K. Liu's Week in Review
It was a busy week in software with several tuck-in acquisitions announced, a deluge of earnings to digest, and some notable executive changes. On the M&A front, Avalara (AVLR) acquired Portway International, a provider of Harmonized System classifications and customs brokerage services. The addition of cross-border classification and compliance expertise to its existing technology and product content bolsters Avalara’s ability to offer a complete cross-border solution enabling merchants to remain compliant with complex global trade regulations. Everbridge (EVBG) enhanced its Critical Event Management platform with the $83 million cash and stock buy of NC4, a provider of threat intelligence solutions. The added capabilities should reduce the time spent from threat assessment and identification to incident response and remediation. While the most significant component of the acquisition is complete, additional components of the deal will close subsequent to Q3, at which time management will provide further details. For now, the company has only disclosed expectations for NC4 to be accretive within 12 months. Lastly, RealPage (RP) acquired SimpleBills, adding its services to its RealPage Utility Management family of products. SimpleBills caters to the student housing market and bills and collects from students directly, freeing up site managers to focus on other tasks. RealPage was also one of many to report earnings this week, delivering results in line with expectations and narrowing its top and bottom line guidance for the year.
Earnings were again the primary focus this week with over three dozen companies reporting. Of the 37 companies we tracked, 23 delivered top and bottom line results above expectations. Of those that beat, 18 raised some aspect of their fiscal year guidance while 11 raised across the board. Providers of cloud-based communications platforms and contact center software were among the standout performers this week. Five9 (FIVN) led the pack with shares up over 20% for the week driven by a big beat and raise. RingCentral (RNG) shares also appreciated meaningfully on strong results and guidance. Bandwidth (BAND) and Twilio (TWLO) followed suit with respect to results and guidance for the year, but both saw shares trade lower for the week. 8x8 (EGHT) also posted a Q2 beat, but shares were hit on lukewarm guidance and an analyst downgrade to “Sell.” While not a contact center software provider per se, LivePerson (LPSN) also warrants a mention given the IVR deflection use case for its conversational messaging platform and the scramble in recent months by several contact center software vendors to acquire messaging capabilities. LivePerson’s results and outlook were mixed as strong bookings and revenue generation prompted accelerated investments in product development and sales and marketing. The story continues to resonate with investors, however, as enabling personalized customer engagement via messaging has far reaching implications for commerce, marketing, and support. In an entirely unrelated space, BlackLine (BL), which provides cloud-based solutions to automate the financial close and other accounting processes, also saw a material bump in shares on the heels of a strong print and guide.
In our coverage universe, NetScout Systems (NTCT) posted mixed Q1 ’20 results but maintained guidance for the full year, raising concerns that guidance could be cut in the coming quarters. We think the subsequent sell-off in shares presents an attractive entry point for investors with a longer-term perspective and suggest those interested peruse our update, Sluggish Start Sets a High Hurdle for 2H ’20. A10 Networks (ATEN), which also has exposure to the service provider vertical and counts DDoS solutions amongst its product portfolio, posted mixed results and guided Q3 revenue well below consensus. However, shares were not hit nearly as hard as the company also announced plans to evaluate strategic alternatives and commence a search for its next CEO. Other peers with less exposure to service providers such as Akamai Technologies (AKAM), Radware (RDWR), and SolarWinds fared better, posting quarterly results above expectations and providing positive outlooks.
Two enablers of learning and skills development took it on the chin this week. For the second time in as many quarters, 2U (TWOU) experienced a precipitous drop in shares post-earnings. This time, the company posted mixed results and guided for moderating growth in its Graduate and short course businesses along with higher losses following its acquisition of boot camp provider Trilogy. Of particular concern, management noted that as online education has gone mainstream, competition for students has also risen, tempering expectations for enrollment and revenue growth in the company’s Graduate segment as well as a shifting of expectations in steady state program size. As for short courses, demand is there but the company has experienced implementation delays for some deals that have closed as 2U works closely with schools to identify appropriate matches from both a course and lead professor standpoint. Shares declined over 61% this week. Despite posting top and bottom line results ahead of expectations and maintaining prior guidance for FY ’19, Pluralsight (PS) shares were also hit hard as the company’s underlying billings growth disappointed. The deceleration in billings growth was attributed to sales execution challenges. Specifically, management noted that even with the addition of 100 sales reps in the past year, sales capacity was insufficient to sustain the company’s high growth expectations due to the pacing of new hires. The company is nearly back on plan now with 250 quota-bearing reps in place and plans to exit the year closer to 330, of which 20-30 of the additions reflect a pull-forward of hiring from 2020. Additionally, underinvestment in sales effectiveness was also a hindrance, so Pluralsight is adding headcount across sales operations, customer success, and sales enablement. Finally, the company also plans to bring on new sales leadership with experience at scale and has commenced a search for a new Chief Revenue Officer as Joe DiBartolomeo transitions into an advisory role. The following table depicts each reporting company’s share price performance this week, results versus expectations, and revisions to consensus forecasts for the current fiscal quarter and year.
Turning to executive moves this week, most notable was GoDaddy’s (GDDY) announcement that CEO Scott Wagner is stepping down for health reasons. Aman Bhutani, President of Brand Expedia Group, has been named as the company’s next CEO. Check Point Software Technologies (CHKP) appointed Chris Scanlan as President, Americas Sales, and named Erez Yarkoni Head of Telecom and Cloud Sales. Mr. Scanlan previously served as SVP of Sales, North America at Cylance, and Mr. Yarkoni joins from BoldIQ, where he was CEO. Talend announced that Lauren Vaccarello, who most recently served as VP of Marketing at Box (BOX), has been appointed CMO. After leading Blackbaud’s (BLKB) consumer solutions in the Asia Pacific region for the past decade, Pascale Harvie has been appointed President and General Manager for the company’s operations in Europe. Last but not least, Rapid7 (RPD) appointed Slack’s (WORK) Global Head of Customer Success and Services, Christina Kosmowski, to its Board of Directors.
Mergers and Acquisitions
Avalara (AVLR) has acquired Portway International, a provider of Harmonized System classifications and outsourced customs brokerage services.
The acquisition enhances Avalara’s existing technology and product content with cross-border classification and compliance expertise, creating a complete solution for merchants to ensure compliance with global trade requirements.
Cross-border e-commerce sales are estimated to exceed $1 trillion by 2020.
Terms of the transaction were not disclosed.
Everbridge Announces Acquisition of NC4
Everbridge (EVBG) is acquiring NC4, a provider of threat intelligence solutions, for $83 million in cash and stock.
NC4 generates over 27,000 geo-targeted alerts and nearly 700 incident reports each day, which combined with Everbridge’s CEM platform will provide a comprehensive solution to enterprise and government agencies that reduces the time from threat identification and assessment to incident response and remediation.
The acquisition of the largest component of NC4’s business has already closed, while additional components are expected to be closed after the end of Q3.
Everbridge expects the acquisition to be accretive within twelve months and plans to provide additional details after the entire transactions has been completed.
RealPage (RP) has acquired the assets of Simple Bills Corporation, which offers a utility management service targeted at the student housing market and currently serves over 125,000 students in the U.S.
SimpleBills bills and collects from residents directly, freeing up site staff from billing tasks and enabling students to easily split utility bills with roommates.
SimpleBills’ services will be added to the RealPage Utility Management family of products.
Neither terms of the transaction nor expected financial contribution was provided by the company.
Earnings Releases
2U, Inc. Reports Second Quarter 2019 Financial Results
2U (TWOU) reported mixed Q2 results and lowered its FY ’19 profitability expectations despite a higher revenue outlook.
Revenue was $135.5 million (+39.0% Y/Y), exceeding management’s $124.3-$125.0 million guidance and consensus of $124.5 million. Adjusted EBITDA of $(15.0) million (-11.1% margin) fell short of management’s $(13.1)-$(12.6) million guidance and consensus of $(12.8) million. Non-GAAP EPS of $(0.43) also missed management’s guidance and consensus of $(0.35).
Per management, the mainstreaming of online education is creating a new market dynamic and short-term pressure as competition for students has increased and programs are likely to be smaller than in the past.
Key metrics: Graduate Program Segment enrollments and average revenue per enrollment of 39,180 (+28.3% Y/Y) and 2,588 (-2.6% Y/Y), respectively; Alternative Credential Segment enrollments and average revenue per enrollment of 12,662 (+54.0% Y/Y) and 2,955 (+49.8% Y/Y), respectively.
