K. Liu's Week in Review
Initial unemployment claims in the U.S. doubled from the week prior to a whopping 6.6 million as COVID-19 continues to wreak havoc on the economy. The heightened uncertainty prompted a number of responses from several software companies this week, many of whom have now withdrawn guidance for the year. Shopify (SHOP) indicated that business momentum was sufficiently strong in January and February such that the company expects to report Q1 ’20 results in line or better than previously guided. In recent weeks, Shopify has seen many brick-and-mortar retailers pivot to online sales, heavy discounting by merchants to move volume, and sales trends aligning with specific industries consistent with consumer concerns and needs, which we surmise points to strength in the consumer staples, home office and electronics, and fitness equipment categories. In light of the current environment, however, Shopify withdrew its guidance for the year. In a similar vein, Manhattan Associates (MANH) expects its Q1 ’20 results to meet internal expectations. However, the company has since reduced the salaries of its named executive officers and board of directors, and plans to aggressively reduce operating expenses in areas outside of customer support and product development. Interestingly, Ansys (ANSS) has taken the opposite approach and indicated in an open letter to shareholders that the company continues to pay both salaried and hourly workers and has no plans at present to take any job actions. Customers typically leverage Ansys’ solutions in their research and development efforts, which management believes leaves the company’s products less susceptible to budget cuts.
Both Blackberry (BB) and Verint Systems (VRNT) reported fiscal Q4 ’20 results this week, and neither was willing to put forth any guidance for FY ’21 given the current uncertainty. Blackberry’s Q4 revenue was shy of Street expectations as its IoT business was unexpectedly impacted by a slowdown in the auto industry supply chain due to COVID-19. On a positive note, management indicated that enterprise software and services billings increased in the mid-teens on a sequential basis driven by strong demand for the company’s Unified Endpoint Management and AtHoc suites. Although the next couple of quarters may prove challenging due to coronavirus, management remains optimistic that the company will see strong results in the latter half of the year. Verint also posted a revenue shortfall, although the culprit there was more so timing as a large award from the Social Security Administration was appealed and precluded the company from recognizing a portion of the $35 million in perpetual license fees originally expected to materialize in the quarter. Verint’s Customer Engagement business continues to shift towards the cloud with new SaaS ACV growth of 70%, while the Cyber Intelligence business benefited from multiple large orders due to demand for data mining solutions. Per management, Verint remains on track with its plans to separate into two publicly traded companies.
As for those investing despite the uncertainty, Palo Alto Networks (PANW) agreed to acquire CloudGenix for $420 million in cash. The integration of CloudGenix’s SD-WAN products into Palo Alto’s Secure Access Service Edge (SASE) platform, Prisma Access, will accelerate the onboarding of branch offices and retail stores into the platform. During the call held to discuss the transaction, management stated that many organizations have purchased incremental firewalls to accommodate new traffic from employees working from home, and pipelines for both Prisma Access and GlobalProtect have expanded significantly during the past month. Additional financial details pertaining to CloudGenix were withheld pending closure of the acquisition. Post-integration, investors should be mindful of the impact the combination has on Fortinet’s (FTNT) growth given the success Fortinet has seen in the SD-WAN market. In other news, Amazon Web Services (AWS) announced the general availability of Amazon Detective, a new security service that collects and analyzes log data, enabling customers to analyze, investigate and identify the root cause of potential issues across their AWS workloads. The new service has competitive implications for vendors like DataDog (DDOG), Dynatrace (DT), New Relic (NEWR) and Splunk (SPLK), although the limitation of Amazon Detective to AWS workloads reduces the threat to an extent. Also notable, Commvault (CVLT) adopted a limited duration shareholder rights plan after Starboard Value filed a 13-D earlier in the week. Smartsheet’s (SMAR) Chief Financial Officer, Jenny Ceran, plans to retire, and Oracle (ORCL) priced a $20 billion offering of notes with rates and maturities ranging from 2.50% to 3.85% and 2025 to 2060, respectively.
Mergers and Acquisitions
Palo Alto Networks (PANW) has agreed to acquire CloudGenix, a leading provider of SD-WAN solutions, for approximately $420 million in cash.
CloudGenix serves approximately 250 customers across a broad range of verticals including healthcare, retail, manufacturing, finance, banking, tech and hospitality.
The integration of CloudGenix’s SD-WAN products with Palo Alto’s secure access service edge platform, Prisma Access, will accelerate the onboarding of remote branches and retail stores into Prisma Access.
Pricing for CloudGenix’s solutions are on a subscription basis and dictated by the size of the branch office.
During the call to discuss the acquisition, management also indicated that in response to COVID-19, many organizations have purchased incremental firewalls to accommodate new traffic from employees no longer working in offices, and both Prisma Access and GlobalProtect have experienced significant pipeline growth over the past month.
Earnings Releases
BlackBerry Reports Fiscal Fourth Quarter and Fiscal Year 2020 Results
BlackBerry (BB) reported mixed Q4 ’20 results and refrained from providing FY ’21 guidance due to COVID-19.
Non-GAAP revenue of $291 million (+13% Y/Y) was approximately in line with guidance for $292 million but shy of the Street’s $296 million. Adjusted EBITDA was $68 million (23.4% margin), well above consensus of $40 million. Non-GAAP EPS of $0.09 beat consensus of $0.04.
