K. Liu's Week in Review
Resilience is the word du jour in earnings calls thus far in the Q2 ’20 software earnings season and may prove to be an apt description considering many produced solid growth despite GDP contracting by a third in the U.S. Interestingly, Asia Pacific was the region where demand was most impacted by the COVID-19 pandemic, at least according to several reporting companies this week, while the U.S. remained a source of strength for many vendors. The shift to work-from-home remained a key demand driver with a number of cybersecurity players benefiting as companies scrambled to secure a larger attack surface, and digital transformation initiatives also remained a priority amongst enterprise customers. The wholesale shift of consumer buying to online channels also provided a tailwind to e-commerce and digital marketing solutions providers. Of course, those with more exposure to severely affected industries like travel and hospitality suffered most in terms of growth but not to the degree initially thought at the outset of the pandemic. Of note, restrictions on travel and the shift to virtual marketing events precipitated considerable cost savings, resulting in outsized beats on the bottom line and a number of companies reaching profitability for the first time. Several companies were also willing to reinstate guidance, in most cases at levels above Street expectations, as the most dire scenarios have seemingly been taken off the table.
In our coverage universe, NetScout Systems (NTCT) benefited from ongoing digital transformation initiatives across its enterprise base, which largely offset softness in service provider spending. Despite reporting upside results, shares subsequently traded lower. We presume investors may be concerned with the sustainability of the strong enterprise performance given that growth had been in the single digits previously and may also be latching onto a more cautious tone as it relates to near-term service provider investments. In our view, the acceleration in enterprise growth points to the benefits from last year’s salesforce integration efforts and early success in cross-selling security solutions to enterprise customers. We believe shares are attractively valued, and we refer readers to our recap of NetScout’s quarterly results, Q1 ’21 Results Beat on Robust Enterprise Growth, for further details.
Of the nearly three dozen earnings reports we sifted through this week, MicroStrategy (MSTR) and Tyler Technologies (TYL) were the only ones to miss on the top line. Neither stock was negatively affected, however, as the shortfalls were due more so to non-recurring, lower margin revenue sources such as services. Worth noting, MicroStrategy also communicated a new capital allocation strategy, which contemplates the return of $250 million in cash to shareholders over the next twelve months and the investment of a similar amount in either traditional or alternative assets such as bonds, commodities, equities or perhaps bitcoin. Shutterstock (SSTK) produced the biggest move up after reporting revenue and adjusted EBITDA well above expectations. Per management, revenue from the e-commerce channel benefited as websites proliferated and digital marketing spend rose amid the pandemic. Heading into the latter half of this year, management plans to redeploy capital into Shutterstock’s platform solutions, significantly expand its sales and technical integration teams and invest in marketing and brand building to support new subscription products. On the other side of the coin, shares of PROS Holdings (PRO) were hit hardest due to a cautious Q3 outlook. Management noted that with airlines facing significant business headwinds, minimal travel bookings are expected through year-end, and B2B sales cycles remain elongated. On a positive note, the company has identified incremental opportunities for cost savings.
Aside from earnings, a number of companies also announced tuck-in acquisitions. Altair (ALTR) acquired S&WISE, which provides a solver and technology for polyurethane foaming simulation. Atlassian purchased Mindville to bring configuration management database capabilities to Jira Service Desk. Endurance International Group (EIGI) paid $35.0 million for Retention Science in a bid to capture a greater share of the e-commerce solutions market. Mimecast (MIME) acquired MessageControl to bolster its Email Security 3.0 strategy focused on improving cybersecurity at the email perimeter. Finally, Qualys (QLYS) bought Spell Security’s software assets to strengthen its security and threat research and advance its endpoint behavior detection capabilities.
Mergers & Acquisitions
Altair Acquires S&WISE Co., LTD.
Altair has acquired S&WISE Co., which provides a solver and technology for polyurethane foaming simulation.
The company plans to release S&WISE’s solver within Altair Inspire PolyFoam, enabling customers to check manufacturing feasibility and reduce manufacturing defects and cycle times, among other capabilities.
Mimecast Acquires MessageControl
Mimecast (MIME) has acquired eTorch Inc. (d/b/a MessageControl), a provider of messaging security solutions that help stop social engineering and human identity attacks.
The acquisition is expected to bolster Mimecast’s Email Security 3.0 strategy to improve cybersecurity at the email perimeter.
MessageControl is not expected to have a material impact on Mimecast’s FY ’21 revenue or adjusted EBITDA.
Qualys Acquires Software Assets of Spell Security
Qualys (QLYS) has acquired the software assets of Spell Security, a start-up focused on endpoint detection and response.
The acquisition is expected to strengthen Qualys’ security and threat research, advance its endpoint behavior detection capabilities and bring rich telemetry to the Qualys Cloud Platform and new Multi-Vector EDR offering.
SAP Announces Intent to Take Qualtrics Public
SAP (SAP) plans to undertake an initial public offering (IPO) of Qualtrics, which was acquired in 2018.
In Q2 ’20, Qualtrics generated revenue of €168 million (+34% Y/Y) and had over 11,800 customers at quarter-end.
Post-IPO, SAP plans to retain a majority stake and founder Ryan Smith expects to be the largest individual shareholder.
The IPO remains subject to market conditions, but a transaction should not impact SAP’s near or long-term financial targets.
Earnings Releases
2U, Inc. Reports Results for Second Quarter 2020
2U (TWOU) reported Q2 ’20 results above Street expectations.
Revenue of $182.7 million (+34.9% Y/Y) was above consensus of $174.6 million. Adjusted EBITDA was $(2.1) million (-1.1% margin), exceeding consensus of $(9.3) million. Non-GAAP EPS of $(0.34) beat the Street’s $(0.39).
Key metrics: 46,142 Graduate Program FCE enrollments (+18% Y/Y); average revenue per Graduate Program FCE enrollment of $2,507 (-3% Y/Y); 20,435 Alternative Credential FCE enrollments (+61% Y/Y); average revenue per Alternative Credential FCE enrollment of $3,279 (+11% Y/Y).
Organic growth accelerated driven by an increase in short course enrollments as people sought to reskill and upskill.
More students are embracing online education over campus-based programs and university partners are rapidly accelerating digital transformation efforts across their institutions, which should play out favorably for 2U over time.
Management expects positive adjusted EBITDA in each of the next two quarters, enabling 2U to achieve positive EBITDA for the full year.