Enrollment and revenue expectations have been tempered in the Grad segment given an increase in regional competition and a corresponding shift in assumptions for steady state program size.
The short course business is still expected to grow nicely, but 2U is still learning which courses work with which school brands and is experiencing delays in matching courses with lead professors even after closing deals.
Recent guidance issued by the Department of Education technically prohibits California residents enrolled in distance education programs at out-of-state public and non-profit institutions from receiving Federal student aid funds, an impasse management is optimistic will be broken soon but is reflected in the company’s tempered outlook for the year.
Reflecting the acquisition of Trilogy, management’s guidance reflects the added revenues but also greater losses associated with the boot camp business.
Guidance for Q3 includes $147.6-$152.6 million in revenue, $(18.4)-$(15.4) million in adjusted EBITDA, and $(0.53)-$(0.49) in non-GAAP EPS, which was mixed relative to consensus expectations for $137.7 million in revenue, $4.3 million in adjusted EBITDA, and $(0.09) in non-GAAP EPS.
Management raised its prior FY ’19 revenue guidance from $534.0-$537.0 million to $565.7-$575.7 million, but lowered its adjusted EBITDA and non-GAAP EPS guidance from $12.5-$14.3 million and $(0.34)-$(0.31), respectively, to $(28.0)-$(22.0) and $(1.25)-$(1.16).
Beyond this year, management plans to reduce the number of new program launches as the company optimizes existing programs and focuses on profitability and cash flow, but the Grad business should still grow in the mid- to high-teens in 2020.
8x8, Inc. Reports First Quarter Fiscal 2020 Financial Results
8x8 (EGHT) reported Q1 ’20 results ahead of expectations, but issued mixed guidance for Q2 and FY ’20.
Revenue of $96.7 million (+16% Y/Y) was above guidance of $95.3-$96.3 million and consensus of $95.9 million. Non-GAAP operating income of $(15.5) million bat the Street’s $(16.9) million. Non-GAAP EPS of $(0.14) also beat consensus of $(0.17).
Key metrics: booked 28 deals with annual recurring revenue (ARR) over $100,000; customers generating over $100,000 in ARR totaled 449 (+50% Y/Y); total ARR of $332.4 million (+21% Y/Y); average annual service revenue per small business, mid-market, and enterprise customer was $4,726 (+4% Y/Y), $37,527 (+18% Y/Y), and $154,901 (+20% Y/Y), respectively.
Growth was driven by mid-market and enterprise customers along with increasing contribution from channel partners, which now include 15 strategic masters and 813 active partners.
The acquisition of Wavecell adds enterprise-class CPaaS APIs, providing added power and flexibility to 8x8’s cloud platform.
Guidance for Q2 includes revenue of $106.0-$107.0 million, above consensus of $101.0 million, and non-GAAP pre-tax loss of $(16.5) million, which implies non-GAAP EPS of $(0.17) versus consensus of $(0.14).
Management raised its FY ’20 revenue guidance from approximately $418.0 million to approximately $438.0 million, but lowered its non-GAAP pre-tax income guidance from $(50.0) million to $(53.0) million.
A10 Network Reports Second Quarter 2019 Financial Results and Company Update
A10 Networks (ATEN) reported mixed Q2 results, guided Q3 below consensus, and announced plans to explore strategic alternatives.
Revenue of $49.2 million (-19.0% Y/Y) was below management’s $51.0-$56.0 million guidance and consensus of $53.1 million. Non-GAAP operating income was $(0.9) million (-1.9% margin), above consensus of $(2.1) million. Non-GAAP EPS were $0.00, at the high-end of management’s $(0.08)-$0.00 guidance and above consensus of $(0.04).
Results were negatively impacted by the push-out of several large deals from Q2 and some that were downsized, particularly in North America and within the service provider and web giant verticals.
The company has entered into a global reseller agreement with Dell EMC to sell its full suite of multi-cloud and 5G security solutions and has made its vThunder ADC and Harmony controller available on the Oracle Cloud Marketplace.
Guidance for Q3 calls for revenue of $50.0-$54.0 million and non-GAAP EPS of $(0.04)-$0.03, both of which were below consensus expectations for $61.9 million in revenue and $0.02 in non-GAAP EPS.
Eric Singer, Founder and Managing Member of VIEX Capital Advisors, has joined the company’s Board of Directors; the company has entered into an agreement with VIEX Capital Advisors to fix the size of the Board at six and to re-nominate Mr. Singer and Tor Braham for election at the 2019 annual meeting of stockholders.
A10 has also formed a Strategy Committee and has retained Bank of America Merrill Lynch to advise the company and the Board on strategic matters, including an exploration of a potential sale or change of control transaction.
Lee Chen, President and Chief Executive Officer, plans to retire upon the appointment of a successor, which is expected to occur in Q3 ’19.
Akamai Reports Second Quarter 2019 Financial Results
Akamai Technologies (AKAM) reported Q2 ’19 results above expectations and raised its FY ’19 guidance.
Revenue of $705.1 million (+6.4% Y/Y) was above management’s $688.0-$702.0 million guidance and consensus of $695.8 million. Adjusted EBITDA was $292.6 million (41.5% margin), exceeding consensus of $283.3 million. Non-GAAP EPS of $1.07 beat guidance of $0.97-$1.02 and consensus of $1.00 due in part to a $0.05 per share benefit from a change in the estimated useful lives of some network assets from four years to five years.
The strong performance was attributed to rapid growth in the Cloud Security and international businesses, strong traffic growth in the Media business, and a continued focus on operational excellence.
Web Division revenue was $380.4 million (+8.1% Y/Y), while Media and Carrier Division revenue was $324.7 million (+4.4% Y/Y); Cloud Security solutions accounted for $204.8 million (+31.9% Y/Y) and CDN and other Solutions comprised the remaining $500.3 million (-1.4% Y/Y).
Bot Manager remains Akamai’s fastest selling new product with hundreds of customers and a revenue run rate over $100 million; Kona Site Defender, a web application firewall service, has crossed 1,000 customers and generates over $300 million per year in revenue; and Prolexic, which is used for DDoS protection, also generates over $100 million per year in revenue.
Guidance for Q3 includes revenue of $692.0-$706.0 million, an adjusted EBITDA margin of 40%-41% (implies adjusted EBITDA of $276.8-$289.5 million), and non-GAAP EPS of $0.98-$1.02, all of which were consistent with consensus expectations for $701.9 million in revenue, $281.0 million in adjusted EBITDA, and $0.98 in non-GAAP EPS.
Management raised its prior FY ’19 revenue and non-GAAP EPS guidance from $2.82-$2.86 billion and $4.05-$4.20, respectively, to $2.84-$2.87 billion and $4.23-$4.30.
Alteryx Announces Second Quarter 2019 Financial Results
Alteryx (AYX) reported Q2 ’19 results above expectations and raised guidance for FY ’19.
Revenue of $82.0 million (+59.3% Y/Y) exceeded management’s $74.0-$77.0 million guidance and consensus of $76.6 million. Non-GAAP operating income was $0.8 million (1.0% margin), above guidance for $(7.0)-$(4.0) million and consensus of $(4.9) million. Non-GAAP EPS of $0.01 easily exceeded guidance of $(0.09)-$(0.04) and consensus of $(0.06).
Upside was driven in part by a favorable revenue mix, which allowed for more up-front revenue recognition, as well as larger deal sizes as reflected in a doubling in the number of seven-figure deals and an increase of 50% in deals over $250,000.
Key metrics: added 305 net new customers in Q2 and ended with 5,278 customers (+34% Y/Y); dollar-based net expansion rate of 133%; remaining performance obligations of $238.8 million.
Management believes there are approximately 8-9 million potential Alteryx Designer users within the Global 2000 and the company is less than 1% penetrated within that population.
Guidance for Q3 calls for $88.0-$91.0 million in revenue, $5.0-$8.0 million in non-GAAP operating income, and $0.06-$0.09 in non-GAAP EPS, which was mixed relative to consensus of $87.6 million in revenue, $10.4 million in non-GAAP operating income, and $0.13 in non-GAAP EPS.
Management raised its FY ’19 revenue, non-GAAP operating income, and non-GAAP EPS guidance ranges from $355.0-$360.0 million, $30.0-$35.0 million, and $0.38-$0.45, respectively, to $370.0-$375.0 million, $35.0-$40.0 million, and $0.44-$0.50.
