K. Liu's Week in Review
Coronavirus was top of mind this week as fears of a pandemic reverberated across markets. Thus far, the software industry remains relatively unaffected from a business standpoint with the vast majority of reporting companies citing minimal end market exposure and no impact on sales cycles to date. Those with a hardware or appliance component in their business, however, may face some risk on the supply side. In this regard, both EXFO (EXFO) and Microsoft (MSFT) revised their current quarter outlooks lower to reflect disruption in their supply chains arising from COVID-19. EXFO anticipates growth will accelerate over the course of the year as its supply chain returns to normalcy, while Microsoft indicated the disruption was limited to its More Personal Computing segment with the rest of its business unaffected. Of those reporting results this week, Ansys (ANSS) and Nutanix (NTNX) indicated their near-term outlooks incorporated a degree of conservatism due to coronavirus. For Ansys, any potential delays in the near-term would be made up for in the latter half of the year, although that was not enough to stave off a negative reaction in the stock. As Nutanix is already entering the second half of its fiscal year, the cautious view coupled with lower than anticipated net new ACV during Q2 prompted a reduction in guidance and a corresponding sell-off in shares.
Given the broader market weakness, winners were relatively few and far between this week. Box (BOX), Elastic (ESTC), Kinaxis (KXS-CA) and RealPage (RP) were among those that managed to eke out a gain following strong results and guidance. Salesforce (CRM) also beat and raised, but the departure of Co-CEO Keith Block and the $1.33 billion acquisition of industry-specific cloud and mobile solutions provider Vlocity, which is expected to contribute just $50 million in revenue this fiscal year, weighed on shares. In a similar vein, Intuit (INTU) posted upside results and reaffirmed expectations for the year but also saw shares fall. All eyes were on the company’s $7.1 billion cash and stock deal for Credit Karma, which is expected to accelerate Intuit’s efforts to offer consumers a personalized financial assistant. Credit Karma generated nearly $1 billion in revenue last year with a growth rate of 20%.
Execution challenges at Anaplan (PLAN), Palo Alto Networks (PANW) and VMware (VMW) also precipitated weakness in their respective shares this week. At Anaplan, changes to the go-to-market organization created execution and alignment issues around several key opportunities, resulting in lower than anticipated billings in its fiscal Q4. Palo Alto again suffered from the fallout of incentive compensation changes implemented in the prior fiscal year that emphasized its Next-Generation Security products at the expense of its core firewall products. Management also acknowledged being overly optimistic with respect to the near-term pipeline but expressed confidence in returning to product growth within two quarters. Perhaps reflecting this confidence, Palo Alto entered into a $1 billion accelerated share repurchase transaction. As for VMware, results missed expectations as the company saw a higher mix of subscription bookings and experienced execution challenges arising from a high volume of deals at quarter-end.
Cornerstone OnDemand’s (CSOD) $1.395 billion acquisition of Saba, representing a TTM EV/Sales multiple of 5.4x, was the most interesting development this week, in our opinion. The two companies are long-time competitors in the talent management arena with applications spanning learning, performance and recruiting. On a consolidated basis, the combined company would have generated $818 million in ARR and $775 million in subscription revenue during 2019, and assuming $35 million in cost synergies, adjusted EBITDA would have approached $250 million. Strategically, the deal leaves Cornerstone with a fairly dominant position in learning and provides ample opportunity for the sale of content into the installed base. Concerns includes Saba’s maintenance ARR base, which declined 22% last year; how the various platforms will be integrated, if at all; and leverage of approximately 6x on a TTM basis once the deal is closed. With ARR in Q4 coming up short due to an emphasis on driving Content Anywhere subscriptions in lieu of a la carte content sales, a lower than anticipated revenue outlook for Q1 and commentary that learning experience providers like Degreed have created more challenging competitive conditions, the acquisition surely raised eyebrows.
Others making moves this past week included DocuSign (DOCU), Akamai (AKAM) and Kinaxis. DocuSign has agreed to acquire contract analytics and AI technology provider Seal Software for $188 million in cash. The company already resells Seal’s machine learning and analytics applications as part of the DocuSign Agreement Cloud and plans to integrate and leverage the acquired technology to enhance DocuSign CLM post-acquisition. Akamai acquired certain customer contracts and intellectual property from Instart. The acquired customers are expected to be migrated to Akamai’s own platform in short order, while the acquired IP will help further development of Akamai’s page integrity solution. Finally, Kinaxis acquired a long-time services partner, Prana Consulting, to establish a hub from which the company can better serve its European and Asia Pacific customers and potentially offer enhanced services. Also worth noting, both Bandwidth (BAND) and RingCentral (RNG) raised capital via convertible senior notes offerings, netting estimated proceeds in excess of $300 million and nearly $1 billion, respectively.
Mergers and Acquisitions
Akamai Technologies Acquires Customers and Select Intellectual Property from Instart
Akamai Technologies (AKAM) has acquired customer contracts and intellectual property from Instart.
Akamai plans to migrate the acquired customers to its own platform and utilize the acquired intellectual property to further the development of its page integrity solution.
