K. Liu's Week in Review
In a quiet week on the earnings front, several strategic M&A transactions dominated the headlines. Following Google’s $2.6 billion of business intelligence provider Looker last week, Salesforce (CRM) entered into an agreement to acquire self-service analytics provider Tableau Software (DATA) in an all-stock deal valuing Tableau at an enterprise value of $15.7 billion, representing a TTM EV/Sales multiple of 13.2x and a FY ’20 EV/Sales multiple of 9.6x based on consensus forecasts at the time of the announcement. The acquisition enables Salesforce to play a greater role in its customers’ digital transformation efforts and is expected to add $350-$400 million in revenue to the company’s FY ’20 results and reduce non-GAAP EPS by approximately $0.20. Other data and analytics-focused vendors like Alteryx (AYX), Domo (DOMO), and MicroStrategy (MSTR) garnered attention following the announcement as investors speculated on the next target in the space, but we think the broader theme of digital transformation suggests other previously disclosed targets considered by Salesforce such as Box (BOX) and Pegasystems (PEGA) may also see interest.
Dassault Systèmes’ (DSY-FR) acquisition of Medidata Solutions (MDSO) for $92.25 per share in cash, representing an enterprise value of $5.8 billion, was the other large strategic deal announced this week. The purchase price represents TTM EV/Sales and EV/EBITDA multiples of 8.8x and 38.5x, respectively, and implies FY ’20 EV/Sales and EV/EBITDA multiples of 6.8x and 27.0x based on consensus forecasts. Strategically, the acquisition enables Dassault Systèmes to target the life sciences industry with an end-to-end business experience platform spanning research and discovery through the clinical testing, manufacturing, and commercialization of new therapies and health technologies. Management also believes the deal expands its addressable market opportunity to $40 billion.
Rounding out the deal activity was a series of tuck-in acquisitions. PTC (PTC) acquired TWNKLS, a Netherlands-based services firm that develops custom augmented reality (AR) applications and experiences. RealPage (RP) agreed to acquire Hipercept, a provider of data services and data analytics solutions to institutional real estate owners. Hipercept’s FUEL and Foundation platforms will be integrated into RealPage’s existing Portfolio Asset Management and Portfolio Investment Management products, respectively. Finally, VMware (VMW) announced its intent to acquire Avi Networks, which provides software-based application delivery controllers (ADC). The combination enables VMware to offer a complete software-defined networking stack from L2-7 built for the multi-cloud era and has competitive implications for hardware-based ADC providers like F5 Networks (FFIV) and Citrix Systems (CTXS).
Tufin Software Technologies (TUFN), a recent IPO, was one of the two reporting companies we tracked this week. Tufin provides a platform for managing security policy and network infrastructure with a focus on controlling the flow of information across the network. In its first quarter as a public company, Tufin delivered Q1 ’19 results above expectations and provided guidance consistent with consensus. The company also announced the additions of Tom Schodorf and Brian Gumbel to its Board of Directors, both of whom have extensive experience leading sales teams in the cybersecurity space. Mr. Schodorf previously served as SVP of Sales and Field Operations at Splunk (SPLK), while Mr. Gumbel is currently SVP of Worldwide Sales at Forescout Technologies (FSCT). Also reporting was Slack Technologies (WORK), which has been approved to list on the NYSE and expects its shares to begin trading late next week. Slack’s revenues rose 67% Y/Y to approximately $135 million in Q1 ’20 and non-GAAP EPS were $(0.23). Management’s guidance for FY ‘20 assumes revenue growth just under 50%, billings growth of 40%-44%, and ongoing operating losses.
In other news, Akamai Technologies (AKAM) announced the election of OpenText’s (OTEX) Executive Vice President and Chief Financial Officer, Madhu Ranganathan, to its Board of Directors. Smartsheet (SMAR) priced an upsized offering of 12.9 million shares, comprised of 7.8 million primary shares and 5.1 million shares offered by selling stockholders, at a price to the public of $43.50 per share, a 4.4% discount to the close price prior to the announcement of the proposed offering. SharpSpring (SHSP) also priced a secondary offering of just over 2 million shares, all of which was offered by selling shareholders, at a price of $13.00 per share or a 14.3% discount to the close price prior to the announcement of the proposed offering.
