Earnings Review - Week of 02/19/2021

1 John Chapter 4 verses 11-12 state, "Dear friends, since God so loved us, we also out to love one another. No one has ever seen God; but if we love one another, God lives in us and his love is made complete in us."

I am constantly reminded of why I need God's love each day. My natural impulses to seek justice are always leading me to humility in recognizing that God has had mercy on me. It is very comforting and reassuring to me, that if I practice what God's word says, that I can have Him living and acting in my life. I don't need to see God to experience His love.

Serving others is a very important aspect of God's teaching, especially for vulnerable populations and people in need. There are many ways to serve, and I try to partake in multiple ones. For investing, I think it's always good to take a step back and think about goals, objectives, strategies, etc. And I am hoping to bring ideas, approaches, and strategies to this community to build an interesting, helpful, and enjoyable dialogue.

On that note, I am going to change up the earnings season reporting. To be honest, it is very challenging to update 50-plus individual company earnings reviews (in a timely manner where information is fresh), while concurrently updating database financial models for each one. I will continue providing updated information for companies within the portfolio, highlighting key financials and aspects of the report, in an more structured fashion.

The structure moving forward will include updated:

  • Key points

  • Financial metrics

  • Valuation metrics

This should be very straight forward to digest, and still offer important insights. This week serves as the refreshed structure moving forward.

CRISPR Therapeutics

Key Points

For CRISPR Therapeutics (CRSP), it's still too early to tell whether the investment thesis will pan out long-term, but the company is making progress on its pipeline, which will be the key determinant in driving the SP higher, or not for 2021.

For Beta Thalassemia and Sickle Cell Disease, enrollment and dosing are ongoing in the clinical trials for CTX001. More than 20 patients have been dosed with CTX001 across both trials to date. Completion of enrollment in both trials is expected in 2021.

For Immuno-Oncology, there are two independent Phase 1 clinical trials assessing the safety and efficacy of several dose levels of CTX130, its wholly-owned allogeneic CAR-T investigational therapy targeting CD70, for the treatment of both solid tumors and certain hematologic malignancies, are ongoing. The Company expects to report top-line data from these trials in 2021.

For Regenerative Medicine, CRISPR and its partner ViaCyte plan to initiate a Phase 1/2 trial of their allogeneic stem cell-derived therapy for the treatment of Type 1 diabetes in 2021. The combination of ViaCyte’s stem cell capabilities and CRISPR’s gene editing capabilities has the potential to enable a beta-cell replacement product that may deliver durable benefit to patients without requiring immune suppression.

Key analyst commentary after the report related to CRISPR's major competitor in hemoglobinopathies, Bluebird Bio (BLUE), which stumbled as the company announced temporary suspension of Phase 1/2 and Phase 3 studies of LentiGlobin gene therapy for SCD. The decision was made as a result of a newly diagnosed AML patient dosed five years ago in Group A of HGB-206 and an MDS patient dosed six months ago in Group C of HGB-206. With the recent delay due to manufacturing issues, the new safety red flag adds additional uncertainty to Bluebird Bio's filing timeline and probability of approval. This is a positive for Crispr's CTX001 benefitting from the news. However, cautious optimism remains.

My PT on CRISPR over the next 18-month period is set at just over $191 per share. At this PT, the company is trading 12 times Net Cash (assuming $500 million in operational Cash Burn through 2022). Cash on-hand is strong and should carry the company through its mid-term operating needs. However, CRISPR may continue to raise more cash opportunistically, especially if an acquisition target comes into play. I see a valuation based on Net Cash fluctuating from 8-12 times as CRISPR continues to progress its product development.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $1.7 billion

  • Revenues: $720,000

  • Gross Margin, GM: 100%

  • Operating Cash Flow, OCF / Margin: ($238) million / N/A

  • Free Cash Flow, FCF / Margin: ($223) million / N/A

  • Shares Outstanding: 75.5 million

Valuation Metrics

  • Enterprise Value, EV: $9.5 billion

  • EV/Revenues: N/A

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: N/A

Invitae Corporation

Key Points

Invitae Corporation's (NVTA) management provided some context for the year by highlighting the company's ability to deliver sustained growth through commercial execution, a diversified global organization and continuous strategic additions to the menu, services and platform. Even amid the challenges of the pandemic, the durability of Invitae's relationships and the value of the information provided to clinicians and patients was clear. For 2021, Invitae is looking to maintain the pace set, making it ever-easier to integrate genetic information into healthcare decision-making by clinicians and patients at all stages of life. Invitae needs to see its recent acquisition pay off with respect to its menu, services and platform.

