud business coupled with macroeconomic weakness affecting the small and medium-sized business segment of its Digital Experience group resulted in a revenue shortfall. However, net new Digital Media annualized recurring revenue in the quarter outpaced expectations as the transition to work-from-home fueled strong demand for and usage of the company’s Creative and Document Cloud solutions. Looking forward, management’s fiscal Q3 guidance was short of Street expectations and the prior outlook for FY ’20 was pulled due to the strategic shift in the Advertising Cloud business and ongoing macroeconomic uncertainty. Additionally, Anil Chakravarthy, who currently runs the Digital Experience business, has also assumed responsibility for the worldwide field organization following the planned retirement of Adobe’s Executive Vice President of Worldwide Field Operations, Matt Thompson. As for Verint, the company’s fiscal Q1 results were negatively impacted by the COVID-19 pandemic as many customers delayed on-premises deployments in April. On a positive note, cloud growth in Verint’s Customer Engagement business remained strong with SaaS ACV growth of 45%, and management expects sequential improvement in the current quarter with further recovery in the latter half of its fiscal year. Verint also remains on track to complete the spin-off of its Cyber Intelligence business shortly after the end of its FY ’21.
As for other notable news, Commvault (CVLT) reached an agreement with Starboard Value to replace three existing Board members and to form an Operating Committee that will oversee the company’s budgeting process and work with management to establish operating margin targets and a balanced capital allocation policy. Descartes Systems Group (DSGX) acquired Kontainers, which enables logistics services providers to create digital experiences for their end-customers, for $6.0 million in cash and a potential earn-out of $6.0 million. Both 8x8 (EGHT) and Veeva Systems (VEEV) appointed new Chief Financial Officers. At 8x8, Samuel Wilson, the company’s current Chief Customer Officer and Managing Director of EMEA, takes the reins from Steven Gatoff, who is departing to pursue other opportunities. At Veeva, Brent Bowman, who previously served as Chief Financial Officer at [24]7.ai, succeeds Tim Cabral, who is retiring. Elsewhere, Todd Pelletier has left Docker to join Talend (TLND) as its Senior Vice President of Sales and General Manager of the NORAM region. Pluralsight (PS) priced a secondary offering of 11.7 million shares by selling stockholders, including Insight Venture Partners and members of its executive team and Board of Directors, at $19.50 per share, representing a 12% discount to the close price prior to the announcement of the offering. Last but not least, Zendesk (ZEN) priced an offering of $1.0 billion aggregate principal amount of 0.625% Convertible Senior Notes due 2025. The company plans to utilize a portion of the proceeds to repurchase $425.8 million in aggregate principal amount of its 0.25% Convertible Senior Notes due 2023.
Mergers & Acquisitions
Coupa Acquires Treasury Management Leader BELLIN Group
Coupa Software (COUP) has acquired BELLIN Group, which provides a cloud-based platform that improves visibility and control over cash and optimizes treasury processes.
BELLIN extends the company’s strategy to provide financial leaders with a comprehensive view into their organization’s spend, liquidity and the associated risks, and will be positioned as Coupa Treasury Management.
Descartes Systems Group (DSGX) has acquired Cracking Logistics Limited dba “Kontainers” for $6.0 million in cash and a potential earn-out of $6.0 million based on revenue targets in each of the first two years post-acquisition.
Kontainers provides client-facing digital freight execution platforms with capabilities for quoting, booking, tracking and dashboard analytics, enabling logistics services providers to create branded digital experiences for their end-customers.
Earnings Releases
Adobe (ADBE) reported mixed Q2 ’20 results and guided Q3 below Street expectations.
Revenue of $3.128 billion (+14.0% Y/Y) fell short of guidance for $3.175 billion and consensus of $3.160 billion. Non-GAAP operating income of $1.335 billion (42.7% margin) was above consensus of $1.291 billion. Non-GAAP EPS of $2.45 beat guidance for $2.35 and consensus of $2.33.
Key metrics: Digital Media Annualized Recurring Revenue (ARR) of $9.17 billion, including Creative ARR of $7.93 billion and Document Cloud ARR of $1.24 billion; net new digital media ARR of $443 million exceeded guidance for $385 million.
