Weekend Update #143
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
September has earned the reputation as the S&P's most historically challenging month, and this pattern held true during the first full trading week of the month, as the S&P experienced a notable 1.29% decline. The decline was triggered by stronger-than-expected economic data, notably in the ISM Services Index and Jobless Claims reports. Nevertheless, it's worth noting that the S&P 500 remains firmly in a bull market, a positive indicator for potential continued returns throughout the remainder of the year.
On Tuesday, Brent oil rose above $90 a barrel for the first time since November as the largest OPEC+ producers extended their supply cuts to year-end. Goldman Sachs Group lowered their recession likelihood to 15%, down from 20% against cooling inflation and a resilient labor market. On Wednesday, stocks faced further pressure after the Federal Reserve’s Beige Book indicated that growth in the economy and jobs slowed in the prior two months and the ISM services index rose to a six-month high at 54.5. The data pushed markets to raise the odds of a more hawkish Federal Reserve in the next meeting. On Thursday, equity traders trickled into defensive stocks as Apple, Inc. faced regulation in Europe and China, dragging down big tech broadly. Jobless claims figures came in below estimates, with Initial Jobless Claims coming in at 216k, versus 233k expected and less than the 228k in the prior week. Continuing Claims also fell to 1,679k, lower than the 1,719k estimated and lower than the prior week’s 1,725k figure. The dollar ended the week stronger relative to a basket of other currencies as growth in China and the EU forced the pound and on-shore Yuan lower.
Notable company news this week:
AirBnB and Blackstone are slated to be added to the S&P 500.
Arm Holdings Ltd., a semiconductor company that sells to many mobile phone manufacturers, plans to raise nearly $5 billion in an IPO at a valuation short of what was originally planned.
Apple declined on news that Chinese agencies are banning the use of iPhones at work.
Microsoft and Apple are facing EU regulatory investigations this week as a part of the digital markets clampdown posing risks to big tech’s business model in the region.
Weekly Performance
S&P 500 4,457.49 -1.29%
Dow Jones 34,576.59 -0.75%
Nasdaq 13,761.53 -1.93%
Key Economic Readouts This Week
MBA Mortgage Applications — Actual: -2.9%; Prior: +2.3%
ISM Services Index — Actual: 54.5; Estimate: 52.5; Prior: 52.7
Initial Jobless Claims — Actual: 216k; Estimate: 233k; Prior: 228k
Continuing Claims — Actual: 1,679k; Estimate: 1,719k; Prior: 1,725k
Thank you Blue Room Analyst IAN CARTER
DocuSign Announces Second Quarter Fiscal 2024 Financial Results; Announces Increase to Share Repurchase Program
“Our results for the first half were solid and reflect strong progress on our business transformation,” said Allan Thygesen, CEO of DocuSign. “We increased our pace of innovation by delivering key new features, while strengthening our self-service and partner distribution channels, and we’ve received tremendous enthusiasm on our product roadmap, particularly from our enterprise customers.”
Operational and Other Financial Highlights
DocuSign 2023 Release 2. DocuSign announced new product capabilities with highlights in the following areas:
Liveness Detection for ID Verification: DocuSign launched enhanced identity verification offering, Liveness Detection for ID Verification. Part of DocuSign’s Identify portfolio, this new feature uses AI-enabled biometric checks to confirm signers are who they say they are, are physically present at signing and that their IDs are valid. This results in improved trust, compliance and a simplified user experience.
DocuSign Monitor Integration with CLM: DocuSign launched DocuSign Monitor integration with CLM, providing customers with deeper, real-time visibility into their entire contract lifecycle. The integration enables admins to evaluate user behavior with rules-based alerts, investigate security incidents, and proactively identify unwanted risks. CLM admins will be alerted of suspicious user activity such as unauthorized access, deletion or downloading of documents, potential external brute-force attacks, and logins from unknown locations.
Enhanced Comments for DocuSign CLM: DocuSign introduced enhancements designed to streamline operations within CLM. Allows collaborators and stakeholders to review the latest editing activity, assign workflow tasks to individuals and groups, and interact with key stakeholders in parallel to reach consensus faster.
