K. Liu's Week in Review
The calendar Q2 ’20 earnings season is officially underway, and the initial results suggest that business conditions were better than feared at the outset of the COVID-19 pandemic. Brightcove (BCOV) saw the strongest post-print move amongst the group of reporting companies as results significantly outpaced management’s guidance and consensus. Per management, new sales hit a record high as enterprises turned to video in order to engage with both internal and external stakeholders. Lower net dollar retention, which was attributed to a Japanese customer in-sourcing the majority of its traffic after acquiring a competitive online video platform and to several legacy Ooyala customers choosing not to migrate to Brightcove’s platform, was the only blip in the quarter. Looking forward, retention rates are expected to return to historical levels and management reintroduced FY ’20 guidance above Street expectations. We note that the outlook implies potential declines in subscription revenue in each of the next two quarters, which considering Brightcove’s Q2 performance and management’s commentary appears highly unlikely, in our opinion. We surmise a fair amount of conservatism is baked into guidance, positioning the company for another beat-and-raise next quarter.
As for the other reporting companies, Check Point Software Technologies (CHKP), Citrix Systems (CTXS) and Microsoft (MSFT) all benefited from the shift to work-from-home in Q2 and posted results ahead of expectations. Of note, Check Point was the only reporting company that opted not to provide guidance, although management indicated its pipeline remains at healthy levels. The reticence to provide specific targets stems more so from the uncertainty presented by high unemployment levels and a resurgence in COVID-19 cases across the globe as opposed to any specific trends in Check Point’s business. Finally, Manhattan Associates’ (MANH) growth was certainly impacted by the pandemic, but its results also beat Street expectations. Demand for Manhattan’s Active Omni suite rose as customers sought to deploy capabilities for buy online, pickup in store (BOPIS), curbside pickup and store inventory fulfillment, and Manhattan’s pipeline continues to skew towards cloud offerings, which now comprise 60% of deal opportunities. Reflecting the solid performance in Q2, management raised its guidance for the year.
In recent weeks, we have highlighted a number of data points indicating e-commerce sales throughout Q2 have exceeded peak season levels and the positive implications for Stamps.com (STMP). The latest support in this regard comes from ChannelAdvisor (ECOM), which pre-announced Q2 revenue and adjusted EBITDA well above management’s guidance. The outperformance was attributed to sustained and broad-based GMV growth during the quarter as the pandemic continued to shift consumer buying online. Separately, ChannelAdvisor announced the acquisition of BlueBoard, an e-commerce analytics vendor providing brands with insights into the performance of their products across retailer websites and marketplaces. Also worth noting, Pitney Bowes (PBI) named its Chief Commercial Officer, Gregg Zegras, as Executive Vice President and President, Global Ecommerce, succeeding Lila Snyder, who is leaving to become Chief Executive Officer at a privately-held company.
On the M&A front, private equity firm Thoma Bravo agreed to acquire Majesco (MJCO), a provider of software solutions to the insurance industry, for $13.10 per share in cash. The purchase price represents a 71.5% premium to Majesco’s last closing price prior to the announcement and values the company at TTM EV/Sales and EV/EBITDA multiples of 3.9x and 31.4x, respectively. Fortinet (FTNT) bought OPAQ Networks for $13.1 million in an effort to enhance its Secure Access Service Edge (SASE) offering with the addition of OPAQ’s Zero Trust Network Access (ZTNA) cloud solution, and Autodesk (ADSK) agreed to acquire Pype, a provider of cloud solutions for managing construction projects. Rounding out this week’s news, MobileIron (MOBL) has a new global sales leader after appointing Christoff Baumgärtner as its Chief Revenue Officer, while SharpSpring (SHSP) is on the hunt for a new Chief Financial Officer following Michael Power’s resignation for personal and family reasons.
Mergers & Acquisitions
Autodesk to Acquire AI-Powered Construction Software Provider Pype
Autodesk (ADSK) has agreed to acquire Pype, a provider of cloud-based solutions for managing construction projects.
Pype’s software leverages artificial intelligence and machine learning to automate construction workflows such as submittals and closeouts, and Autodesk plans to integrate Pype’s products with Autodesk Construction Cloud.
Terms of the transaction were not provided, but the acquisition is not expected to have a material impact on the company’s current fiscal year.
ChannelAdvisor (ECOM) has acquired BlueBoard, which provides brands with analytics pertaining to the performance of their products across retailer websites and marketplaces.
Terms of the transaction were not disclosed.
Fortinet Acquires Cloud Security and Networking Innovator OPAQ Networks
Fortinet (FTNT) has acquired OPAQ Networks, which offers a Zero Trust Network Access (ZTNA) cloud solution to protect distributed networks, for $13.0 million in cash.
