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UserTesting (NYSE:USER) Exceeds Q3 Expectations, Agrees To Be Acquired By Thoma Bravo


Jabin Bastian /
2022/10/27 9:03 am EDT
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Product testing and feedback platform UserTesting (NYSE:USER) reported Q3 FY2022 results that beat analyst expectations, with revenue up 27.8% year on year to $49.4 million. UserTesting made a GAAP loss of $15.1 million, down on its loss of $9.63 million, in the same quarter last year.

Is now the time to buy UserTesting? Access our full analysis of the earnings results here, it's free.

UserTesting (USER) Q3 FY2022 Highlights:

  • Revenue: $49.4 million vs analyst estimates of $48 million (2.91% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.09
  • Free cash flow was negative $505 thousand, compared to negative free cash flow of $1.64 million in previous quarter
  • Gross Margin (GAAP): 77.9%, up from 75.3% same quarter last year
  • UserTesting also announced today that it had entered into a definitive agreement to be acquired by Thoma Bravo, a leading software investment firm, and significant minority owner Sunstone Partners, for $7.50 per share, in an all-cash transaction valued at approximately $1.3 billion

“We posted strong third quarter results including record total revenue, up 28% year-over-year,” said Andy MacMillan, CEO of UserTesting

Founded in 1999 and staying private for 22 years before a 2021 IPO, UserTesting (NYSE:USER) enables companies to receive feedback from users so they can improve their customer experience.

The Internet has given customers more choice on whom to conduct business with and has also given them the power to easily share their experiences with other customers. These twin dynamics effectively have increased pressure on companies to both improve their customer service and also monitor their brand reputation online, driving the need for customer experience software offerings.

Sales Growth

As you can see below, UserTesting's revenue growth has been very strong over the last two years, growing from quarterly revenue of $26.3 million in Q3 FY2020, to $49.4 million.

UserTesting Total Revenue

This quarter, UserTesting's quarterly revenue was once again up a very solid 27.8% year on year. On top of that, revenue increased $1.84 million quarter on quarter, a solid improvement on the $1.71 million increase in Q2 2022. Happily, that's a slight acceleration of growth.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 16.6% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. UserTesting burned through $505 thousand in Q3,

UserTesting Free Cash Flow

UserTesting has burned through $33.7 million in cash over the last twelve months, a negative 18.2% free cash flow margin. This low FCF margin is a result of UserTesting's need to still heavily invest in the business.

Key Takeaways from UserTesting's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on UserTesting’s balance sheet, but we note that with a market capitalization of $555.7 million and more than $164.6 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see UserTesting outperform Wall St’s revenue expectations this quarter. And we were also glad to see good revenue growth. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 92.7% on acquisition announcement at $7.5 per share.

Should you invest in UserTesting right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.