The Mysterious Case of NARI (Innari)

Today NARI came out with Q2 earnings, which I feel are excellent; but which after market sellers appear to dislike. After hours the stock is down 6.37% as I write this although trading is not heavy.

Here are the numbers:

	      Q2	Q1	Q4	Q3	TTM 	'20Q2  '20Q1        
Revenue	      63.5	57.4	49	39	208.9	  25	27			

seq g/l	      11%	17%	26%	56%	154%	  -7%				

Guidance: increased to $250 to $255 million from the previous guidance of $240 to $250 million.

Gross margin was 92.4% for the second quarter of 2021, up from 86.3% for the same period in the prior year due primarily to the impact of an idle capacity charge in the second quarter of 2020 of $1.1 million, combined with current quarter product mix and manufacturing efficiencies.

Operating expenses for the second quarter of 2021 were $54.5 million, compared to $22.5 million for the second quarter of 2020. The increase was mainly driven by an increase in personnel-related expenses to fund the expansion of the commercial, research and development, clinical and support organization.

Gaap Operating Margin 14%

Other than a decrease in Gaap op. margin, I can’t spot any reason the stock is falling after hours; however, trading is light and perhaps the market will see the results more favorable in a day or so.


I think it has to do with the pace at which the sequential growth is declining. When I sold the stock I pencilled in $66.3m for this Q and they just came in at $63.5m so actually a bit lower than my guesstimate. I worked off pretty robust growth in their product and stable blended revenue per procedure/device. My worry then was that even with this assumption the growth rate declines quickly.

Even with the small raise in the guide this remains the case.

So my take was that this is a company which was growing extremely fast off a great product but with that growth rate declining quickly and with no clear optionality / additional paths to growth.

In my June monthly write-up I said:

“ In addition to the points Saul made, that’s what made me sell: Even with a handy beat to guidance, which was already sounding shaky, and a continuation of strong execution, revenue growth would fall precipitously in Q3 and Q4, with no credible path (visible to me at least) of how that could turn out otherwise. Similar to what is likely coming with ETSY…”…

This quarter’s revenue numbers seem to validate that view. And a company with declining growth rates won’t get valued like a company with stable/accelerating and high growth rates.