K. Liu's Week in Review
SharpSpring (SHSP) acquired Marin Software’s (MRIN) Perfect Audience business for $4.6 million in cash. For Marin, the sale enables the company to focus on its enterprise brands across search, social and e-commerce advertising, and reduces Q4 revenue and non-GAAP operating income by $0.5 million and $0.2 million, respectively. For SharpSpring, the purchase of the Perfect Audience digital advertising platform complements its core marketing automation software and adds another potential revenue stream for its agency partners targeting small and medium-sized businesses. In conjunction with the acquisition, SharpSpring has agreed to sell 555,556 shares of its common stock to Greenhaven Road Investment Management and other institutional stockholders for $5.0 million, representing a price of $9.00 per share and a discount of 13.7% from the last closing price. While the financial impact of the acquisition was not disclosed, extrapolating the partial quarter’s impact on Marin suggests annualized revenue of approximately $4.0 million with a non-GAAP operating margin of 40%. Separately, SharpSpring also appointed Michael Power as Chief Financial Officer, effective December 2, 2019. Mr. Power joins the company from ConnectWise, which was acquired earlier this year by Thoma Bravo and where he served as Executive Vice President, Chief Financial Officer and Treasurer. He succeeds Brad Stanczak who is stepping down to attend to family matters.
With the off-calendar reporting season just getting underway, only five companies reported this week. American Software (AMSWA) posted fiscal Q2 results in line with expectations. The results were highlighted by a second consecutive quarter of cloud services annual contract value (ACV) growth in excess of 50% driven by increasing demand for transformative supply chain projects. Management also indicated that the current quarter is off to a good start, which along with several significant deals in the pipeline, leaves the company well positioned to achieve solid growth in ACV in FY ’20 and beyond. K. Liu & Company LLC provides external investor relations services to American Software. Anaplan (PLAN), a provider of connected planning solutions, reported fiscal Q3 results above expectations and guided Q4 revenue above consensus. The strong growth was attributed to a record number of seven-figure deals closed in the quarter and strong demand across several functional areas within enterprise, including sales, supply chain, finance, and workforce planning.
Intuit (INTU) delivered a quarterly beat highlighted by stronger than anticipated growth in Online Ecosystem revenues. Guidance for the current quarter was mixed, reflecting the timing of marketing spend, but management reaffirmed its prior outlook for FY ’20. At Nuance Communications (NUAN), outperformance in the Automotive and Other segments as well as favorable expense management resulted in a strong finish to the company’s FY ’19. However, the spin-off of the Automotive segment on October 1, 2019 left approximately $35 million in stranded costs to be reallocated across the remaining segments, which combined with the accelerated exit from several non-core businesses resulted in a lower FY ’20 guide relative to consensus. Regardless, shares still traded higher as management plans to eliminate the impact of the costs by the end of FY ’21, and the company’s growth vectors in enterprise and healthcare remain intact. Last but not least, Splunk (SPLK) shares surged on its fiscal Q3 beat and higher revenue outlook for Q4. Upside in the quarter reflected strength in the public sector business, which benefited from the closure of several eight-figure orders with U.S. government agencies. Management also introduced a new annual recurring revenue (ARR) metric given that software bookings are now predominantly comprised of term and cloud deals. Of note, the company’s preliminary outlook for FY ’21 includes ARR growth in the mid-40% range and a similar level of operating cash flow as in FY ’20 despite a reduction in average billing duration from three years to one year.
Most notable this week was perhaps the flurry of key executive appointments. At ServiceNow (NOW), Bill McDermott formally took the reins as President and Chief Executive Officer, and the company named Gina Mastantuono as Chief Financial Officer, effective January 13, 2020. She joins the company from Ingram Micro where she has served as CFO since 2016. A10 Networks (ATEN) concluded its search for its next leader, appointing Dhrupad Trivedi as President and Chief Executive Officer, effective December 2, 2019. Dr. Trivedi was formerly Chief Technology Officer of Belden as well as Executive Vice President of Tripwire, a cybersecurity software business under the Belden umbrella. The company’s founder and current CEO Lee Chen will assist with the transition and continue as Chairman of the Board. While the appointment concludes the CEO search, the Strategy Committee of A10’s Board continues to evaluate strategic alternatives to maximize shareholder value.
