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Mastercard (MA), Pluto to Enhance B2B Payments in the UAE

Mastercard (MA) aims to upgrade the solutions suite of Pluto through the utilization of its well-established payment technology as well as contribute to the digitization efforts of the UAE. Mastercard Incorporated MA recently teamed up with the UAE-based financial corporate spending management solutions provider, Pluto, to enable the widespread uptake of business-to-business (“B2B”) payment solutions across the Gulf Cooperation Council. This promises to infuse greater innovation and efficiency in the region’s B2B payments landscape.Integral to the tie-up, Mastercard will extend a varied array of efficient and reliable payment options to Pluto’s client base. This, in turn, is expected to upgrade the solution suite of Pluto and empower it to bring about safety in payments as well as pave the way for better management of finances for businesses of all sizes.The recent partnership reflects Mastercard’s broader motive of infusing greater digitization across the UAE and broadly, in the Middle East region. MA’s intensified focus on establishing a solid footprint in the region can be explained by its rapidly expanding digital economy, spurred by increased Internet penetration and the higher usage of smartphones. This provides a perfect ground for MA to capitalize on with its suite of advanced payment solutions that promise safe and seamless transactions for businesses.The support of a global payment technology leader like Mastercard, whose digital arm is built with the help of partnerships and substantial technology investments, infuses a sense of confidence and security into the minds of business owners.The tie-up with Pluto is expected to lead to increased utilization of Mastercard’s solutions. This, in turn, is likely to boost the revenues for the tech giant, which it derives from providing its value-added services and solutions suite to customers. Also, Pluto seems to be a prudent choice for Mastercard to capture a significant share of the digital payments market of the Middle East. The reason can be attributed to a remarkable expansion strategy pursued by Pluto through which its areas of operations are not just restricted to the UAE but is also set to bring Saudi Arabia and Bahrain under the radar.Last month, Mastercard joined forces with Middle East’s leading payment processing service provider, areeba, to extend the benefits of upgraded payment platforms, such as Mastercard Card-as-a-Service and Bank-as-a-Fintech, to new market segments and demographics of the region. A few days before this, it collaborated with Saudi Awwal Bank to enable the bank to access its advanced AI-based cybersecurity technology to protect Saudi Arabia’s customers from cybercrimes and payment frauds, and subsequently, bring about safe digital transactions across the country. Such frequent moves undertaken in the Middle East reflect Mastercard’s endeavor to harness the digital growth prospects of the region.Shares of Mastercard have gained 14.7% in the past year compared with the industry’s 11.4% growth.  MA currently carries a Zacks Rank #3 (Hold).Image Source: Zacks Investment ResearchStocks to ConsiderSome better-ranked stocks in the Business Services space are RCM Technologies, Inc. RCMT, APi Group Corporation APG and SPS Commerce, Inc. SPSC.  While RCM Technologies sports a Zacks Rank #1 (Strong Buy), APi Group and SPS Commerce carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.The bottom line of RCM Technologies outpaced estimates in two of the last four quarters and missed the mark twice, the average beat being 13.28%. The Zacks Consensus Estimate for RCMT’s 2023 earnings suggests an improvement of 1% from the prior-year reported figure. The consensus mark for RCMT’s 2023 earnings has moved 11.1% north in the past 30 days.APi Group’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 5.94%. The Zacks Consensus Estimate for APG’s 2023 earnings suggests an improvement of 18.1% from the prior-year reported figure. The consensus estimate for revenues suggests growth of 6% from the prior-year reported figure. The consensus mark for APG’s 2023 earnings has moved 4.7% north in the past 30 days.The bottom line of SPS Commerce outpaced estimates in each of the last four quarters, the average beat being 15.34%. The Zacks Consensus Estimate for SPSC’s 2023 earnings suggests an improvement of 19.2% from the prior-year reported figure. The consensus estimate for revenues suggests growth of 18.7% from the prior-year reported figure. The consensus mark for SPSC’s 2023 earnings has moved 0.4% north in the past 30 days.Shares of RCM Technologies, APi Group and SPS Commerce have gained 83.2%, 56.6% and 18.7%, respectively, in the past year. Zacks Names #1 Semiconductor Stock It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom. With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Mastercard Incorporated (MA): Free Stock Analysis Report SPS Commerce, Inc. (SPSC): Free Stock Analysis Report RCM Technologies, Inc. (RCMT): Free Stock Analysis Report APi Group Corporation (APG): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research.....»»

Category: topSource: zacksDec 1st, 2023

Envestnet, Inc. (NYSE:ENV) Q4 2023 Earnings Call Transcript

Envestnet, Inc. (NYSE:ENV) Q4 2023 Earnings Call Transcript February 24, 2024 Envestnet, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings and welcome to the Envestnet Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in […] Envestnet, Inc. (NYSE:ENV) Q4 2023 Earnings Call Transcript February 24, 2024 Envestnet, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings and welcome to the Envestnet Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Josh Warren, Senior Advisor. Thank you. You may begin. Josh Warren: Well, good afternoon, everyone. I’m Josh Warren, Chief Financial Officer of Envestnet. Thank you for joining us on today’s Fourth Quarter 2023 Earnings Call. Before we begin, I’d like to point out that our earnings press release, supplemental presentation, and associated Form-10K can be found under the Investor Relations section of our website at envestnet.com. This call is being webcast live, and a replay will be available for one month under the Investor Relations section of our website as well. During the call, we will be discussing certain forward-looking information. This information is based on our current expectations and is not a guarantee of future performance. I encourage you to review the cautionary statement on slides two and three of the supplemental presentation for the potential risks, uncertainties, and other factors that could cause actual results to differ from those expressed by the forward-looking statements. Further information can be found in our regular SEC filings. During this call, we will be referring to certain as adjusted financial measures. Please refer to the appendix in our supplemental presentation for a reconciliation of these as adjusted financial measures to the most directly comparable GAAP measures. Joining me on today’s call are Bill Crager, Envestnet’s Chief Executive Officer; and Tom Sipp, Executive Vice President for Business Lines. On our call this afternoon, we will provide a company update as well as an overview of the company’s Fourth Quarter and Full Year 2023 Results. After our prepared remarks, we will open the call to questions. During the Q&A, please limit yourself to one question plus one follow-up. You may get back into the queue if you have additional questions. I’d like to start the call today with a review of our Q4 and full-year 2023 results. Our results in Q4, each of which were above the high end of our range, represent our focus on disciplined execution. Q4 revenue was $317.6 million, representing 8% growth over Q4, 2022. Adjusted EBITDA was $75.5 million, representing a 24% adjusted EBITDA margin and nearly 600 basis points of margin expansion when compared to Q4, 2022. Our adjusted EPS for Q4 was $0.65, up 44% from the $0.45 reported in Q4 2022. For the full year 2023, our revenue was $1,246 million. Adjusted EBITDA was $251 million, representing a 20% overall adjusted EBITDA margin, and our adjusted EPS was $2.12. As we enter 2024 and the next chapter at Envestnet, we have a set of strong fundamentals that we will discuss on today’s call that position us well. I now like to turn the call over to Chief Executive Officer, Bill Crager. Bill? Bill Crager: Thank you, Josh. As you know, this will be my final earnings call as Chief Executive Officer of Envestnet. For 25 years, it has been a privilege to be part of the amazing journey, that is our company. From an idea and a good dose of courage by applying a lot of resilience and creativity, we’ve built something that is extraordinary. I am proud of what we’ve accomplished and perhaps most proud of this. Envestnet is foundational to the financial guidance that advisors deliver to enhance the lives of millions and millions of families. Over the last couple of years, we’ve worked effectively to make Envestnet even better, taking the necessary steps to bring the company together to enable a highly connected, highly technology-driven, highly data-driven platform to serve the wealth management industry. Today, Envestnet is in a very strong position because of the work that we’ve done. The company is the industry leader by assets, advisors, accounts, market share leader across financial planning, our turnkey asset management offering, and the data insights that we generate and offer to our clients. We are embedded with a great roster of clients and partners driving an industry ecosystem that powers growth and delivers value, and we have an exceptionally talented and aligned leadership team to deliver the next phase of Envestnet. The Envestnet strategy is aligned to our clients’ needs to drive the growth and productivity of advisors by providing the most comprehensive and capable wealth management platform for our industry. We’ve created scale and competitive advantage with technology, data, and solutions. We’ve connected the pieces, and we are able to serve all client workflows and business models. Doing this serves investors by delivering revenue growth, operating leverage, and improving free cash flow conversion. I look forward to helping Envestnet continue its leadership while advocating for our industry, road-mapping the future of financial advice, and the essential impact that it has while deepening relationships with our clients and our partners. I now want to turn the call over to Tom Sipp, who leads Envestnet’s business lines, for an overview of the drivers of our business, and I’ll be back at the end of the call for some closing comments. Tom? Tom Sipp: Thank you, Bill. It has been an honor and one of the great experiences of my career to work alongside you. I am excited about the place we are in and where we are going. I’d like to spend our time today discussing four important topics: the market context and themes driving our business, our position in how it is translating into key metrics and financial results, recent proof points of our strategy winning with clients, and finally the key growth initiatives that drive us ahead in the medium and long term. First, the market context. Envestnet is uniquely positioned to serve every type of advisory business model across the industry, from standalone RIA to large institutional broker dealer or bank. We understand better than anyone the themes driving the overall industry, the themes that shape our technology offering, and how we bring solutions to market. First, there is a greater push to achieve platform scale for both the advisor and for the firms that support them. Integrated technology and service are keys to greater efficiency. Another key trend is personalization of portfolio management investments and the digital experience. This is more important than ever. Personalization is driven by the fusion of data and insights, robust investment options, and technology capabilities. Next, our research shows that 60% of advisors and firms prefer to buy WealthTech from a single provider. Streamlining technology and maximizing the benefits of an end-to-end platform is imperative to a successful strategy and ultimately drives customers to consolidate providers. And finally, there is a continued evolution toward a more holistic view of advice powered by data and planning capabilities that serves all client types, which is then delivered through seamless connections to solutions. We’ve been at the forefront of these trends with the scale and scope of our technology and solutions in the market for years. Our competitors often talk about their vision or product roadmaps, as demonstrated through static screenshots. Meanwhile, our platform is live, battle-tested, in handling billions of dollars across millions of accounts every day with the most robust features, and we are not standing still. We’ve rolled out a continuous series of enhancements to our platform with true open architecture, both within the connectivity and integration of our native modern experience and as part of our rich API and data library. We are enhancing, connecting, and delivering into the market. This has been our work over the last few years, and it will continue to drive competitive advantages. Here’s how that translates into key metrics and financial results. First, and most importantly, our Wealth business delivered Q4 revenue growth of 11% versus Q4 2022. Second, over the last two years, Envestnet delivered $116 billion of AUM/A net inflows, representing an average growth rate of 8%. We have delivered more than four times the net inflows of the second and third largest TAMs combined. Accounts grew 4% year-over-year, while AUM/A accounts grew 8%. Our gross fee rate in Q4 was approximately 9.8. It’s been stable between 9.5 to 10.5 with lots of short-term variables across millions of accounts. Finally, our client service scores have gone from the low-40s to mid-60s over the last two years. Our leadership with a strong and stable client base is another competitive advantage. We have over 4,500 clients in the broker-dealer and RIA channels, including 48 of the 50 largest wealth management and brokerage firms. Our top 25 clients have been with us for an average of 15 years. We have made fundamental improvements in both the technology and the service and delivery our clients experience with us. That puts us in a position to capitalize on the trend of vendor consolidation. I will provide you a couple of specific proof points. A large regional broker-dealer with over $50 billion of assets started to transition away from our platform but is now coming back. Because the promise of a custom platform with a fully integrated advisor ecosystem could not be delivered. Only Envestnet has the solution live and in market with the scale and maturity that can be relied upon. A $15 billion RIA and longtime client recently adopted our managed account capabilities in Q4 moved $400 million of assets onto the platform, including a majority in overlay services or direct indexing. As a result, the recurring revenues from this client has more than tripled with potential for significant growth. So we’re very focused on our clients delivering the platform that helps them grow. This is a better position than where we were a few years ago and one that we are leveraging to further our leading position. Before we move on, I’d like to address the impact of M&A across the industry. Typically, Envestnet has been a net beneficiary as our extensive client footprint with both RIA aggregators and enterprise clients has supported additional growth. However, consolidation over the last year or so has resulted in a negative impact to our wealth growth rate. Finally, I’d like to spotlight some of the important initiatives that will contribute to revenue growth over the medium term. Some of these are further along and included in our outlook. Others are underway and will start to contribute to our growth in 2025 and beyond. First, we have achieved robust year-over-year growth across several of our solutions business lines where personalization and technology drive differentiation, including high net worth, direct indexing, tax overlay, and managed accounts to RIAs. We believe these accelerated growth rates will continue for an extended period. Second, pricing initiatives are accelerating with specific progress in the RIA channel where we package our technology with a broad set of fiduciary solutions, analytics, and planning, deepening our client relationships. Enterprise pricing initiatives will take longer due to the long-term nature of our contracts. Third, our strategy to deliver deeply integrated custody capabilities completes a missing piece in the fully digital and connected advisor and client experience. We are delivering the account opening, funding, and servicing workflows between our wealth management platform and custody back office functions in one single experience. We will launch this solution as previously announced with FNZ. Finally, our Retirement business continues to gain momentum. The team is focused on efficiently delivering Retirement solutions to wealth advisors utilizing the best products, technology, and user experience in the marketplace, essentially providing the easy button for wealth advisors. This business will then scale by leveraging distribution partnerships with Retirement and Asset Management industry leaders. What we have in the marketplace is meaningful for our clients in driving results. The continuous delivery of enhancements of our technology, tools, solutions, and service drive discrete revenue opportunities and furthers our competitively advantaged platform. We’ve connected the components to meet client needs and drive deeper relationships. That underpins our 2024 wealth revenue growth guidance of mid to high single digits. Thank you, and I’d like to turn the call back over to Josh. Josh Warren: Thank you, Tom. I’ll spend a few minutes discussing three things. First, our results. Second, our balance sheet, and third, our outlook and focus. As we enter 2024 and a new chapter at Envestnet, we look forward to continuing to deliver our connected ecosystem and our unique capabilities. Our model supports our attractive growth algorithm and enables operating leverage and free cash flow generation. As of the end of 2023, Envestnet served over 108,000 advisors, and those advisors are doing more business with Envestnet. During 2023, while our total number of advisors grew by nearly 3%, our number of accounts grew by over 4% to over 19 million, evidencing higher adoption. Taking a longer view, demonstrating the scalability of our platform, the number of accounts per advisor on Envestnet has grown approximately 50% between the start of 2020 and the end of 2023. While historically, Envestnet expected to grow costs in line with accounts, the completion of our platform infrastructure investments means that account growth becomes increasingly beneficial to our ability to expand profitability and generate consistent operating leverage to deliver growing and robust free cash flow. To achieve this framework, we’ll focus on both revenue growth across both of our segments and disciplined expense management. First, let me focus on our recurring revenue dynamics. As a reminder, our Wealth Solutions segment generates both asset-based and subscription-based revenues, while our Data and Analytics segment generates subscription-based revenues only. In Wealth Solutions, asset-based and subscription-based pricing constructs provide the breadth of solutions to fit the industry and enable investment growth. I’ll start by reviewing the asset-based revenues of our Wealth Solutions segment. During Q4, Envestnet recorded net inflows of $7.9 billion into AUM/A accounts. For the full year, Envestnet generated $58.5 billion in net flows into AUM/A accounts, representing 8% organic asset growth. We believe consistent net flows are one of the most enduring attributes of our business. Envestnet has not had an outflow quarter since going public in July 2010, meaning that Q4 2023 was the 54th quarter of inflows consecutively. This is because flows on the Envestnet platform are among products within a portfolio and are underpinned by multiyear contracts. Amidst this backdrop of strong and consistent asset growth, Envestnet has faced some headwinds from clients allocating more of their portfolios to cash due to the inverted yield curve environment. Investors have responded to higher short-term rates by holding more of their money in deposit accounts, outside Envestnet, or in retail money market funds. Naturally, this has affected our results. We expect money invested in the debt or equity markets to produce a higher fee mix. During 2023, total asset-based revenue generated by Wealth Solutions was $745 million, representing a 1% increase over 2022. Our growth accelerated in the second half of the year. This was particularly pronounced during Q4 2023 when asset-based revenue grew 13% compared to Q4 2022 to nearly $189 million. The subscription-based revenues of our Wealth Solutions segment are generated by our software-as-a-service offerings which primarily serve RIAs and financial planning tools. First, I’d like to cover one reporting item. As announced on our last earnings call to align our reporting with how we manage our business, we transferred our Wealth Analytics business, which generated about $4 million of revenue each quarter of 2023, to our Wealth Solutions segment. This contribution to the Wealth Solutions subscription business is reflected in the Q4 numbers provided. To facilitate comparability, I’ll be describing our segment results on a recast basis, and historical financial information is available in our earnings supplement. In 2023, subscription-based revenue in our wealth in Wealth Solutions outgrew asset-based revenue, increasing 5% on a pro forma basis to $325 million. During Q4, our Wealth Solutions subscription-based revenue of over $84 million grew 4% on a pro forma basis over Q4 2022. On an overall basis, Wealth Solutions revenue grew by 3% during 2023. During Q4 2023, our Wealth Solutions revenue of $279 million represented 11% growth over Q4 2022. As we look ahead, while double-digit growth remains our goal, we expect to deliver a Wealth Solutions growth rate in the mid to high single digits for the full year 2024. This growth outlook is premised on a flat market for the full year. As demonstrated by the margin expansion delivered during 2023, we believe we can continue to drive margins in 2024 as we leverage the investments we have made in our platform. Turning to our Data and Analytics business, which generates subscription-based revenues. In Q4, our revenue was $38.6 million. On a like-for-like basis, Q4 D&A revenue declined by 7% compared to Q4 2022 but was 3% higher sequentially versus Q3 2023. For the full year, our D&A segment generated over $150 million of revenue, declining by 14% on a pro forma basis. In connection with this performance, we are taking a non-cash impairment charge of approximately $192 million during Q4 based on a reevaluation of Envestnet’s goodwill related to the D&A segment. 2023 had several commercialization challenges for this segment, including banking turmoil and client delinquencies. While performance was less than Envestnet had anticipated, there are a variety of strategic and operational initiatives in process that we believe will position the business well going forward. We believe the sequential results in Q4 provide early evidence of the returns on these initiatives. Now, moving to expenses, the platform infrastructure investments we have made over the last few years enable us to achieve operating leverage by growing revenues ahead of costs to expand our profitability and grow our free cash flow. As announced on our November call, we have successfully reduced our annual expense run rate by $60 million across compensation-related non-compensation expenses and CapEx since the start of 2023. We consider our costs to be manageable, as those three general categories constitute the majority of our total cost base. Envestnet also has certain non-controllable expenses which are common in the industry, consisting of payments to third parties for investment management, clearing, custody, and brokerage services. As of Q4 2023, we expanded adjusted EBITDA margins nearly 600 basis points from Q4 2022 and nearly 700 basis points from our Q1 2022 margin. We expect to continue to expand margins and improve free cash flow generation in 2024. I’ll note that we revised our accounting treatment of certain cloud hosting arrangements with third-party infrastructure providers to be operating expenses and not capitalizable. There is, of course, no cash impact from this adjustment, and our historical reporting has been revised to reflect this change. In addition to adjusted EBITDA as defined by our credit agreements, we’re committed to providing greater transparency regarding our free cash flow. Three items that are not included in our 2023 adjusted EBITDA but did impact free cash flow were first, severance expenses of $35 million. Although we will continue to look for ways to optimize our organization, we do not anticipate these 2023 severance figures to be appropriate run rates going forward. Second, capitalized software development of $94 million. In aggregate, we expensed or capitalized $234 million of total technology development in 2023, including stock-based compensation. We expect this overall total technology development spending to reduce in the mid to high single digits year-over-year because of the investments already made but will remain significant as part of our continued commitment to drive scale and ensure client success. Third, our 2023 CapEx was $19 million. CapEx for 2024 is expected to be approximately $10 million. When taken together, our free cash flow for Q4 2023 was $57 million, reflecting our strong performance and some working capital benefits. Envestnet’s free cash flow during the first three quarters was negative. Following Q4, I’m pleased to report that for 2023, free cash flow was positive at $42 million. Our focus will be on improving this number in 2024. Turning to our balance sheet, cash on hand increased nearly $50 million during Q4 to $91 million. Similar to the seasonality observed in previous years, we expect cash to decrease in the first quarter of 2024. Our first tranche of convertible debt, which we pay 75 basis points of interest on, is due in Q3 of 2025. As of December 31st, our leverage ratio, defined as our total debt less cash over trailing adjusted EBITDA, has been reduced to below 3.2 times. In total, we believe our liquidity position gives us flexibility. We expect to continue to be disciplined and prudent with our capital allocation as we look to further reduce our leverage ratio during 2024. Looking ahead to the first quarter of 2024, consistent with how we’ve provided information previously, we expect revenues to be between $320 million and $326 million, representing 8% growth over Q1 2023, assuming the midpoint of the range. Adjusted EBITDA to be between $64 million and $69 million. Using the midpoint of the range, this represents approximately 250 basis points of margin improvement over Q1 2023, and adjusted EPS to be between $0.52 and $0.57. As we enter a new chapter at Envestnet, we have three areas of focus. First, our clients. Our clients are our compass and our commitment is unwavering. Second, we are committed to a growth algorithm for delivering more value to those clients and Envestnet. And finally, operating leverage where we can optimally balance revenue and profitability, supporting execution excellence with scale. So when we grow, we will generate compounding free cash flow per share, which can be utilized to drive even greater shareholder value. I’d now like to turn the call back to Bill for closing remarks. Bill Crager: Thank you, Josh. The decisions that we’ve made, the work we have done over the last years to expand and connect the ecosystem, to align the organization has put Envestnet in a very strong position. We sit at the center of the wealth industry, creating unique opportunities for our clients, our partners, and for our company to drive value and to grow. The bedrock of that position is the client relationships that we have. These are tenured. These are aligned, and they’re very deep relationships. This is because Envestnet is built around our clients’ needs to drive the growth and productivity of advisors by providing the leading wealth platform in the industry. It creates a competitive advantage through connected technology, data, and solutions. As we deliver like we have for the industry, it enhances the strategic and economic profile of the company by increasing revenue growth, operating leverage, and improving the free cash flow conversion. I’m incredibly thankful to all those who’ve been partners and my friends over this incredible journey that has been the history of Envestnet. Thank you to our clients who have supported us and have grown with us, to our partners who strengthen the ecosystem, to investors who have had long term conviction in us, and particularly to my colleagues at Envestnet, the thousands who have done such extraordinary work and made such a profound impact on our industry. And I will say this, such a profound impact on me. It has meant so much and I have nothing but gratitude and immense pride. A 25-year journey. How can an idea, an effort, become something so substantial? It has been the blessing of my professional life. It has been an extraordinary ride, and I am incredibly grateful. I’ll now turn it over to Josh and Tom and our operator, Camilla, for the Q&A session. Thank you very much. Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Michael Cho with JPMorgan. Please proceed with your question. See also 12 Best Medical Stocks to Buy Under $10 and 16 Countries That Allow Multiple Citizenship in the World. Q&A Session Follow Envestnet Inc. (NYSE:ENV) Follow Envestnet Inc. (NYSE:ENV) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Michael Cho: Hi, good afternoon, guys. Thanks for taking my questions. Bill, first, it’s been a pleasure interacting with you, and always appreciated your insights. It’s just a big picture question for you. Just a big picture question for you on your final earnings call here. As you look at your own transition, and as you mentioned, after 25 years with Envestnet and the roadmap that’s been implemented for Envestnet ahead, where do you think the next leadership, the next CEO of Envestnet could be of most value and most impactful for the company in the years ahead? Bill Crager: Yeah. Thank you, Michael, and just appreciate your coverage and your support over the years very much. I think, Michael, my perspective is that we’ve built such an extraordinary position in the market and as the most flexible scaled operating environment tied to now a broad network of solutions, the company has invested to become in this position to deliver on the holistic advice model. And so when I thought about my transition, I really thought about a transition point a time. And as on the heels of the investment cycle, this became a pretty clear moment as we flipped the page into the next year. And so, I think what we have ahead of us is an incredibly well positioned company that has a very strong, deep, and tenured client base with the solutions and the capabilities that we need to be successful. It’s all about execution from here. Michael Cho: Great. Thank you. And just a follow up for Josh and Tom. I think on the ’24 guide. I think I heard mid-singles to high singles on the Wealth Solutions in terms of revenue growth. Can you just talk through some underlying assumptions that you’re embedding in there in terms of maybe flows and fee rate trends? I think you talked through some puts and takes. So, I was hoping you could flush some of that out in the context of your expectations. Thank you. Tom Sipp: Yeah. Thank you, Michael. This is Tom. I think the fee rates, as I said in my comments, the gross fee rate has been between 9.5 and 10.5, and it’s been relatively stable in that range, and we think that will persist through 2024. And then from here, it’s really our flows, particularly our AUM flows. We did about $30 billion in AUM flows in 2023. We think AUM is gaining traction and those growth rates will persist, and they’ll deliver on a much higher average fee rate. And then our AUA flows, we did about $28 billion of AUA flows last year. We think that we’ve got some good momentum there as well. That will be impacted by one-off conversions or M&A activity as the year progresses. But the overall kind of underlying health at the individual firm level or at the per account level or growth flows are very, very persistent. So that will help drive that growth. And then you look at all the other cross-selling, or solutions that continues, we’ve got a lot of good progress with RIAs taking up managed account solutions. We’ve got continued growth with our money guide planning capabilities, we’re cross-selling analytics and insights to RIAs. So that will start to come through the wealth growth rate next year. The retirement progress that I mentioned and the partnership with Empower, that’s going to start to kick in as we scale up those efforts. So, it’s really continued progress across the client base, strong AUM flows. Later in the year, you’re going to see us get to market with our custody solution that we’ve been working on, and it’s continued to drive the overall ecosystem that will drive that growth rate throughout the year. Michael Cho: Great. Thanks, Tom. Tom Sipp: Thank you, Michael. Operator: Our next question comes from the line of Devin Ryan with JMP. Please proceed with your question. Devin Ryan: Thanks so much. Good afternoon, Bill, Josh, and Tom. And with that go the remarks. Bill, really been a pleasure working with you, and just want to wish you the best here going forward. Bill Crager: Thank you, Dev. Really appreciate you. Devin Ryan: Yeah, thank you. So, I guess first question, just appreciate the guidance and a little bit of a different structure here than we’ve seen. So, I guess just want to understand, is this, Josh, more just how you’re going to be framing things moving forward and so we’re not going to have kind of a full-year guide, or is that something maybe for the incoming CEO? So just kind of tactically how to think about that? And then, if it’s possible, just given some of the puts and takes you guys just outlined and kind of growth commentary for 2024, is there a way to bridge to 2025? I know that’s quite a ways out, but just you guys had put out, obviously, some growth targets and adjusted EBITDA margin targets and some people are still curious about how you’re thinking about those. So, is it possible to kind of hit on any of that yet, and at least how you’re thinking about kind of going from where we are today to something in 2025? Thanks. Josh Warren: Sure. Devin, this is Josh. Happy to take the one. Look, we believe this is more appropriate with regard to full year guidance based on the nature of our business. As you know, you know Envestnet well, most of Envestnet’s revenue is market driven. To go a step further, one thing we wanted to make sure that we did was for Q1 to provide guidance the same way Envestnet had historically done it. Same format, a pricing model-based format. But for the full year, we’re providing our expected growth rate for Wealth Solutions premised on a flat market. And that is the mid to high single digits growth rate. With regard to the questions about 2025, long way to go, and as you know, it’s difficult to speculate about the macro, particularly in an election year with an election in the second half of the year. But we believe our client foundation is strong. The flows, as Tom outlined, may be seasonal, maybe episodic, may have a little bit of volatility, but we believe Envestnet is a structural grower, and we think we’re incredibly well positioned to capitalize on that. Tom Sipp: Yeah. I would just add. Devin, you look at the progress we’ve made over the past couple of years, from a margin progression perspective, we’ve gone from 17% to 20% to 23% in Q4 that did have some one-time benefits, but it’s definitely a lot higher than the 20. And we’re delivering more and more operating leverage as we grow. And we think the margins will continue to expand and it’ll lead into more free cash flow, as Josh outlined. So, I think we’ve got — we’ve made a ton of progress. We’ve brought the company together, we’ve integrated the firm, and the client feedback is really positive from all that work. And I would expect our margins to continue to expand from here. Josh Warren: And maybe one just to super, super clear on the point, Devin, to answer your question. Look, as Tom mentioned, we’re continuing to make progress on our margin expansion, including our EBITDA margins. Q4 was a strong free cash flow result, and I don’t if we would — I would not expect that quite that level to continue in Q1, given some of the seasonality. But the adjusted EBITDA targets, that’s a milestone. That’s a milestone on a journey to durable and robust free cash flow generation. Not a destination, not an ultimate goal. We intend to continue to grow our margins and we believe what we’ve done in 2023 has demonstrated our ability to do that Devin Ryan: Got it. Understood. Appreciate all that color. Just as a follow up on flows. Clearly, you guys are outperforming kind of the broader industry, as you mentioned, I think four times kind of the peer camps, but at the same time there’s some environmental headwinds. So, I’d love to just maybe think about if possible, if there’s a way to quantify the effect of whether it’s M&A and the dynamic you mentioned, or just interest rates. And to the extent interest rates start to move lower, how much of a tailwind that could create? Just trying to think about that, because there’s the core piece of investment, there’s a lot of positive momentum and irons in the fire around new growth. At the same time, environmental headwinds. So just trying to think about the effect of those environmental headwinds that hopefully do reverse here at some point. Tom Sipp: Yeah. I think to start with the cash point, that has been a headwind over the past couple of years for us with the higher rates. As more — as rates come down and as more money moves back into the markets, equity, fixed income products, we realize a much higher fee rate on those assets. And a lot of those assets don’t even sit on the Envestnet platform. They may be off platform today and will come on as rates come down. So, I think from here it can only help would be our perspective as they move into more active products. So, I think that will be a tailwind at some point as we go forward. And then I think the headwind around M&A, historically this has been an advantage because our footprint is so large. We have such great relationships with RIA aggregators, with enterprise clients, and we’ve been a net beneficiary. It just so happens right now we’ve got some deal activity that’s away from us, and that will affect our growth rate. But let me be clear, that M&A activity, these clients that were affected were very, very happy clients. They were doing a lot with us because we’re really well positioned. The feedback from our clients has really never been better. And it’s all off the back of the work we’ve done over the past couple of years. So the M&A activity, the recent activity will be dilutive to that growth rate, but the medium-term prospects for the business are very, very positive from our perspective. Devin Ryan: Okay, thanks so much. Operator: Our next question comes from the line of Surinder Thind with Jefferies. Please proceed with your question. Surinder Thind: Thank you. Like everyone else, Bill, I definitely echo that it’s been a pleasure working with you. So, wishing you all the best here. Bill Crager: Thank you, Surinder. Thank you very much. Surinder Thind: I think, from my perspective, I’d like to just take a step back and big picture here. One of the — I think the pillars that you guys talked about was just kind of the growth algorithm. Any just kind of color on how you’re thinking about the team is thinking about the growth algorithm on a go forward basis? Is this driving more flows into the Wealth Solutions business? Is it more about the first party managed assets and trying to get the fee rate up? How should we think about the various drivers, just from a big picture perspective? Josh Warren: Sure. Hey, Surinder. It’s Josh. The growth algorithm it’s fairly simple. After all, Investment, as you know, it’s a relatively simple business. At the foundation, our Wealth business is going to benefit from the combination of market appreciation and secular flows into the independent space. On top of that, our growth is built on our industry leadership. As Tom talked about, clients want to go deeper with a fewer number of trusted partners. That’s a trend that should benefit us well as the industry leader and the way in which we capitalize on this growth opportunity through both of our pricing constructs, our asset based and subscription-based pricing models help fit the needs of the industry and provide compounding growth for investment. Tom Sipp: Let me add, Surinder. I’ll add a couple examples. So, you look at what we’re doing with RIAs, off of our Tamarac platform, which is trading reporting CRM. We’ve invested a lot to connect that platform to our managed account infrastructure. So, really cross selling fiduciary solutions, and that is really starting to get real traction. And then as the RIA, as we establish that fiduciary relationship, they then start to buy tax overlay services, direct indexing services, and then we’re going, and now we’re bundling and cross selling data and analytics. And when they start to use those data and analytics, especially through our client portal that we’re rolling out, that will lead to further adoption of those solutions. So, the way it will be evidenced, it would be more AUM, especially AUM that requires personalization. So, think of high-net-worth solutions, direct indexing, tax overlay, and then what we’re doing is partnering more and more with the biggest asset management partners, where we’re going to integrate their products in a unique way to deliver that personalization. And then their sales teams, their distribution efforts, their marketing efforts will lean in to help drive overall growth of the platform. So, cross-sell AUM, bundle it, expand the relationship, and then more personalization. The products where we have personalization are really growing at a very, very high growth rate, and we think that will persist for a long time period. Surinder Thind: Got it. And then, I guess just as a point of clarification there, so as you think about what you’re capable of and positioning, is it that you want to grow a certain basis points above the market or how are you guys assessing? I guess that was kind of what I was trying to get at in terms of as you think about what you’re trying to do and what you’re trying to accomplish here. Josh Warren: Sure. So, Surinder, I would say double digit growth is our goal. And that comes from a combination of market growth plus simply delivering an integrated firm. Delivering an integrated firm that’s now possible for us to show up as Envestnet and get the benefit of clients just wanting to go deeper, do more with us, clients that we already have. We don’t have to go out and win new clients, though we will continue to strive to, but we just have to go deeper with those clients that we have monetize and serve our advisors more effectively and more capably. So for us, it’s grow with the market and then add on top of that. Surinder Thind: Got it. That’s helpful. And then just hopefully, as a quick follow up, just the outlook for the data and analytics business over the next year? Josh Warren: Sure. So I think look for data and analytics, look, a couple of thoughts. The first is, as you know, that business has had a lot of challenges in 2023. A combination of the banking turmoil in March of 2023. It’s also had some idiosyncratic issues with regard to a data loss, which we’ve now restored. We believe that there’s a tremendous amount of — we believe some of these initiatives that we’ve put in place are going to bear fruit. And actually, the Q4 sequential results are early evidence of that. But our plan is to keep you updated on how those initiatives are going to play out over the course of the year. Tom Sipp: But Surinder, if you look at our Q3 to Q4 sequential revenue growth was up in the data business and we think we’re very focused on stabilizing that revenue base. So you’re up Q3 to Q4 and we think it’ll be stable as we look out at Q1, and then we’ve recovered the data set. So that issue, we’re in a much better place. And then we’re launching new products to drive kind of medium-term growth. But I think the sequential revenue growth and the stable revenue base would be important milestones from our perspective. Surinder Thind: Thank you. I appreciate all the color. Tom Sipp: Surinder, the other thing I would add would be we’ve done a lot of work to transfer the wealth data capabilities into our Wealth segment. And what that means is from an organization, it’s fully integrated, and from a client, it’s fully integrated. So, we’re now delivering data and analytics where our clients want to receive them, where they want to — where they’re doing business. And the response from our client base is really, really positive. I think we’re delivering about 25 million insights off of the back of 80 or 90 use cases. And the reception from our client base from that fully integrated data and insight capability to wealth clients has been really positive. Surinder Thind: That’s good to hear. Thank you, guys. Tom Sipp: Thank you. Operator: Thank you. [Operator Instructions]. Our next question comes from the line of Pete Heckmann with D.A. Davidson. Please proceed with your question. Peter Heckmann: Hey, thanks for taking my question. I echo all the other analyst comments to you, Bill, we’re going to miss working with you and I appreciated all your class and professionalism over the years. Bill Crager: Thank you, Pete. Back at you, really, really enjoyed the relationship very much. Thank you. Peter Heckmann: Great, great. Well, I think moving to the results and the outlook, I think all of the analysts are struggling a bit. The call format changed a little bit. Clearly, we’re not giving as much guidance. I think that the knee jerk reaction is — can sometimes be that there is no visibility in data analytics, and I don’t want to walk away thinking that if that’s not the case. I appreciate the adjusted numbers down 7% year-over-year, up 3% sequentially. But can you flesh that out a bit more in terms of how long do you think it’s going to take before the turn? And at that turn, can that business resume growing and resume margin expansion, or is there something fundamentally broken there? Tom Sipp: No, Pete, I would just kind of go back to the sequential revenue growth is up Q3 to Q4. We think we have stabilized the revenue base. Recovering the data set is a big deal that we worked hard on throughout last year. That was a big driver of the decrease, especially in our research business. You hit issues in the banking channel. We had issues with Fintech clients. So last year was a tough year with revenue down 14%, 15%. We believe it’s now in a stable situation. There’s been a lot of work to develop and create new products, and now that you have a more robust, fulsome data set, we’re better positioned to do it. But it’s not going to happen overnight, either. So we are investing, and over the coming quarters and then 12, 18 plus months, we think the position will be much better. The segment will be much better positioned from there, but it is off the back of our restored data set, stabilized revenue base, and a more efficient, we’ve reduced the cost base as well. So, a more efficient, better margin from there, but it’s stabilized and then investing in new products and then medium-term back to growth. Peter Heckmann: Okay, I appreciate that. And then just back to custody. I think I’ve been paying attention pretty closely and I know that that’s been delayed a bit, but you made a comment early on and I just want to see that — make sure that that’s still on the table and see if there’s been any further changes in the dates of the rollout or the sizing of the opportunity? Tom Sipp: Yeah. So it’s extremely strategic. It’s very important. It’s a big priority to deliver. As we’ve announced we’ve partnered with FNZ. There’s been a ton of work over a year. Plus they are doing the work to localize an international platform and to localize a platform in the US market is, it takes time. It’s complicated. They’ve hit some pretty important milestones to date. They’ve converted a legacy platform on to their technology. They’re standing up their operations, their trading efforts, and then they’re getting the required regulatory framework in place. And all that just takes time to put in place as a new entrant into this market. The technology is fantastic, and we’ve been working with them to integrate that technology throughout our ecosystem, and that is really lining up to be in place in the next couple of quarters, and then we’ll be in market at some point this year. But it’s very, very important, very strategic, that custody solution. Josh Warren: And then, Pete, just to add that, if I could, and depending on the speed of adoption, the speed of the rollout, you should think about FNZ as representing upside both on the top — to the top-line guidance that we gave. Our expectation is this is a long-term bet. Peter Heckmann: Okay. All right. Tom Sipp: Yeah. This year is really outstanding up the capability and getting to market, and then you’ll start to realize the benefits beyond this year. Peter Heckmann: Thank you. Tom Sipp: Thank you. Operator: Thank you. There are no further questions at this time. And with that, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation. Follow Envestnet Inc. (NYSE:ENV) Follow Envestnet Inc. (NYSE:ENV) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»

