K. Liu's Week in Review

Happy New Year! We issued our first report in 2021 on CTG, Inc. (CTG) as the company’s multi-year renewal of a contract with its largest customer and a slew of insider buying over the past two months provided us with greater confidence in the potential for further gains going forward. Our report, “Introducing FY ’22 Estimates; Raising Price Target from $7.25 to $8.25,” highlights our belief that CTG’s focus on its Solutions business will yield accelerating top line growth and better operating leverage in the years to come. With shares still trading at a substantial discount to peers, we also see ample room for multiple expansion.

In the first significant transaction of the new year, F5 Networks (FFIV) agreed to acquire Volterra for $440 million in cash and $60 million in deferred compensation and assumed unvested incentive compensation. Volterra’s edge-as-a-service platform is used by over 50 enterprise customers today to manage distributed apps and services across cloud and edge environments. Strategically, the combination marks the inception of F5’s Edge 2.0 platform, which management contends will be differentiated from offerings currently available from content delivery network providers due to a security first posture, the ability to build an app once and deploy anywhere, and unlimited scale. Although Volterra is expected to contribute less than $10 million in revenue to FY ’21, management believes the opportunity for F5 to now offer its 18,000 enterprise customers application security at the edge will accelerate revenue growth both in the near and long-term. In this regard, management raised its targeted CAGR in revenue from 6%-7% to 7%-8% through FY ’22 and increased its long-term CAGR in revenue to double-digits from 8%-9% previously. Other targets pertaining to operating leverage, non-GAAP EPS growth and anticipated share repurchases remain unchanged. F5 also pre-announced Q1 ’21 revenue and non-GAAP EPS ahead of its original guidance.

As for the first earnings release of the year, Duck Creek Technologies (DCT) delivered fiscal Q1 ’21 results ahead of expectations. Citing ongoing market momentum for its SaaS offering, the company signed four new Duck Creek OnDemand deals in its seasonally slowest quarter and tacked on another four add-on product sales. SaaS net dollar retention was at the high-end of the 113%-118% range seen in the past two years. Both adjusted EBITDA and non-GAAP EPS beat as gross margin benefited from the timing of expenses, earlier revenue recognition associated with certain contracts and higher than usual utilization within the services organization. Although these factors will result in a step down in gross margin during Q2, the strong start to the year and visibility into sizable engagements in 2H prompted management to raise its outlook for FY ’21.

Some notable changes in go-to-market leadership also occurred this week. At Alteryx (AYX), Dean Darwin was appointed Chief Revenue Officer, succeeding Scott Jones, who is leaving the company to pursue other opportunities. Mr. Darwin joins Alteryx from Palo Alto Networks (PANW), where he served as Senior Vice President and General Manager and was responsible for the Prisma Business Unit. In conjunction with the appointment, Alteryx raised its Q4 ’20 revenue guidance but indicated that ARR at year-end was just shy of its original target. Anaplan (PLAN) appointed Bill Schuh, formerly Medallia’s (MDLA) EVP, Global Industry Sales, as Chief Revenue Officer, while BlackLine (BL) promoted Mark Woodhams to Chief Revenue Officer. Mr. Woodhams will now oversee the company’s partner channel and its subsidiary in Japan while continuing to lead worldwide sales. Finally, New Relic (NEWR) promoted Bill Staples to President and Chief Product Officer. Mr. Staples has held the latter role since joining the company last year and now has expanded responsibility for strategy, corporate development, marketing and technical support. He succeeds President and COO Michael Christenson, who will remain as COO through the end of FY ‘21 and continue as a strategic advisor and member of the Board beginning in FY ’22. Additionally, Steve Hurn, Executive Vice President of EMEA Sales, has been promoted to Executive Vice President of Worldwide Sales. Perhaps to assuage any concerns with regards to sales performance, New Relic indicated that revenue and ARR in its Q3 ’21 would exceed the high-end of management’s guidance.

Mergers and Acquisitions

F5 to Acquire Volterra to Create the First Edge 2.0 Platform for Enterprises and Service Providers

  • F5 Networks (FFIV) has agreed to acquire Volterra for $440 million in cash and $60 million in deferred consideration and assumed unvested incentive compensation.

  • Volterra provides a globally distributed application edge platform, which will enable F5 to create the first Edge 2.0 platform built for enterprises and service providers featuring industry-leading security, universal app delivery and unlimited scale.

  • Volterra has secured over 50 enterprise customers, including three of the top 15 telco service providers globally.

  • The acquisition is expected to contribute less than $10 million in revenue during FY ’21; however, F5 now anticipates a total revenue growth CAGR of 7%-8% through FY ’22, up from 6%-7% previously, and a long-term revenue growth target in the double-digits versus 8%-9% previously.