8x8, Inc. Reports First Quarter Fiscal 2021 Financial Results
8x8 (EGHT) reported Q1 ’21 results ahead of expectations and guided Q2 profitability above consensus.
Revenue of $121.8 million (+26.0% Y/Y) was above guidance for $120.0-$121.0 million and consensus of $120.6 million. Non-GAAP operating income was $(7.8) million (-6.4% margin), above consensus of $(12.2) million. Non-GAAP EPS of $(0.07) beat the Street’s $(0.12).
Key metrics: annual recurring revenue (ARR) was $432.2 million (+30% Y/Y); closed 38 deals with ARR over $100,000; 606 customers with ARR over $100,000; average annual service revenue per customer was $4,623 (+1% Y/Y) for small business, $41,963 (+15% Y/Y) for mid-market and $167,000 (+11% Y/Y) for enterprise.
The strong results were driven by better than expected performance from UCaaS, CCaaS and bundled offerings.
New bookings growth excluding CPaaS accelerated to 33% Y/Y, and go-to-market investments made over the past two years drove improved deal execution, continued channel strength and robust pipeline growth.
CPaaS usage was lower than anticipated in Q2, primarily due to COVID-related slowdowns in Asia, but 8x8 signed over 50 new CPaaS deals globally, including over a dozen in the U.K.
Q2 guidance for revenue of $125.5-$126.5 million and a non-GAAP pre-tax loss of $(7.5) million, which implies non-GAAP EPS of $(0.07), compared favorably with Street expectations for $125.8 million in revenue and $(0.09) in non-GAAP EPS.
Management indicated that 8x8 remains on track to achieve non-GAAP pre-tax breakeven exiting FY ’21.
A10 Networks Reports Second Quarter 2020 Financial Results
A10 Networks (ATEN) reported Q2 ’20 results above the preliminary ranges provided on July 9, 2020.
Revenue of $52.5 million (+6.7% Y/Y) was ahead of management’s pre-announced range of $51.7-$52.2 million. Non-GAAP operating income was $7.2 million (13.8% margin), also above the pre-announced range of $5.8-$6.3 million. Non-GAAP EPS of $0.09 exceeded the pre-announced range of $0.07-$0.08.
Thus far, the COVID-19 pandemic has had only a modest impact on the business, including a slight impact on A10’s supply chain, customers taking longer to make decisions and some larger deployments delayed.
Revenue in Japan and Asia has been more affected than in other regions due to the postponement of the Tokyo Olympic games and lockdowns associated with the pandemic.
Management increased its cost savings target for the year from $10 million to at least $14 million.
Given the ongoing uncertainty arising from the pandemic, no guidance was provided for Q3 or FY ’20.
Agilysys Reports Fiscal 2021 First Quarter Revenue of $29.8M
Agilysys (AGYS) reported Q1 ’21 results ahead of expectations but guided Q2 short of consensus.
Net revenue was $29.8 million (-22.4% Y/Y), ahead of guidance for a decline of approximately 35.0% Y/Y and consensus of $25.8 million. Adjusted EBITDA was $3.4 million (11.4% margin), exceeding guidance for breakeven and consensus of $(0.5) million. Non-GAAP EPS of $0.08 beat consensus of $(0.02).
Key metrics: signed sales agreements with 10 new customers representing 32 new properties; 113 transactions with existing customers; serviced 274,600 rooms and approximately 63,100 terminal endpoints.
The dollar value of new sales bookings closed in the quarter was approximately 60% of the value closed last year due mostly to delayed technology investment decisions but has increased in each month since April.
Recurring revenue was affected by one-time COVID-related financial relief provided to customers in their time of need.
Since hitting a low in April, the number of product implementation projects has increased in each subsequent month.
Q2 guidance calls for sequential increases in revenue and adjusted EBITDA of 15% and 25%, respectively, implying revenue of $34.3 million and adjusted EBITDA of $4.2 million versus Street expectations for $36.2 million and $1.0 million.
Akamai Reports Second Quarter 2020 Financial Results
Akamai (AKAM) reported Q2 ’20 results above expectations and reinstated FY ’20 guidance above consensus.
Revenue of $794.7 million (+12.7% Y/Y) exceeded guidance for $752.0-$778.0 million and consensus of $767.4 million. Adjusted EBITDA of $355.4 million (44.7% margin) was ahead of guidance for a 43.0% margin and consensus of $328.5 million. Non-GAAP EPS of $1.38 beat guidance for $1.18-$1.24 and the Street’s $1.21.
The strong results were driven by a continuation of the high traffic levels seen since the onset of the pandemic, robust demand for cloud security solutions and an ongoing focus on operational efficiency.
The Akamai Intelligent Edge Platform now includes over 300,000 servers in over 4,000 locations and nearly 1,500 network partners at the edge of the internet.
Approximately $7 million of security revenue in Q2 came from one-time license sales to several carrier customers, and the quarter was also negatively affected by contract restructurings and elevated bad debt reserves amounting to $14 million.
Q3 guidance for revenue of $760.0-$785.0 million, an adjusted EBITDA margin of 43% (implies adjusted EBITDA of $326.8-$337.6 million) and non-GAAP EPS of $1.20-$1.24 compared favorably with Street expectations for $758.8 million in revenue, $328.2 million in adjusted EBITDA and $1.20 in non-GAAP EPS.
Management reinstated FY ’20 guidance, calling for revenue of $3.125-$3.175 billion, an adjusted EBITDA margin of 43% (implies adjusted EBITDA of $1.344-$1.365 billion) and non-GAAP EPS of $5.02-$5.12 versus consensus of $3.107 billion, $1.336 billion and $4.93, respectively.
Atlassian Announces Fourth Quarter and Fiscal Year 2020 Results
Atlassian (TEAM) reported Q4 ’20 results above expectations and provided a mixed outlook for Q1 ’21.
Revenue of $430.5 million (+28.7% Y/Y) exceeded guidance for $400.0-$415.0 million and consensus of $410.7 million. Non-IFRS operating income was $82.5 million (19.2% margin), above guidance for a 14.0%-17.0% margin and consensus of $65.1 million. Non-IFRS EPS of $0.25 beat guidance for $0.17-$0.22 and consensus of $0.21.
Key metrics: added 3,046 net new customers for a total of 174,097 (+14% Y/Y) at quarter-end; 95% of new customers chose cloud products; 5,892 customers spending over $50,000 (+44% Y/Y).
