K. Liu's Week in Review
It was another volatile week across markets with coronavirus concerns remaining elevated and prompting a number of high-profile conference cancellations, including SXSW and the 2020 HIMSS Global Health Conference & Exhibition. One of our covered companies, CTG (CTG), had been poised to make a big splash at HIMSS with the launch of application testing services in North America, initially focused on the healthcare industry and electronic health records applications in particular. The company also sought to bolster its broader testing franchise with a tuck-in acquisition, which we analyzed in more detail in our report, “CTG Adds Crowdtesting Capabilities Through Acquisition of StarDust.” Also notable in our coverage universe, Stamps.com (STMP) filed its 10-K earlier this week. The key takeaway for us was a line in reference to the United States Postal Services’ (USPS) successful renegotiation with its reseller partners: “[w]hile we no longer expect adverse amendments, renegotiations, changes or termination of these contracts in the foreseeable future, the risk of such events remains.” We believe the updated view on the USPS’ reseller program in this year’s filing further reinforces management’s contention that the new agreements provide for both predictability and stability through 2023. For those on the hunt for opportunities amidst the recent market weakness, Stamps.com (STMP) is certainly one to consider.
Of those reporting earnings this week, Zoom Video Communications (ZM) was the standout performer with results and guidance exceeding expectations. The provider of video conferencing solutions highlighted strong traction with its newer Zoom Phone offering and has seen usage of its platform skyrocket as companies increasingly restrict travel and encourage employees to work remotely. Shares of Veeva Systems (VEEV) also moved higher for the week following a strong quarter and outlook driven by momentum in the data market and a record quarter for Veeva Vault. Ping Identity (PING) posted a beat and guided FY ’20 ahead of expectations as well, but saw it shares ultimately trade down for the week.
Both Guidewire Software (GWRE) and Splunk (SPLK) delivered upside results but guided below consensus due to accelerating adoption of the cloud by their respective customers. The sell-off at Guidewire was magnified by a corresponding cut to management’s ARR growth expectations for the year, a metric that should be relatively insulated from the accounting impact of companies moving from term licenses to subscriptions under ASC 606. Indeed, even as Splunk guided FY ’21 revenue and non-GAAP operating income considerably short of Street expectations, management reaffirmed its prior target for mid-40% ARR growth in FY ’21 and indicated that a CAGR of 40% in ARR was sustainable through FY ‘23. In explaining its lower ARR outlook, Guidewire’s management noted that the company continues to anticipate strong growth in InsuranceSuite Cloud deal activity this year, but with the market shifting away from self-managed core systems faster than anticipated, sales activity for new term licenses, which also contribute to ARR, has been negatively affected as prospects evaluate a potential move to the cloud.
In other news, Ansys (ANSS) entered into an agreement to acquire Lumerical, a leading provider of products that enable customers to predict the behavior of light within complex photonic structures and systems associated with technologies such as 5G, industrial internet of things and autonomous vehicles, all of which may potentially fuel the launch of next-generation products. The acquisition is not expected to have a material impact on Ansys’ financial results this year. At Shutterstock (SSTK), the recent appointment of Stan Pavlovsky as CEO has also brought about additional changes to the leadership team with the hiring of Avi Muchnick as Chief Product Officer and Jamie Elden as Chief Revenue Officer. Mr. Muchnick joins the company from Shapeways and will oversee the development and execution of Shutterstock’s product vision, while Mr. Elden joins from TONIK+ and will lead the Global Enterprise Sales team.
Mergers and Acquisitions
Ansys and Photonic Simulation Leader Lumerical Sign Definitive Acquisition Agreement
Ansys (ANSS) has agreed to acquire Lumerical, a leading developer of photonic design and simulation tools.
The acquired products will enable Ansys’ customers to predict the behavior of light within complex photonic structures and systems associated with emerging technologies such as 5G, industrial internet of things and autonomous vehicles.
The acquisition is expected to close in Q2 2020 and will not have a material impact on the company’s results for the full year.
Earnings Releases
AppFolio, Inc. Announces Fourth Quarter and Fiscal Year 2019 Financial Results
AppFolio (APPF) reported mixed Q4 ’19 results and guided FY ’20 revenue short of Street expectations.
