ModelN (MODN), LeMaitre (LMAT) and Lightspeed (LSPD.TO) Report
ModelN (MODN) recently reported first quarter fiscal 2020 results and while the stock has been a little volatile since reporting the punchline is that all appears on track. I attribute much of the stock’s retreat from a post-earnings rally to weakness in the broader software stock universe, and not to anything overly negative in ModelN’s report.
On the positive front, the company beat on both the top and bottom lines with revenue up 9.4% to $38.4 million (beating by $1.1 million) and adjusted EPS of $0.12 beating by $0.06. That revenue growth rate isn’t going to win any awards but remember this is a company in transition from the on-premise to the SaaS business model and that means temporary pressures on revenue since bigger up-front payments are spread out over quarters/years. Keep your eye on the prize – once completed the SaaS business model is superior.
Other positives included a 10% quarter over quarter increase in SaaS revenue, which is now 62% of software revenue, as compared to 58% in the previous quarter. This shows the transition underway, which was fueled in the quarter by two on-premise customers, Novo Nordisk and Biogen, that went live with their cloud solutions. Management said these migrations went as planned and all is good, which should help other customers that are on the fence jump onboard.
On the downside (sort of), management called for fiscal 2020 revenue of $154 to $156 million and adjusted EPS of $0.25 to $0.31. That guidance didn’t blow anybody away, but under the circumstances (SaaS transition) management should be giving guidance that is essentially guaranteed and leaving plenty of room to overdeliver. Keeping at buy. BUY
LeMaitre Vascular (LMAT) reported yesterday and missed on revenue (sales up 6.3% to $20.7 million missed by $270K) and met expectations on EPS ($0.23). Management guided for 2020 revenue of $127.4 million to $130.8 million (up 10%) and EPS of $0.96 to $0.98 (up 6%). The dividend was increased by 12%. Shares are trading off significantly today. Why, and what do we do?
At a high level 2019 was a rebuilding year for LeMaitre and the company completed a number of acquisitions, all of which add up to lots of transitions in the company (moving product, salespeople, etc.). Now, LeMaitre is saying it’s ready to try and capture some of the profit potential of acquisitions by restraining operating expenses in 2020. That should be a good thing, but on the conference call some analysts were wondering if that should be taken as a sign that there are fewer growth opportunities out there. Management said that’s not the case, just that with greater scale (i.e. higher revenue) they should be able to have profit grow faster than revenue.
The bottom line here is the company isn’t a rapid growth one and it’s likely that the market was more interested in revenue growth potential than profit growth potential. When this stuff happens it’s best to sit back for a few days and let the stock work it out then decide what to do next. In my view there’s no reason to jump in to buy this dip, and little reason to sell right now. Let’s see how the stock does in the next couple of days and go from there. For now, LMAT is a hold. HOLD
Lightspeed (LSPD.CA), (LSPD.TO) recently reported Q3 fiscal 2020 results in which revenue was up 61% to $32.3 million and EPS came in at -$0.18. The company has processed over $20 billion in gross transactions over the last twelve months, up from $13.6 billion in the comparable period. Management also issued full-year guidance, calling for fiscal 2020 revenue of roughly $120 million (up 55%), higher than guidance for $107 million to $110 million issued last May. On the conference call management talked about some of the trends in its payments business (which typically helps double revenue per customer), such as allowing monthly payments to pull in more customers, and a partnership with Stripe, which allows Lightspeed to attract more businesses in the U.S.
In the wake of the report the stock has sold off, cutting our paper profit by more than half (we’re now up roughly 14%). There was a lot of noise in the quarter because of acquisitions, and Lightspeed management hasn’t yet said when it expects to be profitable, which is something the Street would like to see. Stepping back, we have an early-stage company here that trades on the Toronto stock exchange and isn’t all that well known but is addressing a global opportunity. I think the weakness will be temporary. That said, we can’t ignore it. Lightspeed moves to hold until the trend improves. HOLD