AppFolio, Inc. Announces Second Quarter 2019 Financial Results
AppFolio (APPF) reported mixed Q2 ’19 results and raised the low-end of its FY ’19 revenue outlook.
Revenue of $63.6 million (+34.7% Y/Y) was in line with consensus of $63.7 million. Operating income of $2.3 million (3.6% margin) was below consensus of $5.2 million. EPS of $0.65 were well above the Street’s $0.11 due to a $21.3 million income tax benefit related to the release of the company’s valuation allowance against deferred tax assets.
Key metrics: 13,737 property manager customers (+11.5% Y/Y) at quarter-end; 4.23 million property manager units under management (+19.2% Y/Y); 10,631 law firm customers (+6.3% Y/Y).
Core solutions revenue was $21.6 million (+27.2% Y/Y); Value+ services totaled $39.1 million (+35.8% Y/Y); Other revenue was $3.0 million (+97.3% Y/Y).
In Q2, AppFolio released a new Value+ service, LISA, an AI Leasing Assistant capable of providing responses to inquiries from prospective renters via text messages and email.
Management raised the low-end of its prior FY ’19 revenue guidance from $250.0-$255.0 million to $253.0-$255.0 million.
Bandwidth Announces Second Quarter 2019 Financial Results
Bandwidth (BAND) reported Q2 ’19 results above expectations and raised its outlook for FY ’19.
Revenue of $56.8 million (+17.5% Y/Y) was above guidance of $54.8-$55.3 million and consensus of $55.1 million. Adjusted EBITDA was $24,000, exceeding consensus of $(2.5) million. Non-GAAP EPS were $(0.04), well above management’s $(0.19)-$(0.17) guidance and consensus of $(0.17).
Key metrics: CPaaS revenue of $48.0 million (+20% Y/Y) was ahead of management’s $46.8-$47.3 million guidance; active CPaaS customers of 1,467 (+34% Y/Y); dollar-based net retention rate of 113%.
Investments in sales and marketing are showing early signs of success and management sees an opportunity to increase its share of the $10.9 billion CPaaS market.
Guidance for Q3 calls for $58.4-$58.9 million in revenue and $(0.16)-$(0.14) in non-GAAP EPS, both of which were short of Street expectations for $60.7 million in revenue and $(0.11) in non-GAAP EPS.
Management raised its FY ’19 revenue and non-GAAP EPS guidance from $233.5-$235.0 million and $(0.51)-$(0.44), respectively, to $234.8-$235.8 million and $(0.48)-$(0.43).
The implied outlook for Q4 reflects CPaaS growth of 33% at the midpoint, an uptick driven by expectations for an improving dollar-based net retention rate, the signing of a five-year multi-million dollar opportunity with an existing customer, and significant investments in sales and marketing that are attracting more new customers.
Blackbaud Announces 2019 Second Quarter Results
Blackbaud (BLKB) reported Q2 ’19 results above expectations and reaffirmed prior guidance for FY ’19.
Non-GAAP revenue of $226.4 million (+5.5% Y/Y) was above consensus of $223.5 million. Non-GAAP operating income was $43.5 million (19.2% margin), exceeding consensus of $38.6 million. Non-GAAP EPS of $0.66 beat consensus of $0.56.
Non-GAAP recurring revenue growth was 5.0% on an organic basis, and total non-GAAP revenue increased 2.6% organically.
Management is pleased with the progress of new sales hires and plans to continue hiring, resulting in sales headcount growing at an accelerated rate relative to historical averages.
Blackbaud Church Management has received positive feedback from early adopters and is expected to be generally available in the near future.
Several hundred customers have signed up for Blackbaud’s peer-to-peer funding solution, which is powered by JustGiving, since its U.S. launch in March.
Management reaffirmed prior FY ’19 expectations for $880.0-$910.0 million in non-GAAP revenue, a 16.7%-17.2% non-GAAP operating margin, and $2.11-$2.28 in non-GAAP EPS.
BlackLine Announces Second Quarter Financial Results
BlackLine (BL) reported Q2 ’19 results above expectations and raised its outlook for FY ’19.
Total revenues were $69.7 million (+25.6% Y/Y), above management’s guidance of $67.4-$68.4 million and consensus of $68.0 million. Non-GAAP operating income of $5.3 million (7.6% margin) was well ahead of the Street’s $0.8 million. Non-GAAP EPS were $0.10, beating guidance of $0.00-$0.03 and consensus of $0.01.
Strength in the quarter was attributed to deals closing earlier in the quarter, strong demand for the company’s solution and a record number of large deals.
Key metrics: added 106 net new customers in Q2 to reach a total of 2,813 customers; expanded the user base to 236,802; dollar-based net revenue retention rate of 108%; renewal rate remained high at 97%.
The reseller partnership with SAP continues to develop with the two companies now conducting joint quarterly business reviews and increasing engagement between account reps on both sides.
Guidance for Q3 includes revenues of $71.7-$72.7 million, above consensus of $71.4 million, and non-GAAP EPS of $0.02-$0.04, which leaves consensus at the high-end.
Management raised its FY ’19 guidance for revenues and non-GAAP EPS from $276.0-$281.0 million and $0.15-$0.18, respectively, to $281.0-$284.0 million and $0.22-$0.25.
Carbon Black Announces Second Quarter 2019 Financial Results
Carbon Black (CBLK) reported Q2 ’19 results ahead of expectations and raised guidance for FY ’19.
Revenue of $60.9 million (+19.3% Y/Y) was ahead of management’s $59.0-$60.0 million guidance and consensus of $59.5 million. Non-GAAP operating income was $(10.3) million (-16.9% margin), above guidance of $(12.6)-$(11.6) million and consensus of $(12.1) million. Non-GAAP EPS of $(0.13) also beat guidance of $(0.18)-$(0.16) and consensus of $(0.17).
Key metrics: ARR of $237.6 million (+22% Y/Y), including cloud ARR of $101.4 million (+66% Y/Y); added 340 total customers, including 327 cloud customers; total customers reached 5,680 (+32% Y/Y), including cloud customers of 3,496 (+62% Y/Y); short-term billings were $63.2 million (+11% Y/Y); gross retention rate was 87%.
ARR from the company’s cloud-native endpoint protection platform, the Predictive Security Cloud, increased 91% Y/Y driven by 140 multi-product deals; incremental ARR per cloud customer was over $38,000.
Guidance for Q3 includes revenue of $61.3-$62.3 million, non-GAAP operating income of $(9.3)-$(8.3) million, and non-GAAP EPS of $(0.12)-$(0.10), all of which were above consensus expectations for $61.2 million, $(9.6) million, and $(0.13) in revenue, non-GAAP operating income, and non-GAAP EPS, respectively.
Management raised its FY ’19 revenue and non-GAAP EPS guidance from $241.0-$243.0 million and $(0.63)-$(0.58), respectively, to $243.0-$245.0 million and $(0.61)-$(0.58), and maintained prior expectations for $(45.0)-$(43.0) million in non-GAAP operating income.
Ceridian Reports Second Quarter 2019 Results
Ceridian HCM Holding (CDAY) reported Q2 ’19 results above expectations and maintained guidance for FY ’19.
Total revenue of $196.3 million (+9.7% Y/Y) was above management’s $191.0-$193.0 million guidance and consensus of $192.1 million. Adjusted EBITDA of $44.0 million (22.4% margin) exceeded guidance of $37.0-$39.0 million and consensus of $38.1 million. Non-GAAP EPS of $0.12 beat consensus of $0.07.
Cloud revenue of $155.7 million (+22.3% Y/Y) was within guidance of $154.0-$156.0 million and was comprised of $134.5 million (+27.1% Y/Y) in Dayforce revenue and $21.2 million (-1.4% Y/Y) in Powerpay revenue.
Key metrics: added 155 Dayforce customers in Q2 for a total of 4,006 (+21.1% Y/Y) live Dayforce customers; TTM Dayforce revenue per customer was $123,964 (+6.3% Y/Y).
Investments in product development are being made to support the company’s global expansion with the launch of Dayforce native payroll in the UK and Ireland expected to be done this year and a similar rollout slated for New Zealand next year.
Sales and marketing investments are expected to drive growth in the enterprise segments and in global territories.
Potential rate cuts by the Federal Reserve Board would negatively impact float revenue and adjusted EBITDA by approximately $17 million per 100 basis point change, so management opted to leave its full year outlook unchanged.
