K. Liu's Week in Review
The United States Postal Service (USPS) reported its National Trial Balance for the month of May, providing further insight into PC Postage revenue trends thus far in calendar Q2 ‘20. After rising to approximately 55% in April, PC Postage revenue growth accelerated further to nearly 65% in May. In absolute terms, PC Postage revenue through the first two months of the quarter has already exceeded the total for Q1 and should easily surpass peak season totals for 2019 considering that PC Postage revenue could decline 80% in June and still beat Q4 ’19 levels. The data is of course bullish for Stamps.com (STMP) and suggests that current consensus estimates for Q2, which call for a sequential revenue decline, are far too conservative. While the COVID-19 pandemic continues to cast a shadow over the potential state of the economy in the latter half of this year, having a peak season quarter already in the books for FY ‘20 leaves us increasingly confident that investors will have a beat and raise to look forward to when Stamps.com reports again. We plan to await additional data points pertaining to e-commerce trends in June before revising our projections, but Q2 results should look closer to (and perhaps better than) Q4 ’19 than Q1 ’20, in our opinion.
Of course, the pandemic has also proven to be a major demand driver for other Internet-oriented businesses. In this regard, GoDaddy (GDDY) indicated that continued strong demand for Domains and its Websites + Marketing offering has the company poised to outperform management’s Q2 revenue guidance by approximately 1%. That said, GoDaddy has experienced softness in certain higher-priced, do-it-for-you services as well as lower effectiveness in its outbound U.S. sales group, prompting a $15 million restructuring that will impact 814 employees. BlackBerry (BB) and Progress (PRGS) also provided business updates this week, reporting their fiscal Q1 ’21 and Q2 ’20 results, respectively. For the former, revenues were consistent with Street expectations, and management indicated that all businesses performed in line with internal expectations aside from QNX, which was negatively affected by global automotive production shutdowns. BlackBerry expects sequential improvement in its business as well as its usual seasonal strength in Q4. As for Progress (PRGS), the company beat its own guidance and consensus forecasts for revenue as all business lines performed well and FX fluctuations were favorable during the quarter. Guidance for FY ’20 was raised, and management expressed confidence in Progress’ ability to double in size over the next five years as accretive M&A opportunities increase amidst economic uncertainty and valuation expectations on the part of sellers decrease.
Turning to other news this week, ServiceNow (NOW) agreed to acquire Sweagle for undisclosed terms. Sweagle aggregates configuration data typically spread across multiple tools, thereby protecting customers against misconfigurations that can cause outages or other issues during development or production. The acquisition extends ServiceNow’s DevOps and IT Operations Management capabilities and will accelerate the roadmap for the company’s newly introduced ServiceGraph. Palo Alto Networks (PANW) appointed Luis Felipe Visoso as its new Chief Financial Officer (CFO), succeeding Kathy Bonanno, who is leaving to become business finance officer of Google’s Cloud division. Mr. Visoso joins the company from Amazon Web Services, where he also served as CFO. Finally, both PagerDuty (PD) and Zscaler (ZS) priced convertible senior notes offerings this week, netting proceeds of $241 million and $983 million, respectively. Both companies plan to use the proceeds for general corporate purposes.
Mergers & Acquisitions
ServiceNow to Acquire Configuration Data Management Pioneer Sweagle
ServiceNow (NOW) has agreed to acquire Sweagle, a configuration data management company based in Belgium.
Sweagle provides a single source of truth for configuration data that is typically spread across many tools, enabling customers to identify and prevent misconfigurations that can cause outages and other issues during production or development.
The acquisition extends ServiceNow’s DevOps and IT Operations Management capabilities and will help accelerate the company’s newly introduced Service Graph roadmap.
Terms of the transaction, which is expected to close at the beginning of Q3 ’20, were not disclosed.
Earnings Releases
BlackBerry Reports Fiscal 2021 First Quarter Results
BlackBerry (BB) reported Q1 ’21 non-GAAP EPS ahead of expectations.
Non-GAAP revenue of $214.0 million (-19.9% Y/Y) was in line with consensus of $214.1 million. Adjusted EBITDA was $20.0 million (9.3% margin), ahead of the Street’s $6.9 million. Non-GAAP EPS of $0.02 beat consensus of $(0.02).
Key metrics: ARR was approximately $500 million; dollar-based net retention was 93%.
