K. Liu's Week in Review
Software stocks were largely in the red this week, but we were encouraged to see Stamps.com (STMP) double the size of its current share repurchase authorization to $120 million in response to the market volatility of late. We believe the move validates our view that the sell-off in shares since the company’s Q4 ’20 earnings release has been unwarranted and presents an attractive buying opportunity. Worth noting, the revised six-month repurchase plan is 3x the amount authorized at this point last year and is above the $90 million authorization instituted on several occasions in the years prior to the end of Stamps.com’s exclusivity with the United States Postal Service (USPS). Separately, the USPS’ monthly data for January, which was released last week, reflected a 31% Y/Y increase in PC Postage revenue. We had assumed growth would be higher given management’s earlier commentary that shipping volumes across all carriers rose 40% in January. While the cumulative growth across all carriers is likely the more important metric as Stamps.com no longer relies solely upon the USPS to monetize shipping volumes, we tend to index our estimates on growth in USPS volumes given the frequency and specificity of the data provided as well as the significance of the relationship to the company’s results. As such, we would need to see only modest levels of decelerating growth in the February data to feel confident that the company has a shot at outperforming expectations once again. In other words, a beat in Q1 is far from a foregone conclusion at this juncture. Finally, in response to a FOIA request we submitted earlier this year, we learned that the agreement governing the sharing and allocation of credit card fees paid by Stamps.com and the USPS was renewed through September 2023. In each of the past two years, the agreement was only extended for a one-year term despite Stamps.com’s preference for a multi-year agreement. This extension coupled with the USPS reseller agreements instituted last year provide us with incremental confidence that unexpected changes to the company’s key partnerships are less of a risk than in years prior.
With sentiment in the software space a bit dour, those reporting positive results and guidance missed out on the usual post-earnings pop and those that disappointed experienced a more meaningful downdraft in shares. In the former camp, Zoom Video Communications (ZM) was the poster child with shares declining 10% this week despite another massive beat and an outlook well above Street expectations. Given the valuation afforded to shares, however, we doubt the market has overlooked Zoom’s impressive fundamentals. In contrast, we believe Box (BOX) has yet to be rewarded for meaningful strides made in its efforts to boost growth and profitability. The company topped Street expectations for its fiscal Q4 and guided FY ’22 ahead of consensus. Near-term, management anticipates high-teens billings growth in Q1 and expects billings growth for the full year to outpace the 10% increase in revenue reflected at the high-end of guidance. Should Box ultimately deliver accelerating billings growth this year, we believe the company would be well on its way to achieving its FY ’24 targets for revenue growth of 12%-16% and a non-GAAP operating margin in the mid-20% range.
As far as companies that disappointed, Kinaxis (KXS-CA) and Medallia (MDLA) were both down over 20% for the week due to the lower growth expectations implied in their respective full year outlooks. Kinaxis cited delays in deal closures experienced in mid-2020 as the culprit behind the anticipated dip in SaaS revenue growth to 17%-19% in 2021 but expressed confidence that growth would return to prior mid-term targets for 23%-25% in 2022. At Medallia, growth continues to be hampered by concessions provided to certain customers throughout the pandemic, although management’s guidance suggests improving trends as the year progresses. Medallia also remains acquisitive, agreeing to buy Decibel for $160 million in cash. The acquisition is expected to contribute just $8 million to subscription revenue in FY ’21 but adds another signal, namely unsolicited digital feedback, that can be captured and analyzed by customers to improve the performance of their apps and websites. Other notable deals this week include Twilio’s (TWLO) $750 million minority investment in Syniverse, Descartes’ (DSGX) $36 million acquisition of QuestWeb, Upland Software’s $54 million purchase of Blue Venn, and Wix’s (WIX) acquisition of SpeedETab to expand its restaurant capabilities.
