K. Liu's Week in Review
We attended the LD Micro Main Event, our first in-person investor conference since the start of the pandemic. Kudos to Chris Lahiji and team for hosting a great event. As for the companies we met, DHI Group (DHX) seems well positioned for the times given the challenges many are having with attracting talent to their organizations. Over the past three years, CEO Art Zeile has spearheaded the evolution of DHI Group’s core Dice platform from an online job board to a career marketplace for technologists. A refreshed marketing strategy and a ramp in sales reps have driven renewed bookings and revenue growth, which management believes can further accelerate into the double-digit range. Worth noting, over 90% of revenues are recurring and the company boasts a blended retention rate of 92%. Although the focus is clearly on growth, management also anticipates sustaining an adjusted EBITDA margin of 20% in the years to come. We also caught up with Crexendo (CXDO), a unified communications as a service vendor that up-listed to Nasdaq just over a year ago and recently acquired NetSapiens, the fourth largest cloud-native communications platform. Although churn among its smallest customers was elevated amid the pandemic, new sales and customer adoption have steadily improved and should enable Crexendo to return to its prior growth rates in the 20%-25% range. Regarding NetSapiens, the acquisition not only brings a new customer set to the company but also represents a fishing pond of sorts for potential M&A opportunities. Management has yet to share specifics around cost synergies but initiatives around platform and data center consolidation coupled with the elimination of redundant operational costs should boost operating leverage over time.
In a somewhat surprising development, QAD (QADA) delayed its special meeting of stockholders to vote on its proposed sale to Thoma Bravo from October 15, 2021 to November 2, 2021. A court ordered limited injunction was the impetus for the delay. For background, Nantahala Capital Partners filed suit against the company alleging that founder and controlling shareholder Pamela Lopker and QAD’s Board of Directors have misled minority stockholders about the deal and violated a Charter provision that precludes Class B shareholders from receiving more favorable consideration than Class A shareholders in any merger. Thus far, QAD has issued a series of supplemental proxy disclosures in response. We still believe a sale to Thoma Bravo is the likely outcome but now wonder whether a sweetened offer to Class A shareholders is in the cards.
Turning to other notable deal announcements, Emerson (EMR) and AspenTech (AZPN) agreed to combine the former’s industrial software businesses with AspenTech to create a high-performance industrial software leader. Emerson will own 55% of new AspenTech and in exchange, AspenTech’s shareholders will receive $87.00 per share in cash and 0.42 shares in new AspenTech for each AZPN share owned. The implied consideration of $160.00 per share represents a 27.5% premium to AspenTech’s last closing price before media speculation of a potential transaction and equates to TTM EV/Sales, EV/EBITDA and P/E multiples of 15.4x, 26.8x and 30.8x, respectively. New AspenTech is expected to have FY ’22 revenues of $1.1 billion and adjusted EBITDA of $490 million, while posting double-digit annual spend growth through 2026. Separately, Brightcove (BCOV) announced a tuck-in technology deal for HapYak, which will enable its customers to add interactivity to virtually any video. By incorporating features such as clickable hotspots, quizzes, choose-your-adventure paths and other calls to action within videos, marketers and other corporate users can gather additional insight into viewer engagement and sentiment.
On the earnings front, E2open (ETWO) reported Q2 ’22 results above expectations and raised its adjusted EBITDA guidance for the year. Management indicated that the company outperformed on all measures and achieved double-digit organic growth a quarter earlier than anticipated. The increasing complexity of supply chains and highly visible challenges at present continue to fuel pipeline growth, and both conversion rates and average selling prices are expanding meaningfully. In regards to its integration of BluJay, management upped its estimate of anticipated synergies from $20 million to $25 million.
Mergers and Acquisitions
Brightcove Boosts Video Interactivity by Acquiring HapYak Best-in-Class Technology from Newsela
Brightcove (BCOV) plans to acquire HapYak’s technology, brand and customer relationships from Newsela, a leading K-12 instructional content platform.
The integration of HapYak’s technology will enable Brightcove users to quickly and easily incorporate interactive features such as clickable hotspots, quizzes, choose-your-adventure paths and other calls to action into any video.
Emerson (EMR) and AspenTech (AZPN) have agreed to combine Emerson’s industrial software businesses, OSI Inc. and the Geological Simulation Software business, with AspenTech to create a high-performance industrial software leader.
In exchange for a 55% stake in new AspenTech, Emerson will also contribute $6.0 billion in cash.
All told, AspenTech shareholders will receive total consideration of $160.00 per share, comprised of $87.00 per share in cash and 0.42 shares of common stock in new AspenTech for each share AspenTech owned.
The implied per share consideration represents a premium of 27.5% to AZPN’s closing price on October 6, 2021, the last trading day before reports of a potential transaction surfaced in the media, and values AZPN at TTM EV/Sales, EV/EBITDA and P/E multiples of 15.4x, 26.8x and 30.8x, respectively.
New AspenTech is expected to have FY ’22 revenues of $1.1 billion and adjusted EBITDA of $490 million, while posting double-digit annual spend growth through 2026.
Management expects the new company to achieve $110 million in total EBITDA synergies, of which $40 million will come from cost savings and the remainder from leveraging Emerson’s installed base and salesforce.
AspenTech also pre-announced Q1 ’22 annual spend of $629 million (+5.5% Y/Y).
Earnings Releases
E2open Announces Fiscal Second Quarter 2022 Financial Results
E2open (ETWO) reported Q2 ’22 results above expectations and raised its adjusted EBITDA guidance for FY ’22.
Non-GAAP revenue was $92.3 million (+12.8% Y/Y), above consensus of $90.4 million. Adjusted EBITDA was $33.5 million (36.3% margin), ahead of consensus of $30.2 million. EPS of $(0.11) missed the Street’s $(0.05).
Management characterized Q2 as a blockbuster quarter as E2open exceeded its targets across the board and achieved double-digit organic growth a quarter earlier than anticipated.
The trend towards more complex supply chains is accelerating, which combined with a myriad of supply chain challenges in the headlines, are prompting companies to adopt better software.
E2open’s pipeline continues to grow and its conversion rate and average selling price are meaningfully expanding.
Key initiatives to drive growth, which include bundling and packaging solutions more effectively, building a new logo sales team, developing and signing strategic partnerships and monetizing the company’s network, are already paying dividends.
Synergies from the combination with BluJay are now projected to be $25 million, above prior expectations for $20 million.
Management reaffirmed its non-GAAP revenue guidance of $470-$474 million, which was provided in conjunction with the closing of the BluJay acquisition, and raised its adjusted EBITDA guidance from $158 million to $161-$163 million.
Over the long-term, management believes E2open can sustain low double-digit growth and a mid-30% EBITDA margin.
Notable News
QAD Inc. Announces Intention to Adjourn Special Meeting of Stockholders to November 2
QAD (QADA) plans to adjourn its October 15, 2021 special meeting of stockholders to vote on the company’s proposed sale to Thoma Bravo and will reconvene the meeting on November 2, 2021.
The action was taken following a Court ordered limited injunction until at least twenty days after QAD issued two corrective disclosures related to the background of the transaction.
Our report with disclosures is available here.
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 Brightcove (BCOV).