Increase to Stock Repurchase Program
DocuSign's board of directors has authorized an increase of $300 million to its existing stock repurchase program for a total aggregate amount of up to $500 million of DocuSign's outstanding common stock. The program has no minimum purchase commitment and no mandated end date. The repurchase is expected to be executed, subject to general business and market conditions and other investment opportunities, through open market purchases, and other transactions in accordance with applicable securities laws. The timing and the amount of any repurchased common stock will be determined by DocuSign's management based on its evaluation of market conditions and other factors. The repurchase program does not obligate DocuSign to acquire any particular amount of common stock and the repurchase program may be suspended or discontinued at any time at DocuSign's discretion without prior notice.
TAKEAWAYS
AMD's top priority is high-performance computing, particularly in the field of Artificial Intelligence (AI). They plan to bolster AI capabilities with a diverse range of solutions, including CPUs, GPUs, FPGAs, and ASICs, catering to data center, client, and embedded markets. Their upcoming product, the Mi300 family, will focus on inference and training, while Genoa-X and Bergamo are being prepared for server computing. AMD has also invested in the software ecosystem, supporting key AI development frameworks like PyTorch, TensorFlow, and ONNX through acquisitions and internal development of ROCm. Although AMD is making progress, it acknowledges that Nvidia still leads in software development, and they are committed to further development and customer testing. In client computing, AMD notes that Intel is prioritizing the low-end market to avoid underutilization charges in their manufacturing facilities, impacting AMD's client recent market share losses. Lisa Su also suggests that there is a reset in client demand that is starting to pick up and AMD will focus on capturing share in the upper-end AI market.
Eric Hansotia — Chairman & Chief Executive Officer
Thank you for inviting us. AGCO is the largest global pure play ag equipment company. Our biggest focus is not only on the machinery but all the technology that goes in the machinery and the technology that goes on actually other brands of machinery. We'll talk about that more later but we not only are innovating to make our machines smarter with sensors on them that can sense the difference in soil properties or crop properties, do onboard calculations, and have the machine optimize itself. We — our vision is to become the trusted partner for industry-leading smart farming solutions. So that's what that's all about.
But then we also take some of those modules and sell them as a retrofit kit onto other people's equipment. All brands of equipment in the marketplace in the marketplace. It's a big differentiator for the company. We've grown significantly over — we're only a little over 30 years old, and this year our forecast is to be about $14.5 billion, $14.7 billion in sales. About half our business is in Europe, 25% in North America, and the rest between South America and Asia. A little heavier focus on the production ag customer, so larger farmers that are thirsty for technology, and the reason they're thirsty is they're in a squeeze. They're being pressured to significantly increase their productivity, generate more crops off the land — and we can talk about those drivers later — with a lot less inputs for societal benefits. So, they essentially have to grow 50% productivity and use about 25% of the inputs over the next 15 years or 20 years.
So, that's the challenge we're trying to help them with, and technology is our avenue to get there. We've grown — since I've been leading the company, we've been — we've increased our engineering spend by about 60% and invested in several tech companies to accelerate our progress.
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— CONGRATULATIONS —
TO OUR PARTNER, CHEF KELLY WHITAKER
Thank you for the forward, Blue Room Fellow LEXI LINAFELTER
To those in tune with the vibrant restaurant and hospitality scene around the state, it is no surprise to see chef Kelly Whitaker recognized by Michelin as a linchpin in the Colorado culinary scene.
His unique background has contributed greatly to his emergence as a power player, and as co-founder of id est hospitality, Chef Whitaker’s restaurants have soared to achieve glowing recognition and made a concrete impact on food systems in the community. As part of this sustainability-driven approach to culinary innovation, Chef Whitaker has worked extensively as a Blue Room partner through Dry Storage to harness the power of Colorado grains to create more delicious, sustainable, healthy, and equitable food systems.
Moreover, his style has become idiosyncratic across his various restaurants: since id est opened Basta in 2010, Chef Whitaker has been named Eater's “Chef of the Year,” twice, received a StarChefs “2017 Colorado Rising Star Community” award, and landed on Bon Appétit’s “Hot 10” for his fermentation-focused restaurant, The Wolf’s Tailor. This week, Michelin in Colorado bestowed immense praise upon the chef for his work across the state to elevate food in Colorado, in more ways than meets the eye.