In yet another sign that capital market conditions are shifting, the seemingly insatiable appetite for convertible notes paying little to no interest appears to be waning. Earlier in the week, Ceridian (CDAY) and Fastly (FSLY) priced offerings of $500 million aggregate principal amount of 0.25% convertible senior notes due 2026 and $825 million aggregate principal amount of 0% convertible senior notes due 2026, respectively, with initial conversion prices representing premiums of 42% and 33% to the unaffected close price prior to disclosure of the offerings. Of note, Fastly’s offering was actually upsized from initial plans to offer $750 million aggregate principal amount of notes. By week’s end, however, Tyler Technologies (TYL) scrapped its intention to offer $1 billion aggregate principal amount of convertible senior notes due 2026 and another $600 million aggregate principal amount of convertible senior notes due 2028. Instead, Tyler priced an offering of $525 million aggregate principal amount of 0.25% convertible senior notes due 2026 with an initial conversion price just 12% above the unaffected close price before disclosure of the planned $1.6 billion offering.
Mergers and Acquisitions
Descartes Systems Group (DSGX) has acquired QuestWeb for $36 million in cash.
Descartes plans to integrate QuestaWeb’s solutions, which enable logistics services providers and importers to automate processes and comply with regulatory requirements for operating foreign trade zones in the U.S., with its forwarder and customs broker back-office platform.
Medallia to Acquire Decibel, Leader in Digital Experience Analytics
Medallia (MDLA) has agreed to acquire Decibel, which provides customers with a digital experience analytics solution used to identify potential problem areas on websites and apps, for $160 million in cash.
The acquisition adds another signal, namely unsolicited digital feedback, that can be captured and analyzed by customers.
Decibel is expected to add $1 million and $8 million, respectively, to Medallia’s Q1 and FY ’22 subscription revenue.
Twilio (TWLO) has agreed to invest up to $750 million in Syniverse, becoming a significant minority owner of the company.
Syniverse is one of the largest private IP Packet Exchange (IPX) providers and offers secure networking and connectivity solutions to mobile network operators and enterprises.
The companies have entered into a wholesale agreement in which Syniverse will process, route and deliver application-to-person (A2P) messages originating and/or terminating between Twilio’s customers and mobile network operators.
Upland Software Acquires Blue Venn
Upland Software (UPLD) has acquired BlueVenn, which offers a cloud-based customer data platform, for $51.9 million in cash paid at closing and a $2.4 million cash holdback payable in 12 months.
BlueVenn enables customers to securely access all of their online and offline consumer data sources in one centralized location, resulting in better customer engagement across all digital channels.
The acquisition is expected to generate annual revenue of $15.5 million and adjusted EBITDA of at least $6.8 million.
Management’s Q1 and FY ’21 guidance now calls for revenue of $71.5-$75.5 million and $299.0-$311.0 million, respectively, and adjusted EBITDA of $21.6-$23.6 million and $94.4-$100.4 million.
Wix Acquires SpeedETab to Strengthen Wix Restaurant Capabilities
Wix (WIX) has acquired SpeedETab, an ordering and payment technology provider to the restaurant industry.
The acquisition enhances Wix Restaurants by enabling integration with various restaurant POS systems, which in turn will allow restaurant owners to manage both online and offline orders in one place.
Wix Restaurants has grown its user base dramatically in the last two years with monthly new sign-ups now in the tens of thousands, orders increasing by 378% and GPV rising 449%.
Earnings Releases
AppFolio, Inc. Announces Fourth Quarter and Fiscal Year 2020 Financial Results
AppFolio (APPF) reported Q4 ’20 results below expectations.
Revenue was $72.4 million (+7.5% Y/Y), slightly below consensus of $73.6 million. Non-GAAP operating income was $(0.5) million, below consensus of $2.8 million. EPS of $(0.01) missed the Street’s $0.07.
Key metrics: 15,724 property management customers (+9% Y/Y); 5.36 million property management units under management (+16% Y/Y); dollar-based net expansion rate was 112%.
Value+ services are typically subject to some seasonality in Q4 due to certain leasing-related services provided to property management customers and that was again the case in 2020.