Cornerstone OnDemand (CSOD) has agreed to acquire Saba, a leading provider of learning, performance and recruiting solutions, for $1.395 billion, comprised of $1.33 billion in cash and $65 million in stock.
Saba serves approximately 3,300 clients and generated over $260 million in revenue during 2019.
The combined company is expected to have over 75 million users and serve approximately 7,000 organizations.
Anticipated benefits of the transaction include greater reach, cross-selling opportunities, cost synergies of at least $35 million (representing 5% of the combined 2019 cost base) and opportunity to accelerate the pace of innovation.
On a pro forma basis, a combined Cornerstone and Saba entity would have delivered $818 million of ARR and $775 million in subscription revenue in 2019 along with adjusted EBITDA of approximately $250 million (including cost synergies).
The cash portion of the transaction, which is expected to close in Q2, will be funded by a senior secured credit facility of up to $985 million with the balance funded by cash on hand.
DocuSign to make next bold move in AI with Seal Software Acquisition
DocuSign (DOCU) intends to acquire contract analytics and AI technology provider Seal Software for $188 million in cash.
Seal’s technology enables the rapid search of large collections of agreements by legal concepts; automates the extraction and comparison of critical clauses and terms side-by-side; identifies areas of risk and opportunity; and delivers actionable insights that help solve legal and business challenges.
DocuSign previously made a strategic investment in Seal last year and already resells Seal’s analytics and machine learning application as part of the DocuSign Agreement Cloud.
Upon closing of the acquisition, DocuSign will continue to sell Seal’s analytics application and will also integrate and leverage Seal’s AI technology to enhance DocuSign CLM.
The acquisition is expected to close in the first half of DocuSign’s fiscal year.
Intuit to Acquire Credit Karma
Intuit (INTU) has agreed to acquire Credit Karma, a consumer technology platform with over 100 million members in the U.S., Canada and U.K., in a cash and stock transaction valued at approximately $7.1 billion.
Credit Karma generated nearly $1 billion in revenue during 2019, representing an increase of 20% Y/Y.
Through the acquisition, Intuit plans to offer consumers a platform that works like a personalized financial assistant, providing consumers with transparent access to critical personal finance information and matching them with products available from over 100 financial service providers in the Credit Karma marketplace.
The $7.1 billion purchase price is comprised of equal portion of cash and stock with the latter component based on a fixed share price of $299.73.
The transaction is expected to close in the latter half of 2020.
Kinaxis Makes Acquisition to Create New Services Hub for Global Customers and Partners
Kinaxis (KXS-CA) has acquired Prana Consulting, a supply chain consultancy based in India that has been a key services partner for 15 years.
The acquisition adds highly skilled resources well versed in RapidResponse and establishes a hub from which the company can better service its customers in the Europe and Asia Pacific regions.
Earnings Releases
Altair Announces Fourth Quarter 2019 Financial Results
Altair (ALTR) delivered Q4 ’19 results above expectations but guided FY ’20 below consensus.
Non-GAAP revenue was $126.1 million (+22.4% Y/Y), exceeding guidance for $107.3-$111.3 million and consensus of $109.6 million. Modified adjusted EBITDA of $15.0 million (11.9% margin) was well ahead of guidance for $9.5-$11.5 million. Non-GAAP EPS of $0.09 beat consensus of $0.05.
Total billings of $130.4 million (+17% Y/Y) were driven by strong software product momentum as usage of Altair’s solver portfolio was up over 20% for the year and the company saw market share gains across a broad range of physics, including structure, electromagnetics and computational fluid dynamics.
Management expects the transition from perpetual to subscription for Altair’s data analytics software sales to continue in 2020 as the company moves towards its targeted 90% mix of recurring software license revenue.
Automotive software product revenues increased at a more moderate pace of 5%-10% in 2019, while aerospace, high-tech and electronics drove significantly higher growth rates, trends which management expects to continue in 2020.
Guidance for Q1 includes revenue of $129.0-$131.0 million and adjusted EBITDA of $20.0-$22.0 million, falling short of Street expectations for $139.3 million in revenue and $29.9 million in adjusted EBITDA.
Management’s FY ’20 guidance for $491.0-$495.0 million in revenue and $49.0-$53.0 million in adjusted EBITDA was also below consensus of $501.0 million in revenue and $70.4 million in adjusted EBITDA.
Anaplan Announces Fourth Quarter and Full Fiscal Year 2020 Financial Results
Anaplan (PLAN) reported Q4 ’20 results above expectations and raised its revenue outlook for FY ’21.
Total revenue was $98.2 million (+41.9% Y/Y), ahead of guidance for $96.5-$97.5 million and consensus of $97.2 million. Non-GAAP operating income was $(11.0) million (-11.2% margin), above consensus of $(14.1) million and guidance for a (15.0)%-(14.0)% non-GAAP operating margin. Non-GAAP EPS of $(0.07) beat consensus of $(0.10).
