What a difference a week makes. Last Friday, it seemed the market was in a death spiral and it was hard to make sense out of the volatility. This week has been downright placid, and all the major indexes are up nicely. Since last week’s update, the S&P 600 Small Cap Index is up by 5%, the S&P 500 is up by 5.8%, the Dow is up by 5.6%, and the Nasdaq is up by 7%.
I’ll be very surprised if we don’t see some volatility creep back into the market. But, you never know. At the moment, earnings season appears to be helping stocks shrug off any broader concerns. And from most of the earnings reports I’ve read, it sounds like growth is good and there are ample opportunities for companies to pursue.
I haven’t read about any management teams pulling back significantly on product-related investments, sales team expansion efforts or M&A interest. Granted, I’m not looking at the entire market, and I’m sure there’s some of that going on in certain pockets. But in technology, medical devices and biotech, it seems like it’s full speed ahead. If companies are pulling back, it’s just to maintain profit margins and let the money from previous R&D investments pile up, then they’ll likely start another round of investing.
That all said, things can change quickly. For now, let’s continue to take things week by week, and on a stock by stock basis. Fortunately, most of our stocks are doing just fine.
Today we have no rating changes. And we have two earnings-related updates, for LogMeIn (LOGM) and Q2 Holdings (QTWO). Instructure (INST) reported earlier in the week, but I already summarized that report In Wednesday’s Special Bulletin.
Next week the action will continue, with BioTelemetry (BEAT) and Everbridge (EVBG) both set to report.
Updates
AppFolio (APPF) has traded up a couple of points over the past week and is now back at the low end of the stock’s last three-month trading range (excluding the early-February market meltdown). From the SaaS reports I’ve seen over the past week, I think AppFolio has a good chance at jumping after it releases its earnings report, which has just been scheduled for a week from Monday. This assumes the company executed in Q4 and guides at or above expectations for 2018, of course. But at this stage, I don’t have any specific reason to believe it won’t. BUY.
Earnings: February 26
Apptio (APTI) jumped right back to its all-time high yesterday and looking at the chart, you’d never know the market melted down in February. Recall that the company reported last week, and delivered revenue growth of 18%, subscription revenue growth of 21%, gross margins at a record high of 73% (versus 69% last year), and a record quarter in terms of upsells. Forward guidance also came in above expectations, partially because of the acquisition of Digital Fuel, an LA-based provider of IT business management tools. The bottom line is that all looks good here. BUY.
Earnings: DONE
Arena Pharmaceuticals (ARNA) continues to trend higher as we march toward a few significant events. Recall that we’re awaiting etrasimod ulcerative colitis (UC) Phase 2 Data in late-February or early-March (should be a major event), and Q4 2017 results in the second week of March (these two events could be combined). There is also a slim chance management will give a material update during the RBC Capital Markets Global Healthcare Conference on February 21. But it had nothing major to announce this past Thursday at the Leerink Global Healthcare Conference, so I wouldn’t hold your breath. The stock continues to do well so I’m keeping at Buy. I expect we’re going to see some significant movement on the UC Phase 2 data release. BUY.
Asure Software (ASUR) still hasn’t given us an earnings release date. Shares bounced off their 200-day line on Wednesday and after a 4.5% gain yesterday are almost back to their 50-day line at 14.56. Recall that the stock reacted very well to last quarter’s earnings release, so provided things are still going smoothly, I suspect there’s a decent amount of upside from here once the report is out. That said, I’ll likely downgrade the stock to Hold if it dips much below 13, which it was in danger of doing earlier in the week. BUY.
AxoGen (AXGN) is back up to its 50-day line after five consecutive days of positive gains. The company presented at the Leerink Global Healthcare Conference on Wednesday and it must have been a routine update since there haven’t been any press releases. The company will report the week after next, but since it already pre-announced, the event won’t carry as much weight as an earnings announcement typically does. BUY.