Expansion of AppFolio Property Manager PLUS, which is targeted at larger customers managing distributed teams and portfolios across multiple regions, is a key area of focus for the company.
AppFolio hopes to transition back to in-person work during FY ’21 and has continued to invest in its physical office locations, building-out in Santa Barbara, expanding its Dallas location and signing a new lease in San Diego.
Due to limited visibility in the current environment, no guidance was provided for FY ’21.
Box Reports Fiscal Year 2021 Revenue of $771 Million, Up 11 Percent Year Over Year
Box (BOX) reported Q4 ’21 results above expectations and guided FY ’22 ahead of consensus.
Revenue of $198.9 million (+8.3% Y/Y) was above guidance for $196.0-$197.0 million and consensus of $196.5 million. Non-GAAP operating income was $36.4 million (18.3% margin), exceeding consensus of $29.9 million. Non-GAAP EPS of $0.22 beat guidance for $0.16-$0.18 and the Street’s $0.17.
Key metrics: billings were $310.1 million (+10% Y/Y); closed 121 deals over $100,000 (+8% Y/Y); net retention rate of 102%; remaining performance obligations of $896.9 million (+17% Y/Y).
Strength in Q4 was driven by the success of Box Suites, which saw a 45% attach rate in six-figure deals; the company’s ELA licensing model; and a significant improvement in the closure of deals over $100,000.
Management believes the company’s existing base provides for a 7x potential increase in seats via upselling.
Box Sign will be generally available this summer and will be integrated into existing subscription plans, providing all customers with access to e-signature capabilities while enabling Box to monetize higher-end use cases such as APIs.
Management anticipates low-teens growth in the quota-carrying sales force in FY ’22
Box achieved its goal of reaching a revenue growth rate plus free cash flow margin of 25.0% in FY ‘21, delivering 26.3% versus 13.4% last year, and remains committed to achieving 30.0% this year.
Q1 guidance for revenue of $200.0-$201.0 million and non-GAAP EPS of $0.16-$0.17 compared favorably with Street expectations for revenue of $199.1 million and non-GAAP EPS of $0.16.
Management’s FY ’22 guidance includes revenue and non-GAAP EPS of $840.0-$848.0 million and $0.76-$0.81, respectively, ahead of Street expectations for $839.8 million and $0.76.
Guidewire Software Announces Second Quarter Fiscal Year 2021 Financial Results
Guidewire Software (GWRE) reported Q2 ’21 results above expectations and reaffirmed its ARR guidance for FY ’21.
Revenue was $180.1 million (+3.8% Y/Y), above guidance for $168.0-$172.0 million and consensus of $170.3 million. Non-GAAP operating income was $7.5 million (4.1% margin), exceeding guidance for $(5.0)-$(1.0) million and consensus of $(2.0) million. Non-GAAP EPS of $0.11 beat the Street’s $(0.01).
Key metrics: ARR was $520 million (+10% Y/Y); 12 customer go-lives spanning 35 products.
In Q2, Guidewire saw strong deal momentum, closing five InsuranceSuite Cloud wins, one InsuranceNow win, and two self-managed deals.
Sales activity for Guidewire Analytics was also strong both in terms of driving core deals and on a standalone basis.
The Guidewire partner ecosystem continues to build with over 12,000 consultants focused on the company’s solutions, nearly 1,200 consultants with advanced certifications and over 690 applications offered by marketplace partners.
Q3 guidance for revenue of $155.0-$159.0 million and non-GAAP operating income of $(29.0)-$(25.0) million was short of Street expectations for $166.7 million and $(14.8) million, respectively.
Management reaffirmed prior FY ’21 expectations for ARR of $560.0-$571.0 million and increased its guidance for revenue and non-GAAP operating income from $723.0-$733.0 million and $(5.0)-$5.0 million, respectively, to $725.0-$733.0 million and $2.0-$10.0 million.
Kinaxis Inc. Reports Fourth Quarter 2020 Results
Kinaxis (KXS-CA) reported mixed Q4 ’20 results and guided FY ’21 below consensus.