Key metrics: billings of $126.5 million (+24.8% Y/Y); dollar-based net expansion rate of 122%; customers with over $250,000 in ARR totaled 353 (+42.3% Y/Y) at quarter-end; remaining performance obligations of $656 million (+49% Y/Y).
Billings fell short of expectations due to execution and alignment challenges around some key near-term opportunities arising from management changes in the go-to-market organization.
Mark Anderson, Chief Growth Officer, will transition to an advisory role; his prior role will not be backfilled.
The company has evolved its large enterprise customer focus into two customer segments, majors and enterprise, with greater sales specialization and support resources aligned to these two segments.
Guidance for Q1 includes revenue of $102.0-$103.0 million and a non-GAAP operating margin of (18.5)%-(17.5)%, in line with Street expectations for $102.4 million in revenue and $(18.1) million in non-GAAP operating income.
Management raised it FY ’21 revenue guidance from $455.0-$460.0 million to $463.0-$467.0 million and issued non-GAAP operating margin guidance of (13.5)%-(12.5)%, which implies non-GAAP operating income of $(62.5)-$(58.4) million versus consensus of $(59.7) million.
Ansys (ANSS) reported Q4 ’19 results above expectations but provided a mixed outlook for FY ’20.
Non-GAAP revenue of $492.5 million (+17.8% Y/Y) exceeded guidance for $454.1-$479.1 million and consensus of $469.3 million. Non-GAAP operating income of $236.2 million (48.0% margin) also exceeded consensus of $216.0 million. Non-GAAP EPS of $2.24 beat guidance for $1.87-$2.05 and consensus of $1.98.
Key metrics: ACV of $541.3 million (+12.7% Y/Y); 78% of ACV from recurring sources; deferred revenue and backlog totaled $871 million (+32% Y/Y).
Ansys saw strength in all major geographies during Q4, benefited from ten long-standing customers making eight figure commitments and noted that nearly all deals in excess of $1 million included at least three product lines.
By vertical, high-tech remained the largest sector but Ansys also highlighted automotive as an area of strength in contrast to other vendors that have signaled weakness.
Management anticipates ACV growth of over 12% in constant currency for 2020, leaving the company on track to meet its goal of $2 billion in ACV by 2022.
Guidance assumes that approximately $20 million of ACV and revenue booked in 1H ’19 will not repeat this year due to ongoing sanctions on the China restricted entities announced in 2019 and coronavirus may delay some deals into 2H ’20.
Q1 guidance includes non-GAAP revenue and EPS of $300.0-$320.0 million and $0.75-$0.88, respectively, falling short of Street expectations for $358.5 million and $1.36.
Management’s FY ’20 guidance for $1.640-$1.700 billion in non-GAAP revenue and $6.19-$6.71 in non-GAAP EPS was mixed versus consensus of $1.678 billion in revenue and $6.81 in non-GAAP EPS.
Autodesk, Inc. Announces Fiscal 2020 Fourth Quarter and Full-Year Results
Autodesk (ADSK) reported Q4 ’20 results above expectations but guidance for FY ’20 left consensus near the high-end.
Revenue of $899.3 million (+22.0% Y/Y) was above guidance for $880.0-$895.0 million and consensus of $890.2 million. Non-GAAP operating income was $258.9 million (28.8% margin), ahead of the Street’s $254.1 million. Non-GAAP EPS of $0.92 beat guidance of $0.86-$0.91 and consensus of $0.89.
Autodesk saw strong growth in all geographies, and the company had a landmark year in Construction.
Key metrics: ARR of $3.43 billion (+25% Y/Y), comprised of Subscription plan ARR of $3.11 billion (+41% Y/Y) and Maintenance plan ARR of $320 million (-42% Y/Y); Core ARR was $3.17 billion (+21% Y/Y) and Cloud ARR was $255 million (+102% Y/Y); billings of $1.49 billion (+43% Y/Y); net revenue retention rate was between 110% and 120%; remaining performance obligations totaled $3.56 billion (+33% Y/Y).
Total subscriptions increased to 4.9 million (+12% Y/Y) with subscription plan growing 26%; 181,000 cloud subscriptions were added due to strong adoption of the BIM 360 family of products as well as 79,000 from PlanGrid and BuildingConnected; average revenue per subscription (ARPS) was $704 (+11% Y/Y) with core ARPS growing to $798 (+10% Y/Y).
Q1 guidance for $880.0-$895.0 million in revenue and $0.80-$0.86 in non-GAAP EPS fell short of Street expectations for $910.0 million in revenue and $0.89 in non-GAAP EPS.
Management’s FY ’21 guidance includes revenue of $3.93-$3.99 billion, a non-GAAP operating margin of 29.5%-30.5% and non-GAAP EPS of $4.21-$4.44, leaving consensus of $3.98 billion in revenue, $1.23 billion in non-GAAP operating income and $4.40 in non-GAAP EPS closer to the high-end.
Axon Enterprise (AAXN) reported Q4 ’19 results above expectations and provided a mixed outlook for FY ’20.