Guidance for Q3 includes total revenue of $195.0-$197.0 million, cloud revenue of $162.0-$164.0 million, and adjusted EBITDA of $41.0-$43.0 million, all of which were shy of Street expectations for $198.3 million in revenue, $164.8 million in cloud revenue, and $44.2 million in adjusted EBITDA.
Management’s FY ’19 guidance remains unchanged at $810.0-$815.0 million in total revenue, $655.0-$660.0 million in cloud revenue, and $182.0-$187.0 million in adjusted EBITDA.
Endurance International Group Reports 2019 Second Quarter Results
Endurance International Group (EIGI) announced mixed Q2 ’19 results and maintained guidance for FY ’19.
Revenue of $278.2 million (-3.3% Y/Y) was just shy of the Street’s $279.4 million estimate. Adjusted EBITDA of $76.3 million (27.4% margin) was slightly ahead of the Street’s $75.8 million forecast. EPS of $(0.18) missed consensus of $(0.03).
Key metrics: total subscribers of 4.769 million (-3.0% Y/Y); average revenue per subscriber (ARPS) of $19.42 (+0.5% Y/Y).
Subscriber attrition trends reflect progress as the company focuses its sales, marketing, and engineering investments on its strategic brands in email marketing and web presence.
Web presence: $144.2 million (-5.6% Y/Y) in revenue; 3.588 million (-4.0% Y/Y) subscribers; ARPS of $13.35 (-1.0% Y/Y).
Email marketing: revenue of $102.5 million (+0.3% Y/Y); 492 thousand subscribers (-2.4% Y/Y); ARPS of $69.28 (+4.0% Y/Y).
Domain: revenue of $31.5 million (-4.2% Y/Y); 689 thousand subscribers (+1.8% Y/Y); ARPS of $15.39 (-4.6% Y/Y).
Management reiterated prior FY ’19 guidance for $1.12-$1.14 billion in revenue, $300.0-$320.0 million in adjusted EBITDA, and $110.0-$120.0 million in free cash flow.
FireEye Reports Financial Results for Second Quarter 2019
FireEye (FEYE) reported mixed Q2 ’19 results and lowered its revenue and earnings guidance for FY ’19.
Revenue of $217.6 million (+7.4% Y/Y) was above guidance of $213.0-$217.0 million and consensus of $215.2 million. Non-GAAP operating income of $(2.2) million (-1.0% margin) fell short of guidance for a 0%-2% non-GAAP operating margin and consensus of $2.9 million. Non-GAAP EPS were $(0.01), missing guidance of $0.00-$0.02 and consensus of $0.01.
Billings of $221.4 million (+12.9% Y/Y) were near the high-end of management’s $207.0-$222.0 million guidance and above consensus of $213.8 million.
Key metrics: added 261 new customers in Q2; booked 45 transactions greater than $1 million; ARR for platform, cloud subs, and managed services was $237 million (+27% Y/Y).
Higher expenses related to cloud hosting and commissions on new business negatively impacted profitability in Q2, while the end-of-life for some appliances contributed to a decline in annual recurring revenue and weighed on the 2H outlook.
Guidance for Q3 includes revenue of $217.0-$221.0 million, billings of $245.0-$250.0 million, and non-GAAP EPS of $0.00-$0.02, below consensus of $228.4 million in revenue, $249.4 million in billings, and $0.07 in non-GAAP EPS.
Management maintained its FY ’19 billings guidance of $935.0-$955.0 million, but lowered its revenue and non-GAAP EPS guidance from $890.0-$900.0 million and $0.12-$0.16, respectively, to $865.0-$875.0 million and $0.00-$0.04.
Five9 Reports Second Quarter Revenue Growth of 27% to a Record $77.4 Million
Five9 (FIVN) reported Q2 ’19 results above expectations and raised guidance for FY ’19.
Revenue of $77.4 million (+26.7% Y/Y) exceeded guidance of $72.0-$73.0 million and consensus of $72.5 million. Adjusted EBITDA was $14.4 million (18.6% margin), well above consensus of $11.5 million. Non-GAAP EPS were $0.20, beating guidance of $0.11-$0.13 and consensus of $0.12.
The Enterprise business is driving growth with bookings reaching record levels in Q2 and pipeline also at an all-time high.
Given a TAM in excess of $24 billion, management believes the company can sustain Enterprise growth in the 30% range for many years to come.
Commercial revenue accounts for 21% of TTM sales and is expected to grow in the single-digits.
TTM annual dollar-based retention rate was 107%.
Guidance for Q3 includes revenue of $78.0-$79.0 million and non-GAAP EPS of $0.14-$0.15, above consensus of $75.8 million in revenue and $0.14 in non-GAAP EPS.
Management raised its FY ’19 revenue and non-GAAP EPS guidance from $304.0-$307.0 million and $0.61-$0.66, respectively, to $312.5-$314.5 million and $0.70-$0.73.
Fortinet Reports Second Quarter 2019 Financial Results
Fortinet (FTNT) reported Q2 ’19 results above expectations and raised guidance for FY ’19.
Revenue of $521.7 million (+18.2% Y/Y) exceeded management’s $505.0-$515.0 million guidance and consensus of $511.1 million. Non-GAAP operating income of $123.1 million (23.6% margin) also topped management’s guidance and consensus of $113.6 million. Non-GAAP EPS of $0.58 beat guidance of $0.49-$0.51 and consensus of $0.50.
Key metrics: billings were $622.4 million (+21.2% Y/Y), exceeding management’s $585.0-$605.0 million guidance and consensus of $596.6 million; closed 46 deals (+28% Y/Y) over $1 million with the total dollar value of these deals up 37% Y/Y; closed 346 deals (+33% Y/Y) over $250,000.
Management attributed the strong performance and market share gains to the company’s advanced technology, integrated Security Fabric architecture, broad cloud offering, and Secure SD-WAN.
Management’s Q3 revenue outlook of $525.0-$540.0 million and non-GAAP EPS guidance of $0.55-$0.57 were above consensus, while billings guidance of $600.0-$615.0 million and non-GAAP operating margin of 23.0%-23.5% were consistent with Street expectations.
Management raised its FY ’19 guidance and now anticipates $2.10-$2.12 billion in revenue, $2.51-$2.54 billion in billings, and $2.23-$2.26 in non-GAAP EPS, up from $2.07-$2.10 billion, $2.47-$2.52 billion, and $2.10-$2.15, respectively.
GoDaddy Reports Second Quarter 2019 Earnings Results
GoDaddy (GDDY) reported Q2 ’19 revenue and bookings above expectations and reaffirmed its FY ’19 guidance.
Revenue of $737.2 million (+13.1% Y/Y) was within guidance of $730.0-$740.0 million and ahead of the Street’s $735.5 million. Bookings of $846.1 million (+12.2% Y/Y) exceeded consensus of $834.8 million. EPS were $(0.07), below consensus of $0.16.
Key metrics: total customers at quarter end was 19.0 million (+5.5% Y/Y); average revenue per user was $153 (+7.8% Y/Y).
Changes to the company’s price and merchandizing tactics have been made this year to optimize for lifetime value, which has an impact on churn and will result in net adds of 700,000-800,000 for the year.
GoCentral and managed Word Press continue to drive unit growth in excess of 40%.
Management’s guidance for Q3 calls for $755.0-$765.0 million in revenue, in line with consensus of $761.9 million.
For FY ’19, management reiterated prior expectations for $2.97-$3.00 billion in revenue and $730.0-$745.0 million in unlevered free cash flow.
Instructure Reports Second Quarter 2019 Financial Results
Instructure (INST) reported Q2 ’19 results above expectations and raised the low-end of its prior FY ’19 guidance ranges.
Revenue of $62.9 million (+25.6% Y/Y) was ahead of management’s $61.8-$62.4 million guidance and consensus of $62.1 million. Non-GAAP operating income was $(5.9) million (-9.4% margin), above consensus of $(8.7) million. Non-GAAP EPS of $(0.16) also beat guidance of $(0.25)-$(0.23) and consensus of $(0.24).
Net revenue retention rate remained in excess of 100% and TTM billings totaled $257.3 million (+20.1% Y/Y).
Key executive positions have now been filled with Marta DeBellis joining as Chief Marketing Officer, Jennifer Goldsmith as Chief Strategy Officer, and most recently, Frank Maylett as EVP of Global Sales.