Earnings: February 28
BioTelemetry (BEAT) has been on the upswing lately after trading down to its 50- and 200-day lines last week. We have an earnings release date of next Thursday, and as I wrote last week, I’m hoping to get some insight into the financial aspects of the deals with Apple and Onduo, as well as an update on the integration of LifeWatch. BUY.
Earnings: February 22
Datawatch (DWCH) is trading around where it was a week ago and is one of the few stocks in our portfolio that hasn’t moved higher this week. I want to see a more convincing uptrend take shape before the stock goes back on the buy list. With that not happening this past week, Datawatch remains a Hold. HOLD.
Earnings: DONE
Everbridge (EVBG) has had a busy week. On Tuesday, it announced a voluntary cash offer to acquire all shares of Unified Messaging Systems (UMS), a Norwegian company with 1,200 customers reaching over 500 people through national and municipal alert systems, mainly in northern Europe, Greece, India, Cambodia and Colombia. I detailed that development in Wednesday’s Special Bulletin. Then yesterday, the company announced it has launched Smart Orchestration, which is an addition to its IT Alerting solution. The new capability adds a communication, collaboration and workflow automation sequence to what was previously just an IT alert solution. I expect management will talk more about this next week, but at a high level, it basically adds more IT security solutions to the platform, which is a good thing. Shares bounced back from their 50-day line where they were trading last Friday, and are now close to breaking out to a fresh all-time high. HOLD
Earnings: February 21
Instructure (INST) reported earlier this week and solid results plus good forward guidance has helped the stock notch an 18% gain since last Thursday’s close. As I wrote in Wednesday’s Special Bulletin, management forecasts revenue growth of roughly 30% over the coming year. And with margins expanding and cash flow on the rise, adjusted loss should be around $-1.00. Given what looks like a long runway of growth ahead, I suspect demand for shares to remain high and the stock to continue to outperform. On that note, the company took advantage of the recent jump in its share price to complete a secondary offering for 2.875 million shares (including overallotment) at 39.5, which implies roughly 10% dilution. That’s a nice premium to where the stock was a week ago, but a little below the 41.25 level it closed at yesterday. Morgan Stanley and Credit Suisse will handle the sale, for which I expect demand to be high. That said, the stock will take a hit over the next couple of days. But if history is any guide, I think the market will see the additional capital as a help to fuel growth. I’m keeping at Buy, just take it slow until we see exactly how the stock reacts to this secondary. BUY.
Earnings: Done
LogMeIn (LOGM) reported quarterly earnings last night, capping off a busy couple of weeks. It announced last week that it hiked its dividend by 20%, and jumped into the small business VOIP market with the acquisition of Jive Communications. The Jive purchase price was $342 million, and Jive has over 20,000 customers around the world. It participates in a $25 billion unified communications market, and its platform is all cloud based. Roughly 90% of its customers have 1,000 employees or less, and generated around $80 million in revenue in 2017, and grew by about 20%. That’s pretty fast compared to publicly traded competitors RingCentral (RNG), 8X8 (EGHT) and Ooma (OOMA). As management detailed on last evening’s conference call, Jive will be rolled up into LogMeIn’s Collaboration Cloud segment, and with significant cross-sell opportunities, should help spur accelerating growth in that division.
As far as the headline quarterly numbers, LogMeIn grew revenue by 218% to $278 million (beating by $2.6 million), and EPS of $1.20 beat by $0.03. Now that we’re beginning to lap the date of the GoTo acquisition, the company’s growth rate should begin to normalize, though Jive will certainly have an impact. But based on management’s forward guidance (excluding Jive), Q1 revenue growth should be around 38%, then dip into the single-digit range for the remaining quarters of 2018, ultimately growing by about 12% for the full year. If we add Jive in, revenue growth should be north of 18%. Management will give us an update on their 2018 outlook in a few months, once the deal closes.
As is the norm, it sounds like the LogMeIn team is executing very well. Integration of GoTo seems largely done, cash flow is up, and sales productivity is rising again. There is some seasonality to the business, as well as a few accounting adjustments due to new standards for SaaS companies, but nothing too major.
