Snapshot

In the last decade, sales of electric cars around the world have surged. The number of vehicles on the road doubled in 2021 to a new record of 6.6 million, with more now sold each week than in the whole of 2012. Despite strains along global supply chains, sales have kept rising strongly in 2022, with two million EVs sold worldwide in the first quarter alone.

In China, the growth was even more pronounced as sales nearly tripled in 2021 to 3.3 million, accounting for about half of the global total. The unprecedented adoption indicates that customers are increasingly looking to combat record-high fuel prices that have plagued budgets this year.

Driving a charge to secure a lucrative chunk of China’s New Energy Vehicle (NEV) market is the emerging brand, Li Auto. Specializing in premium smart EVs, the company is pioneering the commercialization of extended-range electric vehicles (EREVs). The company’s first model, the Li ONE, is a large premium SUV equipped with a range extension system and advanced smart vehicle solutions. With volume production beginning in November 2019, it has gone on to deliver over 124,000 Li ONEs by the end of 2021.

As one of the most competitive SUV models in China, it has been well positioned to capture the huge growth opportunity of the SUV segment; offering users the performance, functionality, and cabin space of a large premium smart SUV, while being priced closer to compact alternatives.

Riding the local and global industry momentum, the company is delivering record sales while forecasting for the growth to continue. Its ambitious targets include being the number one smart electric vehicle maker in China, seeking to obtain a 20% market share with sales in excess of 1.6 million units by 2025.

Background

In 2015, Li Auto was created by Li Xiang, whose previous success included Autohome, the automotive sector of the popular Chinese retail and advertising platform, PCPop. After being one of the first celebrities to obtain the very first Tesla’s delivered to China, Li was inspired to bring NEVs to the country. Operating alongside several high-profile partnerships with suppliers like Bosch, BorgWarner, Panasonic, and Valeo, the first Li One deliveries began in 2020.

When deliveries started in the middle of the covid-pandemic, the Li One made a slow commercial start, however, the car quickly grew on the Chinese audience, and sales continued to accelerate, even in the face of competitors adopting the company’s design principles.

Growing excitement at the company’s prospects saw Li Auto debut on the Nasdaq after raising over a billion dollars in one of the largest IPOs in the U.S. by a Chinese company since Tencent and fellow EV maker, NIO.

Leadership

Founder Li Xiang continues to oversee the company as chief executive officer and chairman of the board, maintaining responsibility for the overall strategy, product design, business development, and management. Including his success at the dual-listed Autohome where he served as its president from 1999 to 2015 to make it the leading online destination for automobile consumers in China, Li has over 20 years of founding and managing internet technology companies in China. He is also on the board of directors of several private companies.

Customer

Li Auto is carving out a unique market in the Chinese EV landscape, particularly versus some polarising alternatives like the country’s low-speed electric vehicles (LSEVs). Despite being comparatively cheap, requiring no license to drive, and enjoying great popularity in some regions because they are condoned by local authorities, they are not actually legal on most roads. In contrast, the Li ONE is a large, six-seat SUV equipped with a range extension system and advanced smart vehicle solutions which offers a combination of long-range, high performance, efficient energy consumption, and flexible power supplies.

While the One is not a fully electric car, but a plug-in hybrid, range-extended EV like the Chevrolet Volt, the combined petrol-electric range for the vehicle is over 1000kms, far exceeding its Chinese competitors and largely addressing range anxiety. Achieving a New European Driving Cycle range of 1,080 kilometers, its lithium-ion battery pack is also capable of supporting a purely electrically powered range of 188 kilometers. While its EREV powertrain can deliver enough power and torque to propel the 2.3-tonne vehicle from zero to 100 kilometers per hour in 6.5 seconds.

The vehicle’s flexible power supplies mean it can achieve a full slow charge in around six hours, while 30 minutes of fast charging can boost the car’s charge status from 20% to 80%. In addition, with refueling, it can operate even when consumers have no access to charging infrastructure.

The company plans to launch its second model, a full-size premium smart extended-range electric SUV in 2022, and more extended-range electric models afterward, in addition to High Power Charge (HPC) Battery Electric Vehicle (BEV) models starting from 2023.

Li Auto has developed its own integrated online and offline platform to interact directly with users, from sales leads to user reviews. It generates leads through three channels including retail stores, media platforms, and user word-of-mouth, subsequently converting these leads to registered users in the Li Auto system, via the official website, the Li Auto App, and a WeChat mini-program.

The system automatically establishes a user behavior model and through data analytics, constantly optimizes the sources of sales leads, product presentation, and sales processes. At the same time, through user engagement within the online system, Li Auto encourages owners to voluntarily promote vehicles to generate high-quality sales leads, leading to higher conversion efficiency and lower user acquisition costs.

Li Auto builds and operates its own sales and distribution infrastructure and sells vehicles directly to users to not only improve economic and operational efficiency, but also provide users with superior purchasing experiences. At the end of 2021, the company had 206 retail stores across major cities in China, with locations in selected shopping malls where targeted users are likely to patronize, instead of central business districts or landmark buildings. An additional 84 delivery centers and 48 servicing centers are located across major cities, performing in-person delivery, maintenance, and repairs.

Thematic

Since its inception, Li Auto has been leveraging technologies to create value for its users. They have invested in in-car technologies to provide a unique experience for families, having developed a signature four-display interactive system, a full-coverage in-car voice control system, and autonomous driving technologies.

Furthermore, its utilization of Firmware-Over-The-Air upgrades has enabled it to introduce additional functionality and improve vehicle performance continuously throughout the entire vehicle lifecycle. The company believes that automotive technologies will continue to evolve, and as new technologies advance it will create more compelling products for users.

Li Auto are investing heavily in HPC BEV technologies which should deliver a superior charging experience, that will be faster, cheaper, and more accessible. Next-generation EV technologies will include high C-rate battery packs, high-voltage platforms, thermal management systems, and a HPC network, that will ultimately provide vehicles to target an even broader market.

Level 4 or “highly autonomous” driving will be the primary operating model for all Li Auto vehicles in the foreseeable future as it focuses heavily on its proprietary technologies. Starting from 2022, all new vehicle models are to be equipped with necessary hardware compatible with in-house developed, future level 4 autonomous driving as a standard configuration.

In addition to the above smart technology, Li Auto is developing Future Intelligent Interactive Systems, which will include next-generation In-Vehicle Perception Systems providing different passengers with varying functions. Fusion Maps will integrate autonomous driving and navigation maps for a more refined experience, while Vehicle Cloud Mesh Networks will enable inter-communication among the vehicle, the cloud, and the mobile application in a distributed grid. Finally, Integrated Vehicle Control and Computing Units will enhance vehicle hardware performance and smart vehicle control.

Li Auto has digitalized its user interactions complementing its direct sales and servicing network to continuously improve operating efficiency. With an integrated online and offline platform, it achieved higher efficiency in sales and marketing than automakers that rely on third-party dealerships to reach customers. In particular, the company has developed a data-driven, closed-loop digital platform to manage all user interactions from sales leads to test drives to purchases and even user reviews, which also significantly reduces user acquisition costs.

Coupled with the ability to generate significant media coverage and leverage social media channels with high-quality content, the company has formed a virtuous cycle from content marketing to sales leads, and in turn to word-of-mouth referrals, enabling continued brand exposure and high-quality potential users at relatively low marketing spending.

Financials

While the recent covid pandemic resurgence and associated supply chain interruptions have been challenging for the industry, Li Auto has continued to drive a robust financial performance coming into 2022. The company achieved total revenues of $1.51 billion in the first quarter, representing an impressive increase of 168% over the first quarter of 2021. Vehicle margins also increased to 22.4% up from 16.9% year-over-year, and the company’s cash flow from operations was positive for the eighth consecutive quarter at $270.7 million.

While posting a net loss of $1.7 million, the performance has ensured the continued scale and pace of investments in research and development and the company is forging ahead with plans to commence the deliveries of its second model, the L9 flagship smart SUV, in the third quarter.

Looking ahead, for the second quarter of 2022, the company expects total revenues to be between $972.3 million and $1.11 billion, representing an increase of 22.3% to 39.8% from the second quarter of 2021. However, for the full 2022 year, consensus estimates have total sales increasing an impressive 85% to $7.91 billion, while earnings per share estimates are forecasted to turn positive at a modest $0.02 per share.

Risks/Competition

The China EV market is highly competitive with well-established names like the leading BYD Co, along with fellow newer start-ups like NIO and XPeng, however, Li Auto’s products appear to be sufficiently distinguished to carve out a loyal market for itself. Despite this, the company’s ambitious target of becoming the number one smart EV maker in China will require it to surge past current leader BYD, which shipped around 584,000 cars last year. It will also have to outrun SAIC-GM-Wuling Automobile Co, whose $5,000 pint-sized EV is a mass-market winner, as well as Tesla, which sold about 320,000 vehicles in the nation in 2021.

The regulatory environment for EVs in China continues to bode well for Li Auto. Currently, Li ONE users can benefit from vehicle-related tax exemptions, including vehicle purchase tax and vehicle and vessel tax, along with local government policies in favor of NEVs in certain cities, such as no quota limitations for vehicle license plate applications and exemption from traffic restrictions. However, with constantly evolving markets, regulatory changes are always a possibility.

Conclusion

Despite continued supply chain and covid headwinds, China EV sales have rebounded after diving earlier this year after local governments responded to a potential slowdown with cash EV subsidies to encourage sales. Li Auto has navigated the period with better than expected numbers in its latest quarter and appears to be heading towards a turning point on profitability. With a growing brand presence and a soon-to-be-released new model, the company looks well-placed to continue its strong momentum.

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Snapshot

U.S. families are burdened with the world’s most expensive healthcare with the prohibitive costs becoming a national crisis. Even with employer health coverage, families are forced to budget a significant portion of their income for health expenses including premiums and out-of-pocket costs. Shockingly, almost half of American adults fear that a major health event in their household could lead to bankruptcy.

However, a growing movement toward value-based healthcare is supplying a framework that incentivizes healthcare providers to focus on the quality of services rendered, as opposed to the quantity. Privia Health Group is one such provider aiming to transform healthcare delivery by providing tools, resources, and technology designed to help manage and improve the health of the communities it serves.

Privia operates as a national physician-enablement company, collaborating with medical groups, health plans, and health systems to optimize physician practices, enhance patient experiences, and reward doctors for delivering care in-person and in virtual settings. The company directly addresses several pressing issues facing physicians today including the transition to the value-based care reimbursement model, ever-increasing administrative requirements to operate a successful medical practice, and the need to engage patients using modern user-friendly technology.

Privia does this by organizing physicians and clinicians into a practice model that combines the advantages of a partnership in a large regional medical group with local autonomy for the physicians and clinicians.

Now managing over 870 practice locations, with 3,300 implemented physicians and providers that serve almost 4 million patients, Privia is now focused on growing its reach and share of the $2 trillion health care opportunity, as it expands its existing markets and enters new markets.

Background

Founded in 2007, Privia was a former subsidiary of Brighton Health Group. In 2013, Privia Medical Group was launched with the first practice in Virginia, then in the proceeding years expanded across several geographic markets including the Mid-Atlantic region, Georgia, as well as Texas, Florida, and Tennessee markets.

New verticals were also added with the launch of its Women’s Health specialty in 2018 and a Privia Pediatrics vertical in 2020, along with a strategic alliance with a prominent children’s hospital in Texas. In 2021, Privia Health launched in the California market and also opened a third medical group in Texas.

The company began trading on the Nasdaq in 2021, as it continued to expand with an entry into California and Montana and an affiliation with BASS Medical Group. In the same year, Privia Care Partners launched, providing a flexible model and robust resources to advance value-based care.

Leadership

Current chief executive officer, Shawn Morris, is a seasoned industry leader well-versed in driving initiatives to help providers on their transition to value-based services by building strategic partnerships with physicians, health plans, health systems, and employers. In addition, better aligning reimbursements to quality, affordability, patient satisfaction, and provider wellbeing.