Atlassian has acquired Mindville, which boasts over 1,700 customers and brings configuration management database capability to Jira Service Desk.
Priorities for FY ’21 include accelerating the migration of customers to the cloud, leveraging free editions to expand the user base, hiring over 1,000 new employees and strengthening the company’s market position through M&A.
Q1 guidance for revenue of $430.0-$445.0 million, non-IFRS operating margin of 21.0% (implies non-IFRS operating income of $90.3-$93.5 million) and non-IFRS EPS of $0.26-$0.27 was mixed relative to Street expectations for $438.9 million in revenue, $95.1 million in non-IFRS operating income and $0.29 in non-IFRS EPS.
Bandwidth Announces Second Quarter 2020 Financial Results
Bandwidth (BAND) reported Q2 ’20 results above expectations and raised its guidance for FY ’20.
Revenue of $76.8 million (+35.2% Y/Y) was above guidance for $70.2-$70.7 million and consensus of $70.5 million. Adjusted EBITDA was $5.5 million (7.2% margin), exceeding consensus of $1.9 million. Non-GAAP EPS of $0.13 beat guidance for $(0.01)-$0.01 and consensus of $0.00.
Key metrics: CPaaS revenue of $67.1 million (+40% Y/Y) was above guidance for $61.5-$62.0 million; 1,900 active CPaaS customers (+30% Y/Y); dollar-based net retention rate of 133%.
CPaaS growth accelerated due to elevated demand from customers providing meeting and UCaaS solutions, and momentum from messaging also continued.
Increased usage driven by COVID-19-related remote work requirements, which management estimates contributed $4.5-$5.0 million in Q2, peaked in April and dissipated throughout the quarter but remains above pre-pandemic levels.
Q3 guidance for revenue of $76.0-$76.5 million was above consensus of $71.1 million, while guidance for non-GAAP EPS of $(0.03)-$(0.01) was in line with the Street’s $(0.02).
Management raised its FY ’20 revenue and non-GAAP EPS guidance from $281.6-$283.1 million and $(0.03)-$0.03, respectively, to $296.8-$298.3 million and $0.05-$0.11.
Blackbaud Announces 2020 Second Quarter Results
Blackbaud (BLKB) reported Q2 ’20 results well ahead of Street expectations.
Revenue of $232.0 million (+2.5% Y/Y) exceeded consensus of $217.7 million. Non-GAAP operating income was $54.5 million (23.5% margin), well above Street expectations for $34.3 million. Non-GAAP EPS of $0.85 beat consensus of $0.50.
Key metrics: non-GAAP organic recurring revenue of $216.3 million (+3.4% Y/Y); free cash flow of $9.9 million (4.3% margin).
Revenue was short of management’s original plan but exceeded its initial scenario planning at the start of the pandemic.
Given the uncertainty over the duration and magnitude of the pandemic, the focus is now on profitability and cash flow.
The customer retention rate was 92% and renewal rates continue to trend above management’s original plan for the year.
While management remains optimistic over the long-term, the uncertainty has created challenges in building pipeline and bookings have fallen below expectations, prompting a shift in investments toward digital marketing and an emphasis on selling solutions with the highest lifetime value.
Commvault Announces Fiscal 2021 First Quarter Financial Results
Commvault (CVLT) reported Q1 ’21 results ahead of expectations and guided Q2 above consensus.
Revenues of $173.0 million (+6.7% Y/Y) exceeded guidance for $150.0-$155.0 million and consensus of $152.9 million. Non-GAAP operating income was $32.5 million (18.8% margin), well above guidance for a 5.0%-7.0% margin and consensus of $9.9 million. Non-GAAP EPS of $0.51 beat the Street’s $0.16.
Key metrics: annualized recurring revenue (ARR) of $471.6 million (+9% Y/Y); added 200 subscription customers in the quarter; subscription net dollar retention rate over 100%.
Commvault successfully started its first subscription renewal cycle in Q1 and received an eight-figure subscription deal, hit an all-time high in average enterprise deal size and posted record dollar contribution from seven-figure deals.
Q1 benefited from approximately $12 million of COVID-related expense reductions, of which half are likely to repeat in Q2 with the balance returning near prior levels as business normalizes.
Q2 guidance for revenue of approximately $164.0 million and non-GAAP operating margin of approximately 13%, which implies non-GAAP operating income of $21.3 million, exceeded Street expectations for $160.0 million in revenue and $16.1 million in non-GAAP operating income.
Dynatrace Reports First Quarter of Fiscal Year 2021 Financial Results
Dynatrace (DT) reported Q1 ’21 results ahead of expectations and raised its outlook for FY ’21.
Revenue of $155.5 million (+26.9% Y/Y) was above guidance for $148.0-$150.0 million and consensus of $149.6 million. Non-GAAP operating income was $50.8 million (32.7% margin), exceeding guidance for $38.0-$40.0 million and consensus of $39.1 million. Non-GAAP EPS of $0.13 beat guidance for $0.09-$0.10 and consensus of $0.10.
Key metrics: ARR of $601.4 million (+37% Y/Y); added 85 net new customers for 2,458 at quarter-end; ARR per customer of $229,000 (+10% Y/Y); net expansion rate over 120%; unlevered free cash flow of $37.0 million (23.8% margin).
Digital transformation projects remain a priority for companies despite the challenging economic backdrop, and Dynatrace is considered an essential component for digital transformation success.
Dynatrace added over 90 employees in Q1, expects over 100 more to join the company in Q2 and plans to continue investing in sales, customer success and product development.
Q2 guidance for revenue of $159.0-$161.0 million, non-GAAP operating income of $43.0-$45.0 million and non-GAAP EPS of $0.09-$0.10 compared favorably with Street expectations for $154.3 million, $37.7 million and $0.10, respectively.
Management raised its FY ’21 guidance across the board and now anticipates revenue of $646.0-$656.0 million, ARR of $698.0-$708.0 million, non-GAAP operating income of $166.0-$175.0 million and non-GAAP EPS of $0.46-$0.49.
Endurance International Group’s (EIGI) Q2 results and FY ’20 guidance were consistent with its pre-announcement.
As previously disclosed, revenue was $274.0 million (+1.0% Y/Y excluding SinglePlatform) and adjusted EBITDA was $84.0 million (30.6% margin). EPS of $0.03 fell short of the Street’s $0.05.