Shutterstock (SSTK) appointed Jarrod Yahes as its next Chief Financial Officer, effective December 9, 2019. Mr. Yahes is currently CFO at marketing technology company Zeta Global. PTC (PTC) announced a number of changes affecting its field operations following the resignation of Matt Cohen, executive vice president of field operations, who is leaving to pursue another opportunity. The company’s current executive vice president of worldwide sales and marketing, Mike DiTullio, will remain in that role and now report directly to President and CEO Jim Heppelmann. Eduarda Camacho, who is currently responsible for worldwide customer success and renewal sales, will be promoted to vice president of customer operations and assume additional responsibilities for professional services, cloud services, and technical support. He will also now report directly to Mr. Heppelmann. Secureworks (SCWX) named Maureen Perrelli, formerly Vice President of Global Channel Sales at NCR, as Chief Channel Officer. She will be responsible for leading the company’s global channel engagement strategy. Rounding out the executive moves this week, Jay Lee joins Avalara (AVLR) as Chief Marketing Officer and Tarkan Maner joins Nutanix (NTNX) as Chief Commercial Officer. Mr. Lee previously served as Global Head of Marketing for Paypal’s Business Financing Solutions division, while Mr. Maner comes to Nutanix from Nexenta Systems, where he served as Chairman and CEO and oversaw the company’s acquisition by DataDirect Networks earlier this year.
Mergers and Acquisitions
Marin Software Announces Sale of Perfect Audience
Marin Software (MRIN) has sold its Perfect Audience business unit to SharpSpring (SHSP) for approximately $4.6 million in cash, enabling the company to focus on its enterprise brands across search, social and eCommerce advertising.
Reflecting the sale, Marin’s revised Q4 guidance calls for revenues of $9.9-$10.4 million and non-GAAP operating income of $(3.9)-$(3.4) million, down slightly from prior guidance for $10.4-$10.9 million in revenues and $(3.7)-$(3.2) million in non-GAAP operating income.
SharpSpring Announces Acquisition of Perfect Audience from Marin Software
SharpSpring (SHSP) has acquired Perfect Audience from Marin Software (MRIN) for $4.6 million in cash.
The Perfect Audience digital advertising platform enables marketers to create, manage and optimize ad campaigns for multi-channel retargeting and as well as targeted advertising to new prospects via lookalike audience functionality.
Management expects the acquisition to complement its core marketing automation solutions and add a new revenue stream for its agency partners targeting small and medium-sized businesses.
In conjunction with the acquisition, SharpSpring has also entered into an agreement to sell 555,556 shares of its common stock to Greenhaven Road Investment Management and other institutional stockholders for total proceeds of $5 million.
Earnings Releases
American Software Reports Preliminary Second Quarter of Fiscal Year 2020 Results
American Software (AMSWA) reported Q2 ’20 results in line with Street expectations.
Revenues of $28.2 million (+0.6% Y/Y) were in line with consensus. Adjusted EBITDA of $3.5 million (12.5% margin) was below consensus of $3.9 million. Non-GAAP EPS of $0.08 were in line with Street expectations.
Key metrics: Cloud Services Annual Contract Value (ACV) of $22.4 million (+55% Y/Y); subscription fee margin of 73% excluding non-cash amortization of capitalized software.
Services growth in the supply chain segment was 16% and management indicated the services organization is now running near full capacity.
Recruiting efforts have ramped up on the sales and marketing front, which should result in added headcount and sales capacity in the coming quarters.
American Software is off to a good start in Q3, which along with several significant opportunities in the pipeline, leaves management confident in achieving solid ACV growth in FY ’20 and beyond.
The company continues to anticipate exiting the year with recurring revenues comprising 60% of total revenues.
Anaplan Announces Third Quarter Fiscal Year 2020 Financial Results
Anaplan (PLAN) reported Q3 ’20 results above expectations and guided Q4 revenue ahead of consensus.
Revenue of $89.4 million (+44.2% Y/Y) exceeded management’s $85.5-$86.5 million guidance and consensus of $86.4 million. Non-GAAP operating income was $(8.8) million (-9.9% margin), ahead of guidance for $(17.3)-$(16.2) million and consensus of $(16.7) million. Non-GAAP EPS of $(0.08) beat consensus of $(0.12).
Anaplan closed a record number of seven-figure deals in the quarter and continues to see strong demand in several functional areas within enterprise, including sales, supply chain, finance, and workforce planning.
