K. Liu's Week in Review
The summer doldrums are around the corner, but there was still plenty of news across the software industry to digest this week. Although MicroStrategy (MSTR) had previously outlined a new strategic approach to its capital allocation policies, shares rose as the company began to execute against those plans. First, MicroStrategy commenced a “modified Dutch Auction” tender offer to purchase up to $250 million of its Class A common stock at a price between $122.00 and $140.00 per share, representing a modest discount to the last close price at the low-end of the range and a 13% premium at the high-end. In our view, the tender offer provides an exit for those investors who may not be on board with the other half of MicroStrategy’s capital allocation plan, namely the adoption of bitcoin as its primary treasury reserve asset. Management believes bitcoin offers both a superior long-term store of value and more appreciation potential than cash, and MicroStrategy has therefore purchased 21,454 bitcoins at an aggregate purchase price of $250 million, or an average cost of $11,652.84 per bitcoin. As for companies seeking to create value in more traditional ways, RingCentral (RNG) announced a strategic partnership with Alcatel-Lucent Enterprise (ALE), which will see the two companies introduce a co-branded cloud solution, Rainbow Office powered by RingCentral. The new offering is expected to be available in Q1 ‘21 and will be offered exclusively to ALE’s customers and partners. In exchange for exclusive access and a minimum seat commitment, RingCentral is paying $100 million to ALE. Along with earlier partnerships struck with Atos and Avaya, RingCentral is now poised to migrate as many as 180 million unified communications users to the cloud. Of note, RingCentral boasts an installed base of over 2 million users today and estimates over 400 million users could ultimately convert to a cloud-based solution.
All 14 of the remaining June quarter-end reporting companies we tracked this week outperformed Street expectations. Similar to those that reported earlier, reduced spending on travel and marketing events amidst the pandemic contributed to a number of significant bottom line beats. While not formally reporting, eGain (EGAN) also pre-announced Q4 ’20 results above expectations. Relevant to our coverage of NetScout Systems (NTCT), RADCOM (RDCM) posted Q2 results ahead of expectations and reaffirmed its outlook for the year. Management indicated that operators remain in the early stages of selecting network equipment providers ahead of rolling out 5G services, but RADCOM is beginning to see initial customer requirements for next-generation capabilities and cloud-native features. Management expects 5G investments to ramp-up later this year and into 2021 with service assurance vendors evaluated and selected once advanced use cases are being deployed over 5G. VIAVI (VIAV) also delivered results ahead of expectations, citing sequential improvement in assurance and data center products as contributors to the strength, and guided its fiscal Q1 in line with consensus. As for other notable moves related to earnings, shares of Synchronoss Technologies (SNCR) soared despite a reduction to management’s FY ’20 adjusted EBITDA guidance. The company announced a five-year extension of its agreement with Verizon, its largest customer, which removes the remaining deferred revenue under the prior agreement that was to be recognized in FY ’20 and spreads it over the term of the new agreement. Absent that, guidance would have been narrowed to the upper end of management’s prior forecast. Worth noting, management’s top priority remains refinancing its preferred stock, so Synchronoss plans to file a universal shelf in conjunction with its 10-Q later this month. In contrast, shares of Qualys (QLYS) were hit hard despite upside Q2 results, Q3 guidance ahead of consensus and an uptick in management’s FY ’20 outlook. Lower than anticipated billings growth appeared to be the culprit there despite management attributing it to the timing of multi-year prepaid contracts and recent requests for shorter duration invoicing.
Turning to the capital markets, both Shutterstock (SSTK) and Upland Software (UPLD) priced common stock offerings at 15% discounts to their respective closing price prior to the offerings. The former sold 2.58 million shares, of which 2.1 million shares were offered by its founder and Executive Chairman, at a price of $48.50 per share. The latter sold 3.5 million shares at a price of $34.00 per share. Finally, Wix (WIX) priced an offering of $500 million of 0% convertible senior notes due 2025.
Earnings Releases
Absolute Reports Fiscal 2020 Fourth Quarter and Annual Financial Results
Absolute (ABT-CA) reported Q4 ’20 results above expectations and guided FY ’21 in line with consensus.
