K. Liu's Week in Review
Earlier this week, members of the Universal Postal Union (UPU) approved a proposal, known as “Option V,” enabling certain member countries to self-declare rates for the delivery of inbound international bulky letters and packets beginning July 1, 2020. The decision was significant as the U.S. will now remain a member of the UPU after threatening to pull out a year ago. In regards to Stamps.com (STMP), our view has long been that any change in the U.S.’ member status was likely to be neutral to slightly positive given the company’s limited international exposure and the potential for domestic e-commerce retailers to benefit should higher inbound rates reduce competition from merchants in China and other countries. The outcome of the UPU’s Extraordinary Congress preserves the status quo for the time being, but with international rates likely rising in the future, we anticipate at least a modest tailwind for domestic e-commerce growth in 2020 and beyond. Stamps.com also recently introduced new GlobalPost international shipping services targeted at domestic merchants selling abroad. Had the U.S. exited the UPU, these merchants could have been adversely affected and turned to shipping alternatives like the new GlobalPost services. As it stands, the new offerings still represent an incremental growth opportunity but are unlikely to move the needle in the near-term. Unrelated to the UPU proceedings, the United States Postal Service (USPS) posted monthly data for August reflecting a 4.1% Y/Y increase in PC Postage revenues and a 7.4% Y/Y increase for the quarter to date. We believe the data suggests Stamps.com remains on track to meet our Q3 estimates.
Turning to M&A activity, Veeva Systems (VEEV) agreed to acquire Crossix, a leading provider of patient data and analytics, for $430 million in cash. Certain employees of Crossix will also receive long-term equity retention grants valued at approximately $120 million. The Crossix analytics platform connects health and non-health data for over 300 million U.S. patients to help pharmaceutical brands enhance their media and marketing effectiveness. The acquisition is expected to close in November, at which time Crossix will operate as an independent business unit of Veeva. In the experience management space, Medallia (MDLA) acquired Zingle, a provider of multi-channel mobile messaging and customer engagement solutions to the hospitality, travel, and retail verticals, for approximately $42 million in cash. In our view, the purchase is yet another sign that customer interactions, transactions and other services are increasingly migrating to mobile messaging channels. Lastly, SS&C Technologies (SSNC) has agreed to acquire certain Algorithmics assets from IBM. Algorithmics provides risk analytics products and services to the financial services industry and adds over 200 clients, 350 employees, and offices in 25 countries to SS&C’s operations.
As for earnings, Progress (PRGS) reported Q3 ’19 results ahead of expectations. The outperformance was attributed to higher than anticipated contribution from Ipswitch and the early renewal of several large OEM deals within the Data Connectivity and Integration segment. Reflecting FX headwinds and the pull-forward of deals into Q3, guidance for Q4 was mixed relative to consensus. Turning to FY ’20, management’s preliminary view compared favorably versus Street expectations; however, commentary that investments to drive organic growth in the cognitive modern application development market have not yielded desired returns was disappointing, particularly as the company no longer anticipates any meaningful contribution from its Kinvey platform for the foreseeable future. Instead, growth in FY ’20 and beyond is expected to be driven by M&A with management targeting inorganic growth of 10%-20% with an eye towards doubling the revenue base in five years. Shares sold off subsequent to the earnings release. Progress’ stock price performance for the week, results versus expectations, and subsequent consensus estimate revisions appear in the table below.
Notable executive moves this week include the appointment of Scott A. Roberts as Chief Financial Officer at HealthStream (HSTM). Mr. Roberts has been with the company for 17 years and was named Interim CFO and Vice President of Accounting and Finance in February 2019. At Mimecast (MIME), Chief Operating Officer Ed Jennings plans to depart at year-end to pursue other opportunities and the company has appointed its current head of North American Sales, Dino DiMarino, as Chief Revenue Officer. Zuora (ZUO) also appointed a new Chief Revenue Officer, Robbie Traube, who will join the company in early November from Adobe (ADBE) where he currently serves as Vice President, Strategic and Vertical Accounts, North America. At Altair (ALTR), Andrea Siudara joins as Chief Information Officer and comes to the company from Ford where she was Global Director, Sales and Marketing IT. Finally, Axon (AAXN) named Jeff Kunins, who most recently served as Vice President of Alexa Entertainment at Amazon, as Chief Product Officer and Executive Vice President of Software.
Mergers and Acquisitions
Medallia (MDLA) has acquired Zingle, a customer engagement solution built for the hospitality, travel, and retail verticals, for approximately $42.0 million in cash.
Zingle enables companies to engage with their customers via real-time messaging in their customers’ preferred channel.