One big piece of news is that LogMeIn has sold its IoT business, Xively, to Google for $50 million. Xively is a platform as a service solution that, after the GoTo acquisition and greater focus on collaboration and communication solutions, just fell outside the strategic focus of LogMeIn. Management said it generated a couple million in revenue last year, and about $7 million of expense. On the surface, the sale price seems pretty good–though obviously this product hasn’t really gotten off the ground yet and Google is paying up for all the investments that were made, not for the product’s current revenue stream. I do think it’s worth pointing out that Google believes this platform is worth buying, and that’s a testament to the quality of the development work that LogMeIn achieved with Xively. Google will be building out its IoT solution set, which I think fits well with their strategy (have you noticed how hard it’s pushing the Google Home smart speaker lately?).
Once again, the takeaway message here is that LogMeIn’s management team continues to make good decisions and execute above expectations. This is impressive given that it’s taking on major initiatives relative to the size of the company, including significant M&A. I’ve said it before and I’ll say it again: don’t bet against this management team. Shares might be a little volatile as the market digests all the news today. HOLD HALF.
Earnings: Done
Materialise (MTLS) didn’t do much this week, though we did find out that the company has formed a collaboration with PTC (PTC) to bring Materialise’s Build Processor solution to PTC’s CAD software. The idea here is to keep reducing friction to help engineers and designers expand their use of 3D printing. The solution will also support metal 3D printing. As I said last week, the trend isn’t strong here, but I think the story is compelling and the risk versus reward profile of the stock is in our favor, if you’re not too concerned with riding out some weakness. Keeping at Buy, provided the stock doesn’t dip much below 11.5. BUY.
Earnings: March 6
Q2 Holdings (QTWO) reported fiscal Q2 2018 results after the bell on Wednesday and went on a bit of a wild ride yesterday. Shares started the day down just over 5% but came back quickly and ended the day up 2.5% and at an all-time high!
I recall a similar pattern last quarter, and it’s likely due to conservative guidance, which was better explained on the conference call (but those snippets don’t make headlines!). Generally speaking, I thought this was a good quarter. Revenue was up 22.6% and just met expectations, while EPS of $0.05 beat by $0.04 (a wide margin) and was up from a loss of $-0.03 in the same quarter last year. Full-year guidance of 21% to 22% revenue growth was a little lighter than the almost 24% analysts expected, but I think that’s just management being conservative given that there are numerous tier-1 bank (i.e. larger bank) implementations to get done and they take a while.
One of the big takeaways from the quarter was that Q2 signed seven tier-1 bank deals in the last three months of the year. That’s a big number, and as management said, all the major competitors were also at the table. Not only did Q2 win these customers from another technology provider, it beat out the competition seven times in a relatively short window of time. It now has over 30 tier-1 bank customers, and that will help raise its profile with others that are looking around for digital banking solutions.
It sounds like a lot of the big deals will likely go live toward the end of the year or in early-2019. And this accounts for some of the reluctance for management to stick its neck out. That said, they did say they see revenue in 2019 as being 20% in a “worst-case scenario,” and my take on things is that they see the business growing in the 20% to 25% range for the next several years, with continuous margin expansion driving earnings growth.
There was another partnership announced with Acorns, a micro investing company that has over three million users. Acorns allows users to invest their “spare change” (i.e., if you swipe your card for a $3.52 purchase, Acorn automatically invests $0.48, so you “spent” $4.00) and will use the Q2 Open portfolio, a set of open-API financial services technologies.
The bottom line is it was a good quarter and the team continues to execute. I think Q2 has a lot of growth ahead of it, and the stock is still a Buy. BUY.
Earnings: Done
U.S. Concrete (USCR) has been clawing its way back after the stock broke below its 200-day line last week. Shares closed just shy of 80 yesterday, which means they’re less than a dollar away from their 50-day line, and are now trading near the low end of the range that they traded in during December and January. We also got an earnings date–look for management to release Q4 results on March 1 at 6 a.m. Eastern Time, with a conference call to follow at 10 a.m. HOLD.
Earnings: March 1
