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Why Is LogMein (LOGM) Down 4.5% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for LogMein (LOGM). Shares have lost about 4.5% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

LogMeIn Q2 Earnings Surpass Estimates

LogMeIn delivered second-quarter 2019 non-GAAP earnings of $1.17 per share, which came ahead of the Zacks Consensus Estimate of $1.13. However, the metric fell 11.4% year over year.

Meanwhile, the company’s non-GAAP revenues for the reported quarter summed $313 million, beating the Zacks Consensus Estimate of $311million and also growing approximately 2% year over year.

Strong performance of the company’s growth products remain a key driver. In fact, the company expects its revenue growth rate to double from 2% in the second quarter to 4% in the fourth quarter.

During the second quarter, the company expanded its product portfolio, which is expected to accelerate its momentum in major growth markets — Unified Communications and Collaboration, Identity as a Service and Digital Engagement — going forward.

Quarter in Detail

Unified Communication and Collaboration (UCC) business dipped 2% year over year to $172 million, in line with the management’s expectation.

Improvement in product quality and performance, multiple product launches and increasing marketing efforts in support of the company’s new GoTo brand is a positive for this segment. LogMeIn’s combined offering of voice, video and collaboration is a key catalyst.  The company released integrated UCC product — GoToConnect — in the quarter.

Identity and Access Management revenues rose 12% from the year-ago quarter to $98 million, aided by LastPass.

During the quarter, the company expanded LastPass Business solutions by including single-sign on (SSO) and multi-factor authentication comprising LastPass Enterprise, LastPass MFA, LastPass Identity. Management believes that expansion of LastPass's capabilities will help the segment grow further

Customer Engagement and Support business declined 4% on a year-over-year basis to $43 million. Slowdown in legacy GoToAssist, GoToAssist Corporate, LogMein Rescue business is a dampener.

However, large deal wins for Bold360 AI during the quarter is a positive. The company’s progress on broadening the product portfolio of Bold 360 is an upside as well. Notably, the company unveiled Bold360 Service, Bold360 Advise and Bold360 Acquire during the quarter under discussion.

The company’s growth products accounted for 24% of revenues in the second quarter, up from 22% in the first and 19% in the year-ago period.

The company’s gross renewal rate across all products was nearly 80%. Excluding Jive, renewal rates for Collaboration were 83% in the quarter under discussion.

Margins

During the second quarter, the company’s non-GAAP operating income decreased 15.6% year over year to $79.6 million. Also, operating margin contracted 530 bps to 25.4%.

Adjusted EBITDA was down 13.2% year over year to $95.6 million. Additionally, adjusted EBITDA margin shrank 540 bps to 30.5%.

Balance Sheet and Other Financial Details

LogMeIn ended the second quarter with cash and cash equivalents of $111.5 million compared with $145.1 million, sequentially.

The company generated $93.7 million of adjusted cash flow from operational activities and $73.98 million of adjusted free cash flow in the quarter under review.

In the second quarter, the company repurchased 840,000 shares worth $66 million and paid out $16 million as dividends.

Guidance

For the third quarter of 2019, the company expects revenues in the range of $314-$316 million.

Adjusted EBITDA is projected between $108 million and $109 million. While adjusted EBITDA margin is anticipated to be 34.5%.

The company forecasts earnings per share in the band of $1.35-$1.37.

For 2019, revenues are envisioned to be $1.258-$1.263 billion compared with $1.253-$1.263 billion predicted earlier.

Adjusted EBITDA is still predicted to be $409-$413 million. Adjusted EBITDA margin is assumed to be 33%. The company’s earnings per share are likely to be in the $5.05-$5.11 bracket compared with the earlier outlook of $4.96-$5.02.

The company assumes UCC business to witness improvement in the second half of the year. Product consolidation and legacy pressures are anticipated to persist as a bane to Customer Engagement segment.

Further, incremental hardware costs associated with Jive are a threat to gross margins, per management.

Management mentioned that the recent deployment of the new pricing line-up will take several quarters to bear an impact on the company's financial results.

How Have Estimates Been Moving Since Then?

Estimates revision followed an upward path over the past two months.

VGM Scores

At this time, LogMein has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

LogMein has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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