Revenue of $27.2 million (+7.4% Y/Y) was within guidance for $25.5-$28.5 million and above consensus of $26.8 million. Adjusted EBITDA was $8.0 million (29.5% margin), above guidance for $2.3-$7.2 million and consensus of $5.5 million. EPS of $0.05 beat consensus by a penny.
Key metrics: total annual recurring revenue (ARR) was $108.3 million (+11% Y/Y); incremental ARR from new customers was $3.5 million; net ARR retention was 103%.
Absolute experienced a significant increase in new activations due to the shift to work from home and learn from home arrangements, resulting in a total of 13,000 customers globally with 9.4 million active devices.
Strong demand from new and existing customers across the enterprise and education segments drove the increase in ARR.
Guidance for FY ‘21 includes revenue of $112.0-$118.0 million and an adjusted EBITDA margin of 20%-24% (implies adjusted EBITDA of $22.4-$28.3 million), in line with consensus of $112.6 million in revenue and $25.4 million in adjusted EBITDA.
Aspen Technology Announces Financial Results for the Fourth Quarter and Fiscal 2020
Aspen Technology (AZPN) reported Q4 ’20 results above expectations and guided FY ’21 considerably ahead of consensus.
Revenue of $199.3 million (+1.8% Y/Y) exceeded guidance for $159.2-$191.2 million and consensus of $176.6 million. Non-GAAP operating income was $122.9 million (61.7% margin), also above guidance for $84.9-$112.9 million and consensus of $97.1 million. Non-GAAP EPS of $1.54 beat guidance for $0.97-$1.29 and the Street’s $1.17.
Key metrics: annual spend was $593 million (+9.6% Y/Y); total bookings of $236.2 million (-2% Y/Y); total contract value was $2.76 billion (+7.4% Y/Y); free cash flow was $99.5 million.
Management was pleased by the performance in Q4 but acknowledged that the economic downturn related to the COVID-19 pandemic continues to take a toll even as some end markets have improved since late March and April.
The APM suite delivered the largest quarter in its history with key transactions in the mining, engineering and construction, pulp and paper, refining, chemicals, pharmaceuticals and specialty chemicals verticals and now boasts over 103 customers.
Management’s FY ’21 guidance includes revenue of $704.0-$754.0 million, non-GAAP operating income of $374.0-$420.0 million and non-GAAP EPS of $4.78-$5.32, all of which were ahead of Street expectations for $600.4 million, $288.1 million and $3.64, respectively.
Asure Announces Second Quarter 2020 Results
Asure Software (ASUR) reported Q2 ’20 results ahead of Street expectations.
Revenue of $14.1 million (-18.3% Y/Y) was slightly ahead of consensus of $13.9 million. Adjusted EBITDA of $1.4 million (10.0% margin) was above consensus of $0.2 million. Non-GAAP EPS of $0.03 beat the Street’s $(0.04).
Key metrics: HCM bookings increased 21% Y/Y; over 600 of Asure’s 10,000 direct customers have returned, resulting in the number of clients processed down 4% Y/Y; same-store-sales declined 14% Y/Y.
Asure experienced a steady increase in sales leads and productivity throughout the quarter as businesses began reopening and employees started returning to work.
Quota-carrying reps have increased to 55 from 33 at the start of the year.
Board and executive changes expected to position Asure to double revenue and triple adjusted EBITDA over the next five years include CEO Pat Goepel’s assumption of the role of Chairman, the appointment of Jay Powers as Chief Financial Officer, Dan Gill’s election as lead independent director, and the additions of Grace Lee and Ben Allen to the Board.
AudioEye Reports Second Quarter 2020 Results
AudioEye (AEYE) reported Q2 ’20 results above Street expectations and announced a number of executive changes.
Revenue of $5.3 million (+116.9% Y/Y) easily exceeded Street expectations for $4.3 million. Operating income of $(0.9) million (-16.1% margin) was above consensus of $(1.6) million. EPS of $(0.16) beat consensus by a penny.
Key metrics: monthly recurring revenue was $1.6 million (+105% Y/Y); over 20,000 customers (+80% Y/Y) at quarter-end.
Growth was driven by strong adoption in the company’s vertical partner channel as well as the timing and delivery of several PDF remediation projects.
Some deals have delayed a bit due to the pandemic, and renewals have been only marginally impacted with retention levels still near 90%.
