K. Liu's Week in Review

In between Martin Luther King Jr. Day and the inauguration of Joe Biden as the 46th President of the United States, Citrix Systems (CTXS) sought to advance the future of work, entering into an agreement to acquire work management vendor Wrike for $2.25 billion in cash, representing TTM and FY ’21 EV/recurring revenue multiples of 16x and 12x, respectively. The combination of Citrix’s platform for delivering secure access to the systems, information and tools necessary for work with Wrike’s collaboration and workflow capabilities addresses the needs of distributed workforces and expands the company’s go-to-market opportunities. The acquisition is also expected to accelerate Citrix’s transition to a subscription model as Wrike exited 2020 with SaaS annualized recurring revenue (ARR) in excess of $140 million and is expected to increase ARR by approximately 30% to $180-$190 million in 2021. As for the impact on earnings, management expects the transaction to be modestly dilutive this year, neutral next year and accretive thereafter. In conjunction with the acquisition announcement, Citrix also reported Q4 ’20 results ahead of expectations. The strong performance reflected sustained demand for Citrix Workspace and accelerating customer adoption of Citrix Cloud to manage Workspace environments. Guidance for FY ’21, which has yet to be adjusted for the Wrike acquisition, was consistent with the preliminary outlook provided last quarter, calling for revenue growth of approximately 4% and non-GAAP EPS of $6.20-$6.40.

HealthStream (HSTM) and Upland Software (UPLD) were also active on the M&A front. The former acquired ComplyALIGN for $2.0 million in cash, adding a SaaS-based policy management system geared for healthcare organizations to its product portfolio. The latter paid $25.4 million in cash at closing and another $5.0 million due in 12 months for Second Street Media, which offers an audience engagement platform enabling customers to quickly create contests, quizzes and other interactive content designed to attract, retain and engage consumers. Upland anticipates $9.4 million in revenue and at least $4.2 million in adjusted EBITDA on an annual basis once Second Street is fully integrated. Lastly, we note that PTC (PTC) completed its previously announced acquisition of Arena Solutions. In conjunction with the closing, the company has tapped its global sales leader, Mike DiTullio, to lead its expanded SaaS business unit and has promoted Jamie Pappas, who most recently led regional sales in North America, to Head of Global Sales. PTC also indicated that ARR growth for its fiscal Q1 ’21 is expected to approach the high-end of its guidance for 9%-12%.

Mergers and Acquisitions

Citrix to Acquire Wrike, Delivering Modern Digital Workspace and Advancing Future of Work

• Citrix Systems (CTXS) has agreed to acquire Wrike for $2.25 billion in cash.

• The transaction brings together Citrix’s digital work platform, which delivers unified, secured access to the systems, information and tools required for work to be performed anywhere, with the work execution capabilities in Wrike’s platform.

• Wrike exited 2020 with SaaS annualized recurring revenue (ARR) in excess of $140 million, reflecting a 30% CAGR in SaaS ARR over the past two years, and is expected to increase SaaS ARR by approximately 30% Y/Y to $180-$190 million in 2021.

• The acquisition is expected to be modestly dilutive to non-GAAP EPS this year, neutral next year and accretive thereafter.

HealthStream Acquires ComplyALIGN

• HealthStream (HSTM) has acquired ComplyALIGN for $2.0 million in cash.

• ComplyALIGN’s SaaS-based policy management system is used by over 200 healthcare facilities to ensure policies and procedures are organized, accessible, searchable and easily updated.

• The acquisition also includes HospitalPORTAL, a business focused on hospital intranet solutions that integrate with ComplyALIGN’s policy management system.

Upland Software Acquires Second Street

• Upland Software (UPLD) has acquired Second Street Media, which offers a cloud-based platform enabling customers to quickly create contests and other interactive content to attract, retain and engage consumers.

• Terms of the transaction include $25.4 million in cash paid at closing and a $5.0 million cash holdback payable in 12 months.

• Upland expects the acquisition to contribute annual revenue of $9.4 million and adjusted EBITDA of at least $4.2 million.

Earnings Releases

Citrix Systems 4Q’20 Earnings Letter

• Citrix Systems (CTXS) reported Q4 ’20 results above expectations and reaffirmed prior expectations for FY ’21.

• Revenue of $809.7 million (flat Y/Y) exceeded guidance for $775.0-$785.0 million and consensus of $781.3 million. Non-GAAP operating income was $220.8 million (27.3% margin), above consensus of $213.6 million. Non-GAAP EPS of $1.46 beat guidance for $1.25-$1.35 and the Street’s $1.33.

• Key metrics: subscription ARR of $1.205 billion (+62% Y/Y), including SaaS ARR of $725 million (+39% Y/Y); Citrix Cloud Paid Subscriber count was 9.4 million (+32% Y/Y); future committed revenue of $2.94 billion (+18% Y/Y).

• The results reflected strong demand for Citrix Workspace and accelerating adoption of Citrix Cloud.

• With Q4 marking the end of broad availability of perpetual Citrix Workspace licenses, subscription bookings increased to 95% of Workspace product bookings compared to 73% in the prior year period.

• Q1 guidance for revenue of $785.0-$795.0 million and non-GAAP EPS of $1.40-$1.45 was mixed relative to Street expectations for revenue of $788.1 million and non-GAAP EPS of $1.47.

• Management’s FY ’21 guidance does not yet reflect any impact from the acquisition of Wrike, which is expected to close in 1H ’21, and includes revenue $3.33-$3.36 billion and non-GAAP EPS of $6.20-$6.40.

Notable News

PTC Completes Acquisition of Arena Solutions

• PTC (PTC) has completed its acquisition of Arena Solutions.

• With the addition of Arena Solutions to its SaaS business unit, long-time global sales leader Mike DiTullio has been tapped to lead the expanded business unit and Jamie Pappas has been promoted to Head of Global Sales.

• PTC also indicated that ARR growth for its Q1 ’21 is expected to be near the high-end of its guidance for 9%-12%.