Why LINX S A/S ADR (NYSE: LINX) stock is under pressure

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LINX S A/S ADR (NYSE: LINX) stock fell over 2.8% on 31st March, 2020 (as of 11:22 am GMT-4 ; Source: Google finance after the company in the fourth quarter of FY 19 has reported the net income of BRL 9.4 million, which is BRL 7.8 million below 4Q18 mainly on the back of non-utilization of interest on own capital benefits in 2019. In relation to 3Q19, the net income was BRL 9.6 million higher mainly driven by the negative exchange variation registered in 3Q19 on the share of funds raised abroad with the global share offering, affecting the basis of comparison. The company has delivered the adjusted EBITDA of BRL 53.3 million in the quarter, which reflects an increase of 16.5% and 12.9% over 4Q18 and 3Q19 adjusted EBITDA, respectively. The company posted the adjusted EBITDA margin of 24.0% in the quarter, which reflects the contraction of 120 bps compared to 4Q18. This is due to higher expenses with the incorporation of the costs of acquired companies during the year, provision of management bonuses due to the Company’s Long-Term Incentive Plans and intensified investments involving sales and R&D teams to reinforce cross selling and the portfolio of new offers connected to Linx’s end-to-end platform.

Moreover, Subscription revenue rose 15.1% to BRL 195.9 million in 4Q19, representing 76.5% of gross operating revenue, over 4Q18 on a comparable basis. These increase is driven by the resilience of the SaaS subscription revenue-based business model and the operations of Linx Digital and Linx Pay Hub, solutions 100% integrated with the end-to-end platform. The company’s more than 50% of subscription revenue already comes from all cloud offers (in 2013, it was 30%). Royalties revenue fell 40.4% to BRL 7.4 million in 4Q19, over 4Q18. The decline is due to the increased contribution of SaaS offerings to the Company’s new sales. Consulting service revenue rose 94.6% to BRL 52.8 million in the quarter, compared to 4Q18. The increase is due to the larger number and size of implementation projects in the period, mainly related to new clients and Linx Digital Solutions (OMS and e-commerce platform).

Additionally, In 4Q19, the Company’s cash balance and financial investments were of  BRL 980.3 million, which is an increase of BRL 517.0 million compared to 4Q18 on the back of the inflow of funds raised abroad with the global offering of shares held in June, which was partially offset by the disbursement of the three acquisitions made during 2019.

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