August 2, 2023
R1 RCM (RCM) reported before the market opened this morning with results that were essentially in line with expectations. Revenue of $560.7 million was up 43.1% while EPS of $0.00 was as expected. Full-year revenue outlook was adjusted to $2.26 - $2.28 billion (analysts are more bullish, looking for $2.3 billion).
R1 RCM (RCM), Repligen (RGEN) and Inspire Medical (INSP) Report
R1 RCM (RCM) reported before the market opened this morning with results that were essentially in line with expectations. Revenue of $560.7 million was up 43.1% while EPS of $0.00 was as expected. Full-year revenue outlook was adjusted to $2.26 - $2.28 billion (analysts are more bullish, looking for $2.3 billion). Management set aside another $11.6 million in reserves for the customer that is going out of business and hasn’t paid their bills. This amount covers all accounts receivable for them, and R1 is also going after the money the company owes them. In other words, no more downside risk here but upside potential. Regarding the Cloudmed acquisition, potential synergies of $30 million remain on target. On the subject of machine learning (ML) and artificial intelligence (AI) potential, management had a lot to say. Most importantly they talked about a future frictionless process that requires limited human input to review an insurance claim. This discussion went on for what felt like forever, but the bottom line is that management sees the trend toward fewer people, more automation and higher profit margins. BUY
Repligen (RGEN) reported before the bell today with revenue that came in below expectations and EPS that beat expectations. Full-year guidance was reduced. The two main challenges continue to be inventory destocking (which has recently spread to consumables in pharma companies) after a big buildup during the pandemic, as well as lower-than-expected activity among smaller biotech companies and related trials. Customers in the cell and gene therapy market are doing OK (+7%) and orders are ticking up there, but the overall market is just slower than expected.
Revenue of $159.2 million (-23%) missed by $6.72 million while EPS of $0.53 beat by $0.21. For full-year 2023 management reduced revenue guidance from $720 - $760 million to $635 - $665 million (down 17% to 21%). The revenue guidance reduction means gross margin will take a hit too, so updated EPS guidance drops from $1.70 - $1.77 to $1.00 - $1.08.
Analysts had been expecting around 20% revenue growth in 2024 and an analyst asked management about this on the call. They didn’t give a clear answer, saying that the entire landscape for the bioprocessing market has changed. But they did think things would improve. In other words, we’ll likely be wondering for a while since there’s a lot more conservatism in the market.
I thought brighter days were coming sooner rather than later, and they still may, but based on what management is saying now, it’s going to be a slower recovery when it eventually comes. Still, RGEN carries an undemanding valuation and will likely perform well over the next several years so the stock is bucking the down market today and rising. We’ll continue to monitor the situation and hold on to our quarter-size position, for now. HOLD REMAINING QUARTER
Inspire Medical Systems (INSP) reported after the close yesterday with another beat and raise quarter. Revenue of $151.1 million (+65%) beat by $14.6 million while EPS of -$0.41 beat by $0.17. Management raised full-year revenue guidance by $20 million to a range of $600 - $610 million (+47% to +50%), which is about 5% more than the Q2 revenue beat. Guidance for U.S. medical center openings remains at 52 to 56 per quarter throughout the rest of the year. One thing we’re watching is the potential impact on the OSA market from the new class of weight loss drugs. On that topic management said they could be a positive and complementary addition to a patient’s weight management regime. That’s because there is a segment of the population that is too overweight to really benefit from Inspire Therapy (i.e., patients with lateral wall collapse). If they can take weight loss drugs to get them to a lower body mass index (BMI) then they can benefit more from Inspire Therapy. Bottom line: analysts are raising estimates, and business appears to still be very good. Maintaining at hold. HOLD TWO-THIRDS