The new EVP of Global Sales will be focused on ensuring Instructure has a strong sales methodology and execution process; developing strategic approaches for key deals, prospects and markets; and working with the executive team to ensure sales and marketing is well aligned with product and services.
Stock-based compensation has increased due to incremental headcount growth; an increase in CEO and executive compensation as the prior CEO did not receive equity grants; additional headcount from the company’s acquisitions of Portfolium and Mastery Connect; and an overall change in compensation philosophy implemented for 2019.
Guidance for Q3 calls for $67.7-$68.3 million in revenue, in line with consensus of $68.1 million, and non-GAAP EPS of $(0.20)-$(0.18), below consensus of $(0.17).
Management raised the low-end of its prior top and bottom line guidance ranges and now expects revenue of $258.0-$260.0 million and non-GAAP EPS of $(0.65)-$(0.58); free cash flow is still expected to reach approximately breakeven for the year.
Kinaxis Inc. Reports Second Quarter 2019 Results
Kinaxis (KXS-CA) reported mixed Q2 ’19 results and reiterated guidance for FY ’19.
Total revenue of $42.4 million (+8.6% Y/Y) was shy of the $43.6 million consensus estimate. Adjusted EBITDA of $11.6 million (27.3% margin) exceeded consensus of $9.8 million. Non-IFRS EPS of $0.28 beat consensus of $0.24.
SaaS revenue was $28.3 million (+18% Y/Y), while subscription term license revenue was $2.4 million.
Total bookings in Q2 were $46.8 million and included $45.0 million in SaaS bookings.
New business in the quarter drove backlog to a record $247.3 million, of which $229.3 million pertains to future SaaS revenue.
On the partner front, Kinaxis signed a major partnership agreement with Infosys in Q2.
Management sees the market heating up given more focus on digital transformation and supply chain improvement and noted the company’s pipeline remains strong and evenly balanced across Kinaxis’ six targeted verticals.
Management reiterated its FY ’19 guidance of $183.0-$188.0 million in revenue and a 25%-27% adjusted EBITDA margin.
LivePerson Announces Second Quarter 2019 Financial Results
LivePerson (LPSN) reported mixed Q2 results and lowered its FY ’19 adjusted EBITDA outlook to invest further in growth.
Total revenue was $71.0 million (+15.1% Y/Y), ahead of management’s $69.5-$70.5 million guidance and consensus of $70.2 million. Adjusted EBITDA was $(5.3) million (-7.5% margin), at the low-end of guidance and below the Street’s $(4.1) million estimate. Non-GAAP EPS of $(0.20) missed consensus of $(0.11).
Key metrics: signed 142 deals (+50% Y/Y) in Q2, including nine seven-figure contracts; TTM average revenue per enterprise and mid-market customer was $310,000 (+20% Y/Y); revenue retention was within the target range of 105%-115%.
Total contract signings in 1H ’19 were at an all-time high and increased 75% Y/Y.
LivePerson has already added 40 quota carriers this year, but plans to pull forward additional investments in sales hires and product development given a faster than anticipated ramp and nearly 75% growth in pipeline value since the start of the year.
Quota carriers increased from 50 to 89 in 1H ’19, and the company expects to end the year will well over 100.
Major platform capabilities including marketing, in-store retail, social, a new agent console and AI analytics will be released in the next two quarters.
Guidance for Q3 includes revenue of $74.0-$75.0 million and adjusted EBITDA of $0-$3.0 million, which was mixed versus consensus expectations for $74.1 million in revenue and $7.0 million in adjusted EBITDA.
For FY ’19, management raised its revenue guidance from $284.5-$291.5 million to $288.5-$292.0 million, but lowered its adjusted EBITDA expectations from $10.0-$15.0 million to $0-$5.0 million.
MicroStrategy Announces Second Quarter 2019 Financial Results
MicroStrategy (MSTR) reported mixed Q2 ’19 results.
Total revenues of $117.7 million (-2.4% Y/Y) were below consensus of $120.6 million. Non-GAAP operating income was $(1.8) million (-1.5% margin), slightly above consensus of $(2.2) million. EPS excluding a one-time gain of $2.12 per share from the sale of a domain name were $(0.14), missing consensus of $0.10.
Key metrics: 6 license transactions in excess of $0.5 million, including 5 in excess of $1.0 million.
Over 400 customers have upgraded to MicroStrategy 2019, a prerequisite to purchasing new innovations like Federated Analytics and HyperIntelligence, which saw strong demand as evidenced by its inclusion in 50 deals.
Recent changes to the senior management team were not a reaction to Q2 performance, but reflect the view that a flat and more streamlined go-to-market approach will enable the company to be more responsive to market trends and drive productivity improvements across the sales organization.
Consolidation in the space has resulted in five full stack vendors, leaving MicroStrategy in prime position as an independent platform capable of moving seamlessly between environments.
Management intends to be consistently profitable and generate cash flow on an annual basis.
NETSCOUT Reports First Quarter Fiscal Year 2020 Financial Results
NetScout Systems (NTCT) reported mixed Q1 ’20 results and reiterated guidance for FY ’20.
Non-GAAP revenue of $186.1 million (-9.7% Y/Y) was below management’s $195.0-$200.00 million guidance and consensus of $196.9 million. Adjusted EBITDA of $18.9 million (10.2% margin) was below consensus of $21.6 million. Non-GAAP EPS of $0.07 were in line with management’s $0.06-$0.08 guidance and consensus of $0.07.
Management attributed the revenue shortfall to delays in closing several service provider deals and disruption from the company’s sales reorganization that negatively affected enterprise growth in international markets.
The company has already secured an eight-figure deal in Q2 that should contribute to stronger service provider performance in 2H and is seeing more opportunities pertaining to 5G.
Guidance for Q2 calls for non-GAAP revenue of $210.0-$215.0 million and non-GAAP EPS of $0.25-$0.27, falling short of Street expectations for $217.3 million in revenue and $0.30 in non-GAAP EPS.
Management reaffirmed prior FY ’20 expectations for $885.0-$915.0 million in revenue and $1.40-$1.45 in non-GAAP EPS.
OpenText Reports Fourth Quarter and Fiscal Year 2019 Financial Results
OpenText (OTEX) reported Q4 ’19 results below Street expectations.
Total revenues of $747.2 million (-0.9% Y/Y) were below consensus of $764.4 million. Adjusted EBITDA of $283.9 million (38.0% margin) was also short of the Street’s $287.7 million estimate. Non-GAAP EPS of $0.72 were a penny above consensus.
Key metrics: annual recurring revenues (ARR) of $557.1 million (+4.2% Y/Y); 26 customer transactions over $1 million; customer support renewal rate was approximately 91%.
Organic revenue growth was positive but less than 1% for FY ’19 and could have been higher if not for external effects such as a strong U.S. dollar, trade wars, tariffs, and a temporary slowdown across Asia.
For Q1, quarterly factors to consider include global recession concerns, seasonality due to summer vacations, a FX headwind of as much as $12 million, operating expenses down 4%-6% sequentially, and adjusted EBITDA down 100 to 150 basis points.
The company’s target model for FY ’20 includes cloud growth in the high-single digits, a higher mix of recurring revenue, and adjusted EBITDA margin of 38%-39%.
Longer-term aspirations call for an adjusted EBITDA margin of 38%-40%, which should translate into $1.0-$1.1 billion in operating cash flows during FY ‘22.
Paycom Software, Inc. Reports Second Quarter 2019 Results
Paycom Software (PAYC) reported Q2 ’19 results above expectations and increased guidance for FY ’19.
Revenues of $169.3 million (+31.5% Y/Y) exceeded guidance of $162.5-$164.5 million and consensus of $163.9 million. Adjusted EBITDA of $69.4 million (41.0% margin) also surpassed guidance of $62.5-$64.5 million and consensus of $63.9 million. Non-GAAP EPS of $0.75 beat consensus of $0.70.
Strength in the quarter was attributed to robust new business adds and the company’s early investments in employee usage.
Paycom recently selected one of its most successful outside sales managers to lead its inside sales initiative as prospective clients are beginning to embrace non-traditional sales models such as buying online.
Management’s Q3 guidance calls for $170.0-$172.0 million in revenue and $61.0-$63.0 million in adjusted EBITDA, outpacing Street expectations for $168.3 million in revenue and $60.6 million in adjusted EBITDA.
For FY ’19, management raised its revenue guidance from $718.0-$720.0 million to $728.0-$730.0 million and increased its adjusted EBITDA outlook from $296.0-$298.0 million to $306.0-$308.0 million.
