Weekend Update #182

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.

As the first quarter earnings season wanes, equities exited this week broadly higher. Market focus will now be squarely aimed at the Fed’s next rate move next week along with the accompanying Statement of Economic Projections (SEP). This updated Fed estimate for economic growth, unemployment and importantly, Fed funds rate path will be scrutinized heavily and balanced against generally softening labor conditions and moderate growth. Swaps markets whipsawed this week, following a slew of mixed data that jostled yields on the Treasury 10-year; from 4.40% to start the week, down to 4.28% by Wednesday, all the way back up to 4.43% on Friday’s market close.

On Monday the ISM Manufacturing Index released data for the month of May that suggested production decreased month-over-month below economist expectations. Additionally, the Prices Paid index showed lower cost increases from April to May versus March to April. As a result, bond yields fell 11 bps to 4.39% and all three major equity indices rose, bolstered by the market that follows the mantra, “bad [economic] news is good news”. That same mantra forced yields lower and the S&P 500 index higher through Wednesday as JOLTS Job Openings data pointed to weaker-than-expected demand for labor in April, the ADP Employment Change index confirmed indicated that the economy added fewer workers than forecast, and the ISM Prices Paid index came in below economists estimates. By mid-week, swaps markets were betting that a November rate cut was a certainty. But this Cinderella story appeared to be nothing more than a fever dream. On Friday, the government-run Nonfarm Payrolls survey contradicted much of the information we received earlier in the week, showing that 272,000 jobs were added in May versus the 182,000 expected. Yields on the ten year finished the week down only 7 bps, and rate traders consequently reduced their bets on a rate cut by the end of the year.

Other corporate highlights:

On Monday, blockbuster chip designers, AMD and Nvidia, met in Taipei for COMPUTEX 2024 and introduced new generations of AI GPUs for the data center. The following day Intel debuted their third generation data center GPU in an effort to carve out a small portion of the growing accelerator market largely dominated by its two competitors.
Boeing Co. launched a space taxi into orbit with NASA astronauts on board on Wednesday.
Lyft Inc. surged this week after confirming higher levels of gross bookings growth at a CAGR of 15% for the next three years.
Nvidia briefly surpassed Apple Inc. as the second most valuable company in the world this week.

Weekly Index Performance

S&P 500 5,346.99 +1.32%
DJIA 38,789.99 +0.29%
Nasdaq 17,133.13 +2.38%

Key Economic Readings Next Week

Wednesday June 12th — MBA Mortgage Applications; Consumer Price Index Data; & FOMC Policy Decision/SEP
Thursday June 13th — Initial Jobless Claims and Continuing Claims; Producer Price Index Data;
Friday June 14th — University of Michigan Consumer Sentiment for June (P)

Thank you Blue Room Analyst IAN CARTER

With earnings season behind us, Fund One kicked off the new month with a bang. Finishing the week up over 3% and ahead of the index, we’re feeling good about our portfolio positioning leading into the summer months. In fact, we took advantage of recent moves in some of our portfolio positions, to maximize our overall upside while reducing the risk coming from our idiosyncratic names. Being a nimble team has its advantages when trying to capitalize on the market’s short-term gyrations. Meeting daily gives our team the advantage of continuous information flow.

We had a couple of double-digit gainers driving performance for the week, including our largest holding Nvidia. It seems as if we review Nvidia in most weekly spotlights and if our investment thesis continues to play out, our LPs will hear a lot more about the company over many years to come. The current AI revolution is still in the early stages and Nvidia should continue to play a major role in its development. Also capitalizing on the AI wave was another double-digit performer, HP Enterprise (Hewlett Packard). HPE beat earnings estimates this week and management provided positive guidance as it is generating revenue from AI servers and its overall compute business is showing signs of recovery. Our timing on entering the HPE position was good and we feel that there is more upside from here.

We had another double-digit performer that actually worked against us this week. Our short position in semiconductor company Arm Holdings is based on sound reasoning; however other investors have been pushing shares higher on the hope that Arm and its partners advance AI in the telecom industry. For now, we are remaining patient as we feel that Arm is overvalued relative to its growth potential.

Thank you Blue Room Investing President JOHN FENLEY

Alex Chriss

Well, it was great to be here. Very, very excited. It has been eight months and quite a whirlwind. When I came in, there were probably three things that I really wanted to focus on in the first few months.

On the first was ensuring that we had a world-class team. As you've noticed, I've changed out most of the leadership team and now I'm just absolutely excited with and thrilled with the leadership team that we have. I think top-to-bottom, my leadership team is now an incredible team and working very well together. And you're probably noticing almost every week now, we're bringing in now the next layer of leaders underneath. We added a leader of our ad business last week as well as a new consumer leader that's leading product for PayPal and Venmo. So we're just continuing to build out the leadership team. So that was one.

And the second is really focus on prioritization. As you've probably heard me talk in the past, I think we were doing too many things that each were interesting, but not necessarily fully focused on what could be the most impactful, most customer-backed innovations that would drive the needle for the business. And so I've really been focused on the innovation we put to market, but really focus and prioritization.

And then the third is really around velocity and impactful innovation. How do we move faster? Our customers are counting on us, whether they're consumers, merchants, large enterprises, or small businesses, how do we really build delightful innovation? We're sitting on one of the largest two-sided ecosystems in the world and had just a tremendous opportunity to leverage data and leverage this global ecosystem to delight customers. So velocity and innovation.