Key metrics: 4.877 million total subscribers (+2% Y/Y); average revenue per subscriber of $18.92 (-2.6% Y/Y).
Subscriber growth was principally driven by the web presence segment, and progress has been made in transforming Constant Contact from an email marketing point solution to a digital marketing platform.
Guidance for FY ’20 includes revenue of approximately $1.1 billion and adjusted EBITDA of approximately $300.0 million, consistent with the outlook provided at the time of the pre-announcement.
Endurance has agreed to acquire Retention Science for approximately $35.0 million, of which half will be paid upon closing and the remainder paid as deferred compensation and earnouts over the next three years.
Retention Science adds approximately $8 million in annualized revenue and bolsters the company’s efforts to capture a greater share of the e-commerce solutions market.
F5 Delivers 4% Revenue Growth on Continued Strong Software Demand in Third Quarter Fiscal Year 2020
F5 Networks (FFIV) reported Q3 ’20 results ahead of expectations and guided Q4 above consensus.
Non-GAAP revenue was $585.9 million (+4.0% Y/Y), exceeding guidance for $555.0-$585.0 million and consensus of $572.4 million. Non-GAAP operating income was $167.8 million (28.6% margin), above consensus of $158.2 million. Non-GAAP EPS of $2.18 beat guidance for $1.91-$2.13 and consensus of $2.03.
F5 continues to see broad customer demand for subscription-based consumption models as well as growing demand for application security as a managed service.
Software continues to account for a greater mix of product sales, representing 38% of product revenue versus 27% last year.
Demand has proven more resilient amid the COVID-19 pandemic but F5 is seeing a few expected headwinds: cautiousness in severely impacted industries, order delays in the ASEAN region and India, and delays in new strategic projects.
Q4 guidance includes non-GAAP revenue and EPS of $595.0-$615.0 million and $2.30-$2.42, respectively, comparing favorably with Street expectations for $598.2 million and $2.26.
F5’s journey to creating adaptive applications is expected to occur in four acts: expanding the opportunity for its traditional applications by incorporating automation and orchestration, adding NGINX to serve modern application environments and cloud-native applications, expanding application security to modern applications and leveraging Shape’s analytics to drive automation and deliver business insights.
FireEye Reports Financial Results for Second Quarter 2020
FireEye (FEYE) reported Q2 ’20 results ahead of expectations and raised its outlook for FY ’20.
Revenue of $229.9 million (+5.6% YY) was above guidance for $213.0-$217.0 million and consensus of $214.8 million. Non-GAAP operating income was $22.4 million (9.7% margin), well ahead of guidance for a (2.0)%-(1.0)% margin and consensus of $(3.1) million. Non-GAAP EPS of $0.09 beat guidance for $(0.03)-$(0.01) and consensus of $(0.02).
Key metrics: annualized recurring revenue of $598.1 million (+8.4% Y/Y); billings of $203 million (-8% Y/Y); added over 200 new customers; closed 39 transactions greater than $1 million.
Growth was led by FireEye’s platform, cloud subscription and managed services categories, which include validation, threat intelligence and managed defense offerings as well as cloud-based security products.
Q3 guidance for revenue of $225.0-$229.0 million, a non-GAAP operating margin of 7.5%-8.5% (implies non-GAAP operating income of $16.9-$19.5 million) and non-GAAP EPS of $0.06-$0.08 exceeded Street expectations for $220.1 million in revenue, $6.1 million in non-GAAP operating income and $0.02 in non-GAAP EPS.
Management raised its FY ’20 revenue, non-GAAP operating margin and non-GAAP EPS guidance from $880.0-$890.0 million, 1.0%-3.0% and $0.03-$0.07, respectively, to $905.0-$925.0 million, 6.5%-7.5% and $0.22-$0.26.
HealthStream Announces Second Quarter 2020 Results
HealthStream (HSTM) reported Q2 ’20 results ahead of expectations but noted that COVID-19 could negatively impact 2H.
Revenues of $60.6 million (-5.1% Y/Y) were above consensus of $56.6 million. Adjusted EBITDA of $12.0 million (19.8% margin) exceeded consensus of $8.0 million. EPS of $0.11 beat the Street’s $0.01.
Key metrics: added approximately 87,000 net new hStream subscriptions for a total of 3.48 million contracted subscriptions; added 30 customer accounts to the VerityStream platform for a total of 258 at quarter-end.
The COVID-19 pandemic has not yet had a significant negative impact on HealthStream but management expects headwinds in 2H ’20 and potentially next year due to lower expected sales volumes as customers delay or defer buying decisions.
Healthcare organizations are being adversely affected by the COVID-19 pandemic clinically, financially and operationally, and many have furloughed or laid off workers in recent months, which may impact contract renewals.
Due to ongoing uncertainty related to the COVID-19 pandemic, management refrained from providing guidance for FY ’20.
MicroStrategy Announces Second Quarter 2020 Financial Results
MicroStrategy (MSTR) reported mixed Q2 ’20 results and announced a new capital allocation strategy.
Revenues of $110.6 million (-6.1% Y/Y) were just shy of Street expectations for $112.2 million. Non-GAAP operating income was $8.6 million (7.7% margin), above consensus of $5.7 million. Non-GAAP EPS of $0.35 missed the Street’s $0.40.
Pipeline activity remains healthy and selling dynamics at quarter-end were somewhat better than the height of the pandemic in March; however, close rates continue to be impacted by uncertainty in the market.
Given early traction for its cloud platform and management’s view that organizations are likely to accelerate cloud deployments post-COVID, the sales focus is changing such that the company will lead with its cloud platform and programs will be put in place to incentivize on-premise customers to migrate.
Following a 6% workforce reduction in July and other actions to reduce operating expenses going forward, management expects non-GAAP operating expenses to decline by 10%-15% in FY ’20, enabling the company to achieve an operating margin approaching 10% this year and generate $60.0-$90.0 million in non-GAAP operating income next year.
MicroStrategy’s new capital allocation strategy calls for the return of up to $250 million in cash to shareholders over the next twelve months and the investment of $250 million in alternative investments or assets such as stocks, bonds, commodities, bitcoin and other asset types.
Mitek Reports Record Revenue for Third Quarter Fiscal 2020
Mitek (MITK) reported Q3 ’20 results ahead of Street expectations.