Pluralsight Announces Second Quarter 2019 Results
Pluralsight (PS) reported Q2 ’19 results above expectations and reaffirmed its FY ’19 guidance.
Revenue of $75.9 million (+41.6% Y/Y) was ahead of management’s $73.5-$74.0 million guidance and consensus of $73.8 million. Non-GAAP operating income was $(11.5) million (-15.2% margin), exceeding consensus of $(19.5) million. Non-GAAP EPS of $(0.06) beat guidance of $(0.15)-$(0.13) and consensus of $(0.14).
GitPrime exceeded internal Q2 expectations by more than 40% and grew over 100% Y/Y.
Key metrics: billings were $80.6 million (+23.4% Y/Y) and billings from business customers totaled $69.1 million (+26.5% Y/Y); TTM dollar-based net retention rate of 126%; 343 customers with annual billings over $100,000.
Management indicated that sales execution challenges impacted billings performance, specifically stating that sales capacity was insufficient despite the hiring of 100 new reps in the past twelve months, the company has underinvested in prescriptive and effective sales enablement, and more leaders with experience at scale are required.
Pluralsight is almost on plan for sales hiring at this juncture; is adding headcount across sales operations, customer success, and sales enablement; and is searching for a new Chief Revenue Officer as Joe DiBartolomeo transitions to an advisory role.
The company has 250 quota carriers and is targeting 330 by year-end, including the pull-forward of 20-30 hires from 2020.
As billings regain momentum in 2H, management anticipates the net retention rate will return to the high-120s or low-130s.
Guidance for Q3 includes revenue of $79.5-$80.0 million and non-GAAP EPS of $(0.15)-$(0.13), falling short of consensus expectations for $82.6 million in revenue and $(0.11) in non-GAAP EPS.
Management reaffirmed its FY ’19 revenue and non-GAAP EPS guidance of $312.0-$318.0 million and $(0.42)-$(0.38), respectively.
Qualys Announces Second Quarter 2019 Financial Results
Qualys (QLYS) reported Q2 ’19 results ahead of expectations and raised its FY ’19 non-GAAP EPS guidance.
Revenues of $78.9 million (+15.8% Y/Y) were slightly above the top-end of management’s guidance and consensus of $78.5 million. Adjusted EBITDA was $33.4 million (42.3% margin), above consensus of $30.0 million. Non-GAAP EPS of $0.55 beat guidance of $0.46-$0.48 and consensus of $0.47.
Key metrics: billings of $81.1 million (+12.8% Y/Y); 23.6 million (+32% Y/Y) Qualys Cloud Agent subscriptions at quarter-end; 44% of enterprises customers have three or more Qualys solutions versus 37% last year; average deal size up 3%.
To make its Cloud Agents ubiquitous, Qualys will offer its Global IT Asset Discovery and Inventory app as a free service, which in turn will make it frictionless for users to subscribe to the company’s paid apps as no further infrastructure is required.
Among the company’s newer solutions, File Integrity Monitoring saw continued growth in customer adoption as Qualys added incident reporting, API integration, rule-based alerting, and event correlation capabilities.
Management’s Q3 guidance calls for $82.2-$82.7 million in revenues and $0.52-$0.54 in non-GAAP EPS, comparing favorably with consensus expectations for $82.2 million in revenue and $0.48 in non-GAAP EPS.
For FY ’19, management narrowed its prior revenue guidance from $320.5-$323.0 million to $321.0-$322.5 million and increased its non-GAAP EPS guidance from $1.89-$1.94 to $2.03-$2.07.
Qumu Reports Second Quarter 2019 Results, Reiterates Annual Financial Guidance
Qumu (QUMU) reported Q2 ’19 results below expectations, but reaffirmed prior expectations for FY ’19.
Revenue was $5.4 million (-29.6% Y/Y), slightly below consensus of $5.7 million. Adjusted EBITDA was $(1.4) million (-26.7% margin), just shy of consensus of $(1.3) million. EPS were $(0.37), missing consensus of $(0.24).
Per management, several deals expected to close in Q2 were delayed due to customers’ internal processes.
Two deals with annual contract values totaling nearly $1.0 million have already closed in July, while two others have been awarded and are expected to close in Q3.
The sales pipeline remains robust at more than 3x revenue coverage for 2019, and Qumu is currently running ten active proof-of-concepts.
Customer retention is at an all-time high of 93.2%.
Management continues to expect FY ’19 annual contract value bookings growth of 20%-25%, revenue of approximately $27.0 million, and adjusted EBITDA of $(1.5) million.
Radware Announces Second Quarter 2019 Earnings
Radware (RDWR) reported Q2 ’19 results ahead of consensus and guided Q3 non-GAAP EPS above the Street.
Revenues of $60.5 million (+5.5% Y/Y) were within management’s guidance of $59.0-$61.0 million and slightly above consensus of $60.0 million. Non-GAAP operating income of $7.2 million (11.9% margin) exceeded consensus of $5.0 million. Non-GAAP EPS of $0.18 beat guidance of $0.12-$0.15 and consensus of $0.13.
Revenues from the Americas and Asia-Pacific regions increased 16% Y/Y and 17% Y/Y, respectively, partially offset by a 15% decline in the Europe, Middle East, and Africa (EMEA) region.
Management noted that the revenue performance by region was reflective of prior quarter bookings in which the Americas continued to transition to subscriptions while EMEA performance was soft.
Q2 included a full quarter of the recent acquisition of ShieldShare, which was dilutive by approximately $0.02 per share and performed slightly better than expectations.
Increasing the company’s market footprint is a top strategic priority with management especially focused on third-party reseller arrangements such as Cisco, which delivered the strongest bookings to date in Q2 and continued to ramp in July.
Management’s Q3 guidance calls for revenue of $62.0-$64.0 million, in line with consensus of $63.0 million, and non-GAAP EPS of $0.16-$0.18, above consensus of $0.15.
Radware remains on track for subscriptions to exceed 30% of total bookings in 2020.
Rapid7 Announces Second Quarter 2019 Financial Results
Rapid7 (RPD) reported Q2 ’19 results above expectations and raised its revenue guidance for FY ’19.
Revenue of $79.0 million (+35.1% Y/Y) exceeded management’s $74.3-$75.9 million guidance and consensus of $75.1 million. Non-GAAP operating income of $0.5 million (0.6% margin) was well ahead of management’s $(4.7)-$(3.7) million guidance and consensus of $(4.1) million. Non-GAAP EPS were $0.02, beating guidance of $(0.08)-$(0.06) and consensus of $(0.07).
Key metrics: annualized recurring revenue (ARR) of $290.0 million (+46% Y/Y); total customers reached 8,400 (+16% Y/Y; +14% Y/Y excluding NetFort); ARR per customer was 34,500 (+25% Y/Y); renewal rate of 116%.
Investments in the international business are bearing fruit with EMEA and APAC providing greenfield opportunities.
Channel partnerships are also benefiting from the company’s investments with partners embracing the Insight platform and regional partners driving more expansion in North America.
Given ample investment opportunities, management intends to reinvest any upside back into the business.
Free cash flow will be negative in Q3 and FY ’19 as the company recently moved its global headquarters and is consolidating facilities, requiring significant capital improvements that will decline substantially in FY ’20.
Management’s Q3 guidance calls for $79.2-$80.8 million in revenue, $(2.5)-$(1.5) million in non-GAAP operating income, and $(0.04)-$(0.02) in non-GAAP EPS, which was mixed versus Street expectations for $79.6 million in revenue, approximately breakeven in non-GAAP operating income, and $0.02 in non-GAAP EPS.
Management raised its FY ’19 revenue outlook from $312.0-$318.0 million to $318.0-$321.0 million, while maintaining prior expectations for breakeven in non-GAAP operating income and $0.05 in non-GAAP EPS.
RealPage Reports Second Quarter 2019 Financial Results
RealPage (RP) reported Q2 ’19 results consistent with expectations and narrowed guidance for FY ’19.
Non-GAAP revenue of $244.0 million (+12.8% Y/Y) was at the high-end of management’s guidance and slightly above consensus of $243.2 million. Adjusted EBITDA of $68.2 million (28.0% margin) was in line with guidance and consensus of $68.1 million. Non-GAAP EPS of $0.43 were also consistent with management’s guidance and consensus.