Adobe accelerated its strategy to eliminate low-margin Advertising Cloud transaction-driven offerings, which combined with the macroeconomic environment resulted in a $50 million reduction in Q2 revenue.
Demand was strong for solutions on adobe.com amid the work-from-home environment and usage of the company’s products spiked noticeably during the quarter.
In the Creative business, the company has decided to increase investments in new solutions addressing the unmet needs of the communicator segment and in ensuring that the web browser is a first-class authoring platform.
For the Document business, investments will be made in Adobe Sign, web-based PDF services and enabling PDF functionality through APIs.
The Digital Experience business experienced anticipated delays in enterprise bookings and implementations as well as weakness in the commercial segment targeting small and medium-sized businesses.
Following the planned retirement of Matt Thompson, Anil Chakravarthy has assumed responsibility for the entire worldwide enterprise field organization in addition to his responsibilities for the Digital Experience business.
Q3 guidance for approximately $3.150 billion in revenue and $2.40 in non-GAAP EPS fell short of Street expectations for $3.277 billion in revenue and $2.47 in non-GAAP EPS.
Due to the macroeconomic environment and strategic shifts for Advertising Cloud, management withdrew its prior FY ’20 guidance.
Coupa Software Reports First Quarter Fiscal 2021 Financial Results
Coupa Software (COUP) reported Q1 ’21 results above expectations and raised its FY ’21 guidance.
Revenues were $119.2 million (+46.6% Y/Y), exceeding guidance for $111.5-$112.5 million and consensus of $111.5 million. Non-GAAP operating income was $14.9 million (12.5% margin), well above guidance for $4.0-$5.5 million and consensus of $5.0 million. Non-GAAP EPS of $0.20 beat guidance for $0.06-$0.08 and consensus of $0.07.
Key metrics: billings of $102 million (+36% Y/Y); dollar-based net expansion rate was above the historical 110%-112% range; adjusted free cash flow of $22.4 million (18.8% margin).
In Q1, Coupa saw a mix of deals being put on pause, deals closing with a normal cadence and deals being pulled forward.
New customer bookings were back-end loaded with April stronger than March, while renewals were strong and consistent with prior quarters.
90% of implementations underway were not impacted whatsoever by the COVID-19 pandemic and those that were impacted were in the most heavily affected industries.
Coupa’s Q2 2020 Business Spend Index shows indications of a slowing economy with businesses increasingly concerned about their outlook amid the global pandemic.
Management’s guidance assumes the macroeconomic environment remains challenging for at least Q2 and Q3 with things beginning to open up more broadly in Q4.
Q2 guidance for revenue of $118.0-$119.0 million, non-GAAP operating income of $5.0-$6.8 million and non-GAAP EPS of $0.06-$0.08 was above Street expectations for $117.1 million, $2.8 million and $0.04, respectively.
Management raised its FY ’21 revenue, non-GAAP operating income and non-GAAP EPS guidance from $488.0-$490.0 million, $21.0-$23.0 million and $0.30-$0.33, respectively, to $489.0-$491.0 million, $28.0-$30.0 million and $0.36-$0.38.
Verint Announces Q1 FY2021 Results
Verint Systems (VRNT) reported Q1 ’21 results below expectations.
Non-GAAP revenue of $291.6 million (-10.0% Y/Y) fell short of the Street’s $323.3 million. Non-GAAP operating income was $47.4 million (16.3% margin), below consensus of $56.6 million. Non-GAAP EPS of $0.52 missed consensus of $0.68.
Key metrics: new Customer Engagement SaaS ACV of $11.9 million (+45% Y/Y); new Customer Engagement perpetual license equivalent bookings of $51.7 million (-21% Y/Y); non-GAAP Cyber Intelligence recurring revenue of $57.1 million (+22% Y/Y).
Q1 started off strong in February and March, but many customers delayed planned projects in April, particularly for on-premises deployments.
As organizations gradually return to offices and travel restrictions are lifted, customers are expressing their intent to resume on-premises deployments and are also considering accelerating cloud adoption.
Cloud growth remained robust in the Customer Engagement segment, and the recurring renewal rate was around 90%.
Many multi-million dollar deals were secured in the Cyber Intelligence segment, and Verint remains on track to spin-off the business shortly after its fiscal year-end.