Revenue of $171.9 million (+49.7% Y/Y) exceeded guidance for $141.0-$151.0 million and consensus of $146.3 million. Adjusted EBITDA of $38.2 million (22.2% margin) was above guidance for $30.4-$35.4 million and consensus of $32.0 million. Non-GAAP EPS of $0.41 beat consensus of $0.38.
Key metrics: annual recurring revenue of $161.3 million (+48.6% Y/Y); future contracted revenue of $1.23 billion (+36.7% Y/Y); 58% of TASER devices sold on a recurring payment plan.
Strength in Q4 reflected record volumes for camera shipments, of which 75% of units shipped in Q4 were Axon Body 3.
In 2020, Axon is focused on driving adoption of the officer safety plan, which combines a TASER, a body camera and a host of mission-critical software capabilities.
Axon plans to invest over $100 million in R&D and new channel growth in 2020 with one goal being to bring dispatch to market and widely available by the second half of the year.
Guidance for FY ’20 includes revenue of $615.0-$625.0 million and adjusted EBITDA of $100.0-$105.0 million, which was mixed versus Street expectations for $588.1 million in revenue and $109.8 million in adjusted EBITDA.
Box (BOX) reported Q4 ’20 results above expectations and guided FY ’20 non-GAAP EPS ahead of consensus.
Revenue of $183.6 million (+12.1% Y/Y) was ahead of guidance for $181.0-$182.0 million and consensus of $181.6 million. Non-GAAP operating income was $12.3 million (6.7% margin), exceeding consensus of $8.1 million. Non-GAAP EPS of $0.07 beat guidance for $0.04-$0.05 and consensus of $0.04.
Key metrics: billings of $281.9 million (+18.6% Y/Y); closed 112 (+19.1% Y/Y) deals greater than $100,000; remaining performance obligations were $767.8 million (+12% Y/Y).
Early renewals and expansions accounted for roughly $10 million of billings that would have normally occurred in Q1, implying a more normalized growth rate of 14% that was still better than any other quarter this year.
Over 80% of deals over $100,000 included at least one add-on product, and add-on product bookings increased over 60% Y/Y with Box Shield exceeding expectations and growing faster at this point than any other product roll-out in Box’s history.
Management continues to optimize its go-to-market motion for scale by better aligning compensation and incentives to drive higher renewals and customer expansion through the sale of suites and add-on products.
Improvements in profitability are expected to arise from the optimization of workforce expenses, the company’s data center footprint and service delivery costs.
Q1 guidance includes revenue of $183.0-$184.0 million and non-GAAP EPS of $0.04-$0.06, exceeding Street expectations for $181.8 million in revenue and $0.04 in non-GAAP EPS.
Management’s guidance for FY ’21 calls for revenue of $771.0-$770.0 million, in line with consensus of $773.1 million, and non-GAAP EPS of $0.38-$0.44, above consensus of $0.29.
Management remains committed to driving at least 25% combined revenue growth and free cash flow margin in FY ’21 with operating margin expected to be 9%-10% this year and in the low-teens exiting Q4.
Cornerstone OnDemand Announces Fourth Quarter and Fiscal Year 2019 Financial Results
Cornerstone OnDemand (CSOD) reported Q4 ’19 results above expectations but guided Q1 revenue below consensus.
Revenue was $149.6 million (+8.2% Y/Y), above guidance for $145.0-$147.0 million and consensus of $146.2 million. Non-GAAP operating income was $28.3 million (18.9% margin), ahead of guidance for $25.1-$27.1 million and consensus of $26.1 million. Non-GAAP EPS of $0.43 beat consensus of $0.34.
Key metrics: annual recurring revenue (ARR) of $575.0 million (+12.7% Y/Y), below guidance for $542.0-$544.0 million; 3,698 (+4.6% Y/Y) customers at quarter-end; annual dollar retention rate of 90.3% on a gross basis and over 100% on a net basis.
The outperformance in Q4 was attributed to strength in the U.S. public sector, EMEA and SMB businesses.
ARR at year-end fell short of guidance due to softness in content sales, increased churn and increased competition.
Q1 guidance for $147.0-$150.0 million in revenue fell short of Street expectations for $157.7 million.
Elastic N.V. Reports Strong Third Quarter Fiscal 2020 Financial Results
Elastic (ESTC) reported Q3 ’20 results above expectations and guided Q4 ahead of consensus.
Revenue of $113.2 million (+59.8% Y/Y) was ahead of guidance for $106.0-$108.0 million and consensus of $107.3 million. Non-GAAP operating income was $(20.2) million (-17.8% margin), above consensus of $(26.4) million and guidance for a (26.0)%-(24.0)% margin. Non-GAAP EPS of $(0.28) beat guidance of $(0.36)-$(0.34) and the Street’s $(0.35).
Key metrics: SaaS revenue of $25.1 million (+114% Y/Y); billings of $122.9 million (+54% Y/Y); over 10,500 subscription customers at quarter-end; over 570 customers with ACV over $100,000; net expansion rate over 130%.
Strength in the quarter was driven by broad adoption of Elastic Stack in solving mission-critical problems spanning enterprise search, observability and security for customers across segments and geographies.
