K. Liu's Week in Review

We have several new data points to discuss that are relevant to Stamps.com (STMP). First, monthly data from the United States Postal Service exhibited the first meaningful decline in PC Postage revenue since the start of the pandemic, falling 21% Y/Y in May. The decrease is neither surprising nor concerning considering the challenging year-ago comparison but following a rather benign 6% Y/Y drop in April, we had hoped for a more moderate decline to instill confidence in the Street’s near-term expectations. With PC Postage revenue down 14% Y/Y through the first two months of Q2 ’21, we think the current consensus estimates remain well within reach but acknowledge that the outlook moving forward remains murky. Worth noting, our Q2 estimates, which sit above Street expectations, are predicated in part on assumptions for a 15% Y/Y decrease in PC Postage revenue. Whether the declines begin to moderate in June is anyone’s guess but the shift in Amazon’s Prime Day from October last year to June this year should provide some benefit at the very least. In this regard, Amazon announced that this year’s event produced the biggest two-day period ever for its third-party sellers. Moreover, a two-week promotion leading into Prime Day 2021 generated a 100% Y/Y increase in sales for small business sellers relative to the promotional period heading into last year’s Prime Day. Separately, we note that FedEx reported a strong finish to its FY ’21, highlighting continued strong growth in e-commerce led by small and medium businesses in the U.S. and guiding for further growth in the year ahead. Considering FedEx’s fiscal year ended in May, the strong results and outlook for growth paint a brighter picture with respect to the sustainability of increased e-commerce volumes in the near-term and raises questions as to whether the decline in PC Postage may be related to other factors such as the impact of mailers returning to the office or market share shifts among the carriers.

On the earnings front, BlackBerry (BB) posted mixed results while Progress (PRGS) delivered another beat and raise. For the former, stronger than anticipated licensing revenue produced a top line beat but go-to-market investments expected to fuel strong bookings growth in the latter half of the year weighed on profitability. Reflecting the timing of sales hires in its Cyber Security business unit, management also indicated that revenue was likely to come in at the lower end of its prior FY ’22 guidance. At Progress, increased demand for IT and infrastructure products created a tailwind for nearly all products but OpenEdge and Chef were the standouts from a growth perspective. Management also stated that expense synergies related to Chef have been fully realized months ahead of plan.

As for other notable developments, SharpSpring (SHSP) agreed to be acquired by Clearlake Capital and Siris Capital-backed Constant Contact for $17.10 per share in cash. The purchase price represents a 21% premium to the closing price prior to the announcement and values SharpSpring at a TTM EV/Sales multiple of 7.2x. Upland Software (UPLD) acquired Panviva, which offers an enterprise knowledge platform enabling customers to provide contact center agents with key information and guided workflows, for $24.3 million in cash. Panviva is expected to generate annual revenue of $7.5 million and adjusted EBITDA of at least $3.4 million once fully integrated. Private equity firm Silver Lake invested $1 billion in Splunk (SPLK) via 0.75% convertible senior notes due July 2026 with an initial conversion price of $160.00, a 27.5% premium to the prior day’s closing price. Splunk plans to use the proceeds to fund its growth initiatives and has also authorized a new $1 billion share repurchase program. Finally, Synchronoss Technologies (SNCR) priced an offering of approximately 38.5 million shares at a price of $2.60 per share, a 10.7% discount to the close price prior to disclosure of the offering. Net proceeds will be used to fully redeem the company’s outstanding Series A Convertible Participating Perpetual Preferred Stock and to repay amounts outstanding under its revolving credit facility. In addition, Synchronoss priced an offering of $125 million aggregate principal amount of 8.375% senior notes due 2026. Concurrent with the closing of these offerings, B. Riley Principal Investments will purchase $75 million of Synchronoss’ Series B Preferred Stock in a private transaction.

Mergers and Acquisitions

Clearlake Capital and Siris-Backed Constant Contact Agrees to Acquire SharpSpring

  • SharpSpring (SHSP) has agreed to be acquired by Constant Contact, an online marketing platform provider backed by Clearlake Capital Group and Siris Capital, for $17.10 per share in cash, a 21.2% premium to the prior day’s closing price.

  • The purchase price equates to an equity value of approximately $240 million and reflects a TTM EV/Sales multiple of 7.2x.

  • Consensus estimates reflect expectations for revenue growth of 17% for this year and next, implying a forward EV/Sales multiple of 6.4x based on FY ’21 projections and 5.5x based on FY ’22 estimates.

Ping Identity Announces the Acquisition of SecuredTouch to Accelerate Identity Fraud Capabilities

  • Ping Identity (PING) has acquired SecureTouch, which offers a platform for fraud and bot detection and protection against account takeover.

  • SecuredTouch will be integrated with the PingOne Cloud Platform to provide enterprise customers with advanced signals, data and intelligence to protect against identity fraud.

Upland Software Acquires Panviva and Raises Guidance

  • Upland Software (UPLD) has acquired Panviva, which offers an enterprise knowledge platform, for $19.8 million in cash at closing and a $3.5 million cash holdback payable in twelve months.

  • With the acquisition, Upland can offer its customers additional ways to enhance contact center productivity.