Verint anticipates a sequential improvement in Q2 with further improvement in the latter half of the year.
Notable News
8x8, Inc. Appoints Samuel Wilson as Chief Financial Officer
8x8 (EGHT) has appointed Samuel Wilson as Executive Vice President and Chief Financial Officer, effective immediately.
Mr. Wilson joined the company in 2017 and was previously 8x8’s Chief Customer Officer and Managing Director of EMEA.
He succeeds Steven Gatoff, who is leaving to pursue other opportunities.
Commvault Announces Agreement with Starboard
Commvault (CVLT) has entered into an agreement with Starboard Value, which owns approximately 9.3% of Commvault’s outstanding stock, under which Todd Bradley, Allison Pickens and Arlen Shenkman will join the company’s Board of Directors.
The agreement also calls for the Board to create a new Operating Committee to oversee Commvault’s budgeting process and to work with management to establish margin targets and a balanced capital allocation policy.
Alan Bunte, Frank Fanzilli and Daniel Pulver have resigned from the Board as part of the agreement.
Starboard has agreed to withdraw its director nominations previously submitted to the company and will support the full slate of directors at the 2020 annual meeting.
Coupa Prices Upsized Offering of $1.2 Billion Convertible Senior Notes due 2026
Coupa Software (COUP) priced an offering of $1.2 billion aggregate principal amount of 0.375% convertible senior notes due 2026 with an initial conversion price of $296.45, a 32.0% premium to the close price prior to the announced offering.
The offering was upsized from initial plans to offer $1.1 billion aggregate principal amount, and the initial purchasers have been granted an option to purchase up to an additional $180 million aggregate principal amount of notes.
Net proceeds are expected to total $1.18 billion (or $1.35 billion if the initial purchasers exercise their option in full), which the company will put towards the repurchase of a portion of its outstanding convertible notes due 2023, the cost of capped call transactions and other general corporate purposes.
Pluralsight, Inc. Announces Pricing of Follow-On Offering by Selling Stockholders
Pluralsight (PS) priced an underwritten public offering of 11,719,009 shares of its Class A common stock by certain selling stockholders, including Insight Venture Partners and members of Pluralsight’s executive team and Board of Directors, at a price to the public of $19.50 per share, an 11.9% discount to the close price prior to the announcement of the offering.
The underwriters have also been granted a 30-day option to purchase up to an additional 1,756,651 shares.
Pluralsight will not receive any proceeds from the offering.
PROS Holdings, Inc. Announces Appointment of Raja Hammoud to Board of Directors
PROS Holdings (PRO) has appointed Raja Hammoud to its Board of Directors, effective June 6, 2020, filling the vacancy left by Les Rechan’s earlier resignation from the Board to serve as the company’s Chief Operating Officer.
Ms. Hammoud currently serves as Executive Vice President of Products at Coupa (COUP), where she leads the product portfolio strategy and product teams.
Talend Names Todd Pelletier as new General Manager and Senior Vice President of NORAM Sales
Talend (TLND) has appointed Todd Pelletier as senior vice president of sales and general manager for the NORAM region.
Mr. Pelletier joins the company from Docker where he led a strategic sales team as well as commercial sales.
Technology Veteran Brent Bowman to Become Veeva Chief Financial Officer
Veeva Systems (VEEV) has appointed Brent Bowman as Chief Financial Officer, succeeding Tim Cabral, who previously announced plans to retire.
Mr. Bowman joins the company from [24]7.ai, where he has served as Chief Financial Officer since 2018.
Zendesk, Inc. Announces Pricing of Offering of $1 Billion of Convertible Senior Notes
Zendesk (ZEN) priced an offering of $1.0 billion aggregate principal amount of 0.625% Convertible Senior Notes due 2025 with an initial conversion price of $108.76, a 22.5% premium to the close price prior to the announced offering.
The company has granted the initial purchasers an option to purchase up to an additional $150 million aggregate principal amount of the Notes.
Zendesk plans to use $617.6 million of the net proceeds for the repurchase of $425.8 million in aggregate principal amount of its 0.25% Convertible Senior Notes due 2023, intends to use $113.0 million for the cost of capped call transactions, and will use the remainder for working capital and other general corporate purposes.