Category: topSource: insidermonkey6 hr. 26 min. ago

Remitly Global, Inc. (NASDAQ:RELY) Q4 2023 Earnings Call Transcript

Remitly Global, Inc. (NASDAQ:RELY) Q4 2023 Earnings Call Transcript February 24, 2024 Remitly Global, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day, and welcome to the Remitly Fourth Quarter 2023 Earnings Conference Call. At this time, all […] Remitly Global, Inc. (NASDAQ:RELY) Q4 2023 Earnings Call Transcript February 24, 2024 Remitly Global, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day, and welcome to the Remitly Fourth Quarter 2023 Earnings Conference Call. At this time, all participants in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen Shulstein, Vice President, Investor Relations. Please go ahead. Stephen Shulstein: Thank you. Good afternoon and thank you for joining us for Remitly’s fourth quarter 2023 earnings call. Joining me on the call today are Matt Oppenheimer, Co-Founder and Chief Executive Officer of Remitly, and Hemanth Munipalli, our Chief Financial Officer. Our results and additional management commentary are available in our earnings release and presentation slides, which can be found at ir.remitly.com. Please note that this call will be simultaneously webcast on the Investor Relations website. Before we start, I would like to remind you that we’ll be making forward-looking statements within the meaning of federal securities laws, including but not limited to statements regarding Remitly’s future financial results and management’s expectations and plans. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to vary materially from those presented here. You should not place undue reliance on any forward-looking statements. Please refer to our earnings release and SEC filings for more information regarding the risk factors that may affect our results. Any forward-looking statements made in this conference call, including response to your questions, are based on current expectations as of today and Remitly assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. The following presentation contains non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our earnings press release, and the appendix to our earnings presentation, which are available on the IR section of our website. Now, I will turn the call over to Matt to begin. Matt Oppenheimer: Thank you, Stephen, and thank you all for joining us for our fourth-quarter earnings call. As we look back on Remitly’s performance in 2023, we have a lot to be proud of as we delivered on our commitments to our customers and shareholders. At the beginning of last year, we laid out our commitment to deliver strong growth at robust unit economics, increase return on our investments, and deliver a fast, reliable and seamless experience for our customers. As you can see on Slide 4, we delivered on these commitments in the fourth quarter and in 2023. These results reflect the progress we have made on our strategic initiatives and our commitment to our customers to deliver peace of mind as they send money across borders. Our revenue increased 39% in the fourth quarter and 44% for the full year. On a fourth-quarter annualized basis, our scale has reached over 1 billion of revenue. We also delivered $8 million of adjusted EBITDA in the fourth quarter and $44 million of adjusted EBITDA for the full year, well ahead of the goals we set for ourselves at the onset of the year. We benefited from strong execution across the business, increasing scale, the nondiscretionary nature of our service, and the resilience of our customers. We’ve expanded on our vision as you can see on Slide 5. Our vision is to transform lives with trusted financial services that transcend borders. This vision encapsulates a broad view of who our customers are today and who we can serve in the future. It also speaks to the unmet customer needs that we believe we are uniquely positioned to solve by delivering peace of mind to customers around the world with cross-border financial needs. Our four strategic focus areas on Slide 6 are designed to help us deliver against this audacious vision with customer-centricity at the heart of our strategy. We believe our total addressable market is approximately 1.8 trillion, which represents the total consumer cross-border payments market. We currently have 2% of this total market with nearly $40 billion of send volume in 2023. According to the UN, this market includes approximately 1 billion people around the globe who send or receive cross-border payments, including immigrants, their families, and others with cross-border financial needs. We remain focused on investing where we have clear advantages as a digital-first, cross-border financial services company. In addition, we believe investments in our technology platform will allow us to efficiently serve more of this market over time. We are confident our strategy will allow us to drive robust growth with this very large market opportunity for many years to come. First, we aim to delight our customers with a fast, reliable, and seamless cross-border payment experience which results in providing our millions of customers with a delightful experience. This is a key driver of improving retention, engagement and maintaining strong unit economics. Delivering a delightful cross-border payment experience in a trusted and reliable way to a highly diverse and global customer base is incredibly complex. Our technology investments and increasing scale have resulted in significant progress across various aspects of improving the customer experience, which as a result has increased customer engagement on our mobile app and website and enabled market share gains. But there is still so much more to do to improve the customer experience and we are excited about continuing our journey to reinvent international person-to-person payments. Second, our targeted marketing investments across both performance and brand channels have delivered new customers to our platform at very attractive unit economics. Our focus remains on maximizing lifetime value for the long term while we efficiently acquire new customers and retain a growing large base of customers. We define lifetime value as revenue-less transaction expense over five years, even though many customers continue to transact with us for more than five years. This long-term view of our customers provides us with many levers to enhance lifetime value and we are experiencing LTV improvements as customers have increased their transaction activity, particularly for digital receive options, and we have also been decreasing transaction costs. Third, we see significant opportunities to expand into more geographic markets. Our global network consists of more than 5,000 corridors and we have plans to increase our reach to thousands of additional corridors while increasingly benefiting from diversification. We will use the same disciplined corridor expansion strategy and our targeted approach that has served us so well to date. While our customer base today is primarily customers who regularly send home to family and friends in developing countries, we believe over time, we can better serve a broader set of customers who have cross-border financial needs. Fourth, we believe there are enormous opportunities to deepen customer relationships by leveraging the unique technology platform we have built and continue to build, to efficiently scale new features and products to the millions of customers we serve today, and to make our offerings even more attractive to other customers that have cross-border financial needs. Now, let’s turn to more details regarding each of these focus areas. On Slide 7, you can see that in the fourth quarter, quarterly active customers increased 41% year-over-year to 5.9 million. The significant year-over-year increase in quarterly active users can be attributed to multiple factors, increased activity due to the holiday season from a growing base of active customers who were acquired in prior periods, as well as the acquisition of a record number of new customers during this period. Customer behavior trends remain strong, and we see transaction intensity, which we define as transactions per quarterly active customer, continued to increase as the year-over-year mix of digital receive transactions increased by more than 500 basis points in the fourth quarter. As we continue to deliver value for customers, we believe we can serve these digital receive customers in a way that maximizes retention and engagement while also reducing unit costs across our pay-in and disbursement networks. In the fourth quarter, we also acquired a record number of new customers across all our send geographies, including the U.S., Canada, and the rest of the world. Now let’s turn to Slide 8. We talked last quarter about the complexity inherent in cross-border payments experience and how our value proposition of providing a fast, reliable, and seamless customer experience is a key differentiator. Our investments in reducing complexity and eliminating all unnecessary friction in various elements of the customer remittance experience enables us to provide value to our customers, which in turn results in improved retention, increased transaction intensity, lower customer support costs, and strong word-of-mouth referrals. While we are pleased with the progress we are making in reducing unnecessary friction in our disbursement network and customer support, we continue to see opportunities to further improve the customer experience. In this context, we are focused on improving the quality of our disbursement network, which can be enhanced by direct integrations which eliminate intermediate steps in the remittance journey. This enhances our ability to deliver instant transactions for our customers, which is a key driver of loyalty and word-of-mouth effects, as speed and reliability enable us to delight our customers. Since early 2021, we have significantly increased the percentage of transactions that go via direct disbursement routes. This now includes strategic partnerships with some of the largest banks and telcos, including M-Pesa in Africa, Alipay in China, BDO in the Philippines, and Elektra in Mexico. As a result of these investments we have made to enhance the quality of our network in the fourth quarter, we were able to disperse more than 90% of transactions in less than 1 hour, even as we onboarded a record number of new customers where the risks of delays are higher. Our direct integrations also allow us to disperse funds rapidly, 24 hours a day, seven days a week, which would not be the case if we exclusively relied on intermediary payment networks. This outcome is critically important to our customers who are often sending money for immediate needs, so a reliable and fast service is of paramount importance. Optimizing the balance between a great customer experience and preventing fraud is another area that has been a key focus for us and very important to our customers. We have made significant investments to ensure that legitimate transactions can go through with the least amount of friction and that we are able to block fraudulent transactions more effectively and in real time. We are continuing to leverage artificial intelligence and machine learning to more accurately make risk decisions. These models have been getting even more precise with growing customer data, which the models continuously adapt to. This allows us to operate more efficiently while improving their customer experience. This helped drive a decline in our non-GAAP customer support costs as a percentage of revenue by 260 basis points in the fourth quarter as compared to the prior year. Our customer support experience is a key driver of product differentiation. We have made significant improvements by reducing problems in the first place and with a new self-help experience to empower customers to resolve problems quickly and efficiently. We are highly focused on reducing issues the customers face during a transaction, reducing friction related to fraud that I just discussed is one example of where we made significant progress in the fourth quarter. Secondly, we are highly focused on increasing the number of customers that can resolve issues themselves using our digital service options. As an example, we offer support in 15 languages, and after thorough testing, we are using AI to efficiently serve even more customers by translating and responding to contacts in real time. These efforts have been key drivers of more than 95% of customer transactions proceeding without a customer support contact. To make self-service a preferred method of support for customers, we recently launched a new self-help experience across both our app and web platforms. The new experience is responsive to customer needs based on aggregated insights from customer interactions and customer focus groups. Key improvements include an AI-based search that improves precision of answers to customer questions, more clearly communicates outages and delays that could impact a specific transaction, building customer trust by displaying available contact channels and customers’ preferred language. We have seen early returns from this new self-help experience with continued reduction in our customer contact rate. Finally, in cases where customers are unable to resolve problems on their own, we aim to provide an efficient and empathetic service that resolves issues the first time and builds peace of mind and trust for our customers. Now, let’s turn to how our highly localized and targeted marketing strategy enables us to acquire new customers at very strong unit economics on Slide 9. We are focused on customer lifetime value, which again we define as revenue-less transaction expense over a period of five years. We use our deep knowledge of our customer lifetime value to be intentional about how much we’re willing to pay to acquire new customers, and our average payback period remains below 12 months. This gives us very high confidence in our recent marketing investments, which are expected to deliver returns this year and beyond. We have also observed that our customers’ behavior over the past many years they have been active on our platform are predictable and durable. This is why we do not optimize for marketing expenses in any given quarter but rather optimize the amount we’re willing to pay for a newly acquired customer with the projected lifetime value over five years and remain confident that our efficient marketing investments are generating significant value. This is especially true as we continue to scale and drive down our unit costs, thereby increasing our LTV via lower per-transaction expenses. As a result, we have been able to drive even more lifetime value on a total dollar basis. As you can see in the chart on Slide 9, our revenue-less transaction expense remains very durable over time, primarily as a result of declining unit costs and resilient customer behavior. Following the first full year after we acquire a new customer, these same customers have provided, on average, approximately 95% of revenue less transaction expense for each subsequent year. This continues to validate that our marketing investments are expected to generate high returns for the long term. Our revenue less transaction expense grew 56% in 2023 compared with our 44% growth in revenue. We expect revenue less transaction expense to continue to grow faster than revenue in 2024 as we benefit from increasing scale across pay-in fees, disbursement fees and fraud. Also, similar to prior years in 2023, a significant portion of our revenue less transaction expense was contributed by customers acquired prior to 2023, further demonstrating the predictability and durability of the lifetime value of our customers. We continue to benefit from scale, a multiyear focus on brand building, creative velocity and experimentation and optimization across marketing channels. We have high confidence in the return these investments are delivering in the aggregate, given the predictability and durability of the associated lifetime value from our customers. Turning to our third strategic pillar on Slide 10. We also see an opportunity to drive growth by expanding to additional markets and customers. While today our global network spans over 5,000 corridors around the world, we have plans to increase our reach to thousands of additional corridors over time, using our disciplined corridor expansion playbook. We have demonstrated our success in growing both new and existing markets. Since 2020, we have more than tripled our revenue from North America and our revenue outside of North America has grown more than 7x to nearly 200 million in 2023. While the global market opportunity is significant for us, we are very targeted and intentional about our investments and are focused on ensuring product-market fit for our customers. We expect to go about our expansion plans methodologically and by deploying our well-established playbooks and technology as we have done for many years. Now, let’s turn to our fourth strategic pillar on Slide 11. We believe there is a significant opportunity to further deepen our relationship with customers. We are excited about the opportunity to offer complementary new products built on our technology platform. This platform additionally enables us to test and learn at scale and provide our customers with features and functionality that increase engagement and remittance transaction intensity. We are structuring our technology platform to create a multiplier effect where we improve the quality of all products, including both our remittance app and complementary new products. We are enhancing our technology platform so that can scale for even more rapid and efficient development cycles. The technology platform is also enabling us to leverage data, AI and ML models, and analytical capabilities to drive improved customer experiences. The improvements we have made in fraud management, customer service operations, reliability, including a 99.99% availability in the fourth quarter, higher quality represented by better and faster expansions at lower error rates, and better security and privacy posture are all directly the benefits of our technology platform. To summarize, we have high-return investment opportunities over the short and long-term horizons that will help us drive strong revenue and sustainable profit growth in a large and growing cross-border market. Given the increasing scale, we also intend to drive additional focus on improving our operational efficiencies in 2024 across the business. We plan to take a similar rigorous approach we took to driving efficiencies in transaction expense and customer service costs to other areas of the business. By streamlining processes, increasing automation, and deploying technology solutions, we expect to continue to be able to make high-return-yielding investments towards growth while also sustainably growing our profits for the long term. I could not be more excited about the opportunities ahead to achieve our vision, to transform lives with trusted financial services that transcend borders. With that, I’ll turn the call to Hemanth, to provide more details on our financial results and our 2024 outlook. Hemanth Munipalli: Thank you, Matt. I’m pleased with our strong results in the fourth quarter as results came in ahead of our expectations consistent with our strong execution throughout 2023. I will start with a review of our fourth-quarter financial highlights and then provide additional details on our 2024 outlook. I will discuss non-GAAP operating expenses and adjusted EBITDA in my remarks. These metrics exclude items such as stock-based compensation, the donation of the common stock in connection with our pledge 1% commitment, acquisition, integration, restructuring, and related costs, and foreign exchange gain or loss. Reconciliations to GAAP results are included in the earnings release and the appendix to our earnings presentation. With that, let’s turn to our fourth quarter results beginning on Slide 13 with our high-level financial performance. Quarterly active customers grew by 41% year-over-year to 5.9 million. Send volume grew 38% year-over-year to approximately $11.1 billion, all resulting in revenue growth of 39% year-over-year to $265 million in Q4. Our GAAP net loss was $35 million in the quarter and included $36 million of stock compensation expense. The strong growth in revenue combined with significantly lower transaction expense as a percentage of revenue led to adjusted EBITDA of 8.2 million in the quarter, which was above our expectations. Our adjusted EBITDA results in the quarter also reflected the targeted and high-return marketing investments that we made as planned. We fully expect to benefit from these investments in 2024 and beyond, as I will discuss later in our 2024 outlook. Now let’s turn to Slide 14 for a detailed review of our performance in the fourth quarter. Let’s begin with revenue, which was up 39% year-over-year in the fourth quarter on a reported basis and 37% on a constant currency basis. Our strong revenue growth was primarily driven by a 41% increase in quarterly active customers, which includes a record number of new customers acquired in the quarter, high retention of existing customers and seasonal sending patterns. We’re pleased with both the year-over-year and sequential growth in quarterly active customers, which benefited from both in-period and prior marketing investments and additional customer activity due to strong seasonal demand. The record number of new customers we acquired in the quarter will drive growth in 2024 and beyond. Customer behavior in the fourth quarter remained very strong as we continue to deliver a fast, reliable and seamless experience and our customers remain resilient in supporting their family and friends back home. As Matt mentioned, we continue to see a shift to digital disbursement options in certain markets, which results in smaller transaction sizes and increased transaction intensity. We view this as a positive trend given our digital-first-at-scale positioning and our ability to effectively localize our product offering and drive down transaction expenses. Transaction expense as a percentage of revenue improved nearly 400 basis points year-over-year as we continue to benefit from our rapidly increasing scale, technology investments and our direct integration strategy. Of the 400-basis point improvement in transaction expense, approximately 200 basis points were due to improved economics with payment acceptance and disbursement partners as we demonstrate scale and are increasing value to our partners across our global payment acceptance and disbursement networks. We also began to see the benefit from our recent agreements with large payment processors flow through in the fourth quarter. We are pleased with the speed of integration with our partners, which can be attributed to our technology platform and the strong execution of our teams. We also benefited from continued improvement in our year-over-year fraud loss rates in the fourth quarter, even as we onboarded a record number of new customers. Once again, we were very pleased that our fraud loss rate continues to improve, while at the same time, our customer contact rate continues to decline. However, as we’ve noted before, fraud losses can be volatile, especially for new customers. However, we remain confident that we will be able to sustain improvements in fraud loss management. Turning to marketing expense, as we mentioned last quarter, we were able to take advantage of strong unit economics and make targeted incremental marketing investments in the fourth quarter, including some upper funnel investments. Marketing expense increased sequentially as planned and enabled us to acquire record new customers during a seasonally high activity quarter. While marketing expense as a percentage of revenue increased 610 basis points on a year-over-year basis, we expect the revenue and lifetime value of the new customers acquired in the fourth quarter to be predictable and durable for multiple years ahead, as Matt had also discussed. In the fourth quarter, customer support and operations expenses were down 260 basis points year-over-year as a percentage of revenue. This is primarily driven by lower contact rates as investments in delivering a fast, reliable, and seamless cross-border customer experience continue to pay off for our customers. This was also driven by an improving self-help experience which allows customers to resolve many more issues across the transaction flow without contacting customer support. We’ve also invested in automating certain back-office customer support processes, which makes our agents more efficient and more effective in resolving customer issues. In the fourth quarter, technology and development expenses increased 20 basis points year-over-year as a percentage of revenue. Our investments are primarily focused on driving a fast, reliable, and seamless experience for our customers. We have seen strong returns from these investments in the form of reducing friction to enable our active customer growth, improving fraud management with increased precision, and increased automation and other technology solutions to lower customer support costs. In the fourth quarter, G&A expense as a percentage of revenue increased 100 basis points year-over-year and was negatively impacted by the timing of certain non-recurring items. We continue to be actively focused on operating more efficiently as we have been achieving scale. Our GAAP net loss in the quarter was $35 million compared with $19 million in the fourth quarter of 2022. Our net loss included $36 million of stock compensation expense in the fourth quarter, compared with $27 million in the fourth quarter of last year. We’re actively focused on managing stock-based compensation expense and we’re pleased to see our year-over-year growth in stock compensation expense moderate in the fourth quarter as compared with the year-over-year growth in the third quarter. Turning to an annual view of our progress to drive sustainable long-term returns on Slide 15. We’ve delivered strong revenue growth even as our scale has increased, with revenue growth accelerating in 2023 compared with 2022, as we benefited from resilient customer behavior and acquiring new customers through our high-return marketing investments, which continue to have an average payback period of less than 12 months. We’re particularly pleased with our improvement in transaction expense as a percentage of revenue, which has declined approximately 700 basis points from 2021 to 2023. This has been primarily driven by scale benefits which provide improved economics as a result of nearly $40 billion of send volume in 2023 flowing through our pay-in and disbursement partners, and vast amount of data that have improved the precision of our fraud models. Our other operating expense performance reflects both the progress we have made in customer support as well as the continuing investments in reducing unnecessary friction for our customers, building our technology platform, and ensuring we have the right infrastructure in place to ensure we’re able to scale rapidly with a strong focus on compliance. Our customer support expense as a percentage of revenue has declined approximately 140 basis points from 2021 to 2023. We see opportunities ahead to drive even more leverage in our customer support. We are planning to take the same disciplined approach to our G&A expenses and other operating expenditures to drive even more productivity and efficiency through this year and beyond. We’re also seeing longer-term scale benefits from our marketing investments which are driving record customer acquisition. As our unit economics remain strong, we have continued to increase our marketing dollar investment to capture even more customer lifetime value. As Matt noted, we look at marketing investments over a longer-term horizon as the lifetime value from new customers remains predictable and durable for many years. This is why we believe taking a longer-term view of our in-period marketing investments is key to understanding our business model and the overall profit potential as we retain on average 95% of revenue less transaction expenses after the first full year of active customer growth. Before I turn to our 2024 outlook, I’d like to discuss how we’re building a differentiated long-term financial strategy. We expect that our high quarterly active user growth, reducing transaction expenses and customer service costs, and increased focus on delivering operational efficiencies will enable us to invest in marketing and technology for high returns over the short, medium, and long term, and also sustainably growing profits. We have an exciting opportunity in a large cross-border payments market, and we believe a targeted and disciplined approach to deploying our resources and capital will generate long-term value for our shareholders. In this context, we also continue to focus on actively managing stock-based compensation and share dilution. Our outlook for 2024 reflects a disciplined approach we have been taking to generate long-term returns and recognizing that 2024 will be another year in a multiyear journey since our IPO to unlock significant value. As you can see on Slide 16, we expect revenue to be between $1.225 billion and $1.25 billion, which reflects a strong year-over-year growth rate of 30% to 32% on a large active user base. This outlook reflects the confidence we have in LTV, the returns from our marketing investments, and our plans to acquire even more customers in 2024 than we acquired in 2023. Consistent with seasonal patterns, we expect first-quarter sequential growth to moderate from the 10% sequential revenue growth we delivered in the fourth quarter. We expect adjusted EBITDA to be between $75 million and $90 million in 2024 and for it to ramp sequentially as we benefit from additional growth and scale efficiencies throughout the year. However, factors like timing of marketing investments and outcomes of initiatives to improve our efficiency may impact adjusted EBITDA growth in any specific quarter. Our macroeconomic and FX assumptions remain relatively consistent to what we have seen in the fourth quarter of 2023 and we expect continued resilience in customer behavior across our diversified portfolio of corridors. Turning to some balance sheet highlights. At the end of the quarter, we had over $320 million of cash and we continue to have access to a $325 million working capital facility. During the fourth quarter, we upsized our working capital facility by $75 million, which provides us with additional flexibility. This is especially relevant during peak periods such as holiday weekends as we have grown significantly since we have last amended our working capital facility. At the end of the quarter, we had $130 million outstanding on the facility, which allowed us to fund peak demand over the year-end holiday weekend. This balance was paid off the following week in early January. We are proud of our execution this year as we have delivered both higher-than-expected revenue growth, making targeted investments for the long term, and sustainably increasing adjusted EBITDA profitability. We’re in a strong position to be able to make investments to sustain future growth while also delivering efficiencies that drop to the bottom line. With that, Matt and I will open up the call for your questions. Operator? See also 15 Mailchimp Alternatives for Email Newsletters in 2024 and 20 Most Profitable Email Newsletters on Substack. Q&A Session Follow Remitly Global Inc. Follow Remitly Global Inc. or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. At this time, we’ll conduct the question-and-answer session. [Operator Instructions] Our first question comes from Tien-Tsin Huang with JP Morgan. Your line is open. Tien-Tsin Huang: Hey, good afternoon. Great results here. I did want to hone in on the comment that you’re planning to add more users in ’24 than you did in ’23. I’m curious if you can be a little bit more specific on that. I mean, it looks like you’re adding closer to 500,000 per quarter trend line at this stage. If you look at the fourth quarter, is that a good starting point? I’m just curious if there’s any thoughts on seasonality or maybe difference in type of customer that might come on at different points in time. Any additional color would be great. Thanks. Matt Oppenheimer: Yeah. Thanks, Tien-Tsin for the question. Yeah, first off, really excited about the opportunities we have in 2024. In terms of when we think about customer growth this year, I mean, one, you got to recognize 2023, we’ve added record customers in 2023 as well, thanks to the resilience of the customers and our marketing machinery to add a whole lot of new customers in ’23 as well. And we look at ’24, we think that sort of pattern will continue to hold where based on our marketing investments, which we think are highly predictable and durable in terms of return profile on those, we would be expecting to add more new customers in ’24 than we did in 2023. So largely speaking, I think we have a huge market opportunity. We’re 2% of $1.8 trillion market. So we think that — going about that in a very methodical fashion and building on sort of the core corridors that we already are in and as well as expanding in rest of the world will get us those growth rates. Tien-Tsin Huang: Perfect. Then, my follow-up just on the intensity comment, and I think you mentioned has climbed because of higher mix of digital receive. I think about down to 500 bps. So is that secular or intentional on your part of driving that channel, and is that sustainable and is that also tying back to the benefit you’re seeing on transaction expense? Hemanth Munipalli: Yeah. Thanks, Tien-Tsin and great questions. I think that we are good at both receiving funds the way that customers want to send them to us, as well as dispersing funds across the globe, whether that’s bank accounts, mobile wallets, cash pickup, or door-to-door delivery in seamless and diverse ways. And so I would view the increase in digital disbursement as a positive in the sense that we have a great digital disbursement network, whether that’s bank deposit or mobile wallet that oftentimes carries a lower variable cost for us, which is helpful. And we’re excited about leading the way when it comes to digital disbursement in several markets. Tien-Tsin Huang: That’s great. Thank you so much. Operator: One moment for our next question. Our next question comes from Ramsey El-Assal with Barclays. Your line is open. Allison Gelman: Hi. This is Allison on for Ramsey. Thank you, guys, so much for taking our question. So just in the context of marketing spend, maybe could you just provide some color on the latest regarding your pricing strategy? Are you doing any promo pricing at all? Are you still marketing strategically by corridors you’ve done in the past? Just are there any changes to the marketing strategy beyond what you’ve outlined so far and anything that you want a highlight on the holiday send environment in terms of marketing spend, what it looked like this quarter versus a year prior? Matt Oppenheimer: Yeah. Thanks, Allison. Great question. I think that our marketing strategy has been something that remains consistent, as it has over the last decade of building the business. We tend to be analytical, data-driven marketers, but we also have a structural benefit as our customer base grows and our product continues to deliver, in that there’s word-of-mouth and continued just trust within the communities that we serve that helps continue to grow our product. And so wouldn’t say any large changes to our marketing strategies, continuing to execute it in a measured, data-driven way. And that’s why we’re excited about the record number of new customers in Q4, as well as being able to guide the ’24 in a way that both continues to grow top line, but also you get the profitability from those customers that we’ve added in Q4 and throughout 2023 and prior quarters, being able to deliver to the bottom line in 2024 as well. Hemanth Munipalli: Yeah. Maybe just adding a little bit to what Matt said too is Q4 for us is a seasonally high quarter in terms of acquiring new customers. We want to make sure that we’re leaning into marketing, which we’re able to do. And as you can see, we did add record new customers in Q4. So as we look forward, we do think it makes sense for us to continue to invest in marketing and the right sort of guardrails and thresholds on LTV and CAC, but we see it as a high-return sort of investment. And so we think based on these investment thresholds and what we expect for 2024, that we’ll be able to add additional new customers in ’24, above and beyond what we did in 2023. Allison Gelman: Great. Thanks so much. Really appreciate the time. Operator: One moment for our next question. Our next question comes from Andrew Schmidt with Citiglobal Markets. Your line is open. Andrew Schmidt: Hey, Matt, Hemanth, Stephen. Thanks for taking my questions. Good quarter here. I want to dig in on just sort of your core corridors U.S. to India, U.S. to Mexico, U.S. to Philippines, obviously seeing good rest of world growth beyond that, I think that’s important part of the story. But in the corridor of where you started, maybe talk a little bit about the growth trends you’re seeing, and then what can help sustain that growth as you reach higher levels of penetration? Thanks a lot, guys. Matt Oppenheimer: Yeah. Thanks, Andrew. Great to hear from you and appreciate the question. I think that if you look at the overall, you mentioned the three receive markets — India, Philippines and Mexico. And the punchline is there’s still significant growth opportunities and we’re continuing to see growth in those three receive markets, both and this is important in markets that we’ve originated from over many years like the U.S. where we started, but we also now originate across North America, Europe, a variety of countries, Australia, UAE, et cetera. And so I think that there’s large opportunities as we expand the addressable market in terms of origination country. And all of this needs to be put in the backdrop that we are 2% of a $1.8 trillion market. And so while we might have slightly higher share in markets that we’ve been in for a while, we’re still seeing healthy growth in those markets, and we still see a lot of opportunity to continue to grow. Hemanth Munipalli: Yeah. Maybe just adding a little bit on to what Matt said, Andrew, is that when we look at the digital trend that we’re seeing in the business, so increasing shift to digital is another sort of a tailwind as we look at even the core corridors we’ve been in. So whether you take U.S. to the Philippines and the adoption of mobile wallets as an example is one that certainly we think is benefiting sort of our growth in that corridor. That’s just one example. Andrew Schmidt: Got it. Very helpful. Thank you, Matt, Hemanth. And then, maybe to follow up just on sales and marketing, if you just discuss, maybe put a finer point on what’s embedded in the outlook for 2024 for marketing spend and then maybe talk about the philosophy about flexing that up and flexing it down. I know this is a longer-term story and it’s important to go after the market, because there’s attractive unit economics. But just curious to get your thoughts on what could drive marketing up or down as we progress throughout the year? Thanks a lot, guys. Hemanth Munipalli: Yeah. Thanks, Andrew. So first off, I think just wanted to make sure that it’s recognized that marketing is a lever that we can actually dial up and down and we think that it makes sense to do that within the return threshold. So we set ourselves for here and you can see that we have a pretty long and durable stream of sort of revenues from the customers we acquire from marketing investments, which exceeds five years. So we talk about LTV from a five-year lens, but it’s even longer than that. So we think it’s the right investment to continue to make. So in terms of projections, we have factored in an increase in marketing expenditures — investments in 2024 versus 2023 on a broad basis. And that’s reflected in our guidance. So we’ve factored that in, and it obviously impacts our revenue growth for this year. But certainly, we’re looking at it beyond this year and looking at ’25 and beyond in terms of these investments we’re making. Matt Oppenheimer: Yeah. The only thing I’d add there, Andrew, is I think that, as you know, and therefore, I appreciate the question in terms of we have the ability to dial up or back the amount that we spend on the marketing front because we do view it, one, really targeted towards new customer acquisition, building that trust top of funnel with a customer base that’s historically hard to build trust with. But then once we built that trust, we see nice recurring long-term profit and revenue streams from the customers that we serve. And so if you think about how much we’re spending to build that top-of-funnel trust, it is something that we can calibrate depending on the cost of capital, depending on the market environment. And we’ve certainly taken into account the increased cost of capital. And there’s a spirit of just driving efficiencies within the business as we think about 2024. You see that in our adjusted EBITDA guidance, as well as continuing to build an even more profitable and even larger business as we think about 2025 and beyond. So we think we struck the right balance and certainly those efficiencies and the focus on efficiency as well as growth is included in our 2024 guide. Andrew Schmidt: Got it. Appreciate the balance, and congrats on the good quarter, guys. Matt Oppenheimer: Thank you. Operator: One moment for our next question. Our next question comes from Will Nance with Goldman Sachs. Your line is open. Will Nance: Hey, guys. Appreciate you taking the question today. Matt, competition remains a big focus in the market, particularly in the digital remittance space. And I think investors’ perception of the levels of churn in the digital remittance space are relatively high. And I think you guys have highlighted several times today the retention that you guys have in terms of revenue less transaction expense from prior cohorts. So maybe if you could just talk a little bit about the stickiness of your customer base, what you think keeps them coming back to Remitly over time in a world where there are lots of options. And then I think you mentioned in some of the prepared remarks, talking about future products that can address additional needs of the customer base. So how are you thinking about the interplay with those additional products with levels of customer retention over time? Thanks. Matt Oppenheimer: Yeah. Great question and several things to unpack within that. I think that the first thing to your question of why customers choose a remittance provider and why they stay with us is it really does come down to the things that ladder up to trust. It’s a customer base that might be reticent to provide a lot of their personal sensitive information, and then they’re trusting us with a big percentage of their hard-earned money to be sent back home, often hundreds of thousands of miles away. And they need that money immediately. It’s for things like basic living expenses, emergency medical needs and so that combined with the complexity of delivering a remittance internationally in a fast and reliable way means that trust is at a premium. And so when we talk about things like speed and reliability, that is ultimately what customers care about the most. And having a fair and transparent price, which we can do, given that we’re a digital-first provider is a component of building that trust, but it’s not about just having the best price. Once you’ve built that trust and you deliver with a great product, as we’ve done and as we continue to do, as we get more scale and can invest more into our global payments platform, you see the kind of retention rates that we’ve shared on Slide 9, where you can see on a cohort basis that customers come back on a very regular basis. And we shared that following the first full year after we acquired new customers, those same customers have on average approximately 95% of revenue less transaction expense for each subsequent year. And so that is something that we really appreciate about our customers, their resilience, the nondiscretionary nature of our service. And something that I’ve seen over the last now 13 years of building this business is that customers care about trust as a premium, and that is what we’re ultimately good at delivering. Will Nance: I appreciate all that. And then I think you also have some comments in the prepared remarks around turning your attention to operational efficiency, taking the track record you have on things like customer support and fraud, and looking at some of the other OpEx levers that you have maybe around G$A or whatever else that you guys are focused on. Maybe you could just kind of talk about that and wondering if anything has changed in your thought process around kind of optimizing for profitability and kind of cutting out any pieces of G&A and OpEx while still making some of the growth-related investments in sales and marketing that you guys need to grow the business? Matt Oppenheimer: Yeah. I’ll start and then I’ll turn it over to Hemanth to talk about it from a P&L standpoint. But the thing that I would highlight is we’re starting, given some of the OpEx investments that we’ve made, we are really seeing the benefit both from a P&L standpoint. You see the improvements from a CS — cost standpoint. You see the improvements from a transaction expense standpoint. And those are improvements not only in our costs, but they also represent that customers are contacting us less, our product is more reliable, our product is faster. 95% of customers don’t have to contact customer support and we’re continuing to improve that every day. And I will tell you having started this business 13 years ago when we were subscale, it was really, really hard to truly differentiate and build a like frictionless and seamless, and reliable product. We’re doing that a lot better now, and we’re just getting started in that effort. And so we need to invest enough in the G&A side to get both the cost benefits on other aspects of the P&L as well as continuing to differentiate our product and pull away from some of the subscale competitors that really can’t build a reliable product. And I think that’s what you’re seeing, in the P&L in Q4 and what you’re seeing in our 2024 guide from a financial standpoint. And Hemanth, anything you’d add from a financial. Hemanth Munipalli: Yeah. No, I think that’s right. I think just on the point on efficiency as well, I mean we’re now a business that Q4 annualized $1 billion plus and as you can see in our guide as well. I think we’ve reached the point where we have tremendous opportunity to take some of the things we’ve done, whether you’ve seen in sort of improving our transaction expense or reducing that, the progress we’ve made on reducing our customer service costs by focusing on contacts from customers and some of the playbooks, on really driving efficiencies from an operational perspective, but also using technology to drive automation in the business, so we think we can apply that across other aspects of the business, whether it’s G&A, other corporate areas as well. So we’re looking to do that with more intentionality, given now the size of the business and being much more global in nature that we can get those efficiencies this year. Some of that’s reflected now in our forecast around EBITDA, but as we also look forward beyond 2024. So we’re excited to go about that with a lot of focus. Will Nance: Great. Appreciate you guys taking the questions and nice shot today. Operator: One moment for our next question. Our next question comes from Andrew Bauch with Wells Fargo. Your line is open. Andrew Bauch: Hey, guys. Thanks for taking the question. Following up on the comments that you made that net revenue growth should outpace volume growth in 2024. In your comments, that transaction expense still has further room on the efficiencies. How should we think about the magnitude of efficiencies on transaction expense versus what your expectations are for the top-line yield side in the year ahead? Matt Oppenheimer: Yeah. Thanks for the question, Andrew. We think that there will be continued efficiencies here on reducing transaction expense for years to come. And, we see 2024 as another year in that sort of multi-year focus on driving down transaction expense and just to kind of level set in terms of what makes up that expense category, you’ve got pay-in and payout costs. So these are economics that we have with our pay-in partners as well as disbursement partners, and then fraud, loss management. And on the first two in particular with close to $40 billion of send volume going through our platform, if you will, it’s a tremendous opportunity for us to have the right economics with our partners, which is largely driven by the volume, and we think that with our growing scale and volume, that will give us further opportunities for this year and beyond. And on fraud losses and we’ve talked about this earlier as well as it’s really driven around data and the amount of data we’re ingesting into our AI and ML models. And we see that with increasing data, we’re just getting more and more precise and how we’re delineating between what’s a good remittance transaction and what could potentially be fraudulent. So we see continued improvements there. Having said that, I think with fraud, we’re always watchful, and there’s generally some sort of volatility around it in any given quarter. But the broader trend in transaction expense reduction is something that we’ve factored in in our guidance, but we also think that’s mid-to-long-term trajectory that will continue. Andrew Bauch: And then on the gross yield side? Hemanth Munipalli: Yes. So we’re really looking to ensure that we’re providing value to our customers. And I think, as Matt talked about, I think when you talk about yield, you think about pricing, but it goes beyond that. The trust that we’re building with our customers, which is through the speed of the transaction, the reliability of it, there’s multiple levers as we look at LTV and maximizing that for our customers. So we expect that we’ll continue to focus on that and that’ll result in our revenue growth, and you see that in our guidance for this year......»»