Mergers and Acquisitions
Dassault Systèmes (DSY-FR) has agreed to acquire Medidata Solutions (MDSO) for $92.25 per share in cash, representing an enterprise value of $5.8 billion.
On a TTM basis, the purchase price values MDSO at 8.8x sales and 38.5x adjusted EBITDA, and equates to EV/Sales and EV/EBITDA multiples of 6.8x and 27.0x based on consensus estimates for FY ’20.
Medidata Solutions focuses on the life sciences industry and provides a platform for the clinical development, commercialization, and analysis of drugs.
The acquisition bolsters Dassault Systèmes’ position in the life sciences industry and enables the company to provide an integrated business experience platform for an end-to-end approach to research and discovery, development, clinical testing, manufacturing, and commercialization of new therapies and technologies.
Management estimates the acquisition adds $7 billion to the company’s addressable market opportunity, representing a $40 billion TAM going forward.
The company has secured €4 billion in committed financing to help fund the acquisition.
Among other initiatives expected to fuel its augmented reality (AR) business and to strengthen its Vuforia AR platform, PTC (PTC) announced the acquisition of TWNKLS.
Based in the Netherlands, TWNKLS develops custom AR applications and experiences and also provides AR services to enterprises to solve specific challenges.
Neither terms of the transaction nor historical financial details were provided.
RealPage (RP) has agreed to acquire substantially all of the assets of CRE Global Enterprises, LLC, a holding company for Hipercept, which provides data services and data analytics solutions to institutional real estate owners with over $500 billion in assets under management.
Hipercept also offers FUEL, a cloud-based commercial and multifamily real estate valuation cash flow forecasting solution, and Foundation, a data warehouse, data governance, and analytics platform.
The acquired products will be integrated with RealPage’s existing Portfolio Asset Management and Portfolio Investment Management products and marketed as a combined Asset & Investment Management platform.
The transaction is expected to close within 30 days; neither terms of the transaction nor historical financial details for Hipercept were provided.
Salesforce Signs Definitive Agreement to Acquire Tableau
Salesforce (CRM) announced that the company has entered into a definitive agreement to acquire Tableau Software (DATA) in an all-stock deal in which each share of Tableau Class A and Class B common stock will be exchanged for 1.103 shares of CRM, representing an enterprise value of $15.7 billion.
The purchase price values Tableau at 13.2x TTM revenue and represents a FY ’20 EV/Sales multiple of 9.6x based on consensus estimates at the time of the announcement.
The acquisition of Tableau adds a self-service analytics platform to Salesforce’s product portfolio and the combined company is expected to play a greater role in driving digital transformation.
The acquisition is expected to close in Salesforce’s fiscal Q3 and adds approximately $350-$400 million in revenue to the company’s FY ’20 revenue guidance, which assumes a 30% haircut to deferred revenue, and is expected to decrease non-GAAP operating margin by approximately 75 basis points Y/Y.
Management’s FY ’20 guidance now calls for revenue of $16.45-$16.65 billion, up from $16.10-$16.25 billion previously, and non-GAAP EPS of $2.68-$2.70, down from $2.88-$2.90 previously.
VMware Announces Intent to Acquire Avi Networks
VMware (VMW) announced plans to acquire Avi Networks, a provider of multi-cloud application delivery services.
The combination will enable VMware to deliver a complete software-defined networking stack from L2-7.
The Avi platform includes a Software Load Balancer, Intelligent Web Application Firewall, Advanced Analytics and Monitoring, and a Universal Service Mesh to enable a fast, scalable, and secure solution.
Upon the close of the acquisition, VMware will offer built-in load balancing capabilities as part of VMware NSX Data Center and also continue to offer a standalone application delivery controller.
Neither terms of the transaction nor anticipated financial contribution were disclosed.
Earnings Releases
Slack Technologies (WORK), which has been approved to list its Class A common stock on the NYSE and expects shares to begin trading on or about June 20, 2019, reported Q1 ’20 results and issued guidance for Q2 and FY ’20.
Total revenue was $134.8 million (+66.6% Y/Y). Non-GAAP operating income was $(33.8) million (-25.0% margin). Non-GAAP EPS were $(0.23).