But I think all three of them, if I were to status check eight months in, if you'd asked me, would I be happy to be here eight months ago? I don't think I could have imagined building this leadership team and moving at the pace that we are. So a long way to go, but a heck of a start.

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Executive Summary

Stock is up on the way they describe growth in AI, which should be a revenue catalyst through 2025 and beyond. Our investment thesis is based on the increased adoption of AI accelerated servers by enterprises level customers, augmented by sovereign state demand. In the quarter, HPE described this thesis as beginning to manifest, albeit in its infancy. The company highlighted its relationship with Nvidia on current generation products that supply hyperscale/CSP level customers, but management also tied its success to future generations of Nvidia accelerated compute (particularly B200s) to meet enterprise demand. HPE believes that as they have a competitive advantage with Nvidia’s B200s, as these systems require liquid cooling, an area HPE considers itself to have particular expertise.

Demand for AI systems doubled YoY to $900m this quarter and Server revenue was augmented to the upside (above our estimates) by a return to spend on traditional compute.

Another catalyst for the equity in this quarter was that management said that GPU lead times are now 6-12 week, or about 1.3x inventory turns per quarter. That makes it seem like there is an opportunity to close the gap on the backlog of $3.0 billion in 2H24 and is now only constrained by customers’ ability to stand up data centers.

The pace of HPE Greenlake adoption should be a boon for margins in the long run, as scale should add leverage on product margin via recurring revenue. In the current quarter, management stated that HPE Greenlake platform is the main value proposition to convert customers.

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Overall, what 4D is showing with 4D-710 CF interim data is that they achieved a dose-dependent response and determined that 1e15 vg ticks all boxes for the target profile for safety and initial efficacy. The trial is actually engaged in a down-dosing expansion right now to see if 5e14 vg can retain efficacy signals as well for the Phase 2 cohort, but the company needs an additional patient enrolled with longer follow-up to decide to move that forward as well. The highest dose that 4D should be able to take through will give a benefit to durability, but in line with FDA guidelines, 4D wants to make sure they fully explore 5e14 vg as well to ensure patients are not being over-dosed if they can achieve the same efficacy. Dose levels are seeing 99%+ CFTR protein expression, and mRNA will be a key marker for investigators to decide between 1e15 vg and 5e14 vg doses going from Phase 2 into Phase 3. As of today, the belief is that patients will have to be re-dosed with treatment every 1.5 to 3 years.

Most importantly, out of the 3 patients with mild to moderate ppFEV at baseline, 2 of 3 patients show improvement in ppFEV1, which is a key indicator that 4D can expand the therapy population to patients eligible for and on existing modulator treatments (e.g. Trikafta). Also importantly, the mean change in quality of life surveys (CFQ-R-R) across all follow-up time points is showing meaningful improvement against the threshold for clinical improvement (threshold: 4 points of change in mean CFQ-R score) with patients reporting +8.4 point mean improvements at 3, 6, and 12 months and +11.1 point improvement at 9 months. These initial efficacy signs come in a small population, which compared to Trikafta trials are very promising signals before going into a wider population. The safety profile is clean at the intended 1e15 vg and 5e14 vg doses so far that 4D plans to continue with.

Based on the Q&A session, there was a bit of confusion among analysts about which metrics were signs of positive efficacy and showed promising results heading into the expanded Phase 2 cohort of up to 9 patients and the Phase 3 trial initiation in H2 2025. Specifically, analysts seemed to be looking at ppFEV1 and CFQ as disappointments whereas the data seemed to be exactly what the company and trial investigators had set out to see in the Phase 1 data. FEV1 does tend to be a noisier metric, but looking at the data from patients with the intended baseline ppFEV profile to bring to Phase 2 and Phase 3, positive improvements in lung function were seen as measured by ppFEV1 in those patients.

4D’s CEO David Kirn and trial investigators Jennifer Taylor-Cousar and Alan Cohen all had great back and forths with analysts to explain the nuances of the data, and it seemed like they were disappointed that initially the data was being taken as a negative. The data presented didn’t seem to meaningfully change the product outlook, and it was more of a reaffirmation of safety and efficacy rather than a miraculous positive development in efficacy that was seen. In reaction, FDMT shares are trading down to $22.57 (-17.3%), as investors set their sights on Phase 2 efficacy data in the expanded patient population in mid-2025 to be a more powerful confirmation of the potential for the product. That next data update should include 24-month follow-up on current patients presented as well as Phase 2 12-month follow-up data on up to 9 new patients at the 1e15 vg dose level, as well as data on new patients in the 5e14 vg dose level should 4D decide to continue to pursue development in that arm. The 2025 data could be a catalyst for accelerated approval if efficacy signals are strong enough, but 4D Molecular earlier this year laid out plans for a randomized 60-80 patient Phase 3 trial if further clinical evidence is needed for approval.

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William Power – Baird – Analyst
All right, we're going to go ahead and get started. Thanks, everybody, for attending. Good afternoon, my name is Will Power; I cover cloud software for Baird. It's my great pleasure to have MongoDB here.

MongoDB, as many of you all know, is really a leader in next-generation databases. From the Company, we have Michael Gordon, who is the Chief Financial Officer and COO; and Serge Tonga, who is the Senior Vice President of Finance. So thanks so much for being here.

Michael Gordon – Chief Operating Officer and Chief Financial Officer
Thanks for having us.

Serge Tanjga – Senior Vice President of Finance
Thank you for having us.

