K. Liu's Week in Review

Salesforce’s (CRM) 2020 Holiday Shopping Report revealed that online spending by consumers increased 50% Y/Y to $1.1 trillion worldwide and rose 43% Y/Y to $236 billion in the U.S. Domestically, initiatives to pull forward holiday spend fueled an 82% Y/Y increase in Pre-Cyber Week sales. Interestingly, the 29% Y/Y increase in Cyber Week sales was actually the slowest growth recorded during the holiday period as growth in each ensuing week ranged from +35% Y/Y to +58% Y/Y. All this to say that the data points to a strong end to peak season, which combined with the robust growth in November PC Postage revenue we highlighted previously leaves us ever confident that Stamps.com (STMP) is poised to shatter Q4 expectations.

Also relevant to our coverage universe, EXFO’s (EXFO) fiscal Q1 ’21 results topped Street expectations fueled by strong year-end spending in the Americas, some catch-up spending in the Europe, Middle East and Africa (EMEA) region and robust growth in Service Assurance, Systems and Services (SASS) solutions. Together with F5 Networks’ (FFIV) positive pre-announcement last week, which reflected a marked rebound in its systems business, the results point to an improving demand environment and provide a positive read-through for NetScout Systems (NTCT). That said, EXFO’s SASS strength in the quarter was attributed more so to fiber monitoring as opposed to the wireless monitoring use cases more prevalent in NetScout’s business, although management again highlighted high levels of RFP activity for 5G service assurance and cloud-native deployments. Separately, SAP (SAP) pre-announced positive Q4 ’20 results and guided FY ’21 in line with Street expectations. Among other factors, SAP cited strong demand for digital supply chain solutions and competitive ERP wins as contributors to its better than expected performance in cloud order entry and software license revenue. We believe this portends a favorable backdrop for QAD (QADA) and bodes well for the company to end its FY ’21 on a high note.

In other earnings news, Progress (PRGS) posted upside Q4 ’20 results as its OpenEdge and DataDirect solutions saw higher than expected license sales. Per management, the integration of recently acquired Chef is on plan and the financial targets put forth at the time of the acquisition remain unchanged. However, shares dipped despite the strong finish to the year and an outlook for FY ’21 that was generally consistent with consensus. We attribute the sell-off to disappointing Q1 guidance, the lack of any organic growth anticipated for the year and the cadence at which synergies pertaining to Chef will be realized. Elsewhere, shares of Tufin (TUFN) soared as the company pre-announced Q4 ’20 revenue well above its prior guidance and appointed Raymond Brancato, who joins the company from privately-held AnyVision, as Chief Revenue Officer.

As for other executive moves, Cornerstone OnDemand (CSOD) promoted Chirag Shah, most recently Senior Vice President and General Manager of Growth Markets, to Chief Financial Officer. He has held a number of positions within the finance organization since joining in 2009 and will now play a key role in the integration of Saba. In an 8-K filing, Dropbox (DBX) disclosed the departure of its Chief Operating Officer, Olivia Nottebohm, as well as the decision to cut 11% of its workforce. At VMware (VMW), a search for a new Chief Executive Officer is underway following Pat Gelsinger’s resignation to serve as CEO of Intel. Lastly, Sherry Lautenbach, formerly Oracle’s Senior Vice President for Cloud Sales, joined PROS Holdings (PRO) as Senior Vice President, Global B2B Sales.

On a final note, valuations across the software industry remain healthy to say the least and capital continues to flow freely. Box (BOX) and DocuSign (DOCU) were the latest to pursue convertible notes offerings with both carrying interest rates of 0%. Of note, DocuSign’s notes convert at a price representing a 74% premium to the closing price prior to disclosure of the offering, which is simply astounding to us given the valuation already afforded to the stock. CrowdStrike Holdings (CRWD) and Zoom Video Communications (ZM) also raised gobs of cash albeit through more traditional debt and equity offerings, respectively.

Mergers and Acquisitions

Pega Acquires Qurious.io for AI-Powered Speech Analytics

  • Pegasystems (PEGA) has acquired Qurious.io, a provider of real-time speech analytics for customer service teams.

  • Qurious.io’s cloud-based platform employs speech-to-text, natural language processing and emotion detection capabilities to analyze customer service calls and provide agents with real-time insights and coaching.