AudioEye announced several executive changes, including CEO Heath Thompson’s transition to an advisory role; the appointment of David Moradi, a member of the Board and the founder and manager of Sero Capital, as Interim CEO and Chief Strategy Officer; the appointment of CTO Dominic Varacalli as President; and the addition of Khurrum Malik as CMO.
The company’s technology base has also been moved from Atlanta to Portland.
Subsequent to quarter-end, Sero Capital exercised warrants, resulting in the infusion of $880,000 in cash.
Cornerstone OnDemand Announces Second Quarter 2020 Financial Results
Cornerstone OnDemand (CSOD) reported Q2 ’20 results above expectations but guided FY ’20 below consensus.
Revenue was $184.4 million (+30.0% Y/Y), above consensus of $178.5 million. Non-GAAP operating income was $39.9 million (21.6% margin), exceeding consensus of $29.6 million. Non-GAAP EPS of $0.40 beat the Street’s $0.22.
Key metrics: 6,308 customers (+84% Y/Y) at quarter-end; organic revenue growth was +9.2% Y/Y; unlevered free cash flow was $15.4 million (8.4% margin).
The COVID-19 pandemic impacted new business with customers delaying decisions but Q2 benefited from the recognition of one-time revenue from a large customer, which added $4.3 million to subscription revenue.
Management’s transformation plan entails improving renewal rates by focusing on customer experience, increasing win rates while reducing customer acquisition costs, advancing the company’s organizational design and effectiveness, and determining the go-forward product strategy.
In July, several large prospective deals from new and existing customers returned to the active pipeline.
Cost synergies from the acquisition of Saba are now expected to total $65 million on a run rate basis exiting 2020.
Q3 guidance for revenue of $187.0-$189.0 million fell short of Street expectations for $204.8 million.
Guidance for FY ’20 includes revenue of $715.0-$720.0 million and non-GAAP operating income of $129.0-$133.0 million, below consensus of $744.9 million and $145.3 million, respectively; ARR is expected to be flat Y/Y at $818 million.
Cornerstone OnDemand also named Theresa Damato, former Chief Marketing Officer at Saba Software, as Chief of Staff, and Karen Williams, Executive Vice President at Saba Software, as Senior Vice President of Customer Support and Services.
Crexendo Announces Second Quarter 2020 Results
Crexendo (CXDO) reported Q2 ’20 earnings ahead of Street expectations.
Revenue of $4.1 million (+12.2% Y/Y) was in line with consensus. Adjusted EBITDA was $0.7 million (17.4% margin). Non-GAAP EPS of $0.04 beat the Street’s $0.02.
Bookings slowed dramatically at the beginning of the quarter as businesses struggled with adapting to stay-at-home orders but rebounded quickly as customers sought to migrate to remote work environments.
The sales backlog increased by $750,000 to $27.4 million despite the initial slowdown from COVID-19.
Monthly churn on a seat basis has averaged 0.6% during the pandemic versus 0.4% previously and has averaged 1.0% on a customer basis.
Crexendo hired a new Director of Marketing in April and has been busy updating its messaging and imaging.
The recent uplisting to Nasdaq will enable Crexendo to grow the business both organically and through accretive acquisitions.
Ping Identity Reports Second Quarter 2020 Results, Provides Outlook for Third Quarter
Ping Identity (PING) reported Q2 ’20 results above expectations but guided Q3 revenue below consensus.
Revenue was $59.0 million (-5.6% Y/Y), exceeding guidance for $49.0-$53.0 million and consensus of $53.8 million. Adjusted EBITDA was $7.9 million (13.5% margin), above consensus of $2.0 million. Non-GAAP EPS of $0.08 beat the Street’s $0.01.
Key metrics: ARR was $235.2 million (+19% Y/Y); 242 customers with over $250,000 in ARR (+13% Y/Y) at quarter-end; dollar-based net retention rate was 111%.
Upside in the quarter was driven by both new bookings and renewals normalizing closer to pre-COVID levels faster than anticipated, as well as the closure of two large three-year renewals that boosted the revenue line.
Cloud adoption has increased within new bookings, and new customers are increasingly accelerating their Ping deployments to protect critical resources in remote and digital environments.
Larger deals have been delayed somewhat given the macro environment, but a number of customers have opted to phase in their purchases, resulting in smaller initial deals.