William Power – Baird – Analyst
Michael, maybe just for the sake of the audience, just to help level set, you can provide just a little bit of background on MongoDB, and your core target market and how you differentiate yourself. Then we'll kind of jump into a fireside format.

Michael Gordon – Chief Operating Officer and Chief Financial Officer
Great. Again thanks for having us. I know that there are a number of generalists in the crowd who maybe don't follow all this, so we’ll take a little bit of a step back. So we at MongoDB make database software. So if you think about today you hear these phrases about software eating the world, or every company trying to become a technology company, really, that's all shorthand for the fact that today companies are driving their competitive advantage from internally built software, right? That's how they're getting competitive advantage. At the heart of every one of those applications, whether it's a customer-facing application, a system of record, an internal application, those applications are built on a database, and the database is at the core. So that's what we provide.

If you think about the need to have a scalable, nimble, agile database to think about how much applications are changing, that's what really created the opportunity for us a number of years ago. So we have the leading modern general-purpose database that we provide. It's an incredibly large market, $80 billion-plus spent on databases in 2023 and growing at 11% 12% a year. So the market is forecast to be, I think it's $138 billion over the next couple of years.

And one of the reasons typically people think with large markets like databases, maybe that should be more mature, maybe that should grow more in line with the GDP. But at the core, the reason why it's not is because what I said at the beginning, it's so strategic, and it's so foundational to how companies are driving competitive advantage. That's what's really powering the growth when you think about the growth of new applications, and companies being able to deliver better user experiences and differentiate themselves from the competition. So at a high level, that's where we compete.

William Power – Baird – Analyst
Okay that's great. I – of course you just reported earnings in the last week.

Michael Gordon – Chief Operating Officer and Chief Financial Officer
We did.

William Power – Baird – Analyst
A number of moving pieces there perhaps just a maybe a quick overview, we can jump into some of those in more detail.

Michael Gordon – Chief Operating Officer and Chief Financial Officer
Yes, so – and I apologize, I seem to start losing my voice last night. So we'll get there as much until I expire.

But we'll – if you think about the quarter, we reported quarterly results last week. As Will mentioned, the top line growth was 22%. Atlas, which is our Database as a Service offering, which is now 70% of the revenue, is growing at 32%. Year over year, we beat the top end of our guidance.

And on the bottom line beat as well, bottom line margin about 7% operating margin in Q1. And, generally, I think operationally a fine quarter. It was not our best quarter. Those who follow, will know. But we'll probably get into that a little bit in detail.

If I think about some of the things that didn't go as well in the quarter, we saw slower growth from existing applications. We'll talk about – there are a bunch of different sub parts and reasons for that.

Then for us, we had some self-inflicted operational missteps in the first quarter. January is our fiscal year end. So this quarter is our first fiscal quarter.

And we had a little slower start operationally, from a new business standpoint. We mostly caught up and not quite by the end of the quarter. So that's sort of a one-time thing. We talked about macro, and macro impacts in the business. I think it's really important to keep a few things in mind.

One, when we think about the business, we think about the business in two pieces. We think about the new business that we're winning, [and] the new workloads that we're bringing on board, or whether they're new applications altogether with the migrations of existing technology.

And for the last couple of years, despite the more challenging macroeconomic environment, we've been successfully able to win new workloads, and very happy with our progress on new workloads.

The biggest driver of outcomes and results in the short period is what is the growth of the installed base, right, the existing workloads that we've already won. That's where we've seen – we have a very tight linkage between the underlying usage of the application and what our customers pay. What we've seen is slower underlying growth in the read/write activity at that.

And that's when we kind of baked that all in in Q1, and looked out and gave our updated revised fiscal '25 guide. That's where it's really factoring in. And despite the beat in Q1 had us lower outlook for the balance here.

Jason Ader – William Blair – Analyst
Good afternoon, everyone. Thanks for being here. We’re very pleased to have Michael Gordon, COO and CFO of MongoDB; and Serge Tanjga, SVP of Finance. Regulars at this conference now. I appreciate it.

Michael Gordon – Chief Operating Officer and Chief Financial Officer
Yes. Great to be here. Thanks for having us.

Jason Ader – William Blair – Analyst
Before we begin, I'm required to inform you that a complete list of research disclosures, potential conflicts of interest is available on our website at williamblair.com. We're just going to do a fireside chat format here. And hopefully, we'll have some time at the end for Q&A. But like I said, at 5:10 we'll cut the webcast. Then we'll have a little bit more of a kind of interactive discussion.

To start out, Michael? Or Serge, I think maybe because Michael's voice is going, you might want to do this.

Michael Gordon – Chief Operating Officer and Chief Financial Officer
I apologize. I'm losing my voice.

Jason Ader – William Blair – Analyst
For investors less familiar with Mongo – I'm sure most people here are familiar but we may have a few that are not super familiar. Can you just give a quick history lesson on the company and tell us what pain points you solve for customers?

Serge Tanjga – Senior Vice President of Finance
Excellent. Let me just start. So we play in the database software space. That's the $80-plus billion market as per IDC last year, one of the largest markets in software. Then also interestingly enough, still a very fast-growing market, still a double-digit growth market.

And the reason why that dynamic is in place is because of many of these things that you've heard over the years, such as every company is becoming a software company; software is eating the world; competitive advantage in every industry is increasingly dependent on the software experience they provide to our customers. That market is dominated by a 50-year-old technology known as relational or SQL. It's literally 50 years old. I think the original paper that created it was either 1969 and 1971, so a technology built before mobile, built before the Internet, obviously before Cloud and obviously before AI.