Earnings Releases

EXFO reports first quarter results for fiscal 2021

  • EXFO (EXFO) reported Q1 ’21 results above expectations.

  • Sales of $71.5 million (-2.8% Y/Y) were ahead of Street expectations for $70.9 million. Adjusted EBITDA of $9.9 million (13.9% margin), exceeded consensus of $5.0 million. Non-IFRS EPS of $0.05 beat the Street’s $0.03.

  • Key metrics: bookings of $69.0 million (-1.2% Y/Y), including Test & Measurement (T&M) bookings of $51.2 million (-6.8% Y/Y) and Service Assurance, Systems and Services (SASS) bookings of $17.8 million (+18.3% Y/Y); book-to-bill ratio of 0.97.

  • The strong results reflected market acceptance of EXFO’s solutions for fiber, cloud-native and 5G network deployments.

  • T&M sales declined as service providers reduced large scale network deployments in favor of maintenance projects but this dynamic was partially offset by strong year-end spending in the Americas as well as catch-up spending in EMEA.

  • The launch of EXFO FIP-500 coincides with management’s confidence that market demand for portable field solutions will normalize in 2021 driven by fiber-to-the-premises, 5G infrastructure roll-outs and data center connectivity.

  • SASS sales increased significantly as EXFO recognized large orders related to network topology, network optimization and fiber monitoring solutions.

  • Considering no additional wage subsidy is anticipated from the Canadian government, the prospects for increased travel by year-end and recent FX fluctuations, management maintained its operating model guidelines calling for gross margin of 57%-59%, SG&A between 33% and 35% of sales and net R&D between 16% and 18% of sales.

Progress Reports 2020 Fiscal Fourth Quarter and Year End Results

  • Progress (PRGS) reported Q4 ’20 results ahead of expectations and guided FY ’21 generally in line with consensus.

  • Non-GAAP revenue of $129.1 million (+4.6% Y/Y) was just above the high-end of guidance for $125.0-$129.0 million and consensus of $128.0 million. Non-GAAP operating income of $48.1 million (37.3% margin) was above consensus of $46.7 million. Non-GAAP EPS of $0.91 beat guidance for $0.76-$0.79 and the Street’s $0.78.

  • Upside in the quarter came from better than expected software license revenue for both OpenEdge and DataDirect.

  • Contribution from Chef was consistent with management’s expectations and leaves the company on track to meet or exceed the initial financial targets set at the time of the acquisition.

  • The outlook for FY ’21 incorporates expectations for some economic headwinds related to the COVID-19 pandemic, flattish organic growth for the year and lower expenses in 1H due to ongoing COVID-19 restrictions.

  • Q1 guidance for non-GAAP revenue of $119.0-$123.0 million and non-GAAP EPS of $0.72-$0.76 fell short of Street expectations for $130.8 million and $0.81, respectively.

  • Management’s FY ’21 guidance for non-GAAP revenue of $513.0-$521.0 million, a non-GAAP operating margin of 37.0% and non-GAAP EPS of $3.22-$3.28 was generally consistent with Street expectations for non-GAAP revenue, operating income and EPS of $516.2 million, $199.7 million and $3.22, respectively.

SAP Pre-Announces Strong Fourth Quarter and Full Year 2020 Results

  • SAP (SAP) pre-announced Q4 ’20 results, including non-IFRS revenue and operating income of €7.54 billion and €2.77 billion (36.7% margin), respectively, versus consensus of €7.44 billion and €2.65 billion.

  • Management’s initial guidance for FY ’21 includes non-IFRS cloud revenue of €9.1-€9.5 billion, non-IFRS cloud and software revenue of €23.3-€23.8 billion and non-IFRS operating income of €7.8-€8.2 billion.

Notable News

Box, Inc. Announces Pricing of Offering of $315 Million of Convertible Senior Notes

  • Box (BOX) priced an offering of $315.0 million aggregate principal amount of 0% convertible senior notes due 2026 with an initial conversion price of $25.80 per share, a 38.8% premium to the close price prior to disclosure of the planned offering.

  • The company has also granted the initial purchasers an option to purchase up to an additional $30.0 million aggregate principal amount of the notes.

  • Estimated net proceeds of $306.3 million (or $335.6 million if the initial purchasers exercise their option in full) will be used for working capital and other general corporate purposes.

