Weekend Update #169
Thank you for your continued support and engagement. 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.
Earnings season continued this week, with names from a broad array of industries reporting their latest financial results, and AI-related tech stocks helped propel the S&P 500 index to a new all-time high of 5,157.36.
On the equities front, Target shares rose as much as 13% on Tuesday after adjusted earnings per share surpassed the average analyst estimate, driven by expansion in both gross and operating margin as well as better-than-expected same-store sales growth. Target did note, however, that it expects another year of weak sales. Kroger shares rose 10% after reporting a full-year profit outlook that beat analyst expectations, while DocuSign shares rose 4% after delivering fourth quarter results and a Q1 and FY 2025 outlook that beat expectations, despite also indicating that the business is slowing down and focusing on margin expansion.
The economy appears to be humming along, as demonstrated by the ADP’s employment change figure of 140,000 jobs added in February—below the expected 150,000—but a step-up from the upwardly revised 111,000 figure in January. JOLTS Job Openings of 8,863,000 exceeded economists’ consensus estimate of 8,850,000, while the change in nonfarm payrolls was +275,000 versus the +200,000 expected. Although this seems like strong job growth, market participants were also provided a revised January number of 229,000—down significantly from the initially-reported 353,000, which served as a reminder that the initial number should be taken with a grain of salt.
Earnings season continues next week, with names such as Oracle, Allbirds, Petco, Build-a-Bear, Dollar Tree, Dollar General, and Adobe reporting.
Weekly Performance
S&P 500 5,123.69 (0.11%)
Dow Jones 38,722.69 (0.60%)
Nasdaq 18,018.45 (1.13%)
Key Economic Readings Next Week
Monday, March 11 — NY Fed 1-year Inflation Expectations
Tuesday, March 12 — Consumer Price Index; Real Average Weekly and Hourly Earnings
Wednesday, March 13 — MBA Mortgage Applications
Thursday, March 14 — Retail Sales; Purchasing Price Index
Friday, March 15 — U. Mich Sentiment, Empire Manufacturing, Import Price Index
Thank you Team Leader OMAR GUZMAN
Fund One had a strong week of absolute and relative performance, despite a relatively flat market. Drivers of performance came from both long and short positions in the portfolio. For instance, short position Thor Industries, a manufacturer and distributor of recreational vehicles, disappointed investors with a significant earnings miss in the face of challenging conditions, which was more inline with our projections. The nearly 20% decline in share price for the week on this short position, contributed meaningfully to performance. This helped offset poor performance from long holding Tesla, which was weak on the news of a factory fire in its Berlin plant and increased pricing competition from Chinese competitors.
Thank you Blue Room Investing President JOHN FENLEY
Executive Summary
DocuSign shares are poised to trade range-bound through FY2025 as the company continues focus on their three-pronged strategic vision of accelerating product innovation, improving the reach of their omnichannel go-to-market initiatives and strengthening their operating and financial efficiencies. The business appears to be stabilizing, with FY2024 revenue of $2.7 billion representing 10% year-over-year growth as usage among existing customers improved and new customers continued to sign up for DocuSign’s services. The highlights of DocuSign’s quarter are FY 2024 non-GAAP operating margin of 25.8%, which expanded by 520 basis points, and free cash flow that nearly doubled to $900 million. Despite strong Q4 results, DocuSign appears to have become very much a “tech value stock” in which growth prospects are moderating and the company is instead focusing on profitability and returning cash to shareholders.
Phil Nadeau — TD Cowen
Good morning, and welcome once again to TD Cowen's 44th Annual Health Care Conference. I'm Phil Nadeau, one of the biotech analysts. And it's my pleasure to moderate a fireside chat with Vertex, one of the bellwethers of the industry. We have it with us today David Altshuler, the Executive Vice President of Research and CSO, as well as Charlie Wagner, the EVP and CFO.
I guess, I'll hand it to you guys to give a state of the company overview, what are the challenges, what are the strengths and what is Vertex to do over the next 12 to 24 months to create value?
