Attunity + Appfluent: A Force To Be Reckoned With

Apr. 01, 2015 6:26 AM ETAttunity Ltd. (ATTU)AMZN, HDP20 Comments
Jonathan Fishman profile picture
Jonathan Fishman
1.77K Followers

Summary

  • Attunity has closed the acquisition of Appfluent.
  • I had the pleasure of speaking with Attunity's management on the acquisition and the overall trajectory of the business.
  • Reaching $100 million in revenue run rate could be only 2-2.5 years away.

A few days ago, I had the pleasure of speaking with Attunity's (NASDAQ:ATTU) management.

We discussed the recent acquisition and the business trajectory in general. In this article, I offer the main points from our conversation.

Appfluent: Solving a Real Problem

A week ago, Attunity closed the acquisition of Appfluent, a small, exciting company that solves a painful problem in the big data industry/ecosystem. Appfluent technology analyzes the usage of big data in the data warehouse.

Companies are spending millions of dollars a year in fees to data warehouse companies in order to store, process and analyze their increasing amounts of data.

The data in a data warehouse is usually used for analytics, BI and reporting... But the data warehouse is the most costly location to park your data.

Taking an insurance company or a financial institute as an example, most of their data analysis is done on relatively new data. There is no need to store 5+year-old data in a data warehouse.

A substantial cost saving could be achieved if such organizations identify the information they rarely use in their data warehouse. Doing that would enable them to move that data to a cheaper alternative such as Amazon (AMZN) Redshift or Hadoop.

With the Appfluent solution in its software suite, Attunity can now offer customers clear solutions that sit very well with the Hadoop adoption trend. Appfluent technology identifies the data that is rarely used, and with Attunity Replicate technology, the customer can migrate it to Hadoop.

This need is demonstrated by the strategic partnerships Attunity has with the major players in the Hadoop ecosystems like Cloudera and Hortonworks (HDP) to help identify rarely used data in data warehouses and then migrate it to Hadoop.

This trend is not overlooked by the data warehouse players that make a lot of money from packing more and more data in data warehouses. Most of them are also positioning solutions that include Hadoop as a way to enable cost and performance optimization. This is great news for many of Attunity's current and future customers that will be able to achieve significant savings.

Impact to Financials

The financials themselves are getting a substantial tailwind from the acquisition. Attunity raised its guidance to reflect the $5M-$6M in revenues contribution by Appfluent for the remainder of 2015.

The current guidance is $51M-$54M in revenue for 2015.

To cross-sell Appfluent to Attunity customers

This acquisition enables Attunity to build on top of its current resources and use Appfluent technologies to continue growing the entire business.

To cross-sell Attunity to Appfluent customers

There is not a lot of overlap between the Attunity and Appfluent customer bases. This is both surprising and very positive.

The hardest part of the sales process is to encourage large enterprises to get to know Attunity. Now, with a foot in the door with Appfluent, sales can try to cross-sell Attunity's other solutions.

To achieve significant sales reach

Appfluent had only two sales persons, both in the USA, one for the East coast and one for the West coast. Attunity has a little over 30 salespersons today and is planning to have 36-40 by year-end.

This will expand the Appfluent reach instantly to new markets and new customers. Attunity's presence in Europe and the Far East, is expected to accelerate that reach.

Dilution and Cash

The acquisition cost Attunity $11M in cash, which lowered their cash reserves to roughly $9M as of the end of this quarter. Although this reserve seems low, Attunity's CFO does not expect any cash flow problems or any need for raising of capital to run its operations.

Dilution-wise, we can expect a 4% dilution, which seems to be a fair price to pay for the prospects stemming from the Appfluent acquisition.

The current cash situation is sufficient to responsibly manage company growth while generating cash and gradually rebuild company reserves.

The only downside is that Attunity won't have the flexibility to make additional acquisitions of that size in the near future. I don't expect Attunity to make any acquisitions on this scale until next year, at least.

Sales Team Keeps on Expanding

In my view, the real signifier of Attunity's strength is the ongoing expansion of the sales team. Looking at the past couple of years, Attunity has more than doubled its sales force from 15 salespersons in Q3-2013 to 26 in Q4-2014 and to an expected 36-40 at the end of this year.

Year

2013

2014

2015

Sales Team

15

26

38

Growth

NA

73%

46%

I believe that Attunity is growing responsibly, taking its time to make sure that the sales organization is optimized. So far, this strategy is paying off.

Effect on Revenue Growth

I believe Attunity's core business is capable of at least 30% sales growth going forward. This is demonstrated by 2014 sales metrics and the sales team growth.

Year

2015

2016

2017

Attunity

$48M

$62M

$81M

Appfluent

$6M

$10M

$14M

Total Sales

$54M

$72M

$95M

I estimate that Appfluent revenues will grow by at least 40%, given the major tailwind that is Attunity's sales team and Hadoop adoption trends.

Implied from Attunity's guidance is that Appfluent is expected to bring on average approximately $2M in revenue per quarter.

Altogether, I believe Attunity will be able to reach almost $100M in revenues in 2017.

Conclusion

After discussing the details of the acquisition and the general trajectory of Attunity's business, I believe that Appfluent is not only a great addition to Attunity's business but that it will accelerate the journey to $100M in revenues.

More than that, Attunity's partnerships in the industry mature, and the Attunity software suite accumulates more and more value.

Eventually, I believe that Attunity will appear on some companies' radar, such as Amazon Web Services or one of the cash-lush Hadoop players (Cloudera/Hortonworks), in regard to an acquisition that will greatly benefit Attunity's shareholders.

This article was written by

Jonathan Fishman profile picture
1.77K Followers
I am a highly trained professional equity analyst. My specialty is finding companies with excellent ratios of risk to reward. Before going independent, I was the head analyst at a boutique Israeli hedge fund. Today I am a consultant to several multibillion-dollar firms. I have covered many sectors, including technology, solar and semiconductors. I have learned to connect the dots and discern how forces in these various industries will affect individual companies. I am a big believer in analyzing investments from the top down. This means identifying themes and trends that can reveal where industries and individual companies will be in the future. There are no magic formulas for this process, just a lot of hard work. After I've found a company, analyzed it and concluded its value, then it is just like a poker game with endless cards. All we have to do is sit and wait for the next card to reveal itself and adjust our thesis accordingly. Once we find the true value of a company, we must ignore day-to-day market chaos. If we have done our research properly, we do not need to worry if the Dow goes up or down a particular day, week or month. Peter Lynch, Ben Graham and Phillip Fisher are my biggest influences. I encourage anyone who wishes to learn more about the market to read any of their books.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in ATTU over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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