Morris was previously the president and chief operating officer of Cigna-HealthSpring, where he was responsible for the financial and operational performance of its Medicare Advantage business, one of the largest private Medicare solutions, that served 1.5 million customers and over $8 billion in revenue.

Customer

Privia serves multiple stakeholders across the healthcare market, with its services catering to patients, providers, health systems, payers, and employers.

Currently assisting over 5 million patients across the continuum of care, Privia’s framework provides care regardless of whether the patient is healthy, early-stage chronic, high risk, or a complex case. The framework focuses on access to care through more than 870 center locations, as well as virtual services offering proactive referral management, chronic and complex care management, behavioral health, and palliative care. While its technology provides an improved patient experience and better outcomes through a MyPrivia app and patient portal, including automated reminders for health events, 24/7 virtual immediate care, and nurse care advice. Furthermore, to assist payers, localized provider networks leverage technology and care coordination to lower the risk of costly patient events.

For providers, Privia’s physician-led approach enables partners to practice medicine with comprehensive support while staying connected with their patients. Tools and technology ensure that providers are less burdened with administrative tasks and are rewarded for managing their patients’ cost of care effectively. As a result, the Privia Platform has grown significantly over the past few years, scaling from more than 250 implemented providers in 2014 to over 3,300 partners currently on the platform.

Thanks to physician expertise and complementary technology, Privia helps health systems navigate complex policies, competing priorities, and the changing healthcare landscape. Cloud-based technology unites physicians and integrates into health systems’ existing workflows. This seamless data delivery at the point of care increases connectivity, improves care coordination, and provides data to negotiate risk-based payer contracts.

Finally, by delivering high-performance and custom network designs, advanced telehealth capabilities, and patient engagement tools, Privia seeks to create significant benefits for employers. Innovative, customized medical benefits packages supported by cost-efficient, partner networks aim to provide simplicity of use and reduced friction in the healthcare system.

Privia’s revenue is broken down into three main categories: fee-for-service (FFS), value-based care (VBC), and other revenue. FFS revenue comes from patients in the form of co-pays, coinsurance or deductibles, as well as from administrative services including reimbursements for FFS medical services provided by both Privia Providers and medical groups which are not owned or consolidated by Privia. In addition, payments come from contracts with the U.S. federal government and payer organizations. VBC revenue is generated when Privia’s providers are reimbursed through traditional government reimbursement models, commercial payers, and other direct payer or employer contracting programs. The revenue is primarily collected in the form of per member per month care management fees to cover costs of services typically not reimbursed under traditional FFS payment models. While other revenue comes from services that Privia offers, including virtual visits, virtual scribes and coding, clinical trials, behavioral health management, and partnerships with self-insured employers that offer direct primary care to their employees.

Thematic

Privia’s platform is purpose-built to help organize physicians into cost-efficient, value-based, and primary-care-centric networks bolstered by strong governance. It is powered by proprietary end-to-end, cloud-based technology that integrates both Privia-developed and third-party applications into a seamless interface and workflow that manages all aspects of the provision of healthcare services for partners. It is also designed to effectively service across demographic cohorts and reimbursement models, including traditional fee-for-service Medicare, the Medicare Shared Savings Program, Medicare Advantage, Medicaid, commercial insurance, and other existing and emerging direct contracting programs with payers and employers. This makes the model highly scalable while providing better outcomes, lower costs, improved patient experience, and more engaged providers. Furthermore, in line with industry trends, it allows Privia to both rapidly build density in new geographic markets and guide those markets from FFS to VBC by shifting the reimbursement model, while helping partners better manage the cost of care through a focus on quality and success-based reimbursement.

Core to this physician alignment approach is a focus on maximizing the potential of a physician’s medical practice across its entire patient panel. It achieves this with a highly flexible payer-agnostic approach to address the needs of multiple types of practices, from independently owned to hospital-employed or affiliated practices, while delivering a profitable model for both Privia and its partners, regardless of the reimbursement model, geographic environment, or specialty. Ultimately, this model is designed to enable significant growth, revenue visibility, low invested capital, and attractive margins.

Privia currently operates in seven states and the District of Columbia, covering over 100 target metropolitan statistical areas, including over 30 of the largest. Its existing provider penetration and market share provide a solid footprint and opportunity to grow, with the company’s growth strategy centered on capturing whitespace opportunities in existing markets and entering new markets nationally over the coming decades. To support this, the company recently began offering Privia Care Partners, a more flexible provider affiliation model to providers who are looking solely for VBC solutions without the necessity of changing their entire electronic medical record platform.

It is expected that organic growth in existing practices will be achieved through providing an enhanced patient experience and value-based clinical model, increasing retention, and driving new patient referrals. While new provider growth will focus on strategic expansion, succession planning, and the use of advanced practitioners. In addition, the expansion of practice services will include improvements such as more convenient virtual care and in-office ancillaries. Revenue optimization through enhanced payer contracting strategies is also expected to drive efficiency and higher revenue realization.

Privia intends to add primary care and specialist services in its existing markets to also enhance growth. A data-driven approach allows the company to efficiently identify primary care and specialist provider groups that would benefit from its platform. Recent initiatives have included the launch of Privia Women’s Health and Privia Pediatrics platforms. They also continue to pursue direct contracting opportunities, including primary care and onsite clinics to be fully integrated with Privia networks.

Financials

Privia has steadily grown in recent years and from 2015 to 2021, the company has averaged a 33% annual growth rate in providers joining its platform, which has resulted in a total attributed lives growth rate of 34%. Following its latest quarter, Privia took its trailing twelve months of revenue to in excess of $1 billion. It recorded $313.8 million for the period, blitzing the prior year’s first quarter by almost 47%, thanks to continuing to add provider partners, while increasing the number of attributed lives across 80+ at-risk, value-based payer agreements.

Practice collections increased 63.3%, care margin was up 36.4% and adjusted EBITDA grew 48.8% when compared to the prior year, while Privia continues investing across the enterprise to support this accelerated top-line growth.

Looking ahead, the current business momentum and solid forward visibility are reflected in Privia’s financial guidance for 2022, which has full-year revenue expected between $1.225 billion and $1.3 billion, in line with consensus estimates and representing growth of almost 35% at the higher end.

Risks/Competition

Privia faces competition in each geographic market from a variety of community-based healthcare provider organizations, including large physician practices, independent physician associations, hospitals and health systems, as well as emerging companies acquiring specialty physician practices.

However, the company believes its practice model and breadth of services offered to all patient types is unique and competes effectively across certain lines of business, particularly, dedicated brick-and-mortar and primary care locations, while having the ability to organize providers into accountable care organizations and partner with physicians’ groups to enable better care delivery.

These advantages have Privia well-placed against competitors such as Oak Street Health, One Medical, Adelaide, Agilon Health, and VillageMD, which are also benefiting from increasing focus as the value-based care industry has received headline news with the recent $4 billion buyout of One Medical by Amazon.

Conclusion

Privia Health is taking advantage of the growing trend toward value-based care to not only deliver better outcomes for patients, but provide a superior and sustainable operating model for both industry stakeholders and the company. Its model offers a tremendous market opportunity for growth in the physician enablement space as they scale nationally.

With a solid balance sheet and positive annual free cash flow, Privia is well-placed to continue executing on its multiple growth initiatives and funding all strategic opportunities in the foreseeable future without reliance on any external sources of capital.

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The modern world is built on software. Today, every industry, business, and function within a company is dependent on it. To remain competitive and survive, nearly all companies must digitally transform and become experts at building and delivering software. Everywhere, organizations have teams of designers, developers, testers, and many more collaborators working together to create software solutions that make their businesses run more efficiently. Over the years, software development methodologies have evolved from rigid and slow sequential processes to far more iterative and collaborative ways of working.

GitLab has helped facilitate this evolution, having pioneered The DevOps Platform, a fundamentally new approach to software development, that empowers organizations to maximize the overall return on development efforts by delivering software faster and efficiently, while strengthening security and compliance. With GitLab, every team in an organization can collaboratively plan, build, secure, and deploy software to drive business outcomes faster with complete transparency, consistency, and traceability.

GitLab now has an estimated 30 million registered users and more than 1 million active license users, along with an active community of more than 2,500 contributors. With an open core business model, GitLab leverages a dual flywheel strategy to continue advancing The DevOps Platform. By leveraging both development spending from its research and development team members as well as contributions from its vast community, the company creates a virtuous cycle that leads to more features, which leads to more users, leading back to more contributions.

Background

In 2011, GitLab’s co-founder Dmitriy Zaporozhets needed a tool to collaborate with his team. Wanting something efficient so he could focus on his work, together with fellow co-founder, Sid Sijbrandij, he started to build GitLab as a solution. It was created as an open-source collaboration tool for programmers where users could contribute to it. Initially, it was a source code management solution to collaborate within a team on software development that evolved to an integrated solution covering the software development life cycle, and then to the whole DevOps life cycle.

Large organizations running GitLab were soon asking the company to add features that they needed, so it introduced GitLab Enterprise Edition and began releasing updates every month. Ten years on, the company averages more than 650 code contributions a month from over 2500 wider community contributors. The company itself now has over 1400 team members in 65 countries and regions around the world, as it continues to support and educate businesses about the benefits of remote work by leading key discussions with companies, VCs, and universities since the beginning of the covid pandemic. In October 2021, GitLab Inc. became a publicly traded company after its listing on the Nasdaq.

Leadership

Co-founder Sid Sijbrandij is GitLab’s current chief executive officer and board chair. Sid was instrumental in the commercialization of GitLab, and by 2015 he led the company through Y Combinator’s graduate school for start-ups. Under his leadership, the company has grown to millions of users from start-ups to global enterprises.

Sid is joined by chief technology officer, Eric Johnson, who after helping multiple start-ups scale to various levels, including acquisitions and an IPO, arrived at GitLab in 2017 and is responsible for the company’s vast team of software engineers, designers, and support personnel responsible for the DevOps platform.

Customer

By creating a single application that brings together development, operations, IT, security, and business teams onto a single interface to deliver desired business outcomes, GitLab has facilitated a step function change in how organizations plan, build, secure, and deliver software. The DevOps Platform accelerates customers’ ability to innovate and create business value by reducing their software development cycle times from weeks to minutes. It removes the need for point tools and delivers enhanced operational efficiency by eliminating manual work, and increasing productivity, while building a culture of innovation and speed. The platform also embeds security earlier into the development process, improving customers’ software security, quality, and overall compliance.

The platform has broad use across organizations as it helps:
– product and business teams to work with developers to introduce new features and drive successful business outcomes
– chief technology officers modernize their DevOps environment and drive developer productivity
– chief information officers adopt microservices and cloud-native development to improve the efficiency, scale, and performance of their software architecture
– chief information security officers reduce security vulnerabilities and deliver software faster
– organizations attract and retain top talent by allowing people to focus more time on their job and less time managing tools

The majority of GitLab’s customers begin by using Create and Verify. Developers use Create to collaborate on the same code base without conflicting or accidentally overwriting each other’s changes. Create also maintains a running history of software contributions from each developer to allow for version control. While teams use Verify to ensure code changes go through defined quality standards with automatic testing and reporting. GitLab believes this system of recording code coupled with high engagement with developers has become a competitive advantage, with the single application creating interdependence and adoption across more stages of the DevOps lifecycle, such as Package, Secure, and Release. As more stages are addressed within a single application, the benefits of the platform are enhanced.

GitLab is available to any company, regardless of the size, scope, and complexity of its deployment and it is used globally by organizations across a broad range of industries. To reach, engage and help drive success at each customer, the company’s sales force is complemented by strategic hyper-scale partnerships, including Google Cloud and Amazon Web Services, or AWS, which offer The DevOps Platform on their marketplaces. GitLab also benefits from strategic alliance partnerships, which resell the platform to large enterprise customers, while strong channel partnerships range from large global systems integrators to regional digital transformation specialists, and volume resellers. The company employs a land-and-expand sales strategy with customer journeys typically beginning with developers and then expanding to more teams and up to senior executive buyers.

