Avalara (AVLR) and Arena Pharmaceuticals (ARNA) Report
Avalara (AVLR) reported Q1 results yesterday afternoon that came in better than expected, suggesting the current quarter (ending in June) will represent the low-point of COVID-19 induced challenges, and which support the longer-term growth story remaining intact.
Revenue in the quarter was up 31% to $111.4 million (beating by $3.2 million) while adjusted EPS of -$0.05 beat by $0.06. The company ended the quarter with over 12,710 customers after adding roughly 750 new customers in Q1. Net revenue retention was 109%. Management issued 2020 revenue guidance in a range of $455 million to $465 million, which is roughly what analysts had expected and which represents around 20% growth. That pace should accelerate in 2021.
Stepping back management said that rapid changes in consumer behavior to e-commerce/online has been somewhat beneficial since the company derives around 50% of transactions from e-commerce. I’ve discussed how Avalara is exposed to hard hit small businesses and this remains true, however management did say the bulk (80%) of its core customers pay over $3,000 a year so its exposure to the smallest end of the small business spectrum is somewhat limited.
Still, clearly there are some headwinds here, which were likely to have been strongest in April. Management said it sees a “U-shaped recovery,” and that the current quarter (Q2) will be the worst, then things improve throughout the rest of the year. All things considered this was a better quarter than expected and it illustrates the long-term potential of Avalara and the broader move toward automating sales tax collections.
I think the stock should have a neutral to modestly positive near-term reaction to the report. However, with a 9% jump back to the previous high yesterday, and the broad market having raced higher this week, I would caution against getting too aggressive buying a breakout right now. That said, if you want to add a few shares that’s fine. Officially, I’m sticking with a hold rating, for now. HOLD.
Arena Pharmaceuticals (ARNA) gave a Q1 business update yesterday that supports the attractive big picture story and keeps the timeline of potentially stock-moving events in 2020 and 2021 intact. Management said the Phase 2 ADVISE trial for atopic dermatitis data is still expected by the end of this year and that the Phase 2 study with olorinab in patients with IBS and abdominal paint should still deliver data by the end of 2020. The ELEVATE UC 12 and 52 data (etrasimod in ulcerative colitis) are still expected later in 2021. The Phase 1 study of ADP418 in decompensated heart failure has moved to the back burner temporarily but is still on track to yield data in 2020 and move into Phase 2 in 2021.
Overall, while COVID-19 has played a role in slowing things down, management said the trials were tracking ahead of plan heading into March and that it’s working with a lot of community health organizations and not hospitals, which has kept things moving through the pandemic. Management also said it’s reducing spending modestly to preserve a little more cash, but still expects to burn $400 million to $430 million throughout 2020. It has the cash to do so, with over $1 billion in the till.
With the stock trading around 50 and still roughly 20% below its previous high, and with the timeline to significant data releases getting shorter, Arena remains a buy. BUY