Revenue of $67.4 million (+33.7% Y/Y) was above management’s implied Q4 guidance of $65.9-$66.9 million and consensus of $66.6 million. Operating income of $89,000 (0.1% margin) was below consensus of $2.0 million. EPS of $0.12 beat consensus of $0.03 as the release of a valuation allowance against the company’s deferred tax asset resulted in an income tax benefit.
Key metrics: 14,385 (+10% Y/Y) real estate property managers managing an aggregate of 4.64 million (+19% Y/Y) units; 10,971 (+7% Y/Y) legal customers; annual dollar-based net expansion rate was 118% for property management customers and 121% for law firm customers versus 116% and 113%, respectively, in the year ago period.
Growth in Value+ services revenue remains largely driven by increased usage of electronic payments, screening and insurance services by a larger base of property management customers, as well as a higher number of units under management.
Chief Strategist Klaus Schauser will retire from his position on May 1, 2020 but will remain on AppFolio’s Board of Directors.
Guidance for FY ’20 calls for revenue of $312.0-$320.0 million, below consensus of $324.4 million.
Benefitfocus Announces Fourth Quarter and Full Year 2019 Financial Results
Benefitfocus (BNFT) reported mixed Q4 ’19 results and provided a mixed outlook for FY ’20.
Revenue was $87.1 million (+16.5% Y/Y) within guidance of $83.5-$91.5 million and just shy of the Street’s $87.3 million. Adjusted EBITDA was $12.5 million (14.3% margin), exceeding guidance for $5.4-$10.4 million and consensus of $8.6 million. Non-GAAP EPS of $0.06 beat guidance for $(0.15)-$0.01 and consensus of $(0.05).
Key metrics: added over 0.5 million net benefit eligible lives for a total of 17.3 million (+30% Y/Y) at quarter-end; signed three seven-figure MarketPlace for Carrier transactions; over 800 premier brokers on the platform.
Q4 reflected lives growth, significant adoption of Benefitfocus’ innovative solutions and improved financial performance.
Three medical carriers have purchased the new quote-to-pay solution and adoption and usage of BenefitsPlace is accelerating based on the company’s open enrollment metrics and associated revenue growth of 34%.
The renegotiated agreement with Mercer, which enables the company to build stronger relationships with the broker community, resulted in a $3 million revenue headwind in Q4 and $9 million for the full year.
The pipeline remains robust and management anticipates continued strong activity throughout the year.
Q1 guidance for $67.5-$69.5 million in revenue, $0.5-$2.5 million in adjusted EBITDA and $(0.30)-$(0.24) in non-GAAP EPS fell short of Street expectations for $77.2 million, $3.4 million and $(0.21), respectively.
Management’s FY ’20 guidance for $310.0-$320.0 million in revenue, $22.0-$27.0 million in adjusted EBITDA and $(0.69)-$(0.54) in non-GAAP EPS was mixed versus consensus of $332.1 million, $25.9 million and $(0.54), respectively.
Descartes Announces Fiscal 2020 Fourth Quarter and Annual Financial Results
The Descartes Systems Group (DSGX) reported mixed Q4 ’20 results.
Revenues of $84.2 million (+18.6% Y/Y) were just shy of the Street’s $84.5 million. Adjusted EBITDA of $32.2 million (38.2% margin) was modestly above consensus of $32.0 million. EPS of $0.13 beat consensus of $0.12.
The recent acquisition of Peoplevox adds density and domain expertise in e-commerce, an increasingly important area of Descartes’ business.
The acquisition pipeline remains broad with a number of opportunities to expand the geographic reach, functional capabilities, trade data and content, or community of participants within the company’s network.
Thus far, the coronavirus impact on Chinese manufacturing has resulted in a more prolonged slowdown than usual following Chinese New Year but volumes have begun to recover, and reports suggest China’s supply chain activities have resumed.
Management’s baseline calibration for Q1 includes revenue of $81.3 million and adjusted EBITDA of $26.0 million.
Management continues to believe 10%-15% growth in adjusted EBITDA on an annual basis is sustainable over the long-term.
Guidewire Software Announces Second Quarter Fiscal Year 2020 Financial Results
Guidewire Software (GWRE) reported Q2 ’20 results above expectations but lowered its outlook for FY ’20.
Revenue was $173.5 million (+2.9% Y/Y), exceeding guidance for $162.0-$166.0 million and consensus of $166.3 million. Non-GAAP operating income was $15.4 million (8.9% margin), also exceeding guidance for $5.0-$9.0 million and consensus of $9.1 million. Non-GAAP EPS of $0.21 beat consensus of $0.13.