Thematic

GitLab exists in large part due to its vast and growing community of open-source contributors around the world. It actively works on growing its community engagement by operating with intentional transparency. It makes the company’s strategy, direction, and product roadmap available to the wider community, encouraging and soliciting their feedback. By making information public and generating contributions and collaboration from users and customers, GitLab drives rapid innovation with its development strategy, leveraging learnings to establish a swift feedback loop to continually improve the platform.

Furthermore, this large open source installed base leads to paying customers. GitLab provides users of the platform with a free tier to encourage adoption and increase overall awareness. This leads to deep familiarity and affinity for the platform, which serves as a highly targeted and efficient source to convert prospective customers into paid clients. The company believes this provides a competitive advantage as the more users who can act as advocates the easier it is to secure new paying customers or expand within existing customers.

By maintaining this culture of innovation, GitLab continues to hold a leadership position that is critical in light of major secular industry trends. Digital transformation is now a board-level imperative, and The DevOps Platform is at the center of it. GitLab is helping customers successfully embrace the benefits of more effective DevOps processes, pursue their digital transformation strategies, and create new business value with speed and efficiency.

In addition, the platform is designed in a way that enables customers to manage and secure their entire DevOps workflow across any hybrid or multi-cloud environment. This enables customers to select the best cloud provider for them and optimize for their best features when deciding where to host their DevOps projects and embrace the full benefits of a multi-cloud strategy. And as organizations move more workloads to the cloud and consume technology as a service, GitLab believes its SaaS offering will continue to grow at a faster rate than its self-managed offering. As a result, it intends to continue making investments in research and development to enhance new SaaS features, as well as in sales and marketing, to drive further adoption of the SaaS offering.

GitLab’s growth strategy is currently focused on continued investment in advancing the adoption of the platform. In addition to the hiring of top technical talent to advance feature maturity across more stages of the DevOps lifecycle, the company also recently acquired Opstrace, Inc., to deliver functionality in the monitor stage, leveraging the entire platform to provide advanced observability. Driving growth through enhanced sales and marketing is also a priority as nearly all organizations modernize to DevOps platforms provides an enormous opportunity. With a focus on replacing legacy systems within larger organizations, GitLab will also continue to acquire users with its free product and subsequently convert those users to paying customers. Given customers realize the benefits of a single application and then typically increase their spending by adding more users or purchasing higher-tiered plans, driving increased expansion within the existing customer base will also provide considerable opportunities.

GitLab has also been investing in its global partner ecosystem, composed of hyper-scalers and cloud providers, technology and independent software vendor partners, global resellers, and system integrators. It plans to continue investing in building out the partner program to expand its distribution footprint, broaden the awareness of the platform, and more efficiently add new customers. The company also believes there is a significant opportunity to continue to expand internationally. International revenue increased 57% in 2021 and this trend is expected to continue by increasing investments in international sales and marketing operations including headcount in the EMEA and APAC regions.

Financials

GitLab has experienced rapid growth in recent years and in FY22 generated revenue of $252.7 million, up 66% from $152.2 million in FY21, as the company continued to invest in growing the business following its public listing. The momentum has continued in the opening period of FY23 after delivering a record quarter of $87.4 million, driven by a substantial shift in how enterprises are developing, operating, and securing software by moving to a platform strategy.

In addition to accelerating revenue growth, GitLab continues to improve operating leverage. Underpinning this acceleration in growth was a higher velocity of new customer wins, as well as seat expansion and tier upgrades of existing customers. Customers with more than $5,000 and $100,000 of annual recurring revenue both increased by more than 60% year-on-year, while the company’s dollar-based net retention rate exceeded 130% in the first quarter of the year.

Looking ahead, GitLab is forecasting total revenue for the second quarter to be within the range of $93.5 million to $94.5 million, while revenue for FY23 is to be within the range of $398 million to $402 million, which is in line with consensus estimates for year-over-year growth of almost 60%. Loss per share estimates are also expected to improve, increasing by 26% to $0.89, tempering from $1.20 in 2021.

Risks/Competition

GitLab operates in a highly-competitive environment, which includes deep-pocketed rivals such as Microsoft’s GitHub, Atlassian, IBM, and Oracle. Although GitHub is the dominant platform among public repositories, GitLab is carving out a niche for itself with its platform approach focused on DevOps. Today, more and more companies are choosing a hybrid approach toward cloud and on-premise deployments, and so, GitLab is well placed to win market share due to the interoperability of its platform.

Conclusion

GitLab has built an impressive product that plays a critical role for not only developers, but also major stakeholders across an organization. With the growing importance of digital transformation, GitLab plays an integral role in the software development process for companies of all types and sizes. Benefitting from a deeply embedded go-to-market strategy that takes advantage of a vast community to build loyalty, it appears the company’s momentum and impressive growth are showing little signs of waning.

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Working out is tough. Whether you’re a beginner trying to get fit, or a seasoned athlete always looking to get the best edge possible, everyone wants to make the most of their fitness sessions. Celsius Holdings is helping make that happen with an innovative range of functional energy drinks and liquid supplements, that promise to deliver valuable health benefits.

Unlike the usual high sugar products on the market, Celsius’ products, which are designed to accelerate metabolism and burn calories and body fat while providing energy, are backed by science, being clinically proven to deliver health benefits in multiple studies. The range caters to both pre- and post-workout consumer needs, with the products currently offered in over 140k major retail outlets in the US including conventional grocery, convenience, vending, fitness, natural, and vitamin specialty stores, along with e-commerce channels.

After years of modest growth, Celsius has been spurred by the fitness boom observed during the early stages of the covid pandemic. Consumers are shifting away from artificially flavored high-energy soft drinks and are sticking with healthier options. As a result, the company has been on a rapid growth trajectory, exponentially increasing sales in the last two years.

With a comprehensive rollout across the globe continuing, Celsius is on a mission to become a leading brand for fitness loyalists seeking products that offer significant health benefits.

Background

Beginning as a small mom-and-pop outfit in Delray Beach, Florida, Celsius’s calorie-burning energy drinks were first introduced to the marketplace in 2005. The business garnered early investment support from Carl DeSantis, the founder of Sundown Vitamins, which was sold to Dutch food giant Royal Numico for $1.8 billion, after he was introduced to the drink by his long-term business partner. In the same year, the vitamin industry entrepreneurs helped facilitate an initial clinical study, validating its calorie-burning benefits.

DeSantis was the largest investor in Celsius Holdings when it went public for the first time in 2008. But after just three years of losing money and the stock tanking, it was delisted from the Nasdaq. DeSantis kept investing millions in marketing and advertising, and it took its second try at the public markets in 2017.

Since then, the company has benefited immensely from changing consumer tastes and is now focused on continuing an enormous global expansion. In 2019, this saw the acquisition of Func Food, a distributor of beverages, protein bars, supplements, and superfoods marketed in Finland, Sweden, and Norway.

Leadership

In 2018, John Fieldly was named Celsius CEO after serving as the company’s CFO since 2012. Fieldly has an extensive consumer goods background and over two decades of broad financial and operational experience providing a proven track record of driving robust business results and shareholder value. He began his career in retail within the food/drug/mass channel through various leadership roles with the Eckerd Corporation in which he supported the major acquisition to CVS in 2004. At the time, Eckerd had more than 2,800 stores nationwide. Leadership roles with Lebhar-Friedman and Oragenics, Inc. have also demonstrated Fieldly’s ability to optimize operational efficiencies and implement procurement strategies to maximize operations.

Customer

Celsius’s core offerings include pre- and post-workout functional energy drinks, that come in two versions, a ready-to-drink supplement format and an on-the-go powder form, as well as protein bars. The company’s flagship line, CELSIUS, is made with premium ingredients, including 7 essential vitamins, and has no sugar, artificial colors, flavors, chemical preservatives, aspartame, or high fructose corn syrup, and it is very low in sodium. It includes supplements such as green tea, ginger, calcium, chromium, B vitamins, and vitamin C. CELSIUS is sweetened with sucralose, a sugar-derived sweetener that is found in Splenda, making the energy drinks low-calorie and suitable for consumers whose sugar intake is restricted.

Complementary products include CELSIUS Sweetened with Stevia, the company’s first line extension that is both naturally sweetened and naturally caffeinated. CELSIUS ON-THE-GO powder sticks offer a portable just-add-water option. While CELSIUS HEAT and HEAT ON-THE-GO packs are focused on performance energy with 2,000 mg of L-Citrulline and 300mg of caffeine to optimize performance and give a powerful energy boost. Finally, CELSIUS BCCA+ENERGY, introduced in 2019, is an innovative branched-chain amino acid energy drink that fuels muscle recovery and was initially launched in the fitness channel.

As a result of the acquisition of Func Food, Celsius added a range of products distributed under the FAST, FitFarm, and CocoVi brands. FAST products are a market leader in Finland and have begun distribution into the Swedish market and in the US. While FitFarm and CocoVi are well-established brands of superfoods and other supplements in the Nordic countries.

In the U.S. and North America, CELSIUS is sold across many retail segments including supermarkets, convenience, drug, and nutritional stores, and mass merchants. They also sell to health clubs, spas, gyms, the military, and e-commerce websites, such as Amazon. Due to the effects of the Covid pandemic including the shutdown of various retail outlets, gyms, and health clubs, there has been a marked shift to online purchasing that has accounted for a growing percentage of the company’s domestic revenue. At the end of 2021, Costco and Amazon accounted for approximately 12.7% and 10.1% of total revenue, respectively.

Thematic

The major theme for Celsius is the categorization of its products as providing functional energy, with its value proposition ensuring that products have clear and proven benefits, as it builds an innovative portfolio capitalizing on today’s health and wellness trends. Celsius believes that clinical studies substantiating product claims will become more important as more functional energy drinks and other beverages are marketed with health claims. The company has invested heavily in research and development, specifically seeking to combine nutritional science with mainstream beverages by using a proprietary thermogenic (calorie-burning) MetaPlus formulation, through a blend of ginger root, guarana seed extract, chromium, vitamins, and green tea extract.

CELSIUS was one of the first functional energy drinks to be launched along with a clinical study and is also one of very few that have clinical research on the actual product itself, rather than one or more ingredients, as many drinks do. In an initial 10-week clinical study published in the Journal of International Society of Sports Nutrition, the group who drank one CELSIUS per day experienced 93% greater fat loss. While multiple subsequent studies funded by Celsius have confirmed a single serving, 12-ounce can of CELSIUS burns 100 to 140 calories by increasing a consumer’s metabolism by an average of 12% for up to three hours. In addition, these studies have indicated that drinking CELSIUS before exercising may improve cardiovascular health and fitness and enhance the loss of fat and gain of muscle from exercise.

Celsius distributes products domestically through a hybrid of direct-store delivery (DSD) distributors as well as sales direct to retailers (DTR). With the strong growth in e-commerce sales, the company is continuing to emphasize the expansion of its DSD network as it has been a key element in opening additional domestic markets and retail segments leading to increased sales. The company maintains partnerships with major companies like Anheuser-Busch, Keurig Dr. Pepper, and even PepsiCo as wholesalers.

One of Celsius’s main drivers of growth has been its expanding distribution network with products now sold at over 140k retail locations in the U.S., up 53% from 93k in the first quarter of 2021. In March, it began a full nationwide rollout through Sam’s Club, more than doubling the number of stores in the channel and adding almost 600 locations with the launch. In the first quarter of 2022, it also expanded into additional Wal-Mart locations bringing its store count total to over 4,400 stores, whilst also expanding product offerings. In the convenience channel, Celsius began a nationwide rollout to over 6,000 Circle K locations. And in the fitness channel, it is now the official energy drink partner and provider of CycleBar nationwide. In addition, since its fourth-quarter launch with Lifetime Fitness, they are now the number one selling drink and have increased sales each month since the launch.