Key metrics: 324 (+42% Y/Y) customers with ARR over $250,000; over 1,300 customers at quarter-end; billings of $114.4 million (+59% Y/Y); dollar-based net expansion rate of 123%; remaining performance obligation of $590 million (+55% Y/Y).
Guidance for Q4 includes revenue of $96.5-$97.5 million, above consensus of $95.3 million, and a non-GAAP operating margin of (15)%-(14)%, implying non-GAAP operating income of $(14.6)-$(13.5) million versus consensus of $(14.5) million.
Management’s preliminary outlook for FY ’21 calls for revenue of $455.0-$460.0 million, exceeding Street expectations for $449.1 million in revenue and representing growth of approximately 31%-33%.
Intuit (INTU) reported Q1 ’20 results above expectations and reaffirmed prior guidance for FY ’20.
Total revenue was $1.165 billion (+15% Y/Y), exceeding guidance of $1.105-$1.125 billion and consensus of $1.125 billion. Non-GAAP operating income was $129.0 million (11.1% margin), well ahead of management’s $65.0-$75.0 million guidance and consensus of $80.2 million. Non-GAAP EPS of $0.41 beat guidance of $0.23-$0.25 and consensus of $0.25.
Online Ecosystem revenue growth of 35% exceeded management’s target of 30%, Consumer Group revenue increased 11%, and Strategic Partner Group revenue was in line with expectations.
By leveraging AI, Intuit is on a path to triple the number of customers that can apply for working capital loans through QuickBooks Capital and reduce customer contact rates by helping customers find answers to their questions more easily.
The launch of QuickBooks Live, which connects small businesses with live experts, expands the company’s addressable market opportunity by $10 billion.
The company has not seen any evidence of a slowdown in the business related to the macroeconomic environment; charge volume trends remain strong and the number of employees being paid in the ecosystems remains on trend.
Guidance for Q2 includes revenue of $1.670-$1.690 billion, non-GAAP operating income of $335.0-$345.0 million, and non-GAAP EPS of $1.00-$1.03, which was mixed versus consensus of $1.663 million in revenue, $378.1 million in non-GAAP operating income, and $1.16 in non-GAAP EPS.
Management reiterated prior FY ’20 guidance for $7.440-$7.540 billion in revenue, $2.515-$2.575 billion in non-GAAP operating income, and $7.50-$7.60 in non-GAAP EPS.
Nuance Announces Fourth Quarter and Fiscal Year 2019 Results
Nuance Communications (NUAN) reported Q4 ’19 results above expectations but guided FY ’20 below consensus.
On an ASC 605 basis, non-GAAP revenue was $489.3 million (+1.5% Y/Y), within guidance of $473.0-$493.0 million and above consensus of $485.5 million. Non-GAAP operating income was $138.6 million (28.3% margin), exceeding consensus of $120.6 million. Non-GAAP EPS of $0.34 beat guidance for $0.24-$0.30 and consensus of $0.28.
Outperformance in the quarter was driven by better than anticipated revenues in the Automotive and Other segments as well as favorable expense management.
Organic growth in strategic businesses increased 6% Y/Y due to strength in the Automotive (+12% Y/Y) and Healthcare (+9% Y/Y) segments, which helped offset a difficult compare in the Enterprise (-4% Y/Y) segment.
Following the spin-off of the Automotive segment on October 1, 2019, Nuance was left with approximately $35 million in stranded costs, which have been reallocated to the remaining segments in FY ’20; management plans to eliminate the impact of the costs on operating margin by the end of 2021.
Q1 guidance calls for non-GAAP revenue of $400.0-$416.0 million, below consensus of $455.0 million, and non-GAAP EPS of $0.22-$0.26, which leaves consensus at the high-end.
Guidance for FY ’20 includes non-GAAP revenue of $1.495-$1.535 billion, non-GAAP operating margin of 23.5%-24.5% (implies non-GAAP operating income of $351.3-$376.1 million), and non-GAAP EPS of $0.80-$0.88, which was short of Street expectations for $1.573 billion in revenue, $402.5 million in non-GAAP operating income, and $1.00 in non-GAAP EPS.
Nuance remains active on the buyback front and has already repurchased $50 million of stock in Q1 ’20.
Splunk Inc. Announces Fiscal Third Quarter 2020 Financial Results
Splunk (SPLK) delivered Q3 ’20 results above expectations but provided mixed Q4 guidance.