Revenue of $54.9 million (-2.4% Y/Y) was above consensus of $53.9 million. Adjusted EBITDA was $6.1 million (11.1% margin), below consensus of $7.3 million. Non-GAAP EPS of $0.12 missed consensus by a penny.
Key metrics: backlog of $381 million (+12% Y/Y), including SaaS revenue backlog of $353 million (+14% Y/Y); bookings were $61.5 million, including SaaS bookings of $58.4 million.
Although deal delays surfaced in mid-2020, Q4 saw the return to very strong momentum as Kinaxis achieved its second highest quarterly incremental bookings performance ever and won a record number of new accounts.
The RapidStart program is seeing momentum as customers can start with smaller initial deals that deliver a rapid return on investment and expand their deployments over time.
Nearly half of account executives now have over 18 months of experience, an important milestone as sales cycles typically span 12 to 18 months.
Pipeline at year-end was up 40% from the prior year, leaving management confident in achieving its target of 23%-25% SaaS growth in the mid-term, but SaaS growth in 2021 will be impacted by the deal delays seen in 2020.
Management’s FY ’21 guidance includes revenue of $242.0-$247.0 million and an adjusted EBITDA margin of 11%-14%, implying adjusted EBITDA of $26.6-$42.0 million, falling short of Street expectations for $257.2 million in revenue and $61.0 million in adjusted EBITDA.
Medallia Reports Record Fourth Quarter Fiscal 2021 Revenue
Medallia (MDLA) reported Q4 ’21 revenue above expectations and issued mixed guidance for FY ’22.
Revenue was $128.0 million (+16.3% Y/Y), above guidance for $123.5-$125.5 million and consensus of $124.6 million. Non-GAAP operating income was $0.5 million (0.4% margin), within guidance for $0.2-$0.7 million but shy of the Street’s $0.7 million. Non-GAAP EPS of $(0.01) were in line with consensus.
Key metrics: added 67 new enterprise logos for a total of 1,070 enterprise customers (+40% Y/Y); nearly 1,800 customers at quarter-end; dollar-based net retention rate was 115%; 172 customer go-lives; total RPO was $800 million (+18% Y/Y).
Medallia has seen momentum in the mid-market, which has increased the number of customers in that segment by 75% to 700 in the past two quarters and has driven an increase in the average selling price to $250,000.
Contract modifications in Q4 totaled $5 million, bringing the total amount of modifications for the full year to $10 million.
Management’s top priority is to accelerate subscription growth and to that end, investments in products and go-to-market capability will continue in FY ‘21.
Q1 guidance for revenue of $126.0-$128.0 million and non-GAAP operating income of $(12.0)-$(11.0) million was short of Street expectations for revenue of $128.5 million and non-GAAP operating income of $2.0 million.
Management’s FY ’22 guidance calls for revenue and non-GAAP operating income of $563.0-$567.0 million and $(22.0)-$(20.0) million, respectively, which was mixed relative to consensus of $554.8 million and $16.4 million.
Qumu Reports Fourth Quarter and Full Year 2020 Financial Results
Qumu (QUMU) reported Q4 ’20 results in line with expectations and reaffirmed its prior growth outlook for FY ’21.
Revenue of $6.9 million (+10.5% Y/Y) was in line with guidance and consensus. Adjusted EBITDA was $(1.1) million, consistent with consensus of $(1.0) million. EPS of $(0.29) were below consensus of $(0.23).
Key metrics: subscription ARR of $11.6 million (+29% Y/Y); gross renewal rate of 94%; net renewal rate of 128%; dollar value retention of 103%.
In Q4, Qumu added nine new cloud customers, won one on-premise customer and converted one customer to the cloud.
Management expects the trend of permanently remote and hybrid work will continue in 2021 along with growth in the enterprise use of video.
Qumu has historically targeted large enterprise companies with over 50,000 employees and is now making an effort to expand into the mid-market with offerings targeted at small and medium-sized enterprises with over 1,000 employees.