Elastic plans to bring in a seasoned go-to-market leader that has built and seen multibillion-dollar scale.
Guidance for Q4 includes revenue of $119.0-$120.0 million, a non-GAAP operating margin of (20.5)%-(19.5)% and non-GAAP EPS of $(0.32)-$(0.30), ahead of Street expectations for $118.4 million in revenue, $(25.6) million in non-GAAP operating income and $(0.33) in non-GAAP EPS.
Intuit (INTU) reported Q2 ’20 results above expectations and reaffirmed its guidance for FY ’20.
Revenue of $1.696 billion (+12.9% Y/Y) was above consensus of $1.680 billion and at the high-end of management’s guidance for 11%-13% growth. Non-GAAP operating income was $384.0 million (22.6% margin), above guidance for $335.0-$345.0 million and consensus of $343.0 million. Non-GAAP EPS of $1.16 beat guidance of $1.00-$1.13 and the Street’s $1.02.
Growth in the quarter was fueled by growth of 17% in the Small Business and Self-Employed Group and growth of 8% in both the Consumer and Strategic Partner Groups.
In tax, Intuit is growing the DIY software category and growing its share within the category, although IRS data shows the broader tax season was off to a slow start in January.
The acquisition of Credit Karma is expected to be neutral to accretive to non-GAAP EPS in the first full fiscal year after the transaction closes.
Q3 guidance includes revenue of $3.600-$3.625 billion, non-GAAP operating income of $2.020-$2.040 billion and non-GAAP EPS of $5.90-$5.95, which was mixed relative to consensus of $3.586 billion in revenue, $2.098 billion in non-GAAP operating income and $6.17 in non-GAAP EPS.
Management reiterated prior FY ’20 expectations for $7.440-$7.540 billion in revenue, $2.515-$2.565 billion in non-GAAP operating income and $7.50-$7.60 in non-GAAP EPS.
Kinaxis Inc. Reports Fourth Quarter 2019 Results
Kinaxis (KXS-CA) reported Q4 ’19 results ahead of expectations and provided a mixed outlook for FY ’20.
Revenue of $56.3 million (+47.0% Y/Y) was above management’s implied $52.8-$54.8 million guidance and consensus of $54.4 million. Adjusted EBITDA was $18.1 million (32.2% margin), also exceeding guidance for $11.2-$15.5 million and consensus of $14.7 million. EPS of $0.29 beat consensus of $0.22.
The strong performance was driven by a record number of new customer additions and the direct result of investments to significantly expand the sales and marketing team in 2018 and throughout 2019.
Key metrics: top 10% customers accounted for 32% of revenue; bookings of $97.1 million, including SaaS bookings of $95.7 million; remaining performance obligations totaled $339.4 million (+42.9% Y/Y).
To support its renewal and expansion efforts, Kinaxis has built a dedicated sales team focused solely on the installed base.
Kinaxis now works with approximately 25 partners globally and will invest to strengthen these relationships in 2020.
Guidance for FY ’20 includes revenue of $211.0-$215.0 million and an adjusted EBITDA margin of 20.0%-23.0% (implies adjusted EBITDA of $42.2-$49.5 million), which was mixed versus consensus of $210.9 million in revenue and $55.4 million in adjusted EBITDA.
The adjusted EBITDA margin is expected to return to 2019 levels in FY ’22, once the company reaches the anticipated peak of its three-year subscription renewal license cycle.
Nutanix Reports Second Quarter Fiscal 2020 Financial Results
Nutanix (NTNX) posted Q2 ’20 results above expectations but lowered its revenue and billings outlook for FY ’20.
Revenue of $346.8 million (+3.4% Y/Y) was above consensus of $341.1 million. Non-GAAP operating income was $(113.9) million (-32.9% margin), above consensus of $(132.4) million. Non-GAAP EPS of $(0.60) beat guidance of $(0.70) and consensus of $(0.69).
Key metrics: billings of $428.1 million (+3.5% Y/Y), including software and support billings of $419.5 million (+11.7% Y/Y) versus guidance of $410.0-$420.0 million; 79% of billings were subscription; new ACV plus renewals totaled $130 million (+18% Y/Y); closed 52 deals over $1 million; added 920 new customers for a total of 15,880 (+28.0% Y/Y) customers.
Nutanix delivered headline results above guidance despite a softer U.S. federal business that weighed on ACV growth.
The partnership with HPE yielded 117 new customers in the first full quarter of joint selling between the companies.
Due to a murky environment caused by the unknown impact of coronavirus, as well as a faster than anticipated transition to subscription, management has taken a cautious stance with regard to its 2H guidance.
Q3 guidance calls for software and support billings of $365.0-$385.0 million, software and support revenue of $300.0-$320.0 million and non-GAAP EPS of $(0.89) versus consensus of $(0.74).
Management reduced its FY ’20 software and support billings and revenue guidance from $1.65-$1.75 billion and $1.30-$1.40 billion, respectively, to $1.60-$1.67 billion and $1.29-$1.36 billion, and further noted that this supports non-GAAP operating income generally consistent with the Street’s $(548.8) million and implies ACV of approximately $505 million.