Revenues of $626.3 million (+30.2% Y/Y) exceeded management’s guidance for approximately $600.0 million and consensus of $604.2 million. Non-GAAP operating income was $105.5 million (16.8% margin), above consensus of $96.6 million and guidance for a 16% non-GAAP operating margin. Non-GAAP EPS of $0.58 beat consensus of $0.54.
Per management, execution in the quarter was solid with notable strength in the public sector business driven by the booking of several orders in the eight-figure range with U.S. government agencies.
Key metrics: annual recurring revenue (ARR) of $1.44 billion (+53% Y/Y); signed 440 new enterprise customers; cloud revenue was $80 million (+78% Y/Y); 92% of software bookings were either term or cloud.
With the rollout of its Data-to-Everything platform, Splunk introduced new pricing options including predictive pricing, infrastructure-based pricing, and rapid adoption packages to make it easier for customers to transact with the company.
Guidance for Q4 includes revenues of $780.0 million, above consensus of $768.7 million, and a non-GAAP operating margin of approximately 23%, implying non-GAAP operating income of $179.4 million versus consensus of $193.7 million.
For FY ’21, management anticipates ARR growth in the mid-40% range and operating cash flow similar to FY ’20.
Notable News
A10 Networks Announces Dhrupad Trivedi as New CEO
A10 Networks (ATEN) has appointed Dhrupad Trivedi as President and Chief Executive Officer, effective December 2, 2019.
Dr. Trivedi joins the company from Belden, where he served as Executive Vice President of Tripwire, a cybersecurity software business, and as CTO of Belden.
Founder and current CEO Lee Chen will assist with the transition and continue as Chairman of the Board.
The Strategy Committee of the Board continues to evaluate strategic alternatives to maximize shareholder value.
Jay Lee Joins Avalara as Chief Marketing Officer
Avalara (AVLR) announced the appointment of Jay Lee as Chief Marketing Officer.
Mr. Lee joins the company from Paypal, where he served as Global Head of Marketing for the company’s Business Financing Solutions division.
PTC Announces Changes to Leadership in Field Operations
PTC (PTC) announced the resignation of Matt Cohen, executive vice president of field operations, who is leaving the company to pursue a new career opportunity.
Mike DiTullio will remain the company’s executive vice president of worldwide sales and marketing and now report directly to Jim Heppelmann, PTC’s President and CEO.
Eduarda Camacho, a 22-year veteran of the company currently responsible for worldwide customer success and renewal sales, will be promoted to vice president of customer operations with added responsibilities for professional services, cloud services, and technical support.
Secureworks Welcomes Maureen Perrelli as Chief Channel Officer
Secureworks (SCWX) has appointed Maureen Perrelli as its new Chief Channel Officer, responsible for the company’s global channel engagement strategy.
Ms. Perrelli joins the company from NCR where she was Vice President of Global Channel Sales.
ServiceNow Names Gina Mastantuono as Chief Financial Officer
ServiceNow (NOW) appointed Gina Mastantuono as Chief Financial Officer, effective January 13, 2020.
Ms. Mastantuono is currently Chief Financial Officer of Ingram Micro, a role she has held since 2016.
SharpSpring Appoints Michael Power as New Chief Financial Officer
SharpSpring (SHSP) appointed Michael Power as Chief Financial Officer, effective December 2, 2019.
Mr. Power joins the company from ConnectWise, an IT management and SaaS company where he served as Executive Vice President, Chief Financial Officer and Treasurer.
Current CFO Brad Stanczak is stepping down to attend to family matters but will remain with the company and support the transition through year-end at a minimum.
Shutterstock Names Jarrod Yahes as Chief Financial Officer
Shutterstock (SSTK) appointed Jarrod Yahes as Chief Financial Officer, effective December 9, 2019.
Mr. Yahes will join the company from Zeta Global, a marketing technology company where he has served as Chief Financial Officer since October 2016.
Tarkan Maner Joins Nutanix as Chief Commercial Officer
Nutanix (NTNX) has appointed Tarkan Maner as Chief Commercial Officer, a role in which he will lead the company’s global business development and corporate development efforts, focusing on strategic partnerships, alliances, system integrators, and service providers.
Mr. Maner joins the company from Nexenta Systems, where he served as Chairman and CEO and oversaw its acquisition by DataDirect Networks in May 2019.
Disclosure(s):
K. Liu & Company LLC has received compensation from American Software (AMSWA) for non-investment banking services within the past 12 months.