The licensing business outperformed as some business came in early, but the IoT business underperformed as BTS was unexpectedly impacted by the slowdown of the auto industry supply chain due to COVID-19.
Enterprise software and services billings increased in the high-teens on a sequential business led by strong performances for both the Unified Endpoint Management and AtHoc suites.
Cylance won over 300 new customers, posted ARR of $167 million (+9% Y/Y) and maintained a dollar-based net retention rate over 90%.
Due to the uncertainty from COVID-19, BlackBerry refrained from providing guidance for FY ’21 but indicated that Q1 is likely to be challenging and coronavirus headwinds may linger in Q2 ahead of a stronger 2H performance.
Verint Announces Q4 and Full Year FY2020 Results
Verint (VRNT) reported Q4 ’20 results below expectations and refrained from providing guidance for FY ’21.
Non-GAAP revenue was $349.5 million (+3.8% Y/Y), below guidance for $373.4 million and consensus of $374.5 million. Non-GAAP operating income was $88.7 million (25.4% margin), below consensus of $93.5 million. Non-GAAP EPS of $1.11 missed consensus of $1.16.
Verint has been selected by the Social Security Administration for a large project, which includes $35 million in perpetual software licenses, a portion of which was previously expected to be recognized in Q4 but is now expected in FY ’21.
The Customer Engagement business continues to shift towards cloud as evidenced by new SaaS ACV growth of 70% and the number of deals with cloud TCV in excess of $1 million increasing 93% Y/Y.
The Cyber Intelligence business finished the year strong with multiple large orders in the quarter driven by demand for data mining solutions.
Verint remains on track to separate into two public companies with preparations underway to prepare the carve-out financials for the Cyber Intelligence business, draft the requisite transactional and SEC documents and execute the IT separation plan.
Due to the uncertainty around COVID-19, Verint did not provide guidance for FY ’21.
Notable News
Ansys Issues Letter to Investors
Ansys (ANSS) issued an open letter to investors to discuss its actions amid the COVID-19 pandemic.
The improving situation in China has enabled Ansys to reopen all of its offices in the country.
Ansys continues to pay all of its salaried and hourly workers and has no plans to take any job actions at this time.
As Ansys powers R&D for its customers, an area expected to be less impacted by budget cuts, and derived 77% of its annual contract value from recurring sources, the company is insulated to an extent against a downturn in specific markets.
Q1 results will be reported in early May, but no specifics regarding the anticipated results were shared.
AWS Announces General Availability of Amazon Detective
Amazon Web Services (AWS) announced the general availability of Amazon Detective, a new security service that collects and analyzes log data to help customers analyze, investigate and identify the root cause of potential security issues across their AWS workloads.
No additional charges or upfront commitments are required to use Amazon Detective as customers only pay for data ingested from AWS CloudTrail, Amazon Virtual Private Cloud (VPC) Flow Logs and Amazon GuardDuty findings.
Commvault Adopts Limited Duration Shareholder Rights Plan
Commvault (CVLT) has adopted a limited duration shareholder rights plan to ensure the interests of the company and its shareholders are protected from any person or group gaining control of the company without paying an appropriate premium.
The Rights Plan expires on April 1, 2021, and the company is issuing one right, which will be exercisable only if an entity, person or group acquires ownership of 10% or more, for each outstanding share at the close of business on April 13, 2020.
Manhattan Associates Provides Corporate Update in Response to COVID-19
Manhattan Associates (MANH) indicated that preliminary results for Q1 ’20 were in line with internal expectations.
In response to COVID-19, however, the company has reduced the salaries of its Chief Executive Officer and the Board of Directors by 25%, its Chief Financial Officer by 15% and other named executive officers by 10%, effective April 1, 2020.
Expense reductions outside of customer support and research and development are also being reduced aggressively, and Manhattan is suspending its share repurchase program.
Oracle Prices $20 Billion Aggregate Principal Amount of Investment Grade Notes
Oracle (ORCL) priced the sale of $3.50 billion of 2.50% Notes due 2025, $2.25 billion of 2.80% Notes due 2027, $3.25 billion of 2.95% Notes due 2030, $3.00 billion of 3.60% Notes due 2040, $4.50 billion of 3.60% Notes due 2050 and $3.5 billion of 3.85% Notes due 2060.
Shopify Provides Business Update Relating to COVID-19
In response to COVID-19, Shopify (SHOP) has extended a 90-day free trial to all new standard plan signups, made gift cards available on all plans and for all merchants, enabled local in-store/curbside pickup and delivery for POS merchants, committed $200 million to the expansion of Shopify Capital and provided multiple online resources to support merchants.
Due to ongoing business momentum in January and February, Shopify expects to report Q1 revenue and adjusted operating income in line or better than previously guided.
Since March 8, 2020, the company has seen brick-and-mortar businesses pivot to online sales, heavy discounting by merchants to boost sales, sales trends aligning with specific industries based on consumer concerns and needs, and the termination of thousands of merchants charging unfair prices or making false claims about coronavirus-related items.
Due to the uncertainty surrounding the impact of COVID-19, Shopify suspended its previously issued guidance for FY ’20.
Smartsheet Announces Retirement of Chief Financial Officer
In an 8-K filing, Smartsheet (SMAR) announced that Jenny Ceran, Chief Financial Officer, will retire upon the transition to a successor.
A search for Smartsheet’s new CFO will commence this quarter.