The company’s goal is to ultimately replicate this success worldwide with new partnerships. Internationally, Celsius distribute in various foreign regions through regional and country-specific distribution partners. The acquisition of Func Food, which markets both Celsius and its own branded products will be used as a platform to expand product distribution elsewhere in Europe. In addition, the launch of the company’s Amazon EU operations recently began in Great Britain. In the Asian market, which is one of the most dynamic and fastest-growing, Celsius operates through local distributors in Hong Kong and a license agreement with a partner in China, Qifeng Food Technology.

Financials

Celsius’s impressive expansion has continued to benefit top-line revenue in 2022 with a record first quarter of $133.4 million representing the company’s 14th consecutive quarter of sequential growth and an enormous 167% increase over the prior year’s comparative. The total increase in revenue was largely attributable to increases in sales volume, with North American sales driven by strong triple-digit growth in traditional distribution channels, combined with an increase in and optimization of product presence in major retailers.

While there continues to be margin pressure felt across the beverage industry, the company also saw gross profit for the quarter increase by 162% to $53.9 million. Despite the higher cost of goods globally, a majority of these cost increases have been offset by efficiencies of scale through raw materials production, shipping, and transport with a warehouse model expansion last year. Net income of $6.2 million was also up significantly on the prior year’s comparative of $0.4 million.

Looking ahead, consensus estimates are forecasting full-year revenue for 2022 to come in just shy of $600 million, representing year-on-year growth of almost 90%. While earnings per share estimates are also expected to grow significantly, surging almost 800% to $0.45 per share, from a low $0.05 base in 2021.

Celsius also benefits from a solid balance sheet including $25.5 million in cash against zero financial debt.

Risks/Competition

The functional energy drink, supplement, and liquid refreshment markets are highly competitive and include international, national, regional and local producers and distributors. Direct competitors include major players such as The Coca-Cola Company, Dr. Pepper Snapple Group, PepsiCo, Nestlé, Monster Energy, and Red Bull. Although, Celsius is confident its products are one of the few calorie-burning functional energy drink and supplement lines whose effectiveness is supported by clinical studies, which gives them a unique position in the market.

The rising interest rate environment and the potential for a recession continue to weigh on sentiment. There is also a concern that worsening inflation and associated cost increases in gas, transportation, input costs, and raw material costs could result in passing on price increases to consumers.

Conclusion

After modest beginnings, Celsius Holdings is already benefiting from a strong secular trend towards healthier alternatives. With a unique product offering a compelling competitive advantage and an ideal roadmap for further domestic and international expansion, the company appears to be at the beginning of an enormous growth journey.

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As the world is increasingly concerned about climate change and its impacts on the environment, solar energy is providing one of the best options to combat growing energy usage. Solar energy has the least negative impact on the environment compared to any other energy source. It does not produce greenhouse gases and does not pollute the water. Users also benefit from lower bills as energy rates across the globe are soaring.

SolarEdge Technologies is an Israeli company making the transition to solar possible by developing and selling solar inverters for photovoltaic (PV) arrays, energy generation monitoring software, battery energy storage products, as well as other related products and services to residential, commercial, and industrial customers around the world.

Established in 2006, SolarEdge developed the DC-optimized inverter technology that changed the way power is harvested and managed in PV systems. This intelligent inverter solution maximizes power generation while lowering the cost of energy produced by the PV system, for improved returns on investment. Since beginning commercial shipments in 2010, SolarEdge has shipped over 31.6 gigawatts of its inverter systems and its products have been installed in over 2.6 million monitored PV systems in 133 countries globally.

Now focusing on several strategic pillars for growth including building its market share, and expanding to new segments, applications, and geographies, SolarEdge’s mission is to become the leading provider of inverter solutions across all PV market segments

Background

For decades, solar energy was considered an energy source that had the potential to help save the planet, yet it remained stagnant. Yet when five friends with electrical engineering and R&D experience identified what was holding solar back, they set out to solve the challenge. SolarEdge began in 2006 when Guy Sella, Lior Handelsman, Yoav Galin, Meir Adest, and Amir Fishelov developed an inverter and power optimizer solution that changed the way power is harvested and managed in solar energy systems.

The company started mass production of its products by contract manufacturer Flex at the end of 2009. Within a few years, SolarEdge had become an award-winning inverter company that was ranked among the global top 10. In less than ten years after its founding, the company went public on the Nasdaq.

It has continued to invest heavily in R&D leading to the launch of several breakthrough technologies and innovations, including a partnership on Tesla’s Powerwall home energy storage battery and acquisitions of major stakes in several complementing technologies. These companies include Kokam, a South Korean provider of lithium-ion battery cells, batteries, and energy storage solutions, and SMRE, an Italian EV/Powertrain manufacturer. While in 2019, it announced the acquisition of Gamatronic, an uninterrupted power supply (UPS) manufacturer, establishing its Critical Power division.

Now a leader in the global module-level power electronics market, SolarEdge has shipped almost 90 million power optimizers, 3.7 million inverters, and 16k residential batteries across millions of installations, many of which include not only hardware but are monitored through the company’s cloud-based monitoring platform.

Leadership

SolarEdge is led by chief executive officer, Zvi Lando, who initially joined the company in 2009 as the vice president of Global Sales. With a demonstrated track record in sales and execution, Lando was appointed to the role after founder Guy Sella took a leave of absence for health issues. He previously spent 16 years at the $75 billion engineering giant, Applied Materials, where he held several operational and leadership positions, including the company’s solar business group.

Customer

As SolarEdge continues to advance smart energy solutions, the company addresses a broad range of energy market segments through a diversified product offering to residential, commercial, and large-scale PV customers. It provides energy storage and backup solutions, along with EV charging, home energy management, grid services, virtual power plants, batteries, and UPS solutions.

The company operates through five segments including Solar, Energy Storage, e-Mobility, Critical Power, and Automation Machines. These businesses provide inverters, power optimizers, communication devices, and smart energy management solutions, as well as a cloud-based monitoring platform that collects and processes information from installations.

SolarEdge sells its products to the providers of solar PV systems, solar installers and distributors, electrical equipment wholesalers, and PV module manufacturers, as well as engineering, procurement, and construction firms. As a result, it also offers pre-sales support, ongoing training, technical support, and after-installation services.

A significant portion of SolarEdge revenues comes from key solar distributors, electrical equipment wholesalers, and large installers in the U.S. and worldwide. In 2021, two of its customers, Consolidated Electrical Distributors and Sunrun, together represented 31% of the company’s revenues. While none of its other customers accounted for more than ten percent of remaining revenues.

Thematic

SolarEdge’s proprietary inverter architecture has been critical in building the company’s differentiated leadership position. Many solar photovoltaic systems use a central inverter, where the panels are connected in a series. These systems suffer from a major drawback where production is limited by the output of the lowest-performing panel. As a result, performance can be impacted by shading and weather conditions.

SolarEdge addresses this problem with power optimizers, small devices placed behind each individual solar panel, before feeding the energy to a central inverter. Power optimizers also allow panel-level monitoring of energy production, instead of total or string-level data provided by traditional central inverters. The solution ultimately maximizes power generation while lowering the cost of energy produced by the solar PV system.

This technology has become more important than ever as electricity prices have increased significantly in a trend that is expected to continue, while oil and gas prices also rise. Energy independence is also a growing priority for many countries as the need for more intelligent, decentralized and digitalized energy networks grows. Individual homeowners are also looking to rely less on shared grids to avoid planned utility outages and extreme weather events, in addition to lowering power bills.

SolarEdge is benefiting from this tectonic shift in the energy market that is further boosted by exponential growth in worldwide usage of electricity and a transition from centralized, fossil fuel-based energy to clean, distributed, renewable energy.

SolarEdge’s plans for growth are focused on expanding its served market through new segments and applications. The company’s portfolio of products continues to grow, particularly in the Commercial segment as corporations seek to improve their green credentials and are driven to meet sustainability goals. Products are being designed for industrial rooftops, public buildings, and carports along with innovative floating solutions and applications for farms and agriculture.

Geographic expansion is also a major priority, as SolarEdge continues to build its capabilities across the globe. Most recently, a new office was opened in São Paulo, scaling the company’s operations in Brazil. In South Korea, a new certification has opened the market for a commercial inverter. Likewise in Japan, the first residential installation of its JET-certified inverter was complete in March. While in Australia, the company has now reached a total of 100,000 sites installed and also launched the SolarEdge Home battery in March.

Financials

Since going public in 2015, SolarEdge has been on a rapid trajectory of strong growth, culminating in record revenues of almost $2 billion in 2021, up 34.6% year-over-year from 2020. The trend is continuing in 2022 with the company again reporting record revenues of $655.1 million, up 19% on the prior period and up 62% from the first quarter of 2021.

While variable product and operating expenses are also increasing, adjusted net income has also grown, coming in at $87.2 million for the quarter, up close to 20% on both the prior period and year. Furthermore, with almost $1 billion in cash and equivalents on the balance sheet, SolarEdge is well placed to continue to maintain its investment in R&D and global expansion.

Looking ahead, SolarEdge expects its momentum to continue and is forecasting total revenue for the second quarter to be within the range of $710 million to $740 million. While consensus estimates have total revenue for the full 2022 year exceeding $3 billion, for year-over-year growth of over 55%. Earnings per share estimates are also expected to grow significantly, increasing by 40% to $6.76, up from $4.81 in 2021.

Risks/Competition

Escalating trade tensions between the United States and China have led to increased tariffs and trade restrictions, including tariffs applicable to some of SolarEdge’s products. Yet, to mitigate the negative effect of increased tariffs, the company already began increasing its manufacturing capabilities at its Vietnam manufacturing facility in 2019. It also reached full manufacturing capacity in its facility in Israel, Sella 1, and is planning to start volume manufacturing in Mexico during the second half of 2022.

The markets for SolarEdge’s products are competitive, with several major global players across the company’s various business segments. In the inverter space, SolarEdge competes principally with products from traditional inverter manufacturers, such as SMA Solar Technology AG, ABB Ltd, and Huawei Technologies, as well as from other low-cost Asian manufacturers. In the North American residential market, there are also microinverter manufacturers such as Enphase Energy. In markets for energy storage products, global cell and battery manufacturers include major names like LG Energy Solutions, Samsung, and Panasonic. While residential lithium-ion battery products compete with solutions from Tesla, LG Energy, and Enphase Energy. Finally, UPS products compete with offerings from global providers such as Schneider Electric, Eaton, and Vertiv.

While new entrants to the market continue to present themselves, SolarEdge believes that its DC-optimized inverter system offers significant technology and cost advantages that reflect a differentiation over traditional systems and microinverter technologies.

Conclusion

SolarEdge’s financial strength and stability, combined with its cutting-edge technology, have made it a preferred partner for industry-leading installers, integrators, and other energy market participants. With a strong team in place, coupled with solid market growth forecasted in all PV segments, the company appears well-placed to leverage its differentiated architecture and take advantage of the enormous industry tailwinds to continue delivering strong year-over-year growth.

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Cloud computing is revolutionizing how companies across the globe develop and deploy applications. The cloud offers lower upfront cost and superior flexibility and scalability when compared to on-premise software development environments. These benefits are especially valuable for start-ups and small and medium-sized businesses, as they typically have more limited financial resources, operational expertise, and IT personnel.

DigitalOcean’s mission is to simplify cloud computing so that developers and businesses can spend more time building software that changes the world. With its leading cloud computing platform providing critical on-demand infrastructure, tools, and fully managed offerings, the company helps developers, start-ups and SMBs rapidly build, deploy and scale applications to accelerate innovation and increase productivity and agility. Combining this simplicity, with a vast open-source community and support, customers can spend less time managing their infrastructure and more time building innovative applications that drive business growth.

