K. Liu's Week in Review

Despite positive results nearly across the board, market reception to those reporting earnings remains a bit mixed. We surmise the combination of relatively high valuations and the looming specter of decelerating growth against more challenging comparisons in the quarters to come have prompted some angst among investors. One area where fears of deceleration appear less prevalent, however, is the supply chain space where both Descartes (DSGX) and Tecsys (TCS-CA) saw shares rise after reporting their latest quarterly results. The response to Descartes’ results was not particularly surprising given the upside delivered and commentary that its exposure to logistics service providers is producing a tailwind for a good portion of its business, while supply chain challenges facing shippers are prompting technology investments from that customer set. Although management only reaffirmed its adjusted EBITDA margin target for the year, the results to date suggest a fair amount of conservatism in the current outlook. Tecsys’ performance was less stellar with profitability falling short of Street expectations despite a top line beat. Net new subscription bookings also declined versus the year-ago period. Still, management highlighted a significant healthcare win early this quarter and pointed to momentum in the pipeline arising from increasing project scope across all lines of business. The positive commentary sufficed in moving shares higher. Also notable within the supply chain sector, Manhattan Associates (MANH) appointed Ann Sung Ruckstuhl as Senior Vice President and Chief Marketing Officer. She most recently served in that same role at Unisys.

As for others that reported this week, Coupa Software (COUP), Smartsheet (SMAR) and Zscaler (ZS) all posted strong results and guidance yet saw their shares fall. None are hurting from a valuation standpoint though, so we attribute the reaction to a more cautious view of the durability of their current business momentum. That said, commentary from all implies the overall environment continues to improve and all plan to invest further given the respective opportunities they see in market. Verint’s (VRNT) valuation presents a lower hurdle yet the shares also fell despite a beat and raise. Since its spin-off of Cognyte earlier this year, Verint has now posted two consecutive quarters reflecting momentum in its cloud transition. In its fiscal Q2 alone, the company closed over 20 SaaS deals with total contract value in excess of $1 million. Additionally, management conveyed its view that M&A activity among communication infrastructure vendors is likely to benefit Verint given its open, infrastructure-agnostic platform strategy.

Speaking of M&A, Shutterstock (SSTK) continues to transform its business, acquiring online graphic design and image editing platform PicMonkey for $110 million in cash. By leveraging PicMonkey, creators can easily produce high-quality visual assets for use in digital marketing, advertising and social media campaigns. The acquisition adds 200,000 subscribers and is expected to comprise 3% of Shutterstock’s annual sales, implying over $22 million in acquired revenue, while being immediately accretive to both adjusted EBITDA and net income. Elsewhere, Tyler Technologies (TYL) bolstered its public safety software suite with the acquisition of Arx, which offers solutions to police departments that provide intelligence and data to both command staff and the community at large. Lastly, Workday (WDAY) agreed to acquire Zimit, which offers a configure price quote (CPQ) solution built specifically for services industries. The integration of Zimit with Workday’s Professional Services Automation software is expected to yield an end-to-end cash-to-quote solution built for services industries.

Wrapping up the news this week, Wendy K. Thomas has assumed the role of CEO at Secureworks (SCWX), succeeding Michael R. Cote, who has retired. Ms. Thomas joined Secureworks in 2008 and most recently served as President of Customer Success. Mimecast (MIME) named Joe Mercurio as Interim Chief Revenue Officer, effective October 5, 2021, succeeding Dino DiMarino, who is leaving early next month to pursue another opportunity. Separately, BigCommerce (BIGC) priced an offering of $300 million aggregate principal amount of 0.25% convertible senior notes due 2026 with an initial conversion price of $73.11 per share, a 27% premium to the close price prior to disclosure of the planned offering. Net proceeds will be used for general corporate purposes.

Mergers and Acquisitions

Shutterstock Acquires PicMonkey, A Leading Creative Design Platform

  • Shutterstock (SSTK) has acquired PicMonkey, an online graphic design and image editing platform, for $110 million in cash.

  • PicMonkey provides creators with templates, graphics and fonts, enabling them to create high-quality visual assets for use in digital marketing, advertising and social media posts.

