Morning Commentary: Okta’s new convertible notes expand on debut; Exact Sciences continues slide

By Abigail W. Adams

Portland, Me., Feb. 23 – Okta Inc.’s newly priced 0.25% convertible notes due 2023 expanded on debut and were up about 0.75 point dollar neutral, a market source said Friday morning.

Okta priced $300 million of five-year convertible notes after the market close on Thursday at par with a coupon of 0.25% and an initial conversion premium of 35%.

Pricing came at the rich end of talk for a coupon of 0.25% to 0.75% and richer than talk for an initial conversion premium of 27.5% to 32.5%.

“It was multiple times oversubscribed and priced out of range,” a market source said. “This was very good financing for the company.”

The deal was sought out by both long only and hedge accounts with long only accounts among the largest subscribers, which is typical of deals from software companies.

“The recurring revenue, the high growth, all of that really appeals to both sides of the market,” the source said.

Okta stock was up during the subscription process and as it entered the secondary market. The notes were trading around 101.75 early in Friday’s session with stock up about 1%. The notes were up about 0.75 point dollar neutral.

The San Francisco-based enterprise identity provider released preliminary fourth-quarter and year-end reports after the market close Wednesday with revenue projections that beat analyst expectations. Oppenheimer increased its price target for Okta to $40 from $34 on Wednesday.

The downslide of Exact Sciences Corp.’s 1% convertible notes due 2025 continued on Friday with the notes dipping to the 87 to 88 range in active trading early in the session with stock down to $42.15, a decrease of 6.31%.

Exact Sciences released fourth-quarter and year-end reports after the market close Thursday.

The Madison, Wis.-based molecular diagnostic company focused on the detection of colorectal cancer reported a net loss of $21.8 million, or 18 cents per share, for the fourth-quarter, which beat analyst expectations for a net loss of 24 cents per share.

The company projected $420 million to $430 million in revenue for 2018 with 900,000 to 920,000 completed Cologuard tests.

Cologuard is Exact Sciences’ only product on the market. The company’s 1% convertible notes tanked soon after pricing in mid-January, due to a sell-off sparked by positive results in a clinical study from a Taiwan-based competitor for a rival colorectal cancer screening product.

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