For Menu, the company added microbiome and infectious disease testing capabilities, established an oncology offering encompassing germline and somatic testing, liquid biopsy and tissue genomic profiling, added pharmacogenetic testing, and robust, integrated clinical decision support, and Added non-invasive prenatal screening (NIPS) based on whole genome sequencing (WGS).

For Services, Invitae signed 89 biopharma partnership deals in 2020, partnered with a major health system to integrate clinical decision support software for use of pharmacogenetics in patient care, introduced routine exome reanalysis to help patients receive accurate diagnoses faster, introduced consumer-initiated telehealth genetic testing services in Canada, and introduced expanded services and support for telemedicine across customer types,

For Platform, the company added an industry-leading artificial-intelligence engine to the Invitae variant interpretation framework via the acquisition of Diploid to enable clinical diagnosis using exome and whole genome sequencing in minutes, enhancing Invitae's capabilities to provide rapid answers to patients while further reducing the cost of genetic testing at scale.

Looking ahead to 2021 and factoring in the continued impact associated with the COVID-19 pandemic, Invitae reiterates its stated outlook for revenue growth targets of 50% - 60% annual growth over the next few years consistent with its view at the time of the announcement of the ArcherDX acquisition. Invitae anticipates generating revenue in excess of $450 million in 2021.

My PT for Invitae over the next 18-month period is set at just over $70 per share. At this PT, I am looking at a 20 times EV/Revenue multiple until the company is capable of generating positive Cash Flow. Post-acquisition, Invitae now has $32 million in Net Debt, one of the few holdings to have Net Debt. I do see the need for further capital to be raised, and expect this to be based on equity sooner than later.

Financial metrics on a Last Twelve-Month, LTM, basis

  • Net Debt Position: $32 million

  • Revenues: $280 million

  • Gross Margin, GM: 29%

  • Operating Cash Flow, OCF / Margin: ($299) million / (107%)

  • Free Cash Flow, FCF / Margin: ($325) million / (116%)

  • Shares Outstanding: 180 million

Valuation Metrics

  • Enterprise Value, EV: $9.1 billion

  • EV/Revenues: 32.5 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: N/A

Quidel Corporation

Key Points

Quidel Corporation (QDEL) in Q4 developed six COVID-19 diagnostic assays across multiple technologies, while the company's regulatory affairs teams secured EUAs to bring them to market and its operations teams built manufacturing lines and managed complex supply chains to vastly scale production. The net result is the company's strongest balance sheet ever and an excellent competitive position entering 2021.

The company will soon be launching two exciting products: Savanna, a multiplex molecular analyzer that will be another flagship product in the history of the company; and the Sofia Q analyzer, a tiny product with the potential to eventually serve several 'new markets', including the telemedicine and OTC markets. The addition of these products will be important for future growth.

The challenge with Quidel is how to model the future in a post-COVID world. Most analysts are expecting 2021 to serve as the peak of the COVID tailwind, with 2022 representing a strong decline and reversion back to normal product supply and demand dynamics. This uncertainty is driving a discounted SP for Quidel, but all is not in the clear.

I am modeling Quidel with a PT at $305 over the next 18-month period. Quidel has proved that it can pivot quickly to not only execute product development, but also ramp up production to supply needed demand. This bodes well for the company's future products. It will be important to get a better sense of the company's growth trajectory from 2022 and on, as well as more clarity of Cash Flow margins. Nonetheless, I am modeling Quidel to sustain a 25% OCF margin, and to trade with EV/Revenue multiples in the high single digits, with OCF per share being around 30 times. Investing in Quidel today and achieving long-term gains, will solely depend on management's ability develop and produce future products.

Financial metrics on a Last Twelve-Month, LTM, basis

  • Net Cash Position: $478 million

  • Revenues: $1.7 billion

  • Gross Margin, GM: 81%

  • Operating Cash Flow, OCF / Margin: $630 million / 38%

  • Free Cash Flow, FCF / Margin: $575 million / 35%

  • Shares Outstanding: 42 million

  • Rapid Immunoassay Rev: $1.1 billion

  • Cardiac Immunoassay Rev: $243 million

  • Molecular Diagnostic Solutions Rev: $223 million

  • Specialized Diagnostic Solutions Rev: $51 million

Valuation Metrics

  • Enterprise Value, EV: $7.2 billion

  • EV/Revenues: 4.4 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: 12 times

Roku, Inc.