Charles Wagner — Executive VP and Chief Financial Officer
Yeah, Phil, thanks for hosting. Happy to be back at the conference. We will make some forward-looking statements, so I'd encourage people to take a look at our recent SEC filings. Phil, it's an incredibly exciting and dynamic time at Vertex right now. Just think back over the last 90 days or so. We've had multiple approvals for CASGEVY. We've released positive data in our pain program, both in DPN and in acute. We've released positive data for our vanza triple combo. We have done our earnings call, reported a great fourth quarter, given strong guidance for the year. It's been an incredible 90 days. And so where do we go from here? As we get into 2024, we look forward to treating more patients with CF with TRIKAFTA, but also preparing for the launch of vanza. We look forward to launching CASGEVY in multiple countries in the US and Europe and in the Middle East. We look forward to more data in the pain program and filing in acute pain in the middle of the year and filing for vanza in the middle of the year as well. Also advancing our pipeline in a number of different programs, notably Type 1 diabetes and AMKD. So a really full slate for the year.
Key Takeaways:
Physicians from every ordering cohort keep ordering more per quarter — without a single decline across ordering cohorts seen to date
Cologuard completion overall is 50-60% compliance today, but the completion rate goes up to 80% for the second Cologuard screen and 90% for the third screen — reinforcing Exact’s expectation for overall compliance to go to 80% over time
The company underinvested in sales and marketing in 2023, seeing as middle decile physicians could still be ordering 250 more tests per year but Exact needs to call on them and educate them to get there
Many primary care docs don’t even know the recommended screening age dropped to 45-49 3 years later — reinforcing that the biggest barrier to Cologuard is a lack of awareness that Exact can target through sales force activity
Exact will see the most OpEx leverage in G&A from here on out
Based on USPSTF modeling, at a 10% false positive rate, blood tests will generate too many false positives in proportion to far fewer life-years gained vs. Cologuard or FIT because advanced adenoma detection is expected to be low ~15-25% (83% weighting driving life years gained in USPSTF modeling)
Overall, CEO Kevin Conroy places the probability of a CRC blood test making first-line guideline inclusion at 5-10%
Even with the expectation of a second-line test guideline inclusion decision, Exact will be better positioned for a blood test because they have 10 years' worth of data on patients who are non-compliant to Cologuard vs. new entrants with no prior data
This backs up Exact’s internal model for their blood test adoption ramping to 2-3 million tests per year (with a prior estimate of $250 per test reimbursement), which would represent a $500-750 million contribution from the blood test
Executive Summary
MongoDB shares will likely trade down following weaker-than-anticipated fiscal 2025 guidance – yet the company remains an aspirational AI-play which could result in any pull-back being short-lived. MongoDB posted fiscal 2024 results that topped the higher-end of their guidance and outperformed analyst estimates for topline revenue and Adjusted Diluted EPS. However, MongoDB released conservative guidance for fiscal 2025 which considerably underwhelmed analyst expectations.
Executive Summary
THOR Industries, Inc. reported earnings pre-market today (3/6) that substantially missed on topline sales and profitability metrics, while revising down full-year guidance. For the quarter ended January 31, THO reported Net Sales of $2.207B, down -5.93% y/y and missing consensus estimates of $2.264 B. Further weakness was seen across the company's North American segments, where Towable Sales for the quarter were reported at $731 M (-11.91% y/y, -4.16% below consensus estimates) and Motorized Sales were reported at $570 M (-22.77% y/y, -16.38% below consensus estimates). The company's European segment continued to provide some support, growing 21% y/y. However, the most notable take away from the current quarters results was the significant miss on Net Income and Diluted EPS for the company. THO reported Net Income of $5.326 M for the quarter, -86.2% below Street estimates - EPS followed at $0.13 per share, -80.5% below Street estimates of $0.68. The company's results were hindered by weak gross margin (12.27% versus 13.75% Blue Room Estimate) and inflated SG&A costs ($220 M, +5.45% y/y versus $200 M, -3.98 y/y Blue Room Estimate).
Summary
CRM finished the year with another strong quarter, slightly above the high-end of their guidance. Strength was seen in the public sector, travel transportation, and hospitality, while retail, consumer goods and high tech were more limited.
The company announced their first quarterly dividend at $0.40, starting April 11, 2024.
Marc Benieoff, chairman and CEO, is very confident in their Einstein 1 Platform as he believes they can make use of their massive repository of data and metadata to enhance the genAI model.
Data Cloud was also mentioned as an important piece since it enhances all their other clouds and is in high demand as CRM roll out more AI features, though they do not expect to see immediate effects in fiscal year 2025.