Key metrics: organic growth was 9%; ending on demand units of 16,505 (+6.3% Y/Y); Annual Client Value of $942,436 (+12.5% Y/Y); Revenue Per Unit of $57.10 (+5.8% Y/Y).
Selling more strategic platform deals has resulted in a growing backlog and depressed revenue growth as average time to revenue has increased.
RealPage estimates the company captures 17% of the overall technology spend in the rental housing industry, but believes that share should increase disproportionately if the company leads with innovation that drives incremental yield for the industry of $17-$22 billion and benefits from an increase in industry spend on technology from 1.0% of revenues to 1.5%.
Management’s Q3 guidance calls for $253.0-$255.0 million in revenue, $71.0-$73.0 million in adjusted EBITDA, and $0.44-$0.46 in non-GAAP EPS, in line with consensus expectations for $254.2 million in revenue, $72.2 million in adjusted EBITDA, and $0.45 in non-GAAP EPS.
For FY ’19, management narrowed its prior guidance ranges across the board and now anticipates revenue of $987.0-$995.0 million, adjusted EBITDA of $278.0-$283.0 million, and non-GAAP EPS of $1.73-$1.77.
Management believes the company remains on track to achieve its FY ’22 goal of generating $1.5 billion in annual revenue and at least $500 million of adjusted EBITDA.
RingCentral Announces Second Quarter 2019 Results
RingCentral (RNG) reported Q2 ’19 results above expectations and raised guidance for FY ’19.
Revenue of $215.2 million (+33.8% Y/Y) exceeded management’s guidance of $203.5-$205.5 million and consensus of $204.7 million. Non-GAAP operating income was 20.4 million (9.5% margin), also above guidance and consensus of $17.0 million. Non-GAAP EPS were $0.21, beating guidance of $0.15-$0.17 and consensus of $0.16.
Drivers of the upside included a record 30 deals with total contract value in excess of $1 million, larger deal sizes in mid-market and enterprise, and strong Contact Center pull-through.
Key metrics: annualized exit monthly recurring subscriptions (ARR) of $831 million (+32% Y/Y); RingCentral Office ARR of $749 million (+37% Y/Y); Mid-market and Enterprise ARR of $386 million (+66% Y/Y); Enterprise ARR of $230 million (+88% Y/Y); Channel ARR of $235 million (+69% Y/Y).
Cloud transformation in the unified communications market is gaining momentum, especially within the Enterprise segment.
Guidance for Q3 includes revenue of $220.0-$222.0 million, a non-GAAP operating margin of 9.2%-9.4% (implies non-GAAP operating income of $20.2-$20.9 million), and non-GAAP EPS of $0.18-$0.20, slightly above Street expectations for $219.7 million in revenue, $20.0 million in non-GAAP operating income, and $0.18 in non-GAAP EPS.
Management raised its prior FY ’19 revenue and non-GAAP EPS guidance from $862.0-$866.0 million and $0.71-$0.75, respectively, to $874.0-$877.0 million and $0.77-$0.79.
The company is within striking distance of achieving its goal of exceeding $1 billion in revenue in 2020.
Shopify Announces Second-Quarter 2019 Financial Results
Shopify (SHOP) reported Q2 ’19 results above expectations and raised its revenue outlook for FY ’19.
Total revenue was $362.0 million (+47.8% Y/Y), exceeding management’s guidance of $345.0-$350.0 million and consensus of $350.5 million. Non-GAAP operating income was $4.8 million (1.3% margin), well above guidance of $(8.0)-$(6.0) million and consensus of $(5.4) million. Non-GAAP EPS were $0.14, beating consensus of $0.03.
Margins in the quarter were boosted by new payment partner pricing terms, which included a one-time benefit.
Key metrics: Monthly Recurring Revenue was $47.1 million (+34% Y/Y); Gross Merchandise Value was $13.8 billion (+51% Y/Y); Gross Payments Volume was $5.8 billion (+53% Y/Y).
Shopify Shipping adoption continued to climb with 42% of eligible merchants in the U.S. and Canada using the service in Q2.
Shopify Capital issued $93.0 million (+36% Y/Y) in merchant cash advances and loans in Q2.
Shopify plans to spend $1 billion over the next five years to support the roll-out of the Shopify Fulfillment Network.
Guidance for Q3 calls for $377.0-$382.0 million in revenue, above consensus of $374.1 million, and $0-$3.0 million in non-GAAP operating income, slightly below the Street’s $3.2 million.
Management raised its FY ’19 revenue guidance from $1.48-$1.50 billion to $1.51-$1.53 billion and maintained its non-GAAP operating income guidance of $20.0-$30.0 million.
SolarWinds Announces Second Quarter 2019 Results
SolarWinds (SWI) reported Q2 ’19 results above expectations and increased the midpoint of its FY ’19 guidance ranges.
Non-GAAP revenue was $230.6 million (+13.7% Y/Y), above management’s $224.0-$229.0 million guidance and consensus of $226.5 million. Adjusted EBITDA was $110.9 million (48.1% margin), also above guidance and consensus of $107.5 million. Non-GAAP EPS were $0.20, beating guidance of $0.18-$0.19 and consensus of $0.19.
Key metrics: 780 customers spending in excess of $100,000, up from 761 at the end of Q1; average subscription net retention rate of 105% on a TTM basis; maintenance renewal rate of 96% on TTM basis.
Overperformance on the top line flowed through to the bottom line despite the dilutive impact from the acquisition of Samanage, which closed during the quarter.
Samanage brings the company into the IT service management market, which management plans to disrupt with a similar approach employed in the network and systems management markets.
Guidance for Q3 includes non-GAAP revenue of $241.5-$246.0 million, adjusted EBITDA of $112.0-$113.5 million, and non-GAAP EPS of $0.19-$0.20, which was mixed versus Street expectations for $243.5 million in revenue, $115.1 million in adjusted EBITDA, and $0.21 in non-GAAP EPS.
Management raised its FY ’19 revenue guidance from $934.0-$949.0 million to $938.0-$950.0 million and increased the low-end of its adjusted EBITDA and non-GAAP EPS guidance, which now calls for $450.0-$453.0 million and $0.81-$0.82, respectively.
Twilio Announces Second Quarter 2019 Results
Twilio (TWLO) reported Q2 ’19 results above expectations and raised its top and bottom line guidance for FY ’19.
Total revenue of $275.0 million (+86.1% Y/Y) exceeded guidance of $262.0-$265.0 million and consensus of $263.8 million. Non-GAAP operating income was $1.5 million, above guidance of $0-$1.0 million and consensus of $0.9 million. Non-GAAP EPS were $0.03, at the high-end of guidance and a penny above consensus.
Key metrics: 161,869 (+182.2% Y/Y) active customer accounts at quarter-end; dollar-based net expansion rate of 140%; base revenue of $256.7 million (+90.2% Y/Y).
Organic base revenue growth was 56% and does not include any benefit from A2P fees previously anticipated due to a delay in the implementation timing; Twilio SendGrid added $46 million to base revenue and increased 28% Y/Y on an organic basis.
The integration of SendGrid is progressing well and the combined teams have already had some early cross-selling wins.
Initial implementations of Flex have been with digital native companies, but Twilio is in numerous sales cycles with larger enterprises to augment or replace their existing footprints.
Pass through of Verizon A2P fees had been expected to contribute $1.5 million to revenue in Q2 and $8.0-$9.0 million in FY ’19, but no revenues were recognized in Q2 and with the timing of implementation still uncertain, management is no longer including any associated revenues in guidance for Q3 or FY ’19.
Guidance for Q3 calls for revenue of $286.0-$289.0 million, non-GAAP operating income of $(5.0)-$(4.0) million, and non-GAAP EPS of $0.01-$0.02, which was mixed relative to Street expectations for $285.4 million in revenue, $(1.5) million in non-GAAP operating income, and $0.01 in non-GAAP EPS.
Management raised its FY ’19 revenue and non-GAAP EPS guidance from $1.102-$1.111 billion and $0.11-$0.13, respectively, to $1.113-$1.119 billion and $0.17-$0.18, and left expectations for $5.0-$8.0 million in non-GAAP operating income intact.
Tyler Technologies Reports Earnings for Second Quarter 2019
Tyler Technologies (TYL) reported in line Q2 ’19 results and raised the midpoint of its non-GAAP EPS guidance.
Non-GAAP revenues were $278.0 million (+16.9% Y/Y), above consensus of $274.3 million. Adjusted EBITDA was $74.6 million (26.8% margin), slightly below consensus of $75.8 million. Non-GAAP EPS were $1.30, a penny above consensus.