Cornerstone Names Chirag Shah Chief Financial Officer

  • Cornerstone OnDemand (CSOD) has appointed Chirag Shah as Chief Financial Officer, effective February 1, 2021.

  • Mr. Shah joined the company in 2009 and most recently served as Senior Vice President and General Manager of Growth Markets, a role in which he was responsible for Cornerstone’s expansion in Asia Pacific and Japan, its Content business and the small and medium-sized business team.

CrowdStrike Announces Pricing of $750 Million Senior Unsecured Notes Offering

  • CrowdStrike Holdings (CRWD) priced an offering of $750.0 million aggregate principal amount of its senior notes due 2029.

  • Interest will be payable semi-annually at a rate of 3.000% per year.

  • Estimated net proceeds from the offering of $740.6 million will be used for general corporate purposes.

DocuSign Prices Offering of $600.0 Million of 0% Convertible Senior Notes Due 2024

  • DocuSign (DOCU) priced an offering of $600.0 million aggregate principal amount of 0% convertible senior notes due 2024 with an initial conversion price of $420.24 per share, a 74.4% premium to the close price prior to disclosure of the offering.

  • The offering was upsized from initial plans to offer $500.0 million aggregate principal amount of notes and the initial purchasers have also been granted an option to purchase up to an additional $90.0 million aggregate principal amount of notes.

  • Approximately $460.0 million of the net proceeds from the offering along with 4.7 million shares of DOCU will be used to repurchase $460.0 million aggregate principal amount of DocuSign’s 0.50% Convertible Senior Notes due 2023.

Dropbox Discloses Departure of Chief Operating Officer and an 11% Reduction of its Global Workforce

  • Dropbox (DBX) announced that Olivia Nottebohm, Chief Operating Officer, is leaving the company on February 5, 2021.

  • The company is also reducing the size of its global workforce by 315 people but will continue to hire for roles supporting its product expansion and growth initiatives.

PROS Appoints Sherry Lautenbach as Senior Vice President, Global B2B Sales

  • PROS (PRO) has appointed Sherry Lautenbach as Senior Vice President, Global B2B Sales, a role in which she will be responsible for driving enterprise adoption of the PROS platform and solutions.

  • Ms. Lautenbach joins the company from Oracle, where she served as Senior Vice President for Cloud Sales.

Salesforce Reveals 2020 was the Biggest Holiday Season Ever for Digital Sales, Up 50% Year-Over-Year to $1.1 Trillion Globally

  • Salesforce (CRM) released its 2020 Holiday Shopping Report, which revealed a 50% Y/Y increase in digital spend during the 2020 holiday shopping season.

  • Online spending by consumers increased to $1.1 trillion worldwide and rose 43% Y/Y to $236 billion in the U.S.

  • Even with earlier discounts and promotions, Cyber Week still represented 25% of digital sales and the first two weeks of December accounted for 17% of digital sales during the holiday season.

Tufin Appoints Raymond Brancato New Chief Revenue Officer

  • Tufin (TUFN) has appointed Raymond Brancato as Chief Revenue Officer, succeeding Kevin Malone, SVP of Global Sales.

  • Mr. Brancato joins Tufin from AnyVision, an artificial intelligence company where he served as Chief Revenue Officer.

  • Tufin also pre-announced Q4 ’20 revenue of $30.5-$31.1 million, above its prior guidance for $24.0-$29.0 million.

VMware Board of Directors Initiates Search for Chief Executive Officer

  • VMware’s (VMW) Board of Directors has initiated a search for a new Chief Executive Officer due to Pat Gelsinger’s resignation to serve as Intel’s CEO.

  • Zane Rowe, Chief Financial Officer, has been appointed Interim CEO, and Mr. Gelsinger will remain a member of VMware’s Board of Directors.

Zoom Announces Pricing of $1.75 billion Public Offering

  • Zoom Video Communications (ZM) priced an underwritten public offering of 5,147,059 shares of its Class A common stock at a price of $340.00 per share, a 0.7% premium to the close price prior to announcement of the planned offering.

  • The offering was upsized from initial plans to offer $1.5 billion of shares of its Class A common stock.

  • The underwriters have also been granted a 30-day option to purchase up to an additional 735,294 million shares.

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).

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).

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).