SS&C to Acquire Algorithmics Assets from IBM
SS&C Technologies (SSNC) has agreed to acquire certain Algorithmics and related assets from IBM.
Algorithmics provides risk analytic products and services to over 200 clients in the financial services industry and has 350 employees across offices in 25 countries.
The acquisition is expected to close in Q4.
Veeva to Acquire Crossix, the Leader in Privacy-Safe Patient Data and Analytics
Veeva Systems (VEEV) has agreed to acquire Crossix, a provider of privacy-safe patient data and analytics, for $430 million in cash and long-term equity retention grants valued at approximately $120 million.
The Crossix analytics platform connects health and non-health data, including Rx, OTC, clinical claims, consumer, hospital, media data, and more, for over 300 million U.S. patients to enhance media and marketing effectiveness.
The acquisition is expected to close in November and Crossix will subsequently operate as an independent business unit.
Earnings Releases
Progress 2019 Third Quarter Results Exceed Guidance
Progress (PRGS) reported Q3 ’19 results above expectations and provided mixed guidance for Q4.
Non-GAAP revenue was $115.5 million (+24.6% Y/Y), exceeding guidance of $109.0-$112.0 million and consensus of $110.8 million. Non-GAAP operating income was $45.8 million (39.7% margin), well above consensus of $38.6 million. Non-GAAP EPS of $0.75 beat guidance of $0.68-$0.70 and consensus of $0.68.
Management attributed the outperformance in Q3 to the OpenEdge segment, which benefited from better than anticipated results from Ipswitch, and the early signing of several large OEM deals within the Data Connectivity and Integration segment.
The integration of Ipswitch is ahead of plan and the company expects to have substantially all of the $15 million of cost synergies in place by year end.
Investments in sales and marketing to drive organic growth in the cognitive modern application development market via Progress’ Kinvey platform have not delivered sufficient returns, so management is reducing associated expenses and no longer anticipates a meaningful contribution from Kinvey for the foreseeable future.
Guidance for Q4 includes non-GAAP revenue of $116.0-$119.0 million, below consensus of $122.1 million, and non-GAAP EPS of $0.73-$0.75, in line with the Street’s $0.74.
Management’s preliminary view on FY ’20 calls for revenue growth of 4%-5%, implying $442.0-$449.4 million in revenue versus consensus of $427.1 million, and operating margin expansion of 100-200 basis points, implying non-GAAP operating income of $168.0-$175.3 million versus consensus of $164.5 million.
For FY ’20, the company’s focus will be on maintaining stability in the core business and augmenting that with M&A to produce 10%-20% inorganic growth with an eye towards doubling the revenue base over five years.
The Board of Directors declared a quarterly dividend of $0.165 per share, representing a 6% increase, and Progress is committed to allocating approximately 25% of annual free cash flow to dividends.
Notable News
Altair Names Andrea Siudara New Chief Information Officer
Altair (ALTR) has appointed Andrea Siudara as Chief Information Officer, a role in which she will lead the company’s IT team and oversee IT systems, enterprise business systems, and IT business strategy globally.
Ms. Siudara was most recently global director, sales and marketing IT for Ford Motor Company.
Axon Announces Jeff Kunins as Chief Product Officer and Executive Vice President of Software
Axon (AAXN) has named Jeff Kunins as Chief Product Officer and Executive Vice President of Software.
Mr. Kunins joins the company from Amazon, where he most recently served as Vice President of Alexa Entertainment.
Mimecast (MIME) announced the departure of Ed Jennings, Chief Operating Officer, who plans to pursue his goal of leading a technology company following a transition period through the end of 2019.
The company has appointed its head of North American Sales, Dino DiMarino, as Chief Revenue Officer.
Prior to joining Mimecast in 2016, Mr. DiMarino was Vice President of Sales for the Americas at RSA.
Scott A. Roberts Named Chief Financial Officer at HealthStream
HealthStream has appointed Scott A. Roberts as Chief Financial Officer, effective immediately.
Mr. Roberts had been serving as Interim CFO and Vice President of Accounting and Finance since Feburary 2019 and has been with the company for 17 years.
UPU member countries reach unanimous agreement on postal remuneration rates
The UPU’s Extraordinary Congress approved “Option V,” a proposal allowing certain member countries to self-declare their rates for inbound international bulky letters and small packets starting July 1, 2020.
The decision averts the exit of the United States from the UPU, while including thresholds to protect low-volume, developing countries from the impact of swiftly rising rates.
Zuora Appoints New Chief Revenue Officer
Zuora (ZUO) has appointed Robbie Traube as its Chief Revenue Officer.
Mr. Traube will join the company in early November from Adobe where he currently serves as Vice President, Strategic and Vertical Accounts, North America.
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 Stamps.com (STMP).