Category: topSource: insidermonkey6 hr. 26 min. ago

Why Central Bank Digital Currencies Are Unnecessary And Dangerous

Why Central Bank Digital Currencies Are Unnecessary And Dangerous Authored by Daniel Lacalle, The main central banks have been deliberating on the concept of introducing a digital currency. However, many citizens fail to grasp the rationale behind it when the majority of transactions in major global currencies are carried out electronically. Nevertheless, a central bank digital currency is much more than electronic money. I will explain why. Central banks are raising interest rates and enacting restrictive monetary policies as quickly as governmental regulations allow because they are aware that monetary factors are the primary cause of inflation. Central banks have recently lost credibility by initially disregarding the inflation danger, then attributing it to transitory factors, and finally responding belatedly and gradually. In a world where there is an excess in money supply growth, there are mechanisms in place to prevent a significant rise in consumer prices caused by the destruction of the purchasing power of the issued currency. Quantitative easing is subject to some constraints that partially prevent inflationary forces. As the banking channel serves as the transmission mechanism of monetary policy, credit demand acts as a constraint on inflationary pressures. Now, consider if the transmission mechanism was direct and utilizing only one channel, the central bank. It is not the same to have a police officer walking down your street than to have a police officer in your kitchen watching your every move. A central bank digital currency would be directly issued to your account held at the central bank. At best, it is surveillance masquerading as currency. The central bank would have precise information of your currency usage, savings, borrowing, spending, and transactions. It can enhance the fungibility of money to prevent the common but unfounded problem of “excess savings.” Moreover, as central banks become more politically involved, they might impose penalties on individuals who spend in a manner they consider unsuitable, while rewarding those who follow their recommendations. The entire privacy system and monetary limit mechanism would be removed. Moreover, if the central bank makes a mistake and creates an excess of money supply, as shown in 2020, it would immediately make consumer prices rocket. If the money supply increases dramatically in a year, we would experience massive inflation levels as the existing constraints of the transmission mechanism are eliminated. Consider a scenario where you have a single account, a central bank, and the government. Guess what would happen? Full monetary financing of government spending leading to elevated inflation within a few years and the destruction of the private sector. Central bank digital currencies are likely to be a computerized rendition of the French Assignats. High inflation, complete government control, and financial repression. Central bank digital currencies are unnecessary and dangerous. You cannot initiate an experiment pf such magnitude when the autonomy of central banks has been questioned for years and there is abundant evidence of mistakes made with policy measures that do not acknowledge the danger of increased inflation and economic stagnation. Central banks have never successfully prevented bubbles, high levels of risk-taking, excessive debt, or identified inflationary pressures. Given such history, no one should support a proposal that would grant them complete authority and control over the financial and monetary system. What do central banks mean when they discuss a novel digital currency? It is a further advancement in the ongoing process of eroding the purchasing power of the currency, disguised under the objective of enhancing oversight of payments and facilitating the tracking of specific payment methods. The primary arguments for considering a central bank digital currency are efficiency and enhancing the transmission mechanism of monetary policy. However, none of them make sense. Central banks often claim the need to enhance the transmission mechanism of monetary policy, but many of their statements are founded on an inaccurate belief that there is an excess of savings that requires a change in behaviour. By manipulating the cost and quantity of the currency issued, central banks aim to correct what they perceive as imbalances. However, monetary policy rarely addresses the largest imbalances, which are the ones created by government deficits and debt accumulation. Disguising risk in sovereign debt leads to more imprudent fiscal policies and adds to the risk of bubbles in financial markets as perceptions of risk are clouded by low rates and high liquidity. A digital currency does not enhance the transmission mechanism of monetary policy unless the word “enhance” is used to hide a desire to boost the size of government in the economy through the erosion of the purchasing power of the currency and the constant monetary financing of public deficits. Another aspect to consider is efficiency. Central banks appear to prioritize the regulation of monetary transactions and encourage spending regardless of the risks involved. Creating a central bank digital money system is not more efficient. It is another form of financial control. If negative interest rates are ineffective in stimulating economic agents, some believe that implementing negative rates and devaluing the currency faster using a digital currency may be more successful. They are wrong. The economy does not strengthen by making the currency a disappearing reserve of value. Introducing a central bank digital currency is unlikely to reduce economic risks or stimulate productive investment but will encourage short-term malinvestment. Central banks are unable to compel economic agents to spend and invest, especially when their strategies continually focus on encouraging debt and prolonging government imbalances. The process of any asset becoming a widely used currency is highly democratic. It is beyond the jurisdiction of governments and cannot be enforced. When governments and central banks implement financial repression and devalue their currency, citizens may turn to other forms of payment that are considered genuine money. Cryptocurrencies have emerged due to a lack of trust in fiat currencies and the ongoing efforts of central banks and governments to devalue currencies in order to conceal underlying fiscal imbalances. A central bank digital currency is a contradiction in terms—an oxymoron. Citizens demand cryptocurrencies because they are not controlled by central banks that seek to grow the money supply and induce currency depreciation through inflation. Central banks should prioritize safeguarding the purchasing power of savings and salaries rather than seeking to destroy them. Using new means of financial repression may lead to a loss of confidence in the local currency. Once central banks acknowledge that they have exceeded the appropriate limits of their policy, it will already be too late. Central bank digital currencies are unnecessary and dangerous. The benefits of technology, digitalization and ease of transactions are already there. There is no need to create a currency issued directly to an account at the central bank. They are unnecessary as well because there is absolutely no need to compete with a digital yuan or bitcoin. China is moving closer to sound monetary policy and its central bank is purchasing more gold, not the opposite. If central banks want to compete with other currencies or cryptocurrencies there is only one way: Make it absolutely clear that you will defend the reserve of value status of your currency. There is no need for the euro or the US dollar to compete with bitcoin or a digital yuan if the Fed and the ECB truly defend their reserve of value and purchasing power. However, it looks like central banks want to behave like a monopoly that sells bad quality products but demands to remain the main supplier by eliminating the competition. The Fed and the ECB do not need to compete against cryptocurrencies if they show the world that they will defend the purchasing power of the US dollar and the euro. The world’s financial challenges are not solved by imposing total control implemented by a monetary monopoly whose independence is seriously questioned, but by increasing competition and independence. Tyler Durden Sun, 02/25/2024 - 14:00.....»»

Category: blogSource: zerohedgeFeb 25th, 2024

ModivCare Inc. (NASDAQ:MODV) Q4 2023 Earnings Call Transcript

ModivCare Inc. (NASDAQ:MODV) Q4 2023 Earnings Call Transcript February 23, 2024 ModivCare Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning and welcome to ModivCare’s Fourth Quarter and Full Year 2023 Financial Results Conference Call. [Operator Instructions] Please […] ModivCare Inc. (NASDAQ:MODV) Q4 2023 Earnings Call Transcript February 23, 2024 ModivCare Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning and welcome to ModivCare’s Fourth Quarter and Full Year 2023 Financial Results Conference Call. [Operator Instructions] Please note this conference call is being recorded. I will now like to turn the call over to Kevin Ellich, Head of Investor Relations. Mr. Ellich, you may begin. Kevin Ellich: Good morning and thank you for joining ModivCare’s fourth quarter and full year 2023 earnings conference call and webcast. Joining me today is Heath Sampson, ModivCare’s President and Chief Executive Officer; and Barbara Gutierrez, ModivCare’s Chief Financial Officer. Before we get started, I want to remind everyone that during today’s call, management will make forward-looking statements under the Private Securities Litigation Reform Act. These statements involve risks, uncertainties and other factors that may cause actual results or events to differ materially from expectations. Information regarding these factors is contained in today’s press release and in the company’s filings with the SEC. We will also discuss non-GAAP financial measures to provide additional information to investors. A definition of these non-GAAP financial measures and to the extent applicable, a reconciliation to their most directly comparable GAAP financial measures is included in our press release and Form 8-K. A replay of this conference call will be available approximately 1 hour after today’s call concludes and will be posted on our website, modivcare.com. This morning, Heath Sampson will begin with opening remarks. Barbara Gutierrez will review our financial results and guidance. Then we’ll open the call for questions. With that, I’ll turn the call over to Heath. Heath Sampson: Good morning and thank you for joining our fourth quarter and full year 2023 earnings call. Today, I’ll discuss our 2023 results, reflect on our transformation journey and share our outlook for 2024 before handing the call over to Barb, who will further elaborate on our financial results. Let me begin by saying we are pleased to have delivered fourth quarter revenue and adjusted EBITDA in line with our expectations. Full year 2023 revenue grew 10% with adjusted EBITDA of $204 million. Before addressing the transformation progress we’ve made, I’d like to address some of the challenges we’ve encountered primarily stemming from the recovery period following the pandemic. Firstly, our free cash flow for the fourth quarter was negative $37 million which was below expectations, primarily due to delay in payment from an MCO client within a specific contract in Florida. Looking ahead and primarily to us managing redetermination and the increased healthcare utilization environment, we anticipate our free cash flow for the first half of the year will be constrained to the ongoing build in contract receivables and the settlement of several large payables expected in the second quarter. It’s important to note that our $144 million balance in contract receivables is an asset that we aim to collect in 6 months to 9 months. Consistent with what we have been doing the last several months, we are proactively working to renegotiate the prepayment terms on a number of our shared risk contracts. This realigns the payments we eventually reconcile as redetermination unfolds and utilization and cost normalize higher, post the pandemic. See also 12 Best Gold Stocks Under $25 and 15 Best Retirement Cities for Dog Lovers. Q&A Session Follow Modivcare Inc (NASDAQ:MODV) Follow Modivcare Inc (NASDAQ:MODV) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. This will improve our working capital by securing more cash upfront. For the second half of 2024, our free cash flow will begin to normalize as redetermination ends. The $142 million of the 2023 new sales wins are onboarded and our cost saving measures continue to take hold. Next, I want to share our 2024 adjusted EBITDA guidance which we expect will be in a range of $190 million to $210 million and our first quarter 2024 adjust EBITDA guidance in a range of $28 million to $33 million. We are guiding first quarter EBITDA to help explain the ramp in the second half of the year. During the first quarter, we are addressing headwinds from a couple of contracts and membership losses prior to the 2023 contract wins starting implementation in the second quarter. These front loaded challenges are further impacted by the ongoing normalization of healthcare utilization and Medicaid redetermination. The root causes of these contract losses include a few MCO clients not securing their state contracts. A state health department’s decision to transition to a full broker model favoring an incumbent competitor and a client’s decision to diversify volume away from us due to legacy issues. However, it’s important to note that these legacy issues have been addressed through our transformation and I’m proud of my team for doing that. In fact, we remain the largest NEMT provider and a key strategic partner for this client, actively collaborating on several new initiatives. Also noteworthy to explaining our 2024 guidance, while we’ve achieved success in securing MCO contracts, anticipated state RFPs we expected to bid on in late 2023 and early 2024 continue to be delayed or extended. In 2023, we won $142 million in annual contract value and $11 million in our remote patient monitoring segment that will be onboarded starting in the second quarter and will ramp throughout the year. Even though state RFPs have been delayed, we did secure a new state contract and expanded and extended 2 other state Medicaid contracts from early RFPs in 2023. In addition, we’ve implemented initiatives to optimize our cost structure which is expected to generate $30 million to $50 million of in your cost savings. We’ve made significant strides digitally integrating with our clients, a move we hadn’t done in the past which will enhance our client relationships, leading to improved contract retention and reduced attrition. Additionally, our enhanced go-to-market capabilities contributed to a 90% win rate in new MCO bids throughout 2023. To capitalize on this momentum, we’ve recently augmented our sales team with additional talent. We’re leveraging these enhanced capabilities to secure more wins from our pipeline, valued at over $800 million today. These initiatives will mitigate the negative impact from legacy losses started in the second quarter and will become more significant as the year progresses. Now, I’d like to cover our balance sheet and capital structure. We have a deliberate plan and anticipate refinancing our 2025 unsecured notes in the coming months. Additionally, we are aligned with our partners to monetize our unconsolidated minority equity investment in Matrix Medical. While we are optimistic about achieving this within the year, as the company is performing very well, our primary focus remains on supporting the management team and maximizing the return from this valuable asset. We have also successfully renegotiated our revolving credit facility covenants, enhancing our financial flexibility and addressing our liquidity requirements, thanks to the backing of our banking partners. Although our current leverage is higher than our target, reducing debt levels continues to be a priority. Since assuming the role in November 2022, we have undergone a comprehensive transformation which has been anchored by our core pillars: people, operational excellence, growth and innovation. Reflecting on the past year, we navigated challenges and achieved significant milestones. As for the people pillar, realigning our organization was crucial, notably strengthening our executive leadership team. We also realized approximately $65 million of savings through restructuring while reinvesting $30 million in key areas such as product, technology, go-to-market and clinical expertise. Operational excellence; we adjusted our business model to the post-pandemic environment and transition away from our legacy decentralized and manual processes to a more efficient functional structure. This shift improved our service quality, notably increasing on-time performance in NEMT by 6% and saving $27 million annually through our digital initiatives. These efforts have also resulted in improved satisfaction, solidifying our leading NEMT position. In the growth pillar, we improved our new business conversions in NEMT and focused on cross selling our RPM services, leading to over $150 million in annual contract wins, driven by our improved proposal process and enterprise engagement model. Innovation has been an important part of our journey. We advanced our leadership position addressing the social determinants of health with new product development and technology, aligning closely with CMS’ strategic pillars and expanding our service offerings to proactively meet our clients’ needs. Turning to our 2024 outlook. We project our adjusted EBITDA will be in the range of $190 million to $210 million. And revenue between $2.7 billion and $2.9 billion. Our guidance considers the headwinds previously mentioned with confidence in our initiatives as we continue to transform our cost structure and revenue model. We expect to exit 2024 with a run rate for adjusted EBITDA between $220 million and $230 million. Additionally, we expect to generate between $40 million to $60 million in free cash flow, materially generated in the second half of 2024. Looking towards 2025, we will continue to see deleveraging benefits from our asset-light high cash flow conversion business, with normalized expectations of 40% to 50% EBITDA conversion to cash generation. We expect revenue growth rates for personal care and remote patient monitoring to be 8% to 10% and 10% to 12%, respectively, with margins consistent with previous years at 10% to 12% for personal care and mid-30% for RPM. We project modest growth for NEMT revenue with margins exiting 2024 at approximately 8% to 8.5%. In 2024, we are focused on positioning each of our business lines for long-term profitable growth, while continuing the important work to fortify our platform as we prepare for 2025 and beyond. As we look forward, we remain committed to being the trusted partner for integrated supportive care, combining digital and personal engagement to empower living at home. Here’s our concise overview of our 2024 strategic priorities across our segments. In NEMT, the focus is to leverage the momentum from the achievements of 2023, aiming to capture additional revenue from our $800 million-plus pipeline. The key for growth this year is execution. Building on our comprehensive transformation and digital initiatives focused on enhancing omnichannel member engagement, expanding multimodal transportation solutions and achieving comprehensive integration with all stakeholders. These efforts are expected to drive significant cost savings, targeting $60 million in 2025, with $30 million to $40 million anticipated this year. Building upon the centralization, standardization and technology platforms in 2023, our continued transformation in personal care is now focused on leveraging automation and digital tools to improve caregiver efficiency and engagement. The key here is to free up our frontline members. This will enable us to outpace the inherent growth within the market. These market tailwinds should further be bolstered by regulatory clarity regarding CMS’s role, known largely as at 80/20 this spring. Our strategy in remote patient monitoring is multifaceted and forward-looking. Continue to grow our base in personal emergency device revenue and expand our product capabilities with enhanced digitally enabled clinical capabilities. This includes fostering member engagement through our innovative care center and virtual front door services and devices. Integrating RPM and NEMT services has surpassed our expectations. We have addressed care gaps and reduced costs for our clients which distinguishes us in the market. This integrated strategy has notably boosted our NEMT sales, especially in the managed Medicaid space, as our services become crucial for customers aiming to address health determinants and reduce care costs. Our journey through 2023 was marked by a comprehensive operational, organizational and cultural restructuring. And despite some of the challenges ahead, especially in the first half of this year, our margins and cash flow conversion will progress in the back half of the year. Our unique competitive advantages, coupled with our position in the expanding home-centric healthcare market sets us apart. I’d like to thank all our team members for their hard work and dedication for providing the highest quality of services to our clients and their members. Now, I’ll hand the call over to Barb, who will share additional details about our financial results and outlook for 2024. Barb? Barbara Gutierrez: Thank you, Heath and good morning, everyone. Fourth quarter 2023 revenue increased 7.5% year-over-year to $703 million, while full year 2023 revenue increased 10% to $2.75 billion, driven by 10% NEMT growth, 7% growth in PCS and 14% growth in our RPM segment. The fourth quarter net loss was $5 million while adjusted net income was $18 million or $1.29 per diluted share. Fourth quarter adjusted EBITDA was approximately $51 million and adjusted EBITDA margin was 7.2%, a modest sequential decline due to higher G&A expenses related to investments to enhance our digital and data capabilities. Fourth quarter gross margin improved a 100 basis points sequentially to 16.8%, primarily attributable to our transformation initiatives in NEMT yielding early operational efficiencies to reduce costs. Full year 2023 adjusted EBITDA was $204 million and adjusted EBITDA margin was 7.4%, a 140 basis point year-over-year decline, primarily due to higher service expense partially offset by lower G&A related to our cost saving initiatives. Full year gross margin decreased 270 basis points to 16.4%, primarily attributable to higher NEMT purchase services expense driven by higher utilization and the normalizing healthcare utilization environment. Turning to a review of our segment financials. NEMT fourth quarter revenue increased 9% year-over-year to $499 million. Total membership decreased 5.5% year-over-year to 32.9 million members and we averaged 33.6 million members for all of 2023. On a sequential basis, average monthly members decreased 2% during the fourth quarter, primarily due to Medicaid redetermination which was in line with our expectations. Trip volume increased 13% in the fourth quarter, while revenue per trip decreased 3.5% due to mix changes and an approximate 1% decrease in purchased services expense per trip which drives the revenue in our shared risk contracts. Sequentially, NEMT gross margin increased 150 basis points as payroll and other expense per trip decreased 6% to $6.89, while purchase services per trip increased 2.5% to $42.24. The reduction in payroll and other expense per trip is being driven by our cost saving initiatives that Heath discussed which are reducing our calls per trip. Trip volume in the fourth quarter decreased 30 basis points sequentially while monthly utilization increased about 20 basis points sequentially to 8.9% due to lower average monthly members and was in line with our expectations. As a result of our strategic initiatives, NEMT adjusted EBITDA for the fourth quarter was approximately $40 million or 8% of revenue, representing a 70 basis point sequential improvement from the third quarter. Gross profit per trip improved 16% sequentially, primarily due to improvement in payroll and other costs per trip. During the fourth quarter, Medicaid redetermination reduced our Medicaid membership by approximately 450,000 members, bringing our Medicaid membership to 24.7 million members. Since redetermination started last April, we have seen an 8% reduction to our Medicaid membership which is tracking in line with our original target of 10% to 15%. Based on our most updated projections, we estimate that as of December 31, 2023, redetermination was about 70% complete and we expect that the process will conclude in the third quarter of 2024. Redetermination impacted fourth quarter revenue by $10.5 million and adjusted EBITDA by approximately $3 million which was in line with our expectations. In 2024, we expect redetermination to adversely impact revenue by approximately $60 million and adjusted EBITDA by approximately $30 million which is in line with our original range of $20 million to $40 million. The expected revenue and adjusted EBITDA impact for 2024 are embedded in our guidance. As a reminder, our margins are protected from increased utilization from redetermination on our shared risk contracts. Our shared risk Medicaid contracts accounted for approximately 60% of our NEMT revenue in 2023. Even though we’ll lose some Medicaid members in these contracts, we expect higher pass through revenue under our shared risk contracts. Finally, the remainder of NEMT revenue, approximately 20% is generated from Medicaid advantage and fee-for-service arrangements. Turning to our Home division. Fourth quarter personal care revenue increased 3% year-over-year to $181 million, driven by a 3% growth in hours and a modest decrease in revenue per hour. Personal care growth was lower than the last few quarters, primarily due to the lapping of a large minimum wage related reimbursement rate increase in New York that went into effect on October 1, 2022. That said, in 2024, we received a reimbursement rate increase in New York tied to the increase in minimum wage which should accelerate our PCS revenue growth in the first quarter. Fourth quarter personal care adjusted EBITDA was $16 million or 8.7% of revenue which was lower than expected, primarily due to slower than expected hours growth and higher direct labor, particularly overtime expense which is used to temporarily staff new cases......»»

