Good Things Come in Threes
We’re enjoying better-than-expected results from reporting companies this week. Here’s my quick take on three Cabot Small-Cap Confidential positions that have recently reported:
Everbridge (EVBG) The company reported results ahead of expectations with revenue up 31.2% to $21.3 million and EPS of -$0.03. Management guided for 2017 revenue growth (at the midpoint) of 30.5% (to $100.5 million) and EPS of -$0.32. Bright spots included more multi-product deals than expected (42 in the quarter) as well as strong up-selling and cross-selling, especially into the non-mass notification products. In the quarter, non-mass notification solutions represented 30% of revenue. This is a key part of the long-term growth story so it was good to see continued progress here. The company also disclosed that existing shareholders are likely to sell up to $50 million of stock after Everbridge files a public offering in late March. This shouldn’t be dilutive because it’s likely early investors and some insiders that will be selling. It could keep a lid on the share price, however, so I’m not expecting the stock to zoom to a 52-week high until after we know the size of the offering and the pricing. It doesn’t change my long-term outlook, so keep holding. HOLD.
LogMeIn (LOGM) A lot of people seem to want to bet against LogMeIn and the company keeps shoving terrific results down their throats. As I’ve said before, this is a talented management team and they know what needs to be done to keep the stock moving higher. Yesterday, they tore a page straight out of the MBA textbook on strategy when they released details on a $700 million capital return plan to shareholders. LogMeIn will begin paying a $0.25 quarterly dividend (current yield is around 1%) and buy back shares. Long-term, management expects to reduce the share count and increase the dividend. It also sees 10% annual revenue growth, 40% adjusted EBITDA margins and 30% cash flow margins. In Q4, it beat expectations by delivering 15.7% revenue growth and EPS of $0.62 ($0.04 ahead of expectations). In 2017, it sees revenue of around $1 billion, and adjusted EPS of $3.64-$3.82. It doesn’t see a big competitive threat from Amazon’s collaboration solution. Management wasn’t ready to talk about cross-selling opportunities yet, but will be in a position to in Q3 when it should release a three to five-year plan. I like this story. Aggressive investors can buy a few more shares here in anticipation of another run at 110. Otherwise, just hold on. HOLD
U.S. Concrete (USCR) The company got the job done, on time and on budget. What more can you ask for? Fourth-quarter revenue was up 21% to $319 million ($4.9 million ahead of expectations) while EPS of $0.82 beat by $0.12. Average price of ready mix was up 5.5% and aggregate product pricing was up 14.8%. The company continues to work to gain ownership of more aggregate products (gravel and sand) as that vertical integration strategy is good for long-term competitive strategy and margin improvement. Management essentially said all its markets look good, and that the Port Authority of New York and New Jersey just approved a 10-year $32 billion capital plan. As the market leader in New York, this is great news for U.S. Concrete. And it’s outside of any major infrastructure projects that could come as part of Trump’s agenda. The growth story looks good here, provided that economic activity in the U.S. stays strong. I think it will. I’m also expecting significant acquisitions, including a big step into a new geographic market, in 2017 and 2018. Perhaps southern California, Arizona or New Mexico? If a wall on the Mexican border were going to be built, and if U.S. Concrete were awarded part of the project, it would make sense that the company would acquire assets in the strongest geographic regions near the border. It’ll be interesting to follow this story. The stock is up today, and I think it’ll keep rising. BUY.