Key metrics: over 95,000 paid customers at quarter-end; 645 paid customers (+84% Y/Y) greater than $100,000 in annual recurring revenue; net dollar retention rate of 138%; billings of $149.6 million (+47% Y/Y).
Guidance for Q2 includes revenue of $139.0-$141.0 million (+51%-53% Y/Y), non-GAAP operating income of $(77.0)-$(75.0) million, and non-GAAP EPS of $(0.20)-$(0.19).
Management’s FY ’20 guidance calls for revenue of $590.0-$600.0 million (+47%-50% Y/Y); billings of $725.0-$745.0 million (+40%-44% Y/Y); non-GAAP operating income of $(192.0)-$(182.0) million, which includes $34.0 million in one-time direct listing related expenses; non-GAAP EPS of $(0.44)-$(0.41); and free cash flow of $(120.0)-$(105.0) million.
Tufin Announces Strong First Quarter 2019 Results
Tufin (TUFN) reported Q1 ’19 results above expectations and guided Q2 and FY ’20 in line with consensus.
Total revenue was $22.5 million (+25.4% Y/Y), above consensus of $21.0 million. Non-GAAP operating income was $(3.2) million (-14.2% margin), ahead of the Street’s $(4.6) million. Non-GAAP EPS of $(0.41) beat consensus of $(0.51).
Strength in Q1 was driven by the closure of a record number of seven-figure deals and expansion with existing clients, which accounted for over half of new business revenue.
The company counts approximately 15% of the Global 2000 as customers with management citing its superior automation, ability to scale to large environments with thousands of devices, and its unified security policy spanning cloud and on-premise network environments as the primary reasons driving customer adoption.
As Tufin addresses a large greenfield market, management plans to invest significantly in this opportunity.
Cloud offerings, Iris and Orca, are still in early availability but Tufin is seeing a lot of interest from customers and recently appointed a general manager of cloud to lead those efforts.
Guidance for Q2 includes revenue of $23.0-$25.0 million and non-GAAP operating income of $(6.4)-$(4.9) million, in line with consensus of $23.9 million in revenue and $(5.7) million in non-GAAP operating income.
Management’s FY ’19 guidance includes revenue of $105.0-$110.0 million and non-GAAP operating income of $(12.7)-$(10.7) million, also consistent with consensus of $105.5 million in revenue and $(12.1) million in adjusted EBITDA.
Notable News
Akamai Elects Madhu Ranganathan to Board of Directors
Akamai Technologies (AKAM) announced the election of Madhu Ranganathan to fill a vacancy on its Board of Directors.
Ms. Ranganathan currently serves as executive vice president and CFO of OpenText (OTEX).
Smartsheet Announces Pricing of Public Offering of Class A Common Stock
Smartsheet (SMAR) priced an underwritten public offering of its Class A common stock, comprised of 7.8 million shares offered by the company and 5.1 million shares offered by certain selling shareholders, at a price to the public of $43.50 per share, representing a 4.4% discount to the close price prior to the announcement of the proposed offering.
The offering was upsized from initial plans for Smartsheet and the selling shareholders to offer 6.5 million and 4.25 million shares, respectively.
The underwriters have been granted a 30-day option to purchase up to an additional 1,935,000 shares, consisting of 1,225,000 shares from Smartsheet and 710,000 shares from the selling shareholders.
Smartsheet intends to utilize the net proceeds from the offering for working capital and general corporate purposes.
SharpSpring Prices Secondary Offering of Common Stock by Selling Stockholders
In an 8-K filing, SharpSpring disclosed that certain selling stockholders have agreed to sell 2,054,948 shares at a price to the public of $13.00 per share, a 14.3% discount to the close price prior to the announcement of the proposed offering.
The company will not receive any proceeds from the offering.
Tufin Names Tom Schodorf and Brian Gumbel to Board of Directors
Tufin (TUFN) announced the additions of Tom Schodorf and Brian Gumbel to its Board of Directors.
Mr. Schodorf is the former SVP of Sales and Field Operations at Splunk (SPLK).
Mr. Gumbel is currently SVP of Worldwide Sales at Forescout Technologies (FSCT).