Michael Grimes — Morgan Stanley
All right. We're going to go ahead and get started. Thanks for joining us, Coinbase investors and future investors. I'm Michael Grimes from Morgan Stanley. Really pleased to have Brian Armstrong and Alesia Haas back here again. Thank you for joining.
Brian Armstrong — Chief Executive Officer
Yes. Thanks for having us.
Michael Grimes — Morgan Stanley
We were here a year ago today in what seems like five years ago of cycles because every quarter is a year, couldn't be more different in terms of the environment, your execution, the industry, the whole thing. So for that momentous '23 with the lows and highs, what were the greatest learnings to start that off, given how different it is today than one year ago?
Brian Armstrong — Chief Executive Officer
Yes. Well, maybe the understatement of the century is the crypto industry is a little bit volatile. So we always -- we've been through a number of these cycles now at Coinbase. We try to just be a steady hand. It's never as good as it seems. It's never as bad as it seems. And we made a big shift last year to really cut 45% of the cost out of the business to make sure that we could generate positive adjusted EBITDA in any market environment.
And then we had a lot of good execution, even with that reduced cost base. So we got our derivatives platform live. We continued to innovate with Layer 2 solutions like Base. We saw the ETF approvals happen at the beginning of this year. A whole bunch of inflows have happened. A number of our competitors ran into massive regulatory and legal challenges. And so, it was very validating of our long-term approach of being the trusted and compliant one in the space.
Key Takeaways:
Lilly will continue to lean into areas of high unmet need where they can reshape the paradigm of treatment, often against the belief of possibility of others, of which chronic pain could be the company’s next big breakthrough
The company is on track for completion of the second North Carolina and Concord manufacturing sites by the end of 2024 to boost GLP-1 production capacity
The manufacturing plan considers projected needs 5 years out with aggressive ramp up to meet that need
Demand for tirzepatide will continue to exceed supply beyond 2024
Prior to donanemab’s approval, Lilly is working with KOLs and advancing supplementary infrastructure for diagnosing Alzheimer’s disease earlier so they can ramp up sales as quickly as possible
With Novo Nordisk’s acquisition of Catalent, Lilly is working to ensure there is no disruption of supply and are very focused on ensuring Novo can’t use monopolistic influence to their own advantage
Retatrutide GGG and the oral orforglipron will add to the suite of obesity offerings to cater to weight loss needs of a variety of circumstances
Some of the fastest growing cancers are also linked to obesity, so additional data demonstrating benefit in a wide range of diseases will help reinforce reimbursement for obesity treatments
Ex-U.S. reimbursement should be more straightforward to obtain following demonstration of the broad population health benefits since Lilly will be dealing with a single payer
Thursday
March 7, 2024
12 PM
__________
Hello Blue Room,
Please join us for a special global meeting -
March 7, 2024.
Agenda
I. Blue Room Investing
II. Blue Room Impact
III. Women’s History Month Presentations
PLEASE ENJOY OUR WOMEN’S HISTORY MONTH TRIBUTE.
Tyler Van Buren – TD Cowen – Analyst
Good afternoon, everyone. Thanks for being here. Welcome again to TD Cowen's 44th Annual Healthcare Conference. My name is Tyler Van Buren, Senior Biotech Analyst here.
For this session, it's a privilege to have a fireside chat with Moderna. And from Moderna, it's my pleasure to introduce Stephen Hoge, President. Stephen, thank you very much for being here.
Stephen Hoge – President
Thanks for having me, Tyler.
Tyler Van Buren – TD Cowen – Analyst
If you guys have any questions during the fireside chat, feel free to raise your hand, and I'll do my best to get them asked. We're going to start with COVID. Even though it's becoming – naturally – but even though it's becoming a smaller part of the story, we feel like we have to start there. So to level-set, you guys have mentioned that you'll have $4 billion of vaccine sales guidance for 2024. So it'd be great if you could start just by briefly breaking up those components for us.
Stephen Hoge – President
Yeah, for sure. It is good to be back here with you again. So thanks again for having us.
Naturally, we'll talk about COVID. So the $4 billion, there's really three big buckets to it. The first is US sales. I'm sure we'll talk a little bit about vaccination rates in the US because it is a big driver for us as a business. We – the second is, we have a number of advanced purchase agreements. These are multi-year agreements or even current-year agreements for governments outside the US to purchase for their whole populations or portions of their populations. And then the third and this is a little bit newer from last year is, we will – we do see some markets where last year we weren't commercializing. Europe is an example, where there has been an issued advanced purchase agreement – like agreement – joint purchase agreement from the European Union, and there are opportunities for us to enter into new agreements and then therefore commercialize that.