  • Panviva is expected to generate annual revenue of $7.5 million and at least $3.4 million in adjusted EBITDA once integrated.

  • Reflecting anticipated contribution from the acquisition, Upland raised its FY ’21 revenue and adjusted EBITDA guidance ranges to $300.8-$312.8 million and $94.8-$100.8 million, respectively.

Earnings Releases

BlackBerry Reports First Quarter Fiscal Year 2022 Results

  • BlackBerry (BB) reported Q1 ’22 revenue above expectations but indicated that revenue for FY ’22 was likely to come in near the low-end of management’s prior outlook.

  • Revenue of $174 million (-17% Y/Y) was above consensus of $171 million. Adjusted EBITDA of $(6) million was short of consensus of $1 million. Non-GAAP EPS of $(0.05) were in line with Street expectations.

  • Key metrics: BlackBerry QNX embedded in over 195 million vehicles (+11% Y/Y); BlackBerry QNX royalty revenue backlog of $490 million (+9% Y/Y); Cyber Security ARR of $364 million; IoT ARR of $86 million.

  • The global chip shortage continues to impact the auto market and is therefore impacting the production-driven revenue of QNX, particularly in North America, but design activities remain strong with 28 new design wins.

  • Dollar-based net retention for the Cyber Security unit was 94% and the new business pipeline among small and medium-sized customers has increased 18% on a sequential basis.

  • Sales hiring has stepped up despite a competitive market for talent, and management anticipates ending Q2 with 23% more sales reps than at the start of the year.

  • Management reaffirmed its prior FY ’22 guidance for Cyber Security revenue of $495-$515 million, but indicated revenue was likely to come in at the lower end, and reiterated guidance for IoT revenue of $180-$200 million.

Progress Announces Second Quarter 2021 Financial Results

  • Progress (PRGS) reported Q2 ’21 results above expectations and raised its outlook for FY ’21.

  • Non-GAAP revenue of $129.2 million (+26.0% Y/Y) was above guidance for $119.0-$123.0 million and consensus of $121.9 million. Non-GAAP operating income was $49.7 million (38.5% margin), exceeding consensus of $42.7 million. Non-GAAP EPS of $0.82 beat guidance for $0.72-$0.74 and the Street’s $0.73.

  • Key metrics: ARR of $437 million (+23% Y/Y); net dollar retention rate was over 100%.

  • Progress continued to benefit from increased demand and investment in IT and infrastructure projects in the quarter and saw improvement across all markets and nearly every product line.

  • OpenEdge led the way from a revenue standpoint driven by strength among Progress’ ISV partners and direct sales efforts.

  • Chef also contributed to growth with several land-and-expands with marquee customers, and management indicated that anticipated expense synergies related to Chef have already been achieved several months ahead of plan.

  • The deal pipeline is very strong with dozens of opportunities in the infrastructure software space being evaluated.

  • Q3 guidance for non-GAAP revenue of $129.0-$132.0 million left consensus at the high-end while guidance for non-GAAP EPS of $0.81-$0.83 was short of Street expectations for $0.85.

  • Management raised its FY ’21 guidance across the board and now anticipates non-GAAP revenue, operating margin and EPS of $529.0-$535.0 million, 39% and $3.46-$3.50, respectively, up from $519.0-$527.0 million, 38% and $3.38-$3.42.

Notable News

Splunk Announces $1 Billion Investment from Silver Lake

  • Private equity firm Silver Lake will make a $1 billion investment in Splunk (SPLK) via 0.75% convertible senior notes due July 2026 with an initial conversion price of $160.00, a 27.5% premium to the prior day’s closing price.

  • Kenneth Hao, Chairman and Managing Partner of Silver Lake, will join the company’s Board.

  • Net proceeds will be used to fund the company’s growth initiatives and manage its capital structure, which includes a newly authorized share repurchase program of up to $1 billion.

Synchronoss Technologies, Inc. Announces Pricing of $100 Million Public Offering of Common Stock

  • Synchronoss Technologies (SNCR) priced an offering of 38,461,538 shares of its common stock at a public offering price of $2.60 per share, a 10.7% discount to the closing price prior to disclosure of the planned offering.

  • The company has also granted the underwriters an option to purchase up to an additional 3,846,154 shares.

  • Net proceeds from the offering will be used to fully redeem the company’s outstanding Series A Convertible Participating Perpetual Preferred Stock and to repay amounts outstanding under the company’s revolving credit facility.

  • Concurrent with the closing of the offering, B. Riley Principal Investments has agreed to purchase $75.0 million of Synchronoss’ Series B Preferred stock in a private transaction.

Synchronoss Technologies, Inc. Announces Pricing of $125 Million Public Offering of Senior Notes

  • Synchronoss Technologies (SNCR) priced an offering of $125 million aggregate principal amount of 8.375% senior notes due 2026, which includes the exercise in full of the underwriters’ option to purchase up to an additional $5 million aggregate principal amount of notes.

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 Stamps.com (STMP).

Software IndustryKevin LiuBB, PING, PRGS, SHSP, SNCR, SPLK, STMP, UPLD