Category: topSource: insidermonkeyFeb 24th, 2024

Bancolombia S.A. (NYSE:CIB) Q4 2023 Earnings Call Transcript

Bancolombia S.A. (NYSE:CIB) Q4 2023 Earnings Call Transcript February 23, 2024 Bancolombia S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, ladies and gentlemen, and welcome to Bancolombia’s Fourth Quarter 2023 Earnings Conference Call. My name is Robert, […] Bancolombia S.A. (NYSE:CIB) Q4 2023 Earnings Call Transcript February 23, 2024 Bancolombia S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, ladies and gentlemen, and welcome to Bancolombia’s Fourth Quarter 2023 Earnings Conference Call. My name is Robert, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses and credit losses. All forward-looking statements, whether made in this conference call and future filings and press releases or verbally address matters that involve risks and uncertainties. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general, economic and business conditions, changes in current exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy and various other factors that we describe in our reports filed with the SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer; Mr. Julian Marra, Chief Corporate Officer; Mr. Jose Humberto Acosta, Chief Financial Officer; Mr. Rodrigo Preto, Chief Risk Officer; Mrs. Catalina Tobin, Investor Relations and Capital Markets; Director and Mrs. Laura Clavijo, Chief Economist. I’d now like to turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin. Juan Carlos Mora: Good morning, and welcome to Bancolombia’s fourth quarter results conference call. Please go to Slide 2. As anticipated, 2023 has proven to be a year of significant challenges for the Colombian financial system. The prevailing high interest rates and inflation have had a discouraging effect on credit growth, resulting in reduced net interest income generation. Furthermore, these factors have adversely impacted loan quality and led to an overall increase in operating costs. In light of the prevailing macroeconomic environment, Bancolombia’s net income for the quarter reached COP1.4 trillion, indicating a 2% reduction compared to the preceding quarter. For the entire year, the net income amounted to COP6.1 trillion, representing an approximate 10% annual decline. The primary drivers contributing to this decline are: firstly, a 1.5% quarterly and 6% annual contraction in the loan book portfolio due to the reduced credit demand and diminished risk tolerance, resulting in slower growth of interest income. Secondly, a net provision charge that increased by 7% quarterly and 97% annually, consistent with the current credit cycle. Thirdly, higher operating expenses, which despite stringent cost control measures remained under pressure due to increased taxes and labor costs. In addition, it is crucial to highlight the substantial 20.5% annual, and 5.7% quarterly appreciation of the peso, leading to a decrease in the volume of loans and the interest income contribution of the dollar portfolio in the consolidated financial statements. As the loan portfolio experienced continued repricing at elevated interest rates, the cost of risk was recovered at 2.7% for the quarter and 2.8% for the entire year. This reflects the anticipated slowdown in the past due loan formation compared to the first half of the year, which was a result of the comprehensive measures taken. The efficiency ratio ended the quarter at 49% and 45% for the entire year, indicating that the growth in operating expenses surpassed the growth in income, as previously discussed. The aforementioned factors accelerate downward pressure on the return on equity, resulting in a 15.2% ROE for the quarter and 16.1% for the entire year. Total solvency ratio experienced a notable increase of 57 basis points during the quarter, ending in a year-end figure of 13.4%. This positive development was primarily attributed to a significant expansion of 105 basis points in core equity Tier 1. And Colombia’s robust organic capital origination capabilities, coupled with a reduction in the risk-weighted assets were the driving forces behind this achievement. As a positive indicator and a testament of the bank’s inherent capabilities, the generation of sound net interest margin has proven sufficient to absorb increased provisioning expenses and costs while maintaining mid-teen return on equity. The aggregator of Central American banks and offshore operations made a large year contribution to the overall group results, despite the prevailing economic and political environment in each country. We maintain our conviction that the recent downward inflationary trends in Colombia will enable the Central Bank to pursue a sustained interest rate reduction strategy. This, in turn, is expected to stimulate credit demand and improve asset quality in the long term. We anticipate opportunities for credit growth primarily in housing, renewable energy and agribusiness sector as the government advances public spending. For a more in-depth analysis of the macro outlook, I will pass over the presentation to our Chief Economist, Laura Clavijo. Laura? Laura Clavijo: Thank you, Juan Carlos. Now please go to Slide 3. The global economic backdrop of tight financial conditions, declining consumer demand and lower commodity prices, combined with local challenges due to high inflation, low investment and recent consumer sentiment pave the path to a significant economic slowdown in Colombia. Overall, 2023 proved to be a very challenging year for the Colombian economy and resulted in GDP growth of just 0.6% year-over-year, the lowest level in over 3 decades, excluding the covers and well below market expectations and our own forecast of 1.2%. Despite the lackluster results, the final quarter of 2023, note a slight expansion of 0.3%, rebounding from a 0.6% contraction during the third quarter, mainly driven by 6% growth in agriculture and 5% expansion in public administration. Construction, manufacturing and retail sales continued to underperform. The biggest culprit to economic stagnation lies with public and private investment, which fell close to 25% during 2023. Total investment as a percentage of GDP has consistently declined since the pandemic from levels of 22% to just 17% last year. This scenario weighs heavily on our GDP outlook for 2024, which stands at 0.9% annual growth. On the [indiscernible] side, inflation has continued its downward trend, closing the year at 9.3% and falling further towards the 8.3% mark in early 2024, receiving food prices help explain much of the expense, but core inflation has come down consistently towards 7.9%. The drought season coming from a mine has pressured energy prices to some extent but has proven to be much milder than initially expected. We maintained our 5.9% year-end inflation forecast considering some upward pressure from potential bee price hikes and the effect of suborn prices and services such as housing. Given this macro scenario of falling inflation amidst the economic slowdown, the Central Bank began cutting interest rates in late 2023 and early 2024, accumulating a 50 basis point reduction thus far. Currently, venture rate stands at 12.75%, and we expect it may come down towards the 9% level at year-end. We maintain our view that 2024 will be a year of gradual recovery, especially during the second half of the year when interest rate cuts will begin to pick up speed. Now please let me turn the presentation back to Juan Carlos, who will present Bancolombia’s quarterly performance. Juan Carlos Mora: Thank you, Laura. Before discussing the quarterly results, I would like to provide an overview of the advancements made in several initiatives that are aligned with our four value driving pillars. These pillars significantly contribute to our market leadership, operational soundness and the scalability of our business model. Please go to Slide 4. Under our first pillar, which embraces our client-centric approach, we would like to share the developments we have made as a part of our capabilities as a service model. This model is based on the open banking regulations approved in Colombia, making it the third country in Latin America to achieve this significant milestone following Brazil and Chile. The regulation establishes the foundation for financial and non-financial entities to disclose, coordinate and utilize data. It complements the Central Bank’s immediate payments system framework introduced in October and anticipated to be fully operational by 2025. While there are some potential risks to our strong position in the transactional space, we anticipate numerous opportunities and avenues for growth. Our multichannel platform is well established. We have made significant progress in developing our ecosystem model, and we have already made a range of APIs available. The two primary sources of growth originate firstly, from the immediate payment system framework, which will streamline all types of payments processing through a low-value payments system managed by the Central Bank with real-time clearing hereby, reducing operational costs and improving user experience. Secondly, it will enable us to further integrate our financial capabilities into new marketplaces, promoting financial inclusion and enhancing the value proposition for our clients. Notably, we pioneered the launch of a new feature on our app for account aggregation, allowing our clients to manage all their financial data in a centralized location and interact seamlessly through a single app. Furthermore, we are delighted with the positive development and performance of our banking as a platform, as a service models as they have enabled us to innovate and explore novel business models. As of the end of 2023, we had processed close to 50 million transactions, resulting in deposits and fees of COP7.7 billion. Notably, these models have demonstrated remarkable growth with compelling compounded annual growth rates of 16% and 14%, respectively, over the past five quarters. This indicates the substantial potential for Fortin expansion under our ecosystem approach. On Slide 5, under our second value driving pillar that focuses on our digital capabilities and multi-can platform. I would like to elaborate on what we believe is the most compelling evidence of the robust competitive advantage we have built in this area. For over a decade, we have strategically invested in the development of a comprehensive resilient, multichannel and interoperable platform. We recognize the critical role of each channel in our business strategy. As illustrated in the accompanying graph, the platform has emerged as a powerful instrument for acquiring new customers, particularly those who are unbanked or underbanked and seek affordable money transfers and cash withdrawal solutions. Consequently, we have achieved exponential growth in transactional volume, increased fee revenue and significantly enhanced our ability to attract and retain deposits. In response, there has been a substantial raise in highly diversified, low value and low-cost sticky deposits. These deposits have primarily come in through savings accounts and more recently through digital time deposits. Notably, digital time deposits have experienced a remarkable compounded annual growth rate of 125% over the past five years, aligning with our digital transformation. Certainly, these well-structured strategy serves as a reliable foundation for maintaining a competitive funding cost, thereby enhancing NIM performance and overall profitability. On Slide 6, under our fair value driving pillar of structural capabilities that provide distinct market advantage. I would like to highlight the credit risk model we have developed for corporates, midsized companies and most SMEs. We consider this model as a key differentiator in assessing credit risk which significantly contributes to superior performance of our commercial loan portfolio compared to that of major Colombian banks. This is evident in the latest report released by the Colombian Financial Superintendence which measures performance based on the 90-day past due loan ratio. Our model employs an end-to-end credit cycle approach supported by a comprehensive suite of tools for assessment, writing, follow-up and collection, underpinned by extensive research and well-articulated sectorial risk assessments, our mall provides an in-depth understanding of each industry and its cycles. This enables us to effectively diversify our portfolio, identify early warning signals anticipate potential challenges and support our customers with tailored solutions. The most notable and valuable feature is the advanced analytical model. It draws upon the clients transactional and cash flows in sites captured on our multichannel platform. This provides a unique risk perspective freeing us from the sole reliance on financial statements. By leveraging our unparalleled insights, we have meticulously crafted a robust risk assessment framework. This framework has been instrumental in evaluating over 600,000 SMEs and 15,000 corporate clients in Colombia. Currently, we manage approximately COP120 trillion in commercial loans under this model. Notably, our portfolio has consistently outperformed industry peers. Lastly, on Slide 7, regarding our fourth value driving pillar, which is the culture of efficiency and productivity, we would like to present the evolution of our digitalization strategy in addition to the benefits of attracting more clients and transactional flows discussed earlier, it has also provided substantial efficiency gains and flexibility, enabling us to allocate resources more effectively. Over the past decade, there has been a significant shift in the way monetary and non-monetary transactions are processed. In the early 2010, nearly 30% of these transactions were conducted through physical channels such as branches. However, by the end of 2023, this figure has planted to just 8.3%, with branches accounting for a near 0.3% of all transactions. This strategic shift has involved the closure or transformation of branches into sales points with the aim of routing transactions through less expensive channels. Consequently, we have successfully reduced our overall fixed cost by replacing physical channels, primarily branches with digital channels and variable cost-based channels such as banking agents. This strategic move has enabled us to expand our reach and enhance user experience while maintaining operational efficiency. Furthermore, we are pleased to report continued advancements in the scalability of our business model, which will enable us to capture additional gains in efficiency and productivity. Now, I would like to invite Jose Humberto Acosta to provide further elaboration on our fourth quarter 2023 results. Jose Humberto? Jose Humberto Acosta: Thank you, Juan Carlos. Please go to Slide 8 to discuss results of our Central American operation. Despite the lower share of the Central American loan book on a consolidated basis, explained to a large extent by the peso appreciation, almost all banks increased its contribution to net income. However, when broken down by each bank, their performance in the quarter is fixed. [Indiscernible] sustained its NIM despite a loan contraction, and accurate lower provision charge but delivered a lower return on equity quarter-over-quarter on the back of higher costs. Likewise, Banco Agricola also posted lower interest income due to a higher income expenses and below average provision charges as the loan portfolio performed better than expected, contributing to a higher return on equity versus the previous quarter that reached 24.1%. On the other hand, Banco Agromercantil had low loan book growth after a large commercial loan prepayment and sub growth in consumer that impact interest income. Provision charges increased on the back of all vintages, consumer loans and a corporate loan, driving net income to AWS. It is also worth mentioning that despite higher loan deterioration, all 3 banks run with comfortable level of 90-day past due loans coverage, providing balance sheet protection. We remain positive on Salvador’s micro performance, but not cautious about Guatemala, given the most recent political and social and risk and with Panama due to the more challenging fiscal outlook as per the lower tax collection. Please go to Slide 9. Consistent with the trend seen in the previous quarter, the consolidated loan book contracted 1.5% quarter-over-quarter and almost 6% year-over-year. Not surprisingly, this reduction reaffirms the impact of the persisting high interest rates at discourage credit demand and has provided incentives for prepayments and shorter-dated loans that limits the loan book growth. Furthermore, at 20.5% year-over-year peso appreciation reduced the contribution of the loan denominated in U.S. dollars. Net of FX, the loan portfolio will have increased 1.5% on a yearly basis. From a segment perspective, consumer portfolio keeps driving the largest contraction with a 2.6% reduction quarter-over-quarter and 8.4% year-over-year as expected. Please go to Slide 10. Total deposits increased 1.5% quarter-over-quarter, explained most by a seasonal effect as the government-related entities in Colombia tend to increase its deposits on year-end. The year-over-year deposits dropped 1.2%, consistent with a weaker credit demand. Nevertheless, there was an interesting change in the funding mix dynamics during the quarter as time deposits dropped 3% where as savings, current accounts and other deposits increase. Year-over-year, however, time deposits increased its share in the total funding mix to 35%, up from 30% after the strong growth in the first half of this year. Consistently, on a yearly basis, the patio growth of time deposits dropped to 13.3%, main grounds for lower interest expenses ahead. Consequently, the cost of funding fell slightly to 5.8%, an early signal of interest expenses reduction as a rate subside, a situation for which we continue adjusting our liability structure to provide margin protection. As a matter of fact, as at year-end, the share of fixed rate time deposits maturing in less than a year was 70%, up from 68% as of September. Please go to Slide 11. Total interest income and valuation of financial instruments increased 4% quarter-over-quarter, supported by first, a 67% growth on interest and valuations on financial instruments as per higher valuation on a large securities portfolio held during the period, coupled with a fall in rates and second, by a 1% growth on interest income on loans and financial leases, mainly attributable to the loan portfolio repricing dynamic. On a yearly basis, total interest income and valuation of financial instruments increased 38%, albeit at lower pace than the previous year and driven mainly by a 42% growth on interest on loans and financial leases. On the other hand, interest expenses was flat quarter-over-quarter as interest on deposits remain unchanged and coupled with a slight reduction on interest on bonds and interbank borrowing. On an annual basis, however, interest expenses grew 97%, driven mainly by a 17% increase on interest expense on deposits after the larger stake of time deposits and higher interest rates. Nevertheless, the pace of annual growth is subsidized, consistent with the annual drop of deposits. Despite the loan book contraction, NII grew 8% quarter-over-quarter and 11% year-over-year due to an increase in interest income while interest expense remained flat and is mainly attributable to the Colombian operation as 67% of the loan portfolio is floating in contrast to a 34% of deposits. Thus, the NIM in Colombia was proceeding to subsidize inflation and short-term reference interest rate as shown on the bottom hand side graph. Consistently with the above, NIM expanded 47 basis points quarter-over-quarter to 7.8%, driven by the remarkable 354 basis points expansion in the investment NIM as per the securities portfolio strong performance discuss above, coupled with 11 basis points growth on the lending NIM. To NIM for the full year was 7%, a 20 basis points expansion year-over-year on the back of a strong 8% annual in Colombia, reaffirming the competitive advantage in funding and its asset-sensitive condition. Please go to Slide 12. Net fee income increased 7% quarter-over-quarter, mainly attributable to a higher volume of transactions associated to our year-end seasonality. Payment & collections, banking service and bancassurance related fees grew the most on a percentage basis on a quarterly and a yearly basis. However, year-over-year, it grew close to 5%, admittedly below expectations as fee expenses grow outpaced the fee income growth, coupled with a higher third-party provider costs and processing charges. The income ratio for the full year reached almost 19%. Please go to Slide 13. As shown in the upper left-hand side chart, the slowdown in the volume of past due loan formation continued during the quarter, consistent with the trend seen since the second quarter of 2023, although admittedly at a slower pace than expected. This, coupled with an uplift in charge-offs quarter-over-quarter prove our efforts and commitment to preserve a healthy balance sheet. Despite this positive albeit still mild, new past due loan evolution, asset quality metrics exceeded a quarterly and annual deterioration at the 90-day past due loan ratio reached 3.3%, implying 110 bps year-over-year increment explained by the loan portfolio contraction during the last 12 months rather than the by escalation in the pace of past due loans. On the other hand, given the higher charge-offs in the quarter and the fact that some loans of which provisions have already been charged became due during the period. The 90-day past due loans coverage ratio fell to 184%, although still proving a strong coverage to the balance sheet. Moreover, net provision expenses for credit losses for the quarter was COP1.7 trillion, a 7% increase quarter-over-quarter and equivalent to a cost of risk of 2.7% for the period. When breaking down the provision charge for the quarter into its companies, the results were needed. First, on the SME segment, there was a COP22 billion decreased quarter-over-quarter, driven by releases related to loan repayments. Second, on the Consumer segment, provision expenses was almost flat quarter-over-quarter as Pat loan formation is being contained as we will further elaborate. Third, on the large exposure segment, there was COP168 billion charge, explained by additional provisions on a handful of loans related to construction and retail sectors. And fourth, in the case of midsized companies and corporate, there was COP93 billion released to provide several prepayment and semen with clients. Year-over-year, net provision charge increased 97% attributable mainly to deterioration in the consumer segment in Colombia as we will further elaborate and to a lesser extent, on SME and certain corporate loans, consistent with the current economic and credit cycle. From an expected loss perspective, Stage 1 remained flat year-over-year as the periation is being contained whereas Stage 2 decrease and Stage 3 increase as per non-performing loans rollover. However, the combined coverage for Stage 2 and 3 loans increased 17 basis points to almost 40%. Going forward, we remain confident that the peso past due loan formation will keep a slowdown trend due to all measures taken and at a lower rate release some pressures on debtor cash flows. However, we remain cautious and expect higher delinquencies and news on the back of the weaker economic performance. Moving to the Slide number 14, I will further discuss on credit quality in Colombia. In line with the past quarters, personnel loans that hold a 52% share of consumer loans accounted for most of the deterioration during the period, increasing its 90-day past do ratio to 7.4%, reaching a cost of risk of 16.7%, with a 20% of loans in Stage 2 and 3. On the flip side, credit cards, auto loans and payroll loans all performed better reducing their cost of risk and their share of loans in Stage 2 and 3, signaling, better asset quality conditions ahead. Moreover, when it comes to evolution of passive loan formation, as shown on the upper right-hand side graph, despite the low new past one level in the quarter, the ratio that of deterioration increased due to a high level of charge-offs. Notwithstanding the above past loan formation in the second half of the year, certainly grown below the average of the first half. And most importantly, new businesses in Colombia continue performing well, and those we foresee an improvement in all metrics going forward. As a matter of fact, after falling for three once quarters, the volume of new consumer loans slightly increased during the fourth quarter leverage on the new origination standards and the portfolio better performance. Asset sector-wide metrics, we continue performing with the lowest 90-day past due loan ratio for the Colombian financial system as of October of 2023, driven by our superior risk framework and capabilities that allow us to better assess credit behavior and mitigate deterioration. Please go to Slide number 15. The cost-to-income ratio for the period was 48.6% as operating expenses grew 6.6% quarter-over-quarter, attributable to IT investments and general expenses. On the other hand, personnel-related expenses were flat quarter-over-quarter. On a yearly basis, operating expenses grew almost 19% driven by the high annual wage increase. Other taxes introduced to the tax reform of 2022 and IT-related in payments, devoted mainly to the journey to the cloud and business transformation. However, it is worth mentioning that the tens of OpEx growth, we see during the second half of the year, given the informing of cost control measures. Moreover, if we were to deduct taxes actual valuations on certain employee benefits and FX variations, the annual growth of operating expenses would have been 14% in tandem with inflation. The efficiency ratio for the full year was 45.3% as slight increase compared to 2022 given the overall higher cost and taxes environment. Please go to Slide 16. Net income for the quarter was COP1.4 trillion, equivalent to a 3% drop quarter-over-quarter and COP6.1 trillion for the full year, equivalent to a 10% drop year-over-year, driven by lower income generation as per the loan book contraction and the FX appreciation in tandem with higher credit and operating expenses. In turn, return on equity receded to 15.2% in the quarter and 16.1% in the full year, which adjusted for goodwill results in a return of tangible equity of 21% that shows the profitability of the duration accelerate goodwill related costs. And finally, on Slide 17, I will present the evolution of capital generation. Shareholders’ equity grew 1.5% quarter-over-quarter and contracted 2.6% year-over-year intended assets, reflecting the bank’s capital generation capacity that preserves a sounds balance sheet structure. Basel III total capital adequacy ratio reached 13.4%, increasing 57 basis points over the quarter and 6 basis points year-over-year on the back of a strong Tier 1 expansion with 105 basis points year-over-year increase attaining 11.4% for year-end. This positive expansion is the result of net income generation, lower risk-weighted assets and FX appreciation during this year. With this, I will hand over the presentation back to Juan Carlos for some final remarks. Juan? Juan Carlos Mora: Thank you, Jose Humberto. Please proceed to Slide 18 for some remarks concerning our sustainability strategy. As of the conclusion of the year 2023, we have successfully exceeded the COP140 trillion milestone in the total disbursements under our business with purpose strategy, which was initiated in 2020. Notably, approximately COP38 trillion worth of new loans were granted during the preceding year. These loans have been instrumental in providing financial support for various initiatives, including small-scale agribusiness ventures, cream building projects and gender-related endeavors, among others. With regard to environmental matters, we are pleased to inform you that we successfully completed our first set of disclosure information in accordance with SASB Standards for the commercial mortgage investment banking and asset management units last year. Additionally, for the third consecutive year, we have released our TCFD report as mandated by local regulations, thereby enhancing the understanding of our commitments and accomplishments. In terms of economics, the Dow Jones Global Sustainability Index recently evaluated as one more. And we received a score of 78 out of 100 points. This accomplishment is a testament of the strength influence and openness of our ESG framework. Finally, on the social front, 12 of the financial education programs we designed to provide financial wellbeing to our customers we are certified by the super intendency under its standards, making us the leader in this important area in Colombia. Lastly, on Slide 19, I will share our guidance for the end of 2024 based on the current data and our macroeconomic forecast. By the end of 2024, we anticipate a loan growth of approximately 3% in peso denominated loans and 5.1% in dollar-denominated loans. We project a net interest margin of around 6.8% based on the expected lower average reference rate, save at the Central Bank. The cost of risk is anticipated to decline to 2.6%, driven by lower interest rates and inflation. The efficiency ratio is expected to be approximately 49%, influenced by reduced interest income and ongoing investments in business transformation. Consequently, we forecast a return on equity in the range of 14% and a common equity Tier 1 ratio of around 11%. In closing, I would like to inform you that we recently announced the proposed dividend which will be discussed at the Annual Shareholders Meeting on March 15. The dividend paid out will be 62%, equivalent to COP3.4 trillion and will be paid in four corporate installments of COP3,535 per share throughout the year. With that, we conclude our remarks on the fourth quarter 2023 results. We are now ready to address any questions you may have. Operator: Thank you. [Operator Instructions] Our first question comes from Tito Labarta with Goldman Sachs. See also Top 20 Languages with the Hardest Grammar for English Speakers and Top 10 Uranium Producing Companies In The World. Q&A Session Follow Bancolombia S A (NYSE:CIB) Follow Bancolombia S A (NYSE:CIB) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Tito Labarta: My question on the efficiency guidance that you gave. I understand some pressure on margins from lower rates. But what kind of expectations you have there for expense growth and fee income growth? And how long do you think you’ll continue to invest sort of from a digital perspective? When could you see some benefits from that? And where should we think of the efficiency ratio sort of longer term as things normalize a bit? Juan Carlos Mora: Thank you, Tito. Our guidance regarding efficiency for 2024, it’s 49%. And let me explain why. We ended 2023 in around 45% figure on efficiency. What we think will happen during 2024, is that we will have some decrease on margins. Volume, even though we expect some loan growth, and we expect to be that loan growth of around 8%. But the combination of not big growth on volume and a slight pressure on margins will affect the income. And on the expenses side, we expect the total expenses to grow at around 9%. That is, if you do the math that implies that the result is that 49% efficiency ratio that I’m mentioning. So, it’s from the income side and also we are moving to control expenses and to be close to inflation to grow expenses closer to inflation. Regarding fees, we expect fees to grow at around 10% based on the services that we are providing back insurance, cards and the different services that we are providing. And that’s for 2024. Regarding the years of 2025 and 2026, we think that efficiency should move or should be around that figure of 50%, moving probably between 48% and 52%. Tito Labarta: Juan Carlos, that’s helpful. So do you think by 2025 and ’26, expense growth will be closer to inflation? Or when do you expect the expense growth to be closer to inflation? Juan Carlos Mora: Yes. We will move closer to inflation. But I want to address one part of your first question. I mean when are we going to stop investing on digital? And I think it with the dynamics of the sector competition, new technologies is very, very difficult on the banking sector to stop investing in technology. We will be moving towards or will be on cloud, probably full in 2026. And that will help very a lot on expenses, and we can be more agile. But expenses on technology will be important in the coming years, Tito. Tito Labarta: One Carlos. Sorry, if I can, just one follow-up, I guess, from that perspective. How do you sort of the competition from fine-techs, other competitors becoming more digital, do you see that as a significant threat. Do you think you’re well positioned for that? And I mean, do you see long-term benefits from that, from better efficiency? Juan Carlos Mora: Yes. The competition is increasing. There are new players in the market, and that’s good because that forced us to be also better. We keep growing on a number of customers, a number of transactions on our relevance on the Colombian market. So we compete with peers, banks like us, but also newcomers — as you know, new bank announced that they now have the authorization of the finance super-intendency to be a bank or a commercial financial commercial entity, as we call it in Colombia. So they will now will offer savings accounts and that they will be definitely a player. But we think we are very well positioned. The number of clients that we have, the scale and mainly our main advantage is our network of channels and how they are integrated and the coverage that we have around the country. It’s is worth to remember that still in Colombia and in many other Latin American countries, cash is important. So how cash in and cash out from the digital environment is very important. It’s as important as the digital environment that you have. And we have both, we have the channels and the digital environment. So competition, of course, always, you have to take into account what they do, and they are good, definitely. But I think at the end, we will benefit all the market and as a player in this environment. Operator: Our next question is from Yuri Fernandes with JPMorgan. Yuri Fernandes: I have two quick ones. One is regarding your tax rate. I know it really depends on ex Colombia operations and also your security in the country, usually, you have some tax empty instruments, but 2025 has been a bit on the low end, I would say. So just a guidance on effective tax rate, how much you believe the tax rate should evolve in 2024, ’25. If you see the 25% effective tax rate level is sustainable or if this should be higher? That’s the first one. A second one regarding Tuya, we saw an impairment this quarter. I think this was a headwind for your results, about COP100 billion, so just checking if you can explain a little bit what happened if we should see this on a yearly basis or no, it’s more nonrecurring. That would be my second one. And a third one, if I may, regarding seats, if you have an estimate on the potential outflow impact from the removal from fit? That would be my final one. Juan Carlos Mora: Thank you, Yuri. I am going to address your first two questions, and I’m going to ask Jose Humberto to help me with your third one regarding the FTSE situation. Tax rate. I want to be clear regarding the tax rate. We have a statutory tax rate in Colombia and also in the different countries. But when we combine the tax rates, the statutory and effective tax rates in the different geographies and in Colombia and our situation, our fiscal situation in Colombia regarding taxes. That 25% effective tax rate that we had in 2023, we think that is sustainable around 26% effective tax rate for the coming 2 and 3 or 3 years. So regarding your question on our guidance is our effective tax rate for the coming years, should be around 26% with the current rules that we have duty. So it is — because as I mentioned, a corporate structure that allows us to be efficient regarding taxes in the coming three years. Your second question, Tuya. Tuya is a financial commercial institution. They take deposits or mainly the way they fund is through time deposits. And during 2023, there were periods in which the liquidity in the Colombian market was difficult was tight. And in that situation, small institutions had to go to a market and they had to pay high interest rates for their funds, not just Tuya, many others. And on the other side, the income was affected because the maximum grade that institutions could charge in Colombia went down because of the intense change the way the formula to calculate it. The — they are at the maximum closer to 45%. That’s the cap rate that we had in 2022 at some point and came down to 35% even 33%. So that squeezed the margins. If you have the liquidity issue that you have to pay more foreign funds and the income was going down because of what happened with the maximum rate. So the margin was lower. And on top of that, there were more risks. So at the end, what happened is a smaller margin to cover higher risk. That’s plan. And that happened to other institutions that other entities, financial entities that are focused on cards, mainly on credit cards. So it’s not something that happened just to Tuya. It was a general issue in the market. We are taking the measures to reverse that situation moving to different products, taking less risk. Our risk appetite now is lower. So we expect that, that situation even though we could have still some pressures in 2024, 2025 will be different and Tuya will be profitable again July. And I’m going to pass your third question to Jose Humberto. José Humberto Acosta: Yes, the consequences of being removed from the index, we have three different moments. Yesterday, Monday and Tuesday, as you probably checked, the price of the ordinary shares dropped at around 5%. We believe that the next coming two weeks, there will be a stabilization of the price of the share. But then on March 15, the date in which the new calculation will take effect, we are going to see another drop in the price of the ordinary shares. The second element that I have to highlight is the level of floating of the ordinary shares is very low, at around 10% of the ordinary shares. So the numbers will change in this floating. The third element is that the ATR plate preferred shares, those are the shares with a high level of liquidity, and we don’t foresee any particular concern regarding those shares. Summarizing the sell-off based on some calculations that we received from some analysts that will be a potential sell-off of around $770 million in the next coming days. Yuri Fernandes: That’s super clear, Jason, there it’s super clear. And regarding Tuya, I totally get it. My point is that if not for Tuya, your results, they would be even better this quarter. So I get it’s a tough situation in Colombia, but trying to see the glass has full maybe the underlying results of the bank per se were better. But thank you for the clarification, everyone. Thank you, and good luck in 2024. José Humberto Acosta: Thank you very much, Yuri, for your comments. Operator: Our next question comes from Andres Soto with Santander Bank, Mexico. Andres Soto: Thank you for the presentation, the opportunity to ask questions. My first question is related to your outlook for NIM, but not in 2024, but rather once interest rates normalize in Colombia, what is the level for normalized interest rates? That will be the first question. And based on that, what is your expectation for NIM? My question basically is in the past, Bancolombia used to operate at a NIM of 5.5%, something like that. So you are still 130 basis points above that level in 2024. I’m curious about the ROE guidance of 14%. And what will be the outlook once interest rates fully normalized? Juan Carlos Mora: Thank you, Andres. NIM, as you mentioned, improved because of what happened with the interest rates in the markets where we operate, but also because we changed the mix in our balance sheet between commercial and consumer loans. So there are two effects. When the normalization of the interest rates, we will have pressure on the NIM, of course. What we expect, and you mentioned 2024, what we expect for 2024 is that the NIM to be around 6.8% and that normalization process should keep happening. And we expect that margin to be around 6.3%, 6.5% moving in the coming years. And that’s explained mainly for the mix that we have in our balance sheet. We have more SMEs and medium enterprises, and we could charge higher interest rates to those entities, but also we have a bigger mix of consumer loans, so that’s why we expect that our NIM it’s not going to what was our NIM around 6.8, 5.9%, sorry, that we had in the past. And with that, I could have affirmed that our ROE in the midterm should be around 14%. I don’t know if Humberto wants to complement me with something in this answer. José Humberto Acosta: On the funding side, Andres, we have a structural change, which is you see that CASA represents 50% of the funding and the correlation with the interest rate it’s lower than the correlation that we have with the time deposits. So for the next cycle, as Juan mentioned, that the interest rates will come down, we have, if I may say, natural protection because of the CASA funding. And remember that most of our time deposits are short term, more than 60%. So that is why our guidance or our forecasting for NIMs to remain at the level that Juan mentioned, which is around 6.5%. Andres Soto: Carlos and Humberto, and based on this, can you please provide a sensitivity in terms of points versus the policy rate? José Humberto Acosta: Yes. We have been managing our sensitivity because our floating is around on the asset side, the loan side is 60% to 70% of the portfolio. But on the other side, the floating on the liability side is at around 40% plus savings accounts at which accounts also as a floating as well. So the number is 30 basis points for every 100 in change of interest rate of the Central Bank. Andres Soto: My second question is related to cost of risk. I was checking my notes from the previous call. In the previous call, you mentioned your expectation for 2024 was for the cost of risk to be in between 2.3% to 2.5%, so around 2.4%, let’s say. And now you are saying 2.6. So I would like to understand what happened, what changed over the past 3 months for you to have a more cautious view on cost of risk. Juan Carlos Mora: Yes, Andres. We changed or we increased a little bit of our view on cost of risk because we had the results of the GDP growth of 2023 that was disappointed. It was 0.6%. The market was expected something around 1.2%. There were even some analysis expecting 1.5%, the most pessimistic analysts were expecting 1% and the figure ended being 0.6%. So that made us more cautious regarding 2024, but even though we feel that in terms of how are we handling however we originating consumer loans, how are we doing or working on the commercial side of the portfolio. Still we think that we will have an improvement on the cost of risk, but we are more cautious and will be updating this figure as the year moves on. And I think we will have a clear view around mid-year of how things are evolving. I think first quarter will be key to determine or to see the evolution of the Colombian economy. We expect the government to start implementing some contracyclical measures regarding housing infrastructure. So that we think will have a positive effect, even though our view for the year, as you know, is that the GDP growth for 2024 should be around 0.9%, which is low for Colombia better than 2023. But that’s why Andres, we are cautious regarding the cost of risk. Jose you want to complement something here. José Humberto Acosta: Thank you, on carload element is the change in our view of inflation and interest rates at Three months ago, six months ago, we believe that the interest rate and inflation will drop beginning February and March. But you see that we are on our lie in terms of inflation and interest rates. So that’s the other reason why we believe the first half of the year, we have also an increase in the cost of risk. Andres Soto: That’s very big. You guys mentioned at the beginning of the presentation that one of the areas where you need to do monitoring is the SME segment, right? So far, most of the deterioration in your loan book has come from the consumer. Now you are looking into the SME. Looking at your corporate book, is there any sector in the economy that you think may be suffering with this environment in 2024 with high interest rates and still high inflation? Juan Carlos Mora: Andres, we are monitoring very closely as you mentioned, but we haven’t seen so far a deterioration outside our forecast. Sectors in particular, construction, particularly housing construction is something that we are monitoring and working with our clients in restructuring some of their loans. So particularly construction, housing co structure and another sector that even though our position is very, very low or is low, it’s the health sector. Health sector concern us, and we think that there could be some deterioration on the health sector or the participants on the health sector and risk. Operator: Our next question is from Carlos Gomez with HSBC. Carlos Gomez: It is about your foreign subsidiaries. What we see is that you have reported a very high number in Sapa, we understand has to do with reversals of provisions. Can you tell us what you expect your normal profitability to be in each of the markets in which you’re operating and in [indiscernible] and second, going back to expenses? I mean you mentioned earlier that without taxes growth will be 40%, but inflation able line. So this is still significantly above inflation. Could you explain that a little bit further? Juan Carlos Mora: Carlos, we had some difficulties with the line. I just want to be sure that we understood your question, your first question is regarding the profitability of our operations in Central America. Is that correct? Carlos Gomez: That’s correct. And apologies for the… Juan Carlos Mora: And the second one is regarding expenses and the explanation we gave around the operating expenses growing 9%, and that compares with that 40% tax rate was… Carlos Gomez: No. To mention that without extraordinary items, your growth was about 14% last year. But again, inflation was lower than that. So we wondered you will continue to have high expense growth. Juan Carlos Mora: Understood. Thank you, Carlos. José Humberto Acosta: Carlos, yes, regarding Salvador, historically, Salvador has, it is one of our operations with the lowest cost of risk. In this case, what happened is we change and update the models with new data, and that’s the reason why the level of provision is coming down. And this is one of our most profitable operation with more than 20% return on equity and a very stable cost of risk. If you topped the last three years, we have been in the area of 1%. Regarding operating expenses, what happened this year, the 9% that we are forecasting, remember that beginning of the year, we have been with a high inflation that came from 2023. So most of the prices are adjusted because of CPI and the other element is the minimum wage in Colombia was 12%. So both elements imply that we began with a high level of expense, about 9% is a number doable for the year. And we believe that at the end of the year, as Juan mentioned at the beginning, we are going to reach an efficiency level below 50%. That will be at around 49%. But the main reason why is 9% is because of the CPI of 2023. And basically, this is the main reason. Carlos Gomez: On the foreign subsidiaries, I wondered what your normal ROE would be for each of them. And in the case of Salvador, I mean it was over 20% because of this reversal. Do you expect more than 20%? José Humberto Acosta: Carlos, we are expecting to maintain that level, assuming this cost of risk that I mentioned before, assuming that we will be able to sustain the NIM of around 6.5% to 7%. And the operation there, the efficiency also is below 50%. So we are forecasting for Salvador. That level at around 20% area, at least for the next two years. They have a very positive structure of funding as well as Bancolombia based on CASA deposits. In the case of Banesa, we are expecting to maintain a level of around 10% in the next coming, at least for 2024 and increased to 12% next year. In the case of Guatemala, Bancagrmercan tire in Guatemala, you see that the numbers this year are very low because of high level of provisions, but we expect to sustain a return on equity in between 10% to 12%, 24 and 25. Carlos Gomez: Clear. Thank you, Carlos… Operator: Our next question comes from Alonso Aramburu with BTG. Alonso Aramburú: Yes. I wanted to ask about Nequi. Can you give us an update on when the spin-off is going to happen? And just some color about the path to profitability and the monetization drivers of Nequi. How do you see the platform evolving over the next few quarters? Juan Carlos Mora: We ended 2023 with more than 18 million customers users in our platform, of which around 13% are active users. So definitely, we have the network effect happening in Nequi and transactions are going on there. We expect that the growth will continue and probably we will reach around 21 million customers, which if we put in perspective, Colombia has around 50 million inhabitants. So it’s a very significant number. And that allows us to, with that network effect and platform effect also move forward on our profitability strategy that will be based on offering those customers, different services, including insurance, some investment opportunities, but mainly credit loans. We have to be careful, and we need to be aware of where are we on the economic cycle. We think that this is not a year in which we can push very hard on offering crediting in a platform like Nequi. This is to say that we have the elements, we have the clients, we have the products. We will continue evolving on the products but our path to profitability will be dependent on where are we on the economic cycle and how much we can push credit. With this, with our current situation and our expectations on how the economy is going to behave in the coming two years, we expect that we could be profitable in 2026. That’s regarding how we see the evolution of all our path to profitability. Regarding the spin-off, we are ready to spin-off neck now is happening in the coming weeks, is that the super tendency should evaluate our readiness. They will give us some recommendations. And after we implement them, we will spin-off Nequi. That will come and depends on their recommendations that we will receive from the supervisor. We will be ready to spin-off Nequi in the coming months, maybe two months. But it depends on, as I said, on what they see and how they or the results of the assessment in which we are ready. And as a matter of fact, we’ll start that assessment, the superintendency will start that assessment next week. Alonso Aramburú: Great. Thank you very much. Operator: Next question comes from Julian Ausique with Davivienda Corredores. Julian Ausique: My first question is regarding the ordinary shares. I know you already mentioned something about that, but I didn’t get it. But my question is related to the plans that the company has related liquidity of the share due to the recently elimination of the share from the FTSE Index. And in my calculation, I saw that Bancolombia ordinary share is not meeting the liquidity requirements that the MS LATAM is required for some shares to maintain in the index. And my second question is something related to something that you already mentioned about the spin-off and Nequi. Are you expecting some inflows in terms of cash to Bancolombia? And if there is some inflows, what are, what will be the uses of that cash? And just to catch up in terms of cost of risk, I heard that you are expecting some deterioration of the housing and construction sectors, like I don’t know if you have like a down scenario in terms of cost of rigs, if you saw really weak deterioration in those sectors. Juan Carlos Mora: Thank you, Julian. Let me — I have some comments on your first question. I will answer your second question regarding the spin-off of Nequi a comment on the cost of risk. And I am going to start with your second question, then Jose, I will do the comment on the FTSE Index and MSCI and then I will ask José Humberto to complement me. Regarding the spin-off, it’s not going to generate any cash for Bancolombia. What we are doing is a spin-off in which we move assets and liability to a different entity, which is neck in this case. So MSCI will be a fully owned entity, Bancolombias Fion entity. And we just spin-off assets and liabilities, and Nequi will operate as a separate entity, legal entity, but 100% owned by Bancolombia. So what happened on a consolidated basis is that Nequi is going to consolidate on the numbers that we present for Grupo and Colombia. Regarding the cost of risk, 2024 is a year that it has complexities in how you read it. But with the 2.6%, we are more on the conservative side. It could be some upside potential if we manage how are we managing so far the risk that we are or our risk appetite. So to be concrete, the 2.6% is our expectation. It’s more on the conservative side, and it depends on how the year evolves, as I mentioned, but it could have some potential of upside if the year evolves better than expected. And moving to your first question. I want to highlight that what happened is more because of the size and the liquidity of the Colombian market......»»