We, among others, were founded roughly 15 years ago to address some of the challenges of that technology that became increasingly clear to developers. Those are – the legacy technology is not terribly developer-friendly. It's hard to work and reason about and doesn't work competitively well with modern programming languages. Then generally, the second bucket is performance. It's hard to scale – it's impossible to scale horizontally so it's expensive to scale vertically. It's hard to create performant and globally distributed applications. And as applications that we're used to become more and more demanding, these challenges become more and more apparent to developers and ultimately to the customers.

We were founded in 2007 because our founders were developers who are working with relational databases and realized all these challenges and realized that, that's not a tenable state of a large industry in the long term.

We were founded on a completely different paradigm, that is the document model which solves the pain points of the customers that we just described. We've been around for 15 years, went public in 2017, did roughly $1.7 billion of revenue and guided to roughly $1.9 billion this year.

So call it, roughly 2% share in this market. That sort of what fundamentally gets us excited about this opportunity, which is that despite the amount of success that we've had so far, the traction that we have in the market, the opportunity ahead of us is still enormous.

We think of ourselves as a general purpose solution, i.e., all but some of the nichest use cases can and should be built on MongoDB, and we have this great opportunity to continue growing and gaining market share over the years.

Jason Ader – William Blair – Analyst
Okay. Great. Thank you. Then I'm sure in everybody's mind, what happened in Q1?

Michael Gordon – Chief Operating Officer and Chief Financial Officer
Yes. So thanks for the question, Jason. So for those who know we reported results last Thursday. It was a more mixed quarter for us. That's not normally our pattern. And so there was plenty we did talk about, particularly to call out some of the unusual things. But maybe just to run through some of the summary key metrics, a 22% year-over-year growth on a top line. Our Database as a Service offering, which we call Atlas, grew at 32% on a year-over-year basis. That's now 70% of the total business, up from virtually nothing at the time of the IPO, just to give a sense to folks.

We beat the high end of our guidance, although as I'm sure we can get into, not by as much as you all are used to us beating it by. So we can talk about the surprises, positive and negative, for us within the quarter and run through that.

If you think through working kind of the way down the P&L from an overall standpoint, we outperformed. Most of the revenue outperformance flowed through to the bottom line, so 7% margin on the bottom line in the quarter and generally an upside surprise there as well.

I think the key thing that when we think about the business and the way that we've talked about the business for the last several years now is helpful just to remind folks, maybe ground them as we talk about Q1 and some of the business going forward is it's really helpful to think about the business in terms of the growth in consumption of applications we've already won. So those are sort of existing workloads that we've already won from our customer base, and separately to think about new business that we win in the quarter. And that new business can be from additional workloads from existing customers or new logos, someone who's paying us for the first time.

The dynamic that we've seen for about two years now on the existing applications is slower growth impacted mostly by the macro slowdown. We talked about this a couple of years ago. We were one of the first to point this out to see what we see. What really drives the equation there is we have a consumption model from a revenue recognition standpoint.

So as people use and consume the service, that's what triggers the revenue recognition. That underlying – that consumption is very closely tied to the underlying usage of the database. If you think about the reads and writes, the transactions at the database level, not transactions like ecommerce transactions, but like the actual transactions at the database layer. That's what drives the underlying consumption. So what we've seen is that we've seen that grow more slowly, reflecting the macro environment.

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On June 6, 2024, Palantir Technologies, Inc. hosted their fourth-ever AIPCon event, where nearly 70 partnered enterprises using the company's Artificial Intelligence Platform (AIP) showcased the impact that Palantir's products and services have had on their businesses. New customers – including United Airlines, AARP, Wedny's QSCC, and Nebraska Medicine – along with expanding, existing partners – including Tampa General Hospital, Jacobs Industries, and Sompo Japan Insurance – all provided presentations highlighting the business transformations induced through the integration of Palantir's ontology-backed artificial intelligence platform.

Since launching their AIP product roughly one year ago in June 2023, Palantir has seen a surge in commercial customer interest for their flagship enterprise offering. Rather than committing to a traditional marketing model, however, Palantir approaches their sales mission through hands-on-keyboard demonstrations, where engineers and decision-makers from prospective enterprise clients can begin building on the Foundry and AIP platforms immediately, using their proprietary data and specified intracompany knowledge. These "Bootcamps" offer the opportunity for potential clients to witness Palantir's ability to derive value and actionable recommendations from large language models within the enterprise in mere days, a feat that consistently outpaces competitors by orders of magnitude. Since initiating Bootcamps as the go-to-market strategy in July 2023, Palantir has garnered rapid interest from industries around the world. In October 2023, Palantir set a goal of executing 500 AIP Bootcamps within one year, and on March 6, 2024 at their AIPCon 3 event, Palantir published that they had already completed nearly 850 Bootcamps since launch. This week, to kick off AIPCon 4, it was announced that Palantir had executed nearly 1,300 Bootcamps – with months remaining in their target cycle.

Palantir Technologies CEO Alex Karp kicked off the AIPCon event on June 6 with opening remarks that outlined his view of Palantir's differentiating prowess in extracting true value for their clients from LLMs. In his traditionally eccentric fashion, Mr. Karp detailed the need to move beyond chatbots to garner utility from artificial intelligence, instead asserting that predictive, intelligent models can only invoke utility when cemented in the bespoke, tribal knowledge of the enterprise – a result only made possible through Palantir's Ontology. Whether the results are saving lives on the battlefield, accelerating innovation and insight in the enterprise, or illuminating efficiencies and cost-savings in the boardroom, Palantir's software delivers value through the understanding and integration of each client's uniqueness, thus allowing customers to dismantle and reoptimize at unparalleled pace.

