K. Liu's Week in Review
In a holiday-shortened week, we ventured to Vegas for NICE’s (NICE) annual customer conference, digested a couple of deals from the likes of Coupa (COUP) and Salesforce (CRM), and saw the calendar Q1 ’19 reporting season get underway. Our takeaways from NICE’s Interactions 2019 conference have been published separately, but suffice to say, the company’s growth prospects via a cloud native customer experience platform for the contact center and increasing adoption of attended bots warrant further exploration in our view. Turning to M&A this week, spend management vendor Coupa announced plans to acquire Exari, a leading provider of contract lifecycle management solutions, for $215 million in cash. The company plans to integrate Exari with the Coupa contract repository, enabling customers to create and manage contracts while also leveraging the transactional spend data captured within Coupa’s system to negotiate better deals. Reflecting the trend towards embedding applications with domain expertise, Salesforce announced its intent to integrate Salesforce.org into the company, creating a new nonprofit and education vertical to be led by Salesforce.org’s CEO Rob Acker. To effect the transaction, Salesforce will pay $300 million in cash for Salesforce.org, which will be converted from a California public benefit corporation into a California corporation. The full amount, along with additional contributions anticipated in the future, will be fully distributed to the independent Salesforce.com foundation. The new group will be responsible for sales, marketing and customer success of the Salesforce Customer Success Platform within the nonprofit and education verticals and is also tasked with the development of the company’s vertical applications: Nonprofit Cloud, Education Cloud and Philanthropy Cloud. Management’s revised guidance for FY ’20, which assumes the acquisition closes in its fiscal Q2 or early Q3, reflects an additional $150 million to $200 million in revenue and a $0.20 decline in non-GAAP EPS due to a $200 million non-cash charge from the termination of a reseller agreement between the two companies. We expect all eyes to be on Blackbaud (BLKB) once Salesforce.org is integrated given the potential competitive ramifications. Speaking of Blackbaud, the company appointed Allan Hoffmann President and General Manager of its Canadian operations. Mr. Hoffmann joins the company from Amazon Web Services where he served as Canada’s General Manager for the education, nonprofit and healthcare business.
Another earnings season is upon us with Atlassian (TEAM) and Check Point Software Technologies (CHKP) leading the charge this week. While both companies delivered quarterly results above expectations, both also saw their shares come under pressure. Questions arose regarding moderation in growth rates, which in Atlassian’s case was reflected in lower sequential billings growth following the pull-forward of activity into the preceding quarter ahead of a price increase and for Check Point arose from lower product and license sales. Atlassian’s guidance for Q4 was also mixed versus consensus with revenue higher but non-GAAP operating margin and EPS lower as the company adds headcount, invests in data centers and absorbs the acquisition of AgileCraft. On the other hand, Check Point’s Q2 guidance was generally consistent with expectations and management reaffirmed its prior FY ’19 outlook. The table below depicts each company’s share price performance for the week, reported results versus consensus as well as subsequent Street adjustments to top and bottom line expectations for the current fiscal quarter and year.
Rounding out this week’s update were several board appointments by Anaplan (PLAN), Palo Alto Networks (PANW) and ShotSpotter (SSTI). Anaplan announced the appointment of Suresh Vasudevan to its Board of Directors. Mr. Vasudevan is currently President and CEO of container intelligence company Sysdig and previously held the same roles at Nimble Storage until that company’s acquisition by Hewlett Packard Enterprise. Palo Alto Networks appointed two new board members, Lorraine Twohill and the Right Honorable Sir John Key. Ms. Twohill is currently Chief Marketing Officer at Google LLC, while Sir John was the Prime Minister of New Zealand from November 2008 to December 2016 and is a former member of Parliament for Helensville in New Zealand. Finally, ShotSpotter added Merline Saintil to its Board of Directors. Ms. Saintil is currently Chief Operating Officer, R&D and IT, at Change Healthcare.
Mergers and Acquisitions
COUP: Coupa Announces Intent to Acquire Contract Lifecycle Management Leader Exari
Coupa announced that the company has agreed to acquire Exari, a leading provider of contract lifecycle management solutions, for $215 million in cash.
Exari enables organizations to manage all aspects of the contract lifecycle, including contract request, creation, negotiation, approval, signature capture and optimization.
Upon closing, which is expected to occur in Coupa’s fiscal Q2, Exari will be integrated with the Coupa contract repository.
Salesforce announced that Salesforce.org will be integrated into Salesforce, creating a new nonprofit and education vertical to strengthen the company’s philanthropic model.
To effect the transaction, Salesforce.org will convert from a California public benefit corporation into a California business corporation and Salesforce will pay a one-time cash purchase price of $300 million for all shares of Salesforce.org, which will be distributed to the independent Salesforce.com Foundation along with additional contributions anticipated by Salesforce.