Serving over 600k individual and business customers, DigitalOcean users include software engineers, researchers, data scientists, system administrators, students, and hobbyists. Users are spread across numerous industry verticals and for a wide range of applications, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, and managed services, among many others.

Taking advantage of the strong secular adoption in Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) markets, DigitalOcean expects its massive addressable opportunity to continue to grow rapidly. Particularly as it focuses on further expanding both its existing customer usage and new customer bases with investment in innovative product offerings, augmenting its platform with strategic acquisitions, whilst also continuing to grow and engage its dedicated 140k-strong community.

Background

In 2003, Ben and Moisey Uretsky, who founded the managed hosting business, ServerStack, wanted to create a new product that would combine web hosting and virtual servers and target entrepreneurial software developers after seeing most companies were targeting corporate clients only. In 2011, after extensive research, the Uretskys founded DigitalOcean to fill the void, making it easy for individual software developers and small-scale start-ups to host a website with one-click solutions. By 2012, the company had bolstered its team and secured a place in the Techstars startup accelerator program. As a result, DigitalOcean was able to sign up nearly 400 customers and provided more than 10,000 instances of cloud servers.

At the beginning of 2013, It was among the first few companies to offer SSD-based virtual machines for a seamless experience. Spurred by a glowing TechCrunch review, the company saw a rapid increase in customers, leading to its rapid expansion, opening new data centers around the globe. Delivering solid profits early in its history, DigitalOcean has had few issues securing funding in the following years and ultimately went public on the NYSE in 2021.

The strong growth has allowed the company to build out its capability with acquisitions of CSS-Tricks, a learning website for front-end developers, and Nimbella, a serverless start-up. Based on technology acquired from Nimbella, the company released DigitalOcean Functions in May 2022, providing a serverless platform that allows developers to build and run applications without having to manage servers.

Leadership

Chief executive officer, Yancey Spruill, took over from former Citrix CEO Mark Templeton in mid-2019. Driving the overall strategy for DigitalOcean through its next phase of growth, he brings a wealth of technical, financial, and leadership experience having spent the last 15 years in CEO and CFO roles at NYSE-listed technology companies including SendGrid and DigitalGlobe.

At SendGrid, he grew revenue from $50 million to over $170 million and nearly tripled the company’s customer base. He also helped guide the company through its IPO in late 2017 and its $3 billion all-stock sale in early 2019 to Twilio. Previously, at DigitalGlobe, he helped drive revenue growth from $50 million to nearly $700 million, again helping guide the company through its IPO in 2009.

Spruill is joined by the chief operating officer, Jeff Guy, who currently oversees strategy deployment, customer success, and business development among other things. He also has extensive experience in senior-level financial, operations, and transformation roles, including building out the operations of GPS SaaS technology leader, Trimble Inc, during a period of growth from $300 million to $1.2 billion.

Customer

Targeting the needs of the overlooked developer audience that works independently at start-ups and within SMBs, DigitalOcean’s customer base is incredibly diverse. It includes everyone from individuals running their personal web projects and learning cloud computing and modern technologies, to start-ups and SMBs creating SaaS applications or providing customer relationship management (CRM) products, developer tools, and API services.

These customers are active across numerous industry verticals, including education, finance, advertising, e-commerce, media, gaming, and many more. In addition, managed hosting companies provide value-added services on top of DigitalOcean’s platform to their customers, including maintenance and control of servers, managing websites, and operating content management systems (CMS), whilst web development agencies build custom websites and projects for their clients.

Since DigitalOcean provides products across the spectrum from infrastructure to fully-managed PaaS, they serve users of all technical skill levels, including system administrators, backend developers, frontend developers, and DevOps practitioners, among others. Increasingly, the company is also seeing a trend where people without a traditional software development background can utilize services for compute-intensive workloads such as data analytics, video conferencing systems, and popular online gaming servers. Additionally, its marketplace offers a rich set of pre-configured applications that allow non-developers to simply start using popular open-source software without worrying about infrastructure configuration.

The company offers mission-critical infrastructure solutions across compute, storage and networking, and it also enables developers to extend the native capabilities of the cloud solution with fully managed application, container and database offerings. In minutes, developers can set up thousands of virtual machines, secure their projects, enable performance monitoring, and scale up and down as needed.

DigitalOcean’s customers are spread across over 185 countries, and around two-thirds of its revenue came from customers located outside the United States in 2021. And with its top 25 customers making up only around 10% of total revenue, it has no material customer concentration. Furthermore, the company has historically generated almost all of its revenue from an efficient, low-friction, self-service marketing model, which enables customers to get started on the platform very quickly and without the need for assistance, whilst eliminating the need for complicated and costly implementation and training. As a result, DigitalOcean has grown its customer base while avoiding the expensive customer acquisition costs typical of high-touch enterprise sales models.

Thematic

DigitalOcean believes that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable, and affordable. As a result, it focuses on simplicity, community, open-source, and customer support as key differentiators of the business. Improving the developer experience and increasing developer productivity are critical. This simplicity extends beyond an easy-to-use interface and core platform capabilities to predictable and transparent pricing.

Global developer and open-source communities are fundamental to DigitalOcean’s business, providing a key source of ideas and innovations that support ongoing growth. A developer-centric approach has helped the company foster a large and loyal following, attracting approximately 6 million monthly unique visitors to its websites. They also host one of the largest hackathons in the world and offer a comprehensive library of high-quality technical tutorials and community-generated questions and answers.

Developers and SMBs especially value open-source technology as it allows them greater choice, affordability, and flexibility while providing customers with a much more efficient way to work. DigitalOcean’s participation in and support of the open-source community further enhance the attractiveness, depth, and scalability of the company’s offering.

Given customers rely on their technology infrastructure for critical business needs, DigitalOcean is unwavering in providing superior 24×7 customer support to all customers, regardless of size. This support, coupled with easy-to-use self-help resources and the active developer community, has created tremendous brand loyalty amongst its growing customer base, ultimately leading to customers becoming effective advocates and ultimately a common source of new customer referrals.

This dedication is helping DigitalOcean exploit two of the largest and fastest-growing markets across all industries. The worldwide IaaS and PaaS markets for individuals and companies with less than 500 employees are estimated to reach $72.0 billion in 2022 and are poised to grow to an astonishing $144.6 billion by 2025. DigitalOcean believes there is a substantial opportunity to further expand its customer base, investing in strategies that drive new customer adoption, especially among SMB customers, including new marketing initiatives that optimize its self-service revenue funnel, along with a targeted expansion of its sales teams, particularly in select international locations.

In addition, the company’s existing base of over 600k customers also represents a significant opportunity through increased usage and adoption of additional product offerings. DigitalOcean’s average revenue per user (APRU) has increased significantly in recent years, from $40.16 in 2019 to $59.96 in 2021. The introduction of new products tailored to current clients along with an expanded go-to-market initiative focused on larger customers and specific use cases are expected to drive enhanced usage of the platform and continue to increase the company’s ARPU.

Consequently, DigitalOcean will continue to invest significantly in delivering innovative products, features, and functionality, as it believes the market opportunity for serving developers, start-ups, and SMBs is very large and goes far beyond providing the core IaaS services of computing, storage, and networking.

Financials

Since going public in March 2021, DigitalOcean has recorded accelerating growth each quarter. These strong numbers are being driven primarily by higher ARPU as a result of greater product adoption by existing customers and somewhat by customer count growth. Despite an uncertain macro environment, DigitalOcean had a good start to the year with strong growth and free cash flow.

Total revenue hit $127.3 million, for an increase of 36% year-over-year. This took annual run-rate revenue to $524 million at the end of the quarter. Net dollar retention and revenue per customer were both significant contributors to top-line growth, as revenue from customers spending more than $50 per month grew 43% year over year. Furthermore, these customers had an NDR of 118% and now represent 84% of total revenue.

The strong results contributed to a gross profit of $80.6 million, while the company’s non-GAAP income from operations which removes stock-based compensation came in at $13.6 million.

Looking ahead, DigitalOcean expects the momentum to continue and is forecasting total revenue to be in the range of $564 million to $568 million representing year-over-year growth of over 32%, in-line with consensus estimates. While earnings per share estimates of $0.66 represent a 95% increase on FY21’s adjusted EPS of $0.34.

Risks/Competition

DigitalOcean competes primarily with large, diversified technology companies that focus on large enterprise customers and provide cloud computing as just a portion of the products and services that they offer. The primary vendors in this category include Amazon (AWS), Microsoft (Azure), Google (GCP), IBM, and Oracle. They also compete with smaller niche cloud service providers, including OVH, Vultr, Heroku, and Linode, that typically target individuals and smaller businesses.

Despite the competitive intensity, DigitalOcean focuses solely on solutions for individual developers, start-ups, and SMBs, and by combining simplicity, its developer community, and the advantages of open source, the company is highly differentiated from its enterprise cloud competitors. In addition, their ability to address complex use cases that allow customers to scale as they grow also differentiates them from the many niche competitors who have less robust and extensible product suites.

Conclusion

Benefitting from a highly competitive offering to a rapidly expanding, yet overlooked segment of the market, coupled with DigitalOcean’s ability to capture a loyal following has it well placed to deliver continued growth. The company’s efforts to provide straightforward scalability to the fastest-growing new businesses give it a lucrative competitive edge in an enormous industry.

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For some, providing financial advice is all about making money. Yet for others, it is far more purposeful. Advisors play a key role in helping clients build and protect assets, ultimately securing the long-term future of individuals and families. LPL Financial wants to ensure both advisors and their clients are well-equipped to maintain valuable and sustainable relationships. LPL’s vision is to help financial professionals build competitive businesses, whilst they serve their clients’ best interests.

To make this happen, LPL offers comprehensive support for service providers across the spectrum of the industry, from independent financial advisors to financial institutions, local advisor teams to large-scale registered investment advisor (RIA) firms, or fully autonomous business owners to advisors employed by LPL. The company’s offerings include an integrated platform of brokerage, investment advisory services, and advisory platforms that supply access to a wide range of products. It also provides money market programs and retirement solutions, along with other tools and services that enable advisors to maintain and grow their practices.

Managing over $1 trillion in brokerage and advisory client assets across almost 20k financial professionals and over 800 financial institution partners, LPL has become the U.S.’s number one independent broker-dealer and leading RIA custodian. The company is currently focused on a comprehensive strategic plan aimed at expanding its addressable market, by helping advisors differentiate in the marketplace, whilst running the most successful independent businesses, and creating an industry-leading service experience.

Background

Formed in 1989 through the merger of two small brokerage firms, Linsco and Private Ledger, LPL was designed as an alternative to traditional Wall Street firms. Private Ledger founder Bob Ritzman sought to offer a large group of mutual funds and securities to advisors, without pushing a particular product. And when Todd Robinson purchased Linsco in 1985, he was anticipating the growing desire for advisors to run their own independent practices, which proved true in the aftermath of the stock market crash in 1987.

Two years after forming, LPL created its first of many innovative solutions to serve advisors by launching the Strategic Asset Management (SAM) platform. The company soon establish LPL Research, a team dedicated to delivering objective market and economic insights and due diligence. Following SAM, LPL implemented several other investment platforms with varying degrees of automation, scalability, and customization, to help advisors keep up with growing investor expectations and industry changes.

Its first turnkey, centrally-managed advisory platform, Optimum Market Portfolios (OMP), launched in 2003, has grown to hold $7.5 billion in assets. While in 2007, LPL’s premier centrally-managed platform, Model Wealth Portfolios (MWP) was introduced, offering customization and increased sophistication by providing a variety of investment strategies designed to align with a varying range of client goals.

Since LPL went public on the Nasdaq in 2010, it has expanded its market and product offering via several acquisitions including AdvisoryWorld, E.K. Riley Investments, Lucia Securities, and Blaze Portfolio, among others. After more than 30 years of operations, LPL has become a Fortune 500 company and continues to evolve and innovate its investment management services and platforms.