Key metrics: ARR was $474 million (+13% Y/Y); 63% of new software sales from subscriptions versus 53% last year; 25 existing customers chose 63 additional products; seven new customer go-lives spanning 20 different products; approximately 290 consultants with advanced certifications from 18 partner companies.
Guidewire was selected by USAA for a policy transformation project covering all $22 billion of their direct written premiums and landed an InsuranceNow win, suggesting its core system modernization business is moving to the cloud.
Guidewire is also seeing smaller cloud-based initiatives focused on helping Tier 1 carriers quickly bring new insurance products to market.
Management continues to anticipate strong growth in InsuranceSuite Cloud deal activity this year, but the market is shifting away from self-managed core systems faster than expected, thereby reducing new term license sales activity.
Q3 guidance includes revenue of $153.0-$157.0 million, non-GAAP operating income of $(11.0)-$(7.0) million and non-GAAP EPS of $(0.06)-$(0.02), below consensus of $186.4 million, $18.1 million and $0.21, respectively.
Management lowered its prior ARR growth, revenue and non-GAAP operating income guidance from +14%-16% Y/Y, $759.0-$771.0 million and $96.0-$108.0 million, respectively, to +11%-12% YY, $702.0-$714.0 million and $61.0-$73.0 million, and issued non-GAAP EPS guidance of $0.82-$0.94 versus consensus of $1.19.
Jeff Cooper, VP of Finance, will be assuming the role of Interim CFO following the company’s filing of its 10-Q.
Ping Identity Reports Fourth Quarter and Fiscal Year 2019 Results, Provides Outlook for 2020
Ping Identity (PING) reported Q4 ’19 results above expectations and guided FY ’20 revenue above consensus.
Revenue of $68.2 million (+14.7% Y/Y) was above guidance for $64.7-$66.7 million and consensus of $65.7 million. Non-GAAP operating income was $11.1 million (16.2% margin), above consensus of $9.6 million. Non-GAAP EPS of $0.14 beat consensus of $0.10.
Key metrics: ARR of $224.9 million (+22.5% Y/Y) was above guidance for $222.1-$223.1 million; 1,361 customers at quarter-end, including 38 (+52% Y/Y) customers spending over $1 million in ARR; dollar-based net retention rate was 115%.
Growth in Q4 was driven by a healthy distribution of base expansion and new logos across solutions and use cases as well as the continued drive by customers to leverage Ping’s deployment flexibility wall-to-wall across the enterprise.
Customers are increasingly buying multiple solutions and use cases at initial purchase.
Ping certified over 200 security professionals as part of its formal certification program in 2H ‘19.
Non-GAAP operating expenses as a percentage of ARR in FY ’20 will be slightly higher than last year due to investments in quota-carrying reps, training and enablement, channel partnerships and customer success.
Q1 guidance includes ARR of $228.5-$230.5 million, total revenue of $60.5-$62.5 million versus consensus of $53.2 million, and unlevered free cash flow of $6.0-$8.0 million.
Guidance for FY ’20 includes $263.5-$267.5 million in ARR, $263.0-$273.0 million in revenue versus consensus of $265.7 million, and $5.0-$9.0 million in ARR.
Splunk Inc. Announces Fiscal Fourth Quarter and Full Year 2020 Financial Results
Splunk (SPLK) reported Q4 ’20 results above expectations but guided FY ’21 below consensus.
Total revenues were $791.2 million (+27.2% Y/Y), above guidance for approximately $780.0 million and consensus of $783.1 million. Non-GAAP operating income was $190.9 million (24.1% margin), ahead of the Street’s $185.8 million and guidance for a 23.0% non-GAAP operating margin. Non-GAAP EPS of $0.96 were a penny below guidance and consensus of $0.97.
Key metrics: ARR of $1.68 billion (+54% Y/Y), including $442 million from cloud and $1.238 billion from term license and maintenance contracts; signed over 450 new customers; 221 (+24% Y/Y) orders with over $1 million in total contract value; RPO of $1.8 billion (+43% Y/Y).
Splunk’s shift to a renewable model is 99% complete as customers now predominantly opt for term and cloud contracts.
The company’s new Data-to-Everything pricing options have made it easier for customers to do business with Splunk, and cloud-first is now the mindset from both a business model and product strategy perspective.
