11:55 am Caesarstone (CSTE)
Caesarstone (CSTE), which makes kitchen countertops and bathroom vanities out of quartz (attempting to displace granite), is trading near new 52-week highs so we wanted to provide some background. If you have renovated your kitchen lately, you may have been asked if you'd consider quartz over granite for your countertops. If you were, there is a good chance Caesarstone was the manufacturer (especially if you went to IKEA for your remodel as CSTE partnered with IKEA last year).
Although the use of quartz is relatively new, it's the fastest growing material in the countertop industry and continues to take market share from other materials, such as granite, manufactured solid surfaces and laminate. CSTE's products are primarily used as kitchen countertops but other applications include vanity tops, wall panels, back splashes, floor tiles etc. Caesarstone is a pioneer in the engineered quartz surfaces industry. Its products consist of quartz slabs that are currently sold in 50+ countries.
So why quartz? Its hardness, as well as its non-porous characteristics, offers superior scratch, stain and heat resistance relative to competing products such as granite, manufactured solid surfaces and laminate. As such, quartz is extremely durable and ideal for the kitchen. Quartz performs very well in several tests, including resistance to staining, heat, cutting and abrasions, as well as price.
Quartz is gaining share in the market. CSTE has grown to become the largest provider of quartz surfaces in Australia, Canada, Israel, France and South Africa, and it has significant market share in the US and Singapore. Its products account for approximately 12% of global engineered quartz by volume. CSTE is based in Israel but its four largest markets are: the US (42% of 2014 revs), Australia (24%), Canada (13%) and Israel (9%).
There has not been much news out lately although they did report some good Q1 results in early May with revenue up 14% YoY to a record $107.8 mln. The top line growth was primarily driven by strong US sales as quartz is catching on in the US. US sales were up 27.6% YoY to $48.0 mln. CSTE says it's seeing continued momentum for the Caesarstone brand, particularly in its key markets, the US, Canada and Australia.
In order to handle the strong US demand, CSTE has been adding production capacity in the US. Construction of the company's manufacturing facility in Richmond Hill, Georgia has been progressing well. In fact, CSTE announced that it recently started production at its new US facility, which is currently in the commissioning stage.
In sum, we think CSTE is a pretty interesting name and has good potential over the long term. Quartz is starting to catch on for kitchen countertops and bathroom vanities. For example, quartz's market share in 2014 was only 8% in the US but that's up 60% from 5% in 2010. There is still a lot of market penetration runway. And it's really catching on in Canada as market share doubled from 9% in 2010 to 18% in 2014. Caesarstone is the best way to play this trend.
11:21 am Progress Software reports better than expected Q2 results
Progress Software (PRGS 29.95, +1.80) is trading about 6.4% higher following the company's better than expected second quarter results. In the period, PRGS saw earnings per share (EPS) of $0.35 on revenues of $100.9 million. The company also announced various Q3 and FY15 guidance and appointed Jerry Rulli as Chief Operating Officer.
In Q2, PRGS reported revenues which rose about 24.9% on a year-over-year basis to $100.9 million, helped mostly by the increase in Application Development and Deployment segment revenues to $9.63 million from $0.22 million in the prior year's period. This large increase was due mostly to the acquisition of Telerik, which was not a part of the business in the year ago period.
In the company's OpenEdge segment, revenues were down slightly by 2% to $71.90 million and Data Connectivity and Integration revenues were also down slightly by 2% to $7.27 million. The strong dollar has helped the company's foreign markets, where strength in the US Dollar has made those foreign products more expensive. Quarter-to-date, the company does about 46.6% of its business outside the US border. This period, North American revenues were about $47.5 million, with EMEA revenues coming in at $31.1 million, Latin America earning $4.3 million and Asia Pacific earning $5.7 million on a non-GAAP basis.
In addition, PRGS also raised select guidance in conjunction with the Q2 numbers. FY15 EPS is expected to be $1.45-1.52, up from previous $1.35-1.45. FY15 revenues are still expected to be $415-425 million, and Q3 EPS and revenues are slated to end at $0.35-0.38 and $101-104 million, respectively.
Finally, the company appointed a new Chief Operating Officer also in conjunction with the results. Jerry Rulli, president of the company's OpenEdge Business unit, has now been appointed COO effective immediately.