OPAQ’s ZTNA solution will be combined with Fortinet’s Security Fabric, thereby enhancing the company’s Secure Access Service Edge (SASE) offering.
Majesco to Be Acquired by Thoma Bravo
Majesco (MJCO) has agreed to be acquired by private equity firm Thoma Bravo for $13.10 per share in cash, representing a 71.5% premium to the last closing price prior to the announced transaction.
The purchase price values Majesco at TTM EV/Sales and EV/EBITDA multiples of 3.9x and 31.4x, respectively.
Earnings Releases
Brightcove Announces Financial Results for Second Quarter Fiscal Year 2020
Brightcove (BCOV) reported Q2 ’20 results above expectations and reinstated its guidance for FY ’20.
Revenue was $47.9 million (+0.7% Y/Y), exceeding guidance for $44.5-$46.0 million and consensus of $44.9 million. Adjusted EBITDA was $4.2 million (8.7% margin), considerably ahead of guidance for $(0.5)-$1.0 million and consensus of $0.3 million. Non-GAAP EPS of $0.07 beat guidance for $(0.05)-$(0.01) and the Street’s $(0.03).
Key metrics: average annual subscription revenue per premium customer was $87,200 (+4% Y/Y); recurring dollar retention rate was 80%; 3,423 customers at quarter-end, of which 2,279 were premium.
Upside in the quarter was driven by better than anticipated bookings early in Q2, and management indicated that new sales were the strongest in history as enterprises sought solutions for broadcasting live and on-demand events virtually.
The recurring dollar retention rate was pressured by a Japanese customer that brought most of its traffic in-house as well as several legacy Ooyala customers that opted not to renew; returning retention rates to historical levels is a focus for 2H ’20.
Namita Dhallan, who was previously SVP and Chief Product Officer at Ellucian and has recently been advising Brightcove’s Global Services team, has been appointed as Brightcove’s Chief Product Officer, succeeding Charles Chu.
Management noted that business conditions have improved since April but have yet to return to normal.
Q3 guidance for $46.0-$47.0 million in revenue, $0.8-$1.3 million in adjusted EBITDA and $(0.02)-$(0.01) was mixed relative to Street expectations for $45.1 million in revenue, $1.4 million in adjusted EBITDA and $(0.01) in non-GAAP EPS.
Management reinstated guidance for FY ’20, which includes revenue of $186.0-$188.0 million, adjusted EBITDA of $10.0-$11.0 million and non-GAAP EPS of $0.08-$0.10 and was above consensus of $182.7 million in revenue, $7.7 million in adjusted EBITDA and $0.02 in non-GAAP EPS.
Check Point Software Technologies Reports 2020 Second Quarter Financial Results
Check Point Software Technologies (CHKP) reported Q2 ’20 results above expectations.
Revenue was $505.6 million (+3.6% Y/Y), exceeding consensus of $488.0 million. Non-GAAP operating income was $253.2 million (50.1% margin), also exceeding consensus of $230.7 million. Non-GAAP EPS of $1.58 beat the Street’s $1.44.
Both cloud SaaS and IaaS solutions produced high double-digit growth, while work-from-home solutions experienced strong demand as evidenced by 300% and 90% growth for Mobile Access and Sandblast Agent, respectively.
The financial services, healthcare and technology verticals produced a significant increase in transactions over $1 million.
Profitability was higher than anticipated, benefiting from strong sales execution and restrictions on travel amid the pandemic.
Check Point introduced its Quantum appliances in April and has already seen strong uptake by its customers, and the company launched its expanded CloudGuard family of products in June, which provides security for serverless computing workloads.
The pipeline remains healthy but the economic situation across the globe remains highly uncertain, so management again refrained from providing any specific financial guidance.
Citrix Reports Second Quarter 2020 Financial Results
Citrix Systems (CTXS) reported Q2 ’20 results above expectations and raised its FY ’20 guidance.
Revenue was $798.9 million (+6.7% Y/Y), exceeding guidance for $760.0-$770.0 million and consensus of $773.8 million. Non-GAAP operating income was $245.7 million (30.8% margin), well above consensus of $200.2 million. Non-GAAP EPS of $1.53 beat guidance for $1.18-$1.23 and consensus of $1.24.
Key metrics: subscription ARR of $949 million (+54% Y/Y), including SaaS ARR of $590 million (+41% Y/Y); subscription bookings were 76% of total product bookings; Citrix Cloud Paid Subscriber count of 7.5 million (+39% Y/Y).
Q2 results continued to reflect strong demand for secure, remote work environments, and companies are increasingly viewing remote work as a viable alternative to returning to the office.
The sharp increase in subscription bookings as a percentage of Networking bookings was attributed to the conversion of Citrix’s second Strategic Service Provider customer to the subscription model.