Category: topSource: insidermonkeyFeb 24th, 2024

Grab Holdings Limited (NASDAQ:GRAB) Q4 2023 Earnings Call Transcript

Grab Holdings Limited (NASDAQ:GRAB) Q4 2023 Earnings Call Transcript February 22, 2024 Grab Holdings Limited beats earnings expectations. Reported EPS is $0.01, expectations were $-0.08. Grab Holdings Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Hello, all, and thank […] Grab Holdings Limited (NASDAQ:GRAB) Q4 2023 Earnings Call Transcript February 22, 2024 Grab Holdings Limited beats earnings expectations. Reported EPS is $0.01, expectations were $-0.08. Grab Holdings Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Hello, all, and thank you for joining us today. My name is Lydia, and I’ll be your conference operator for this session. Welcome to Grab’s Fourth Quarter and Full Year 2023 Earnings Results Call. After the speakers’ remarks, there will be a question-and-answer session. I’ll now turn it over to Douglas Eu to start the call. Douglas Eu: Good day, everyone, and welcome to Grab’s fourth quarter and full year 2023 earnings call. I’m Douglas Eu, Head of Asia Investor Relations at Grab. And joining me today are Anthony Tan, Chief Executive Officer; Alex Hungate, Chief Operating Officer; and Peter Oey, Chief Financial Officer. During the call today, Anthony will discuss our key strategic and business achievements, followed by Alex who will provide operational highlights, and Peter will share details of our fourth quarter and full year 2023 financial results. Following prepared remarks, we will open the call to questions. During this call, we will be making forward-looking statements about future events, including our future business and financial performance. These statements are based on our current beliefs and expectations. Actual results could differ materially due to a number of risks and uncertainties as described on this earnings call in the earnings release and in our Form 20-F and our filings with the SEC. We do not undertake any duty to update any forward-looking statements. We will also be discussing non-IFRS financial measures on this call. These measures supplement, but do not replace IFRS financial measures. Please refer to the earnings materials for a reconciliation of non-IFRS to IFRS financial measures. For more information, please refer to our earnings press release and supplemental presentation available on our IR website. And with that, I will turn the call over to Anthony to deliver his remarks. Anthony Tan: Thank you for joining us today. 2023 was a pivotal year for Grab. We set out to achieve a number of big milestones and we delivered on our key goals. Our mobility business, which was severely impacted by the pandemic exceeded pre-COVID levels as we exited 2023. This was done through focused product investments into our key affordability initiatives and targeting traveler demand. In deliveries, we drove a reacceleration of our deliveries GMV, executing upon three consecutive quarters of sequential growth post-COVID normalization. In the fourth quarter of 2023, deliveries GMV reaccelerated to grow 13% year-on-year setting us up strongly for 2024. At the same time, deliveries segment adjusted EBITDA margins expanded by over 160 basis points year-on-year as we continued to drive marketplace efficiencies and grow our category leadership position across all our core markets amid reductions in incentive spend. And finally at a group level, we achieved our bottom line goals. We turned group adjusted EBITDA profitable since the third quarter of 2023 and also achieved adjusted free cash flow and positive net profit for the first time in the fourth quarter of 2023. These outcomes were achieved by driving intense scrutiny and discipline on costs while innovating relentlessly to deliver top line growth. Our net profit benefited from an accounting accrual reversal. More importantly, our adjusted EBITDA continued to grow quarter-on-quarter. This showcases our ability to deliver strongly on the bottom line, which we are committed to improving in the coming years. Importantly, we took strides towards profitable growth while staying true to our mission empowering everyday entrepreneurs. During the year we generated over $11 billion of earnings for our driver and merchant partners, which is an all-time high. And our average driver earnings per transit hour also grew by 14% year-on-year while also onboarding over 700,000 new merchants in the year itself. We achieved this by driving win-win solutions such as hyper-batching and just-in-time allocations, all of which enabled us to improve the productivity of our driver partners, enhancing their earnings potential while reducing our cost to serve. For Grab, improving lives and livelihoods is not just the right thing to do, but makes financial sense for us to. Only by helping our communities to thrive can we also thrive alongside them. Looking ahead to 2024, this is a year where we will build on our foundations and double down on the following key priorities. First, we will deepen our engagement with all our users by focusing on value creation through product innovation. One such initiative is GrabUnlimited, the largest on-demand paid loyalty program in Southeast Asia. We are confident that we will be able to drive further uplift to customer lifetime value by stepping up cross-selling initiatives and service differentiation for our users, which will lead to improved usage frequency and retention rates. We’ve already demonstrated this in 2023 via the cross-sell of GrabUnlimited to our supermarket Jaya Grocer in Malaysia, which resulted in net new MTUs on to the Grab platform. We’ve also seen strong traction with our Malaysian digital bank GXBank, which was launched in the fourth quarter of 2023. This is the first digital bank out of the five licenses granted in Malaysia to launch. GXBank has seen more than 100,000 customer signups in just the first two weeks, of which 39% of depositors were existing Grab users. Our loans disbursals for GXS Singapore also grew quarter-on-quarter and over 80% of GXS customers don’t have ecosystem linkages to Grab. Second, we’ll continue to expand the top of our funnel. We’ll do this by increasing our appeal to travelers, harnessing strategic product partnerships such as with WeChat or Alipay or expanding our product portfolio to provide not just affordable solutions but also high value offerings. I’m particularly excited about one of our new launch products Family Accounts. This feature allows users to add their loved ones to a group account, enabling users to share payment methods with potentially new to Grab users, example, family members or elderly parents while allowing them to keep track of each other’s rides for peace of mind. We’ll further leverage generative AI to drive productivity enhancements. For example, we have now developed our own in-house LLM powered marketing tool, which has enabled us to reduce content generation time from 99 hours to just 90 minutes, while raising output quality. And furthermore, our pilots also show an improvement in click-through rates as compared to content generated manually. So this not only drives significantly greater throughput, but also enables us to stay lean and disciplined from a cost management perspective. Savings can then be reinvested into more technology to drive greater long-term growth for the platform. This is only one of the many GAI initiatives that we are currently working on that we are proud to share with you today. Now, from this three, we won’t stop here. As a leader of this company, I’m constantly looking at ways where we deliver greater impact and bolder growth by investing and incubating brand new tech lab initiatives. When successful these initiatives, will be transformative for Grab. Our leaders have all been empowered to drive this step change for us to reap the fruits of this labor in the subsequent years. In executing such initiatives, we’ll be strategically patient but tactically impatient and always remain good stewards of capital. As part of this push, we expect these initiatives to accelerate revenue growth rates in the mid-term after 2024 building on the solid foundations we are establishing this year. Peter, our CFO will elaborate later. Finally, on creating shareholder value, we see a clear path to steady group adjusted EBITDA growth and to improve upon our adjusted free cash flow generation in the years to come. With the progress that we have made on profitability with a strong balance sheet in place, we are announcing two capital market-related activities today that have been approved by our Board of Directors. Firstly, we plan to repay our remaining Term Loan B debt facility, which we expect will save us around $50 million in interest expenses annually. Secondly, we are announcing our inaugural share repurchase program of up to $500 million, which Peter will share more on later. In closing, we are incredibly excited about what Grab will embark on in the years to come. Southeast Asia is a fertile ground for us. We’re now the largest on-demand platform in the region at a scale that is over three times larger than our next closest competitor and yet, there’s still a lot for us to achieve for our partners in this region. Having operated in the region for over a decade, we’re now best positioned to deploy our significant local knowledge, data insights, scale and technology to solve the region’s many complex problems including accelerating financial inclusion for the underbanked. We will also remain relentless in innovation to unlock new possibilities for our users and partners while ensuring we continue to focus on growing our bottom line and shareholder value over the long-term. I’ll now hand over to Alex, who will cover our fourth quarter operational highlights in more detail. Alex Hungate: Thank you, Anthony. Our fourth quarter results demonstrate our commitment to driving both top line growth and bottom line improvements, while deepening market penetration across the region. Over the next few minutes, I will share our operational highlights and the underlying drivers of these results starting with Deliveries. We saw robust demand growth for Deliveries with both MTUs and GMV at record highs, driven by improving year-on-year spend per user across our 2000 to 2022 user cohorts. Our pre-COVID cohorts are spending well over two times relative to their initial year and even cohorts that started during or after the COVID lockdowns are showing higher spend relative to their initial year. Everything that we do is about making ourselves the number one choice for our users and partners in Southeast Asia. In order to achieve this, we continue to improve the affordability and reliability of our delivery services, as we reduced our cost to serve so effectively that we were able to expand our profitability at the same time. Our teams have executed strongly on this front and we have made meaningful improvements in several of our efficiency metrics such as batching and trips per transit hour. Almost 40% of our Deliveries orders were batched in the fourth quarter, growing by around 10 percentage points year-on-year. And average delivery fees for batched orders were 8% lower than unbatched orders supporting our push for greater affordability. Adoption of Saver deliveries, a key focus in 2023 also hit 23% of all delivery orders. And as we expected Saver users recorded average frequency levels that were 1.6 times higher than non-Saver users during the fourth quarter. In Singapore, where Saver was launched much earlier than our other markets, eight out of 10 Saver orders are now batched. And looking ahead, we see further opportunities to improve on our efficiency while expanding our product portfolio to maximize value and convenience for a wider range of users. We have begun to roll out several hyper-batching product initiatives that not only improve batching rates but also maximize basket size per trip, while providing users with more affordable delivery fees. While for our users who want their food faster, we also offer priority deliveries. In contrast to Saver, priority deliveries have higher delivery fees relative to standard and they generate adjusted EBITDA margins which are much higher than standard deliveries on a per order basis. Priority deliveries is still in its early days, as it comprises only 6% of orders and we are confident we can continue to grow adoption of this product. GrabUnlimited, the largest paid on-demand loyalty program in Southeast Asia now is proving to be an important engagement and attention driver for our loyal users. The program continues to account for one-third of Deliveries GMV and subscribers exhibited healthier spend levels and retention rates relative to non-subscribers. We see opportunities to improve customer lifetime value on GrabUnlimited by driving up cross-sell rates, particularly to Mobility and Financial Services as well as to introduce more non-monetary exclusive benefits for our most loyal subscribers. Looking ahead, I’m confident that our Deliveries top and bottom lines will continue to grow healthily in 2024. While our Deliveries business performance is typically impacted by seasonal factors in the first quarter, I do want to call out that Deliveries demand has held up resiliently so far this year and we expect GMV to be relatively stable now on a quarter-on-quarter basis. We also anticipate year-on-year growth rates in the first quarter to remain north of 12% and for demand to grow sequentially in the second quarter. So let me take a step back and examine the overall food competitive landscape. The competitive moats that we have built have enabled us to remain in pole position as the regional category leader across Southeast Asia with a scale advantage that’s now more than two times larger than our next largest competitor. In 2023, we drove year-on-year category leadership expansion across every one of our core markets and at the same time, we have improved Deliveries segment adjusted EBITDA margins by over 160 basis points to 3.6% and are profitable in every one of our core markets on a segment adjusted EBITDA basis. Looking forward, we also see headroom for segment adjusted EBITDA margins for Deliveries to expand by a further 100 basis points to 200 basis points over the medium-term. The success of this organic strategy means that we must hold a correspondingly high hurdle rate when assessing inorganic opportunities. While as a matter of policy we do not comment on rumors we understand that Delivery Hero has issued a statement overnight indicating that they have terminated discussions with regard to a potential sale of their Foodpanda business in certain Southeast Asian markets. Consistent with that statement, Grab can also confirm that it is not pursuing any acquisition of that business. Now moving on to Mobility. Our Mobility business recorded strong year-on-year GMV growth. We also exceeded our guidance with GMV surpassing pre-COVID levels as we exited 2023. This growth came on the back of strong demand as we focused our efforts to further drive growth in domestic ride hailing and on capturing the return of traveler demand as it started to ramp up throughout 2023. We previously shared that the traveler segment is a key focus for us. Compared to domestic users travelers are generally less price sensitive and on average spend nearly twice as much as domestic users. We are pleased to see that our efforts to capture this set of users has yielded good results. Year-on-year Mobility traveler MTUs and spending grew 67% and 68%, respectively during the quarter. And in 2024, we still see headroom to continue targeting international traveler demand to provide further upside to our Mobility business. Notably official stats estimate that inbound travelers across several of our core markets are still at only around 70% of pre-COVID levels with governments projecting further growth in inbound travel this year. In addition, we continue to aid drivers in improving their productivity and earnings potential on our platform, while also reducing our cost to serve to improve the affordability of our services. Our efforts to optimize driver supply and enhance driver efficiencies to meet demand continue to bear fruit. During the fourth quarter, monthly active driver supply grew 11% year-on-year with total online hours growing 20% year-on-year and this resulted in the proportion of surge to Mobility rides further reducing by 589 basis points year-on-year. Correspondingly, average frequency per Mobility user grew 11% year-on-year and in tandem with higher volume led to improvements in ride hailing driver utilization rates and a 14% year-on-year increase in average driver earnings per transit hour. As we look ahead to 2024, we expect growth rates for Mobility to remain strong. We usually see seasonal softness in the first quarter, but with our efforts in place to drive demand, we expect Mobility demand to be stable sequentially. And structurally similar to Deliveries we see plenty of headroom to increase total users and enhance frequency levels by expanding and deepening our product portfolio across our key affordability and high value initiatives. One of these key affordability initiatives was the relaunch of Move It our two-wheel ride hailing app in the Philippines, which has seen daily rides grow phenomenally by over 30 times in less than eight months. It was such a proud moment when earlier this week we met many of the new drivers who have joined us in Manila and were so happy for the opportunity to earn a good living on the Grab platform. In fact when I arrived at the center at around 10:00 P.M. there were still hundreds of new drivers arriving to sign up. Beyond our affordability initiatives we see ample opportunities to roll out and expand newer products such as GrabCar Premium which will enable us to tap into newer user segments such as corporate travel demand. Moving on to Financial Services. Revenues here more than doubled year-on-year and grew 12% quarter-on-quarter on the back of higher contributions from our ecosystem payments and lending businesses. Total loans disbursed in 2023 grew 57% year-on-year to reach $1.5 billion and we ended the quarter with $326 million of loans outstanding underpinned by the expansion of ecosystem lending in GrabFin and the new FlexiLoan volumes from GXS Bank in Singapore. This is even while we maintained NPL ratios at low single-digit. Customer deposits across our Digibank stood at $374 million at the end of 2023 as we are still managing our deposit balances underneath the regulated deposit cap in Singapore. Segment adjusted EBITDA losses narrowed year-on-year driven by higher revenues from lending and from payments where we further streamlined our cost base in GrabFin as we focused our strategy on on-platform payments. We also continue to see solid traction across our Digibank as Anthony highlighted earlier. Finally, on our Enterprise and New Initiatives segment, year-on-year revenues more than doubled, while segment adjusted EBITDA grew by 378%. During the fourth quarter, our advertising business reached several all-time highs. Advertising revenues scaled to 1.5% of total Deliveries GMV and reached an annualized run rate of nearly $160 million, while segment adjusted EBITDA margin as a percentage of revenue is nearly 80% in this very profitable business. We deepened the penetration of our advertising self-service platform among our merchant partners, while improving monetization rates. We saw monthly active advertisers joining our self-service platform grow by 54% year-on-year to 115,000, while active advertisers consistently demonstrated higher retention rates than non-advertisers. And average spend by active merchants who adopted self-serve advertising tools also increased 129% year-on-year underscoring the value we deliver to our merchant partners who try out our advertising platform. While advertising penetration is still relatively nascent today, we see plenty of upside to drive demand for our advertising services and value for our merchant partners and other top brands. So, in closing, we are happy with the progress that we’ve made in expanding our top line, while driving operational efficiencies to improve our bottom-line. There is still significant headroom for growth going forward, both in terms of driving frequency uplifts, user stickiness, and adding new users and partners to our platform. And with that let me turn the call over to Peter. Peter Oey: Thanks Alex. We closed out 2023 on a strong footing. In the fourth quarter, revenue grew 30% year-on-year to reach $653 million, while full year revenue grew to $2.36 billion. This is above the top end of the revenue guidance that we revised up in the last quarter. The strong revenue growth was driven by all segments of our business. On a year-on-year basis, in the fourth quarter, Mobility revenue was up 26% as we continued to see strong demand from domestic users and international travelers across the region. Deliveries revenues grew 20% as we continued to grow GMV, while reducing incentive spend. Financial Services revenue doubled in the fourth quarter and we improved payment monetization and increased lending contributions. And Enterprise revenues, consisting primarily of advertising, more than doubled year-on-year to hit an annualized revenue run rate of around $160 million. This was attributable to increased ads monetization and ads demand from our merchant partners. On GMV, our on-demand segments of Mobility and Deliveries saw fourth quarter GMV growth of 18% year-on-year. Mobility GMV grew strongly by 28% year-on-year, exceeded pre-COVID levels as we exited 2023. Deliveries GMV, its third consecutive quarter of growth, with a reacceleration in growth to 13% year-on-year. This was supported by strong underlying demand trends with Deliveries MTUs hitting a record high, coupled with increasing levels of GMV per Deliveries MTU. Moving on to segment, adjusted EBITDA. Total segment adjusted EBITDA doubled year-on-year to $228 million in the fourth quarter. This growth can be attributed to all segments of the business. Deliveries segment adjusted EBITDA grew to $96 million in the fourth quarter, with segment adjusted EBITDA margins expanding by over 160 basis points to 3.6%. Mobility segment adjusted EBITDA grew 20% year-on-year to $182 million, with margins at 12.3%. Financial Services segment adjusted EBITDA narrowed 13% year-on-year to negative $81 million. The reduction in losses was driven primarily by lower overhead expenses and higher revenues from lending and payments in our GrabFin business that more than offset higher cost of funds and also higher Digibank related costs. Notably, payment cost of funds represented 26% of our Financial Services segment cost structure in the fourth quarter. Finally, for Enterprise segment, adjusted EBITDA grew by 378% year-on-year for the fourth quarter. As a percentage of revenues, margins expanded to 79% consistent with our efforts to improve the monetization of our ad services and increased self-serve ads penetration across our merchant base. Regional corporate costs for the fourth quarter improved 13% year-on-year to $193 million. The year-on-year improvements are attributed to reductions across both variable and our fixed cost base. Total headcount reduced 18% year-on-year, as we continued to recognize greater efficiencies across the organization. While cloud costs and direct marketing expenses declined 32% and 16% respectively, year-on-year in the fourth quarter. As a result of the strong top line growth and the greater focus on profitability, we continue to grow group adjusted EBITDA to $35 million in the fourth quarter, a year-on-year improvement of $146 million. Separately for the first time, we reported a quarterly positive adjusted free cash flow of $1 million in the fourth quarter. We also reported for the first time, a net profit of $11 million in the fourth quarter. I do want to call out that while we reported a net profit in the fourth quarter, we benefited from the reversal of an accounting accrual that was no longer required. As we look ahead to 2024, we remain committed to growing our business sustainably anchored on generating profitable growth and free cash flow. As Alex mentioned, our business performance is subject to seasonal factors. And in the first quarter, we expect on-demand GMV to be stable on a quarter-on-quarter basis, with demand and supply being impacted by the Lunar New Year festivities and Ramadan. Nevertheless, we expect year-on-year growth rates for on-demand GMV to be healthy and to see a sequential rebound of GMV in the second quarter and continued growth during the year. From a margin perspective, we expect Mobility margins to be maintained at around 12% plus and Deliveries margins to be 3% plus through 2024. As we look beyond 2024 however, we see headroom for margins to expand by a further 100 basis points to 200 basis points for Deliveries in the midterm, as we continue to build out new product features that enhance our operational efficiencies as well as drive greater marketplace optimization. We will aim to provide an update on our longer-term margins during our first quarter results call. Separately in Financial Services, we expect losses to sequentially narrow heading into 2024, coming down from peak losses in the fourth quarter of 2023. On our forward guidance for 2024, we estimate revenues to come within the range of $2.7 billion to $2.75 billion, representing a year-on-year growth of 14% to 17% and for adjusted EBITDA to be at $180 million to $200 million. In the medium term, we anticipate revenue growth beyond 2024 to accelerate as we are incubating and scaling up a series of tech-led products and initiatives that Alex and Anthony spoke about. We expect these initiatives to drive strong growth across our core products and services and also see meaningful upsides in contributions from our digital banks, advertising, and our high value offerings as key examples. And as for our adjusted free cash flow for 2024, we expect this to improve substantially year-on-year as we grow profitability and drive cash flow generation. However, I do want to point out that the trajectory of our quarterly adjusted free cash flow levels could fluctuate, due to seasonal factors and the timing of payments for certain expenses such as bonus payments and capital expenditures. Finally, we expect to be highly disciplined on costs and to continue driving operating leverage in the business. Centralized regional expenses, which accounts for approximately half of our regional corporate costs is expected to grow broadly in line with inflation much lower than our revenue growth. Turning now to our balance sheet and liquidity position. We continue to maintain a strong liquidity position, ending the year with $6 billion of gross cash liquidity up slightly from $5.9 billion in the prior quarter. And our net cash liquidity was $5.2 billion at the end of the year, flat from the prior quarter. I would like to also take some time to share our updated capital allocation framework, with the objective of driving long-term sustainable value creation for our shareholders. First, we will have a high hurdle rate when it comes to deploying our capital and we’ll have a balanced approach to investing for organic profitable growth and be very highly selective on inorganic opportunities. Secondly, we will continue to be efficient in our working capital needs and continue to maintain a strong balance sheet with ample liquidity. Third, where there is excess capital on our balance sheet we will look to return it to our shareholders. In line with this capital allocation framework our Board of Directors have approved an inaugural share repurchase program of $500 million and the full repayment of the outstanding balance of our Term Loan B, with the principal and accrued interest amount of $497 million as of the end of 2023. We are announcing our first share repurchase program now as we are in the fortunate position of having a very strong balance sheet while retaining sufficient cash to fund the growth of our business. This also underscores our commitment in driving shareholder value creation and only the highest return on investment opportunities, when deploying our cash. This also has benefited of offsetting dilution resulting from issuing of shares as part of our employee stock compensation plans. As for the repayment of the Term Loan B, we expect this to create significant interest expense savings for Grab of approximately $50 million per year. Finally, as we look ahead to 2024 and beyond, I would like to provide an update on our financial reporting that we will move towards beginning from our first quarter of 2024 results. We will be revising the composition of our operating segments, which reflects a change in how we plan to evaluate and manage the performance of our businesses and to also enhance our segment’s financial disclosures to be more comparable with peers. As such, from the first quarter of 2024, we will be allocating the relevant portions of advertising revenues and costs currently in our Enterprise segment, cost of funds, currently in our Financial Services segment, and regional corporate costs to the respective segments of our business. Secondly, consistent with our strategic focus on ecosystem transactions, and lending for GrabFin and our digital banks, we will be enhancing disclosures around our lending and banking business which we have seen since our third quarter results, while discontinuing the reporting of GMV for our Financial Services segment as we de-prioritize off-platform transactions. We’ll share additional color on these reporting changes during our next earnings call. In closing, Grab delivered a strong set of results in 2023, where we continued to grow across our top and bottom lines. As we look into 2024, we will continue to manage the business with three key financial guardrails. First, by continuing to generate sustainable adjusted EBITDA growth; second, driving towards sustained positive adjusted free cash flow. And third, continue to drive operating leverage in the business. Before ending the call, Anthony, Alex and I would like to thank fellow Grabbers, our users and partners for their contributions and support. Without it, these results and strong performance in 2023 would not have been possible. Thank you very much for your time. And we will now open up the call to questions. Operator: Thank you. [Operator Instructions] Our first question comes from Pang Vitt of Goldman Sachs. Your line is open. Please go ahead. Pang Vitt: Hi. Good afternoon, management and thank you very much for the opportunity. First of all, congratulations on your first profitable quarter and announcing a positive surprise in the $500 million share buyback. On this point, can you share with us more, on this repurchase program you announced? What will be the pace of this? And how do you plan to utilize this program for the rest of the year? That’s question number one. Question number two, we understand that Foodpanda, as you mentioned has terminated discussion with regards to a potential sale in Southeast Asia. On this point, could you share potential color with us on why this asset was not of your interest? And how does this potentially impact the competitive landscape in Southeast Asia going forward? See also 25 Best Zoos in the US and 16 States With the Lowest Or No Sales Tax. Q&A Session Follow Grab Holdings Ltd (NASDAQ:GRAB) Follow Grab Holdings Ltd (NASDAQ:GRAB) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Peter Oey: Hey, Pang. This is Peter. Let me take the first one around the $500 million buyback and I’ll ask Alex, to address your second question around Foodpanda. The announcement of the first purchase repurchase program, we view this as an ideal opportunity to look at investing in the long-term upside in our business and also, we coupled with the $5.2 billion net cash liquidity position. Now, as to the pace of how we deploy the capital, we will be efficient in how we’re using that and a lot of that Pang will be influenced by the dynamic market itself. We will be very cautious in how we’re deploying this cash in the market, but we are committed to the Board mandate for the share buyback program. And we’ll continue to update the market, as we continue into the program. Alex Hungate: Hi Pang. It’s Alex here. Let me talk about the Foodpanda situation. As we were indicating in our comments, in food deliveries we are more than double the size now of the next largest competitor in Southeast Asia. And we’ve been able to translate that scale into significant efficiency advantages. The cost to serve that Anthony was talking about and hyper-batching the just-in-time allocation. All of these things work better, at higher volume with higher density. And that means we’ve been able to then drive affordability which drives growth and improves our competitive position even better. So increasing CP in all markets, increasing margin in all markets, and we’ve even shared today that we expect our long-term margins in Deliveries to go up by another 1% to 2% higher than the 3% plus that we’ve mentioned in the past as our long-term target. And that reflects the confidence that we have that we can continue with this organic strategy, driving growth and driving improved margin and driving better services for our consumers. And therefore the bar for any inorganic use of shareholder funds has to be very high in comparison with that. And so in the end, any asset that we would acquire would have to be available at a very attractive price to cross that bar. And I think probably that’s all I should say. Operator: Thank you. Our next question comes from Venugopal Garre of Bernstein. Please go ahead. Your line is open. Venugopal Garre: Hi Grab management. Thanks a lot for the opportunity. So two questions from me, firstly, I remember last year you had started with an EBITDA loss guidance of about $275 million to $325 million and eventually you ended up reporting a loss of only $20-odd million. So I want to understand that while you’ve given a guidance of about $180 million to $200 million of profit this year on EBITDA level, but if I annualize your fourth quarter EBITDA that itself is $140 million. So you’re not really looking for a guidance, which is materially different from what you’ve delivered in fourth quarter in terms of run rate. I just wanted to understand that given a broadly positive outlook in the medium term as well on almost all your segments, why are we being a bit conservative on guidance? What is it that’s something that we should watch out for if at all? And if the prices emerge, which are the areas you think the prices could emerge? That’s my first question. Second one is a smaller one largely on the Financial Services sector. While we were anticipating some increase in losses sequentially given that you had noted the Malaysia launch. Could you just quantify the impact if at all more importantly for us to understand how the losses would shape up especially through the year? Is it going to be elevated for a while before it comes down or is it going to be a swift improvement? Thank you so much. Peter Oey: Hi, Venu. Let me address the first one around the EBITDA, and Alex I’ll ask you to address the second part of the question. A few things here, Venu. One is as Anthony and Alex mentioned, we are in 2024 focusing deepening our product moats, and we’re incubating a number of product and tech investments, particularly around operational efficiency improvements that we will expect to see growth acceleration in revenue beyond 2024. For this year, as we also alluded in the remarks, we are keeping our margins on Deliveries and Mobility fairly stable at the 3% and 12% plus respectively. Now, we do see opportunities for our Deliveries margin to expand in the midterm we quoted somewhere around 100 basis points to 200 basis points and this you will see part of the EBITDA expansion in 2025 and beyond. But given where we are today and the line of sight that we have from a guidance perspective, this is where we are committed as a point in time. And as we continue to roll out these new product features, which we’re very excited about, we will continue to update our EBITDA guidance. Alex Hungate: Thanks for the question, Venu, on Financial Services. Yes, you’re right, the increase in the EBITDA losses in the fourth quarter as we had indicated was because of the Malaysia launch, the launch of GXB in Malaysia, which has been very successful. As Anthony said, in the first two weeks alone we gathered 100,000 new accounts, but there were launch related expenses in the fourth quarter. We took in deposits of course which is great, but we are not able to redeploy those deposits into the income generating lending products until we launch the loan products, which is upcoming in this coming quarter. So that is the first part of the question. I think the GrabFin costs remain relatively stable. You asked for some of the underlying factors elsewhere. So, GrabFin costs remained relatively stable quarter-on-quarter, despite their improvements in revenues actually, so they’re heading on the right track there. And within that you’ve got the cost of funds for our payments business, which supports the on-demand platform payments. That is approximately $30 million in the quarter, representing about 26% of the total Financial Services segment cost structure. So, hopefully that’s helpful for you to understand that that’s an underlying piece of the cost structure in GrabFin. I want to call out that we see payments though as one of our core moats, because having our own payments infrastructure will significantly lower the payment cost for Grab, and we expect that payment cost to now because it’s under our own control, so to speak, we expect it to remain roughly stable as a percentage of our on-demand GMV in 2024. So there are two indicators for you, which might help you to model going forward. So going forward, the last part of your question, Q4 does represent the peak of the quarterly losses for the Financial Services segment for Grab. Now going forward, we’ll see the revenue kicking in from the loan book. So, we’re already lending in Singapore. We’ve got GFin also doing well with its high velocity low ticket ecosystem lending. And then from this quarter, we’ll start to have Malaysian loan revenue on top of that again. And in Singapore as the regulatory caps are lifted, the Singapore business can start to scale more aggressively also. So that’s why we’re calling Q4 as the peak of the losses for the Grab Financial Services. Operator: Our next question comes from Sachin Salgaonkar of Bank of America. Please go ahead. Your line is open. Sachin Salgaonkar: Hi. Thank you for the opportunity. I have two questions. First question perhaps a follow-up to Venu’s question, but want to ask that in a slightly different format. So if you look at what you guided for adjusted EBITDA and revenue it does imply an adjusted EBITDA margin anywhere between 7.3% to 7.5% at the high end. Your last reported adjusted EBITDA margin was close to around 5%. So in a way we are looking for a 200 bps improvement in margin. And if the mobility margin is around 12%, delivery margin around 3% plus; is a large part of the improvement predominantly driven by the Financial Services losses going down or it’s also the delivery margin 3% less implies maybe 100 bps improvement from that? So that’s question number one. Question number two, wanted to understand a bit more color on the centralized regional expense what you guys are talking about. I understand in the next quarter you’re going to give details, but anything this quarter you guys want to provide in terms that will help us quantification going into next quarter? And the related question is basis my understanding, roughly 30% of your costs, are largely linked to GMV. So as in how GMV increases, we should see an increase in these expenses in a pretty hefty manner right? I just wanted to understand how one should look at the regional cost expense going ahead? Thank you. Peter Oey: Okay. Sachin, let me take all those questions. Let me take the first part around the EBITDA margin. There’s a couple of things here that I want to call out. One is, there are operating leverage in the business. A lot of the product initiatives that we’re pushing is also generating operational efficiency in our business. Some of that may be translated in the segment margins some of those can be translated in outside of our segments in our corporate cost structure also. So there is improvement. There’s operating leverage in the business. And what we said was the margin for our Mobility and Deliveries will be around about the 12% and 3% plus. Now GFin though, you’re right. The GFin part or the Financial Services segment as Alex just alluded earlier will see improvements in the cost structure of our business, as well as they start to generate revenue especially from our banking and as we start to scale loan even further of that business. So you’ll see a dynamic of operating leverage in the business in terms of efficiencies and also the GFin or the Financial Services segment also coming down. The third part is around our regional corporate costs. That’s going up roughly inflation with around about say 4% on a year-over-year basis which is at a significantly lower clip versus what our GMV growth is. Your second question around centralized regional corporate costs. So the cost structure there is growing in line with inflation like I said earlier. Now, there’s always a couple of pieces in regional corporate cost. There’s a variable piece and there is the fixed cost piece. Now, the cloud and direct marketing will obviously commensurate with the growth of the pace of the business itself. Those are variable costs. And while we’re continuing to see efficiency both in cloud and marketing and you saw the reduction in those cost structure in 2023, we’ll continue to make sure that those have been efficiently optimized. We will see as a percentage of GMV those revenue — those cost structure being stable, but from an absolute dollar perspective will continue to grow with the growth of our on-demand business. On the fixed cost structure though, it’s going to be pretty much in line with the growth of the inflation. That’s how we’re thinking about it. We’re being very disciplined in terms of how we’re managing our fixed cost structure. We’re going to be very prudent in terms of how we are looking at headcount across the business, and we are going to continue to find productivity across our workforce space as it comes. I hope that answers the question. Operator: Our next question is from Piyush Choudhary of HSBC. Please go ahead. Your line is open. Piyush Choudhary: Hi. Thanks a lot for taking the questions, and congrats to Anthony and entire team on good set of results and announcing the share buyback. Two questions. Firstly, how do you expect MTU growth going forward across segments? In fourth quarter, we saw good growth in MTU. Is it driven by gaining market share or you’re able to expand the TAM with new solutions? And if you can call out, how much is seasonally driven due to travel and tourism in the region? Secondly, on the deliveries segment, can you talk a little bit about your margin range across various countries? I would imagine that there is a big difference between deliveries margin and there could be room for improvement over there in some of the countries where you have more intense competition. So why we are saying deliveries margin will remain more constant year-on-year? Wouldn’t that mix or improvement in those countries helped to lift margin even in 2024? Thank you. Alex Hungate: Piyush, thanks for your questions. I’ll take the first one on the MTU growth and then hand to Peter for the second one. Yeah, we see opportunity on the MTU side from the mobility recovery. Clearly the traveler segment is not fully recovered since pre-COVID. As I mentioned in my remarks earlier, most external estimates suggest that it’s only around 70% so far. Then we’ve got on the deliveries, we’re starting to see the effect of the affordability initiatives that we flagged to you earlier last quarter. We can see that it does drive new users using the platform and also frequency, so that will give us an MTU boost as well. And then the family accounts that Anthony mentioned earlier, we’re optimistic about that. We think that that will improve the self-generated growth of MTUs, the network itself generating new MTUs. So we’re very keen on that as a hyper-growth driver as well. And then we think that we’re barely tapped into the premium segment, the corporate premium segment and as we mentioned in our remarks there will be some really fantastic new offerings coming up for that segment. So we hope that that will be a high margin and high growth opportunity for our MTUs going forward. Peter? Peter Oey: Yeah. Piyush also I just would add also from an MTU perspective, we’re also driving engagement in our business. It’s really important that yes we can add MTUs, but also we’ve got to make sure these users are constantly engaging in our platform and we have more and more users now using the Grab platform. We finished the quarter at 38 million and we see opportunities to grow that even further in 2024. But it’s also equally as important that they are constantly coming back to the platform and using them. That’s part of our growth factors also in 2024, but that’s going to also come from product features that we’re investing in the business, and tied to that actually is your question around margins. Now you asked about country specific margins. We only see our business as a portfolio. We don’t look at while countries are important, but it’s really important that we see it across the board, across all the countries itself. And if you step back in terms of what we’ve done in Deliveries margin, we’ve seen margin improvement of over 500 bps over the last two years itself. Now this is a year that we are going to continue to consolidate and make investments into these new product initiatives that will drive engagement as well as also broaden the TAM base. We’ve worked hard last year in affordability with growth at TAM base there. We ended [Technical Difficulty] with record GMV and we’re going to push this year also to make sure that we bring in new user base; but also, that these user base are sticky, these user base are constantly using our product base and that will lead to further acceleration in growth of revenue and margins for our Deliveries business in 2025 and 2026. So this is how we’re thinking about it. Where there is upside in margins, we’ll obviously capture those margins. But for us, making sure that we are going to see revenue growth acceleration in the business, especially in 2025 and 2026......»»