The stock is currently trading at near 4-year highs dating back to February of 2011. Shares struck out above prior highs last night following the report, and have leveled off in Thursday-morning trade. Shares remain positive, despite the weakness both in the broader sector (XLK 41.65, -0.03) and the broader market (S&P 500 2075.82, -1.60).
10:01 am Intl Speedway Down Over 7% Following Earnings/Guidance
Intl Speedway (ISCA 34.33 -2.65) is trading sharply lower this morning following earnings/guidance results.
The company reported second quarter earnings of $0.35 per share, which fell short of expectations.
On the top line, revenues fell 13.8% year/year to $164 million, which also fell short of expectations.
Guidance isn't much better, even though the company raised its revenue expectations and raises the lower end of its earnings guidance range.
Looking ahead to the full year, the company expects to see earnings in fiscal year 2015 at $1.20-1.30 from $1.10-1.30, which comes in below expectations.
Revenues are expected to be $625-635 million from $615-630 million, which falls in-line with expectations.
Overall, the company said, "We are pleased to report second quarter results again exceeding our expectations. The attendance upturn that started with Talladega in the Contender round of the 2014 Championship Chase continues to build, and this is the third consecutive quarter we have seen an increase in average ticket price for comparable events, demonstrating a solid trend in the resurgence of our core business."
9:39 am Xactly (XTLY)
Xactly (XTLY) made its IPO debut on June 26, however, it was not as warmly received as management likely hoped it would. The IPO priced at $8, below the expected range of $10-12. We thought it'd be worthwhile to take a look at the company and provide some background for investors.
Xactly is a provider of cloud-based, subscription-based software used for incentive compensation for employees and salespeople. The majority of the payees on Xactly's platform were in sales (76%) with the remaining (24%) in non-sales roles. Its platform helps executives design, manage and analyze incentive programs and provide visibility into employee and incentive program performance. At the same time, employees use its platform to monitor, estimate and track their own performance in real-time, and modify their behaviors to maximize their payout.
Its customers range from small businesses to Fortune 50 companies although more than 90% of revenue comes from enterprise and mid-market customers. Customers come from a variety of industries including business & financial services, communications, high-tech manufacturing, life sciences, media & internet etc. Customers use its platform to manage and incent a broad range of employees, from bank tellers to post office employees to sales people. As of January 31, 2015, Xactly had approximately 194,000 subscribers, up 39% from the year earlier period.
Companies have traditionally used spreadsheets or other manual processes that are often error-prone and are not designed for use by mobile users. Spreadsheets, manual processes and homegrown systems tend to provide untimely results with limited visibility, are difficult to understand, and are difficult to integrate with other applications. Also, legacy systems have generally been deployed on-premise, requiring substantial investments in infrastructure and resources in order to maintain such systems. Xactly's platform is delivered online avoiding a lot of these issues.
US companies alone spend more than $800 billion on sales force compensation each year, representing the single largest marketing investment for most companies. This market is large and significantly underpenetrated by commercial platforms. Spreadsheets continue to be the dominant tool for both calculating and managing commissions and designing and managing sales territories, with only 13% of companies using a commercial incentive compensation management system as their primary method. Xactly believes that the relatively low market penetration of automated sales performance management (SPM.TO) software highlights the nascent nature of this market.
Taking a quick look at the financials, the first thing that stands out is that the company is not profitable and it looks like it's not close to being profitable. Probably the best metric is XTLY's strong top line growth. Revenue has grown about 30% in each of the past two years, reaching $61.1 mln last year. Also, because it uses a subscription model, Xactly has good visibility into a substantial portion of its future revenue.
In sum, sometimes IPOs that price poorly end up doing pretty well eventually. Xactly's lack of profitability is a concern and there is no guarantee the stock will trend higher. However, the combination of the small float (7.0 mln shares) coupled with quality underwriters (led by JP Morgan) makes us want to keep this name on the radar for a potential turnaround at some point.
9:38 am Xoom (XOOM)
In an effort to expand services for PayPal customers and accelerate time-to-market in key international markets, Paypal (EBAY) announced earlier this morning that it has reached an agreement to acquire Xoom (XOOM 25.10, +4.40, +21%) for $25 per share in cash or an approximate $890 million enterprise value.
