Nice post. Agree with most of your thoughts in that the near-term setup may be rocky, and GB introduces some noise / complexity, but the core business is trending nicely, growing double digits organically, and it does not require heroic assumptions to reach a double, or close to it, from here.
Management actually did state a target leverage range of 'low 3s' by year end, which actually includes the acquisition in the 10Q, which should close H2. They just didn't put it in guidance due to the timing.
Have you bridged FY25 EPS ($5.17) to FY26 EPS ($5.25 at mid-point)?
Curious if it's mostly ~2 quarters of added interest expense causing the biggest difference... but hard to reconcile 20% rev growth with flat EPS growth, ya know?
It is mostly interest. The $1B term loan B to prefund the 2027 convert + GB leverage. the old convert only carries a 0.5% coupon so they're temporarily replacing cheap debt with more expensive floating-rate before the convert actually matures. So interest expense up with no increase in operating earnings.
To be fair, adjusted EBITDA is expected to grow nicely YoY :) So revenue up, EBITDA up, EPS flat. Your broader point that it's not good is correct, and part of the problem IMO. Management should be much more explicit about debt paydown versus buybacks versus M&A and explicit about the leverage targets.
But looking out to 2027, all of this will be behind them and FCF conversion should increase nicely.
Nice post. Agree with most of your thoughts in that the near-term setup may be rocky, and GB introduces some noise / complexity, but the core business is trending nicely, growing double digits organically, and it does not require heroic assumptions to reach a double, or close to it, from here.
Management actually did state a target leverage range of 'low 3s' by year end, which actually includes the acquisition in the 10Q, which should close H2. They just didn't put it in guidance due to the timing.
Have you bridged FY25 EPS ($5.17) to FY26 EPS ($5.25 at mid-point)?
Curious if it's mostly ~2 quarters of added interest expense causing the biggest difference... but hard to reconcile 20% rev growth with flat EPS growth, ya know?
It is mostly interest. The $1B term loan B to prefund the 2027 convert + GB leverage. the old convert only carries a 0.5% coupon so they're temporarily replacing cheap debt with more expensive floating-rate before the convert actually matures. So interest expense up with no increase in operating earnings.
To be fair, adjusted EBITDA is expected to grow nicely YoY :) So revenue up, EBITDA up, EPS flat. Your broader point that it's not good is correct, and part of the problem IMO. Management should be much more explicit about debt paydown versus buybacks versus M&A and explicit about the leverage targets.
But looking out to 2027, all of this will be behind them and FCF conversion should increase nicely.
You read this letter?: https://www.emethvaluecapital.com/_files/ugd/b2ee4c_1316a576226d400f8b2892ead53fa664.pdf