Palo Alto Networks Reports Fiscal Second Quarter 2020 Financial Results
Palo Alto Networks (PANW) reported mixed Q2 ’20 results and lowered its outlook for FY ’20.
Revenue of $816.7 million (+14.8% Y/Y) fell short of guidance for $838.0-$848.0 million and consensus of $843.3 million. Non-GAAP operating income was $148.9 million (18.2% margin), above consensus of $136.3 million. Non-GAAP EPS of $1.19 beat guidance for $1.11-$1.13 and consensus of $1.12.
Key metrics: billings of $998.9 million (+17.2% Y/Y) were near the high-end of guidance for $985.0 million to $1.0 billion; added over 2,500 new customers in the quarter.
Q2 revenue missed expectations due to the ongoing impact of sales incentive changes in the prior fiscal year related to Palo Alto’s Next-Generation Security products as well as overly optimistic expectations regarding some deal closures.
Management has created a new speedboat to drive the firewall business, has launched SD-WAN across the firewall estate and is seeing early indicators that product growth is likely to resume in Q4 and return to market levels in FY ‘21.
Palo Alto Networks has entered into a $1 billion accelerated share repurchase transaction, which is in addition to the previously announced $1 billion share repurchase program in February 2019 for which $801.9 million remains available for future repurchases.
Q3 guidance calls for revenue and non-GAAP EPS of $835.0-$850.0 million and $0.96-$0.98, respectively, below consensus of $873.7 million and $1.25.
Management lowered its prior FY ’20 guidance for revenue, billings and non-GAAP EPS from $3.440-$3.480 billion, $4.105-$4.165 billion and $4.90-$5.00, respectively, to $3.350-$3.390 billion, $4.075-$4.125 billion and $4.55-$4.65.
Management remains confident in its long-term targets for FY ’22.
RealPage Reports Fourth Quarter and Full Year 2019 Financial Results
RealPage (RP) reported Q4 ’19 results ahead of Street expectations and guided FY ’20 above consensus.
Non-GAAP revenue was $255.2 million (+11.9% Y/Y), above guidance for $250.0-$252.0 million and consensus of $251.6 million. Adjusted EBITDA of $76.2 million (29.8% margin) was ahead of guidance for $74.0-$76.0 million and consensus of $75.5 million. Non-GAAP EPS of $0.48 were within guidance of $0.47-$0.49 and a penny ahead of consensus.
Key metrics: Non-GAAP On Demand revenue was $246.7 million (+12.6% Y/Y); ending On Demand units of 18,475 (+13.9% Y/Y); average On Demand units of 17,627 (+9.2% Y/Y); annual client value (ACV) of $1,039,588 (+18.6% Y/Y); revenue per unit (RPU) of $56.27 (+4.1% Y/Y).
Management believes the company’s total addressable market is now in excess of $20 billion.
The recent acquisitions of Buildium, IMS and Modern Message collectively generated revenue of $71 million in 2019, of which $54 million was from Buildium, and contributed approximately $2.5 million in revenue to Q4.
New product innovation includes the deployment of ActiveBuilding, an e-commerce solution designed to enhance the resident experience and drive incremental yield from amenities like space, services and events, and a new AI bot called Simon that will be part of RealPage’s enhanced contact center experience.
RealPage enters 2020 with 557 sales team members, up 19% Y/Y and up 10% from the prior quarter.
Q1 guidance includes non-GAAP revenue of $277.0-$281.0 million, above consensus of $268.5 million; adjusted EBITDA of $70.0-$72.0 million, shy of the Street’s $72.4 million; and non-GAAP EPS of $0.41-$0.43, leaving consensus at the high-end.
Management’s FY ’20 guidance calls for $1.165-$1.185 billion in revenue, $320.0-$324.0 million in adjusted EBITDA and $1.95-$2.00 in non-GAAP EPS, exceeding consensus of $1.140 billion, $274.3 million and $1.91, respectively.
SailPoint Announces Fourth Quarter and Full Year 2019 Financial Results
SailPoint Technologies Holdings (SAIL) reported Q4 ’19 results above expectations but guided FY ’20 below consensus.
Revenue of $89.0 million (+10.4% Y/Y) was above guidance for $84.5-$86.0 million and consensus of $85.7 million. Non-GAAP operating income was $15.2 million (17.1% margin), exceeding guidance for $10.0-$11.0 million and consensus of $10.8 million. Non-GAAP EPS of $0.15 beat guidance of $0.07-$0.08 and consensus of $0.08.
Outperformance in Q4 was driven by continued market demand for identity governance, the company’s focus on innovation and solid execution by the SailPoint team.
SailPoint has seen a meaningful improvement in pipeline quality and growth over the last several quarters, a market shift towards cloud and SaaS, and differentiation in the marketplace via Predictive Identity, all of which support management’s view that bookings growth will accelerate in 2020 and accelerated investments in product are warranted.