Key Points

Roku, Inc. (ROKU) really had a year in 2020, that has substantiated it as a the streaming leader in the U.S., with a global runway that offers investors sustained long-term upside potential. In 2020, the Roku OS was the No. 1 smart TV operating system in the U.S. with 38% unit share of smart TVs sold. Roku has benefitted tremendously from the growing scale of streaming apps with newest major additions including NBCU's Peacock (Comcast Corporation - CMCSA), and HBO Max (At&t, Inc. - T), with streaming anchors like Netflix, Inc. (NFLX) and Disney+ (DIS).

As part of Roku's diversified business model, the company continues to sustain momentum through the Roku Channel by increasing content, whether from agreements and arrangements and/or through in-house developed content, notably, Roku's acquisition of Quibi at a steep discount.

Content distribution and advertising continue to proliferate for Roku as the shift to streaming continues to bring users and garner interest; while major advertisers look to shift from traditional linear TV. Roku has rebranded OneView ad platform, and continued strong investment to improve its ad-tech capabilities.

My PT for Roku over the next 18-month period is set at just over $686 per share. I am modeling Roku to sustain an EV/Revenue multiple at 30 times, with OCF per share multiples growing towards 150 times over the mid-term. Roku's potential for global growth is substantial, and I view Roku as a premium streaming play versus Netflix, due to its early stage Cash Flow margin generation, and its more diverse Revenue model. Something to keep a watch on is the pace at which Roku looks to grow its internally developed content, and how companies like Comcast and At&t consider and move forward with competing streaming platforms.

Financial metrics on a Last Twelve-Month, LTM, basis

  • Net Cash Position: $1 billion

  • Revenues: $1.8 billion

  • Gross Margin, GM: 45.5%

  • Operating Cash Flow, OCF / Margin: $148 million / 8%

  • Free Cash Flow, FCF / Margin: $83 million / 4.7%

  • Shares Outstanding: 139 million

  • Platform Rev: $1.3 billion

  • Player Rev: $511 million

  • Active Accounts: 51 million

  • Streaming Hours: 58.7 billion

  • Average Revenue per User, ARPU: $26.30

Valuation Metrics

  • Enterprise Value, EV: $63.8 billion

  • EV/Revenues: 36 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: 438 times

SolarEdge Technologies, Inc.

Key Points

SolarEdge Technologies, Inc. (SEDG) saw improving fourth quarter results reflective of strength in the U.S. residential market and record revenues from outside of Europe and the U.S., led by Australia. The return to growth in installations in the U.S. residential market drove sequential growth and return to the anticipated solar margins. Despite the global pandemic, the company concluded the year with slight growth in revenues, healthy cash generation and are well positioned for 2021 and beyond. SolarEdge has invested significantly in development of new products to be released this year as well as development of non-solar businesses, with readiness to supply full powertrain kits for the e-Mobility sector in Europe.

Management guided stronger Revenue growth for Q1 of 2021, including improving Gross Margin performance. The company concurrently announced today that the Company has been selected and will begin to supply full electrical powertrain units and batteries for the production of the Fiat E-Ducato light commercial vehicle. SolarEdge did see increasing Revenue per Product pricing increases for 2020, offsetting shipped product marginal declines. The company also is now breaking out Solar Revenue, versus All Other Revenue as it continues to grow non-solar business.

My 18-month PT for SolarEdge is just below $388 per share. With GM expansion on the horizon over the near-term, I am modeling SolarEdge to return to a 20% OCF margin, and to see a sustained EV/Revenue multiple at just below 10 times, with OCF per share reverting back towards 45 times. If the company can get its Solar business back to growth towards 25%, there could be further margin expansion upside, however, diversifying further in non-solar businesses will continue to weigh, especially if these business continue to scale and require higher expenses and investments.

