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LogMeIn (NASDAQ:LOGM) review of 4Q2010 and Annual Results

  • Annual Revenue, excluding agreement with Intel (NASDAQ:INTC), is up +34% to $91.5m for FY2010 vs. $68.4m for FY 2010.
  • 4Q10 revenue, excluding agreement with Intel, is up +39% to $26.0m vs. 18.8m 4Q09.
  • $1.7m incremental marketing expense due to the launch of new product join.me.
  • 4Q10 Non-GAAP Net Income doubles to $6.9m, or $0.28 per diluted share.
  • Non-GAAP net income excludes $106,000 in amortization of intangibles and $1.5m in stock compensation expense for the fourth quarter of 2010, and $186,000 in amortization of intangibles and $806,000 of stock compensation expense for the fourth quarter of 2009.
  • Otherwise, 4Q10 Net Income increased 118% to $5.4m, or $0.21 per share.
  • Additionally, the company reported total deferred revenue of $42.8m, an increase of $2.3m over the prior quarter.
  • Deferred revenue is up 29.7% YoY (Year over Year).
  • Total premium customers were approximately 585,000, up 285,000 during the fiscal year and an increase of approximately 95,000 customers in the fourth quarter, up from an increase of approximately 85,000 in the prior quarter.
  • For FY 2010 LOGM renewal rate of aprox. 80% (on a dollar basis).
  • FY 10 operating margin at 22%.

Company Guidance

  • 1Q 2011: The company expects first quarter revenue to be in the range of $26.3-26.6m.
  • Fiscal year 2011: The company expects full year 2011 revenue to be in the range of $116.0-120.0m. Company does not include Android (NASDAQ:GOOG) tablet.
  • Non-GAAP net income is expected to be in the range of $17.7-19.0m, or $0.68-0.73 per diluted share. Non-GAAP net income will exclude an estimated $300,000 in amortization of intangibles, $9.0m in stock compensation expense, and $8.0m in litigation expenses related to patent infringement defense.
  • FY 11 operating margins 23-24% and the company expects margins to increase YoY.
  • FY 11 Sales and marketing expense (% of revenue) 43-44%.
  • GAAP net income, which includes the amortization of intangibles, stock compensation and litigation expenses, is expected to be in the range of $6.5-7.8 million, or $0.25-0.30 per share.
  • Net income per diluted share calculations for the first quarter of 2011 are based on estimated fully-diluted weighted average shares outstanding of 25.5m and shares 26.1m shares for FY 2011. Growth in shares oustanding at 3.5-4.0% a year.
  • GAAP and Non-GAAP effective tax rate will be 35% vs. FY2010 of 13% due to the reversal of its tax valuation allowance.

Analysis

It is clear that this represents a conservative guidance. Where can there be strengthening of LOGM's numbers?

  1. Android tablets currently have a limited impact in LOGM expected revenue.
  2. It doesn't have full visibility on the impact of having its software pre-loaded on phones.
  3. Still to0 early to tell whether join.me will have an impact for FY 2011.

2H 2011 top line numbers could be reviewed for the above reasons.

However, we are still concerned about the future litigation costs which could dampen the bottom line numbers. "The litigation costs associated with defending the claims are increasing as the company progresses further in the discovery process and enters the trial phase," LogMeIn said in a statement.

Currently, LOGM sees litigation expenses for FY 2011 at $8m.

In summary, the top-line numbers seems to be moving along the right path, growing at a fast pace. There is stability in the operating margins, expanding steadily over the next few years even with higher sales and marketing expenses. In our view, the main detractor of value of LOGM is the uncertainty brought by litigation.

Therefore, the opportunity lies in understanding the probability of a positive and negative litigation outcome.

Source: LogMeIn Update From Q4 Earnings Call