Investments in sales and marketing and research and development will resume in 2H after a pause during Q2.
Q3 guidance for revenue of $54.0-$57.0 million fell short of Street expectations for $59.6 million; guidance also calls for total ARR of $240.2-$242.2 million and unlevered free cash flow of $(10.0)-$(8.0) million.
Qualys Announces Second Quarter 2020 Financial Results
Qualys (QLYS) reported Q2 ’20 results ahead of expectations and raised its outlook for FY ’20.
Revenues of $88.8 million (+12.5% Y/Y) were slightly above guidance for $88.0-$88.6 million and consensus of $88.2 million. Adjusted EBITDA was $42.8 million (48.2% margin), above consensus of $39.1 million. Non-GAAP EPS of $0.74 beat guidance for $0.63-$0.64 and the Street’s $0.64.
Key metrics: billings of $86.7 million (+7% Y/Y); nearly 43 million paid Cloud Agent subscriptions (+81% Y/Y); 54% of enterprise customers have adopted three or more Qualys solutions.
Qualys remains well positioned in the security market as the COVID-19 pandemic has prompted an explosion of remote endpoints connecting to critical enterprise assets, which traditional enterprise security solutions are ineffective at protecting.
Billings were negatively impacted by the timing and amount of prepaid multiyear subscriptions, as well as requests for shorter duration invoicing.
Over 650 companies, including nearly 300 prospects, have taken advantage of Qualys’ no-cost 60-day pilot of its Remote Endpoint Protection service, which now also includes malware detection capabilities.
Q3 guidance for revenue of $91.6-$92.2 million and non-GAAP EPS of $0.65-$0.67 was ahead of Street expectations for $90.4 million in revenue and $0.61 in non-GAAP EPS.
Management raised its FY ’20 revenue and non-GAAP EPS guidance from $354.0-$359.0 million and $2.46-$2.51, respectively, to $359.0-$360.5 million and $2.60-$2.65.
RADCOM Reports Second Quarter 2020 Results
RADCOM (RDCM) reported Q2 ’20 results above expectations and reaffirmed guidance for FY ’20.
Revenues of $9.2 million (+7.2% Y/Y) were ahead of Street expectations for $8.9 million. Non-GAAP operating income of $0.1 million (1.1% margin) was above consensus of $(1.3) million. Non-GAAP EPS of $0.02 beat consensus of $(0.08).
There are already 92 5G commercial networks worldwide, and management expects 5G to incrementally ramp-up in the latter part of 2020 and during 2021.
Operators are currently at the early stage of selecting network equipment providers ahead of 5G service rollouts, but once advanced use cases are being deployed over 5G, assurance vendors will be evaluated and selected.
RADCOM has started to see initial customer requirement requests for next-generation capabilities and cloud-native features as operators begin to plan for assurance vendor selection.
Launched last week, RADCOM ACE is the company’s container-based, cloud-native assurance and analytics solution for automating 5G network operations.
Management reiterated prior FY ’20 guidance for $35.0-$38.0 million in revenue.
SharpSpring Reports Second Quarter 2020 Results
SharpSpring (SHSP) reported Q2 ’20 results ahead of expectations but slightly reduced its FY ’20 revenue guidance.
Revenue of $7.3 million (+31.8% Y/Y) was in line with consensus. Adjusted EBITDA was $(0.1) million (-1.7% margin), exceeding consensus of $(1.0) million. Non-GAAP EPS of $(0.03) beat the Street’s $(0.11).
Key metrics: added 276 new SharpSpring customers representing $2.2 million in annual recurring revenue; 2,000 agency customers and over 500 direct customers at quarter-end; net revenue retention was 91.6%.
In Q2, SharpSpring introduced a new pricing option for larger agencies that allows new customers to buy more licenses upfront at a nominal discount in exchange for an annual commitment and sold 10 of these bundled licenses.
Cost to acquire customer (CAC) was $10,900 in Q2, up from $9,800 in the prior quarter, but has already declined thus far in Q3 as spending is now more reflective of the current environment.
Perfect Audience, acquired in November, has performed well despite economic headwinds from the pandemic and recorded a 38% increase in paid advertisers on a sequential basis even as advertising budgets compressed in Q2.
