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Why Is LogMein (LOGM) Down 11.9% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for LogMein (LOGM). Shares have lost about 11.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is LogMein due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

LogMeIn Q1 Earnings Surpass Estimates

LogMeIn delivered first-quarter 2019 non-GAAP earnings of $1.17 per share, which came ahead of the Zacks Consensus Estimate of $1.14. However, the metric fell 3% year over year.

The company’s non-GAAP revenues for the reported quarter summed $308 million, beating the Zacks Consensus Estimate of $305 million and also growing approximately 11% year over year, driven by Jive, Bold360 ai and LastPass.

However, lower gross margin profile of Jive and increasing expenses on sales and marketing are an overhang on the stock.

Quarter in Detail

Unified Communication and Collaboration (UCC) business declined 2% year over year to $170 million. Jive revenues surged more than 33% year over year in the quarter under review to $30 million, banking on connect bundle.

Identity and Access Management Cloud revenues rose 11% from the year-ago quarter to $94 million, aided by LastPass. Good renewal performance in the company’s remote access space, which includes Pro, Central and GoToMyPC, is also a positive.

Customer Engagement and Support business was flat on a year-over-year basis at $44 million. The segment is favored by Bold360 AI, which is further driven by the digital evolution and the companies’ adoption of artificial intelligence-based solutions to deliver a better customer experience.

The company’s gross renewal rate across all products was nearly 80%.  Excluding Jive, renewal rates for Collaboration were 80% in the quarter under discussion.
    
Margins

During the first quarter, the company’s non-GAAP operating income decreased 5.5% year over year to $81.3 million. However, operating margin contracted 410 bps to 26.6%. Increase in spending on the marketing programs to support launching GoTo brand and GoToConnect offerings as well as on the company’s annual event in January was a headwind.

Adjusted EBITDA was down 5.2% year over year to $96.8 million. Adjusted EBITDA margin contracted 500 bps to 31.4%.

Balance Sheet and Other Financial Details

LogMeIn ended the first quarter with cash and cash equivalents of $145.1 million compared with $148.7 million, sequentially.

The company generated $119.7 million of cash flow from operational activities compared with $73.2 million of cash flow generated in the earlier reported quarter.

In the first quarter, the company repurchased 714,000 shares worth $58 million and paid $17 million as dividends.

Guidance

For the second quarter of 2019, the company expects revenues in the range of $310-$312 million. Adjusted EBITDA is projected between $94 million and $95 million. Adjusted EBITDA margin is anticipated to be 30%. The company forecasts earnings per share in the band of $1.12-$1.14.

The company expects UCC performance to improve during the second half of the year. It is likely to benefit from the newly launched GoToConnect and GoToRoom products. Management believes that these new products coupled with investments in the GoTo brand as well as in boosting sales capacity will boost the company’s future performance.

For 2019, revenues are still envisioned within $1.25-$1.26 billion. Adjusted EBITDA is predicted to be $409-$413 million as compared to the past projection of $407-$412 million. Adjusted EBITDA margin is assumed to be 33%. The company’s earnings per share are likely to be in the $4.96-$5.02 bracket compared with the earlier outlook of $4.90-$4.97.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.59% due to these changes.

VGM Scores

Currently, LogMein has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, LogMein has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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