K. Liu's Week in Review
M&A this week included a couple of AIOps deals at ServiceNow (NOW) and VMware (VMW). ServiceNow’s acquisition of Loom Systems adds log and metrics analysis to its IT Service Management (ITSM) and IT Operations Management (ITOM) solutions, thereby enabling customers to proactively identify IT incidents and automate remediation tasks. As for VMware, its acquisition of Nyansa and the target company’s network analytics capabilities is expected to accelerate the delivery of an end-to-end network visibility, monitoring, and remediation solution to VMware’s SD-WAN by VeloCloud customers. With this solution, customers will have a single platform for proactively managing network and application performance across local area network/wide-area network (LAN/WAN) deployments, as well as the cloud and on premises data centers.
Both FireEye (FEYE) and RealPage (RP) were also active on the deal front, acquiring technology to round out their platforms. The former extended the capabilities of FireEye Helix through the purchase of Cloudvisory. The addition of Cloudvisory will enable customers to implement and manage security and governance policies for their cloud and container workloads. RealPage bolstered its ActiveBuilding resident portal platform with the acquisition of Modern Message, which offers a leading resident engagement platform known as Community Rewards. By combining the two platforms, RealPage plans to offer its property management customers a comprehensive resident engagement solution, which should fuel higher leasing, retention, payments usage, and eCommerce transactions for amenities and other services.
We also tracked December quarter results from Atlassian (TEAM), Citrix Systems (CTXS), and PTC (PTC) this week, all of which traded higher following beat and raise performances. Atlassian attributed its fiscal Q2 ’20 outperformance to the pull-forward of demand ahead of recent pricing increases and a slower than anticipated pace of hiring in R&D, which boosted margins relative to internal expectations. With FY ’20 expectations raised by more than the beat, however, any concerns regarding the durability of Atlassian’s growth in 2H ’20 or FY ‘21 were largely assuaged and shares rose accordingly. Citrix Systems’ (CTXS) strong finish to 2019 was attributed to demand for both Networking and Workspace solutions, the former of which benefited from the transition of several large customers to pooled-capacity subscription agreements. The company’s Workspace with intelligence platform also became generally available in December and will be key to scaling the paid subscriber count over the coming years. With Citrix’s transition to a subscription-based model continuing to progress ahead of plan, management raised the midpoint of its prior FY ’20 guidance ranges. Last but not least, PTC (PTC) posted fiscal Q1 ’20 results ahead of expectations. ARR from Core PLM products rose at a mid-teens clip, nearly double the market rate, while IoT and augmented reality solutions also grew at above-market rates, leaving PTC’s Growth business on track for a 30%-40% increase in ARR. The strong start coupled with a favorable bump from FX drove an uptick in management’s FY ’20 guidance for ARR, revenue, non-GAAP operating margin, non-GAAP EPS, and adjusted free cash flow.
Mergers and Acquisitions
FireEye (FEYE) has acquired Cloudvisory, which provides visibility, compliance, and security policy governance solutions for multi-cloud and data center assets.
The Cloudvisory solution operates across AWS, Azure, Google Cloud, Kubernetes, OpenStack and VMware, as well as traditional virtualized and bare metal environments.
The integration of Cloudvisory with FireEye Helix will enable customers to easily implement and manage security and governance policies for their cloud and container workloads.
RealPage to Acquire Modern Message
RealPage has agreed to acquire Modern Message, which offers a leading resident engagement platform, Community Rewards.
The combination of Modern Message’s platform with RealPage’s ActiveBuilding resident portal platform will provide property management companies with a complete renter engagement solution designed to increase leasing, retention, payments usage and other eCommerce transactions for amenities and services.
ServiceNow to Acquire Loom Systems
ServiceNow (NOW) has agreed to acquire Loom Systems, an AIOps company focused on log and metrics analysis.
The acquisition of Loom Systems extends ServiceNow’s IT Service Management (ITSM) and IT Operations Management (ITOM) solutions by enabling customers to proactively identify the root cause of IT issues and automate remediation tasks.
Terms of the transaction, which is expected to close in Q1 ’20, were not disclosed.
VMware Announces Intent to Acquire Nyansa
VMware (VMW) has agreed to acquire Nyansa, which offers a cloud-based AIOps platform for network analysis.
The acquisition of Nyansa accelerates VMware’s delivery of an end-to-end network visibility, monitoring, and remediation solution for wired and wireless local area network/wide-area network (LAN/WAN) deployments.
Nyansa’s Voyance platform also aids in assuring the performance of critical IoT devices connected to the network.
The transaction is expected to close in VMware’s fiscal Q1 ’21 and is not expected to materially impact its FY ’21 results.