As customers increasingly adopt Splunk’s cloud offerings, management sees ARR as the best metric to evaluate its growth; management reaffirmed prior FY ’21 guidance for mid-40% ARR growth and expects a 40% ARR CAGR through FY ’23.
Q1 guidance includes revenue of approximately $450.0 million and non-GAAP operating margin of (25.0)%, considerably below Street expectations for $526.2 million in revenue and $(5.5) million in non-GAAP operating income.
Management’s FY ’21 guidance for revenue of approximately $2.6 billion and a non-GAAP operating margin of breakeven was also well below Street expectations for $2.9 billion in revenue and $455.6 million in non-GAAP operating income.
Veeva Announces Fiscal 2020 Fourth Quarter and Fiscal Year 2020 Results
Veeva Systems (VEEV) reported Q4 ’20 results above expectations and raised its outlook for FY ’21.
Revenues were $311.5 million (+34.1% Y/Y), exceeding guidance for $296.0-$299.0 million and consensus of $298.3 million. Non-GAAP operating income was $103.4 million (33.2% margin), above guidance for $100.0-$101.0 million and consensus of $101.3 million. Non-GAAP EPS of $0.54 beat guidance for $0.51-$0.52 and consensus of $0.52.
Key metrics: billings (excluding $9 million of net acquired deferred revenue) of $519 million were above guidance; customer count was 861 (+20% Y/Y); Veeva Commercial Cloud customers totaled 390 (+16% Y/Y); Veeva Vault customers totaled 715 (+25% Y/Y); subscription revenue retention was 121% for the year.
The record quarter reflected an increased pace of new customer wins, momentum in the data market and the best quarter ever for Veeva Vault.
The acquisitions of Crossix and Physicians World contributed over $19 million in revenue, implying organic growth of 26%.
Safety and CDMS are two of the biggest opportunities on the R&D side, and both are showing good early momentum.
Q1 guidance for $327.0-$328.0 million in revenue, $117.0-$118.0 million in non-GAAP operating income and $0.59-$0.60 in non-GAAP EPS exceeded Street expectations for $313.5 million, $109.0 million and $0.56, respectively.
Management raised its FY ’21 revenue and non-GAAP operating income guidance from $1.380-$1.390 billion and $483.0-$500.4 million, respectively, to $1.400-$1.405 billion and approximately $500.0 million, and issued non-GAAP EPS guidance of approximately $2.50 versus consensus of $2.51.
Calculated billings are expected to approximate $330 million in Q1 and $1.5 billion in FY ’21.
Veritone Reports Financial Results for the Fourth Quarter and Full Year 2019
Veritone (VERI) reported Q4 ’19 results above expectations but lowered its revenue guidance for Q1.
Net revenues of $12.4 million (+13.7% Y/Y) were at the high-end of management’s $12.0-$12.4 million guidance and above consensus of $12.1 million. Adjusted EBITDA was $(8.1) million (-64.7% margin), above guidance for $(8.7)-$(8.3) million and consensus of $(8.5) million. Non-GAAP EPS of $(0.33) beat consensus of $(0.38).
Veritone’s business realignment is already accelerating its product development cycles and driving increased engagement with customers as evidenced by the company’s best SaaS bookings quarter by far to finish 2019.
Key aiWARE SaaS Solutions metrics: 172 (+40% Y/Y) customers and 1,069 (+27% Y/Y) accounts on platform at quarter-end; 403 (+40% Y/Y) active third-party cognitive engines; 3.773 million (+6% Y/Y) hours of data processed; $2.522 million (+111% Y/Y) in new bookings; monthly recurring revenue of $568,000 (+4% Y.Y).
Key advertising metrics: added 15 (+7% Y/Y) net new clients; 108 (-6% Y/Y) clients with active campaigns in the quarter; average advertising spend per active client of $567,000 (+19% Y/Y).
Recent aiWARE upgrades are yielding significant cost savings with average daily compute costs down 35% from the peak in Q3 despite a higher number of processing hours.
A few clients experiencing supply chain disruptions from the coronavirus outbreak have delayed advertising programs, which will push out some revenues previously anticipated in Q1.
Management lowered its prior Q1 revenue guidance from $12.6-$13.4 million to $12.5-$12.9 million and raised the low-end of its adjusted EBITDA guidance from $(7.8)-$(7.2) million to $(7.6)-$(7.2) million.