To learn more about Kelly Whitaker’s outsized impact on the Colorado culinary scene, through the eyes of Michelin, please see this September 5th article below.
— CHEF KELLY WHITAKER —
Some of Colorado’s Best Restaurants
Have this Man to Thank
Basta, a wood-fired concept in Boulder. BRUTØ, hearth cooking with a Mexican bent in Denver. Dry Storage, a bakery/café in Boulder. Hey Kiddo, a trendy spot with eclectic offerings in Denver. The Wolf’s Tailor, a multicourse tasting menu with a fermentation focus in Denver. Don’t see the connection? Well, then you haven’t met Kelly Whitaker, co-owner of id est, a hospitality company that owns all of the above.
Kelly Whitaker is a power player in the Boulder-Denver culinary scene, and not just because he’s running some of the hippest spots. A self-taught chef who studied hospitality and business instead of cooking, he learned on the front lines of kitchens in Italy and California. He studied with some of the best—Hatfield’s and Two MICHELIN Star and Green Star, Providence, to name a few—but Colorado called him back (he and wife, Erika, co-owner of id est, attended Colorado State University). He staged at Boulder’s well-regarded Frasca Food and Wine and Manresa before setting out on his own in 2010.
Basta was his first baby. “It wasn’t in a great location,” he laughs, sharing a story about how the legendary critic Jonathan Gold was dining with him one night and told him so. “This is a guy who is known for finding out-of-the-way places and he said it,” jokes Whitaker. Location aside, Basta took off. The concept was simple, with quality ingredients and a wood-fired oven, but the neighborhood embraced it. Others, including MICHELIN, have also taken notice. (Basta earned a Bib Gourmand distinction in the inaugural guide to Colorado.)
CHARGEPOINT REPORTS SECOND QUARTER FISCAL YEAR 2024 FINANCIAL RESULTS
Second quarter fiscal 2024 revenue of $150 million, representing 39% year-over-year growth
GAAP gross margin of 1.0% and non-GAAP gross margin of 3.0%, reflecting 19.0% margin impact from inventory impairment charge
Reduction of estimated $30 million in annualized operating expenses
Third quarter fiscal 2024 revenue guidance of $150 to $165 million, and annual revenue guidance of $605 to $630 million
Company reaffirms plan to achieve positive non-GAAP Adjusted EBITDA in the fourth quarter of CY2024
CAMPBELL, Calif.--(BUSINESS WIRE)-- ChargePoint Holdings, Inc., a leading provider of networked solutions for charging electric vehicles (EVs), today reported results for its second quarter of fiscal 2024 ended July 31, 2023.
“In the second quarter, ChargePoint delivered solid growth. Our revenue of $150 million represents a 39% year-over-year increase despite a hesitant economy,” said Pasquale Romano, President and CEO of ChargePoint. “In the quarter we fortified our access to working capital with a $150 million revolving credit facility and $38 million raised via our ‘at-the-market’ offering. We took an inventory impairment charge to address a significant supply-chain related issue, and we announced an estimated $30 million in annualized operating expense savings from reorganization of the business for agility, efficiency and scale. We remain committed to delivering on our goal of generating positive non-GAAP adjusted EBITDA by the end of calendar 2024.”
Second Quarter Fiscal 2023 Financial Overview
Revenue. Second quarter revenue was $150.5 million, up 39.0% from $108.3 million in the prior year’s same quarter. Networked charging systems revenue for the second quarter was $114.6 million, up 36.0% from $84.1 million in the prior year’s same quarter. Subscription revenue was $30.0 million, up 48.0% from $20.2 million in the prior year’s same quarter.
Gross Margin. Second quarter GAAP gross margin was 1.0%, down from 17.0% in the prior year’s same quarter, and non-GAAP gross margin was 3.0%, down from 19.0% in the prior year’s same quarter, in both cases primarily due to a $28.0 million, or 19.0% inventory impairment charge. This inventory impairment charge was taken to address legacy supply chain related costs and supply overruns on a particular DC product.