Financial metrics on a Last Twelve-Month, LTM, basis

  • Net Cash Position: $565 million

  • Revenues: $1.5 billion

  • Gross Margin, GM: 32%

  • Operating Cash Flow, OCF / Margin: $223 million / 15%

  • Free Cash Flow, FCF / Margin: $117 million / 8%

  • Shares Outstanding: 52 million

  • Solar Rev: $1.4 billion

  • All Other Rev: $103 million

  • Gigawatts (AC) Inverters Shipped: 6.1

  • Inverters Shipped: 662,000

  • Power Optimizers Shipped: 15.5 million

Valuation Metrics

  • Enterprise Value, EV: $16 billion

  • EV/Revenues: 11 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: 75 times

The Trade Desk, Inc.

Key Points

The Trade Desk (TTD) like Roku, benefitted tremendously from the increased usage and demand for streaming services. The Trade Desk is building support for Unified ID 2.0, a new industry-wide approach to identity that preserves the value of relevant advertising, while putting user control and privacy at the forefront. The ID is an upgrade and alternative to third-party cookies. The company entered into numerous partnerships for 2020 including Nielsen, Criteo, LiveRamp, Magnite, and Index Exchange, among others.

The Trade Desk Expanded Partnerships in 2020 included TikTok, the leading destination for short-form mobile video, announced a new advertising partnership covering key Asia Pacific markets, Samba TV, the leading provider of consumer cross screen television insights and analytics, and FreeWheel, a Comcast company expanded its partnership in connected TV. The company also received numerous industry awards.

The Trade Desk and Roku may be two of the best ways to play the streaming revolution. However, even more so than Roku, The Trade Desk is trading at a steep premium. I think investors really need to be cautious here, despite feeling like they missed out. Similar to Roku, I think that if anyone is looking for highly robust returns, waiting for a pullback at a minimum, and better yet, a major correction/recession are best.

I am modeling a PT for The Trade Desk at $1,130 per share over the next 18-month period. I am assuming that The Trade Desk will sustain an OCF per share around 100 to 125 times, and can justify an EV/Revenue premium at 35 times. It is clear that analysts are expecting an acceleration for Revenue growth, but what needs to be scrutinized over the next couple years is the company's Cash Flow margins. The company generated an unbelievable 48% OCF margin. I am being conservative with a 30% margin over the short-term, and we'll need to get some clarity during Q1 2021.

Financial metrics on a Last Twelve-Month, LTM, basis

  • Net Cash Position: $624 million

  • Revenues: $836 million

  • Gross Margin, GM: 78.6%

  • Operating Cash Flow, OCF / Margin: $405 million / 48.5%

  • Free Cash Flow, FCF / Margin: $370 million / 44%

  • Shares Outstanding: 47 million

  • Total Gross Billings: $4.2 billion

Valuation Metrics

  • Enterprise Value, EV: $42 billion

  • EV/Revenues: 50 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: 105.5 times

Twilio, Inc.

Key Points

Twilio, Inc. (TWLO) is focused on its potential runway as growth continued to accelerate through the back-half of 2020. The company remains focused on its synergies the Segment acquisition, and its Flex product to build a leading customer engagement platform to improve every interaction that businesses have with their customers.

The good news is that Twilio's Revenue acceleration has the company poised to eclipse $3 billion in Revenue by 2022. For me, the challenge with Twilio is that at some point, the company needs to display improving Cash Flow margins. 2020 did see an inflection for Cash Flow, but the margins remain razor thin.

The day after Twilio's earnings report, the company further announced that it was selling 3.75 million shares at an offering price of $425 to generate another $1.6 billion in cash, bringing the revised Net Cash position to $4.3 billion. I suspect that there may be something else that Twilio has its eye on, another deal may be in the cards.

My PT for Twilio over the next 18-month period is at just below $600 per share. However, this is based on an expectation that Cash Flow inflection will exponentially increase towards a 10% margin. In the event this does not play out as anticipated, this premium above most targets may fall short of becoming a reality. I will be focusing on Twilio's Working Capital OCF changes, which have turned negative of late.

Financial metrics on a Last Twelve-Month, LTM, basis

  • Net Cash Position: $2.7 billion

  • Revenues: $1.8 billion

  • Gross Margin, GM: 52%

  • Operating Cash Flow, OCF / Margin: $33 million / 2%

  • Free Cash Flow, FCF / Margin: $69.5 million / 4%

  • Shares Outstanding: 158 million

  • Number of Active Customer Accounts: 221,000

  • Dollar-Based Net Expansion Rate: 139%

Valuation Metrics

  • Enterprise Value, EV: $65 billion

  • EV/Revenues: 37 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: 2,064 times

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