NARI Turns in Stellar Quarter

Investment Analysis Clubs Saul’s Investing Discussions
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For those of you interested in NARI, DVT clot removing medical device company just turned in their results:

Revenue up 140% YOY and 24% sequentially - that’s amazing

TAM with Triever 20 Curve increased by 200MM

Gross profit up 154% YOY

Gross margins up to 92.4% from 89.2% the year prior.

Net income up to 0.13/share compared to 0.01/share a year earlier.

Up 10.3% after hours.

Best,

bulwnkl

Long NARI 6.2%

Up

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What a great call Saul!

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Definitely very good Q4 and FY20 results – and NARI is up nicely in after hours and again today.

That said, the one concern I got out of the earnings press release was with the projected growth for the coming quarter – 13% sequential growth to ~$55M vs the normal 20% to 25% sequential growth we have been seeing. They also guided to a midpoint of $230M – 64% growth over 2020’s $139.7M and well below the 173% FY19-FY20 growth - but still great growth.

Then looking at the call transcript this morning, I feel that this was addressed in the first question to which the CFO responded:
“the Q1 guidance would be about sort of a low double-digit sequential improvement compared to Q4. So that’s something that we really feel comfortable and confident in.”
And then:
“This is our third public report. I think we just want to kind of start out with something and not get ahead of ourselves, and we really look forward to updating our annual guidance as we move along through the year.”

Later in the call the CEO also stated “we learned many things, I guess, but humility is one of them. So we just want to be a little thoughtful about the way we’re thinking about guidance.”

To me, that sounded to me very much like intentionally conservative guidance.

Then this afternoon:
“Inari Medical’s 2021 Sales Outlook Is Conservative, Morgan Stanley Says
Inari Medical’s (NARI) revenue guidance range of $225 million to $235 million for 2021 and Q1 forecast of $54 million to $56 million is “constructive and leaves upside on the table,” Morgan Stanley said in a note Wednesday.
Q1 guidance implies 13% sequential sales growth, but the sales outlook implies “limited” growth off Q1, with Q2-Q4 implied guidance signaling a low-single-digit sequential revenue growth. That “feels conservative” to Morgan Stanley as the average sequential growth over the last two quarters has been 39%.”

For once Morgan Stanley agrees with me ;).

Long NARI, staying long NARI, and considering adding to my position.

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I don’t intend to add more to the stellar metrics they reported and which are already described above, however I wanted to add a couple more thoughts after reading the earnings transcript earlier today.

They have a clear mission to make the world a better place and start the transcript with a case study of a 32 year old mother who was too weak for the traditional surgerical methods (crack the chest, incise the heard…). Her alternative was palliative care, and they were able to successfully remove he clot with one of their devices. It seems to me there are other clot removing devices out there, but as I am not a medical professional, it’s difficult for me to judge the quality of this statement. That being said, I like the way they open the call with this story.

I like the way they clearly explain their 5-pronged growth strategy

  1. Expand in the US to nwe hospitals and physicians, TAM is 460,000 patients per year (3.8B$ revenue potential), they have treated 4600 in the past quarter
  2. Expand footprint / build awareness / drive deeper adoption at existing hospital customers (Clot Warrior academemy / online portal / sales reps present during procedure / …)
  3. Build upon base of clinical evidence (FLASH / CLOUT registry to build a clinical evidence portfolio and promote positive metrics; continue to invest heavily in clinical studies)
  4. Expand product portfolio (several examples given of new products in the pipeline as well as FDA approval received for a new product & a limited market release of a simple venous closure system that leaves nothing behind and does not involve suturing the vein; “we’re excited about the robust lineup of new products and innovation in our pipeline”)
  5. Expansion into international markets (focused on Western Europe: completed several successful procedures in Germany, but COVID related headwinds in Europe that slowdown adoption; begun work toward regulatory approval in Japan and China)

They are bullish on the long runway ahead of them

  • “We are very early in our efforts to penetrate our core markets”
  • “When fully built out, our sales organization will rival in size with the largest interventionally focused sales organizations in the market today”
  • “We believe we are in the earliest phase of our mission and that we can and will grow sustainably and aggressively for many years to come”.

Also good to see to hear them mention openly they are not optimizing towards net income, but rather continue to aggressively invest in growth.

They mentioned a couple of times the guidance is very prudent. It does not include international revenue yet. Based on what I read, I think they will beat the guidance quite easily.

The main challenge for them is something they don’t seem to control which is the only negative I could find in the transcript. The consistency with which patients are identified and triaged to the VTE experts remain limited. Not sure how they will tackle this challenge, but they know about it so assume they have a plan in place. It will require quite some education to get some traction here as well as ownership of hospitals to change processes and procedures if we want to see increased adoption of Inari tools.

Hephaestus
(who kindly asks to ignore spelling errors and grammatical nonsense as English is not my native language)

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