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Executive Overview

As expected, lululemon continued to grow in its international markets, where its brand presence is less established relative to its North American counterpart markets. China comp sales grew +23% on a reported basis, which satisfied our expectations for +20% growth. Another bright spot was the strength in the men’s category which grew 15%, faster than women’s.

In the United States, consumers continue pullback spending on a year over year basis, and reported US sales came in lower than BLUE ROOM estimated (+2% reported versus +3.9% expected). As an offset, the company did have better performance in Canada (+11% versus 0.65% expected), which is unusual compared to historical trends. This was a function of 1) an apparently more cautious consumer in the U.S. relative to Canada, and 2) limited colors and sizes in key women’s leggings products. We believe that the inventory issue is one that can be resolved through prudent management in subsequent quarters, and lululemon expects to be balanced by 2H24. As a result, 2Q product margin will be down slightly driven by higher year-on-year markdowns but should reverse into the third quarter. A potential sales driver over the medium-to-longer-term will be the advertising lever that lululemon has statedly underutilized. Over the Summer and into the Fall the company will leverage additional brand activations in China and revisit television ads in the U.S.

Generally, the lift in the quarter for lululemon’s equity is due to an oversold valuation and potential upside to revenue for the full year. With the current quarter results, lululemon’s P/E is at 25x, nearly half of its 5-year average, and more than 25% below its 2-year average. The company also did not increase its full year guidance, despite beating the high end of its internal expectations for the quarter. If the U.S.-specific women’s inventory troubles can be overcome in the current quarter, we do see room for revenue upside in 3Q and 4Q, which should ultimately increase the full year revenue guidance and will imply further upward revisions to FY EPS expectations.

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Executive Summary

DocuSign shares are poised to continue trading between the $50 to $60 range through FY2025 as the company continues focusing on its three-pronged strategy of accelerating product innovation, enhancing go-to-market initiatives, and strengthening operating and financial efficiencies. The business continues to stabilize, with Q1 FY2025 revenue of $709.6 million representing 7% year-over-year growth, with 50,000 new customers added, achieving a total customer base of 1.56 million, an 11% year-over-year increase. The highlights of DocuSign’s quarter are Q1 FY 2025 non-GAAP operating margin of 28.5%—a quarterly record, and free cash flow margin of 33%. Despite solid Q1 results, DocuSign growth appears to continue to moderate, with billings of $709.6 million representing a modest beat, Q2 midpoint guidance of $720 million representing only 1% year-over-year growth, and dollar net retention improving only slightly to 99%—a far cry from the 114% figure DocuSign posted just two years ago.

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Peter Dannenbaum – Senior Vice President, Investor Relations
Thank you, Julie. Good evening, everyone. Welcome to Merck's Investor Event here at the American Society of Clinical Oncology Annual Meeting. And thank you to all of you that are in the room here with us tonight and to all of you tuning in via the webcast. Thank you for your attention and the effort you made to get here. We're excited to have this opportunity to speak to you about Merck's oncology program. During today's call, a slide presentation will accompany our speakers' prepared remarks. It's been posted to the Investor Relations section of Merck's website.

And before we get started, we'd like to remind you that some of the statements that we make during today's call may be considered forward-looking statements within the meaning of the Safe Harbor Provision of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are made based on the current beliefs of Merck's management and are subject to significant risks and uncertainties. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements. Please reference this slide in our presentation and our 2023 10-K, which identifies certain risk factors and cautionary statements.

It's now my pleasure to introduce Dr.Dean Li, President of Merck Research Labs, who will make a few opening remarks and outline our agenda and speaker lineup. Dean?

Dean Li – President, Merck Research Laboratories
Thank you. Thank you very much to all of you for being here, and thank you, Peter. It's a pleasure to be here with all of you in the room and also all of you who are here virtually as well. This evening, what we intend to do is provide an overview of our ongoing progress across our diverse oncology pipeline and our strategy for enduring leadership in oncology.

First, I will seek to orient us to the significant progress we've made since the executive leadership transition that occurred throughout the first half of 2021. Next, we will have Dr.Eliav Barr, Head of Global Clinical Development and our Chief Medical Officer, who will provide an overview of our oncology strategy and then an update on our progress in earlier-stage cancers and how we are leveraging our foundational position in immuno-oncology to improve outcomes for patients. Then Marjorie Green, Senior Vice President and Head of Late-Stage Oncology Development, will provide an update on our tissue targeting strategy, most notably our broad ADC portfolio, and our progress across multiple precision molecular targeting agents. And then finally, Chirfi Guindo, our Chief Marketing Officer and Human Health, will provide an update on the commercial landscape and the opportunity we see to further impact patient lives. After that, I'll have a few closing remarks prior to opening it up for Q&A.