Organic growth was 7.4% on a non-GAAP basis and management anticipates accelerating growth in 2H ’19 given an active new business pipeline and strong win rates.
Key metrics: total backlog of $1.43 billion (+17.0% Y/Y), including software-related backlog of $1.40 billion (+17.4%); bookings totaled $452 million (+72% Y/Y); added 154 new subscription-based arrangements and converted 27 on-premise clients.
Strong bookings growth was driven by the signings of the two largest SaaS contracts in the company’s history, an $85 million Odyssey deal with the North Carolina Administrative Office of the Courts and North Carolina Judicial Branch, which includes statewide e-filing, and a $20 million Odyssey deal with Bexar County, Texas.
Management reaffirmed prior FY ’19 revenue guidance of $1.09-$1.11 billion and raised the low-end of its non-GAAP EPS guidance, which now stands at $5.22-$5.35.
Varonis Announces Second Quarter 2019 Financial Results
Varonis Systems (VRNS) reported mixed Q2 results and reduced its FY ’19 guidance due to a higher mix of subscriptions.
Revenues of $59.6 million (-4.1% Y/Y) missed management’s guidance of $61.5-$63.0 million and consensus of $62.3 million. Non-GAAP operating income of $(8.9) million (-15.0% margin) was within guidance of $(9.5)-$(8.5) million and slightly ahead of the Street’s $(9.2) million. Non-GAAP EPS of $(0.30) met the high-end of guidance and were above consensus $(0.32).
Management noted that Varonis is transitioning to a subscription company faster than expected as 56% of license revenues were from subscriptions versus guidance of 25% and stated that normalized license and subscription growth was above 25%.
Growth drivers include the explosion of data across both on-premise and cloud environments and demand for data security and compliance solutions to reduce the regulatory risk associated with GDPR and the California Consumer Privacy Act.
Key metrics: annualized recurring revenues of $155.2 million (+39% Y/Y); added 162 new customers versus 227 a year ago; 51% of license and first year maintenance revenues from existing customers and 49% from new customers in Q2.
Management’s outlook assumes a 2.2x conversion factor and three-year breakeven for subscriptions, meaning each incremental $1 million of subscription revenues generated versus guidance equates to a $1.2-$1.5 million revenue headwind.
Guidance for Q3 includes revenues of $61.0-$62.5 million, non-GAAP operating income of $(10.5)-$(9.5) million, and non-GAAP EPS of $(0.36)-$(0.34), below consensus expectations for $68.2 million in revenue, $(2.0) million in non-GAAP operating income, and $(0.08) in non-GAAP EPS as subscription revenues are expected to comprise 55% of license revenues.
For FY ’19, management now anticipates subscription revenues will account for 45% of license revenues versus 25% previously, resulting in reductions to the company’s guidance for revenues, non-GAAP operating income, and non-GAAP EPS from $271.0-$278.0 million, $(14.5)-$(10.0) million, and $(0.54)-$(0.42), respectively, to $255.5-$259.5 million, $(27.0)-$(25.0) million, and $(0.93)-$(0.90).
Zendesk Announces Second Quarter 2019 Results
Zendesk (ZEN) reported Q2 ’19 results above expectations but provided mixed guidance for Q3 and FY ’19.
Revenue of $194.6 million (+37.1% Y/Y) was ahead of management’s $191.0-$193.0 million guidance and consensus of $192.5 million. Non-GAAP operating income of $3.8 million (2.0% margin) was above guidance of $0-$2.0 million and consensus of $1.3 million. Non-GAAP EPS of $0.05 were in line with consensus.
Key metrics: percentage of annual recurring revenue from customers with 100 or more agents rose to 42% versus 38% last year; dollar-based net expansion rate of 117%; remaining performance obligations of $526 million (+61% Y/Y); approximately 149,000 (+44% Y/Y) paid customer accounts at quarter-end.
Management highlighted strong demand across small and mid-sized businesses as well as in the enterprise, but noted that EMEA and APAC growth was somewhat softer than anticipated and lagged better performing regions like the U.S. and LatAm.
Messaging investments will be focused on integrating all major social channels and web and mobile messaging into the Zendesk family of products and enabling messaging more broadly for brands and partners through the Smooch conversation platform.
Guidance for Q3 calls for revenue of $206.0-$208.0 million, in line with consensus of $207.1 million, and non-GAAP operating income of $2.0-$4.0 million, below consensus of $6.2 million.
Management raised its FY ’19 revenue and non-GAAP operating income guidance from $802.0-$810.0 million and $14.0-$18.0 million, respectively, to $807.0-$811.0 million and $16.0-$19.0 million, but lowered its free cash flow outlook from $55.0-$65.0 million to $35.0-$45.0 million to reflect refinements in the forecasting process, acquisition-related expenses, additional CapEx related to real estate utilization, and the timing and change of some contingent payments from share-based to cash.
Zix Reports Second Quarter 2019 Financial Results
Zix (ZIXI) reported Q2 ’19 results above expectations and raised its guidance for FY ’19.
Revenue was $45.9 million (+162.4% Y/Y), above guidance of $44.5-$45.0 million and consensus of $44.4 million. Adjusted EBITDA was $10.7 million (23.4% margin), also above consensus of $9.6 million. Non-GAAP EPS were $0.11, in line with management’s guidance and consensus of $0.11.
Key metrics: annual recurring revenue (ARR) of $193.7 million (+162% Y/Y); billings of $46.3 million (+7% Y/Y); net dollar retention rate of 101%; backlog of $91.4 million (+25% Y/Y); added 140 new MSP partners, bringing the total to over 4,200.
Organic revenue growth across the combined Zix and AppRiver businesses was 15%, while ARR increased 17% organically.
AppRiver achieved organic growth of 26% Y/Y led by continued adoption of Office 365.
Over 150 trials of ZixEncrypt and ZixArchive are underway in the AppRiver channel and 13 Office 365 deals closed in the Zix channel in Q2, reflecting promising signs of cross-selling.
Guidance for Q3 calls for revenue of $47.0-$47.5 million and non-GAAP EPS of $0.12-$0.14, exceeding consensus expectations for $46.0 million in revenue and $0.11 in non-GAAP EPS.
For FY ’19, management raised its ARR, revenue, and non-GAAP EPS guidance ranges from $202.0-$209.0 million, $167.0-$169.0 million, and $0.40-$0.42, respectively, to $204.0-$209.0 million, $170.0-$172.0 million, and $0.44-$0.46.
Notable News
Check Point Software Technologies Names Chris Scanlan as New President, Americas Sales
Check Point Software Technologies (CHKP) has appointed Chris Scanlan as President, Americas Sales and named Erez Yarkoni Head of Telecom and Cloud Sales.
Mr. Scanlan previously served as SVP of Sales, North America at Cylance and assumes responsibility for the company’s sales operations in North and Latin America, sales engineering activities in North America and its US Global accounts.
Mr. Yarkoni joins the company after previously serving as CEO of BoldIQ and will lead all sales operations related to telecommunications and cloud.
GoDaddy Appoints Aman Bhutani as CEO; Scott Wagner Steps Down for Health Reasons
GoDaddy (GDDY) has named Aman Bhutani as CEO, succeeding Scott Wagner, who is stepping down for health reasons.
Mr. Bhutani joins the company from Brand Expedia Group, where he most recently served as President and has also served as Chief Technology Officer and Senior Vice President of Engineering during his nine-year tenure.
Pascale Harvie Appointed President and General Manager for Blackbaud Operations in Europe
Blackbaud (BLKB) has appointed Pascale Harvie as President and General Manager for the company’s operations in Europe.
Ms. Harvie has spent the past decade leading Blackbaud’s consumer solutions in the Asia Pacific region.
Rapid7 Appoints Christina Kosmowski to Board of Directors
Rapid7 (RPD) announced the appointment of Christina Kosmowski to its Board of Directors, effective July 31, 2019.
Ms. Kosmowski currently serves as Global Head of Customer Success and Services at Slack Technologies (WORK).
Talend Appoints Lauren Vaccarello as Chief Marketing Officer
Talend (TLND) announced that Lauren Vaccarello has joined the company as Chief Marketing Officer and will oversee the company’s marketing organization and branding efforts.
Ms. Vaccarello previously served as Vice President of Marketing at Box.
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 NetScout Systems (NTCT).