Nuance (NUAN), Varonis (VRNS) and Corsair Gaming (CRSR) Report
Nuance (NUAN)
reported Q1 fiscal 2021 results yesterday that beat expectations on the top and bottom lines. That said, the numbers don’t look that great due to a large, non-strategic coding government contract that did not renew (management previously disclosed on the Q4 fiscal 2020 conference call) and the ongoing transition to a subscription model. Revenue was down 4.4% to $346 million (beating by $7.6 million) while adjusted EPS of $0.20 beat by $0.02. Growth was strong in the Healthcare business (cloud revenue was up 28%, helped by Dragon Medical and DAX Cloud) and was flat in the Enterprise business (driven by Security & Biometrics solutions). Management also announced the acquisition of Saykara, a healthcare IT company with AI, machine learning and ambient technologies for healthcare. Big picture, this company is still transitioning to a more focused version of itself and there are some moving parts for sure. Looking at the product development and the rationalization of the product portfolio and factoring in that Q1 is typically a slow quarter, I think this story is very much still intact. In 2021 total revenue will likely be down single digits (but up on an organic basis) then be up 8% to 15% in both 2022 and 2023, with EPS growth rates that could be roughly double revenue growth. The stock is off a little today, but I’m not concerned. Keeping at buy. BUYVaronis (VRNS) reported Q4 yesterday with great numbers. Revenue was up 31% to $95 million (beating by $11.2 million) while adjusted EPS of $0.32 beat by $0.22. Management also announced a three-for-one stock split (shares trading near 200 today). Varonis is seeing the dual benefits of hitting its stride with the subscription business (a transition that’s gone on for a few years) and a big jump in demand for security solutions brought on by the pandemic. At the same time, the company is adding solutions to the platform and customers are buying more as they look to secure more workloads for people working from all over the place. The SolarWinds (SWI) security breach may also be helping push customers toward Varonis. Many analysts are raising price targets into the 220 to 240 range, implying VRNS still has 10% to 20% upside in the near term, even after today’s nearly 10% jump. I think it makes sense to be a little careful and look to buy on a dip, but given the trends in the business and the stock, I think VRNS will keep moving higher. Moving back to buy. BUY
Corsair Gaming (CRSR) reported Q4 results yesterday that beat on both the top and bottom lines. Revenue was up 70% to $556 million (beating by $26 million) while adjusted EPS rose by 151% to $0.53 and beat by $0.07. For the full year revenue was up 55% to $1.7 billion and adjusted EPS was $1.60, up 355% from $0.35 in 2019. Acquisitions of Origin and SCUF are factored into 2019 results. Management gave guidance of $1.8 billion to $1.95 billion for 2021, implying growth of 15% at the high end (without any acquisitions) and coming in ahead of expectations. The company ended the year with net debt of $197 million (total debt of $327 million and cash of $130 million). Management said the company would have had an even better quarter if supplies like semiconductors (lead time of 20 weeks) hadn’t impacted its ability to restock items across nearly every product category. Big picture, I think video gaming and streaming is here to stay and Corsair is right in the mix as one of the suppliers to the most dedicated and highest spending consumer. The stock has failed to break out since it peaked back in November and is trading down around 4% after this result. But we’re still up over 20% since we jumped in two months ago. My suspicion is that there’s not enough in this report to get CRSR to break out in the near future (other supply constrained companies like Peloton (PTON) haven’t done much since reporting) and we can sell here for a quick profit and potentially buy back at a lower price in the future. Moving to sell. SELL