Q1 guidance for $71.0-$72.0 million in revenue, $(4.5)-$(3.5) million in non-GAAP operating income and $(0.03)-$(0.02) in non-GAAP EPS was mixed versus consensus of $70.2 million, $(0.3) million and $(0.02), respectively.
Management’s FY ’20 outlook for $320.0-$325.0 million in revenue, breakeven non-GAAP operating income and $0.02-$0.03 in non-GAAP EPS missed consensus expectations for $329.3 million in revenue, $28.5 million in non-GAAP operating income and $0.21 in non-GAAP EPS.
Salesforce Announces Record Fourth Quarter and Full Year Fiscal 2020 Results
Salesforce (CRM) reported Q4 ’20 results above expectations and guided FY ’21 ahead of consensus.
Revenue of $4.85 billion (+34.6% Y/Y) exceeded guidance for $4.743-$4.753 billion and consensus of $4.754 billion. Non-GAAP operating income of $745.0 million (15.4% margin) was above consensus of $682.7 million. Non-GAAP EPS of $0.66 beat management’s $0.54-$0.55 guidance and consensus of $0.56.
Key metrics: revenue increased 22% excluding the acquisition of Tableau and Salesforce.org; remaining performance obligation (RPO) of $30.8 billion (+20% Y/Y), including current RPO of $15.0 billion (+26% Y/Y); revenue attrition below 9%.
Salesforce has agreed to acquire Vlocity, a provider of industry-specific cloud and mobile software built natively on the Salesforce platform, for $1.33 billion in cash, net of the value of shares currently owned by the company.
Management raised its Q1 revenue guidance from $4.800-$4.835 billion to $4.875-$4.885 billion and initiated non-GAAP EPS guidance of $0.70-$0.71, in line with consensus of $0.71.
For FY ’21, management increased its revenue guidance from $20.8-$20.9 billion to $21.0-$21.1 billion and issued non-GAAP EPS guidance of $3.16-$3.18, above consensus of $3.10; Vlocity is expected to contribute $50 million to revenue in FY ‘21.
Upland Software Reports Fourth Quarter and Full Year 2019 Financial Results
Upland Software (UPLD) reported Q4 ’19 results above expectations and reaffirmed its prior FY ’20 outlook.
Revenue was $66.1 million (+46.2% Y/Y), above guidance for $61.2-$64.2 million and consensus of $62.8 million. Adjusted EBITDA was $25.0 million (37.8% margin), ahead of guidance for $23.4-$24.8 million and consensus of $24.1 million. Non-GAAP EPS of $0.67 beat consensus of $0.59.
Key metrics: added 145 new customer relationships, including 44 major accounts; expanded 255 existing customer relationships, including 51 major expansions; 97% net dollar retention rate.
Organic growth in Q4 was on target at 5%, and Upland realized record expansion activity and new bookings as well as some material cross-sell success.
Upland now has approximately 80 salespeople, prompting management to add new leadership to drive higher productivity.
Management reaffirmed its prior Q1 guidance for $62.8-$65.8 million in revenue and $23.1-$24.5 million in adjusted EBITDA, which was provided earlier this month in conjunction with the announced acquisition of Localytics.
FY ’20 guidance for $269.5-$281.5 million in revenue and $99.2-$104.8 million in adjusted EBITDA was also provided at the time of the Localytics acquisition and remains unchanged.
VMware Reports Fourth Quarter and Fiscal Year 2020 Results
VMware’s (VMW) Q4 ’20 results, adjusted for the impact of the Pivotal acquisition, fell short of expectations, and management’s guidance for FY ’21 was mixed relative to consensus.
Revenue of $3.073 billion (+11.4% Y/Y) exceeded guidance and consensus of $2.950 billion but would have been $2.874 billion excluding Pivotal. Non-GAAP operating income was $1.054 billion (34.3% margin), below consensus of $1.108 billion and guidance for a 37.6% non-GAAP operating margin. Non-GAAP EPS of $2.05 missed guidance of $2.16 and consensus of $2.17.
Key metrics: revenue plus sequential change in unearned revenue was $4.124 billion (11.4% Y/Y); closed two deals over $100 million and 31 (+29.2% Y/Y) deals over $10 million; RPO was $10.3 billion; backlog was $18 million.
VMware had a good bookings performance in Q4 but license revenue was short of expectations due to a higher mix of subscription and SaaS as well as deal execution challenges, particularly with the volume of deals at the end of the quarter.
Initial Tanzu offerings will begin shipping soon, and the Project Pacific release, which will help transform VMware vSphere into a Kubernetes native platform will be unveiled.
Q1 guidance calls for $2.730 billion in revenue, a non-GAAP operating margin of 25.1% (implies non-GAAP operating income of $685.2 million) and non-GAAP EPS of $1.27, which was mixed versus consensus of $2.544 billion in revenue, $716.5 million in non-GAAP operating income and $1.39 in non-GAAP EPS.
Guidance for FY ’21 includes revenue of $12.050 billion, non-GAAP operating margin of 28.8% (implies non-GAAP operating income of $3.470 billion) and non-GAAP EPS of $6.55, which was also mixed versus consensus of $11.357 billion in revenue, $3.570 billion in non-GAAP operating income and $7.03 in non-GAAP EPS.
