Q1/F24 FIRST TAKE: MIXED QUARTER; STRONG MARGINS BUT ORGANIC GROWTH DISAPPOINTS
THE TD COWEN INSIGHT
Q1 revenue was modestly below expectations, driven by ongoing organic growth challenges (down 3% in cc again). However, EBITDA was in-line and FCFA2S beat, aided by post- acquisition integration benefits, a higher-than-expected R&D tax credit, and lower-than- expected cash taxes. Leverage levels remain low and should enable Lumine to continue its very active M&A program.
Impact: MIXED
Revenue misses on negative organic growth (again)...Lumine reported Q1/F24 revenue of $141.1mm, modestly below our $148.4mm estimate primarily due to weaker-than- expected organic growth. Revenues grew 48% y/y, completely due to M&A, as organic growth fell 3% in cc again, similar to Q4/F23. While professional services organic growth was 11%, maintenance and other recurring revenue organic growth was flat (~72% of revenue; compares to 1%-3% in F2023), with negative organic growth in license and hardware revenue.
...but EBITDA is in-line and FCFA2S beats. EBITDA of $46.6mm was in-line despite the revenue miss due to lower-than-expected cash OpEx, as we believe the lack of M&A in Q1 and early benefits from its Synchronoss integration work were key contributors. Lumine also benefited from a higher-than-normal R&D tax credit (~$3.1mm).
EBITDA margins were 33.0%, up from 30.5% last quarter and above our 31.3% estimate (R&D tax credit had ~140bps tailwind vs. our estimate). We expect EBITDA margins to decline in Q2 given the closing of the Nokia and Casa carve-out deals in particular.
FCFA2S of $28.8mm was ahead of our $24.1mm estimate due to lower-than-expected cash taxes.
Maintaining a pristine balance sheet. Lumine ended Q1 with net cash of ~$7.2mm (vs. $19.5mm in net debt in Q4/F23). It borrowed $90mm on its new credit facility in Q1 to help fund the acquisition of the Nokia assets (closed on April 1) while it paid $32.25mm on April 29 for the Casa carve-out. We expect Lumine will maintain a strong balance sheet, with leverage levels remaining comfortably below 1x, which should allow it to continue spending well in excess of FCF on M&A.
Synchronoss purchase price and Nokia up-front payment lower-than-expected. Lumine disclosed that it paid ~$113mm (~€105mm) in up-front cash for the Nokia assets, well below our €150mm estimate. Assuming the €185mm maximum purchase price and €35mm earnout are unchanged, it implies there is ~€45mm holdback still to be paid.
Meanwhile, following the finalization of the acquisition holdback payable in Q1, the purchase price for the Synchronoss assets declined by $7.2mm, implying a purchase price of ~$35mm including a $3mm earnout.