Management lowered its FY ’20 revenue guidance slightly from $30.0-$31.0 million to $29.5-$30.5 million.
Synchronoss Technologies Announces Second Quarter 2020 Results
Synchronoss Technologies (SNCR) reported Q2 results above expectations but lowered its FY ’20 adjusted EBITDA outlook.
Revenue was $76.5 million (-1.7% Y/Y), above consensus of $75.0 million. Adjusted EBITDA was $11.5 million (15.1% margin), exceeding Street expectations for $3.7 million. Non-GAAP EPS of $0.16 beat consensus of $(0.22).
AT&T has a growing list of Android devices preloaded with the Synchronoss Out of Box Experience (OOBE), and every new and upgrade Android subscriber will now go through the OOBE flow at AT&T.
Two additional messaging contracts with an aggregate value in the mid-seven figure range have been secured with CCMI.
Synchronoss announced a five-year contract extension of its personal cloud agreement with Verizon, which reduces non-cash deferred revenue by approximately $10 million in 2H ’20 and will now be amortized over the term of the new contract.
The company remains on track to achieve in-year cost savings of $45 million and annualized savings of $55 million.
Management lowered its FY ’20 adjusted EBITDA guidance from $25.0-$35.0 million to $20.0-$25.0 million.
As refinancing its preferred stock is the top priority right now, management is actively evaluating financing alternatives and plans to file a universal shelf in conjunction with its 10-Q later this month.
Tufin Announces Second Quarter 2020 Results
Tufin (TUFN) reported Q2 ’20 results ahead of Street expectations.
Revenue of $23.0 million (-8.2% Y/Y) was above consensus of $21.9 million. Non-GAAP operating income of $(4.5) million (-19.6% margin) was ahead of consensus of $(10.0) million. Non-GAAP EPS of $(0.15) beat the Street’s $(0.29).
Business improved relative to the acute disruptions experienced at the end of Q1, renewal trends were good and cost reductions enacted early in the quarter had a meaningful impact.
New product launches include the Tufin Marketplace and a new Vulnerability Mitigation App, both of which should enable customers to capture more value from the Tufin Orchestration Suite.
Management noted that the pipeline remains healthy and has increased versus the prior year but due to continuing uncertainty associated with COVID-19, no guidance was provided for Q3 or FY ’20.
Veritone Reports Financial Results for the Second Quarter of 2020
Veritone (VERI) reported Q2 ’20 results consistent with its July 8 pre-announcement and guided Q3 ahead of consensus.
Revenues of $13.3 million (+8.1% Y/Y) were at the high-end of the company’s pre-announced range of $13.1-$13.3 million. Non-GAAP operating income was $(5.7) million (-43.1% margin), ahead of consensus of $(6.3) million. Non-GAAP EPS of $(0.21) beat consensus of $(0.23).
Key metrics: average gross billings per active client of $614,000 (+26% Y/Y); aiWARE accounts on platform totaled 1,753 (+86% Y/Y) at quarter-end; new aiWARE bookings of $2.3 million (+72% Y/Y).
Customers are accelerating AI implementations across their operations to execute more effectively and efficiently.
The outperformance in Q2 was driven by strong contribution from the VeriAds network; better than anticipated results in the content licensing business, which faced many headwinds arising from the pandemic; and strong SaaS bookings.
Q3 guidance for revenues of $14.2-$14.6 million and non-GAAP net loss of $(5.7)-$(5.3) million, which implies non-GAAP EPS of $(0.21)-$(0.20), exceeded Street expectations for $13.3 million in revenues and $(0.21) in non-GAAP EPS.
VIAVI Announces Fourth Quarter and Year End Fiscal 2020 Results
VIAVI (VIAV) reported Q4 ’20 results above expectations and guided Q1 in line with consensus.
Revenue of $266.6 million (-8.0% Y/Y) was above consensus of $259.4 million. Non-GAAP operating income was $52.3 million (19.6% margin), exceeding consensus of $39.9 million. Non-GAAP EPS of $0.18 beat consensus of $0.13.
Sequential growth was fueled by stabilization of demand in the Network and Service Enablement (NSE) segment, which was partially offset by expected declines in the Optical Security and Performance Products (OSP) segment.