Leadership

Long-serving executive, Dan H. Arnold, is currently president and chief executive officer, maintaining the roles since 2015 and 2017 respectively, and overseeing responsibility for the company’s primary client-facing functions and long-term strategy for growth. Arnold joined LPL in 2007 following its acquisition of UVEST Financial Services Group, where he previously spent 11 years as president and chief operating officer.

Prior to 2015, he served in several senior roles including the chief financial officer, responsible for formulating LPL’s financial policy, capital management efforts, and overall financial functions. He was also managing director, head of strategy, tasked with long-term strategic planning for the firm, product and platform development, and strategic investments, including acquisitions. He has also served as divisional president of Institution Services.

While former E-Trade Financial veteran, Matthew J. Audette is the current managing director and chief financial officer. Since 2015, he has contributed to the firm’s continued growth and profitability by leading corporate acquisitions, debt transactions, the client deposit portfolio, expense management, and capital allocation.

Customer

LPL help thousands of advisors, banks, institutions, RIAs, and large enterprises customize their ideal business models. They make it possible for financial advisors to have the freedom to choose the business model, services, and financial technology resources that allow them to run their practice as they see fit. Giving them the independence to manage their client relationships, as they know their clients best.

LPL’s comprehensive suite of products and services covers brokerage and advisory services, access to a broad range of investment solutions, technology and cybersecurity platforms, market research, operational support, compliance oversight, as well as consulting, educational conferences, and training opportunities. The company’s core tools and services include:
– Brokerage platform – covers variable and fixed annuities, mutual funds, equities, retirement and education savings plans, fixed income, and insurance, as well as alternative investments, such as non-traded real estate investment trusts and auction-rate notes
– Advisory platform – supplies access to mutual funds, exchange-traded funds, stocks, bonds, certain option strategies, unit investment trusts, and institutional money managers
– Money market programs and retirement solutions – provide commission-and fee-based services that allow advisors to provide brokerage services, consultation, and advice to retirement plan sponsors
– Other tools and services that enable:
– Advisors to maintain and grow their practices
– Trust and investment management oversight
– Custodial services to trusts for estates and families
– Insurance brokerage general agency services
– Technology products such as proposal generation, investment analytics, and portfolio modelling

Thematic

LPL is currently focused on a comprehensive plan aimed at delivering several key strategic plays. The first is to expand its addressable market by meeting advisers and institutions where they are in the evolution of their businesses. Large financial institutions were a major source of recruiting in 2021 with the addition of BMO Harris and Waddell & Reed. For 2022, CUNA Brokerage Services is on track to join, bringing with them approximately 550 advisers located across almost 300 credit unions, who serve $36 billion of brokerage and advisory assets. Also within the year, LPL will onboard People’s United Bank, which was acquired by M&T and includes approximately 30 advisers serving $6 billion of brokerage and advisory assets.

LPL is looking to provide capabilities that help its advisors differentiate in the marketplace and drive efficiency in their practices. They are continuing to improve their wealth management platforms including the enhancement of advisory solutions, in alignment with a secular trend toward the service. A key change saw the expansion of investment options available in its centrally managed platforms by integrating separately managed accounts. A move that makes it easier and more efficient for advisors to leverage separately managed accounts which can drive higher utilization and further growth of centrally managed platforms.

To create an industry-leading service experience for advisors and their clients, which in turn, helps drive advisor recruiting and retention, LPL has transformed its service model into an omnichannel, Client Care Model which includes voice, chat, and digital support giving advisors flexibility for when and how they access the service. In addition to fine-tuning this model to drive additional efficiency, the company is focusing specifically on its digital support to provide greater flexibility, speed, and accuracy for advisors. By streamlining core clearing functions, such as money movement, account opening, and account transfers which collectively drive the majority of the company’s service center activity, LPL believes it can vastly increase the scalability and efficiency of its platform.

Finally, LPL is developing a services portfolio to help advisors run the most successful businesses in the independent. In addition to working with advisors on existing solutions, it is creating new add-ons such as a Bookkeeping solution, which is currently in pilot, as well as an enhanced Admin Solutions offering, which provides a next-generation tech-enabled task-management system. They also continue to develop financial advice and planning solutions, along with expanding their portfolio to include tax planning and high net worth solutions. The efforts are to ultimately position the company for additional gross profit and organic growth over time.

Financials

LPL started 2022 strongly thanks to a combination of organic and acquisition-based growth. Total revenue was relatively steady at $2.07 billion following the company’s record 2021 result of $7.6 billion.

Total advisory and brokerage assets increased 21% year-over-year to $1.16 trillion. Total organic net new assets over the past twelve months were $107 billion, representing 11% annualized growth, while recruited assets over the trailing twelve months were $76 billion, up approximately 34% from a year ago. The company’s effort to tap into the institutional bank channel accelerated with the onboarding of BMO Harris and M&T Bank.

Total client cash balances hit $62 billion, an increase of $5 billion sequentially, which bodes well given the current rising rate backdrop.

Gross profit increased 15% year-over-year to $669 million, while core G&A expenses increased 19% to $281 million, ultimately resulting in net income of $134 million for the quarter, up a modest 3%.

Looking ahead, consensus estimates have total revenue hitting another record for 2022 at $8.6 billion representing year-over-year growth of almost 12%. While earnings per share estimates of $8.64 are pointing to significant growth of 53% year-on-year.

Risks/Competition

With markets currently struggling, the finance sector is giving investors much cause for concern. However, LPL’s broad array of financial products and services are unique in that they do not engage in market-making activities or speculative trading. They also have no direct exposure to mortgage-related investments or securities, nor provide loans to hedge funds or other speculators, keeping their credit risk low. Its trading activities are focused solely on facilitating trades for the clients of its financial advisors. Furthermore, because the vast majority of LPL financial advisors are independent contractors rather than employees, LPL does not have a high degree of fixed costs.

While LPL competes with a variety of financial firms in various channels and markets, within the independent broker-dealer channel, the industry is highly fragmented and comprised primarily of regional firms that rely on third-party custodians and technology providers to support their operations. Competition for advisors also includes regional firms that primarily focus on specific client niches or geographic areas.

Conclusion

LPL’s solid start to 2022 continues to validate management’s effort to actively position the company to support faster and more sustained growth, particularly as the industry shifts to independent advice and the consolidation of advisor networks continues.

Investors also stand to benefit from a higher interest rate environment, which should materialize in the current economic setting. While its valuation versus peers may be stretched, current momentum coupled with a compelling outlook for growth appears to warrant a reasonable premium.

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For some time now, Wi-Fi on planes has been considered by travelers as more important than food. According to global in-flight surveys, more than half of passengers say broadband connectivity trumps food, which is only a top priority for less than one-fifth of travelers. Whether for work, life, or entertainment, demand for broadband in the sky has reached such unprecedented levels around the world, that airlines, as well as those in the business aviation and aircraft rental markets, need to meet passenger expectations or risk losing out to their competitors.

At the forefront of innovative solutions, Gogo Inc created an inflight connectivity revolution and for over 30 years has been a driving force behind breakthrough ideas and technology that keeps aviation passengers, pilots, and operators connected to the world.

Gogo is the world’s largest provider of broadband connectivity products and services for the business aviation market. The company offers a customizable suite of smart cabin systems for integrated connectivity, inflight entertainment, and voice solutions, as well as global support capabilities, with products and services installed on thousands of business aircraft of all sizes, from turboprops to the largest global jets. They also design, build and operate dedicated air-to-ground (ATG) networks and engineer and maintain in-flight systems of proprietary hardware and software. Complementing this infrastructure, Gogo holds the exclusive license to 4MHz of U.S. nationwide spectrum dedicated to ATG use, as well as exclusive rights to the same spectrum in Canada.

In its goal to continually innovate to maintain a leading global market share, Gogo announced plans to build the Gogo 5G network for use on business aviation aircraft, commercial regional jets, and smaller mainline jets operating within the continental United States and Canada, which it expects to be commercially launched in the second half of 2022. In addition, the company’s technology roadmap includes plans for continued rapid improvement in the performance of in-flight systems to take advantage of its superior network upgrades.

Background

Gogo began in 1991 in a barbecue restaurant in Denison, Texas, where company founder Jimmy Ray sketched his idea for an affordable telephone system for private airplanes on a paper napkin. Initially known as Aircell, the company started providing analog-based voice communications on private aircraft in North America via a partnership with cellular providers by the late 1990s. Innovations continued with Iridium satellite phone service turning Aircell into a global solution provider, while its Axxess products were business aviation’s first all-digital, multi-channel communications system.

The next step was to devise a way to bring in-air connectivity to a larger market. And in a historic event for the airborne telecommunications industry, Aircell was awarded the U.S. Federal Communications Commission’s exclusive ATG 3 GHz broadband frequency license in 2006. Two years later, the company made its debut on commercial aircraft, after launching the Gogo Biz ATG nationwide network, and American Airlines and Virgin America commence the Gogo internet service for its passengers.

Inflight internet demand accelerated, bringing with it the first installation of Gogo’s ATG 5000 High-Speed Internet unit, quickly becoming the dominant broadband solution aboard thousands of business aircraft. The Gogo Vision inflight entertainment (IFE) was also launched on American Airlines and has become the U.S.’ most popular IFE solution for both commercial and business aircraft.

A full corporate rebrand to Gogo occurred in 2011, prior to the company’s public listing on the Nasdaq in 2013. Soon after, in addition to expanding its ATG service into Canada, Gogo made its international debut on Delta Airlines, allowing passengers to stay connected across the globe. It also announced 2Ku, its next-generation inflight connectivity technology. In 2017, the company released a massive suite of solutions to take in-flight performance to new levels. Gogo 2Ku hit 100+ Mbps during test flights. The launch of Gogo Biz 4G enabled inflight streaming for the first time in history. While Gogo AVANCE created business aviation’s first and only software-driven connectivity platform.

In December 2020, Gogo completed the sale of its Commercial Aviation division to Intelsat for $400 million, returning to its roots to exclusively serve business aviation connectivity.

In April, Gogo announced it is on track to deliver aviation’s first 5G ATG network, which is expected to deliver “unparalleled” inflight internet speeds.

Leadership

Long-term Gogo director, Oakleigh Thorne currently serves as chairman of the board and has been the chief executive officer and president since 2018. Thorne has almost three decades of leadership experience with significant operational and financial expertise including serving as CEO of Nasdaq-listed, CCH Inc, and eCollege.com. He has served on the Gogo board of directors since 2006 and was a member of the Aircell board from 2003.

Thorne is joined by Sergio Aguirre, president and chief operating officer of Gogo Business Aviation. Having joined Gogo in 2007, Aguirre has led the company during the time it developed some of the company’s most significant connectivity solutions. Aguirre is an aviation industry veteran with more than 35 years of experience, serving in a variety of positions from A&P mechanic to sales, product development, marketing, and senior-level management.

Customer

Gogo focuses exclusively on aviation, offering a comprehensive portfolio consisting of in-flight networks, systems, services, aviation partner support, and production operations functions. Gogo’s solutions are utilized by a range of customer types including the largest fractional ownership and charter operators, corporate flight departments, and even individuals. At the end of December, the company had approximately 6,400 ATG business aircraft online representing around 30% of the available business market.

While 3,900 aircraft are using Gogo Biz, the company’s legacy ATG broadband system, approximately 2,500 are equipped with Gogo AVANCE. The AVANCE software-centric platform enables Gogo to offer a broad range of products and features and employ multiple spectrum frequencies and networks as new technologies emerge. In addition, Gogo had over 850 paid subscribers to Gogo Vision, its in-flight video-on-demand entertainment service, along with 4,600 aircraft online equipped with narrow band satellite solutions in conjunction with other providers.

Gogo sells directly to every original equipment manufacturer of business aviation aircraft including Bombardier, Dassault Falcon, Embraer, Gulfstream, Pilatus, and Textron Aviation. In the aftermarket, they sell through a global distribution network of approximately 120 FAA-certified independent dealers. In total, Gogo has over 4,000 customers, none of which accounted for more than 10% of total revenue in 2021.