For some background, Xoom is a digital money transfer provider that enables consumers to send money, pay bills and send mobile reloads to family and friends around the world in a secure, fast and cost-effective way. This description sounds a lot like Paypal, which means this acquisition makes a lot of sense for both companies. While Paypal's 165 million active customer accounts dwarfs Xoom's 1.3 million active customers, Xoom's presence in 37 countries - in particular, Mexico, India, the Philippines, China and Brazil - offers Paypal an opportunity to instantly expand its network, increase customer engagement, and accelerate its money transfer processes.
Due to anticipated one-time integration costs, the completion of the transaction is expected to be slightly dilutive to PayPal's non-GAAP earnings per share for FY 2016. Upon closing of the acquisition, Xoom will operate as a separate service within PayPal.
In closing, PayPal, which is in the process of being separated from eBay (EBAY), will become an independent, publicly traded company listed on the NASDAQ Stock Market under the ticker PYPL. This separation is expected to occur on July 17, 2015, and the acquisition of XOOM is expected to close in the fourth quarter of 2015.
9:32 am Dollar Index Drops Following Jobs Data; Nat Gas Higher Ahead Of Storage Data
Following the jobs data this morning, the dollar index dropped sharply to a new low for today, which gave a boost to a handful of commodities including gold, silver and oil futures.
However, gold remains in negative territory, while silver has rallied into positive territory and to a new high for today. Sept silver is now +0.5% at $15.65/oz, while Aug gold is -0.5% at $1163.70/oz. Copper has been around the unchanged mark this morning and is now +0.3% at $2.637/lb
Oil also rallied following the jobs data, but has since given back half of those gains. Aug crude is +0.5% at $57.21/barrel in current trade.
Aug natural gas futures have been trading higher ahead of today's weekly EIA storage data, during both the overnight and morning sessions. Front-month Aug nat gas is now +1.8% at $2.83/MMBtu.
8:53 am Natera (NTRA)
Earlier this morning, Natera (NTRA), a commercial-stage MedTech company focused on molecular diagnostics, priced its 10 mln share IPO at $18 per share, the high end of the revised range of $17-18.
NTRA's initial focus has been on non-invasive prenatal testing (:NIPT), and the company has already commercialized seven tests since 2009. NTRA has plans to expand into the oncology segment next. One unique aspect of the company's business model is that they enable laboratories around the world to run their own diagnostic tests locally, and then access NTRA's algorithms via a cloud-based service in order to analyze them.
The traditional method for prenatal testing has been invasive: insert a needle into the pregnant women's stomach in order to extract a fluid sample, which is then sent to a laboratory for analysis. This method carries a small risk of resulting in miscarriage or harming the fetus, which has led to the adoption of non-invasive genetic testing. NTRA's technology falls into the latter category, as it uses a single blood test from the woman's arm to get the sample, and the sample is then sent to NTRA's lab (or a partner's lab) for analysis.
The company's flagship product, Panorama NIPT (launched in March 2013), accounts for roughly 73% of revenue. This test screens fetal DNA for instances of extra or missing chromosomes of interest, to identify fetal sex, to identify triploidy, and for microdeletions associated with common syndromes that result in severe intellectual disability and moderate to severe physical disabilities. In 2014, the company processed more than 185,000 Panorama tests (out of 215,000 total).
As mentioned above, NTRA plans to enter the oncology segment next, with tests for early detection of breast, ovarian, and lung cancers. The estimated TAM for oncology screening is even bigger than prenatal screening, with the early cancer detection segment estimated to be $6.7 billion, and this TAM then grows to $18.8 billion when adding in reflex testing, therapy monitoring, and residual disease.
Looking at the financials, NTRA has experienced rapid revenue growth, with sales growing +186% in 2014 (the first full year of Panorama) to $159 million. For 1Q15 sales grew +74% to $47 million. On a quarterly basis, revenue has seen strong sequential growth from 2Q13 through 4Q14, but NTRA did see a sequential decrease in the recent 1Q15 report; this was primarily due to reduced average reimbursement for its Panorama tests because of new CPT codes that came into effect in January 2015.
- Health Care Industry