Both assurance and enterprise and data center products contributed to the strength in NSE as deals that pushed from the prior quarter were successfully closed in Q4.
5G wireless lab equipment also finished strong with record revenues in the quarter, while 3D sensing revenue, which falls within the OSP segment, increased 20% Y/Y.
Although anti-counterfeiting sales declined in each of the past two quarters due to government printing operations shutting down during the pandemic, depleted inventories suggest demand will be above average over the next several quarters.
Management noted that long-term drivers, including 5G wireless, fiber and 3D sensing remain intact.
Q1 guidance for revenue of $258.0-$282.0 million and non-GAAP EPS of $0.14-$0.16 was in line with Street expectations for revenue of $268.4 million and non-GAAP EPS of $0.14.
Notable News
Alcatel-Lucent Enterprise and RingCentral Enter into a Strategic Partnership
RingCentral (RNG) has entered into a strategic partnership with Alcatel-Lucent Enterprise (ALE) to introduce a co-branded cloud solution, Rainbow Office powered by RingCentral, which will be offered exclusively to ALE’s customers and partners.
ALE provides communication, cloud collaboration and network solutions and boasts over 40 million users of its on-premise unified communications solutions and over 2,900 channel partners.
The agreement places RingCentral in the pole position to address the cloud transformation needs of 180 million users, which compares with an estimated market opportunity for cloud communications migration of over 400 million users.
Terms of the agreement call for RingCentral to pay ALE $100 million in cash for exclusive access, a minimum seat commitment and future commissions.
Rainbow Office powered by RingCentral will be available in Q1 ’21.
eGain Announces Positive Preliminary Financial Results for Fiscal 2020 Fourth Quarter and Full Year
eGain (EGAN) expects to report Q4 ’20 revenue of $18.7-$19.0 million (+11%-13% Y/Y) and non-GAAP EPS of $0.07-$0.08, exceeding its initial guidance for revenue of $18.0-$18.7 million and non-GAAP EPS of $(0.01)-$0.02.
Consensus called for revenue and non-GAAP EPS of $18.4 million and $0.02, respectively.
MicroStrategy Adopts Bitcoin as Primary Treasury Reserve Asset
MicroStrategy (MSTR) has purchased 21,454 bitcoins at an aggregate purchase price of $250 million, inclusive of fees and expenses, representing an average cost of $11,652.84 per bitcoin.
Management believes bitcoin represents a superior asset class for those seeking a long-term store of value and has more appreciation potential than holding cash.
MicroStrategy (MSTR) has commenced a “modified Dutch Auction” tender offer to purchase up to $250 million of its class A common stock at a price between $122.00 and $140.00 per share, representing a discount of 1.3% to a premium of 13.3% relative to the close price prior to announcement of the planned tender offer.
Shutterstock Announces Pricing of Public Offering of Common Stock
Shutterstock (SSTK) priced an offering of 2.58 million shares of its common stock at a price of $48.50 per share, a 15.2% discount to the close price prior to announcement of the planned offering.
Jon Oringer, Shutterstock’s founder and Executive Chairman, sold 2,064,000 shares in the offering and has granted the underwriters a 30-day option to purchase up to an additional 387,000 shares.
Shutterstock sold 516,000 shares in the offering and plans to use the proceeds for general corporate purposes.
Upland Software Announces Pricing of Public Offering of its Common Stock
Upland Software (UPLD) priced an offering of 3.5 million shares of common stock at a price of $34.00 per share, a 14.7% discount to the close price prior to announcement of the planned offering.
The company has also granted the underwriters a 30-day option to purchase up to an additional 525,000 shares.
Net proceeds of the offering will be used to further the company’s acquisition strategy and for general corporate purposes.
Wix Announces Pricing of Private Offering of $500 million of 0% Convertible Senior Notes due 2025
Wix (WIX) priced an offering of $500 million aggregate principal amount of 0% Convertible Senior Notes due 2025 with an initial conversion price of $403.01 per share, a 38.2% premium to the close price prior to announcement of the offering.
The initial purchasers have been granted an option to purchase up to an additional $75 million aggregate principal amount.
Net proceeds are expected to be $486.3 million (or $559.4 million if the initial purchasers exercise their option in full), of which $40.0 million will be put towards capped call transactions and the remainder used 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 NetScout Systems (NTCT).