Revenue of $25.4 million (+16.0% Y/Y) was above consensus of $23.2 million. Non-GAAP operating income was $6.6 million (26.1% margin), above consensus of $5.2 million. Non-GAAP EPS of $0.16 beat the Street’s $0.10.
Mobile deposit growth increased as banks invested to meet the rising volume of active users in mobile and digital channels.
Digital identity verification is an essential use case in the new economy, and adoption increased in the quarter as several customers and partners experienced higher than normal transaction volumes.
March and April saw significant volume swings that began to taper off in May and June, resulting in a net impact of 3% sequential growth in transactions; these volume increases have fallen off entering Q4.
Mitek has signed a new partnership in the e-notary space, which may prove to be a significant opportunity should Congress pass the New Standardizations and Secure Notarization Act.
MobileIron Announces Second Quarter 2020 Results
MobileIron (MOBL) reported Q2 ’20 results above expectations and raised its FY ’20 guidance.
Revenue was $58.9 million (+15.8% Y/Y), exceeding guidance for $49.0-$52.0 million and consensus of $50.0 million. Non-GAAP operating income was $5.6 million (9.4% margin), well above guidance for $(4.3)-$(1.9) million and consensus of $(3.6) million. Non-GAAP EPS of $0.04 beat the Street’s $(0.03).
Key metrics: ARR of $187.1 million (+9% Y/Y) was above guidance for $181.0-$185.0 million; subscription ARR was $120 million (+13% Y/Y); maintenance ARR was $67 million (+2% Y/Y); dollar-based net retention rate was 103%.
Revenues benefited from both the end of perpetual license sales and incremental demand for work-from-home use cases, and management indicated the latter continues to provide a significant opportunity for sales in 2H ‘20.
MobileIron has been invited to participate in Apple’s partner program for unified endpoint management.
Q3 guidance for revenue of $48.0-$51.0 million and non-GAAP operating income of $(6.6)-$(3.2) million was generally consistent with Street expectations for $48.8 million in revenue and $(3.5) million in non-GAAP operating income.
Management raised its FY ’20 revenue and non-GAAP operating margin guidance from $195.0-$205.0 million and (10.0)%-(5.0)%, respectively, to $203.0-$210.0 million and (7.0)%-(5.0)%, and reintroduced guidance for ARR growth of 9%-11%.
Pega Cloud Revenue and ACV grow by more than 50%
Pega (PEGA) reported Q2 ’20 results slightly above Street expectations.
Revenue of $227.4 million (+10.6% Y/Y) was slightly above consensus of $225.7 million. Non-GAAP operating income of $(24.8) million (-10.9% margin) was modestly ahead of Street expectations for $(25.9) million. Non-GAAP EPS of $(0.28) missed consensus of $(0.23).
Key metrics: annual contract value (ACV) of $738 million (+21% Y/Y), including Client Cloud ACV of $527 million (+11% Y/Y) and Pega Cloud ACV of $211 million (+56% Y/Y); remaining performance obligations of $817.2 million (+30% Y/Y).
Business remains robust as digital transformation efforts remain front and center despite the COVID-19 pandemic, particularly in the financial services, government, healthcare and insurance verticals.
While some opportunities were put on hold or postponed, other projects accelerated and two new ones have been initiated.
A small number of clients requested additional flexibility with extended payment terms but most are acting with a new sense of urgency and reevaluating their initiatives for building a robust, modern business architecture.
Pluralsight Announces Second Quarter 2020 Results
Pluralsight (PS) reported Q2 ’20 results above expectations and raised its guidance for FY ’20.
Revenue of $94.8 million (+24.9% Y/Y) was above guidance for $87.5-$89.0 million and consensus of $88.2 million. Non-GAAP operating income was $(5.1) million (-5.4% margin), exceeding consensus of $(17.2) million. Non-GAAP EPS of $(0.02) beat guidance for $(0.13)-$(0.11) and consensus of $(0.12).
Key metrics: billings of $89.0 million (+10.5% Y/Y), including B2B billings of $77.7 million (+12.4% Y/Y); net revenue retention rate was 118%.
Despite increased scrutiny of discretionary expenses among enterprise customers, Pluralsight executed better than expected as customers and partners relied on the company to upskill and engage technologists in response to the new normal.
Pluralsight is in the final stages of its CTO search and plans to make an announcement soon.
Quota-bearing sales capacity is sufficient to support growth through mid-2021 but for more hiring is expected by year-end.
Q3 guidance for $95.0-$96.0 million in revenue and $(0.06)-$(0.05) in non-GAAP EPS exceeded Street expectations for $93.5 million in revenue and $(0.10) in non-GAAP EPS.
Management raised the low-end of its FY ’20 revenue guidance, which now calls for $375.0-$390.0 million, and increased its non-GAAP EPS guidance from $(0.44)-$(0.31) to $(0.27)-$(0.19).
Proofpoint Announces Second Quarter 2020 Financial Results
Proofpoint (PFPT) reported Q2 ’20 results above expectations and raised its outlook for FY ’20.
Revenue of $258.4 million (+20.5% Y/Y) was above guidance for $251.0-$255.0 million and consensus of $253.4 million. Non-GAAP operating income was $41.2 million (15.9% margin), exceeding consensus of $28.6 million. Non-GAAP EPS of $0.51 beat guidance for $0.38-$0.41 and consensus of $0.39.
Key metrics: billings of $250.0 million (+7.7% Y/Y); ARR renewal rate remained over 90%.
Overall demand was strong, reflecting continued momentum in email security offerings and strong performance for emerging services like Email Fraud Defense, Cloud App Security Broker, Security Awareness Training and Insider Threat Management.
Approximately $3 million in revenue was recognized on an accelerated basis as customers deployed solutions on-premise.
Q3 guidance for revenue of $260.0-$262.0 million and non-GAAP EPS of $0.37-$0.40 was ahead of Street expectations for $253.2 million in revenue and $0.35 in non-GAAP EPS.
Management raised its FY ’20 guidance for revenue and non-GAAP EPS from $1.005-$1.030 billion and $1.41-$1.56, respectively, to $1.035-$1.037 billion and $1.64-$1.70.
PROS Holdings, Inc. Reports Second Quarter 2020 Financial Results
PROS Holdings (PRO) reported Q2 ’20 results ahead of expectations but guided Q3 short of consensus.
