Everbridge (EVBG), Codexis (CDXS), Avalara (AVLR) and Q2 Holdings (QTWO) Report
Everbridge (EVBG) reported a great Q1 in which revenue was up 40% to $42.8 million and EPS of -$0.15 beat by $0.03. Big picture, the story here continues to be about a large, global opportunity to sell Everbridge solutions into, and new product development that fits the market’s needs. The newish Critical Event Management (CEM) suite continues to gain traction with seven new customers (up to 42 total) and better-than 100% growth. Deals over $200K were up 80% too. The other big growth trend is coming from international, which was up 150%. This trend should continue as Europe has mandated population alerting, which opens up a $100 million market opportunity by 2023. There were more details from the call, including a lot about unnamed customers. But overall the takeaway is the business continues to fire and we should keep our eyes open for news on European deals. Management will host an Analyst day next month, and they seem to be narrowing in on a new CEO too. Shares were up to an all-time high in the face of a down market yesterday, which tells you about all you need to know! Keep Holding. HOLD.
Codexis (CDXS) also reported a better-than-expected quarter with revenue up 11% to $15.6 million (beating by $1 million) and EPS of -$0.015 beating by $0.03. The overarching takeaway from the quarter wasn’t any one thing but the sum total of a lot of long-term growth initiatives to build a portfolio of revenue-generating strategic supply and licensing agreements. None of these deals are huge by themselves (although some have to potential to become relatively large) but collectively they keep the snowball growing. Management offered guidance with total revenue expected to be $69 million to $72 million (up 14% to 19%). Revenue growth will ramp throughout the year. The company has $47.3 million in cash.
Since there is a lot going on, here are the high-level bullet points:
• Product revenue +30% to $8 million due to higher demand for enzymes for generic and branded pharmaceutical drug manufacturing
• R&D revenue -3.8% to $7.6 million due to a drop in the Performance Enzymes segment of $2.5 million (to $2.1 million), offset by a $2.3 million jump (to $5.5 million) in the Novel Biotherapeutics segment
• Gross margin +7%, to 45% due to product mix
• Signed its third CodeEvolver platform licensing deal, adding Novartis to the list of Merck and GlaxoSmithKline. This deal is a little more back-end loaded with “usage payments” than the other deals so Codexis should (hopefully) generate more revenue as Novartis scales up quantities of drug manufacturing. Milestone payments total $22 million ($5 million paid already)
• A multi-year enzyme supply and licensing agreement has been signed with Tate & Lyle for performance enzymes used to make a zero-calorie Stevia sweetener (TASTEVA M)
• Preparing to launch second product for next-generation enzyme markets with a DNA polymerase to launch later in 2019. Sales of the first next-gen product, a DNA ligase, continues to track as expected but the second product addresses a larger market
• Preclinical data on one or two unnamed programs in Codexis’ novel biotherapeutics pipeline to come later in the year
Shares of Codexis fell yesterday in a weak market, not because of anything wrong with the quarter or forward guidance. This remains a compelling way to gain exposure to an off-the-radar protein engineering specialist. Keeping at Buy. BUY.
Avalara (AVLR) delivered a knockout quarter last night in which revenue was up 38.4% to $85 million (beating by $6.3 million) and EPS of -$0.01 beat by $0.15. I recently moved the stock back to buy in anticipation that the trends were strong, and I’m glad I did! Shares are up roughly 20% today.
It seems like Avalara is suddenly doing very well. But really, this is the payoff from 15 years of work to build a tax automation platform that was expensive and complicated to do. Management says there is no doubt that the Supreme Court’s Wayfair decision is helping drive retailers to purchase sales tax compliance software. And that Avalara’s IPO has helped raise the company’s profile as the safe and sure bet to supply that software. But on the conference call management also repeated that demand alone doesn’t generate revenue—a software provider needs to have built the platform to handle the needs of its clients, and this includes connectors to all the various ERP solutions that retailers already use. Avalara has done this, which is why it’s winning right now.
Back to the results. Avalara demolished analyst expectations by landing 630 new customers, more than double what analysts expected. Total customer count is now 9,700. There was also talk on the call about the impact of the new accounting standard (ASC 606) which was dry, but basically means operating costs go down due to sales and marketing capitalization. This helps profitability.
Finally, management put forth guidance that’s far above what analysts had projected. Full-year revenue should be around $346 million to $349 million (consensus was $332 million), and I suspect this could be slightly conservative. The market loves the result because the long-term trends are getting stronger and Avalara is in a great position to capitalize. I wouldn’t be too surprised if we see a secondary offering in the near future. But given the strength here and the likelihood that any funds would go toward acquisitions to build out Avalara’s tax library, I don’t think the stock would get hit too much. Keeping at Buy but look for a little dip to buy into. BUY.
Q2 Holdings (QTWO) reported yesterday and shares started off down this morning because it wasn’t a “clean” quarter. They should recover and you can buy into the dip. Revenue was up 30% to $71.3 million, beating by $640K, and adjusted EPS of -$0.05 missed by a penny. Registered users on Q2’s platform rose 19% to 13.1 million. Gross margin was down 3% to 47.8% because of investments in the Cloud Lending and Gro acquisitions (higher than expected decline, but overall not necessarily a bad thing). Higher stock-based comp (due to rising share price) pressured EBITDA margins.
Management raised full-year guidance by $3.3 million, with revenue expected to be up 28% to 29% to $308.8 million to $311.8 million (consensus was $307.7 million). The raise is attributed to traction in Cloud Lending (digital banking) and onboarding customers with the Gro solution, both of which are also helping cross-selling. The business has momentum and the long-term growth trajectory is intact. Keeping at Buy. BUY.