K. Liu's Week in Review
Although the software space proved relatively resilient throughout the COVID-19 pandemic, those serving highly affected industries like travel and hospitality were certainly not immune to the challenging environment. Just over a year later, the silver lining for companies like Agilysys (AGYS) is in the easier comparisons ahead. Agilysys serves the hospitality industry, enabling customers like casino and gaming venues; hotel, resort and cruise operators; and foodservice management groups to manage all aspects of their operations. While the company reported mixed fiscal Q4 ’21 results this week, management highlighted improving bookings trends and provided solid guidance for the coming year. During its March quarter, uncertainty abounded between the start of the year and the first three weeks of February, resulting in a modest top line miss relative to guidance. Since the last week of February, however, closure rates have increased markedly and sales activity, significant RFPs in-flight and the pipeline all remain at high levels. From a bookings standpoint, the improvement has been evident in moderating declines during Q4, which saw bookings at approximately 75% of year-ago levels whereas prior quarters saw bookings drop to roughly two-thirds of prior year levels. Moreover, the past 12 weeks have seen bookings reach approximately 85% of the best 12-week period over the past five years. Given these trends, management expressed confidence in better days ahead as it guided FY ’22 revenue in line with consensus and called for an adjusted EBITDA margin slightly above 15%.
Palo Alto Networks (PANW) also reported its fiscal Q3 results and much like its recent performances, a strong demand environment for security solutions and momentum in large transactions produced results ahead of expectations. Commentary on the near-term suggests the robust growth of late is sustainable as management indicated the company kicked-off Q4 with the largest next-generation security transaction in its history, increasing ARR by another $10 million relative to the end of Q3. One new development was the company’s decision to not move forward with an equity listing for its Cloud and AI Security (ClaiSec) segment, which has grown to a $735 million ARR business in 2.5 years but still requires significant investment. Per management, Palo Alto Networks has seen success in selling customers platforms spanning its various segments and creating an artificial separation may undermine that leverage. As far as when margins for the ClaiSec segment could inflect, management refrained from offering any specifics, simply noting that the current growth profile and market opportunity suggest further investments are in order.
Turning to M&A activity, Twilio (TWLO) agreed to acquire Zipwhip for $850 million in cash and stock. The move comes as messaging is increasingly a preferred channel for consumer engagement with brands. Zipwhip enables businesses to text enable their existing toll-free phone numbers to communicate with customers via SMS. Details regarding the expected contribution from Zipwhip were limited, although Twilio indicated the acquisition would be accretive to its revenue and gross margin. Worth noting, Twilio also reaffirmed its prior Q2 revenue guidance. In the observability space, Splunk (SPLK) was on the tape with its acquisition of TruSTAR, which offers a cloud-native Intelligence Platform used to integrate threat data from a variety of sources and to accelerate the time to detect and remediate any potential issues. The ability to ingest vast amounts of data and quickly derive actionable insights is part and parcel to the value an observability platform is supposed to deliver for customers, so the acquisition makes sense from a strategic standpoint. No disclosures regarding the anticipated financial impact were provided.
Mergers and Acquisitions
Splunk Announces Intent to Acquire TruSTAR
Splunk (SPLK) has agreed to acquire TruSTAR, which offers a cloud-native Intelligence Management platform that integrates threat data from a variety of sources and helps automate the detection and response to potential threats.
The acquisition further expands Splunk’s security capabilities and will enable customers to leverage a broader set of threat intelligence sources to accelerate the time to detect and remediate security issues.
Twilio (TWLO) has agreed to acquire Zipwhip for $850 million, split equally between cash and stock.
Zipwhip enables businesses to text enable their existing toll-free phone number to communicate with customers via SMS.
The acquisition strengthens Twilio’s existing messaging offerings at a time when messaging is becoming a preferred way for consumers to engage with brands and is expected to be modestly accretive to Twilio’s revenue and gross margin.
Twilio also reiterated its prior Q2 ’21 guidance for revenue of $591-$601 million, which does not include any impact from the acquisition.
Earnings Releases
Agilysys Reports Fiscal 2021 Fourth Quarter Revenue Of $36.3M
Agilysys (AGYS) reported mixed Q4 ’21 results and provided a mixed outlook for FY ’22.
Net revenue of $36.3 million (-8.4% Y/Y) was just shy of consensus of $36.7 million. Adjusted EBITDA of $7.1 million (19.4% margin) was in line with guidance and consensus of $7.0 million. Non-GAAP EPS of $0.21 beat the Street’s $0.16.
Key metrics: added 21 new customers and 41 new properties; closed 81 add-on sales.
January and the first three weeks of February presented ongoing challenges and uncertainties for the hospitality industry, which resulted in the slight revenue miss relative to expectations.
While many projects have yet to be implemented, FY ’21 ended up being a record sales year for SaaS products driven by both POS and PMS add-on modules.
The annual contract value of customer purchase agreements closed in Q4 increased to approximately 75% of prior year levels, and Agilysys has seen a major pickup in closure rates since the last week of February.
FY ’22 guidance for revenue of $160.0-$170.0 million and an adjusted EBITDA margin of slightly better than 15% (implies at least $24.0-$25.5 million in adjusted EBITDA) was mixed relative to Street expectations for $165.4 million in revenue and $27.0 million in adjusted EBITDA.
Palo Alto Networks Reports Fiscal Third Quarter 2021 Financial Results
Palo Alto Networks (PANW) reported Q3 ’21 results above expectations and guided Q4 ahead of consensus.
Revenue of $1.074 billion (+23.5% Y/Y) was above guidance for $1.050-$1.060 billion and consensus of $1.058 billion. Non-GAAP operating income was $182.3 million (17.0% margin), above consensus of $168.9 million. Non-GAAP EPS of $1.38 beat guidance for $1.27-$1.29 and the Street’s $1.28.
Key metrics: billings of $1.286 billion (+26.7% Y/Y) were above guidance for $1.220-$1.224 billion; ARR from next-generation security (NGS) offerings reached $970 million (+71% Y/Y); added 2,400 new customers.
A strong demand environment along with notable momentum in large transactions contributed to the outperformance.
Billings growth would have been nearly two percentage points higher if not for an uptick in annual billings plans during COVID, and NGS ARR was already $10 million higher on the first day of Q4 as the company transacted the largest NGS deal in its history.
Operating margin benefited from the revenue upside, lower travel and expenses due to COVID and some spending shifts out of Q3 but Palo Alto continues to invest aggressively in sales capacity and R&D.
Q4 guidance for revenue of $1.165-$1.175 billion and non-GAAP EPS of $1.42-$1.44 compared favorably with Street expectations for revenue of $1.161 billion and non-GAAP EPS of $1.42.
Notable News
PagerDuty (PD) has hired Timm Hoyt as Vice President of Partnerships, a role in which he will lead the company’s global partner and alliances organization.
Mr. Hoyt joins the company from Druva, where he was Global Vice President of Partner Sales and increased partner revenue from 9% of sales to over 80% of sales.