  • F5 also pre-announced Q1 ’21 revenue of $623-$626 million, exceeding its prior guidance for $595-$615 million, and non-GAAP EPS above the high-end of its prior guidance for $2.26-$2.38.

Earnings Releases

Duck Creek Technologies Announces First Quarter Fiscal 2021 Financial Results

  • Duck Creek Technologies (DCT) reported Q1 ’21 results above expectations and raised its outlook for FY ’21.

  • Revenue was $58.9 million (+26.5% Y/Y), above guidance for $55.0-$56.0 million and consensus of $55.6 million. Adjusted EBITDA was $3.6 million (6.2% margin), exceeding guidance for $0-$1.5 million and consensus of $0.8 million. Non-GAAP EPS of $0.02 beat guidance for $(0.01)-$0.00 and the Street’s $(0.01).

  • Key metrics: SaaS ARR was $103.9 million (+72% Y/Y); signed four new Duck Creek OnDemand deals and four OnDemand add-on product deals; SaaS net dollar retention rate was 118%.

  • Duck Creek had a strong sales performance driven by market momentum with its SaaS offering.

  • Gross margin in the quarter benefited from scale benefits and favorable timing as expenses ran lower and revenue from certain contracts was recognized earlier than anticipated.

  • Q2 guidance for revenue of $58.5-$59.5 million and adjusted EBITDA of $(2.5)-$(1.5) million was generally consistent with Street expectations for revenue of $58.7 million and adjusted EBITDA of $(1.2) million.

  • Management raised its FY ’21 revenue and adjusted EBITDA guidance from $244.0-$249.0 million and $3.0-$5.0 million, respectively, to $246.0-$251.0 million and $3.5-$5.5 million.

Notable News

Alteryx Appoints Dean Darwin as Chief Revenue Officer

  • Alteryx (AYX) has named Dean Darwin as Chief Revenue Officer, a role in which he will be responsible for worldwide sales, channels and all industry-specific go-to-market initiatives.

  • Mr. Darwin joins the company from Palo Alto Networks (PANW), where he served as Senior Vice President and General Manager and was responsible for the Prisma Business Unit.

  • Alteryx’s former President and Chief Revenue Officer, Scott Jones, is leaving the company to pursue other opportunities.

  • Alteryx also increased its Q4 ’20 revenue outlook from $146.0-$150.0 million to $155.0-$158.0 million but indicated that ARR at year-end is expected to be $492.0-$495.0 million versus guidance for $500.0 million.

Anaplan Appoints Bill Schuh as Chief Revenue Officer

  • Anaplan (PLAN) has appointed Bill Schuh as Chief Revenue Officer, a role in which he will manage the company’s global go-to-market organization and growth engine, including partnerships with global and regional systems integrators.

  • Mr. Schuh joins the company from Medallia (MDLA), where he most recently served as EVP, Global Industry Sales.

Mark Woodhams Promoted to Chief Revenue Officer

  • BlackLine (BL) has promoted its Senior Vice President of Global Sales, Mark Woodhams, to Chief Revenue Officer.

  • Mr. Woodhams has been with the company since 2018 and will now oversee BlackLine’s partner channel and its subsidiary in Japan while continuing to lead worldwide sales.

New Relic Promotes Bill Staples to President

  • New Relic (NEWR) has promoted Bill Staples to President and Chief Product Officer.

  • Mr. Staples joined New Relic in 2020 as Chief Product Officer and now has expanded responsibility for strategy, corporate development, marketing and technical support in addition to his existing leadership of the product organization.

  • Michael Christenson, President and Chief Operating Officer, will remain COO through the end of FY ’21 and will continue as a strategic advisor to Founder and CEO Lew Cirne and serve on the Board of Directors beginning in FY ’22.

  • Steve Hurn, Executive Vice President of EMEA Sales, has been promoted to Executive Vice President of Worldwide Sales.

  • New Relic also noted that revenue and ARR in Q3 ’21 will exceed the high-end of management’s original guidance.

Disclosure(s):

K. Liu & Company LLC has received compensation from CTG, Inc. (CTG) in the past 12 months for “Sponsored Research.”

Sponsored Research produced by the firm is paid for by the subject company in the form of an initial retainer and a recurring monthly fee. The analysis and recommendations in our Sponsored Research reports are derived from the same process and methodologies utilized in all of our research reports whether sponsored or not. The subject company does not review any aspect of our Sponsored Research reports prior to publication.

Software IndustryKevin LiuAYX, BL, CTG, DCT, FFIV, NEWR, PLAN