The new nonprofit and education vertical will be led by Salesforce.org CEO Rob Acker and is responsible for the sales, marketing and customer success of the Salesforce Customer Success Platform to the nonprofit and education communities as well as the development of Nonprofit Cloud, Education Cloud and Philanthropy Cloud.
Upon closing of the acquisition, which is anticipated during the company’s fiscal Q2 or early fiscal Q3, Salesforce will incur a one-time non-cash charge of $200 million for the termination of its reseller agreement with Salesforce.org.
Management’s revised FY ’20 guidance includes an additional $150 million to $200 million in revenue to $16.10 billion to $16.25 billion and a $0.20 reduction in non-GAAP EPS to $2.54-$2.56.
Notable News
BLKB: Allan Hoffmann Joins Blackbaud as President and General Manager, Canada
Blackbaud announced that Allan Hoffmann will join the company as president and general manager of its Canadian operations.
Mr. Hoffmann was most recently Canada’s general manager of the education, nonprofit and healthcare business at Amazon Web Services, and prior to that served as senior vice president at Think Research.
PANW: Palo Alto Networks Appoints Two New Members to Board of Directors
Palo Alto Networks announced the appointments of Lorraine Twohill and the Right Honorable Sir John Key to the company’s Board of Directors.
Ms. Twohill is chief marketing officer at Google LLC and previously ran marketing at Google for Europe, the Middle East and Africa.
Sir John was a member of Parliament for Helensville in New Zealand until April 2017 and served as Prime Minister of New Zealand from November 2008 to December 2016.
PLAN: Anaplan Announces Appointment of Suresh Vasudevan to its Board of Directors
Anaplan announced the appointment of Suresh Vasudevan to its Board of Directors, effective April 14, 2019.
Mr. Vasudevan currently serves as President and CEO of Sysdig, a container intelligence company, and previously was President and CEO of Nimble Storage until its acquisition by Hewlett Packard Enterprise in May 2017.
SSTI: ShotSpotter Appoints Merline Saintil to Board of Directors
ShotSpotter announced the appointment of Merline Saintil to the company’s Board of Directors.
Ms. Saintil is currently Chief Operating Officer, R&D and IT, for Change Healthcare and also serves on the boards of Banner Bank and Nav, Inc.
Earnings Releases
CHKP: Check Point Software Technologies Reports 2019 First Quarter Results
Check Point Software Technologies reported Q1 ’19 results in line with expectations and reaffirmed guidance for FY ‘19.
Total revenues of $471.8 million (+4.3% Y/Y) were within management’s $460.0 million to $480 million guidance and in line with consensus of $471.2 million. Non-GAAP operating income of $234.9 million (49.8% margin) was also in line with the Street’s $235.1 million. Non-GAAP EPS of $1.32 were consistent with management’s $1.28-$1.34 guidance and consensus of $1.31.
Key metrics: 47 (+6.8% Y/Y) customers with transactions over $1 million and transactions greater than $50 thousand were 71% of total order value.
Repurchased 2.7 million shares at an average price of $115 per share for a total of $305 million during the quarter.
Management’s Q2 guidance calls for revenues of $474.0 million to $500.0 million and non-GAAP EPS of $1.32-$1.40, generally in line with consensus expectations for $486.7 million in revenues and $1.38 in non-GAAP EPS.
TEAM: Atlassian Announces Third Quarter Fiscal Year 2019 Results
Atlassian reported Q3 ’19 results above expectations, but provided mixed guidance for Q4.
Total revenue of $309.3 million (+37.9% Y/Y) exceeded management’s $303.0 million to $305.0 million guidance and consensus of $304.7 million. Non-IFRS operating income was $58.0 million (18.8% margin), also above guidance and ahead of the Street’s $52.3 million. Non-IFRS EPS of $0.21 beat management’s guidance and consensus of $0.18.
Added 5,803 net new customers in Q3 for a total of 144,038 (+20.9% Y/Y) customers at quarter end.
Q3 deferred revenue and billings were negatively impacted by the pull-forward of activity into Q2 ahead of price increases announced by the company.
Operating margin will be pressured somewhat in Q4 due to ongoing recruiting efforts, data center investments and the acquisition of AgileCraft.
Management’s Q4 guidance calls for total revenue of $329.0 million to $331.0 million, a non-IFRS operating margin of approximately 13%, implying non-IFRS operating income of $42.8 million to $43.0 million, and non-IFRS EPS of approximately $0.16. Consensus called for total revenue of $327.6 million, non-IFRS operating income of $55.3 million and non-IFRS EPS of $0.19.