  • The acquisition is expected to contribute 3% to Shutterstock’s annual revenues, add over 200,000 new subscribers and be immediately accretive to adjusted EBITDA and adjusted net income.

Tyler Technologies Acquires Arx

  • Tyler Technologies (TYL) has acquired Arx, which offers cloud-based software solutions to police departments.

  • The acquisition brings Arx Alert, which provides critical intelligence to the chief of police, command staff and supervisors regarding on-the-job activity, and Arx Community, which enables community members to access crime data, agency accountability data and enforcement action data, to Tyler’s public safety software suite.

Workday Announces Intent to Acquire Zimit

  • Workday (WDAY) has agreed to acquire Zimit, which offers a configure price quote (CPQ) solution built specifically for services industries.

  • Zimit has already been integrated with Workday Professional Services Automation and post-acquisition, the two companies expect to deliver an end-to-end, quote-to-cash cycle in a single solution for services industries.

Earnings Releases

Coupa Software Reports Second Quarter Fiscal 2022 Financial Results

  • Coupa Software (COUP) reported Q2 ’22 results above expectations and raised its guidance for FY ’22.

  • Revenues of $179.2 million (+42.3% Y/Y) were above guidance for $162.0-$163.0 million and consensus of $163.0 million. Non-GAAP operating income was $26.7 million (14.9% margin), exceeding guidance for $(3.0)-$(2.0) million and consensus of $(2.7) million. Non-GAAP EPS of $0.26 beat guidance for $(0.07)-$(0.05) and the Street’s $(0.06).

  • Key metrics: billings of $195 million (+49% Y/Y).

  • Coupa continues to see a steadily improving business environment as evidenced by sales cycles moving closer to pre-pandemic norms, a higher number of seven-figure deals closed and improved predictability in the mid-market business.

  • New business more than doubled from the year-ago period, which combined with a seasonally strong $25 million contribution from supply chain design and planning (formerly known as Llamasoft) drove robust growth in billings.

  • Coupa Pay continues to achieve an attach rate in excess of 30% on new deals, and the company’s Japanese joint venture is already producing both pipeline and early wins.

  • Q3 guidance for revenues of $177.0-$178.0 million, non-GAAP operating income of $6.0-$7.0 million and non-GAAP EPS of $0.01-$0.03 was ahead of Street expectations for $168.9 million, $(4.0) million and $(0.08), respectively.

  • Management raised its FY ’22 guidance across the board and now anticipates revenues of $706.0-$708.0 million, non-GAAP operating income of $40.0-$41.0 million and non-GAAP EPS of $0.27-$0.29.

Descartes Announces Fiscal 2022 Second Quarter Financial Results

  • Descartes (DSGX) reported Q2 ’22 results above consensus and maintained its adjusted EBITDA margin target for FY ‘22.

  • Revenues of $104.6 million (+24.4% Y/Y) were above consensus of $101.1 million. Adjusted EBITDA of $45.9 million (43.9% margin) was above consensus of $42.0 million. EPS of $0.27 beat the Street’s $0.24.

  • Q2 results were ahead of plan as Descartes saw some strength in its business assisting customers with Brexit, benefited from muted spending on travel and marketing and garnered solid contribution from acquisitions completed in 1H ‘22.

  • Logistics service providers are doing well across every mode of transport, which in turn is producing a tailwind for a good portion of Descartes’ business, and supply shortages affecting shippers has created demand for technology solutions in that segment of the market.

  • The acquisition of GreenMile near quarter-end complements Descartes’ existing routing solutions by providing real-time visibility into the final mile of deliveries for food and beverage distribution companies.

  • Management’s baseline calibration for revenue and adjusted EBITDA in Q3 is $95.0 million and $35.5 million, respectively, and prior expectations for an adjusted EBITDA margin of 38%-43% in FY ’22 remained unchanged.

Smartsheet Inc. Announces Second Quarter Fiscal Year 2022 Results

  • Smartsheet (SMAR) reported Q2 ’22 results above expectations and raised its revenue and billings outlook for the year.