All businesses performed in line with internal expectations aside from QNX, which was negatively affected by global automotive production shutdowns.
Enterprise products and services that feature security and productivity benefited from the increase in remote working, business continuity and crisis management use cases.
BlackBerry Cylance added 279 new customers in the quarter with active subscription customer growth of 15%.
Management expects sequential growth in Q2 as well as a strong Q4 consistent with normal seasonality
Similar to the prior quarter, management refrained from providing guidance for FY ’21 due to uncertainty associated with the COVID-19 pandemic.
Progress 2020 Second Quarter Revenue Exceeds Guidance
Progress (PRGS) reported Q2 revenue ahead of expectations and raised its outlook for FY ’20.
Non-GAAP revenue of $102.5 million (-0.9% Y/Y) was above guidance for $95.0-$101.0 million and consensus of $99.2 million. Non-GAAP operating income was $39.6 million (38.6% margin), approximately in line with the Street’s $39.9 million. Non-GAAP EPS of $0.63 was within guidance for $0.60-$0.64 but a penny shy of consensus.
Revenue overachieved in part due to favorable FX impacts during the quarter, but management indicated that all of Progress’ businesses performed well relative to expectations.
The net revenue retention rate on maintenance remains well over 90% and SaaS-related revenue from OpenEdge ISVs continues to be solid and steady.
Progress plans to have employees continue working remotely for the foreseeable future.
Management remains confident that Progress can double in size over the next five years through accretive M&A, noting that valuation expectations have begun declining and the uncertainty is pushing more investors to consider a sale.
Q3 guidance for non-GAAP revenue of $104.0-$109.0 million was in line with Street expectations for $105.2 million, while guidance for non-GAAP EPS of $0.69-$0.71 exceeded consensus of $0.65.
Management raised its FY ’21 non-GAAP revenue and EPS guidance from $428.0-$438.0 million and $2.73-$2.80, respectively, to $433.0-$443.0 million and $2.82-$2.86.
Notable News
GoDaddy Sees Continued Strength in Overall Business
GoDaddy (GDDY) has continued to see strong demand in its business for Domains and its Websites + Marketing offering and expects Q2 revenue to exceed management’s prior guidance of $790 million by approximately 1%.
Softness in customer demand for higher-priced, do-it-for-you services such as GoDaddy Social and lower effectiveness in U.S. outbound sales has prompted a restructuring impacting 814 employees, resulting in $15 million of pre-tax restructuring charges as well as the impairment of lease assets with a book value of $58 million.
PagerDuty Announces Pricing of $250 Million Convertible Senior Notes Offering
PagerDuty (PD) priced an offering of $250 million principal amount of 1.25% Convertible Senior Notes due 2025 with an initial conversion price of $40.08, a 31.1% premium to the close price prior to the announcement of the planned offering.
The initial purchasers have been granted an option to purchase up to an additional $37.5 million principal amount of notes.
Net proceeds are expected to total $241.3 million (or $277.6 million if the initial purchasers exercise their option in full), which will be used to pay the cost of capped call transactions and for other general corporate purposes.
Palo Alto Networks Appoints Luis Felipe Visoso as New Chief Financial Officer
Palo Alto Networks (PANW) appointed Luis Felipe Visoso as its Chief Financial Officer (CFO), effective July 1, 2020.
Mr. Visoso most recently served as CFO for Amazon Web Services.
Palo Alto Networks CFO Kathy Bonanno Announces Departure
Palo Alto Networks (PANW) announced that Chief Financial Officer Kathy Bonanno is leaving the company to become business finance officer of Google’s Cloud division.
The company expects to name a new Chief Financial Officer later this week.
Zscaler Announces Pricing of $1.0 Billion Offering 0.125% Convertible Senior Notes Due 2025
Zscaler (ZS) priced an offering of $1.0 billion aggregate principal amount of 0.125% convertible senior notes due 2025 with an initial conversion price of $150.80, a 38.9% premium to the close price prior to announcement of the planned offering.
The initial purchasers have been granted an option to purchase up to an additional $150.0 million principal amount of notes.
Net proceeds are expected to be $983.0 million (or $1,130.5 million if the initial purchasers exercise their option in full), of which $126.3 million will be used to pay the cost of capped call transactions and the rest for general corporate purposes.
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).