Key Takeaways:
Thematically, the FDA’s Dr. Marks is putting out commentary that’s very supportive of gene therapies, and there’s some hope this results in structural benefits to gene therapy development going forward
The EMA, U.K., Australia, and New Zealand have all been of focus for gene therapy companies recently for clinical trial development as these agencies are more open to the science and have demonstrated a faster approval decisions
In order to get COGS to make sense for gene therapy’s business model, companies need to invest in some amount of manufacturing capacity, especially as CDMO’s do not have access to the cutting edge technologies that gene therapy companies are deploying internally
Patients really care about the functional benefits in studies, more than just efficacy numbers, as they are really looking for big changes in lifestyle and capabilities
Rocket’s Danon trial has been showing all of the right signals with low-dose patients demonstrating at least 10% reduction in left ventricular mass vs. an average 8% increase in LV mass without treatment
Danon is in a pivotal trial with RMAT designation and Rocket is working to get the 12 patients worth of data to the FDA to distribute the therapy
One early commonality among successful gene therapies to date is all have seen directional signals from enough markers within the first 12 months of treatment
Rocket has also demonstrated a transformational treatment in PKD with strong improvements in hemoglobin following treatment, which was enough to reach alignment with the FDA to move to a 10-patient, single-arm trial
In the month of February, the focus of oil turned away from the macro-forces that drive the balance of global supply and demand and instead focused on the individual exploration and production, midstream, and fully integrated companies due to the high number of earnings releases and merger and acquisition announcements. While the macroeconomic and geopolitical factors that drive the price of crude remained in the back of people’s minds throughout the month, their impact appeared relatively subdued as the price of oil continued to be range bound, with the WTI Benchmark continuing to bounce between $70 and $80/bbl.
ExxonMobil, Chevron and Shell all opened the month reporting their fourth quarter and full-year 2023 earnings. While the individual earnings themselves resulted in little share price movement for the supermajors, they did stand out given the clear theme that emerged: consistency. As Big Oil has adopted capital discipline as its mantra following the boom-and-bust days of yore, 2023 served as a model picture of what these companies are hoping to do for the foreseeable future. Even though Exxon, Chevron and Shell operate in a highly volatile industry, the companies are hoping to remain highly cash flow generative even with lower oil and gas prices through clever financial maneuvering, capital discipline and continued marginal improvements in operations. In effect, the companies are hoping to stabilize themselves in an industry that is known for its cyclicality.
Despite average prices for oil and gas being lower in 2023 compared to 2022, Exxon, Chevron and Shell returned $2 billion more to shareholders through the form of stock buybacks and dividends. Adding in TotalEnergies and BP into the mix, supermajors spent more than 10% more in 2023 than 2022 on shareholder returns.
Key Takeaways:
Cumulatively, Schrödinger has invested $800 million in its software platform with which the R&D team continues to make scientific breakthroughs in the software to enable an even wider range of use cases
AI and machine learning is an accelerant of their software suite, and a significant in-house AI group works to scale deployment even faster
Schrödinger’s top pharma customer spends 20x more on their software than the 10th pharma company by revenue, which leaves a lot of room for Schrödinger to scale up the spend of even its biggest customers
Even compared to Schrödinger’s largest customer, they internally spend 10x more on software annually with full-scale deployment
The comapny realized they had the resources to retain so much more of the value of their internal drug discovery compounds by taking them through early stages of clinical trials in order to validate the effects of the platform
Their first internal programs, MALT1 and CDC7, are both expected to have data readouts in late 2024 or 2025 to prove the design benefits from the software
Schrödinger would like to transition large customers from on-premisis licensing to hosted licensing as it enables them to smooth out revenue over the life of the contract — whereas 65% of the total contract revenue is recognized upfront for on-prem
ACV is expected to accelerate in 2024, so despite revenue guidance stepping down as the company laps Eli Lilly’s 3-year contract in 2023, adoption among the largest customers continues to increase
Schrödinger software engineers are focused on using AI to make the front-end user experience even easier so, potentially, medicinal chemists can use the software and won’t have to go through full computational chemist training
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