  • Revenue of $131.7 million (+44.4% Y/Y) was above guidance for $125.0-$126.0 million and consensus of $125.5 million. Non-GAAP operating income was $(5.2) million, ahead of guidance for $(18.0)-$(16.0) million and consensus of $(16.9) million. Non-GAAP EPS of $(0.05) beat guidance for $(0.14)-$(0.13) and the Street’s $(0.13).

  • Key metrics: billings of $142.9 million (+47% Y/Y) were above guidance for $133.0-$134.0 million; 1,856 customers with ACV of $50,000 or more (+64% Y/Y); 748 customers with ACV of $100,000 or more (+73% Y/Y); average ACV per domain-based customer was $5,915 (+42% Y/Y); dollar-based net retention rate was 128%.

  • Q2 outperformed due to strong sales execution, significant enterprise expansion, a record number of larger deals and early success of Smartsheet Advance.

  • Growth was strong across industries such as technology and professional services, but healthcare and life sciences stood out with ARR growth in excess of 50% and retail, media and entertainment, and manufacturing also saw strength.

  • The launch of Smartsheet Advance, a solution enabling customers to configure and execute workflows between Smartsheet and other systems of record, was well received with over 100 deals signed in Q2 including Advance.

  • Q3 guidance for revenue of $138.0-$139.0 million was above consensus of $129.9 million while guidance for non-GAAP operating income and EPS of $(15.0)-$(12.0) million and $(0.12)-$(0.10), respectively, was in line with consensus of $(13.9) million and $(0.11).

  • Management raised its FY ’22 revenue and billings guidance from $510-$515 million and $599-$604 million, respectively, to $530-$533 million and $619-$622 million and maintained its prior non-GAAP operating income and EPS guidance of $(55)-$(45) million and $(0.44)-$(0.36).

Tecsys Reports Financial Results for the First Quarter of Fiscal 2022

  • Tecsys (TCS-CA) reported mixed Q1 ’22 results.

  • Revenue was C$33.2 million (+18.3% Y/Y), ahead of consensus of C$32.3 million. Adjusted EBITDA was C$2.5 million (7.4% margin), below consensus of C$3.2 million. EPS of C$0.02 missed the Street’s C$0.07.

  • Key metrics: ARR of C$53.7 million (+9% Y/Y); SaaS subscription bookings were C$1.1 million (-54% Y/Y).

  • The signing of two additional IDNs in Q1 and another in August brings the total count to over 30 new and existing healthcare accounts that have made significant investments through the pandemic.

  • Tecsys is seeing momentum in its pipeline across all lines of business and is seeing projects begin to expand in scope, although legal and procurement processes are now the primary bottleneck in closing deals.

  • Management plans to accelerate investments in channel and direct sales development as well as marketing programs.

Verint Announces Another Quarter of Strong Cloud Growth

  • Verint (VRNT) reported Q2 ’22 results above expectations and raised its outlook for FY ’22.

  • Revenue of $215.6 million (+4.1% Y/Y) was above consensus of $207.6 million. Non-GAAP operating income was $51.8 million (24.0% margin), exceeding consensus of $40.0 million. Non-GAAP EPS of $0.58 beat the Street’s $0.42.

  • Key metrics: new perpetual license equivalent (PLE) bookings of $73.1 million (+17% Y/Y); 53% of PLE bookings from SaaS; remaining performance obligations of $627 million (+29% Y/Y).

  • Verint closed 20 SaaS deals over $1 million in TCV, reflecting strong momentum in the company’s cloud transition.

  • Management believes M&A activity among communication infrastructure vendors will benefit Verint given its pure-play enterprise application platform with an open, infrastructure-agnostic strategy.

  • The acquisition of Conversocial contributes half of the $12 million increase in management’s revenue guidance for FY ’22.

  • Q3 guidance for revenue of $215.0-$220.0 million and non-GAAP EPS of $0.53 was short of Street expectations for $220.3 million in revenue and $0.65 in non-GAAP EPS.

  • Management raised its FY ’22 outlook, which now calls for cloud revenue growth of 35%, new PLE bookings growth of 15%, non-GAAP revenue of $872 million +/- 2%, and non-GAAP EPS of $2.25.

