Everbridge (EVBG), Rapid7 (RPD) and Arena Pharmaceuticals (ARNA) Report Q1 Results
Everbridge (EVBG) reported Q1 results that beat expectations with revenue up 33.5% to $30.5 million (beating by $900,000) and EPS of -$0.17 beating by $0.03. The quarter was highlighted by 49% of revenue coming from new products (other than the core Mass Notification solution), 100 new customers (up to 3,811), more multi-product deals and 19 six-figure, or larger, deals. Sales of Safety Connection were particularly strong and grew by 200%, and investments in the IT Alerting product appear to be paying off (a growth rate for this product wasn’t specified).
Management said the UMS acquisition didn’t add anything in the quarter since it just closed. But they did speak at length about the potential to grow UMS, now that it’s part of the Everbridge family. Managment said that UMS will remain a mostly international product, and that it’s particularly strong in that market because one of the solutions, Population Alerting System (PAS), can be used by entire countries to alert all people in a geographic area through technology embedded with mobile carriers. UMS also has a SaaS-based Mass Notification solution, which is likely to be rolled into the similar solution Everbridge currently sells.
Last year, UMS brought in roughly $12 million, however management was reluctant to forecast that much revenue from the acquisition over the next year since UMS’ sales can be lumpy due to their tilt toward large, countrywide deployments. These are big value deals (similar to Everbridge’s statewide deals) but are tough to predict given long sales cycles. Management also said it is finalizing its acquisition accounting and isn’t yet ready to disclose how many customers UMS will bring over (roughly 250 to 750, which is a big range!) and what the revenue contribution will be.
For now, management has guided for 2018 revenue growth of 31% to $138.7 million to $139.8 million (consensus was $136.5) and EPS loss of -$0.57 to -$0.59 (consensus was -$0.59). The bottom line here is that there will always be a need for technology to help when unfortunate events such as terrorist attacks, severe weather events and cyber-attacks occur. And Everbridge has a proven platform that’s gaining scale worldwide. Analysts on the call were pleased with the report and are likely to bump up their price targets given the pace of 30% plus revenue growth, with potential to accelerate. Keeping at Buy. BUY.
Rapid7 (RPD) also reported Q1 results that beat expectations as enterprises continue to adopt the company’s broader set of security software solutions. Using the old accounting rules (a better apples-to-apples comparison) revenue grew 29%. Under the new accounting rules (ASC 606), which is how Rapid7 will report moving forward, revenue was up 20.5% to $54.5 million. Annualized recurring revenue (ARR), which is the annualized value of subscription and maintenance revenue, and the number most analysts are focused on, was up 38%. The ARR figure is the purest measure of growth given the accounting changes and transition to a subscription business (from license). And on that measure, things look great!
Rapid7 appears to be managing the transition to a subscription model well and by expanding its portfolio beyond vulnerability management and toward higher-value solutions (security incident and event management, IT ops, incident detection and response) it is not only benefiting from higher subscription pricing and bigger enterprise deals but also going after a market that’s roughly 3x bigger than before (close to $7 billion).
One potential headwind in the quarter was higher spending as Rapid7 builds out its salesforce and a new CRM system. These investments are hurting cash flow, but they are temporary. Moving forward, analysts are going to be looking for a return to free cash flow growth and bottom-line profits, which, at the moment, are expected in 2020.
Management guided for 2018 ARR growth of 33% (up from 30%), which means revenue of $231 to $236.7 million. That’s ahead of analyst expectations, which explains the strength in shares. The story remains intact, so I’m keeping RPD at Buy. BUY.
Arena Pharmaceuticals (ARNA) also reported but given that this is a development-stage biotech, the actual reported numbers (which reflect a small amount of license revenue) are inconsequential. The focus is on the pipeline, which includes etrasimod, ralinepag and APD371, which has recently been named olorinab. Arena has roughly $630 million in the bank after a recent equity offering and is in a good cash position.
Most of the conference call was about trial designs for the three pipeline assets. Ralinepag will be studied in two standalone, Phase 3 registrational studies for the treatment of pulmonary arterial hypertension (PAH). Studies will start in the second half of 2018. There is no materially new news on this drug candidate.
We had been expecting Phase 2 data for ADP371 (now olorinab) to be released by the end of June. That has now been pushed back to Q3 2018 due to delays in getting patients into the trial, which should complete enrollment by the end of the current quarter. Arena is also prioritizing its Phase 3 trials, which is contributing to a slight delay in getting olorinab up and running.
Etrasimod is the biggest focus for investors and is intended for the treatment of multiple immune and inflammatory diseases, including ulcerative colitis (UC), Crohn’s disease (CD) and primary biliary cholangitis (PBC). The drug candidate is advancing into a Phase 3 trial for UC later this year. It has been compared to Celgene’s ozanimod, and given that asset’s delay (possibly for a few years) the door is open for etrasimod to get to market first.
There is no doubt that Arena’s management team is trying to take its time and get well-designed trials going and enroll good patients. The downside is that this means the process takes longer. But, as we’ve seen with Celgene, any delays can be major negatives. It’s important not only that the underlying science works, but also that the trials conclusively show that it works. The next big event is likely to be an R&D day in October when Arena’s management plans to give a more in-depth review of trials, which should be going strong at that point. In the meantime, we should get incremental updates on the trial designs. Be patient, and keep averaging in. BUY.