Revenue of $63.7 million (-0.2% Y/Y) was above guidance for $60.0-$61.0 million and consensus of $60.5 million. Adjusted EBITDA was $(5.7) million (-9.0% margin), exceeding guidance for $(11.5)-$(10.5) million and consensus of $(10.6) million. Non-GAAP EPS of $(0.14) beat guidance for $(0.22)-$(0.20) and the Street’s $(0.22).
Key metrics: gross revenue retention rate over 93%.
The impact of providing financial relief and contract restructurings to customers was generally consistent with expectations, while contingencies put in place for bankruptcies were not fully utilized and contributed to the outperformance.
Airlines are not in position to invest in technology at the moment, so management anticipates minimal travel sales bookings through year-end.
The B2B sales pipeline remains strong and partner-driven sales activity continues to increase, but sales cycles have lengthened as enterprises have increased their scrutiny in the current environment.
Management has identified additional cost savings in 2H that will bring the estimated spend reductions in 2020 to $18 million from $13 million previously.
Q3 guidance for revenue of $59.0-$61.0 million, adjusted EBITDA of $(11.5)-$(9.5) million and non-GAAP EPS of $(0.22)-$(0.18) fell short of consensus of $63.4 million in revenue, $(6.2) million in adjusted EBITDA and $(0.13) in non-GAAP EPS.
PTC Announces Fiscal Third Quarter 2020 Results
PTC (PTC) reported Q3 ’20 results above expectations and raised the midpoint of its FY ’20 guidance ranges.
Revenue was $351.7 million (+19.0% Y/Y), exceeding consensus of $332.5 million. Non-GAAP operating income was $103.5 million (29.4% margin), well above consensus of $80.7 million. Non-GAAP EPS of $0.62 beat the Street’s $0.44.
Key metrics: ARR was $1.21 billion (+9% Y/Y); growth product ARR increased 24% Y/Y.
While the COVID-19 pandemic has slowed selling processes and interfered with on-site project work, the pressure on bookings has been somewhat less than anticipated with bookings down mid-20% Y/Y versus guidance for a 30%-50% decline.
The COVID crisis has also created elevated interest in PTC’s PLM, IoT, Augmented Reality and SaaS solutions.
Onshape’s growth rate is 30 points higher than the mainstream product it displaces most frequently and its pipeline is 4x larger than when PTC first acquired the company three quarters ago.
Management raised the low-end of its prior FY ’20 guidance for ARR, revenue and non-GAAP EPS and now anticipates $1.235-$1.255 billion in ARR, $1.415-$1.430 billion in revenue and $2.28-$2.35 in non-GAAP EPS.
Qumu Announces Second Quarter 2020 Financial Results
Qumu (QUMU) reported mixed Q2 ’20 results and reaffirmed its revenue guidance for FY ’20.
Revenue of $9.3 million (+74.0% Y/Y) was consistent with the company’s pre-announced results on July 15, 2020. Adjusted EBITDA of $0.8 million (8.7% margin) was approximately in line with consensus of $0.9 million. EPS of $(0.06) missed consensus of $0.01.
Key metrics: added five new customers; converted two enterprise customers to cloud hybrid; retention rate of 90%.
Revenue reached a quarterly high due to swelling demand for Qumu’s platform in a now largely remote work environment.
In addition to helping enterprises implement work-at-home programs, virtualized events and large-scale video broadcasts, Qumu has also seen increased usage of self-service broadcasting.
Management reaffirmed its FY ’20 revenue guidance for $29.0 million, which was raised from $28.0 million at the time of the Q2 pre-announcement.
Radware Announces Second Quarter 2020 Earnings
Radware (RDWR) reported Q2 ’20 results slightly ahead of Street expectations and guided Q3 in line with consensus.
Revenues of $58.4 million (-3.3% Y/Y) were within guidance for $57.0-$61.0 million and slightly above consensus of $57.9 million. Non-GAAP operating income was $4.3 million (7.3% margin), slightly ahead of the Street’s $4.0 million. Non-GAAP EPS of $0.13 were at the midpoint of guidance for $0.12-$0.14 and a penny above consensus.
Strong bookings in North America, which included multiple seven-figure deals, were the primary driver of book-to-bill exceeding 1.0 and much of the revenue from larger deals has yet to be recognized, resulting in record backlog going into 2H.
Demand in the Asia Pacific region was weaker as COVID-19 has created more disruption than seen in the U.S.
Strategic OEM partners, including Cisco and Check Point, continued to produce strong bookings and pipeline growth.
Q3 guidance for revenue of $60.0-$64.0 million and non-GAAP EPS of $0.16-$0.18 was in line with Street expectations for $61.6 million in revenue and $0.17 in non-GAAP EPS.
RealPage Reports Second Quarter 2020 Financial Results
RealPage (RP) reported Q2 ’20 results above expectations and raised the midpoint of its guidance ranges for FY ’20.
Non-GAAP revenue of $286.0 million (+17.2% Y/Y) was above guidance for $276.0-$280.0 million and consensus of $278.8 million. Adjusted EBITDA was $79.9 million (27.9% margin), exceeding guidance for $66.0-$70.0 million and consensus of $69.6 million. Non-GAAP EPS of $0.49 beat guidance for $0.38-$0.42 and consensus of $0.41.
Key metrics: non-GAAP on demand revenue of $279.0 million (+18.5% Y/Y); ending on demand units of 18,880 (+14.4% Y/Y); ACV of $1,118,074 (+18.6% Y/Y); RPU of $59.22 (+3.7% Y/Y).
Results were better than guided as the impact of COVID-19 was not as bad as feared and demand for solutions facilitating virtual leasing and living has surged.
Leasing activity and pricing plunged from March to May but have since returned to much heathier levels.
The SMB category represented nearly $424 million of ACV (+35% Y/Y), 9 million units (+26% Y/Y) and an ARPU of over $47 (+7% Y/Y), demonstrating RealPage’s growing presence and successful cross-selling of solutions in the category.
Q3 guidance for revenue of $288.0-$294.0 million, adjusted EBITDA of $74.0-$78.0 million and non-GAAP EPS of $0.43-$0.46 was in line with Street expectations for $289.5 million, $75.8 million and $0.45, respectively.
Management raised its FY ’20 non-GAAP revenue, adjusted EBITDA and non-GAAP EPS guidance from $1.115-$1.155 billion, $290.0-$300.0 million and $1.74-$1.84, respectively, to $1.135-$1.155 billion, $300.0-$308.0 million and $1.77-$1.84.