Workday Announces Fourth Quarter and Full Year Fiscal 2020 Financial Results
Workday (WDAY) reported Q4 ’20 results above expectations and provided a mixed outlook for FY ‘21.
Revenues of $976.3 million (+23.8% Y/Y) exceeded guidance for $962.0-$964.0 million and consensus of $964.5 million. Non-GAAP operating income was $116.6 million (11.9% margin), above guidance for $101.9-$102.2 million and consensus of $107.9 million. Non-GAAP EPS of $0.50 beat consensus of $0.40.
Key metrics: subscription revenue backlog of $8.29 billion (+23.0% Y/Y); over 3,200 customers at quarter-end; gross renewal rate over 95%; net retention rate over 100%.
Workday saw healthy demand across all product areas in Q4, adding 11 new Fortune 500 customers and 16 new Global 2000 customers for Workday HCM, a record number of core financial management customers, and aover 100 and over 350 Prism and planning customers, respectively.
Q1 guidance calls for revenue of $1.010-$1.012 billion, comprised of $873.0-$875.0 million in subscription revenue and $137.0 million in professional services, and a non-GAAP operating margin of approximately 15.0%, exceeding Street expectations for $1.004 billion in revenue and $133.0 million in non-GAAP operating income.
Management raised its FY ’21 subscription revenue target from $3.730 billion to $3.755-$3.770 billion and guided for $580 million in professional services and a 14.5% non-GAAP operating margin, implying revenue and non-GAAP operating income of $4.335-$4.350 billion and $628.6-$630.8 million, respectively, versus consensus of $4.355 billion and $616.7 million.
Notable News
Bandwidth Announces Pricing of Upsized $350 Million Convertible Senior Notes Offering
Bandwidth (BAND) priced an offering of $350 million aggregate principal amount of 0.250% Convertible Senior Notes due 2026 with an initial conversion price of $91.03 per share, a 22.7% premium to the close price prior to the announcement of the planned offering.
The offering was upsized from initial plans to offer $300 million and Bandwidth has granted the initial purchasers a 13-day option to purchase up to an additional $50 million aggregate principal amount of the notes.
Assuming no exercise of the initial purchasers’ option, net proceeds from the offering are expected to be $339.5 million, of which a portion will be used for capped call transactions and the rest for working capital or other general corporate purposes.
BlackLine Names Marc Huffman President
BlackLine (BL) has promoted Marc Huffman to President, effective immediately, and nominated him for election to the company’s Board of Directors.
Mr. Huffman will also remain the company’s Chief Operating Officer, and in his expanded role, he now oversees the product and technology organizations in addition to the sales, marketing and customer-facing teams.
Elastic Announces Transition of Chief Revenue Officer
Elastic’s (ESTC) Chief Revenue Officer, Aaron Katz, has transitioned from his current role into an advisory role to Shay Banon, the company’s founder and Chief Executive Officer.
Justin Hoffman, Senior Vice President of Sales, will lead worldwide sales until a successor for Mr. Katz is identified.
EXFO updates revenue outlook for second quarter of fiscal 2020
EXFO (EXFO) reduced its fiscal Q2 ’20 revenue outlook from $66.0-$71.0 million to approximately $55.0 million, citing the impact of coronavirus on its supply chain and manufacturing operations in China as well as an information technology issue.
Revenue is expected to accelerate in the coming quarters as operations return to full capacity.
Keith Block Steps Down as Salesforce Co-CEO; Marc Benioff is Chair and CEO
Salesforce (CRM) announced that Keith Block as stepped down as co-CEO and will remain as Advisor to the CEO.
Gavin Patterson, former Chief Executive of BT Group, was also named President and CEO of Salesforce International.
Microsoft update on Q3 FY 20 guidance
Microsoft (MSFT) indicated that the company does not expect to achieve its prior quarterly revenue guidance of $10.75-$11.15 billion for the More Personal Computing segment due to the impact of COVID-19 on its supply chain.
Demand for Windows has been consistent with expectations, but with the supply chain returning to normal operations at a slower pace than anticipated, both Windows OEM and Surface have been more negatively impacted than first thought.
All other components of the company’s fiscal Q3 guidance remain unchanged.
RingCentral (RNG) priced an offering of $1.0 billion aggregate principal amount of 0% Convertible Senior Notes due 2025 with an initial conversion price of $360.43 per share, representing a 53.4% premium to the close price prior to the announcement of the planned offering.
The company has granted the initial purchasers of the notes a 13-day option to purchase up to an additional $150.0 million aggregate principal amount of the notes.
Excluding the impact of any potential exercise of the initial purchasers’ option, RingCentral anticipates net proceeds of $986.5 million, of which $60.9 million will be put towards capped call transactions, $509.6 million for the repurchase of approximately $172.5 million aggregate principal amount of its outstanding 2023 notes, and the remainder for general corporate purposes.
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 Box Inc. (BOX).