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Executive Overview

THOR Industries, Inc. reported earnings pre-market today (6/5) that fell in-line on topline sales and saw a substantial beat on Net Income and Diluted EPS, while once again revising down full-year guidance. For the quarter ended April 30, THO reported Net Sales of $2.801B, down -4.36% y/y and slightly beating consensus estimates of $2.734 B. Continued weakness was seen across the company's North American segments, where Towable Sales for the quarter were reported at $1.071B (-4.72% y/y, -1.44% below consensus estimates) and Motorized Sales were reported at $647 M (-18.72% y/y, -4.86% below consensus estimates). The company's European segment continued to provide support, growing 7.42% y/y and 19.02% sequentially, feeding into THOR's bottom line outperformance. With Net Sales outpacing Street Estimates due to European performance and the company's Gross Profit Margin coming in 50 bps above expectations, THOR was able to achieve a $15 million beat on Net Income and thus a 14% beat on Diluted EPS at $2.13 per share.

Due to persistent macroeconomic headwinds continuing to impact retail RV sales, THOR validated held concerns, stating "we now expect that the headwinds will continue to significantly impact our performance through our fiscal 2024 and into our fiscal 2025," citing as well that, "given the pressures on consumers, affordability continues to be an industry focus." THOR management also noted the RVIA's reduction in their 2024 forecast, with the median shipment expectations now falling at 344,000 (from 350,000).

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Stephen Hoge – President
All right, great. We're going to get started. Thank you, everybody, for taking some time out of ASCO and your time here to spend with us. I'm Stephen Hoge, I'm the President of Moderna. And I'm going to be providing a little bit of context upfront for the data we're going to be reviewing today, which will cover our full oncology pipeline more. We're incredibly excited to do that.

Before I dive in, we will be making forward-looking statements during this presentation. Those are covered by the Safe Harbor Act. You can find these slides and our reference to it on our website. Okay. So over the last number of years, we have been building a pretty extensive pipeline. Now we're going to spend almost all of our time today in oncology focused on INT because we have some exciting data, clinical data, and obviously presentations from today, and we're looking forward to questions on that.

But we did want to take the opportunity today to give a sense of all of the other efforts that we've got advancing in clinical development, including cancer antigen-specific therapies, some novel therapeutics that have been working on actually even before INT, and then some new and exciting technology partnerships that we think will translate into clinical studies very quickly here.

So our agenda for the day, we're going to try and get through relatively quickly and then get to Q&A. But we'll start off with Dr. Kyle Holen, who will walk through our overall frame for INT and how we're thinking about how it might transform cancer. He'll hand it off to Michelle Brown – Dr. Michelle Brown, who leads our INT program, and we will run through the data that was presented by Dr. Weber at ASCO this week. Kyle will come back and provide a little bit of voiceover on some of the other programs that we have in early clinical stage and then Dr. Rose Loughlin, who leads all of research for us in the therapeutic space, including oncology, will come and share some of our work in the external partnerships and why we are so excited about this.

So without further ado, I'll turn it over to Kyle.

Kyle Holen – Senior Vice President, Development, Oncology & Therapeutics
Thank you, Stephen. [I’m] really excited to be here and particularly excited about talking about our oncology portfolio. The oncology portfolio has advanced in really exciting ways, not just our INT program, but I'll share with you some of – some of the advancements in the Checkpoint program as well as the Triplet program.

I'll start out by sharing with you a little bit about why we think INT is going to be so impactful. So you all are familiar with the amazing impact that immune therapies have had across many different types of cancers. Checkpoint inhibitors have really had a dramatic impact in the cancer field. But unfortunately, despite this success, there's a clear unmet need. And I’ll share here some of the response rates amongst these tumor types.

And I'll also share with you, although there are some response rates, complete responses are very, very uncommon. And so we know that there's an unmet need and we're excited to see how INT can help address that unmet need.

So one of the things that we're doing at Moderna is first having a focus on resectable cancers. We think that's the highest likelihood of success for INT and so we're looking at all kinds of different adjuvant therapy treatments with INT, but there's a ton of opportunity outside the adjuvant setting.

We're looking into early cancer management, treatment for patients who might have positive screening tests and we're looking later on into metastatic settings and other lines of therapy. So we think INT potentially has the ability to play across the entire spectrum of cancer treatment. And one of the examples of where we think this is evident is in the AACR abstract that we presented recently where we saw really remarkable responses in metastatic advanced head and neck cancer.

Okay, with that, I'll have Michelle – Dr. Brown come up and talk a little bit more about INT and then I'll come back and tell you a little bit more about the rest of our portfolio.

Michelle Brown – Vice President, Portfolio Lead: INT
Okay. So it's nice to see everyone and welcome to ASCO. We're very excited. We're very excited today to be talking about the data that was presented this morning with our 3-year follow-up of our randomized Phase 2 study. And as we were reflecting about this ASCO experience, we really realized that we've been on a journey with everyone over the past year as we've been teaching and learning about what it means to have an individualized therapy and what that actually means for patients and then also the broader development strategy.

So without further ado, I'm sure a lot of you saw the press release this morning and then this is the presentation that Jeff presented on the podium today. I'll walk you through some of the datasets and why we're so excited about it.

So this slide, when we first introduced it starting last year, we did have a substantial learning curve to teach everyone about what INT was, which is essentially an individualized neoantigen therapy that encompasses up to 34 patient-specific neoantigens, concatemerized on a single mRNA strand that's administered intramuscularly to a patient. And when that happens, that mRNA strand enters into the natural antigen processing system where those neoantigens are expressed on antigen-presenting cells, [which] activate T-cells, and allow them to target specifically to an individual patient cancer cells.

So we've seen this slide and this is really where we think INT is unique in the sense that it is: one, administered intramuscularly. Second, it is the first of its kind to design a specific therapy for each individual patient looking at their tumor mutation profile, but also their HLA type. And obviously, this is a follow-up to our Phase 2 study, which I'll get into in just a second, that reported out last year, where we showcased our primary analysis that showed a clinically meaningful improvement in Recurrence Free Survival and Distant Metastasis-Free Survival.