SAP Announces Second Quarter and Half-Year 2020 Results
SAP (SAP) reported Q2 ’20 results consistent with its pre-announcement and reaffirmed prior guidance for FY ’20.
Non-IFRS revenue of €6.744 billion (+1.3% Y/Y) and non-IFRS operating income of €1.964 billion (29.1% margin) were in line with the pre-announced results issued on July 8, 2020. Non-IFRS EPS of €1.17 beat consensus of €1.14.
Key metrics: added over 500 SAP S/4HANA customers for over 14,600 (+22% Y/Y) at quarter-end; current cloud backlog of €6.65 billion (+20% Y/Y).
Software license sales were below normal levels but recovered more than anticipated, primarily due to strength in the APJ region and a sequential improvement in the U.S.
Cloud backlog rose as demand remained high for digital supply chain, e-commerce, cloud platform and Qualtrics solutions.
Out-of-the-box integration for its SaaS applications remains a priority, and approximately 50% of the integration is done with management targeting 90% completion by year-end.
Management reaffirmed its prior FY ’20 guidance for non-IFRS revenue of €27.8-€28.5 billion and non-IFRS operating income of €8.1-€8.7 billion; longer-term ambitions for FY ’23 were also confirmed.
ServiceNow Reports Second Quarter 2020 Financial Results
ServiceNow (NOW) reported Q2 ’20 results ahead of expectations and raised its FY ’20 guidance.
Revenues of $1.071 billion (+28.4% Y/Y) were above consensus of $1.049 billion. Non-GAAP operating income was $295.0 million (27.5% margin), well above guidance for a 23.0% margin and consensus of $241.4 million. Non-GAAP EPS of $1.23 beat the Street’s $1.01.
Key metrics: subscription billings of $1.033 billion (+26% Y/Y) exceeded guidance for $976.0-$996.0 million; closed 40 deals over $1 million in net new annual contract value (ACV); 964 customers paying over $1 million in ACV; 97% renewal rate.
With the unprecedented environment exposing weak links in old value chains, customers are leveraging the Now Platform to create new workflows or new value chains, thereby transforming experiences across siloed systems and functions.
Pipeline generation has remained healthy with the coverage ratio today better than the same period last year.
Q3 guidance calls for non-GAAP subscription revenue and billings of $1.055-$1.060 billion (+26%-27% Y/Y) and $1.003-$1.023 billion (+16%-18% Y/Y), respectively, and a non-GAAP operating margin of 22.0%.
Management raised its FY ’20 guidance, which now includes non-GAAP subscription revenue and billings of $4.210-$4.225 billion and $4.702-$4.742 billion, respectively, as well as a non-GAAP operating margin of 24.0%.
Shopify Announces Second-Quarter 2020 Financial Results
Shopify (SHOP) reported Q2 ’20 results well above Street expectations.
Revenue was $714.3 million (+97.3% Y/Y), exceeding consensus of $510.8 million. Non-GAAP operating income was $113.7 million (15.9% margin), also exceeding consensus of $(7.4) million. Non-GAAP EPS of $1.05 beat the Street’s $0.01.
Key metrics: monthly recurring revenue (MRR) was $57.0 million (+21% Y/Y); Shopify Plus MRR was $16.6 million (+36% Y/Y); gross merchandise value was $30.1 billion (+119% Y/Y); gross payments volume was $13.4 billion (+131% Y/Y).
The COVID-19 pandemic catalyzed e-commerce, introducing major changes in buyer behavior that enabled stores selling on Shopify to sell 1.5x as much as they sold in Q4 ’19, which was the seasonally strongest quarter last year.
Growth in MRR was impacted by the 90-day free trial on standard plans offered from March 21 through May 31 but benefited from a record number of merchants joining Shopify Plus.
Merchant Solutions growth has principally been driven by Shopify Payments followed by growth in capital, shipping and transaction fees.
Adoption of Shopify Shipping increased to 49% of eligible merchants in the U.S. and Canada versus 42% last year.
Fulfillment volumes increased 2.5x over Q1 as Shopify enrolled more merchants and existing merchants fulfilled more orders.
Due to ongoing uncertainty related to the impact of the COVID-19 pandemic, Shopify refrained from providing guidance.
Shutterstock Reports Second Quarter 2020 Financial Results
Shutterstock (SSTK) reported Q2 ’20 results well above expectations.
Revenue of $159.2 million (-1.6% Y/Y) exceeded consensus of $150.0 million. Adjusted EBITDA of $37.0 million (23.3% margin) was well above Street expectations for $20.5 million. Non-GAAP EPS of $0.62 beat the Street’s $0.26.
Key metrics: 223,000 subscribers (+29% Y/Y) at quarter-end; subscriber revenue of $62.7 million (+8% Y/Y); average revenue per customer of $326 (+0.2% Y/Y); paid downloads of 44.0 million (-6% Y/Y); revenue per download of $3.61 (+5% Y/Y); billings of $158.6 million (-2% Y/Y).
Shutterstock’s revenues proved more resilient than anticipated and relative to how business was trending at the end of April.
E-commerce revenue increased due to demand tailwinds from digital marketing growth and website proliferation, while the enterprise channel was down due to lower bookings in recent quarters.
Over the past year, Shutterstock has grown the number of API platform integrations from 4,800 to over 6,500.
In the latter half of this year, the company plans to redeploy capital into its platform solutions offering, significantly expand its sales and technical integration teams, and invest in marketing and brand building to support new subscription products.
Adjusted EBITDA margin is expected to decline in 2H ’20 relative to Q2 levels but management still anticipates expansion of at least 50 basis points in FY ’20 versus FY ’19.
SPS Commerce Reports Second Quarter 2020 Financial Results
SPS Commerce (SPSC) reported Q2 ’20 results above expectations and reinstated FY ’20 guidance above consensus.
Revenue was $75.6 million (+10.3% Y/Y), above guidance for $73.8-$74.8 million and consensus of $74.4 million. Adjusted EBITDA was $20.4 million (27.0% margin), ahead of guidance for $19.0-$20.0 million and consensus of $19.5 million. Non-GAAP EPS of $0.37 beat guidance for $0.29-$0.31 and consensus of $0.31.