Category: topSource: insidermonkeyFeb 23rd, 2024

TechnipFMC plc (NYSE:FTI) Q4 2023 Earnings Call Transcript

TechnipFMC plc (NYSE:FTI) Q4 2023 Earnings Call Transcript February 22, 2024 TechnipFMC plc beats earnings expectations. Reported EPS is $0.14, expectations were $0.12. FTI isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Hello, and welcome everyone to the TechnipFMC Fourth […] TechnipFMC plc (NYSE:FTI) Q4 2023 Earnings Call Transcript February 22, 2024 TechnipFMC plc beats earnings expectations. Reported EPS is $0.14, expectations were $0.12. FTI isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Hello, and welcome everyone to the TechnipFMC Fourth Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. [Operator Instructions] I will now turn the call over to Matt Seinsheimer, please go ahead. Matt Seinsheimer: Thank you, Sarah. Good morning, and good afternoon, and welcome to TechnipFMC’s fourth quarter 2023 earnings conference call. Our news release and financial statements issued earlier today can be found on our website. I’d like to caution you with respect to any forward-looking statements made during this call. Although these forward-looking statements are based on our current expectations, beliefs and assumptions regarding future developments and business conditions, they are subject to certain risk and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Non-material factors that could cause our actual results to differ from our projected results are described in our most recent 10-K, most recent 10-Q, and other periodic filings with the U.S. Securities and Exchange Commission. We wish to caution you not to place undue reliance on any forward-looking statements which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. I will now turn the call over to Doug Pferdehirt, TechnipFMC’s Chair and Chief Executive Officer. Doug Pferdehirt: Thank you, Matt. Good morning, and good afternoon. Thank you for participating in our fourth quarter earnings call. I am proud to report our strong quarterly and full year results which really speak to the growth and operational momentum we are achieving. Total company inbound for the year grew to $11 billion. This included subsea orders of $9.7 billion, which was an increase of 45% versus the prior year and a book-to-bill of 1.5. These strong results benefited from a record level of iEPCI awards in the period. Total company revenue for the year grew 17% to $7.8 billion. Adjusted EBITDA improved to $939 million when excluding the impact of foreign exchange. This was an increase of 30% percent when compared to the prior year. We generated free cash flow of $468 million for the year and we returned nearly $250 million to shareholders through share repurchases and dividends. While these are solid improvements, I am particularly pleased with the quality of the inbound received in 2023 with direct awards iEPCI and subsea services together exceeding 70% of subsea inbound. We’re also seeing tangible improvements in Surface Technologies. This has resulted in improved financial performance, higher cash generation and greater consistency in delivering on our annual commitments. Anyway, you look at it 2023 was a period of strong growth for our company and we see continued strength ahead, driven by the resiliency and durability of this cycle. The demand for energy will continue to grow. A more than a decade unconventional resources in North America have provided a significant portion of the world’s hydrocarbon globe. The growth from the region will be more limited in the years ahead driven by Capital Frameworks that reward higher economic returns and increased shareholder distributions. This means that the incremental production needed to support global growth will come primarily from international markets driven by the Middle East and offshore. Looking ahead, the market for conventional energy resources will evolve differently than what we have experienced in the past, driven by three major trends, a shift in capital flows, an increased role for new technologies and an expanded role for subsea services, all of which will allow TechnipFMC to leverage the full capabilities of our integrated solutions, differentiated technologies, and the industry’s most comprehensive subsea service capabilities. Looking more closely at these major trends, let’s start with the shift in capital flows. We expect to see continued strength in spending both in land and offshore markets. However, the dynamics will differ across the major markets as capital flows are typically a function of returns and access. In North America, the industry has access to resources, but economic returns will continue to be challenged outside the most prolific basins. We believe this will result in more modest growth in the region. Opportunities in the Middle East benefit from strong economic returns that will drive continued growth. That said, the number of operators that have access to these attractive resources is far more limited, which brings us to the offshore markets. Here we believe much improved economic returns and broad operator access to deep water resources will attract a growing share of global capital flows. And with more than 90% of our total revenue generated outside the North America land market, FTI stands out as the pure-play equity to address this opportunity. While the strength of these trends is partly reflected in our current backlog and revenue guidance, we have high confidence in the durability of the market over the intermediate term. In 2024, we remain on track to meet our prior guidance for subsea inbound, with current year order expectations approaching $10 billion. Today, we are also increasing our expectations for subsea inbound over the three-year period ending 2025 to reach $30 billion, a 20% increase versus our prior view. Looking beyond capital flows, we expected technology will also play a bigger role in spending behavior. Here TechnipFMC is focused on developing technologies for both conventional and new energies to drive market expansion. More specifically, we are using technology to drive further innovation in the offshore market creating new growth opportunities. A clear example of innovation is the Mero 3 HISEP contract, which we were awarded just last month. The significance of this project for the subsea industry cannot be overstated. It would be the first to use subsea processing to capture CO2 directly from the well stream for injection back into the reservoir. Importantly, this will all take place on the sea floor. In addition to reducing greenhouse gas emission intensity, HISEP technologies will increase production capacity by debottlenecking the gas processing plant that currently resides on the FPSO. By moving the gas processing entirely to the seafloor, future FPSO topside designs can be further simplified driving significant improvement in project economics. HISEP is a major milestone for the subsea industry and for TechnipFMC. This project plays to our strengths. HISEP will allow us to demonstrate how technology innovation, project integration and partner collaboration enable our meaningful participation in the energy transition, while remaining aligned with our strategic priorities. It is the first iEPCI project ever awarded by Petrobras. And it builds upon Our strong order momentum starting the year with an iEPCI award that exceeded $1 billion. And finally, the third major trend driving subsea market growth opportunities can be found in services. Today, subsea fields hosts more than 7,000 subsea trees and associated infrastructure, including manifolds, control systems, umbilicals and flexible pipe. This list is certainly not inclusive of all major components of a subsea production system. However, it does highlight the size and scale of the industry’s large and more importantly growing installed base. TechnipFMC’s global services organization plays a critical role throughout the entire life of the field, from system installation to maintenance intervention and production optimization and all the way through life of field. Our 2023 results clearly demonstrate that our strategy to enhance this resilient, growing, and high-return business is delivering real value with our services revenue having achieved over $1.5 billion for the year. In summary, we close out a solid year having delivered many notable achievements. Subsea inbound orders increased 45% versus the prior year and included a new record for iEPCI awards. This growth in orders also drove a 50% increase in subsea backlog to over $12 billion with high-quality inbound supported with further improvement in our financial returns. And our growth in full-year operational results reflect strong momentum that continues into 2024. We have entered an unprecedented time for the development of conventional energy resources, driven by three major trends, a shift in capital flows, which we believe will largely be directed to the offshore and Middle East markets, an increased role for new technologies as shown by the MERO 3 HISEP award, and an expanded role for subsea services driven by the needs of growing and aging infrastructure. Importantly, these trends underpin the 20% increase in our expectation for subsea inbound over the three-year period ending 2025, which had $30 billion will provide additional growth in backlog and further expand the execution of our project portfolio through the end of the decade. I will now turn the call over to Alf. Alf Melin: Thanks, Doug. Inbound in the quarter was $1.5 billion, driven by $1.3 billion of subsea orders. Revenue in the quarter totaled $2.1 billion. EBITDA was $245 million, when excluding foreign exchange loss of $26 million and restructuring impairment and other charges totaling $10 million. Turning to segment results, Subsea revenue of $1.7 billion increased modestly versus the third quarter. The increase in revenue was due to higher productivity in the Gulf of Mexico, Asia Pacific and Africa, driven in part by accelerated conversion of several projects from backlog. The increased activity was largely offset by seasonal factors that impacted vessel utilization. Revenue for Subsea Services modestly increased due to strength in asset maintenance and ROE services in Norway, in the Gulf of Mexico. Services revenue was also less impacted in the quarter by typical offshore seasonality, particularly in the North Sea. Adjusted EBITDA was $225 million, with a margin of 13.1%, down 200 basis points from the third quarter due to lower vessel-based activity and a mix of projects executed from backlog in the period. For the full year, subsea revenue grew 18% percent versus the prior year with adjusted EBITDA margin up 180 basis points to 13.3%. In Surface Technologies revenue was $357 million in the quarter, an increase of 2% sequentially. The increase in revenue was driven by higher activity in international and North America markets, both benefiting from higher wellhead equipment sales. Adjusted EBITDA was $52 million, a 5% sequential increase benefiting from increased contribution from international services and higher wellhead sales. Adjusted EBITDA margin was 14.7%, up 30 basis points versus the third quarter. For the full year, Surface Technologies revenue was up 12% versus the prior year with adjusted EBITDA margin up 230 basis points to 13.6%. Turning to corporate and other items in the quarter. Corporate expense was $33 million, when excluding $5 million of charges. Net interest expense was $13 million and benefited from increased interest income in the period, driven in part by strong cash generation. Tax expense was $54 million. And lastly, foreign exchange loss was $26 million, the majority of which was related to the significant devaluation of the Argentine peso. Cash flow from operating activities was $701 million. Capital expenditures were $72 million. This resulted in free cash flow of $630 million in the quarter. Free cash flow for the full year was $468 million, above the high end of our guidance range. When excluding impact of foreign exchange, we converted 50% of adjusted EBITDA to free cash flow, achieving the cash conversion rates we had previously targeted for 2025. Total shareholder distributions where $77 million in the quarter and $249 million for the full year. We ended the period with cash and cash equivalents on $952 million. Net debt declined more than $500 million to $116 million. In November, we announced an agreement to sell our Measurement Solutions business for $205 million in cash. We now expect to conclude the transaction by the end of the first quarter subject to customary closing conditions. Moving to our financial outlook, we have provided detailed guidance for the current fiscal year in our earnings release. I won’t speak to all the details, but will provide some context for certain items for the full year and first quarter. I will begin with Subsea. At the midpoint of our full-year guidance range, we anticipate revenue of $7.4 billion with an EBITDA margin of 16%. This represents a 270 basis point margin improvement from the prior year. Our outlook also anticipates contingent growth in Subsea Services revenue to approximately $1.65 billion, achieving this level, one year ahead of our previous target. For the first quarter, we anticipate Subsea revenue to decline low-to-mid single-digits due to more typical seasonal activity patterns, and EBITDA margin to be in line with fourth quarter results. Turning to Surface Technologies, at the midpoint of our full-year guidance range, we anticipate revenue of approximately $1.275 billion with an EBITDA margin of 14%. This guidance assumes we complete the sale of our Measurement Solutions business by the end of the first quarter. When excluding the impact of this sale, as well as the exit of certain geographies and portfolio rationalization in the Americas, our Surface Technologies revenue is anticipated to grow approximately 5% year-over-year. For the first quarter, we anticipate revenue to decline approximately 10%, when compared to fourth quarter results with an EBITDA margin of approximately 13%. We anticipate full year corporate expense of $115 million to $125 million. In 2023, the company initiated an ERP system upgrade. Our corporate expense now includes approximately $10 million in annual costs related to the implementation of the upgraded system. We expect to incur a similar cost each year until completion of the project in 2027. We anticipate capital expenditures of $275 million, which is just over 3% of revenue at the midpoint of our guidance range. Finally, we are guiding free cash flow for the full year to a range of $350 million to 500 million. This includes approximately $170 million for the remaining payments related to the resolution of all outstanding matters with the PNF. Excluding these payments the midpoint of our free cash flow guidance would approximate $600 million. In closing when our guidance items are taken at the midpoint of the range, we anticipate total company EBITDA of $1.25 billion for the full year. This represents EBITDA growth of 33% percent versus the prior year, when excluding foreign exchange. I also want to stress that we expect to achieve this significant growth, despite the impact of the strategic actions taken in Surface Technologies and the incremental spend related to the ERP system upgrade. This is also first second consecutive year for free cash flow conversion of nearly 50% when excluding the settlement payments. And we expect this to drive growth in shareholder distribution of at least 35% and a further reduction in net debt. Operator, you may now open the line for questions. See also 13 Best Energy Stocks To Invest In According to Hedge Funds and 11 Stocks That May Be Splitting Soon. Q&A Session Follow Fmc Technologies Inc (NYSE:FTI) Follow Fmc Technologies Inc (NYSE:FTI) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. [Operator Instructions] Your first question comes from the line of Arun Jayaram of JPMorgan Securities LLC. Your line is open. Arun Jayaram: Yeah, good morning, Doug. I wanted to first start with the increase in your long-term or three-year order guide, you raised that from $25 billion to $30 billion. I was wondering if you can comment on what drove the increase and perhaps give us a sense of how much of this was your expectation for more market share versus just the growing TAM in terms of Subsea and offshore FIDs? Doug Pferdehirt: Sure, good morning, Arun. It’s really a combination of both. Clearly, both the total market size is increasing and as you know our – the share of the market, we continue to enjoy an increasing share due to the unique offering that we provide. Look, we are seeing, is just giving us much greater visibility into the durability of the cycle and much greater confidence when we kind of risk weight opportunities when you’re in a direct negotiation, there is no competitive tender as stated in my prepared remarks, which represents over 70% of our Subsea business. You just obviously have a much higher ability to be able to properly risk weight for those opportunities. You see the outlook slides that we provide and that the markets there, the size of the markets there, it’s solid. It’s growing. It’s just really we’re in a privileged position which we are humble about it. We are honored to have this position and we offer our customers a clear line of sight to improve Subsea project economics that these are unique to our offering both in terms of our Subsea 2.0 architecture. And our and iEPCI offering that reduces their cycle time by 12 to 14 months on a deepwater project, thus vastly improving their economics. So it’s a privileged position to be in one we don’t take lightly and we continue to work really, really hard to deliver for our customers every day. Arun Jayaram: Great. My follow-up, Doug, we’re intrigued by the MERO 3 project award I know you announced just a bit earlier in the quarter. But I was wondering if you could just talk a little bit about some of the unique technology that you’re bringing to table for this and it seems like a an application that could open up a world of new opportunities despite taking some of the processing and separation to the sea floor as you mentioned it would perhaps reduce some of the needs at the surface in terms of the design of the facility subsides. So I was wondering if you can maybe comment on the technology and perhaps the scope here of future opportunities and what this could open up for FTI? Doug Pferdehirt: Sure, and thank you for the question because the award was announced earlier. We haven’t had a chance to talk about it here in this forum. This was the first opportunity. So very excited as I pointed out. I think it – we said it’s really, really unique both for the industry, as well as for our company. And I think understanding, as you said what are some of the actual award and then there’s with those what is it enabled by that? So, let’s start with just some of the highlights. Yes, one of the bottlenecks that we see in Greenfield developments as the offshore market continues to grow will be the delivery of the FPSO. The FPSOs are complicated and there are certain number of providers of those FPSOs and clearly they are becoming, if you will, the long pole in the tent in terms of the project cycle time. Our approach to ensuring that deepwater economics remain privileged, i.e. drove our customers global capital spend. It is by really doing everything we can to in every way address the cycle time, as well as reducing the risk of delivering the projects and ensuring that they’re delivered on time. So an example of that would be, the FPSO itself is an intriguing unit. But let’s see, the complexity is really in the top sides configuration that you put on top. And you do that because, you either have to separate water from oil or you have to treat the gas or you have two separate, in this case high CO2 rich dense gas from the flow stream. If you can do that on the seabed, it has many advantages, one, simplifying the FPSO, therefore reducing that risk of that becoming a bottleneck in terms of driving even further improvements in cycle time. Secondly, there’s obviously more real estate on the sea floor. We could do things, if you will horizontally, whereas if you’re on a ship you are pretty much constrained to doing things vertically Any sort of vertical construction costs more than horizontal construction. So in the simplest terms, we just have more real estate and to play with. And more and just as importantly than the economics is this is ACC has project. This is about reducing greenhouse gas intensity. This is about separating the CO2 on the sea floor and reinjecting it into the subsurface. It never sees the atmosphere. It is at the bottom of the ocean, on the sea floor in a closed loop system where we can separate out the CO2 and again re-inject CO2, hence the delivering a much lower greenhouse gas intensity for the project......»»

Category: topSource: insidermonkeyFeb 23rd, 2024

Veris Residential, Inc. (NYSE:VRE) Q4 2023 Earnings Call Transcript

Veris Residential, Inc. (NYSE:VRE) Q4 2023 Earnings Call Transcript February 23, 2024 Veris Residential, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings, and welcome to the Veris Residential, Inc. Fourth Quarter 2023 Earnings Conference Call. At this time, […] Veris Residential, Inc. (NYSE:VRE) Q4 2023 Earnings Call Transcript February 23, 2024 Veris Residential, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings, and welcome to the Veris Residential, Inc. Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Taryn Fielder, General Counsel. Thank you, Ms. Fielder. You may begin. Taryn Fielder: Good morning, everyone, and welcome to Veris Residential’s fourth quarter 2023 earnings conference call. I would like to remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to the company’s press release and annual and quarterly reports filed with the SEC for risk factors that impact the company. With that, I would like to hand the call over to Mahbod Nia, Veris Residential’s Chief Executive Officer, who is joined by Amanda Lombard, Chief Financial Officer. Mahbod? Mahbod Nia: Thank you, Taryn, and good morning, everyone. Over the past three years at Veris Residential, we’ve accomplished a number of key strategic objectives, including $2.5 billion of non-strategic asset sales and the repayment of approximately $1 billion in net debt, delevering, derisking and strengthening our balance sheet. We also negotiated the early redemption of Rockpoint’s preferred interest, strategically grew our multifamily portfolio by nearly 2,000 units through the development and stabilization of our four new properties and one acquisition, reinstated the dividend and built a best-in-class vertically integrated platform encompassing new personnel, processes and technologies. As a result, we have successfully transformed the company from what was once a complex, predominantly office REIT to a pure-play multifamily REIT. Our focus now turns to the significant opportunities available to us for continued value creation that I’d broadly categorize into three areas. First, continued operational outperformance through a number of platform and portfolio optimization strategies; second, capital allocation initiatives focused on generating earnings and value accretion to further boost the positive baseline performance from our multifamily portfolio; and third, further strengthening of our balance sheet. While a degree of earnings volatility is inevitable until we reach a mature state as a company, through a combination of these initiatives, we believe we have the potential to deliver continued relative outperformance as we seek to further enhance entity value for our shareholders over time. I’ll discuss this in further detail, but first, a few words regarding our markets and the economic outlook. Unlike many national markets that are facing a glut of near-term supply, the Northeast is expected to see a modest 1.5% inventory change in 2024, well below the national average of 3.5%, supporting the case for a continued normalized level of rental growth in our markets. Almost half of our properties are located along the Jersey City Waterfront with very limited supply as virtually no new projects were completed last year and approximately 1,200 units expected to be completed within the next two years. Demand remains robust and vacancy rates are low, suggesting new supply is likely to be absorbed much in the same way it has been during the past decade in which the multifamily stock in Jersey City Waterfront has doubled to around 24,000 units, while rents have continued to rise. Among the key attractions of Jersey City is the fact that Class A rents in the area reflect a discount of approximately 40% of top Manhattan submarkets and 10% of those of downtown Brooklyn, while offering generally newer product, more space and a wider selection of amenities. As a result, Jersey City remains an appealing submarket for prospective tenants from Manhattan, who represented approximately 20% of our move-ins during the fourth quarter. While the fundamentals across our core markets remain strong, we are in an environment of elevated macroeconomic and capital markets uncertainty, which coupled with a moderating leasing environment warrants a degree of caution looking ahead. This is reflected in our 2024 guidance, which Amanda will discuss later. Turning to operational results. The fourth quarter of 2023 represents the 10th consecutive quarter during which various generated sector-leading operating results, driven by strong rental growth and effective expense mitigation measures. Our Class A multifamily portfolio continued to outperform, achieving 17.6% year-over-year NOI growth, exceeding the high end of our guidance range despite the widespread slowdown across the multifamily sector. At year-end, same-store occupancy stood at 94.4%. We continue to achieve favorable leasing and renewal spreads despite the fourth quarter typically being a slower leasing season and rents now lapping two consecutive years of high growth. Blended same-store net rental growth remained strong at 5% for the quarter and 9.3% for the full year, driven by an 8.4% increase in renewal rates, partially offset by modest growth in new leases. While the rate of rental growth in the portfolio moderated during the fourth quarter, consistent with our commentary last quarter, it remained competitive relative to our peers who saw an average rent growth of around 0.9% during the same period. Our Jersey City Waterfront properties continued to outperform, achieving 7.6% rental growth in the fourth quarter and 11% for the full year. Despite the strong rental growth across our portfolio, affordability remained healthy with an average rent-to-income ratio of 13%, reflecting the profile of our affluent residents who have benefited from growth in their salaries and have an average annual income of over $180,000 or an average annual household income of over $300,000. Our focus on realizing operational efficiencies is evident in our NOI margin, which further improved to 64% in 2023, up from 62% in 2022 and 57% in 2021 on a normalized basis, reflecting our continued focus on expense management and proactive approach to insurance renewals and tax appeals. We remain highly focused on our pursuit of excellence and the creation of value for all of our stakeholders. Consistent with this we’ve introduced a number of innovative technological solutions across our portfolio, including an AI-based leasing assistant that has proven particularly effective at communicating directly with residents, saving approximately 1,200 staff hours per month while allowing us to tend to our residents’ needs around the clock. In addition to a number of centralized back-office functions, we also implemented new processes, and a new hybrid staff floating leasing team and a smart maintenance platform, that we anticipate will allow for further operational efficiencies and enhance productivity across our portfolio without impacting the exceptional customer service that our residents have come to expect. A number of these initiatives were implemented during the fourth quarter and are expected to positively contribute to our NOI and operating margins over time. As part of our ongoing commitment to providing an unrivaled living experience, last year, we launched The Veris Promise, an extensive collection of unique resident benefits, including a 30-day move-in guarantee, 24-hour maintenance guarantee and promotions from brand partners, among other programs, an initiative that’s been well received by our residents and is unrivaled among peers. Our commitment to excellence is further reflected in our peer-leading online reputation assessment or ORA score of 83 with two of our properties recently achieving elite 1% status. Earlier, I mentioned capital allocation as a focus area in this next phase. While our transformation is behind us, as a company, we are not yet in a mature optimized state, presenting a number of unique opportunities. Earlier this year, we closed an additional $40 million of nonstrategic sales, including the sale of a land parcel in suburban New Jersey for $10 million and the sale of our 50% stake in the Metropolitan Lofts joint venture in Morristown, New Jersey. The 59-unit property was sold for $31 million, representing a 4% cap rate and raising $6 million in net proceeds. Further, at the end of January, the company signed a binding purchase and sale agreement to dispose of our last remaining office property, Harborside 5 for $85 million, anticipated to release approximately $80 million in net proceeds. Including this asset, we have approximately $140 million of assets under binding contract at this time. The equity released from these sales will provide us with valuable liquidity and optionality during this next phase in the company’s evolution. We also have a further $215 million of equity in our land bank and are in the process of determining our long-term strategic sites and potential further monetization opportunities. We will continue to work closely with the Board to determine the highest and best use for capital as it becomes available to us, evaluating a broad range of capital allocation alternatives as we seek to maximize value for our shareholders. This includes, but is not limited to investing in our own portfolio, such as our planned extensive renovation of Liberty Towers, a 648-unit apartment building in Jersey City which, once completed, we anticipate mid-to-high teens return on invested capital over a four-year period and an estimated $0.06 of annual core FFO contribution, representing 11% of our 2023 core FFO from the single investment of approximately $30 million while significantly enhancing the value of the asset. Our third area of focus, the continued strengthening of our balance sheet, will be discussed by Amanda in more detail. Finally, turning to our commitment to ESG. We are pleased with the recent additions to our collection of industry awards, which recognize our tremendous progress and the commitment of our employees and residents to our core ESG principles. After earning global and regional recognitions from the 2023 Global Real Estate Sustainability Benchmark, or GRESB last quarter, we are honored to have subsequently receive NAREIT’s Leader in the Light Award for outstanding sustainability efforts in the residential sector. Our commitment to diversity, equity and inclusion was also acknowledged by NAREIT with their bronze recognition. To start the year, we were honored to receive The Great Place to Work certification for the third consecutive year, a testament to our strong company culture and highly engaged employees whom I would like to thank for their tireless efforts and contributions in the pursuit of excellence across our business. With that, I’m going to hand it over to Amanda, who will discuss our financial performance and guidance for 2024. Amanda Lombard: Thanks, Mahbod. For the fourth quarter and full year of 2023, net loss available to common shareholders was $0.06 and $1.22, respectively, per fully diluted share versus net income of $0.34 and loss of $0.63 per fully diluted share in the fourth quarter and full year of 2022. Core FFO per share was $0.12 and $0.53 for the fourth quarter and full year as compared to $0.12 last quarter and $0.05 and $0.44 for the fourth quarter and full year of 2022. Year-over-year, core FFO was up 20%, driven by same-store portfolio growth, a full year of operations for The James, stabilization of Haus25 and cost reductions in both overhead and property operating costs. We realized this increase in core FFO despite the loss of $47 million in NOI from offices and the three hotels that we used to own. AFFO per share grew fivefold year-over-year to $0.62 per share, up from $0.12 in 2022, reflecting the impact of shedding CapEx-intensive office assets in addition to the factors noted driving core FFO’s 20% growth. Given we are now fully a multifamily company, next quarter, we anticipate modifying our calculation of AFFO to only back out recurring CapEx required to maintain our assets, and we will exclude revenue-generating capital expenditures related to retail leasing in line with our peers. For the fourth quarter, this adjustment would have only been $300,000, so it’s not significant and isn’t expected to be in the future. Turning to G&A. After adjustments for noncash stock compensation and severance payments. G&A was $36.5 million for the year, representing a 13% reduction as compared to 2022 and a 21% reduction since 2021. As has been the case in the past, fourth quarter G&A was higher than third quarter due to anticipated seasonal items. We’ve made significant progress in reducing G&A over the past two years despite the high inflationary environment. We continue to evaluate opportunities to reduce expenses, such as those associated with the windup of Rockpoint, which are expected to be fully realized in 2025 and further technological enhancement. On to our balance sheet. We ended the year with virtually all of our debt fixed and/or hedged and with a weighted average maturity of 3.7 years and a weighted average coupon of 4.5%. Net debt-to-EBITDA based upon EBITDA for the full year was 11.9x, an improvement of almost a turn from 2022 and three turns since 2021. Before we begin discussing our guidance in detail, I’d like to start by emphasizing that while our transformation to a multifamily company may be complete, as Mahbod mentioned, there remains a possibility that earnings may fluctuate materially depending upon our capital allocation strategy and timing. Our guidance at the low end is assuming that the macroeconomic headwinds discussed by Mahbod results in a decline in job and wage growth in our markets, thus slowing the pace of rent growth, coupled with elevated expenses. On the high end of our range, we’ve assumed higher rental revenue growth given the low supply in our market, albeit below 2022 and 2023 levels, but still with elevated expense growth due to insurance and real estate taxes, which are difficult to predict and largely outside of the company’s control. In all scenarios, we’ve assumed that the only sales completed in 2024 are the two previously announced transactions. We are projecting core FFO per share of $0.48 to $0.53, which is largely driven by same-store NOI growth of 2.5% to 5%, offset primarily by a reduction in deposit interest income and one-time items recorded in 2023 to other income. Our 2024 Same-Store pool will include Haus25 and The James and exclude the Met Lofts, which result in a net increase of $32 million to our 2023 Same-Store NOI. On the revenue side, we project growth of 4% to 5%, at the midpoint, the growth is comprised of approximately 350 basis points of rental revenue growth, primarily driven by recapture of loss to lease and 100 basis points from Haus25 due to the impact of retail leasing and concessions burning off as a result of the lease up. We are forecasting modest rental revenue growth, which we believe is prudent given the past two years strength and potential economic headwinds ahead. However, rental revenue growth will be higher than our annual projection in the first quarter as a result of Haus’ relative performance this year versus last before returning to a more normal seasonal bell curve. On the expense side, we are projecting growth of 5% to 6%, driven largely by our non-controllable expenses. At the mid-point, we see 160 basis points related to increases in insurance as we believe premiums will continue realizing double-digit increases and about 175 basis points related to expense inflation, which is offset by anticipated savings from various operational initiatives. We will also have about 215 basis points of expense growth, primarily in the second quarter, when we lapped the recognition of the credits received last year on the tax appeals on the two Jersey City assets. In regards to the balance sheet and interest expense, we are projecting that interest will remain relatively flat with modest deleveraging from the sales proceeds, tamping down the impact of higher rates. We have $308 million of mortgages maturing in 2024 and in July, we have an additional $159 million mortgage that steps up to above market interest rates that we will seek to revert back to market term. Given the high quality and strong performance of these Class A multifamily properties, lender appetite remains strong and we are working with lenders on potential solutions at this time. Upon refinancing of these loans, the company has no consolidated maturities on its balance sheet until 2026. We will also, as we have in the past, seek to hedge and/or fix the majority of our debt. Rounding out guidance at the mid-point, we expect overhead cost of real estate services, which is where we record our property management expenses and D&A to remain relatively flat, reflecting our cost saving initiatives, despite anticipating ongoing inflationary pressures. While our portfolio of Class A multifamily assets continue to perform well, our guidance reflects a company that is still emerging from its strategic transformation and an uncertain macroeconomic climate. In addition, given our reliance upon sales of non-strategic assets this year in what continues to be a challenging transaction market uncertainty around future interest rates and our upcoming maturities and tempered expectations for our markets, given two consecutive years of extremely strong performance. There remains potential for continued volatility in our earnings, which is reflected in our guidance. Veris represents an extremely compelling value proposition, the highest quality and newest Class A multifamily properties located in established markets in the Northeast, commanding the highest average rent and growth rate among peers with limited near-term supply, high barriers to entry, and managed by our vertically integrated best-in-class operating platform. We believe the multifaceted approach Mahbod described earlier will be instrumental to long-term value creation for our shareholders and we are looking forward to updating you as the year progresses. I would also like to point you to our new investor presentation, which has been posted on our website and contains additional details about our go forward strategy. With that operator, please open the line for questions. See also 20 Fastest Growing Biotech Companies in the US and 16 States With the Lowest Or No Sales Tax. Q&A Session Follow Veris Residential Inc. (NYSE:VRE) Follow Veris Residential Inc. (NYSE:VRE) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question. Steve Sakwa: Yes. Thanks, good morning, Mahbod and Amanda. Maybe just a couple of things on guidance. Now that you’re basically fully transitioned to being an apartment company, could you just discuss what’s embedded in the revenue growth as it relates to kind of occupancy, maybe your blended rent spread, and maybe any bad debt trends that you could highlight. Thanks. Mahbod Nia: Good morning, Steve. It’s a good question. On the revenue side, as Amanda said in the scripted remarks, the assumption is that the majority around 3.5% of that is recapture of lost to lease and then 1% related to Haus. In terms of occupancy, it’s not really the primary metric that I would say we target, I would say, that we do try to maintain that around the 95%, understanding that it may fluctuate from time to time slightly above or below that. But our strategy very much is focused on the maximization of NOI, and that’s what drives us forward. So if you’re referring to the slight dip in occupancy, that’s not particularly troubling at this point. And we’re encouraged to see that the blended net rental spreads are still positive and around the mid-single-digit is where we see them for the next couple of months. Steve Sakwa: Okay. I guess, what I’m really trying to get at is you guys obviously had a great 2023 and you handily beat your expectations. And as you sit here today, you’ve got earning on the portfolio that might get you most of the way towards your revenue growth. So does that mean you’re really not assuming much in the way of market rent growth this year? Or I guess, how conservative might you have been on setting the top line targets just given the macro uncertainty? Mahbod Nia: No, we’ve assumed modest rental growth for this year. That’s in that lost the lease recapture figure that I gave you. The reality is that the fundamentals here, as I mentioned, still feel strong. Not as strong as they were, but still strong on a relative basis compared to some of the other markets that we’ve seen supply challenges primarily beginning to feed in and cause some softening. So that’s reflected in our guidance. And we are assuming some modest rental growth this year and that’s in the number in the loss to lease. Steve Sakwa: Okay. And just – I know Amanda touched on it. Just on the FFO and the bridge, I guess. I think if I hear you correctly, you’re saying that the positive NOI growth is kind of getting offset by higher interest expense and some one-time items in 2023 that don’t recur in 2024. Is that kind of how we’re getting from 53 in 2023 down to 51 at the midpoint? Or again, is there anything else that might be dragging FFO down in 2024? Mahbod Nia: It’s not quite correct, but almost, I think the way, I would think about it is you had around, and this was – we communicated this at the time that we had around $5 million of deposit income last year, largely related to the $350 million of cash that we were sitting on once we closed Harborside. So that’s $0.05 that we won’t get this year. And then you had another, call it, $0.03 also of other one-time positive non-recurring contributions to earnings, the largest of which was payment received in a settlement that, again, we don’t see recurring items. So that’s $0.08, $0.09of one-time items last year that were in core FFO that you won’t get. And so if you adjust the $0.53 fully annualized, the full year core FFO $0.53 by that you get to kind of $0.44, $0.45 excluding those one-time items. We also had fairly significant loss of NOI from the sale of office, but that was offset by the interest payments on the preferred that we saved by repaying rock points. So that was kind of a wash. And so you’re kind of at that $0.44, $0.45 excluding the one-time items and then you look at that relative to the guidance and actually the guidance does tie with the NOI growth that we’re projecting even at the midpoint, you’re at kind of just over $0.50, $0.51 relative to that $0.44, $0.45 last year once you strip out the one-time items. Steve Sakwa: Great. Thanks. That’s it for me. Mahbod Nia: Thank you, Steve. Operator: Our next question comes from the line of Anthony Paolone with JPMorgan. Please proceed with your question. Anthony Paolone: Thanks. Good morning. Maybe just staying on some of these guidance items, Amanda in that flattish interest expense you noted for 2024 over 2023, what does that assume in terms of that step up in rate you mentioned for the one mortgage and also the refinancing of the couple of maturities later in the year? Amanda Lombard: Sure. Good morning. So first off, I think if you look at our debt portfolio today, and we did nothing assumed there was no refinancings, we would have lower interest expense this year of about $2 million due to the refinancings we did last year on House and Portside. So right there you have a $0.02 savings. And then when you look at the three refinancings we have this year, we assumed that we would refinance them at the most advantageous market terms. And then you have to put into perspective when they would actually get paid off. The largest of the three loans maturing this year, Liberty Towers, doesn’t mature until October and so the existing rate is going to be in place for basically three quarters of the year. So you put those factors together and that’s roughly how you get it. Mahbod Nia: Yes. So just to add to that, if I may. We are – like I mentioned in the scripted remarks looking at a range of alternatives to refinance those loans, given the quality of the assets, given the asset class that we’re in, the fortunate thing is that despite tight credit conditions, there is a lot of lender interest to lend on those. And so we’re evaluating a number of options, but generically have assumed that those are refinanced in a similar way to the refinancings that we affected last year with Portside 1 and House 25, with some level of debt pay down and then an interest reset. That combined with the timing of those refinancings results in interest expense being broadly flat this year. Anthony Paolone: Okay. And then just also on the balance sheet you put in place an ATM program. Can you comment on just how you’re thinking about that, when you might use it, or just how it fits in? Mahbod Nia: Sure. So this is a program that actually we’ve had since 2021. It’s just a refresh of that program. It’s common and I would say prudent for companies such as us to have one. And you’ll see the other companies do have one. Hasn’t been utilized thus far, but it’s another source of capital available to the company, should it be required. Today we have significant liquidity, $95 million of liquidity between cash and availability under the line, and $140 million of assets under binding contract, as well as a business that is throwing off surplus cash flow, including post dividends. So I think we’re in a healthy position in terms of liquidity, but this is just prudent to have it in place. Anthony Paolone: Okay. And then just last one for me. Amanda, I think you mentioned recurring CapEx, like $300,000 or something in the fourth quarter. But if we think ahead, if we think about most apartment companies, maybe 10% of NOI or something thereabouts might be a level of CapEx over time. Like is there any way to think about that level for you all going forward? I know you said you wanted to delineate between revenue producing and recurring, but just the $300,000 just strikes me as a bit low. And so just wondering if you could frame that a bit more. Amanda Lombard: Yes, sure. I think – I’ll start off and then Mahbod can jump in here if you need to. So, I think, yes, the $300,000 is really low because we don’t have a lot of revenue-generating CapEx in our portfolio. That primarily relates to the retail leasing at our multifamily assets. And so, I think I don’t have a target for you. We haven’t given guidance on where we see those figures, but it does represent a small portion of our overall spend. The one thing I would add is, we’re still leasing up Haus and so there will be a little bit of spend next year, but it’s not material as I stated earlier, but that is something that we will be working on next year. Mahbod Nia: Yes. Look, I think there’s very little vacancy in the portfolio. The change that Amanda mentioned is really more reflective of our transformation from an office [ph] company to a multifamily company, and there could be a vast differential there in the lease-up costs and the revenue one has to – the CapEx one has to invest to be able to generate revenue. So that’s really what that referred to. And today, it’s mostly just the retail on our side, and that’s sort of a huge portion of our portfolio. Anthony Paolone: Okay, thank you. Mahbod Nia: Thank you. Operator: Our next question comes from the line of Josh Dennerlein with Bank of America. Please proceed with your question. Josh Dennerlein: Yes, good morning everyone. Just looking through the investor presentation you posted online, I noticed Slide 17 about your ongoing portfolio optimization strategies. Just kind of curious if you’ve kind of – if you could provide any color on the potential margin expansion opportunity from all these initiatives? Mahbod Nia: Josh, thank you for the question. We haven’t put a number on that at this point, but the reality is that there are a number of initiatives, some targeting revenue, some more the expense side. And then as you mentioned, an element of capital investment as well with very much a disciplined return on invested capital approach to dollars that a spent there. And so really, what we’re saying here is that there is real potential for optimization and growth, both in NOI and in margins through affecting a multipronged strategy over time. But the reality is some of those initiatives are more near-term and have a near-term impact, some of the more medium to long-term. We gave the example of Liberty Towers, for example, which has the potential to increase our earnings our 2023 earnings by 11% from one asset alone, but that’s a four-year initiative. And in the first year, we don’t anticipate seeing any benefit from that through 2024. So, it’s difficult to give you an exact number over an exact period at this point. But we do believe that over time, we can increase both the NOI and the margin through these initiatives. Josh Dennerlein: And speaking of Liberty Towers, I guess have you – is it there a way to quantify the number of projects like this in your portfolio? Or how are you thinking about the opportunity set? Mahbod Nia: We’re looking at that, and there potentially could be some others we’re working through. As I said, any investment we make, whether it’s within our portfolio or otherwise, there’s a very disciplined approach to evaluating returns on that investment. And so this is the largest, most impactful one, given the size of the asset and the age of the asset relative to the rest of the portfolio, which is why it’s the primary focus but there could be others as well. Josh Dennerlein: Great. Thanks for the time. Mahbod Nia: Thank you. Thanks for the question. Operator: Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question. Eric Wolfe: Hey, good morning. We’ve seen a couple headlines recently about peers being subject to rent control at their properties. Was just curious if you’re doing anything differently from an operating or compliance perspective to lower that risk? Mahbod Nia: Good morning. Thanks for the question. Well, look, we believe that we’ve taken all the necessary and appropriate steps to preserve the available exemptions from rent control ordinances which may be applicable to the properties in our portfolio. And we have the added advantage that we have younger vintage properties and have developed most of them. So it’s not a concern for us at this time. Eric Wolfe: Fair enough. And then I know you’ve done a lot of work in terms of simplifying structure of the company, simplifying JVs and the structure there. I guess, I was just curious if there’s anything left for you to do in terms of cleaning those up. The upside that could potentially come from that. And then just as far as being able to sort of freely sell them if you wanted to, like do you have the ability to do that? And can buyers assume the debt without some type of penalty there? Mahbod Nia: Your question was in relation to the joint ventures? Eric Wolfe: Yes. Mahbod Nia: Yes, it’s a good question. We do have a, obviously, the largest joint venture was the Rockpoint joint venture, but there are a number of others, and we do have a not insignificant sum of equity that is embedded within those joint ventures. So as part of our capital allocation component of this optimization, we are looking at those and looking at both the managed and the non managed joint ventures, really understanding what sort of returns we are deriving from the equity that’s within those joint ventures, those investments, and what our rights are vis-à-vis a potential exit. And so there potentially could be some further cleanup there to release equity and put it to a higher and better use, but nothing to announce today. Eric Wolfe: Okay, thank you. Mahbod Nia: Thank you. Operator: Our next question comes from the line of Tom Catherwood with BTIG. Please proceed with your question. Tom Catherwood: Excellent. Thank you and good morning, everyone. It was great to see Harborside 5 going into contract. Know that was a significant lift. Mahbod, you’ve previously discussed the inefficiencies of running two disparate platforms at the same time with office going away. What are you figuring for G&A and other cost savings this year? Mahbod Nia: Good morning, Tom. Well, I think it’s fair to say that we have been – if your question is that as we’ve simplified to one asset class from two, are there further savings to come operationally from that? We have been doing that gradually over time. So, this was our last office asset, but we sold 51 properties, the majority of which over 30, you had 33, which were office over the last three years. And so, as we’ve gone through this rapid transformation, we’ve also been seeking out opportunities to generate efficiencies and organizational structure and cost structure as a result. And so, it’s not like that cost is all there and now we can suddenly rip the Band-Aid off and reap a huge saving. It’s been happening over time gradually. Having said that, there is potential for some further cost savings going forward, not necessarily related to the sale of Harborside 5. More generally, we’ve mentioned the repayment of Rockpoint and the obligations that we had under that joint venture. Some of those savings don’t really kick in until the latter part of this year given some continuing obligations that we have there. So, a long way of saying that there could be some further efficiencies but there is a base cost to running a public company. And we’ve already reduced G&A pretty significantly over the last three years to what is now the lowest level in real terms in over two decades and very much consistent with the mid-cap peer group. So, I don’t think we’re of the average when you compare us to the right size peer and scale is obviously the biggest factor in determining the metrics you’ll be looking at, but there could be potentially some further room to reduce that from this point. What the offset to that is, we’re still faced with inflation, yes, it’s a more modest level of inflation, but it’s still there. And so, timing plays a part in that as well and forces that go against us could eat into that to some extent......»»