So after we passed that substantial endpoint last year, we had a planned follow-up for an additional year because we heard that the dataset was early. We really needed to understand what this new class of immunotherapy would do and if it would provide long-term benefit. So we planned on watching patients for an additional year to look specifically at that durability of effect.

Summary
On Friday, May 31, Moderna CEO Stephane Bancel participated in a fireside chat at AllianceBernstein’s 40th Annual Strategic Decisions Conference. In discussing his long-term goals for the company, his near-term expectations for cancer, his perceptions on the RSV rollout and the potential for a bird flu vaccine, Stephane used the opportunity to verbalize thoughts and opinions that had heretofore been unknown to the general public.

Bernstein’s analyst opened the conversation by discussing Bancel’s 10-year vision for Moderna, to which he quickly replied “to be the largest vaccine company in the world.” He continued to discuss the breadth of Moderna’s late stage pipeline compared to that of the large pharmaceutical companies. He then discussed the opportunity set in cancer through vaccines for latent viruses.

Once he began discussing cancer, Bancel confidently quipped “I think in cancer, we're going to end up being larger than KEYTRUDA in terms of sales, because we're going to be able to improve KEYTRUDA everywhere where KEYTRUDA works.” His optimism was further put on display when he remarked three separate times that he anticipates the company’s first cancer therapeutic to see commercial approval in 2025. Prior to this conference, Moderna had remained tight-lipped about the possibility of accelerated approval for their individualized neoantigen therapy (INT) collaboration with Merck.

Following cancer, Bancel began to discuss his new role as the company’s Chief Commercial Officer. Bancel laid out clearly and simply why he believes Moderna will be able to steal market share from Pfizer and GSK in the coming respiratory illness season: operational ease on top of a comparable vaccine. Moderna’s RSV vaccine is the only one that comes in a pre-filled syringe, compared to Pfizer and GSK’s vaccine which requires nine and four steps to prepare, respectively. Given the similar efficacy profiles, Bancel is confident in his ability to dominate in the space given Moderna’s vaccine results in a significantly lighter load on the healthcare system.

Bancel concluded the chat in discussing Moderna’s commitment to shareholder returns and reaching breakeven by 2026. Bancel is confident in Moderna’s ability to breakeven by that time frame given the company’s newfound commitment to frugality coupled with its unparalleled late-stage pipeline.

In sum, this fireside chat, while likely too optimistic, serves as a reminder of the bullish case for Moderna: a tech-native biotech company who is able to create and manufacture efficacious and safe drugs in a fraction of the time and for a fraction of the cost when compared to the traditional pharmaceutical model; Moderna is a disruptor in an industry that has yet to appropriately prepare itself for the next wave of technological and biological innovation.

Michael Yee – Jefferies– Analyst
[Starts Abruptly] … and appreciate you joining us on our next session. I'm very happy to have the Chief Financial Officer of Moderna, Jamey Mock, up here with us.

Jamey, it's great to be here. Last I checked, you have a second product that is going to be generating revenue. So, that's very exciting. We'll talk about that, in RSV. You just got back from ASCO – a long week at ASCO talking about the pipeline and with a particular focus on the INT adjuvant melanoma data – three-year data. So, that's pretty exciting. And obviously, a lot is going on with financial guidance and trying to get Moderna back to a profitability standpoint and setting the stage for the next few years of growth.

So, maybe I would take the opportunity to ask you first from a high-level perspective, the guidance this year, starting from a high-level 2024, you have guidance – talk about the inputs in that guidance, the confidence in hitting that guidance with a particular focus on what I think is the wildcard, which is RSV. So, financial guidance and your approval of RSV and how much is RSV going to contribute this year...

Jamey Mock – Chief Financial Officer
Terrific. Well...

Michael Yee – Jefferies– Analyst
…to your guidance.

Jamey Mock – Chief Financial Officer
Good to see you, Mike, and thanks for having us.

Michael Yee – Jefferies– Analyst
Yeah.

Jamey Mock – Chief Financial Officer
And thanks for your coverage and videos, including your new song.

Michael Yee – Jefferies– Analyst
Very good. Very good. [For] the next one, I'll get Moderna into the lyrics.

Jamey Mock – Chief Financial Officer
Appreciate that. And thanks, everybody, for joining and your interest.

Michael Yee – Jefferies– Analyst
Yes.

Jamey Mock – Chief Financial Officer
Yes. So, in terms of the guidance, maybe I'll just go through the categories that we've talked through in the past, which is our APAs, which we came into the year with $1 billion that we said, and we've learned our lessons on the APAs in the past in terms of not always being follow-through. So, we're hoping that perhaps there's a little upside there, but we're fairly balanced on that.

Michael Yee – Jefferies– Analyst
Clarify that. So, in your APA guidance that you have taken some handicap to that.

Jamey Mock – Chief Financial Officer
Correct.

Michael Yee – Jefferies– Analyst
Such that in prior years, if they didn't all come through, that would have been a miss. But this year 2024, because people have said, well, no one is going to give all of it, you've already actually included some of that discount into that.

Jamey Mock – Chief Financial Officer
Exactly. So, if I go back to 2022, when I stepped into the role in September, we had estimated $21 billion of sales from APAs in 2022.

Michael Yee – Jefferies– Analyst
Right.