Thematic

The COVID pandemic catalyzed significant new demand for public and private air travel. Business travelers are increasingly reliant on technologies enabling the “new normal” work environment including video conferences, collaboration, and remote work. While leisure travelers expect streaming, internet browsing, and social media access while in-flight. Customers are increasingly expecting in-air connectivity standards that Gogo is uniquely positioned to provide, evidenced by a more than 50% increase in total Gogo ATG network data consumption in the last two years.

Currently, 85% of all broadband-connected business aviation aircraft in North America use Gogo, while 70% of the total available market remains untapped. Looking ahead, the company expects approximately 50% growth to over 11,000 aircraft with connectivity by 2025 driven by new aircraft line-fit with Gogo’s in-flight solutions and growing expectations of connectivity driving aftermarket installations.

Benefitting from several distinct competitive advantages including its proprietary ATG network with an exclusive license to the only dedicated air-to-ground spectrum in North America, that provides higher speeds and lower latency than satellite alternatives. Its differentiated go-to-market strategy takes advantage of a vast network of deeply embedded relationships with OEMs and 120+ aftermarket dealers. While its future-proof AVANCE platform provides a solid barrier to entry, as software-based, over-the-air updates enable easy upgrades without expensive or time-consuming hardware changes.

In its goal to continually innovate to maintain a leading global market share, the soon-to-be complete Gogo 5G network will be in use on business aviation aircraft, commercial regional jets, and smaller mainline jets operating within the continental United States and Canada. The new network is expected to be commercially launched on a nationwide basis in the second half of 2022 and will support licensed and unlicensed spectrum, allowing Gogo to take advantage of new advances in technology as they are developed. They will continue to provide 3G and 4G services to augment performance and provide redundancy to the 5G network.

Gogo’s long-term opportunities include further global expansion via a low earth orbit (LEO) satellite partnership. Which with its AVANCE platform, would allow them to enter the global LEO market at a significantly lower cost than competitors. The company also has the opportunities to expand network capabilities and service offerings across the broader general aviation market including recreational and personal jets, opening up a further 200k+ aircraft. Traction has already been made in this space, as Cirrus Aircraft has selected Gogo’s AVANCE system to be installed as a factory option on new production G2+ Vision JetTM personal aircraft. “Gateway to Cockpit” services also present an opportunity to improve connectivity to the “front of plane”, which is highly desired by OEMs and operators to provide machine-to-machine and Internet-of-Things capabilities.

Financials

Gogo’s attractive financial profile consists of a 95% subscription-based, recurring ATG service revenue business model with profitable equipment sales. The company’s robust cash flow generation from recurring service revenue and low ongoing CAPEX have provided a track record of strong financial performance and a clear path for continued growth.

In the first quarter of 2022, the company announced record results with total revenue of $92.8 million, up 26% year-over-year, fueled by strong growth in both service and equipment revenue. Record service revenue of $70.7 million increased 19% compared to the first quarter of 2021, while Equipment revenue of $22.1 million increased 52% on the prior-year period. Gogo’s total ATG aircraft online reached 6,526, up 11% year-over-year, while its average monthly revenue per aircraft hit $3,321, also increasing by 8%.

The strong performance resulted in a record operating income of $34.9 million, leading to a net income of $22.2 million. The result was the third consecutive profitable quarter as the company’s effort to de-leverage has lowered interest expenses.

Looking ahead, Gogo expects total revenue to be in the range of $390 million to $400 million representing year-over-year growth of almost 18%. While earnings per share consensus estimates of $0.62 appear significant down on the $1.28 achieved in 2021, the prior year was materially impacted by an income tax benefit of $1.71 per share.

Risks/Competition

Gogo competes against both equipment and geosynchronous equatorial orbit (GEO) satellite-based telecommunications service providers in the business aviation market, including Honeywell Aerospace, Collins Aerospace, Satcom Direct, Inmarsat, and ViaSat. In addition, SmartSky Networks, which in 2014 announced that it planned to launch an ATG network in the continental United States in 2016, has announced that it is currently targeting the second quarter of 2022 as the completion date for its nationwide network.

The company may in the future face competition from operators of LEO or other non-GEO satellite networks, including OneWeb, Starlink, and Telesat, all of which have announced that they are developing in-flight connectivity systems. However, Gogo believes that it is highly advanced on the principal points of competition in the market, specifically, technological capabilities, price, geographic coverage, product development, and quality of before and after-sales service.

Conclusion

As the largest pure-play business aviation connectivity provider, Gogo provides a compelling opportunity for exposure to the sector. With a market-leading share of existing broadband-connected business aviation aircraft coupled with an enormous market that remains untapped, Gogo is uniquely positioned to continue its strong track record of growth, as it exploits new geographies and adjacent markets.

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Full home electrification is slowly but surely coming. Electric vehicle usage is ramping up as climate change, coupled with situations like the Ukraine, are forcing countries around the world to think hard about their reliance on oil, coal, and natural gas. While consumers are increasingly looking to lower power bills through energy independence.

Enphase Energy is making this shift possible with its smart, easy-to-use solutions that manage solar generation, storage, and communication on one platform. They have revolutionized the solar industry with microinverter technology and are producing a fully integrated solar-plus-storage solution. The Enphase system enables people to make, use, save, sell, and own their power. In addition to providing unprecedented data and control, it allows people to get paid for the clean energy they produce and share with their communities.

The integrated approach maximizes a home’s energy potential while providing advanced monitoring and remote maintenance capabilities. System owners can use the Enphase App to monitor their home’s solar generation, energy storage, and consumption from any web-enabled device. Unlike its competitors, Enphase’s technology also has built-in system redundancy in both energy generation and storage, eliminating the risk that comes with a single point of failure. Furthermore, its cloud-based, monitored system allows for remote firmware and software updates, enabling cost-effective remote maintenance and ongoing utility compliance.

To date, Enphase has shipped more than 45 million microinverters and over two million residential and commercial systems, which have been deployed in more than 135 countries. Today, if you see a home with solar panels on it, there’s a good chance it includes Enphase technology. With the solar industry now transitioning from solar-only systems to complete energy management solutions, Enphase’s strategy is highly geared towards this growing need.

Background

Founded in 2006, Enphase transformed the solar industry with a revolutionary microinverter technology that turns sunlight into a safe, reliable, resilient, and scalable source of energy. In the aftermath of the 2001 telecom crash, Martin Fornage of Cerent Corporation was looking for new projects. When he saw the low performance of the string inverter for the solar array on his ranch, he partnered with fellow Cerent engineer, Raghu Belur, and they formed PVI Solutions. The two tapped Paul Nahi to be CEO at the end of 2006, and the trio formed Enphase Energy. Soon after, the first prototype microinverter was developed.

These microinverters can convert, manage, and monitor energy in each panel, rather than in an entire array of panels, providing significant size reduction advantages that allow it to be placed on the back of a panel. Such a system can be connected directly to a grid, contrasting with the traditional central inverters, where many panels are connected in series and then run en-masse to a single larger inverter.

By 2012, when the company went public on the Nasdaq, it had shipped more than 1 million inverters. Ten years later, Enphase is distributing the eighth generation of its technology, which is now present in virtually every solar panel made.

Leadership

While co-founder Martin Fornage recently retired in April, Raghu Belur continues to direct the company as chief products officer, supporting president and CEO Badri Kothandaraman. Raghu has more than 25 years of experience in the clean energy and high technology industries and has been at the forefront of developing Enphase’s leading integrated system. Badri joined Enphase in April 2017, bringing over two decades of product development and general management experience in the semiconductor industry.

Customer

Enphase currently offers solutions targeting residential and commercial markets in the U.S., Canada, Mexico, Europe, Australia, New Zealand, India, Brazil, South Africa, along with other Central American and Asian markets. They sell primarily to solar distributors who combine the products with others, including solar modules and racking systems, which are then resold to installers in each target region.

In addition to these solar distributors, the company sells directly to select large installers, original equipment manufacturers (OEM), and strategic partners. OEM customers include solar module manufacturers who integrate microinverters with their own solar module products and resell to both distributors and installers. Finally, Enphase also sells certain products and services to homeowners, primarily in support of warranty services and legacy product upgrade programs, via the company’s online store.

Enphase’s core suite of products includes its seventh generation IQ7 inverter solution which covers a range of cell capacities, coupled with alternate versus direct current variations, catering to a wide range of power requirements. However, in October the company started shipping its eighth generation IQ8 products which can form a micro grid during a power outage using only sunlight, providing backup power even without a battery. This technology eliminates traditional ratio requirements between solar system size and battery size. As a result, the Sunlight Jump Start feature can start a home energy system using only sunlight, even after prolonged grid outages that may result in a fully depleted battery.

These products are complemented by the company’s range of IQ battery storage systems which created the world’s first grid-independent micro inverter-based storage system. The solutions feature an “always-on” capability that keeps homes powered when the grid goes down, and the ability to save money when the grid is up. Enphase has gradually expanded the backward compatibility of its storage systems, providing approximately 300k existing system owners with the possibility of achieving grid-agnostic energy resilience.

Furthermore, during the second quarter of 2021, the company introduced Load Control for IQ battery systems, allowing homeowners to decide what gets power in their homes in the event of a grid outage. Customers can choose up to four loads that will be on when the grid is present and shed automatically in the event of a grid failure.

Enphase also offers AC Module products which are integrated systems that allow installers to be more competitive through improved logistics, reduced installation times, faster inspection, and training. These are distributed via partners, including SunPower, Panasonic, LONGi Solar, and many more. In addition, the company recently announced that its home energy systems will soon integrate with most leading models of home standby AC generators, providing smoother transitions for homeowners during power outages as it eliminates the glitches that reset home electronic appliances when switching to generator power.

Thematic

The solar industry is transitioning from solar-only systems to complete energy management solutions, which consist of comprehensive tools that facilitate total control and customization of customers’ energy demands. At its core, Enphase’s objective is to build best-in-class home energy systems supported by a robust digital platform to satisfy this secular trend. To achieve this, the company’s strategy is currently focused on delivering the best-in-class customer experience, growing market share worldwide, and expanding product offerings, while increasing product power, capacity, efficiency, and reducing costs.

Enphase’s revolutionary technology has enabled it to offer a unique value proposition with products that are reliable, smart, simple, and safe, while providing customers with complete energy independence, coupled with ubiquitous control and customization never seen before. On the service front, the company is extremely cognizant that its installer, distributor, and module partners maintain key relationships with end customers, therefore it continues to invest in ensuring these partnerships are equipped to maintain providing a superior experience. Efforts here were recently bolstered by the company’s acquisition of SolarLeadFactory which provides high-quality leads to solar installers in the U.S.

In recent years, Enphase has made considerable efforts to expand globally, building both manufacturing and distribution capabilities. They intend to capitalize on their market leadership by continuing expansion in core markets. They have a particular focus on increasing market share in Europe, Asia Pacific, and Latin America regions, as well as penetrating new and emerging markets, with new and existing products and local go-to-market capabilities. The company continues to see strong growth in existing markets in Europe, including the Netherlands, France, and Belgium, while sales in newer markets like Italy, Spain, and Portugal are quickly improving, putting them on target to boost revenue in the region by more than 40% in the next quarter. In Latin America, revenue more than doubled year on year as steady growth in the battery storage business provided a solid tailwind. Enphase’s latest generation of products is soon to be introduced into Australia, while progress is also being made in Brazilian and Indian markets.

While Enphase’s impressive suite of products already delivers cutting-edge technology at the forefront of the industry, they remain committed to investing in research and development to further improve components and solutions and maintain a best-in-class total experience for customers. Engineering teams are focused on continuing to increase average power conversion efficiency while reducing costs per watt. Increasing the energy density of battery capacity, reducing installation times, and reducing cost per kWh to make solutions more resilient, sustainable, and affordable for the masses is also a priority. Enphase plans to introduce its next new product, IQ Battery 5P later this year. This battery will deliver twice the power of its current battery at a lower manufacturing cost, enabling homeowners to start heavier loads.

