K. Liu's Week in Review
We attended Box, Inc.’s (BOX) virtual customer conference, BoxWorks Digital 2020, and tuned in to the accompanying investor breakout session. Both the product and financial updates were largely incremental to last year’s highlights, which we previously detailed in our note, “Unpacking BoxWorks 2019.” Of course, the COVID-19 pandemic and ensuing shift to distributed workforces has created a dramatically different selling environment in the year or so that has passed since last year’s event. In this regard, we believe Box’s value proposition around securely managing content and collaboration should resonate more than ever before. To wit, Box’s zero trust architecture and built-in data loss prevention capabilities eliminate the need for remote workers to access corporate networks via VPNs, allowing for frictionless security and compliance while enabling both internal and external stakeholders to collaborate on content. Between the displacement of legacy enterprise content management systems, network storage devices and security solutions, management believes its Cloud Content Management platform has the opportunity to displace an aggregate addressable market of $55 billion. Interestingly, within its base of over 100,000 paid customers alone, management sees potential for a seven-fold increase in users. This combined with continued success in driving multi-product adoption via Box Suites should support further improvements in sales productivity, growth and margins. Management reaffirmed its year-ago targets for achieving a combined revenue growth rate and free cash flow margin of 35% or more by FY ’23 and guided for that metric to reach at least 40% by FY ’24 driven by low to mid-teens top line growth and a doubling of the operating margin to 23%-27%.
With the enterprise perimeter effectively rendered nonexistent in a work-from-anywhere world, Check Point Software Technologies (CHKP) acquired technology created by Odo Security in a bid to offer enterprises a solution that securely provides their employees with remote access to any application. Outside of security, Altair (ALTR) sought to solidify its leadership position in managing high performance computing workloads and workflows through the acquisitions of Ellexus and Univa. GoDaddy (GDDY) pressed on with its WordPress strategy, acquiring SkyVerge, a leading WooCommerce product developer whose plug-ins have been downloaded over 3.1 million times on WordPress.org. In the Experience Management space, Medallia (MDLA) acquired Sense360, which provides consumer and competitor intelligence enabling brands to make strategic decisions, for $44 million in cash. Subsequently, Medallia priced an offering of $500 million aggregate principal amount of 0.125% convertible senior notes due 2025. That raise was overshadowed, however, by Shopify’s (SHOP) concurrent offerings of 1.1 million Class A shares and $800 million aggregate principal amount of 0.125% convertible senior notes due 2025, which together grossed the company $1.910 billion in proceeds.
Adobe (ADBE) was the only company to report results this week, posting Q3 ’20 results ahead of Street expectations. The record performance was driven by ongoing tailwinds from remote work and distance learning along with variable marketing investments that were successful in attracting and engaging with new customers. Although not formally reporting results, 8x8 (EGHT) reaffirmed its prior guidance for the quarter in conjunction with news that Steve Seger has been appointed Chief Revenue Officer. Mr. Seger joins the company from Tibco Software, where he most recently served as Senior Vice President of Americas Sales, and he succeeds Ken Berryman, who will now focus on strategic expansion efforts worldwide in a newly created role. A10 Networks (ATEN) also issued a pre-announcement of sorts, indicating its revenue for the quarter should come in at $53.0-$56.0 million versus consensus of $56.0 million. The preliminary look at A10’s quarterly performance was accompanied by news that the Board of Directors has authorized a $50 million share repurchase program and that Chief Financial Officer Tom Constantino has departed. A10’s Vice President and Corporate Controller, Brian Becker, has been named Interim Chief Financial Officer in his stead. Finally, Ceridian (CDAY) has hired Noémie Heuland as Executive Vice President, Chief Financial Officer. She joins the company from SAP, where she most recently served as CFO for Latin America and the Caribbean.
Mergers and Acquisitions
Altair (ALTR) has acquired Ellexus, a provider of tools for input/output diagnostics, optimization and dependency detection.
The acquired products will be integrated into the storage aware scheduling functionality of Altair PBS Works, enabling customers to quickly identify input/output latencies to ensure faster job execution times and better resource utilization.
Altair (ALTR) has acquired Univa, a leading provider of high-performance computing (HPC) workload and workflow management solutions.
Univa’s technology will be integrated with Altair’s HPC and data analytics solutions to solidify the company’s leadership in HPC workload management and cloud enablement and to support further expansion into the life sciences and financial services verticals.
Check Point Software Technologies Redefines Secure Remote Access for Enterprises
Check Point Software Technologies (CHKP) has acquired secure remote access technology created by Odo Security.
The acquired technology will be integrated with Check Point’s Infinity architecture, providing enterprises with a solution to securely provide employees with remote access to any application.
Medallia (MDLA) has acquired Sense360 for approximately $44 million in cash.
Sense360 provides consumer and competitive intelligence from buyer and non-buyer segments, enabling customers such as large restaurant chains, convenience stores, retailers and CPG brands to make strategic decisions.
GoDaddy Acquires SkyVerge to Help Everyday Entrepreneurs Sell Online with WordPress and WooCommerce
GoDaddy (GDDY) has agreed to acquire SkyVerge, a leading WooCommerce product developer with over 60 WooCommerce extensions spanning payments, email marketing and memberships.
