Okta’s convertibles expand on debut; Q2 trading activity tempers; Exact Sciences lower

By Abigail W. Adams

Portland, Me., Feb. 23 – Okta Inc.’s newly priced 0.25% convertible notes due 2023 were in focus on Friday with the notes from the much-anticipated deal expanding on debut, according to market sources.

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%.

“It was multiple times oversubscribed and priced out of range,” a market source said.

After dominating the secondary space on their market debut Thursday, trading activity surrounding Q2 Holdings Inc.’s newly priced 0.75% convertible notes due 2023 tempered on Friday.

The notes were seen trading just below 102 with the stock at $45.55, an increase of about 0.5%.

Meanwhile, 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 after the company released its fourth-quarter and year-end reports after the market close Thursday.

And Insmed Inc.’s recently priced 1.75% convertible notes due 2025 traded down to a new low of 88.316 early in the session but closed the day at a high of 94 in scattered trading activity.

The biotech company’s stock was volatile on Friday after releasing its fourth-quarter and year-end report before the market open Friday.

Okta in demand

Okta priced $300 million of five-year convertible notes after the market close on Thursday 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 0.25% 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 notes were seen later in the afternoon at 102 with stock at $36.40, according to a market source. Okta stock closed Friday at $36.49, an increase of 1.87%.

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 also increased its price target for Okta to $40.00 from $34.00 on Wednesday. Okta went public in April 2017 with a share price of $17.00.

Q2 on day two

Trading activity surrounding Q2 Holdings’ newly priced 0.75% convertible notes tempered during the notes’ second day on the market as attention turned to new paper from Okta.

The 0.75% notes were trading just below 102 on Friday with the stock up about 0.5%.

Q2 stock closed Friday at $46.05, an increase of 1.66%.

Q2 priced $200 million of five-year convertible notes at the rich end of talk prior to the market open on Thursday with a coupon of 0.75% and an initial conversion premium of 27.5%.

The offering from the Austin, Texas-based provider of cloud-based digital banking services was also oversubscribed during the subscription process, according to a market source.

The notes dominated trading activity and were up about 1.75 points to 2 points dollar neutral on their debut on Thursday.

Exact Sciences’ downslide

Exact Sciences’ 1% convertible notes due 2025 continued their downslide in active trading on Friday. The notes dropped about 3 points on an outright basis to trade in the 87 to 88 range.

Exact Sciences’ stock closed Friday at $42.37, a decrease of 5.82%.

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

The Madison, Wis.-based molecular diagnostic company that is 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 that was sparked by positive results in a clinical study from a Taiwan-based competitor for a rival colorectal cancer screening product.

Insmed volatile

Insmed’s recently priced 1.75% convertible notes were volatile alongside its stock on Friday after the biotech company focused on rare diseases released its fourth-quarter and year-end report prior to the market open.

In scattered trading activity, the 1.75% notes traded to a low of 88.31 before ending the day at a high of 94, according to Trace data. Insmed stock closed Friday at $25.87, an increase of 5.98%.

Insmed stock ricocheted between positive and negative territory on Friday, trading to a low of $21.90, a decrease of 10%, and a high of $25.91, an increase of 6.15%.

Insmed reported a net loss of $65.4 million, or a net loss of 85 cents per share, for the fourth quarter. Insmed reported a net loss of $192.64 million, or a net loss of $2.89, for 2017.

Insmed also reported the patent on one of its products to treat rare lung infections had been extended to 2035. The product is in clinical studies. Insmed had hoped to launch the product in 2018.

Insmed priced an upsized $400 million of notes at the rich end of talk for a coupon and richer than talk for a conversion premium on Jan. 24. While well received in the secondary market on debut, Insmed’s convertible notes tanked when the sell-off in the equity markets began in late January.

Mentioned in this article:

Exact Sciences Corp. Nasdaq: EXAS

Insmed Inc. Nasdaq: INSM

Okta Inc. Nasdaq: OKTA

Q2 Holdings Inc. NYSE: QTWO

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