Earnings Releases
Atlassian Announces Second Quarter Fiscal Year 2020 Results
Atlassian (TEAM) reported Q2 ’20 results above expectations and raised its FY ’20 outlook.
Revenue of $408.7 million (+36.7% Y/Y) exceeded guidance of $386.0-$390.0 million and consensus of $388.9 million. Non-IFRS operating income was $125.4 million (30.7% margin), outpacing guidance for a 22.0% non-IFRS operating margin and consensus of $85.5 million. Non-IFRS EPS of $0.37 beat guidance and consensus of $0.27.
Upside in the quarter was driven by stronger than anticipated new and renewal activity from customers ahead of recent price changes as well as lower than anticipated spending due to the pace of R&D hiring.
Key metrics: added 5,003 net new customers for a total of 164,790 (+19.2% Y/Y) at quarter-end; Confluence reached 60,000 customers; Trello crossed over 50 million registered users; free cash flow of $202.0 million.
Jay Simons, President, is leaving the company in July 2020 to pursue other opportunities.
Guidance for Q3 includes revenue of $395.0-$399.0 million, in line with consensus of 397.1 million; a non-IFRS operating margin of 16%, which implies operating income of $63.2-$63.8 million versus consensus of $70.0 million; and non-IFRS EPS of $0.20, below consensus of $0.22.
Management raised its FY ’20 guidance across the board and now anticipates revenue of $1.59-$1.60 billion, a non-IFRS operating margin of 21.0%-22.0%, non-IFRS EPS of $1.03-$1.09, and free cash flow of $475.0-$485.0 million.
Citrix Reports Fourth Quarter and Fiscal Year 2019 Financial Results
Citrix Systems (CTXS) reported Q4 ’19 results above expectations and raised the midpoint of its FY ’20 guidance ranges.
Revenue of $809.8 million (+1.0% Y/Y) was above the high-end of management’s implied $789.3-$809.3 million guidance and consensus of $802.0 million. Non-GAAP operating income was $278.9 million (34.4% margin), exceeding consensus of $268.4 million. Non-GAAP EPS of $1.71 beat guidance of $1.60-$1.70 and consensus of $1.68.
Per management, the model transition continues to progress ahead of the accelerated plan outlined last year, reflecting strong demand for both Workspace and Networking solutions.
Key metrics: subscription ARR of $743 million (+41% Y/Y); SaaS ARR of $520 million (+49% Y/Y); subscription bookings were 69% of total product bookings versus 51% a year ago; future committed revenue increased 15% Y/Y.
Networking subscriptions inflected notably higher as a percentage of Networking product bookings as a few large customers elected to transition to pooled-capacity subscription agreements.
Management touted Citrix’s new Workspace with intelligence platform, which became generally available in December 2019 and should enable the company to continue scaling its paid subscriber base from 7.1 million (+61% Y/Y) at the end of Q4.
Q1 guidance includes revenue of $730.0-$740.0 million and non-GAAP EPS of $1.15-$1.20, slightly below Street expectations for $740.6 million in revenue and $1.23 in non-GAAP EPS.
Management raised the low end of its FY ’20 revenue guidance, which now calls for $3.10-$3.13 billion, and increased its non-GAAP EPS expectations from $5.25-$5.45 to $5.35-$5.55.
PTC Announces Fiscal First Quarter 2020 Results
PTC (PTC) reported Q1 ’20 results above expectations and raised guidance for FY ‘20.
Non-GAAP revenue of $356.1 million (+6.3% Y/Y) exceeded consensus of $342.2 million. Non-GAAP operating income was $93.1 million (26.1% margin), well above consensus of $79.8 million. Non-GAAP EPS of $0.57 beat the Street’s $0.44.
Key metrics: ARR of $1.16 billion (+11% Y/Y); adjusted free cash flow of $12.5 million (3.5% margin).
PTC’s Growth business, comprised of ThingWorx IoT, Vuforia AR and Onshape SaaS, reflected accelerating ARR growth for IoT solutions as well as above-market growth rates for augmented reality solutions.
The Core business, which consists of PTC’s CAD and PLM products, generated ARR growth of 10% driven by mid-teens growth in PLM.
Contribution from key partners Rockwell Automation and Microsoft also boosted results with the former delivering robust new deal activity and a meaningful uptick in expansions, and the latter generating new ACV bookings well above plan.
Management raised its FY ’20 guidance and now anticipates ARR of $1.270-$1.295 billion, revenue of $1.445-$1.525 billion, a non-GAAP operating margin of 26%-29%, non-GAAP EPS of $2.15-$2.65, and adjusted free cash flow of $260.0-$280.0 million.