Net Income/Loss. Second quarter GAAP net loss wass $125.3 million, down from $92.7 million in the prior year’s same quarter. Non-GAAP pre-tax net loss was $86.1 million as compared to $62.3 million in the prior year’s same quarter, both reflecting the $28.0 million inventory impairment charge. Non-GAAP Adjusted EBITDA Loss was $81.2 million also reflects this inventory impairment charge in the second quarter, as compared to $56.2 million in the prior year’s same quarter.
Liquidity. As ofJuly 31, 2023, cash on the balance sheet was $263.9 million, which includes $37.7 million of at-the-market share offering gross proceeds during the second quarter.
Shares Outstanding. As of July 31, 2023, the Company had approximately 360 million shares of common stock outstanding.
Gabriela Borges — Goldman Sachs
Jeff, I know you've known Shopify for a long time, and I'm curious now that you're seeing how the sausage is made from the inside out, what is it that stands out to you about the company's strategy with data? And what I mean by that is, you'll have a unique ability to give SMBs the power of scale. And we can see some of that from the outside in, but I'd love to hear what you would communicate now having seen things from the inside out.
Jeff Hoffmeister — Chief Financial Officer
Well, I think the latest and most poignant manifestation about is what Tobi talked about with Sidekick and Magic, in terms of what we're doing on the AI side because — what we're really trying to do with Sidekick is encapsulate all the data, all the learning, all the knowledge of what is Shopify and how do we make that disposable for — at the disposal of the merchant in terms of how they want to use that.
And more importantly, how does it accelerate everything they're doing? And it's really meant — we use the term sidekick as in sidekick to a superhero, in terms of as an entrepreneur, you're there thinking about everything from — Is this the right layout of my website? Am I selling too many SKUs, too few? Should I go into this geography? not only what are the analytics, but which analytics should I be looking at that I'm maybe not even contemplating right now. And so all that data is really essentially fed into the Sidekick project. And so that's — that, at the moment, is the greatest manifestation of what we're doing.
Gabriela Borges — Goldman Sachs
And I can appreciate that there will be future iterations of Sidekick which become more powerful over time. Is there a broader vision on the next big technical milestones you're looking for, for that product ahead?
Jeff Hoffmeister — Chief Financial Officer
That's early days, and that's a Tobi question. But what I would say this, is that — and like any machine learning algorithm, the more data you feed into it, the more you get it to learn, the practice, the more questions we get from merchants the greater we'll iterate this. Tobi is spending a lot of time on this personally. This is really very important to him because he think this — and as you know, we always talk about being merchant-obsessed and very focused on how do we help entrepreneurs do everything they can. This is something which we think is going to be a super power for them.
TAKEAWAYS
Forward outlook for TI’s markets continue to look weaker except for automotive, but the company hopes to support both automotive and industrial end markets in the next up cycle. TI continues to invest in Fab expansion, targeting $5 billion of CAPEX annually for the next four fiscal years, while also building inventory to sustain revenue growth.
The company has stated on two calls now that they are not necessarily prioritizing margin expansion or accretion, but rather long-term growth in revenue, market share and free cash flow per share.
The company is experiencing longer contract cycles as customers realize the value of TI’s products and new markets open up in robotics, farming, healthcare and NEVs. As the markets broaden out, the company has also made an effort to make their business more direct. This may allow the company to attract and retain more customers in nascent end-markets.
In terms of data center AI, the company said that it has 6% exposure and will incorporate AI into their business if they see that it adds value to operations. It seems to be less of a target market in terms of sales, but could be something the company leverages for margin expansion. At the same time, the company is more focused on revenue growth or margins.
The company has China risk, but is growing its Fab footprint outside of the region much, much faster, intentionally. Expanding into Malaysia and Philippines.
Ultimately, it seems that TI is taking a big bet by investing in their capacity and ability to serve new demand on an up-cycle, while cautiously lowering its wafer starts so as not to put themselves in a position where inventories are dangerously high.
A TRIBUTE
BR / VIETNAM
National Day
September 2, 1945
Celebrating independence from French colonial rule.
National Day (Vietnamese: Ngày Quốc Khánh) is a national holiday in Vietnam observed on 2 September, commemorating President Hồ Chí Minh reading the Declarations of independence of Vietnam at Ba Đình Square in Hanoi on 2 September 1945. It is the country's National Day.
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