Key metrics: 31,500 recurring revenue customers (+5% Y/Y); wallet share was $9,100 (+5% Y/Y).
SPS Commerce has continued to see a steady volume of transactions across its large network of trading partners.
Community enablement campaigns have driven ongoing momentum in fulfillment, offsetting softness in analytics.
Q3 guidance for revenue of $76.6-$77.1 million, adjusted EBITDA of $20.5-$21.0 million and non-GAAP EPS of $0.32-$0.33 compared favorably with Street expectations for $75.7 million in revenue, $20.3 million in adjusted EBITDA and $0.33 in non-GAAP EPS.
Management reinstated FY ’20 guidance, which calls for $304.1-$305.3 million in revenue, $82.4-$83.5 million in adjusted EBITDA and $1.41-$1.42 in non-GAAP EPS; consensus stood at $301.9 million in revenue, $81.2 million in adjusted EBITDA and $1.35 in non-GAAP EPS.
Tenable Announces Second Quarter 2020 Financial Results
Tenable (TENB) reported Q2 ’20 results above expectations and reinstated FY ’20 guidance above consensus.
Revenue of $107.2 million (+25.6% Y/Y) was above guidance for $101.0-$103.0 million and consensus of $102.2 million. Non-GAAP operating income was $5.7 million (5.3% margin), exceeding guidance for $(5.5)-$(3.5) million and consensus of $(4.8) million. Non-GAAP EPS of $0.04 beat guidance for $(0.06)-$(0.04) and consensus of $(0.05).
Key metrics: billings of $111.2 million (+13.4% Y/Y); added 341 new enterprise platform customers and 50 net new six-figure customers; 715 customers spending over $100,000 annually; dollar-based net expansion rate was over 110%; free cash flow was $6.6 million (6.2% margin).
The strong results were underpinned by enterprises continuing to prioritize vulnerability management, the company’s best-of-breed strategy and cloud deployments that are accelerating expansion of the attack surface.
Renewals were strong in the quarter and came in better than anticipated but larger initial lands and a more moderate pace of asset expansion in the current environment tempered the dollar-based net expansion rate.
Q3 guidance for $108.0-$110.0 million in revenue, non-GAAP operating income of $3.0-$4.0 million and non-GAAP EPS of $0.02-$0.03 compared favorably with Street expectations for $108.7 million in revenue, $(4.6) million in non-GAAP operating income and $(0.05) in non-GAAP EPS.
Management reinstated guidance for FY ’20, which includes revenue of $428.0-$433.0 million, non-GAAP operating income of $4.0-$7.0 million and non-GAAP EPS of $0.00-$0.03 versus consensus of $427.5 million, $(21.5) million and $(0.84).
Tyler Technologies Reports Earnings for Second Quarter 2020
Tyler Technologies (TYL) reported mixed Q2 results and reintroduced FY ’20 guidance that was mixed relative to consensus.
Non-GAAP revenues of $271.3 million (-2.4% Y/Y) were short of the Street’s $278.2 million. Adjusted EBITDA was $80.7 million (29.7% margin), above consensus of $72.4 million. Non-GAAP EPS of $1.38 beat the Street’s $1.20.
Key metrics: bookings were $309 million (-31.6% Y/Y); total backlog was $1.54 billion (+7.4% Y/Y), including software-related backlog of $1.51 billion (+8.0% Y/Y); added 125 new subscription arrangements and converted 42 on-premises clients, representing $39 million in total contract value.
Revenues were approximately $35 million below management’s pre-COVID plan as many procurement processes were delayed and services revenue was negatively impacted by the pandemic.
Bookings faced a difficult comparison due to two large SaaS contracts in the year-ago period; excluding those contracts, bookings declined 10.9% Y/Y.
Tyler experienced significant savings in commissions, travel, marketing, health claims and other employee-related expenses.
Management reintroduced FY ’20 guidance for non-GAAP revenue and EPS of $1.125-$1.145 billion and $5.30-$5.50, respectively, which was mixed relative to Street expectations for $1.149 billion in revenue and $5.28 in non-GAAP EPS.
Zendesk Announces Second Quarter 2020 Results
Zendesk (ZEN) reported Q2 ’20 results above expectations and guided Q3 in line with consensus.
Revenue of $246.7 million (+26.8% Y/Y) was above guidance for $237.0-$243.0 million and consensus of $240.6 million. Non-GAAP operating income was $19.1 million (7.8% margin), exceeding guidance for $8.0-$12.0 million and consensus of $10.1 million. Non-GAAP EPS of $0.14 beat the Street’s $0.09.
Key metrics: 43% of Support ARR from paid customer accounts with over 100 agents; 164,200 paid customer accounts (+10% Y/Y); dollar-based net expansion rate was 111%; remaining performance obligations totaled $713 million (+36% Y/Y).
Headwinds were greatest amongst midsized customers who slowed expansions below historical patterns, but new business growth was healthy and performance with large customers was as good as expected coming into the year.
Zendesk adjusted invoicing or subscription terms for over 4,000 customers that reached out for financial relief.
Q3 guidance for revenue of $250.0-$255.0 million and non-GAAP operating income of $10.0-$14.0 million was in line with Street expectations for $253.9 million in revenue and $11.9 million in non-GAAP operating income.
While Zendesk has not provided guidance for FY ’20, management remains optimistic in achieving its goal of $1 billion this year, which was originally set in FY ’15.
Notable News
ServiceNow named Kevin Haverty as Chief Revenue Officer, leading all global sales activities, and Lara Caimi as Chief Customer and Partner Officer, leading all customer success activities and partner ecosystem development.
David Schneider, President of Global Customer Operations, is retiring and will serve as President Emeritus until year-end.
Mr. Haverty has been with ServiceNow for nine years, most recently leading the global sales organization, and Ms. Caimi has served as the company’s Chief Strategy Officer for the past three years.
Nick Tzitzon, who joined the company this year to lead operations for the Office of the CEO and previously served as Executive Vice President at SAP, has been named Chief Strategy Officer.
Tenable Announces Pricing of Public Offering of Common Stock by Selling Stockholders
Tenable (TENB) priced an offering of 8.0 million shares by Insight Partners at $31.95 per share, representing a discount of 10.8% from the close price prior to disclosure of the planned offering.
The selling stockholders have granted the underwriters a 30-day option to purchase up to an additional 1.2 million shares.
Tenable will not receive any proceeds from the offering.
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).