As part of its “Work from Wherever, Forever” initiative, Qumu has eliminated dedicated office space and has entered into flexible shared workspace arrangements in London and Minneapolis, finalized its shared office workspace arrangement in Hyderabad and expanded its company-wide home office program.
Management reaffirmed prior expectations for FY ’21 revenue growth of at least 20%, implying total revenue of $35.0 million versus consensus of $34.2 million.
Splunk Inc. Announces Fiscal Fourth Quarter and Full Year 2021 Financial Results
Splunk (SPLK) reported Q4 ’21 results above expectations but guided Q1 below consensus.
Revenues of $745.1 million (-5.8% Y/Y) exceeded guidance for $650.0-$700.0 million and consensus of $686.1 million. Non-GAAP operating income of $98.6 million (13.2% margin) exceeded consensus of $13.9 million. Non-GAAP EPS of $0.38 beat the Street’s $0.04.
Key metrics: Total ARR of $2.36 billion (+41% Y/Y), including Cloud ARR of $810 million (+83% Y/Y); 510 customers with ARR over $1 million (+44% Y/Y); TTM dollar-based net retention rate of 129%; RPO of $2 billion (+10% Y/Y).
Over half of software bookings came from cloud as Splunk continues to see impressive results from its cloud-first initiative.
Q4 procurement patterns were more similar to Splunk’s experience in Q1 and Q2, and several transactions that slipped from Q3 were closed in the quarter.
The term business is expected to remain volatile as customers remain cautious about making long-term commitments amid the pandemic, but management continues to expect the cloud business to ramp quickly.
Q1 guidance for revenues of $480.0-$500.0 million and a non-GAAP operating margin of (30.0)%, which implies non-GAAP operating income of $(150.0)-$(144.0) million, fell short of Street expectations for $507.3 million in revenue and $(108.2) million in non-GAAP operating income.
Yext, Inc. Announces Fourth Quarter and Full Year Fiscal 2021 Results
Yext (YEXT) reported Q4 ’21 results above expectations but provided a mixed outlook for FY ’22.
Revenue of $92.2 million (+13.3% Y/Y) was above guidance for $87.0-$89.0 million and consensus of $89.1 million. Non-GAAP operating income was $(0.7) million, above consensus of $(8.9) million. Non-GAAP EPS of breakeven beat guidance for $(0.10)-$(0.08) and the Street’s $(0.08).
Key metrics: ARR of $354 million (+8% Y/Y); over 2,400 customers (+21% Y/Y); 550 direct customers with over $100,000 in ARR (+12% Y/Y); TTM net dollar-based retention was 102%; remaining performance obligations of $352 million.
Yext had a solid Q4 driven by renewed strength in EMEA and a solid second half for the mid-market business.
Listings was the product most affected by the pandemic but still saw ARR growth last year, and Answers continued to exhibit strong momentum with 130 deals closed in Q4.
Q1 guidance for revenue of $87.0-$89.0 million and non-GAAP EPS of $(0.07)-$(0.05) was mixed relative to Street expectations for revenue of $95.0 million and non-GAAP EPS of $(0.06).
Management’s FY ’22 outlook includes revenue and non-GAAP EPS of $375.0-$380.0 million and $(0.22)-$(0.17), respectively, which was also mixed versus consensus of $411.0 million and $(0.18).
Zoom Video Communications Reports Fourth Quarter and Fiscal Year 2021 Financial Results
Zoom Video Communications (ZM) reported Q4 ’21 results above expectations and guided FY ’22 ahead of consensus.
Revenue of $882.5 million (+369% Y/Y) exceeded guidance for $806.0-$811.0 million and consensus of $811.8 million. Non-GAAP operating income was $360.9 million (40.9% margin), well above guidance for $243.0-$248.0 million and consensus of $244.5 million. Non-GAAP EPS of $1.22 beat guidance for $0.77-$0.79 and the Street’s $0.79.