Jamey Mock – Chief Financial Officer
We came in at $18 billion and deferred $3 billion into 2023. So, there is this notion that deferrals can happen and I think we've accounted for that in our guidance.

IN

Dylan Carden – William Blair – Analyst
Thank you, everyone, for being here. My name is Dylan Carden. I'm the Specialty Retail analyst here at William Blair. We're pleased today to have David Kimball, CEO; and Paula Oyibo, CFO of Ulta Beauty. So thank you.

And we're just going to kind of kick it off here. And we spoke to this, but I guess there are a lot of headwinds in your business that you've called out. You've got sort of just the general beauty cyclicality. You've got a fuzzy macro outlook. You've got competition. And you've got your own success over the last two years, right? You kind of had outsized growth relative to your model. So a lot of people are focused on the competitive aspect of it. But can you kind of bucket and even just sort of rank kind of those pressures on your business as you see them today.

Dave Kimbell – Chief Executive Officer
Yes. Well first, thanks for having us. Thanks for your interest in Ulta Beauty. And thanks for holding this in our hometown of Chicago. We were started here 34 years ago. So it's nice to be here in our home city.

Yeah. When we look at our business right now there's – there are a lot of factors going on. And overall, we feel very confident and optimistic about the future of our company and how we're performing today despite some of the pressures and the challenges.

So to [talk to] some of the things you highlighted, I look more broadly about the consumer landscape, the macro environment. I think you all are watching it as closely as we are. And it is an uncertain environment right now. There's a lot of anxiety with consumers, and that's true across all categories that influence all categories. Consumer confidence is pressured despite – there are some obvious positives in the economic environment, but there's other concerns and challenges that are putting pressure on consumers. And then we're seeing that show up and just then be more thoughtful and more aware of how they're making choices and spending money.

And then you layer in the election environment and other dynamics going on in our culture and society, the consumer is in a, I guess, I'd say, an uncertain place. And so that certainly influences all of consumer behavior.

When I look at the beauty category, specifically within that context, the beauty category is healthy and has been for a long time – has been historically, it's performed very well a very consistent growth category because of the importance it plays in consumers' lives. Beauty is emotionally connected to consumers. It's so important in how they take care of themselves, how they show up in the world, how they think about self-care and wellness and self-expression.

So historically, Beauty has been a strong growth category. And coming out of the pandemic, it's been exceptionally strong – double-digit growth really in '21, '22, '23 – the category and really stronger than really anybody expected coming up.

It is still healthy this year but moderating as we expected and anticipated. So going from very strong growth moving down more towards historical levels of growth, still a little bit ahead of that. So a bit of a headwind in the sense that it's not growing as fast as it was last year, but still healthy overall.

And then the other thing, I guess, that I'd highlight is we're also – because of the strength of the category and the overall attractiveness of beauty: its growth history, its margin profile. It's always been competitive. And the competitive intensity right now is more than – I've been with the company 10 years. I first started working in beauty in the '90s at Procter & Gamble many years ago.

It's an intensely competitive environment right now because of the attractiveness and the opportunity that so many see. And so we can talk more about what that means, but that's certainly [part of the] environment.

IN

Ian Karp – Senior Vice President, Investor Relations & Corporate Communications
Thank you, operator, and good morning, everyone. I'm pleased to welcome you to Intellia's Investor Call, featuring new data from the ongoing NTLA-2002 Phase 1/2 study. On Sunday, Intellia issued a press release detailing these results, which were presented at the European Academy of Allergy and Clinical Immunology Hybrid Congress held this past weekend in Valencia, Spain. This release, along with the accompanying presentation, can be found in the investors and media section of Intellia's website at intelliatx.com. As a reminder, this call is being broadcast live and a replay of the event will be archived on the company's website.

This time I would like to take a minute to remind listeners that during this call, Intellia management may make certain forward-looking statements and ask that you refer to our SEC filings available at sec.gov for a discussion of potential risks and uncertainties. All information presented on this call is current as of today and Intellia undertakes no duty to update this information unless required by law. Please note that NTLA-2002 has not been approved by any health authority.

With that said, joining me today on the call are Dr. John Leonard, our Chief Executive Officer; Dr. David Lebwohl, our Chief Medical Officer; and Dr. Hilary Longhurst, Senior Medical Officer at the Auckland District Health Board and Honorary Associate Professor at University of Auckland, New Zealand. Also in the room and available for the Q&A are Dr. Laura Sepp-Lorenzino, our Chief Scientific Officer, and Dr. Jim Butler, our General Manager for the NTLA-2002 program.

As outlined on this slide, we will begin with introductory remarks from John. Dr. Longhurst will review the long-term data from the Phase 1 portion of the study. David will then review next steps for the program, followed by John discussing where we see NTLA-2002 fitting in the HAE treatment landscape, before we open up the call for questions.

And with that, I'll now turn the call over to John.

John Leonard – President, Chief Executive Officer & Director
Thank you, Ian. Welcome everyone, and thank you for joining today's call. At Intellia, we are deploying the industry's broadest and most advanced toolbox of novel gene editing and delivery solutions to advance a full spectrum of in vivo and ex vivo therapeutic applications. For genetic diseases such as hereditary angioedema or HAE, our in vivo approach leverages our proprietary CRISPR-based gene editing platform and an LNP delivery system to selectively inactivate a disease-causing gene or precisely insert a gene to produce desired proteins.

IN

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Weekend Update #182

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Weekend Update #181