Convertibles market weighs Five9, Teladoc offerings with mixed views; NXP, Dexcom active

By Abigail W. Adams

Portland, Me., May 3 – After a period of silence earlier in the week, the convertible bond primary market reactivated after earnings announcements. Two deals totaling $425 million are expected to price after the market close on Thursday.

Five9 Inc. and Teladoc Inc. are on deck with new offerings. While Five9’s deal is expected to do well, Teladoc’s deal does not look attractive, sources said.

There was not much gray market activity around either deal, a market source said.

While the market awaits new paper, earnings announcements sparked trading activity in several names with mixed results. NXP Semiconductors NV’s and Tesla Inc.’s convertible notes traded down alongside stock while Dexcom Inc.’s convertible notes made gains on an outright basis.

Five9’s deal

Five9 plans to price $200 million of five-year convertible notes with price talk for a coupon of 0% to 0.125% and an initial conversion premium of 30% to 35%, according to a market source.

The deal comes with a call spread.

With a credit spread of 250 basis points and a 40% vol., the deal models out to par at the mid-point of talk, a market source said.

Based on the performance of other software companies that have priced recently, Five9 is expected to do OK, the source said.

Most other deals have priced with a credit assumption around 300 bps. “I think they’ve gotten tighter,” the source said.

The recent software deals have “spiked into the announcement,” with the convertible notes priced with stocks high. Five9 is no different.

Five9’s convertible notes offering comes on the heels of the cloud computing software provider’s first-quarter earnings beat on Tuesday and a management change-up.

Five9 reported non-GAAP earnings per share of 8 cents for the first quarter, versus analyst expectations of earnings per share of 3 cents. The company’s reported revenue of $58.9 million also exceeded analyst expectations of $55.1 million.

Five9 also announced Tuesday former Cisco executive Rowan Trollope will serve as the company’s new chief executive officer effective Thursday.

While Five9 stock jumped almost 8% on Wednesday following the announcements, the stock was down 3.21% to $31.40 at the market close on Thursday. Five9’s 52-week high and low is $34.23 and $17.95, respectively.

With the convertible offering for $200 million and Five9’s market cap $1.75 billion, the notes may trade better than they model. “I wouldn’t expect it to fly but it might trade high based on the market cap,” the source said.

The borrow on the common stock is good, the source said.

Teladoc’s deal

Teladoc plans to price $225 million of seven-year convertible notes after the market close on Thursday with price talk for a coupon of 0.875% to 1.375% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal is being marketed with a 400 bps credit spread and a 40% vol., a market source said.

With a credit spread of 475 bps, the deal looks fair, a market source said. However, with a credit spread of 400 bps, the deal “does not look attractive,” the source said.

At the mid-point of talk, the deal falls under par, the source said.

Teladoc stock has more than doubled in a year, which may be the story underwriters are selling, “but I don’t see this modeling,” the source said.

The virtual health care delivery services provider is a repeat issuer of convertible notes.

Teladoc’s outstanding 3% notes due 2022 saw some trading activity on Wednesday prior to the launch of the new convertible note offering with $7 million bonds traded by late afternoon Wednesday.

The 3% notes gained about 4 points outright to trade up to 127 with stock up about 5% on Wednesday. They were not active on Thursday, as Teladoc stock gave up its gains and dropped 8.25% to $41.70 at market close.

Teladoc also announced first-quarter earnings prior to the market open on Wednesday.

Teladoc reported a loss of 39 cents per share for the first quarter, which beat analyst expectations of a loss of 43 cents per share.

NXP dominates

NXP’s 1% convertible notes due 2019 were the volume leaders on Thursday after the Netherlands-based semiconductor company missed earnings estimates by a wide margin.

The 1% convertible notes were down 3 to 4 points outright to trade in a range of 113 to 114 during Thursday’s session, according to Trace data.

NXP stock traded to a low of $90.83 and a high of $95.00 before closing Thursday at $92.36, a decrease of 10.09%. NXP stock saw more than 5 times its average trading volume with about 31.7 million shares traded during Thursday’s session versus the 50-day average of 5.39 million.

With everyone using their own delta for NXP, it is difficult to determine how the notes are faring dollar neutral on a universal level, a market source said.

NXP reported first-quarter earnings of 17 cents per share on Wednesday, a miss of $1.50 from analyst expectations. Analyst estimates were for earnings per share of $1.67.

NXP did not host a conference call or provide future guidance, due to the pending acquisition of NXP by Qualcomm.

The long-delayed merger, which both boards of directors approved in 2016, was complicated by Broadcom’s hostile takeover attempt of Qualcomm, which was blocked by president Donald Trump in March due to national security concerns.

The merger is now on hold due to concerns expressed by China’s regulatory authorities. Approval from China is the last regulatory hurdle the merger must pass through.

Dexcom’s new high

While NXP’s earnings missed expectations by a wide margin, Dexcom’s hit expectations dead on and anticipates future growth with the pending full-scale launch of its continuous glucose monitoring system.

Dexcom’s 0.75% convertible notes due 2022 climbed about 5 points outright as stock shot up to a new 52-week high. The 0.75% notes were trading in a range of 106 to 109 with the final trade at 108.77, according to Trace data.

Dexcom stock traded to a low of $77.538 and a high of $85.25 before closing Thursday at $83.81, an increase of 12.78%.

Dexcom reported a non-GAAP loss per share of 32 cents, in line with analyst expectations. The San Diego, Calif.-based biotech company focused on glucose monitoring systems for diabetes reported revenue of $184.4 million for the first quarter versus analyst expectations of $172.3 million.

Dexcom set guidance for future revenue at $850 million to $860 million, which beat analyst expectations of $843.4 million.

Dexcom’s previous 52-week high was $79.21. The 0.75% convertible notes were trading below par as recently as March but have steadily climbed alongside the stock. The notes have traded in the 102 to 103 range for much of April.

Tesla not in the spotlight

Despite a heated earnings conference call on Wednesday where Tesla CEO Elon Musk sparred with analysts, Tesla’s convertible notes were not as active as some expected they would be on Thursday.

While the highly liquid notes were active, “I’m surprised they didn’t trade more,” a source said.

The 0.25% notes due 2019 dropped about 3 points outright to trade in a range of 100.875 to 101.625.

The 1.25% notes due 2021 dropped about 4 points outright to trade in a range of 99 to 101.

The 2.375% notes due 2022 dropped about 4 points outright to trade in a range of 106 to 107.75, according to Trace data.

Tesla stock traded to a low of $275.00 and a high of $288.00 before closing Thursday at $284.45, a decrease of 5.55%.

While Tesla’s first-quarter earnings report beat analyst expectations, Elon Musk’s conduct during the conference call sent the company’s stock spiraling down.

Tesla reported a loss per share of $3.35 for the first quarter, which beat analyst expectations of a loss of $3.54 per share.

Musk reasserted Tesla would not need another capital raise but dodged questions about capital requirements and Model 3 reservation numbers.

Mentioned in this article:

Dexcom Inc. Nasdaq: DXCM

Five9 Inc. Nasdaq: FIVN

NXP Semiconductors NV Nasdaq: NXPI

Teladoc Inc. NYSE: TDOC

Tesla Inc. Nasdaq: TSLA

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