Key metrics: 467,100 customers with over 10 employees (+470% Y/Y); 1,644 customers with TTM revenue over $100,000 (+156% Y/Y); TTM net dollar expansion rate was over 130%.
Outperformance in Q4 was attributed to strong sales and marketing execution across the online, direct and channel businesses as well as lower than anticipated churn.
Zoom’s evolution from a video communications app to a video communications platform is expected to strengthen its position in the new normal given its ability to provide customers with more integrated collaboration and productivity tools.
Zoom Phone now has 18 customers with over 10,000 paid seats and roughly 10,700 customers with over 10 employees.
Q1 guidance for revenue of $900.0-$905.0 million, non-GAAP operating income of $295.0-$300.0 million and non-GAAP EPS of $0.95-$0.97 exceeded Street expectations for $804.8 million, $230.9 million and $0.72, respectively.
Management’s FY ’22 guidance calls for revenue, non-GAAP operating income and non-GAAP EPS of $3.760-$3.780 billion, $1.125-$1.145 billion and $3.59-$3.65, respectively, above consensus of $3.524 billion, $968.1 million and $2.96.
Notable News
Ceridian Announces Pricing of Private Offering of Senior Unsecured Convertible Notes
Ceridian HCM Holdings (CDAY) priced an offering of $500 million aggregate principal amount of 0.25% senior unsecured convertible notes due 2026 with an initial conversion price of $132.20, a 42.3% 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 $75 million in aggregate principal amount of the notes.
Net proceeds from the offering will be used to repay $295 million in debt and accrued interest under the company’s senior credit facilities and for general corporate purposes.
Fastly Prices $825 Million 0% Convertible Senior Notes Offering (up 45% Conversion Premium)
Fastly (FSLY) priced an offering of $825 million aggregate principal amount of 0% Convertible Senior Notes due 2026 with an initial conversion price of $102.80 per share, a 33% premium to the close price prior to disclosure of the offering.
The offering was upsized from initial plans to offer $750 million aggregate principal amount of notes, and Fastly has granted the initial purchasers an option to purchase up to an additional $123.75 million aggregate principal amount of notes.
Net proceeds from the offering will be used for working capital and other general corporate purposes.
Kinaxis CFO to Retire August 1, Ensuring Seamless Transition to Current EVP, Finance
Kinaxis (KXS-CA) announced the retirement of Richard Monkman, Chief Financial Officer and Vice President, Corporate Services, effective August 1, 2021.
Blaine Fitzgerald, the company’s Executive Vice-President, Finance, will succeed Mr. Monkman as CFO.
Mr. Fitzgerald joined the company in March 2020 from Shopify, where he served as Vice-President of Finance, as part of a planned transition into the CFO role.
Qumu Hires Chief Revenue Officer to Drive Global Revenue Growth
Qumu (QUMU) has appointed Lauren Goldstein as Chief Revenue Officer, a role in which she will lead the company’s global sales organization.
Ms. Goldstein joins the company from ANNUITAS, where she also served as Chief Revenue Officer.
Stamps.com Doubles Current Share Repurchase Program to $120 Million
Stamps.com (STMP) has increased its share repurchase authorization, which expires in August 2021, from $60 million to $120 million in response to heightened market volatility.
Tyler Technologies, Inc. Prices Offering of $525 Million Convertible Senior Notes due 2026
Tyler Technologies (TYL) priced an offering of $525 million aggregate principal amount of 0.25% convertible senior notes due 2026 with an initial conversion price of $493.44, a 12% premium to the close price prior to the announced offering.
The initial purchasers of the notes have been granted a 13-day option to purchase up to an additional $75 million aggregate principal amount of notes.
Tyler had originally planned to offer $1 billion aggregate principal amount of convertible senior notes due 2026 and $600 million aggregate principal amount of convertible senior notes due 2028.
Net proceeds from the offering will be used to fund the acquisition of NIC Inc.
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 Stamps.com (STMP).