With over one-third of websites powered by WordPress and 17% of WordPress sites using WooCommerce, the acquisition advances GoDaddy’s WordPress strategy and enhances its ability to support entrepreneurs looking to sell online.
SkyVerge’s plugins have been used by over 100,000 e-commerce merchants and have been downloaded over 3.1 million times on WordPress.org.
Earnings Releases
Adobe (ADBE) reported Q3 ’20 results above expectations and guided Q4 generally in line with consensus.
Revenue of $3.225 billion (+13.8% Y/Y) was above guidance for $3.150 billion and consensus of $3.156 billion. Non-GAAP operating income was $1.403 billion (43.5% margin), ahead of consensus of $1.317 billion. Non-GAAP EPS of $2.57 beat guidance for $2.40 and consensus of $2.41.
Key metrics: net new Digital Media Annualized Recurring Revenue (ARR) of $458 million was above guidance for $340 million; Digital Media ARR was $9.63 billion (+24% Y/Y) at quarter-end and included Creative ARR of $8.29 billion and Document Cloud ARR of $1.34 billion; remaining performance obligation of $10.34 billion (+18% Y/Y).
Leveraging its proprietary attribution technologies, Adobe made variable marketing investments that attracted and engaged new customers, which combined with ongoing remote work and learning-from-home tailwinds drove a record Q3.
Creative Cloud performance was outstanding with net new ARR of $360 million driven by record traffic to adobe.com, strength in single app and complete offerings across all geographies, growth in mobile apps, improved retention, and strong performance in imaging and video categories as well as in the education segment.
Document Cloud performance was exceptional with net new ARR of $98 million due to strong growth coming from the Adobe Reader funnel, significant gains in Acrobat web monthly average use, higher installs of Acrobat Mobile, significant momentum for Adobe Sign and the release of the Adobe Document Cloud Resource Hub for Education.
Experience Cloud highlights included increased adoption of the Adobe Experience Platform, general availability of data governance capabilities in the Real-Time Customer Data Platform, early traction for the Customer Journey Analytics service, and significant sequential growth in Commerce offerings.
Q4 guidance for revenue of approximately $3.350 billion and non-GAAP EPS of $2.64 was generally consistent with Street expectations for revenue of $3.362 billion and non-GAAP EPS of $2.64.
Notable News
8x8 Expand Go-To-Market Operations; Appoints Steve Seger as Chief Revenue Officer
8x8 (EGHT) has appointed Steve Seger as Chief Revenue Officer, a role in which he will oversee all revenue operations, direct sales and channel sales.
Mr. Seger joins the company from Tibco Software where he most recently served as Senior Vice President of Americas Sales.
Ken Berryman, who has been the company’s acting Chief Revenue Officer, will now focus on strategic expansion efforts worldwide in a newly created role.
8x8 also reaffirmed its Q2 guidance for revenue of $125.5-$126.5 million, service revenue of $117.3-$118.3 million and non-GAAP pre-tax loss of approximately $7.5 million.
A10 Networks (ATEN) anticipates Q3 revenue of $53.0-$56.0 million, compared with consensus of $56.0 million, and non-GAAP operating expenses of $34.0-$35.0 million.
The Board of Directors has also authorized a $50 million share repurchase program, in effect for the next 12 months.
Tom Constantino, the company’s Chief Financial Officer, has left the company and Brian Becker, A10’s Vice President and Corporate Controller, has been named Interim Chief Financial Officer.
Ceridian Hires Noémie Heuland as EVP, Chief Financial Officer
Ceridian (CDAY) has hired Noémie Heuland as Executive Vice President, Chief Financial Officer, effective October 5, 2020.
Ms. Heuland joins the company from SAP, where she most recently served as CFO for Latin America and the Caribbean.
Medallia Announces Pricing of Offering of $500 Million of Convertible Senior Notes
Medallia (MDLA) priced an offering of $500 million aggregate principal amount of 0.125% Convertible Senior Notes due 2025 with an initial conversion price of $39.35 per share, a 26.2% premium to the close price prior to disclosure of the offering.
The initial purchasers of the notes have also been granted a 13-day option to purchase up to an additional $75 million aggregate principal amount of notes.
$53.8 million of the net proceeds will be used to pay the cost of capped call transactions with the remainder used for general corporate purposes.
Shopify Prices Offerings of Class A Subordinate Voting Shares and Convertible Senior Notes
Shopify (SHOP) priced an offering of 1.1 million Class A subordinate voting shares at a price to the public of $900.00 per share, a 3.4% discount to the close price prior to announcement of the planned offering.
Shopify also priced an offering of $800 million aggregate principal amount of 0.125% convertible senior notes due 2025 with an initial conversion price of $1,440.09 per share, a 54.5% premium to the close price prior to disclosure of the offering.
The underwriters of the equity offering have been granted an option to purchase up to an additional 165,000 shares, while the underwriters of the notes offering have been granted an option to purchase up to an additional $120 million aggregate principal amount of notes.
Net proceeds from the offerings will be used to strengthen the company’s balance sheet and fund its growth strategies.
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 Box, Inc. (BOX).