  • Beyond FY ’22, management anticipates revenue growth of approximately 6% in FY ’23 along with non-GAAP EPS growth of 10%, which should then accelerate to high-single digit revenue growth in FY ’24 and drive additional margin expansion.

Zscaler Reports Fourth Quarter and Fiscal 2021 Financial Results

  • Zscaler (ZS) reported Q4 ’21 results above expectations and guided FY ’22 revenue ahead of consensus.

  • Revenue of $197.1 million (+56.5% Y/Y) was above guidance for $185.0-$187.0 million and consensus of $186.8 million. Non-GAAP operating income was $20.6 million (+10.5% margin), exceeding guidance for $13.5-$14.5 million and consensus of $14.3 million. Non-GAAP EPS of $0.14 beat guidance for $0.08-$0.09 and the Street’s $0.09.

  • Key metrics: billings of $332.2 million (+70% Y/Y); dollar-based net retention rate of 128%; 202 customers with ARR over $1 million (+87% Y/Y); 1,480 customers with ARR over $100,000 (+ 52% Y/Y); remaining performance obligations of $1.553 billion (+98% Y/Y).

  • Growth was broad based across all verticals, customer segments and geographies as increased cybersecurity risk and accelerating digital transformation have increased the need for Zscaler’s zero trust architecture.

  • Deal sizes in the enterprise segment are growing as customers adopt more of Zscaler’s platform, and management is developing targeted marketing programs, expanding its sales team and doubling down on its Summit Partner Program to further penetrate the segment.

  • Zscaler added over 20 new federal customers in Q4 and continues to invest to capture a large opportunity in that market.

  • Emerging products contributed a high-single digit percentage of new and upsell business in FY ‘21.

  • Q1 guidance for revenue of $210.0-$212.0 million was above consensus of $199.7 million, while guidance for non-GAAP operating income of $18.0-$19.0 million and non-GAAP EPS of $0.12 was in line with consensus of $19.2 million and $0.12.

  • Management’s FY ’22 guidance for revenue of $940.0-$950.0 million was ahead of the Street’s $905.8 million, while guidance for non-GAAP operating income and EPS of $85.0-$90.0 million and $0.52-$0.56, respectively, left consensus of $90.2 million and $0.56 at the high-end.

Notable News

BigCommerce Holdings, Inc. Announces Proposed Convertible Senior Notes Offering

  • BigCommerce (BIGC) priced an offering of $300 million aggregate principal amount of 0.25% convertible senior notes due 2026 with an initial conversion price of $73.11 per share, a 27.4% premium to the close price prior to disclosure of the planned offering.

  • The initial purchasers of the notes have also been granted an option to purchase up to an additional $45 million of notes.

  • Net proceeds from the offering will be used for general corporate purposes.

Manhattan Associates Welcomes Ann Sung Ruckstuhl as Chief Marketing Officer

  • Manhattan Associates (MANH) has appointed Ann Sung Ruckstuhl as Senior Vice President and Chief Marketing Officer.

  • Ms. Ruckstuhl most recently served in the same role at Unisys and has over two decades of experience in high tech marketing and product management leadership roles at companies such as eBay, Hewlett-Packard and Symantec.

Mimecast Appoints Joe Mercurio Interim Chief Revenue Officer

  • Mimecast (MIME) has appointed Joe Mercurio as Interim Chief Revenue Officer, effective October 5, 2021, succeeding Dino DiMarino, who is leaving the company next month to pursue another opportunity.

  • Mr. Mercurio has been with Mimecast for over four years, most recently serving as Senior Vice President of Sales, North America, and has previously held sales leadership positions at RSA Security and EMC.

Wendy K. Thomas Assumes Role as President & CEO of Secureworks

  • Wendy K. Thomas has assumed the role of President and Chief Executive Officer of Secureworks (SCWX), succeeding Michael R. Cote who has retired as CEO and as a member of the Board of Directors.

  • Ms. Thomas joined the company in 2008 and has held leadership roles across the organization, most recently serving as President of Customer Success.

Our report with disclosures is available here.

Software IndustryKevin LiuBIGC, COUP, DSGX, MANH, MIME, SCWX, SMAR, SSTK, TCS-CA, TYL, VRNT, WDAY, ZS