Category: topSource: insidermonkeyFeb 23rd, 2024

Ares Commercial Real Estate Corporation (NYSE:ACRE) Q4 2023 Earnings Call Transcript

Ares Commercial Real Estate Corporation (NYSE:ACRE) Q4 2023 Earnings Call Transcript February 22, 2024 Ares Commercial Real Estate Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Please stand by, your program is about to begin. [Operator Instructions] Good morning. […] Ares Commercial Real Estate Corporation (NYSE:ACRE) Q4 2023 Earnings Call Transcript February 22, 2024 Ares Commercial Real Estate Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Please stand by, your program is about to begin. [Operator Instructions] Good morning. Welcome to Ares’s Commercial Real Estate Corporation’s Fourth Quarter and Year End December 31, 2023 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mr. John Stilmar, partner of public markets, Investor Relations. John Stilmar: Good morning and thank you for joining us on today’s conference call. I’m joined today by our CEO, Bryan Donohoe, our CFO, Tae-Sik Yoon, and other members of the management team. In addition to our press release and the 10 K that we filed with the SEC. We have posted an earnings presentation under the Investor Resources section of our website at w. w. w. dot Aries, CO.com. Before we begin, I will remind everyone that comments made during the course of this conference call and webcast as well as the accompanying documents contain forward-looking statements are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may and similar such expressions. These forward-looking statements are based on management’s current expectations of market conditions and management’s judgment. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. The Company’s actual results could differ materially from those expressed in the forward-looking statements as a result of a number of factors, including those listed in its SEC filing. Various commercial real estate assumes no obligation to update any such forward-looking comments during this conference call, we’ll refer to certain non-GAAP financial measures. We use these as measures of operating performance, and these measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. These measures may not be comparable to like titled measures used by other companies. Now I’d like to turn the call over to our CEO, Bryan Donohoe. Bryan? Bryan Donohoe: Thanks, John. Good morning, everyone, and thank you for joining our fourth quarter 2023 earnings call. As I’m sure you are aware we continue to see higher interest rates, higher rates of inflation as well as certain cultural shifts such as work-from-home trends adversely impacting the operating performance and economic values of commercial real estate. This is particularly evident from many office properties. In addition, many properties requiring significant capital expenditures have been impacted by higher labor and material costs. And fortunately, we are not immune to these macroeconomic challenges and our results for 2023 and the fourth quarter are partially a reflection of these conditions. For the fourth quarter, we had a GAAP loss of $0.73 per common share, driven by a $47 million or $0.87 per common share increase in our CECL reserve, most of which is related to loans collateralized by office properties or a residential condominium construction project. See also Top 20 Fastest Growing Industries in the Next 5 Years: Predictions and 25 Most Valuable Luxury Companies in the World. Q&A Session Follow Ares Commercial Real Estate Corp (NYSE:ACRE) Follow Ares Commercial Real Estate Corp (NYSE:ACRE) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. In addition, for the fourth quarter, we paid six additional loans on nonaccrual status, which impacted both our GAAP and distributable earnings by approximately $0.12 per common share versus what these six loans contributed in the third quarter of 2023. As a result, our distributable earnings for the fourth quarter, our $0.2 per common share. Fortunately, we are starting to see some positive trends in the macroeconomic environment that we believe are likely to benefit commercial real estate, including the potential for declining short-term interest rates, specifically declining spreads on CMBS and CRECLM.s, particularly during the past six months, reflects strength in capital markets conditions, positive leasing momentum in certain sectors, including industrial and self-storage and continued healthy demand trends for multifamily assets underscore some of the opportunities we see in today’s market. These trends play out across our portfolio, particularly for loans centered risk-rated one to three, which totaled about $1.6 billion in outstanding principal balance and risk-rated one through three portfolio as focused on senior first lien positions and is diversified across 37 loans. The majority of these loans are collateralized by multifamily, industrial and self-storage properties with the largest focus on multifamily properties at 34% as a positive indication of our commitment to the properties that contributed more than $150 million of capital, representing about 10% of the $1.6 billion and principal balance of these loans, a portion of this $150 million was used to renew all interest rate caps that expired in 2023 at their prior strike rate credit, an economically equivalent amount after considering additional reserves. Let’s now turn to our strategic plan to resolve the nine remaining risk rated four or five loans that comprise about $539 million in outstanding principal balance and $1 million held for sale with a carrying value of $39 million as of year-end 2023. As we mentioned the bonds are primarily collateralized by office properties and one residential condo problem. First, we will fully leverage the management capabilities of the Aries real estate group as we have discussed previously areas Real Estate Group has more than 250 investment professionals and currently manages more than 500 investments globally, totaling approximately 50 billion in assets under management we intend to use these capabilities to resolve underperforming loans held. Second, we have both significant loss reserves against these four and five risk-rated loans as of December 31, 2023, 91% of our total $163 million and CECL reserve or $149 million as related to these nine months, which is about 28% of the $539 million in outstanding principal balance these five. Finally, we have been highly purposeful in positioning our balance sheet over the past few years to provide us with greater flexibility and time to resolve these underperforming loans. For example, our net debt to equity has declined from 2.6 times at year end 2021 to 1.9 times at year end 2023, in both cases for the impact of CECL reserves on our shareholder equity. In addition, we have accumulated additional available capital and told them $185 million. All of these measures and capabilities have positioned us to work through our underperforming redeploy while balancing the goal of maximizing proceeds of accelerating the timeframe for resolution. So far, we’ve made some notable progress towards these goals. First, at the end of January 2024, we successfully sold a $39 million senior loan held for sale at a price equal to its year end 2023 carrying value. Second, although we did not close on the sale of the office property in Illinois that backed our $57 million senior loan before year end 2023. Our borrower was under an agreement to sell the underlying property and the coming and we are working diligently to resolve three additional loans in the next few months. One loan will likely be resolved through the sale of the underlying property. The other two may involve restriction in terms of the loan so that we can return a significant portion of the principal balance to accrual status, including having the borrower contribute additional capital to the problem. Now let me provide some additional background on our dividend of $0.25 per share that our Board of Directors has declared for the first quarter of 2024 since our initial public offering nearly 12 years ago, we have operated with a framework that considers our distributable earnings power when setting the quarterly up until this point, we have not reduced or delayed our quarterly dividend. In fact, we provided $0.02 per share in supplemental dividends for 10 quarters in this current market environment. However, we believe it is in the best interest of ACRE and its stakeholders to reduce the quarterly dividend to help preserve book value of the switch on to pay out an amount more in line with our expected near-term quarterly distributable earnings before unrealized loss. Ultimately as we get through this cycle, naturally, as we execute on our earnings opportunities, as discussed, we expect we can return to higher levels of profitability that. Now, let me turn the call over to Tae-Sik. Tae-Sik Yoon: Thank you, Bryan, and good morning, everyone. For the fourth quarter of 2023, we reported a GAAP net loss of $39.4 million or $0.73 per common share. As Bryan mentioned, our GAAP net income was adversely impacted by a $47.5 million increase in our CECL provision or about $0.87 per common share. On full year 2023, we reported a GAAP net loss of $38.9 million. Our $0.72 per common share and distributable earnings of $58.4 million or $1.6 per common share. Our book value per common share and now stands at $11.56 for $14.57, excluding a $3.1 per share. CECL reserve distributable earnings for the fourth quarter of 2023 was $10.8 million or $0.2 per common share which was adversely impacted by the six additional loans that were placed on nonaccrual in the fourth quarter. Our overall CECL reserve now stands at $163 million, representing 7.6% of the outstanding principal balance of our loans held for interest, 91% of our total $163 million in CECL reserve for $149 million relates to our risk rated four and five loans, including $57 million of loss reserves on our three risk rated five loans and $92 million of loss reserves on our six risk-rated four loans. Overall, the $149 million of reserves represents 28% of the outstanding principal balance of risk rated four and five loans held for investment. We continue to further bolster our liquidity and capital position. We maintain significant liquidity at a moderate net debt to equity ratio of 1.9 times at year end 2023, including adding back our CECL reserves to shareholders’ equity, our financing sources are diverse and importantly have no spread base mark-to-market provisions. At December 31, 2023, we had over $185 million in cash and undrawn availability under our working capital facility. This amount does not include other potentials potential sources of additional capital, including on one hand loans and properties. During the year, our liquidity was further supported by $280 million of repayments and loan sales. Our net realized losses for 2023 was $10.5 million since our IPO in 2012 we have closed over $8 billion in commercial real estate loans and through December 31, 2023. And we recognized a total of $14.5 million and realized loss. And finally, as Bryan mentioned, we declared a regular cash dividend of $0.25 per common share for the first quarter of 2024. For this first quarter, dividend will be payable on April 16, 2024 for a common stockholders of record as of March 28, 2024. So with that, I will turn the call back over to Bryan for some closing remarks. Bryan Donohoe: You will recognize the challenges that we face with these new nonaccrual loans and the impact that they had on our financial results for the fourth quarter based on the progress that we are making. With respect to these new problem loans, we do expect to improve our run rate distributable earnings in the near term as we seek to recapture a portion of the lost earnings that we experienced in our fourth quarter. Our new quarterly dividend of $0.25 per share reflects our go-forward view of our near term quarterly run rate Distributable Earnings, excluding losses, assuming we achieve the earnings enhancements from our contemplated restorations, longer-term, we believe the real estate capabilities we possess at Aries, coupled with our capital liquidity and reserves will enable us to maximize credit outcomes and enhance our earnings from these situations. We are cautiously optimistic that the increasing level of transaction activity and improving market liquidity concerns to gradually provide more confidence for market participants over time in time as concerns position us to return to a higher level of earnings in the future. As always, we appreciate you joining our call today, and we’d be happy to open the line for questions. Operator: [Operator Instructions] We’ll take a question from Sarah Barcomb of BTIG. Sarah Barcomb: Good morning, everyone. Thank you for taking the question. I’m hoping you could walk us through your go forward on earnings power relative to this new $0.25 dividend on just with the Q4 DE [ph] coming in closer to $0.20. I’m hoping you can help us bridge that gap and for coverage in the coming quarters? Tae-Sik Yoon: Sure. Good morning. Thank you very much for your question, Sarah. And as we mentioned on our prepared remarks, that the impact of putting six new loans on nonaccrual, you had about a $0.12 impact from what those same loans net earned in prior quarters, the third quarter. But as Bryan also mentioned, we are working very hard to resolve a number of those loans, a number of those six new nonaccrual loans as well as loans that as you have been previously placed on nonaccrual status, you mentioned one of those loans that $39 million loan out in California that has been successfully resolved. And as we continue to resolve additional loans, I think we’re making good progress on resolving a number of those nonaccrual loans and really in Yes, as we mentioned, kind of setting our dividend at the 25% level for the first quarter of 2024, we did take into account what we believe we can achieve in terms of the server earnings once we were able to successfully resolve some of these loans without getting too specific, I think we are we are targeting to resolve these loans on some of these loans as soon as we can. So we do believe that once we are able to resolve these loans and as Mike mentioned, the resolution will come in a couple of different forms, in some cases, a sale of a loan, in some cases, sale of the underlying collateral. In some cases, restructuring of the loans with existing borrowers; so the resolutions are going to come in different forms. And we do believe that our earnings power that will go up from the $0.2 that we recognized in 20 in the fourth quarter of 2020, largely because that was impacted by, again the significant increase in nonaccrual loans. And so that is really our goal is to resolve these loans and increase our earnings power and so that we can continue to cover the dividend that we have set. Sarah Barcomb: Thank you. And I appreciate you walking us through on property loan by loan, your expected resolution there. So thanks for that. On the comps a bit more backwards looking, but I’m hoping you could walk us through what happened on the ground with those new nonaccrual loans, whether it was an issue at the sponsor level with buying a new rate, half or something else needing leasing related; any color for us? Bryan Donohoe: Yes, yes. I can have a bit more color. So I would say that each feature somebody Synchronics, but certainly borrower behavior, shifting sentiment around an asset and support for that asset as well as just really crystallizing some of the valuations that we’ve seen a bit more activity through Q4 fabless. So there was more data point to as well as certain events within each of the specific assets where the borrowers approach to continuing of those payments was more handouts and that nothing on the margin just had a few events that made us revisit some of the approach [ph]. Sarah Barcomb: Great. Thank you. Operator: We’ll take our next question from Stephen Laws of Raymond James. Stephen Laws: Hi, good morning. Follow-up a little bit on Sarah’s question. When you think about the potential earnings benefit as some of the non-accruals are resolved, is that really solely related to paying off the financing associated with these loans? Or is it also includes some assumptions around redeploying capital in new investments? Tae-Sik Yoon: Sure. Great question, Stephen. And the answer really is it’s a combination of number of things, including the two examples that you mentioned. So yes, in some cases are the, you know, the arm and the benefit that we will see in earnings comes from being able to pay down either in part or full associated liability, some of the nonaccrual loans. So clearly alone, they’re already on nonaccrual. And so but unfortunately, we are still paying interest on the associated liability. So to the extent that we can resolve these loans and get a full or partial repayment of the associated liabilities that would obviously result in higher net income. And the other, as you mentioned, is that some of the resolutions have we believe will result in some net cash coming to us. Again, we haven’t really built ahead and redeployment of that cash to, you know, to necessarily increase earnings going forward. But we obviously you can utilize that cash for a number of different purposes. I would say another example along the same lines is that on again, as I mentioned, some of the resolutions were working on Q2, restructuring of the loan with the existing borrower. We believe in some of the situation we’ve seen and we believe we can restructure the loan, which would potentially include some new cash from the borrower coming into the property, adding to the loan. That would then allow us to then begin to recognize interest on some or all of the existing loan itself. I think those are just three examples of how earnings should be increased going forward upon resolving some of these nonaccrual loans; that’s Omni’s also blends. I think those are three good examples of how resolving the loans can increase earnings going forward. Stephen Laws: Appreciate the color. On that basic — you know — them to continue eventually come up with these six new nonaccrual loans on nonaccrual for the entire fourth quarter? Or did they contribute some interest income in the early part of the quarter? Tae-Sik Yoon: Sure, good question. And I appreciate the detail behind the distinction there. So our policy is that we put a loan on nonaccrual for the entire quarter. So when we talk about the $0.12 impact. That meant that from for the fourth quarter overall for the entire fourth quarter that these six loans did not recognize any interest revenue and interest income for the entirety of the fourth quarter. Stephen Laws: Okay, thank you for clarifying that. And then as we think about the interest coverage test, I think it’s a 12 month look-back, but can you update us and apologies. I haven’t had a chance to get through the whole filing this morning. And can you update us on where you stand on that, whether you’ll need waivers for lower interest coverage test metrics or how counterparty discussions are going around the developments with these loans? Tae-Sik Yoon: Sure, Stephen. I just wanted to clarify your question and say interest coverage tests are you talking about these specific loans or the time line? We know that we have in the main role. Stephen Laws: I can just cover your — your counterparties. I believe it’s typically somewhere between one three and 1.5 interest coverage test with your bank clients, your other financing facilities and any sense debt covenants that need to be considered are discussed around these nonaccrual developments?.....»»

Category: topSource: insidermonkeyFeb 23rd, 2024

Marathon Oil Corporation (NYSE:MRO) Q4 2023 Earnings Call Transcript

Marathon Oil Corporation (NYSE:MRO) Q4 2023 Earnings Call Transcript February 22, 2024 Marathon Oil Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning and welcome to the Marathon Oil 4Q and Full Year 2023 Earnings Conference Call. All […] Marathon Oil Corporation (NYSE:MRO) Q4 2023 Earnings Call Transcript February 22, 2024 Marathon Oil Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning and welcome to the Marathon Oil 4Q and Full Year 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Guy Baber, Vice President, Investor Relations. Please go ahead, sir. Guy Baber: Thank you very much and thanks as well to everyone for joining us on our call this morning. Yesterday, after the close, we issued a press release, a slide presentation and investor packet that address our fourth quarter 2023 results and our full year 2024 outlook. Those documents can be found on our website at marathonoil.com. Joining me on today’s call are Lee Tillman, our Chairman, President and CEO; Dane Whitehead, our Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; and Mike Henderson, our Executive VP of Operations. As a reminder, today’s call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I’ll refer everyone to the cautionary language included in the press release and presentation materials as well as the risk factors described in our SEC filings. We’ll also reference certain non-GAAP terms in today’s discussion, which have been reconciled and defined in our earnings materials. So with that, I’ll turn the call over to Lee and the rest of the team who will provide prepared remarks. After the completion of their prepared remarks, we’ll move to a question-and-answer session. And in the interest of time, we ask that you limit yourselves to one question and a follow-up. Lee? Lee Tillman: Thank you, Guy, and good morning to everyone joining us on our call today. As I always start these calls, I want to first and foremost thank our employees and contractors for their dedication and hard work in delivering the excellent results we have the privilege of discussing today. And I especially want to thank our employees and contractors for their enduring commitment to our core values. On that front, we have a few notable accomplishments to highlight today. First, we delivered a record safety year in 2023 as measured by total recordable incident rate for both our employees and our contractors. This builds on a multi-year track record of top quartile TRIR in our industry. Providing a safe, healthy, and secure workplace remains a top priority for us. With our safety performance a key element of our executive and employee compensation scorecards. Second, we continue to make progress in reducing our natural gas flaring, improving our total company gas capture to 99.5% in 2023, a new high for our company. We’ll continue to work hard on our journey of continuous improvement, moving toward our ultimate objective of zero routine flaring. And third, we achieved our 2025 GHG intensity reduction goal of 50% relative to 2019 levels a full two years ahead of schedule. Consistent with our objective to help meet the world’s growing demand for oil and natural gas, while achieving the highest standards of environmental excellence. We are a result driven company, but how we deliver those results matters and I couldn’t be more proud of our people and what they’ve accomplished. See also 20 Most Valuable Digital Health Companies In The US and 15 Tips and Tricks To Build Wealth Without Buying Real Estate. Q&A Session Follow Marathon Oil Corp (NYSE:MRO) Follow Marathon Oil Corp (NYSE:MRO) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Yet this type of delivery isn’t new for us. It’s the continuation of a well-established trend. And before I get into our 2023 results and 2024 outlook, I’d like to reflect on what I believe is our unmatched track record of delivery on our framework for success. We’re now more than three years into our more S&P less E&P journey. My challenge for our company was to raise our game and compete heads up with not just the best companies in our sector, but with the best companies in the S&P 500. And to do so year in, year out, through the commodity cycle on the metrics that matter most. Sustainable free cash flow generation, return of capital to shareholders, and capital and operating efficiency. For the last three years, we consistently held true to our framework for success. We’ve prioritized corporate returns, sustainable free cash flow, meaningful return of capital, and we delivered differentiated execution quarter in, quarter out. We continue to enhance our multi-basin portfolio, which has produced the best capital efficiency in the sector. And we protected our investment grade balance sheet while prioritizing all elements of our ESG performance. I believe our commitment to our strategy and the consistency of our execution over the last three years have successfully differentiated Marathon Oil in the marketplace. The proof points are summarized in slide six of our deck. First, sustainable free cash flow generation. Through discipline, corporate returns, focused capital allocation, we’ve generated $8.4 billion of free cash flow over the trailing three years. That equates to over 60% of our current market cap, almost double that of our E&P peers and six times that of the S&P 500. Next, a meaningful return of capital to shareholders. Over the last three years, we’ve consistently held true to our transparent cash flow driven return of capital framework that prioritizes our investors as the first call on cash flow, not the drillbit and not inflation. In total, we’ve returned $5.6 billion to our shareholders, equivalent to over 40% of our current market cap. Again, that’s double that of our E&P peers and well in excess of the S&P 500. Capital and operating efficiency, a testament to the quality of our multi-basin portfolio and the extreme discipline inherent in both our capital allocation and cost structure. Over the trailing three years, we’ve delivered the lowest reinvestment rate in the E&P sector, below the S&P average. And our well-level capital efficiency, according to independent third-party data, has been the best in the E&P’s peer space, 35% superior to the peer average. And 2023 was emblematic of these three proof points. Last year, we delivered $2.2 billion of adjusted free cash flow, $1.7 billion of shareholder distributions, equivalent to 41% of our CFO, providing a shareholder distribution yield of more than 12%. $1.5 billion of share repurchases that drove a 9% reduction for our outstanding share count, a 22% increase to our base dividend while maintaining our peer low, free cash flow break-even, $500 million of gross debt reduction, and 28% growth in our production per share, driven by our share repurchase program and the seamless integration of the Ensign Eagle Ford acquisition. That’s what comprehensive delivery on our key properties looks like. And if you like 2023, then you will not be disappointed in our 2024 business plan, which offers more of the same as we continue to build on our multi-year track record. We have confidence in our strategy and in our capital allocation and return of capital frameworks and our focus will be on consistently executing our plan amidst all the volatility inherent in our sector. And at the end of the day, I expect our plan to again benchmark with the very best companies in our sector outperforming the S&P 500. More specifically, this year, we expect our $2 billion capital program to deliver approximately $1.9 billion of free cash flow, assuming $75 WTI, $250 Henry Hub and $10 TTF. We fully recognize that we are a price taker, not a price predictor and commodity price volatility impacts our financial outcomes. As such, we’ve provided cash flow sensitivities for each of the key commodities within our slide deck to help you model expectations based on your own commodity forecast. We’ll stay true to our CFO return of capital framework, expecting to return at least 40% of our CFO to shareholders, again, providing visibility to a double-digit shareholder distribution yield. We expect the underlying capital efficiency of our 2024 capital program to improve as we maintain our well productivity leadership and work all avenues to improve capital efficiency, including further extending lateral links. And perhaps most importantly, we believe our results are sustainable. That’s true for our U.S. multi-basin portfolio, and that’s true for our integrated gas business and E.G. As you all know, our E.G. business now has no Henry Hub exposure with the expiration of our legacy contract at the end of 2023. That business is now fully realizing global LNG pricing, which will drive improved financial performance this year. We believe this improvement is sustainable due to all the great work our team has done to advance the E.G. gas mega hub concept. For example, over the next five years, we’re expecting our E.G. business to generate cumulative EBITDAX of approximately $2.5 billion, assuming flat $10 TTF commodity price. With that, I’ll turn it over to Dan, who will walk through our commitment to return of capital while also fortifying our investment grade balance sheet. Dane Whitehead: Thank you, Lee, and good morning, everybody. As Lee mentioned, in 2023, we continued building on a peer leading track record of returning capital to shareholders as consistent with our differentiated cash flow driven framework that prioritizes our shareholder as the first call on capital. Importantly, we did this while continuing to make progress on our balance sheet objectives through $500 million of gross step reduction. We’ve built a track record of providing a truly compelling shareholder return proposition, while at the same time continuing to enhance our investment rate balance sheet. We did both in 2023, and that’s my expectation again for 2024. More specifically, on our 2023 return of capital delivery, total shareholder returns amounted $1.7 billion, including more than $400 million during the fourth quarter. That translates to 41% of our CFO consistent with our framework, and an annual distribution yield of over 12% on our current market cap, compelling relative to any investment opportunity in the market. The majority of shareholder returns came in the form of share repurchases, which reduced our share count by 9% last year. That’s about double the share count reduction of our next closest competitor. For full year 2023, we grew our oil production per share by a peer leading 28% due to our share repurchase program and the integration of the accretive Ensign acquisition. Looking to 2024, we expect to prioritize free cash flow via our disciplined capital allocation framework by holding our top line oil production flat. We also remain focused on driving significant per share growth and fully expect to maintain our long held leadership position in the peer group. While the majority of our capital returns 2023 came in the form of share repurchases, our base dividend remains foundational and we remain committed to paying a competitive and sustainable base dividends to our shareholders. During 2023 we raised our base dividend by 22%, one of the strongest growth rates in our sector. Importantly, we did so with laser focus on sustainability, maintaining one of the lowest post dividend free cash flow break-evens in the peer group. Our consistent and committed approach to shareholder returns over the last three years has positively differentiated our company and our approach in 2024 will remain the same. Priority number one remains consistently delivering returns of at least 40% of our CFO in the form of share of purchases and base dividends. That minimum 40% level translates to about $1.6 billion of expected shareholder distributions at a reference price deck, again providing visibility to a compelling double-digit shareholder distribution yield. With our stock trading in the low $20 per share range and at a free cash flow yield in the mid-teens at strip pricing, repurchases remain highly value accretive. They’re also a very efficient means to continue driving our per share growth and are highly synergistic with continuing to grow our per share base dividend without negatively impacting our peer leading free cash flow break-even. To summarize our 2024 return of capital plans, at least 40% of our CFO to shareholders which will be near the top of our sector, driving peer leading per share growth and competitive sustainable growth in our base dividend. We’re also committed to further improving our investment grade balance sheet and we plan to direct excess cash flow to continue reducing gross debt. We have tremendous financial strength and flexibility in our capital structure with net debt to EBITDA approximately one times at strip pricing. We have $400 million of tax exempt bonds that mature this year. This is a really unique vehicle in our capital structure and will likely remarket those at an advantaged interest rate relative to taxable debt as we’ve done previously. We also have plenty of flexibility to manage the 1.2 remaining outstanding on our Ensign term loan due at the end of this year. The markets are wide open for us to potentially refinance a portion of that debt and as a reminder we have $2.1 billion available capacity on our credit facility that matures in 2027. And even if we opt to refinance in total the maturing tax exempt bonds and the term loan, we will retain capacity to payoff at par almost $1.5 billion of commercial paper and bonds which would get us to our medium term gross debt goal of $4 billion. One final comment for me on our ’24 outlook before I turn it over to Mike to walk through some of the details of our capital program. Consistent with our prior messaging, our 2024 financial guidance assumes we’ll transition to becoming an alternative minimum tax, or AMT, cash taxpayer this year. The AMT tax rate is 15% on our pre-tax U.S. income. Our primary exposure here is domestic as our E.G. income will largely be offset by current year foreign tax credits. The new information we’re providing today involves research and development, or R&D, tax credits. We recently completed a study of capital spent in past years on organic enhancement activities that qualified for R&D tax credits. As a result, we expect to apply approximately $150 million of these R&D tax credits this year as a direct offset to a significant portion of our 2024 AMT cash payments. A direct benefit to our free cash flow is most likely not included in any sell-side models at this point. With that, I’ll hand over to Mike who will walk us through the final points of our 2024 capital program. Mike Henderson: Thanks, Dane. As we highlighted earlier, we’re a results-driven company. So I’ll start with the expected bottom-line results of our 2024 capital program. We expect our $2 billion capital program to deliver $1.9 billion of free cash flow with one of the lowest reinvestment rates and free cash flow break-evens in the sector. This will enable us to deliver our investors a truly compelling shareholder return profile. We fully anticipate these bottom-line financial outcomes and the underlying capital efficiency of our 2024 program to again benchmark at the very top of our high-quality E&P peer group. To deliver these outcomes, we’ll operate approximately nine rigs and four frac crews on average this year. We expect our capital program to again be first half weighted with about 60% of our CapEx concentrated in the first half of the year, largely a function of the timing of our wells to sales. This should drive stronger production and underlying free cash flow over the second half of the year. At the midpoint of our full year guidance we expect to deliver flat total company oil production approximately 190,000 barrels of oil per day consistent with what we previewed last quarter. Yet importantly, as Dane highlighted, we fully expect to continue driving significant growth in oil production on a per share basis. We’re guiding to a modest year-on-year decline in our oil equivalent production this year. This BOE decline is largely a function of well mix and our focus on value over volume. Given the extreme weakness in natural gas prices relevant for oil, we’re allocating capital to the oiliest and thus highest volume areas in each of our plays consistent with our prioritization of corporate returns and free cash flow generation. We’re also expecting some modest ongoing base decline in Equatorial Guinea. As is typical for our business and consistent with last year, there will be some quarter-to-quarter variability in our production. First quarter should mark the low point for the year impacted by about 4,000 barrels of oil per day of winter weather-related outages largely concentrated in the Bakken. We’ll then grow from first quarter levels as we bring more wells to sales as the year progresses. Now to the more important details of our 2024 program. We expect to deliver our flat oil production guidance with 5% to 10% fewer net wells to sales than last year. This is a function of improving underlying capital efficiency driven by durable well productivity at peer leading levels, an additional 5% increase to our average lateral lengths and modest deflation recapture that is built on conservative underlying assumptions. Approximately 70% of our total capital will be allocated to our high confidence Eagle Ford and Bakken programs where we have a demonstrated track record of execution excellence. For 2023, external state data indicates we delivered six months per foot oil productivity 60% better than the basin average in the Eagle Ford and 40% better than the basin average in the Bakken. With our cost structure, we believe we’re leading each basin in capital efficiency. We expect another year of leading performance in 2024 as we maintain our productivity advantage and find ways to continue enhancing our capital efficiency. The bulk of our remaining resource play spend will be dedicated to the Permian where we’re increasing our activity and capital investment in a disciplined manner. Since getting back to work with a consistent D&C program in the Permian a couple of years ago, we’ve delivered among the best well productivity in the basin with competitive drilling completion performance for transitioning to an almost exclusive two-mile-plus lateral program. This year over 20% of our Permian wells will be three-mile laterals. We’ll get into more details in E.G. in a minute, but our E.G. CapEx will be up modestly this year with spend limited to long lead items in preparation for potential Alba infill program in 2025. Our non-developing capital is higher this year to large-late to more environmental regulatory and emissions-related spending, as well as some nonrecurring projects such as water infrastructure and pipeline additions. For context, a couple of years ago this bucket represented about 5% of our total capital. It’s about 10% this year. Importantly, however, we expect our non-D&C capital to peak this year and to trend lower in 2025. I would also add that many of those projects designated as emissions-related have the added economic benefit of enhancing our reliability and uptime performance. Now to Lee for E.G. and the wrap up. Lee Tillman: Thank you, Mike. Focusing on slide 15 in our deck with the expiration of our legacy Henry Hub linked LNG contract at the end of last year, our E.G. integrated gas business is now fully realizing global LNG pricing, and in January we lifted our first cargo under these new contractual terms. Consistent with our prior disclosure, the majority of our Alba LNG sales are covered by the five-year sales contract we announced last year. That contract is TTF linked. The balance of our 2024 LNG cargos have now all been contracted, but at a JKM price linkage. This will afford us a nice combination of both TTF and JKM price exposure this year. Although, global LNG pricing has weakened somewhat on warmer winter weather, the arbitrage between global LNG and Henry Hub pricing is still significant and therefore should still drive improved financial performance for our international operations. We’re guiding to $550 million to $600 million of E.G. EBITDAX this year, assuming $10 TTF, that’s a significant increase from actual 2023 EBITDAX generation of $390 million. Importantly, we don’t expect this to be a one year financial uplift. For some time we’ve been focused on sustaining this improved financial performance by progressing all elements of the E.G. gas mega hub concept supported by the HoA signed with the E.G. government and our partner last year. The five-year E.G. EBITDAX outlook we’re providing today is intended to demonstrate the sustainability of our E.G. cash flow generation. Over the next five years, we expect to deliver cumulative E.G. EBITDAX of approximately $2.5 billion, assuming $10 TTF and $80 Brent flat. Beyond realizing global LNG pricing, there are a few drivers of the strong performance over the duration of the five-year period. They include, ongoing methanol volume optimization to maximize higher margin, higher working interest LNG throughput; an Alba infill well program, which will help mitigate Alba decline and maximize the amount of Alba equity gas through the LNG plant in coming years; and further monetization of third-party gas through the Aseng gas cap as we continue to take full advantage of our unique and highly valuable gas monetization infrastructure in one of the most gas prone areas of the world. And while this five-year EBITDAX scenario reflects the life of our recent global LNG sales agreement, we fully expect to extend the life of E.G. LNG beyond the next five years, well into the next decade as we continue to advance the longer term gas mega hub concept......»»