Yext, Inc. Announces Fourth Quarter and Full Year Fiscal 2020 Results
Yext (YEXT) reported Q4 ’20 results above expectations but provided a mixed outlook for FY ’21.
Revenue of $81.4 million (+27.6% Y/Y) was ahead of guidance for $79.0-$81.0 million and consensus of $80.2 million. Non-GAAP operating income was $(13.7) million (-16.8% margin), exceeding consensus of $(20.1) million. Non-GAAP EPS of $(0.12) beat guidance for $(0.15)-$(0.13) and consensus of $(0.14).
Key metrics: closed 236 (+40% Y/Y) deals with at least $100,000 in total contract value, including 25 deals over $1 million; over 1,900 customers (+38% Y/Y) at quarter-end; ARR over $326 million (+29% Y/Y); dollar-based net retention for direct enterprise customers was 108%; remaining performance obligations of $328.1 million.
Q4 was highlighted by record sales, successful product launches and strong execution.
Yext Answers garnered 29 deals with an aggregate annual contract value in excess of $1.5 million during Q4, the first full quarter in which the product was available.
Yext enters 2020 with nearly 250 (+42% Y/Y) quota-carrying sales reps and a strong pipeline across the organization.
Q1 guidance for $85.0-$87.0 million in revenue and $(0.14)-$(0.11) in non-GAAP EPS was consistent with consensus of $86.6 million in revenue and $(0.11) in non-GAAP EPS.
Management’s FY ’21 guidance for $378.0-$382.0 million in revenue and $(0.50)-$(0.45) in non-GAAP EPS was mixed relative to Street expectations for $380.7 million in revenue and $(0.43) in non-GAAP EPS.
Zoom Video Communications Reports Fourth Quarter and Fiscal Year 2020 Financial Results
Zoom Video Communications (ZM) beat expectations in Q4 ’20 and guided FY ’21 ahead of consensus.
Revenue of $188.3 million (+77.9% Y/Y) was ahead of guidance for $175.0-$176.0 million and consensus of $176.5 million. Non-GAAP operating income was $38.4 million (20.4% margin), exceeding guidance for $17.0-$18.0 million and consensus of $17.8 million. Non-GAAP EPS of $0.15 beat guidance and consensus of $0.07.
Key metrics: approximately 81,900 (+61% Y/Y) customers with over 10 employees; 641 (+86% Y/Y) customers contributing over $100,000 in TTM revenue; TTM net dollar expansion rate amongst customers with over 10 employees was above 130%.
Q4 results exceeded expectations due to strong sales execution, which was reflected in both strong new account additions and major expansions with existing customers.
Zoom Phone has had an incredible start, closing deals with approximately 2,900 customers with over 10 employees in its first year of availability and exiting 2019 with a run rate of 230 million Zoom Phone minutes.
Usage of Zoom’s platform has already increased significantly due to the coronavirus outbreak.
Q1 guidance includes revenue of $199.0-$201.0 million, non-GAAP operating income of $25.0-$27.0 million and non-GAAP EPS of $0.10, exceeding Street expectations for $185.7 million, $15.1 million and $0.06, respectively.
Management’s FY ’21 guidance calls for revenue of $905.0-$915.0 million, non-GAAP operating income of $110.0-$120.0 million and non-GAAP EPS of $0.42-$0.45, exceeding consensus of $868.4 million, $82.5 million and $0.30, respectively.
Notable News
Shutterstock Hires Chief Product Officer and Chief Revenue Officer to join Leadership Team
Shutterstock has hired Avi Muchnick as Chief Product Officer (CPO) and Jamie Elden as Chief Revenue Officer (CRO).
Mr. Muchnick joins the company from Shapeways where he also served as CPO and will be responsible for developing and executing the product vision at Shutterstock.
Mr. Elden was most recently President at TONIK+ and will lead Shutterstock’s Global Enterprise Sales team.
Disclosure(s):
K. Liu & Company LLC has received compensation from CTG, Inc. (CTG) in the past 12 months for “Sponsored Research.”
Sponsored Research produced by the firm is paid for by the subject company in the form of an initial retainer and a recurring monthly fee. The analysis and recommendations in our Sponsored Research reports are derived from the same process and methodologies utilized in all of our research reports whether sponsored or not. The subject company does not review any aspect of our Sponsored Research reports prior to publication.
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).