Adding to its acquisition progress, in December, Enphase acquired ClipperCreek Inc, which offers electric vehicle charging solutions for residential and commercial customers in the U.S. The increasing penetration of electric vehicles has implications for home energy management, as households not only consume significantly more power with an EV, but also have a large battery that can be used for both backup and grid services. This acquisition leverages Enphase’s power conversion and software platform to manage loads and resources within the home.

Financials

After years of consistent revenue, Enphase has seen rapid growth since 2018, as total sales have surged from around $300 million annually to almost $1.4 billion in 2021.

In the opening quarter of 2022, the company reported a record quarterly revenue of $441.3 million. It achieved this after it shipped approximately 2.8 million microinverters including a strong ramp-up in the latest generation IQ8, coupled with 120.4-megawatt-hours of Enphase IQ batteries, which jumped 20% compared to the prior quarter. Thanks to reduced expedite costs, gross margins also improved to 41%, leading to an operating income of $114.5 million.

Looking ahead, Enphase is forecasting revenue to be within a range of $490 million to $520 million. This will contribute to a solid jump in full-year 2022 revenue, which consensus estimates have at $2.07 billion, representing solid year-on-year growth of 50%. Likewise, the consensus estimate for earnings per share is pegged at $3.45 for growth of 43%.

Risks/Competition

While ongoing global supply chain challenges are a key issue for Enphase, its current situation is stable due to supplier management and the qualification of alternate suppliers. With the growing demand for microinverters, the company remains vigilant regarding logistical challenges.

Government policy issues as they pertain to the U.S. solar industry are also a consideration as the U.S. Department of Commerce investigates the circumvention of antidumping and countervailing duties on some solar modules. This investigation creates some uncertainty in the marketplace as its findings could massively disrupt supplies and production of solar modules, albeit more dramatically impacting Enphase partners, given the company does not produce modules.

On the competition front, Enphase shares the inverter market with major names like SolarEdge Technologies, Fronius International, and Huawei Technologies among many others offering string inverters. However, Enphase’s technology offers significant advantages and competitive differentiation relative to traditional central or string inverter technology. While competitors in the storage market include Tesla, SolarEdge, LG Chem, Panasonic, and Schneider, among others, Enphase’s comprehensive suite of products again provides it with a considerable competitive advantage.

Conclusion

Enphase’s pioneering and market-leading technology has already provided the company with considerable growth traction in recent years. Yet with continued product development and a comprehensive strategy for further expansion and gains in market share, they appear very well-placed to capitalize on the trend toward full home electrification by delivering the holistic solutions the market is demanding.

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The United States has one of the highest costs of healthcare in the world. In 2021, it is projected U.S. healthcare spending reached $4.1 trillion, which averages to over $13,000 per person. As a clear outlier on enormous spending versus other wealthy countries that is unfortunately not delivering better patient outcomes, one company is finding a way to improve the quality of patient care while making healthcare simpler and more affordable. Evolent Health works with hospitals to attempt this seemingly impossible task by delivering clinical and administrative solutions to payers and providers.

The company supports health systems and physician organizations as well as health plans to move their business models from traditional fee-for-service reimbursement to value-based care. Evolent operates through two segments – Health Services and Clinical Solutions. Its Health Services segment houses its administrative simplification solution and certain supporting population health infrastructure, while its Clinical Solutions segment includes its specialty management and physician-oriented total cost of care solutions through its New Century Health and Evolent Care Partners brands.

By deploying doctors and clinical experts to find improvements in the way the hospitals provide care, coupled with the use of advanced data analysts to better assess health risks for patients, Evolent is on a mission to help address the $1 trillion of annual waste in U.S. healthcare and give every patient higher quality care at lower costs. The company also dispatches management consultants to help hospitals establish their own insurance plans or broker partnerships with insurers, ultimately building financially aligned partnerships that give communities more value for their health care dollar.

Evolent is on a rapid growth trajectory, generating significant revenue increases year-on-year off the back of several new operating partnerships, coupled with expanded offerings underpinning its comprehensive strategic plans.

Background

Evolent was founded in 2011 by members of the current management team, UPMC, an integrated delivery system, and The Advisory Board Company, to enable healthcare providers to pursue a value-based business model and evolve their competitive position.

Over the years, the company has grown both organically and through numerous acquisitions including:
• Valence Health which provided TPA services, value-based administration, population health and advisory services with a particular focus on the Medicaid and pediatric markets
• Aldera, a key vendor and the primary software provider for the Valence Health TPA platform
• New Century Health, a national population health leader in managing specialty care for Medicare, commercial and Medicaid members under performance-based arrangements, focused primarily on oncology and cardiovascular care
• Vital Decisions, a leading provider of technology-enabled advance care planning services

After maintaining a heavy early focus on revenue generation, the company debuted on the New York Stock Exchange in 2015 whilst raising almost $200 million. The IPO came at a time when the U.S. government, which accounts for more than half of health care spending, committed to dramatically increasing the proportion of value-based spending on healthcare, which has seen the company consistently increase its revenues each year since going public.

Leadership

Evolent’s senior leadership team has extensive experience in the healthcare industry and a track record of delivering clinical, financial, and operational improvements for healthcare providers and payers. Co-founder and chief executive officer, Seth Blackley, has served as the company’s president since 2011 and has been instrumental in directing Evolent to leverage artificial intelligence and other technology investments to scale high-volume transactions activity more efficiently for the benefit of providers and health plan partners.

Customer

Evolent markets and sells its services to payers and providers throughout the United States, with its sales team working alongside subject matter experts to foster long-term relationships, and in turn, long-term contracts. A business development team also works closely with partners to identify additional service opportunities on a continuous basis.

In the Clinical Solutions space, Evolent Care Partners allows independent physicians to join Evolent’s Accountable Care Organization (ACO) network to generate incremental income, improve patient outcomes, limit downside risk, and ease administrative burdens. While New Century Health offers a simplified path to improved outcomes and reduced costs in specialty care, packaged into an integrated solution. In order to guarantee cost savings, Evolent partners with payers to take on full financial and clinical responsibility for managing oncology and cardiology lines of business.

In the Health Services segment, Evolent partners with health plans and risk-bearing provider organizations to simplify administrative and clinical operations to make processes more autonomous and less error-prone, with a next-generation administration system that converts data into actionable insights.

The business is predicated on strategic partnerships with healthcare payers and providers that are attempting to evolve how they deliver care and how they are compensated for it. The partnership model enables cultural alignment, integration into the care delivery and payment workflow, contractual relationships, and a cycle of clinical and cost improvement with shared financial benefits. Furthermore, Evolent has sought to focus these partnerships on payers and providers in sizable markets that benefit from secular transitions to value-based care.

At the end of 2021, Evolent had contractual relationships with 44 operating partners within state-level geographies generating fees based on covered lives or capitation per life under management.

Thematic

Evolent is currently undertaking a comprehensive strategy with multiple avenues for growth across both its addressable market and its overall share, whilst leveraging several transformational industry trends.

In particular, the transformation of the care delivery and payment model in the United States has been rapid, but it is still in the early stages. Approximately 20% of health care payments were paid through performance or value-based care programs in 2020 and it is estimated that this number will continue to grow. As a result, Evolent is targeting existing partners which it believes still represent a small fraction of providers and payers that could benefit from its solutions. To facilitate this, the company has embedded multiple drivers of growth through increases in covered populations, partners expanding into new lines of value-based care, cross-selling additional solutions, as well as capturing value through a variety of risk-sharing arrangements.

The company also sees significant market opportunities in its total cost of care and specialty care management services solutions. At the end of 2021, the TCC solution served less than 1% of the Medicare Shared Savings Program ACO-assignable population. Furthermore, as populations covered by Centers for Medicare and Medicaid Services (CMS) ACOs continue to grow, the TCC solution will be relevant to private payer value-based arrangements.

While for New Century Health’s specialty care management services solution, which served approximately 1.4 million Medicaid Managed Care and Medicare HMO patients out of a total population of approximately 70 million, it is anticipated that spending in specialty care areas is likely to grow at a rate exceeding overall health care spending. Making the company’s specialty care management solution scalable to Medicaid and other lines of business.

Evolent is also planning to capitalize on growth in government-driven programs. As the number of people managed by these programs in the United States has seen significant growth since 2016, specifically, the number of Medicare beneficiaries which reached 62 million in 2021, the nature of Evolent’s variable fee economic model enables them to benefit from this growth in government-managed lives.

Due to capturing only a portion of the addressable clinical and administrative dollars in the market through its current solutions, Evolent believes there is a significant opportunity to capture an increasing share of the medical dollar over time, namely portions of premium dollars that go to medical expenses. Consequently, it is focusing on business models that allow it to participate in savings generated through a variety of risk-sharing arrangements that align incentives to reduce costs and improve quality outcomes.

Evolent will also continue to expand its offerings to meet evolving market needs as partners adjust to operating in a value-based care environment. Examples of new services are likely to include:
• Physician employment
• Pharmacy Benefit Manager expansion to include additional specialty pharmacy management capabilities
• Additional specialty lines of business beyond oncology and cardiology, including kidney, musculoskeletal, and fetal-maternal medicine care
• On-site or specialty clinic services
• Consumer engagement and digital outreach

More broadly, With the industry in the early stages of its life cycle, multiple firms are attempting to capitalize on the transformation of the care delivery model and the various forms of new profit pools. Evolent anticipates that partners will require an end-to-end solution facilitated by acquisitions of niche vendors boosting technical capabilities.

Financials

The first quarter of 2022 marked a strong beginning of the year for Evolent on the heels of a successful 2021 with continued growth, margin expansion, and strategic product innovation. For the period, Evolent reported total revenue of $297.1 million, achieving growth of 38% over the first quarter of 2021, driven by particularly strong performance in New Century Health and Evolent Care Partners.

The increase was also a result of year-on-year growth in lives on platform, with the company ending the quarter covering 20.3 million lives on all of its platforms compared to 11.6 million one year ago. In addition, revenue was boosted due to a mix shift to performance suite solutions along with higher unit per member per month pricing. The strong result brought the company’s trailing 12-month revenue to $989.9 million, exceeding its record 2020 year of $924.6 million by 7%.

Supported by margin expansion in Health Services coupled with continued cost management and operating leverage efforts, Evolent also achieved an adjusted EBITDA of $24.3 million, representing growth of 63% over 2021.

Looking ahead, Evolent is forecasting a solid jump in full-year 2022 revenue, which is expected to be in the range of approximately $1.16 billion to $1.21 billion to deliver year-on-year growth of 32%. While adjusted EBITDA is expected to be in the range of approximately $85.0 million to $95.0 million. After a modest EPS result of $0.02 in 2021, consensus EPS growth is expected to soar 1423% to $0.30.

Risks/Competition

With the healthcare industry subject to extensive, complex, and rapidly changing federal and state laws and regulations, various agencies have the discretion to issue regulations and interpret and enforce health care laws. As a result, Evolent may be open to federal and state legislatures enacting various regulatory changes that could materially impact certain aspects of Evolent’s business, albeit like its industry peers.

The market for healthcare solutions is fragmented, competitive, and characterized by rapidly evolving technology standards, with Evolent’s competitors ranging from smaller niche companies to large, technologically-sophisticated entities. However, Evolent’s solutions compete based on several factors, including breadth and quality, namely the ability to holistically deliver clinical, financial and operational performance improvements, along with reliability, ease of use, and integration simplicity.

Conclusion

Delivering rapid revenue growth in the last half a decade, Evolent Health appears to be taking full advantage of secular trends supporting a growing move to value-based medical care. Equipped with a comprehensive strategy and multiple avenues to future growth, coupled with only capturing a small fraction of the addressable market, the company is well-positioned to extend its share of an enormous opportunity.

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