Many customers are choosing on-premises term subscriptions rather than immediately migrating their Workspace deployments directly to the cloud, so uptake of the cloud offering is not ramping as quickly as anticipated.
Q3 guidance for revenue and non-GAAP EPS of $750.0-$760.0 million and $1.20-$1.25, respectively, was slightly ahead of Street expectations for $748.8 million in revenue and $1.20 in non-GAAP EPS.
Management raised its FY ’20 revenue and non-GAAP EPS guidance from $3.10-$3.16 billion and $5.40-$5.60, respectively, to $3.18-$3.21 billion and $5.65-$5.85.
Manhattan Associates Reports Second Quarter 2020 Results
Manhattan Associates (MANH) reported Q2 ’20 results ahead of expectations and raised its outlook for FY ’20.
Revenue of $135.6 million (-12.1% Y/Y) was above consensus of $127.3 million. Non-GAAP operating income was $34.3 million (25.3% margin), exceeding consensus of $28.9 million. Non-GAAP EPS of $0.40 beat the Street’s $0.34.
Key metrics: remaining performance obligations of $225.5 million (+87.3% Y/Y).
Over half of cloud and license revenue in Q2 was derived from the retail and grocery, consumer goods, food and beverage and government verticals driven by robust demand for capabilities within the Active Omni suite such as buy online, pickup in store (BOPIS), curbside pickup and store inventory fulfillment.
Competitive win rates remained strong at over 70% in head-to-head competition.
The current pipeline remains healthy with over 60% comprised of cloud opportunities and approximately 50% represented by new logos.
Management raised its FY ’20 revenue and non-GAAP EPS guidance from $541.0-$565.0 million and $1.50-$1.58, respectively, to $554.0-$570.0 million and $1.53-$1.59; guidance for non-GAAP operating margin remains 22.9%-23.1%.
Microsoft Cloud Strength Drives Fourth Quarter Results
Microsoft (MSFT) reported Q4 ’20 results above expectations and guided Q1 profitability ahead of consensus.
Revenue was $38.033 billion (+12.8% Y/Y), exceeding guidance for $35.850-$36.800 billion and consensus of $36.502 billion. Operating income was $13.407 billion (35.3% margin), above guidance for $12.500-$13.150 billion and consensus of $12.976 billion. EPS of $1.46 beat guidance for $1.32-$1.39 and the Street’s $1.34.
The strong performance was driven by commercial cloud, which exceeded $50 billion in revenue and grew 36% Y/Y as businesses accelerated the digitization of their operations.
The consumer business saw increased demand for work-, learn- and play-from-home scenarios, which benefited the Gaming, Surface and Windows OEM non-pro businesses.
The small and medium business channel and the search business both experienced weakness in the quarter.
Management’s segment guidance for Q1 implies total revenue of $35.150-$36.050 billion, operating income of $13.7-$14.3 billion and EPS of $1.50-$1.56, comparing favorably versus Street expectations for $35.930 billion in revenue, $13.5 billion in operating income and $1.46 in EPS.
Notable News
ChannelAdvisor (ECOM) reported preliminary Q2 revenue of $37.3 million (+17% Y/Y) and adjusted EBITDA of $11.4 million (31% margin), exceeding guidance for at least $32.5 million in revenue and $6.0 million in adjusted EBITDA.
The strong results were attributed to “sustained and broad-based growth in GMV as e-commerce spending remained elevated throughout the quarter, consistent with broader e-commerce trends as the COVID-19 pandemic caused a shift in consumer buying habits.”
MobileIron Appoints Christof Baumgärtner as Chief Revenue Officer
MobileIron (MOBL) has named Christoff Baumgärtner as Chief Revenue Officer, a role in which he will be responsible for the company’s global sales and marketing organizations.
Mr. Baumgärtner joined the company in 2010, was promoted to VP and general manager of EMEA in 2017 and most recently served as interim chief revenue officer.
Pitney Bowes Names Gregg Zegras Executive Vice President and President, Global Ecommerce
Pitney Bowes (PBI) has appointed Gregg Zegras as Executive Vice President and President, Global Ecommerce.
Mr. Zegras joined Pitney in 2013 and most recently served as Chief Commercial Officer, a role in which he was responsible for product management, pre-sales, sales, client success and customer care for the Global Ecommerce business.
SharpSpring Announces New Customer Wins, Updates Management Team, and Wins Awards
In Q2 ’20, SharpSpring (SHSP) added 276 new customers, of which 80% were agency customers, that are expected to generate approximately $2.2 million in annual recurring revenue (ARR) over the next year.
SharpSpring also announced that Michael Power, Chief Financial Officer, has resigned for personal and family reasons indirectly associated with the COVID-19 pandemic.
Aaron Jackson, the company’s Controller, has been named interim CFO and a search for Mr. Power’s successor is underway.
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 Brightcove (BCOV).
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).