Category: topSource: insidermonkeyFeb 23rd, 2024

TransAlta Reports Full Year and Fourth Quarter 2023 Results and Announces Enhanced Share Repurchase Program

CALGARY, AB, Feb. 23, 2024 /PRNewswire/ - TransAlta Corporation ("TransAlta" or the "Company") (TSX:TA) (NYSE:TAC) today reported its financial results for the fourth quarter and year ended Dec. 31, 2023, which highlight another year of exceptional performance led by strong financial, operational and safety results. Full Year 2023 Financial Highlights Key financial guidance and targets increased twice during 2023 Adjusted EBITDA(1) of $1,632 million, compared to $1,634 million from the same period in 2022 Free Cash Flow ("FCF")(1) of $890 million, or $3.22 per share, compared to $3.55 per share from the same period in 2022 Cash flow from operating activities of $1,464 million, an increase of $587 million from the same period in 2022 Earnings before income taxes of $880 million, an improvement of $527 million from the same period in 2022 Net earnings attributable to common shareholders of $644 million, an increase of $640 million from the same period in 2022 Announced a 9 per cent increase to the common share dividend, representing the fifth consecutive annual dividend increase Returned $87 million of capital to common shareholders during the year through the buyback of 7.5 million common shares Fourth Quarter 2023 Financial Highlights Adjusted EBITDA of $289 million, compared to $541 million for the same period in 2022 FCF of $121 million, or $0.39 per share, compared to $315 million or $1.17 per share for the same period in 2022 Cash flow from operating activities of $310 million, compared to $351 for the same period in 2022 Net loss before income taxes of $35 million, a decrease of $42 million for the same period in 2022 Net loss attributable to common shareholders of $84 million, an increase of $79 million from the same period in 2022 Other Business Highlights and Updates Announced an enhanced common share repurchase program for 2024 of up to $150 million towards the repurchase of common shares, representing up to 40 per cent of 2024 FCF guidance being returned to shareholders in the form of share repurchases and dividends Achieved strong safety performance in 2023, including a record annual Total Recordable Injury Frequency of 0.30 Strong operational adjusted availability of 88.8% Maintained emissions intensity at 0.41 tCO2e/MWh from 2022 levels Entered into 10-year transfer agreements with an AA- rated customer for the sale of approximately 80 per cent of the expected production tax credits to be generated from the White Rock and Horizon Hill wind facilities Completed the Kent Hills rehabilitation program in the first quarter of 2024. All 50 turbines have returned to commercial operation Energization activities are underway at the Horizon Hill and White Rock wind facilities with commercial operations expected to be achieved in the first quarter of 2024 Completion of the Mount Keith 132kV expansion project is expected to be achieved in March 2024. The expansion of the transmission system in Western Australia supports the Northern Goldfields-based operations of BHP Nickel West ("BHP") Achieved commercial operation of the 48 MW Northern Goldfields solar and battery storage project in November 2023. The facilities are fully contracted with BHP for a term of 15 years and are expected to reduce BHP's emissions by 12 per cent at their Mt. Keith and Leinster operations Announced updated strategic growth targets to 2028, including adding up to 1.75 GW of new capacity to the Company's fleet by investing approximately $3.5 billion to develop, construct or acquire new assets through to the end of 2028 to deliver annual EBITDA of approximately $350 million Entered into a joint development agreement with Hancock Prospecting Pty Ltd. ("Hancock") to define, develop and operate clean energy solutions Entered into a definitive share purchase agreement to acquire Heartland Generation and its entire business operations in Alberta and British Columbia for approximately $658 million, subject to closing adjustment Completed the acquisition of TransAlta Renewables Inc. ("TransAlta Renewables") for total consideration paid of $1.3 billion, which consisted of $800 million of cash and approximately 46 million common shares Acquired a 50 per cent interest in the Tent Mountain 320 MW pumped hydro development project "2023 was another year of exceptional performance for our Company led by record financial and safety results. During the year, we generated strong free cash flow of $3.22 per share, driven by record revenues across our generating fleet. Our dynamic asset optimization and hedging strategies continue to perform well in managing the evolving markets of our operating portfolio, illustrating the value of our growing fleet and the capabilities of our employees," said Mr. John Kousinioris, President and Chief Executive Officer of TransAlta. "During the year, we deployed $87 million towards share repurchases which, together with our common share dividends, resulted in the return of $145 million or $0.53 per share in value to shareholders," added Mr. Kousinioris. "We are focused on making balanced capital allocation decisions that enhance value for our shareholders and will remain disciplined in executing our ambitious Clean Electricity Growth Plan with a focus on securing appropriate risk-adjusted returns. We will not grow simply for the sake of growth and to meet targets. Given the current market price of our common shares, which we consider to be undervalued, we will look to enhance returns and shareholder value through our dividend and share repurchases in 2024 of up to $150 million." "Our generating portfolio continues to perform well and is expected to generate between $1.47 and $1.96 per share of free cash flow in 2024. Our enhanced common share repurchase program and expected dividend payments in 2024 represent up to 40% of our free cash flow guidance to our shareholders." "Turning to growth, our Mount Keith transmission expansion, along with our Horizon Hill and White Rock wind facilities, are well into commissioning and we expect all projects to be completed in March 2024. This milestone, coupled with the completion of our Garden Plain wind facility and Northern Goldfields solar and battery storage project, as well as the rehabilitation of Kent Hills, will contribute contracted adjusted EBITDA of approximately $175 million annually. I am also pleased we've been able to secure 10-year transfer agreements with an AA- rated customer for the sale of approximately 80 per cent of production tax credits from the White Rock and Horizon Hill wind facilities, providing another stream of contracted revenue from these assets." "Strong free cash flow will, over time, continue to fund our transition to a higher proportion of contracted renewables and toward the path of higher share price valuation. As I look forward, there is every reason to believe that our success will continue in 2024 and beyond." Key Business Developments Change to Board of Directors The Honourable Rona Ambrose has decided that she will not stand for re-election and will retire from the Board of Directors ("the Board") following the annual shareholder meeting on April 25, 2024. The Board extends its gratitude for her service to the Company. She has been a valuable contributor to the Board since 2017 and we thank her for her leadership and insights during her tenure, especially as Chair of the Governance, Safety and Sustainability Committee of the Board. Production Tax Credit ("PTC") Sale Agreements On Feb. 22, 2024, the Company entered into 10-year transfer agreements with an AA-rated customer for the sale of approximately 80 per cent of the expected PTCs to be generated from the White Rock and Horizon Hill wind projects. The expected annual average EBITDA from these contracts is approximately $57 million (US$43 million). Normal Course Issuer Bid and Automatic Share Purchase Plan On Dec. 19, 2023, the Company entered into an Automatic Share Purchase Plan ("ASPP") in order to facilitate repurchases of TransAlta's common shares under its Normal Course Issuer Bid ("NCIB"). Under the ASPP, the Company's broker may purchase common shares from the effective date of the ASPP until the end of the ASPP. All purchases of common shares made under the ASPP will be included in determining the number of common shares purchased under the NCIB. The ASPP will terminate on the earliest of the date on which: (a) the maximum purchase limits under the ASPP are reached; (b) Feb. 24, 2024; or (c) the Company terminates the ASPP in accordance with its terms. During the year ended Dec. 31, 2023, the Company purchased and cancelled a total of 7,537,500 common shares, at an average price of $11.49 per common share, for a total cost of $87 million. The NCIB provides the Company with a capital allocation alternative with a view to ensuring long-term shareholder value. The Board and management believe that, from time to time, the market price of the common shares might not be reflective of the underlying value and purchases of common shares for cancellation under the NCIB may provide an opportunity to enhance shareholder value. Northern Goldfields Solar Achieves Commercial Operation On Nov. 22, 2023, the Company announced that the 48 MW Northern Goldfields solar and battery storage facilities achieved commercial operation. The facilities consist of the 27 MW Mount Keith solar facility, the 11 MW Leinster solar facility, the 10 MW Leinster battery energy storage system and interconnecting transmission infrastructure, all of which are now integrated into TransAlta's existing 169 MW Southern Cross Energy North remote network in Western Australia. The facilities are fully contracted to BHP for a term of 15 years and are expected to reduce BHP's scope 2 emissions at Mount Keith and Leinster by 12 per cent annually. TransAlta Announces Growth Targets to 2028 On Nov. 21, 2023, the Company held its 2023 Investor Day event and announced it had updated its strategic growth targets to 2028, which strengthens the Company's commitment to being a leader in clean electricity by delivering customer-centred power solutions. The growth targets include: adding up to 1.75 GW of new capacity to the Company's fleet by investing approximately $3.5 billion to develop, construct or acquire new assets through to the end of 2028, with a focus on customer-centred renewables and storage through the advancement of its 4.8 GW development pipeline, and expanding this development pipeline to 10 GW by 2028. TransAlta Declares 9 Per Cent Dividend Increase On Nov. 21, 2023, the Board approved an annualized $0.02 per share increase, or 9 per cent increase to our common share dividend and declared a dividend of $0.06 per common share to be paid on April 1, 2024. The quarterly dividend of $0.06 per common share represents an annualized dividend of $0.24 per common share. TransAlta Enters Joint Development Agreement with Hancock On Nov. 21, 2023, the Company entered into a joint development agreement with Hancock, Australia's fourth largest iron ore producer. This arrangement will build on TransAlta's expertise in supplying power to remote mining operations in Western Australia. TransAlta will work collaboratively with Hancock to define and supply behind-the-fence generation solutions for Hancock in the Port Hedland area. TransAlta to Acquire Heartland Generation from Energy Capital Partners On Nov. 2, 2023, the Company announced that it had entered into a definitive share purchase agreement with an affiliate of Energy Capital Partners, the parent of Heartland Generation Ltd. and Alberta Power (2000) Ltd. (collectively, "Heartland"), pursuant to which TransAlta will acquire Heartland and its entire business operations in Alberta and British Columbia. The acquisition will add 10 facilities to TransAlta's fleet, totalling 1,844 MW of new capacity. The transaction is expected to close in the first half of 2024, subject to customary closing conditions, including receipt of regulatory approvals. The purchase price for the acquisition is $390 million, subject to working capital and other adjustments, as well as the assumption of $268 million of low-cost debt. The Company will finance the transaction using cash on hand and drawing on its credit facilities. The assets are expected to add approximately $115 million of average annual EBITDA including synergies.  Approximately 55 per cent of revenues are under contract with highly creditworthy counterparties, with a weighted-average remaining contract life of 16 years. Corporate pre-tax synergies are expected to exceed $20 million annually. TransAlta Completes Acquisition of TransAlta Renewables to Simplify Structure and Enhance Strategic Position On Oct. 5, 2023, the Company completed the acquisition of TransAlta Renewables pursuant to the terms of the previously announced arrangement agreement between the parties (the "Arrangement"). TransAlta acquired all of the outstanding common shares of TransAlta Renewables ("RNW Shares") not already owned, directly or indirectly, by TransAlta and certain of its affiliates, resulting in TransAlta Renewables becoming a wholly owned subsidiary of the Company. Prior to the Arrangement, TransAlta and its affiliates collectively held 160,398,217 RNW Shares, representing 60.1 per cent of the issued and outstanding RNW Shares, with the remaining 106,510,884 RNW Shares held by TransAlta Renewables shareholders ("RNW Shareholders") other than TransAlta and its affiliates. The Arrangement was approved by RNW Shareholders at a special meeting of shareholders held on Sept. 26, 2023, and by the Court of King's Bench of Alberta on Oct. 4, 2023. The consideration paid totalled $1.3 billion, which consisted of $800 million of cash and approximately 46 million common shares of the Company. TransAlta Tops Newsweek's Inaugural List of World's Most Trustworthy Companies On Sept. 14, 2023, the Company announced that it ranked first on Newsweek's inaugural "World's Most Trustworthy Companies 2023" list for the Energy and Utilities category. The list identifies the top 1,000 companies in 21 countries and across 23 industries. Newsweek's 2023 World's Most Trustworthy Companies were chosen based on a holistic approach to evaluating three pillars of public trust – customers, investors and employees. The list was compiled based on an extensive survey of over 70,000 participants, gathering 269,000 evaluations of companies that people trust as a customer, as an investor or as an employee. Garden Plain Wind Facility Achieved Commercial Operation In August 2023, the Garden Plain wind facility was commissioned adding 130 MW to our gross installed capacity. The facility is fully contracted with Pembina Pipeline Corporation and PepsiCo Canada, with a weighted average contract life of approximately 17 years. Tent Mountain Pumped Hydro Development Project On April 24, 2023, the Company acquired a 50 per cent interest in the Tent Mountain Renewable Energy Complex ("Tent Mountain"), an early-stage 320 MW pumped storage hydro development project located in southwest Alberta, from Evolve Power Ltd. ("Evolve"), formerly known as Montem Resources Limited. The acquisition includes land rights, fixed assets and intellectual property associated with Tent Mountain. The Company and Evolve own the Tent Mountain project within a special purpose partnership that is jointly managed, with the Company acting as project developer. The partnership is actively seeking an offtake agreement for the energy and environmental attributes that will be generated by the facility. Year Ended and Fourth Quarter 2023 Highlights  $ millions, unless otherwise stated Year Ended Three Months Ended Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2023 Dec. 31, 2022 Operational information Adjusted availability (%) 88.8 90.0 86.9 89.5 Production (GWh) 22,029 21,258 5,783 6,005 Select financial information Revenues 3,355 2,976 624 854 Adjusted EBITDA(1) 1,632 1,634 289 541 Earnings (loss) before income taxes 880 353 (35) 7 Net earnings (loss) attributable to commonshareholders 644 4 (84) (163) Cash flows Cash flow from operating activities 1,464 877 310 351 Funds from operations(1) 1,351 1,346 229 459 Free cash flow(1) 890 961 121 315 Per share Net earnings (loss) per share attributable tocommon shareholders, basic and diluted 2.33 0.01 (0.27) (0.61) Funds from operations per share(1),(2) 4.89 4.97 0.74 1.71 FCF per share(1),(2) 3.22 3.55 0.39 1.17 Dividends declared per common share 0.22 0.21 0.12 0.11 Weighted average number of common sharesoutstanding 276 271 308 269 Segmented Financial Performance   $ millions Year Ended Three Months Ended Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2023 Dec. 31, 2022 Hydro 459 527 56 133 Wind and Solar 257 311 82 92 Gas 801 629 141 264 Energy Transition 122 86 26 19 Energy Marketing 109 183 14 63 Corporate (116) (102) (30) (30) Adjusted EBITDA 1,632 1,634 289 541 Earnings (loss) before  income taxes 880 353 (35) 7 Full Year 2023 Financial Results Summary For the year ended Dec. 31, 2023, the Company demonstrated strong performance mainly due to the continued strong market conditions in Alberta in the first half of the year, higher production in the Gas and Energy Transition segments, and higher hedged volumes and lower realized gas prices in the Gas segment, partially offset by lower wind and water resources. The Energy Marketing segment's performance was lower compared to 2022 due to the lower realized settled trades during the year on market positions compared to the prior year. Total production for the year ended Dec. 31, 2023, was 22,029 GWh compared to 21,258 GWh for the same period in 2022, an increase of 771 GWh or 4 per cent, primarily due to: Production from the Centralia facility within the Energy Transition segment experienced fewer planned and unplanned outage hours compared to the prior year and was able to dispatch during periods of higher merchant pricing for the region; Strong production in the Gas segment that was both higher than the prior year as well as higher than expectations for the year. The Gas segment was available during periods of supply tightness, allowing our facilities to operate during periods of peak pricing; partially offset by The Gas segment being unfavourably impacted by relatively mild weather in the fourth quarter of 2023, due to warmer than average weather conditions compared to the same period in 2022 which had tighter supply due to the extreme cold weather in Alberta. Production for the renewables fleet for the year ended Dec. 31, 2023, was 6,012 GWh compared to 6,236 GWh for the same period in 2022, a decrease of 224 GWh or 4 per cent, primarily due to: Lower than average renewable resources in the year that impacted production in both the Hydro and the Wind and Solar segments; Hydro production was further impacted by lower availability due to increased planned maintenance outages compared to 2022; partially offset by The addition of the Garden Plain wind facility, the partial return to service of the Kent Hills wind facility, and the addition of the Northern Goldfields solar and battery storage facilities during the year. Adjusted availability for the year ended Dec. 31, 2023, was 88.8 per cent, compared to 90.0 per cent in 2022, a decrease of 1.2 percentage points, primarily due to: Planned outages in the Hydro segment, mainly at our Alberta Hydro Assets; and Planned outages at Sundance Unit 6, Sheerness Unit 1, Keephills Units 2 and 3 and Sarnia in the Gas segment; partially offset by Lower planned outages at Centralia Unit 2 in the Energy Transition segment; and The partial return to service of the Kent Hills wind facilities. Adjusted EBITDA for the year ended Dec. 31, 2023, was $1,632 million compared to $1,634 million in 2022, a decrease of $2 million, or 0.1 per cent. The major factors impacting adjusted EBITDA are summarized below: Hydro adjusted EBITDA decreased by $68 million, or 13 per cent, compared to the same period in 2022, primarily due to lower ancillary services volumes, lower spot power and ancillary services prices and lower than average water resources, partially offset by realized gains from hedging and sales of environmental attributes; Wind and Solar adjusted EBITDA decreased by $54 million, or 17 per cent, compared to 2022 primarily due to lower environmental attribute revenues from lower offset and credit sales, lower spot power pricing in Alberta, lower wind resource across the operating fleets, and lower liquidated damages recognized at the Windrise wind facility, partially offset by the commercial operation of the Garden Plain wind facility, the Northern Goldfields solar facilities and the partial return to service of the Kent Hills wind facilities; Gas adjusted EBITDA increased by $172 million, or 27 per cent, compared to 2022, primarily due to higher power prices from hedges partially offsetting the impacts of lower Alberta spot prices, lower natural gas commodity costs and higher production, partially offset by lower thermal revenues, higher carbon prices and higher carbon costs and fuel usage related to production; Energy Transition adjusted EBITDA increased by $36 million, or 42 per cent, compared to 2022, primarily due to higher production from higher availability and higher merchant sales volumes, partially offset by lower market prices compared to the prior year; Energy Marketing adjusted EBITDA decreased by $74 million, or 40 per cent, compared to 2022 primarily due to lower realized settled trades during the year on market positions in comparison to prior year and higher OM&A. Energy Marketing results were in line with management's expectations and performance was consistent with our revised full year financial guidance provided in the second quarter of 2023; and Corporate adjusted EBITDA decreased by $14 million, or 14% per cent, compared to 2022, primarily due to increased spending to support strategic and growth initiatives and higher costs associated with the relocation of the Company's head office. Cash flow from operating activities totalled $1,464 million for the year ended Dec. 31, 2023, compared to $877 million in the same period in 2022, an increase of $587 million, or 67 per cent, primarily due to: Higher gross margin on lower natural gas costs included in fuel and purchased power, partially offset by lower revenues net of unrealized gains and losses from risk management activities and higher carbon compliance costs; Higher OM&A from increased spending on strategic and growth initiatives, higher costs associated with the relocation of the Company's head office, and increased costs due to inflationary pressures; Lower current income tax expense as previously restricted non-capital loss carryforwards were utilized to offset taxable income; Higher interest income on higher cash balances and favourable interest rates; and Favourable change in non-cash operating working capital balances with lower accounts receivable and collateral provided as a result of declining volatility in the market and market prices, partially offset by lower accounts payable and collateral received related to derivative instruments. Free Cash Flow totalled $890 million for the year ended Dec. 31, 2023, compared to $961 million for the same period in 2022, a decrease of $71 million, or 7 per cent, primarily driven by: Higher distributions paid to subsidiaries' non-controlling interests as related to timing of distributions paid to TransAlta Cogeneration LP ("TA Cogen"), partially offset by lower distributions paid to TransAlta Renewables; Higher sustaining capital expenditures due to higher planned major maintenance costs for the Hydro and Gas segments, which were partially offset by lower planned major maintenance in Wind and Solar and Energy Transition segments; Lower provisions being accrued compared to the prior year without settlement; Adjusted EBITDA items noted above, partially offset by Higher cash balances and favourable interest rates increasing interest income; and Lower current income tax expense as previously restricted non-capital loss carryforwards were utilized to offset taxable income. Earnings before income taxes totalled $880 million for the year ended Dec. 31, 2023, compared to $353 million in the same period in 2022, an increase of $527 million, or 149 per cent. Net earnings attributable to common shareholders totalled $644 million for the year ended Dec. 31, 2023, compared to $4 million in the same period in 2022, an increase of $640 million, primarily due to: Adjusted EBITDA items discussed above; Unrealized mark-to-market losses in 2022; Lower income tax expense due to a recovery relating to the reversal of previously derecognized Canadian deferred tax assets and lower US non-deductible expenses relating to the US operations, partially offset by higher earnings from Canadian operations; Higher asset impairment reversals due to decommissioning and restoration provisions for retired assets being favourably impacted by a change in timing of expected cash outflows partially offset by lower discount rates; Increased interest income due to higher cash balances and favourable interest rates; and Higher depreciation and amortization due to revisions to useful lives on certain facilities and commercial operation of new facilities. Fourth Quarter Financial Results Summary During the fourth quarter of 2023, weather impacts were relatively mild compared to the prior period and the fourth quarter of 2022, which had extreme cold weather in Alberta, resulting in periods of exceptional peak pricing in 2022. Production for the three months ended Dec. 31, 2023, was 5,783 GWh compared to 6,005 GWh for the same period in 2022. The decrease of 222 GWh, or 4 per cent was primarily due to: Lower dispatch of the Alberta Gas assets due to warmer temperatures; Lower availability, partially offset by Higher production in the Wind and Solar segment with the addition of the Garden Plain wind facility. Adjusted availability for the three months ended Dec. 31, 2023, was 86.9 per cent compared to 89.5 per cent for the same period in 2022, a decrease of 2.6 percentage points primarily due to: Planned outages in the Gas segment and Hydro segment, partially offset by Higher availability for the Wind and Solar segment, mainly due to the partial return to service of the Kent Hills wind facilities; and Lower unplanned outages in the Energy Transition segment. Adjusted EBITDA for the three months ended Dec. 31, 2023, was $289 million compared to $541 million in the same period of 2022, a decrease of $252 million, or 47 per cent. The major factors impacting adjusted EBITDA are summarized below: Hydro adjusted EBITDA decreased by $77 million or 58 per cent, due to decreased revenues from lower merchant and ancillary prices in the Alberta market and lower ancillary services volumes; Wind and Solar adjusted EBITDA decreased by $10 million or 11 per cent, due to lower merchant pricing in Alberta, lower wind resource in Eastern Canada and the US and higher OM&A due to new long-term service agreements, partially offset by higher revenues related to the partial return to service of the Kent Hills facilities and the addition of the Garden Plain wind facility and Northern Goldfields solar and battery storage facilities; Gas adjusted EBITDA decreased by $123 million or 47 per cent, due to lower realized prices and production volume in the Alberta market, lower thermal revenues due to lower steam revenue pricing at the Sarnia facility compared to 2022, and higher OM&A with the inventory write-down at the Sundance and Keephills 2 facilities; Energy Transition adjusted EBITDA increased by $7 million or 37 per cent compared to 2022, primarily due to higher production that was due to lower unplanned outages, partially offset by lower revenues as a result of lower market prices; Energy Marketing adjusted EBITDA decreased by $49 million or 78 per cent compared to 2022, primarily due to lower realized settled trades during the fourth quarter on market positions in comparison to prior period; and Corporate adjusted EBITDA was consistent with the same period in 2022. FCF totalled $121 million for the three months ended Dec. 31, 2023, compared to $315 million in the same period in 2022, a decrease of $194 million, or 62 per cent primarily due to: Lower adjusted EBITDA items noted above, partially offset by Lower distributions paid to subsidiaries' non-controlling interests on lower net earnings in TA Cogen and no dividends paid to TransAlta Renewables shareholders. Loss before income taxes for the three months ended Dec. 31, 2023, was $35 million compared to net earnings of $7 million in the same period of 2022, a decrease of $42 million. Net loss attributable to common shareholders for the three months ended Dec. 31, 2023, was $84 million compared to a net loss of $163 million in the same period of 2022, an improvement of $79 million, or 48 per cent primarily due to: Adjusted EBITDA items discussed above; Lower income tax expense due to lower earnings before tax in 2023 and the reduction of non-deductible expenses in the US; Lower depreciation and amortization from the revision of useful lives on certain facilities, partially offset by commercial operation of new facilities; and Gains on sale of assets decreased compared to the same period in 2022, due to certain sales of gas generation assets in 2022. Alberta Electricity Portfolio For the three months and year ended Dec. 31, 2023, the Alberta electricity portfolio generated 2,988 GWh and 11,759 GWh, respectively, compared to 3,353 GWh and 11,476 GWh of energy for 2022, respectively. The annual production increase of 283 GWh, or 2 per cent, was primarily due to: The commercial operation of the Garden Plain wind facility in the third quarter of 2023; Hedged production with higher power prices for the year ended Dec. 31, 2023, compared to 2022, primarily due to the opportunity to secure additional margins with strategic hedges for the hydro assets; Higher production from our Gas assets due to strong market conditions in the first half of 2023, partially offset by lower water resources in the Alberta Hydro assets. Gross margin for the three months and year ended Dec. 31, 2023, was $215 million and $1,248 million, respectively, a decrease of $206 million and an increase of $71 million, respectively, compared to the same periods in 2022. The annual increase was primarily due to: Higher power price hedges, partially offsetting the impacts of lower Alberta spot prices and lower natural gas prices compared to 2022; partially offset by Lower ancillary services revenues due to the Alberta Electric System Operator procuring lower volumes given its decision to reduce the cumulative volume of imports into Alberta. Alberta power prices for 2023 were lower compared to 2022, as 2022 experienced exceptional pricing. The average spot power price per MWh for the three months and year ended Dec. 31, 2023, was $82 per MWh and $134 per MWh, respectively, compared to $214 per MWh and $162 per MWh in the same periods in 2022. This was primarily due to: Moderate temperatures in the last six months of the year compared with the prior year; Higher total renewable generation in the Alberta market from new wind and solar facilities and higher wind resources during the fourth quarter of 2023; and Lower natural gas prices. Hedged volumes for the three months and year ended Dec. 31, 2023, were 1,742 GWh and 7,550 GWh at an average price of $92 per MWh and $111 per MWh, respectively, compared to 1,907 GWh and 7,228 GWh at an average price of $106 per MWh and $86 per MWh, respectively, in 2022. Liquidity and Financial Position We expect to maintain adequate available liquidity under our committed credit facilities. As at Dec. 31, 2023, we had access to $1.7 billion in liquidity, including $345 million in cash, net of bank overdraft; which significantly exceeds the funds required for committed growth, sustaining capital and productivity projects. Cash amount of $800 million was used for the acquisition of TransAlta Renewables. 2024 Financial Guidance The following table outlines our expectations on key financial targets and related assumptions for 2024 and should be read in conjunction with the narrative discussion that follows and the Governance and Risk Management section of the MD&A for additional information: Measure 2024 Target Updated Target 2023 2023 Actuals Adjusted EBITDA $1,150 million - $1,300 million $1,700 million - $1,800 million $1,632 million FCF $450 million - $600 million $850 million - $950 million $890 million FCF per share $1.47 - $1.96 $2.77 - $3.10 $3.22 Annual dividend per share $0.24 $0.22 $0.22 The Company's outlook for 2024 may be impacted by a number of factors as detailed further below. Market 2024 Assumptions Updated Target 2023 2023 Actuals Alberta spot ($/MWh) $75 to $95 $150 to $170 $134 Mid-C spot (US$/MWh) US$85 to US$95 US$90 to US$110 US$76 AECO gas price ($/GJ) $2.50 to $3.00 $2.50 $2.54 Alberta spot price sensitivity: a +/- $1 per MWh change in spot price is expected to have a +/-$5 million impact on adjusted EBITDA for 2024. Other assumptions relevant to the 2024 outlook 2024 Expectations Energy Marketing gross margin $110 million to $130 million.....»»

Category: earningsSource: benzingaFeb 23rd, 2024

TransAlta Reports Full Year and Fourth Quarter 2023 Results and Announces Enhanced Share Repurchase Program

CALGARY, AB, Feb. 23, 2024 /CNW/ - TransAlta Corporation ("TransAlta" or the "Company") (TSX:TA) (NYSE:TAC) today reported its financial results for the fourth quarter and year ended Dec. 31, 2023, which highlight another year of exceptional performance led by strong financial, operational and safety results. Full Year 2023 Financial Highlights Key financial guidance and targets increased twice during 2023 Adjusted EBITDA(1) of $1,632 million, compared to $1,634 million from the same period in 2022 Free Cash Flow ("FCF")(1) of $890 million, or $3.22 per share, compared to $3.55 per share from the same period in 2022 Cash flow from operating activities of $1,464 million, an increase of $587 million from the same period in 2022 Earnings before income taxes of $880 million, an improvement of $527 million from the same period in 2022 Net earnings attributable to common shareholders of $644 million, an increase of $640 million from the same period in 2022 Announced a 9 per cent increase to the common share dividend, representing the fifth consecutive annual dividend increase Returned $87 million of capital to common shareholders during the year through the buyback of 7.5 million common shares Fourth Quarter 2023 Financial Highlights Adjusted EBITDA of $289 million, compared to $541 million for the same period in 2022 FCF of $121 million, or $0.39 per share, compared to $315 million or $1.17 per share for the same period in 2022 Cash flow from operating activities of $310 million, compared to $351 for the same period in 2022 Net loss before income taxes of $35 million, a decrease of $42 million for the same period in 2022 Net loss attributable to common shareholders of $84 million, an increase of $79 million from the same period in 2022 Other Business Highlights and Updates Announced an enhanced common share repurchase program for 2024 of up to $150 million towards the repurchase of common shares, representing up to 40 per cent of 2024 FCF guidance being returned to shareholders in the form of share repurchases and dividends Achieved strong safety performance in 2023, including a record annual Total Recordable Injury Frequency of 0.30 Strong operational adjusted availability of 88.8% Maintained emissions intensity at 0.41 tCO2e/MWh from 2022 levels Entered into 10-year transfer agreements with an AA- rated customer for the sale of approximately 80 per cent of the expected production tax credits to be generated from the White Rock and Horizon Hill wind facilities Completed the Kent Hills rehabilitation program in the first quarter of 2024. All 50 turbines have returned to commercial operation Energization activities are underway at the Horizon Hill and White Rock wind facilities with commercial operations expected to be achieved in the first quarter of 2024 Completion of the Mount Keith 132kV expansion project is expected to be achieved in March 2024. The expansion of the transmission system in Western Australia supports the Northern Goldfields-based operations of BHP Nickel West ("BHP") Achieved commercial operation of the 48 MW Northern Goldfields solar and battery storage project in November 2023. The facilities are fully contracted with BHP for a term of 15 years and are expected to reduce BHP's emissions by 12 per cent at their Mt. Keith and Leinster operations Announced updated strategic growth targets to 2028, including adding up to 1.75 GW of new capacity to the Company's fleet by investing approximately $3.5 billion to develop, construct or acquire new assets through to the end of 2028 to deliver annual EBITDA of approximately $350 million Entered into a joint development agreement with Hancock Prospecting Pty Ltd. ("Hancock") to define, develop and operate clean energy solutions Entered into a definitive share purchase agreement to acquire Heartland Generation and its entire business operations in Alberta and British Columbia for approximately $658 million, subject to closing adjustment Completed the acquisition of TransAlta Renewables Inc. ("TransAlta Renewables") for total consideration paid of $1.3 billion, which consisted of $800 million of cash and approximately 46 million common shares Acquired a 50 per cent interest in the Tent Mountain 320 MW pumped hydro development project "2023 was another year of exceptional performance for our Company led by record financial and safety results. During the year, we generated strong free cash flow of $3.22 per share, driven by record revenues across our generating fleet. Our dynamic asset optimization and hedging strategies continue to perform well in managing the evolving markets of our operating portfolio, illustrating the value of our growing fleet and the capabilities of our employees," said Mr. John Kousinioris, President and Chief Executive Officer of TransAlta. "During the year, we deployed $87 million towards share repurchases which, together with our common share dividends, resulted in the return of $145 million or $0.53 per share in value to shareholders," added Mr. Kousinioris. "We are focused on making balanced capital allocation decisions that enhance value for our shareholders and will remain disciplined in executing our ambitious Clean Electricity Growth Plan with a focus on securing appropriate risk-adjusted returns. We will not grow simply for the sake of growth and to meet targets. Given the current market price of our common shares, which we consider to be undervalued, we will look to enhance returns and shareholder value through our dividend and share repurchases in 2024 of up to $150 million." "Our generating portfolio continues to perform well and is expected to generate between $1.47 and $1.96 per share of free cash flow in 2024. Our enhanced common share repurchase program and expected dividend payments in 2024 represent up to 40% of our free cash flow guidance to our shareholders." "Turning to growth, our Mount Keith transmission expansion, along with our Horizon Hill and White Rock wind facilities, are well into commissioning and we expect all projects to be completed in March 2024. This milestone, coupled with the completion of our Garden Plain wind facility and Northern Goldfields solar and battery storage project, as well as the rehabilitation of Kent Hills, will contribute contracted adjusted EBITDA of approximately $175 million annually. I am also pleased we've been able to secure 10-year transfer agreements with an AA- rated customer for the sale of approximately 80 per cent of production tax credits from the White Rock and Horizon Hill wind facilities, providing another stream of contracted revenue from these assets." "Strong free cash flow will, over time, continue to fund our transition to a higher proportion of contracted renewables and toward the path of higher share price valuation. As I look forward, there is every reason to believe that our success will continue in 2024 and beyond." Key Business Developments Change to Board of Directors The Honourable Rona Ambrose has decided that she will not stand for re-election and will retire from the Board of Directors ("the Board") following the annual shareholder meeting on April 25, 2024. The Board extends its gratitude for her service to the Company. She has been a valuable contributor to the Board since 2017 and we thank her for her leadership and insights during her tenure, especially as Chair of the Governance, Safety and Sustainability Committee of the Board. Production Tax Credit ("PTC") Sale Agreements On Feb. 22, 2024, the Company entered into 10-year transfer agreements with an AA-rated customer for the sale of approximately 80 per cent of the expected PTCs to be generated from the White Rock and Horizon Hill wind projects. The expected annual average EBITDA from these contracts is approximately $57 million (US$43 million). Normal Course Issuer Bid and Automatic Share Purchase Plan On Dec. 19, 2023, the Company entered into an Automatic Share Purchase Plan ("ASPP") in order to facilitate repurchases of TransAlta's common shares under its Normal Course Issuer Bid ("NCIB"). Under the ASPP, the Company's broker may purchase common shares from the effective date of the ASPP until the end of the ASPP. All purchases of common shares made under the ASPP will be included in determining the number of common shares purchased under the NCIB. The ASPP will terminate on the earliest of the date on which: (a) the maximum purchase limits under the ASPP are reached; (b) Feb. 24, 2024; or (c) the Company terminates the ASPP in accordance with its terms. During the year ended Dec. 31, 2023, the Company purchased and cancelled a total of 7,537,500 common shares, at an average price of $11.49 per common share, for a total cost of $87 million. The NCIB provides the Company with a capital allocation alternative with a view to ensuring long-term shareholder value. The Board and management believe that, from time to time, the market price of the common shares might not be reflective of the underlying value and purchases of common shares for cancellation under the NCIB may provide an opportunity to enhance shareholder value. Northern Goldfields Solar Achieves Commercial Operation On Nov. 22, 2023, the Company announced that the 48 MW Northern Goldfields solar and battery storage facilities achieved commercial operation. The facilities consist of the 27 MW Mount Keith solar facility, the 11 MW Leinster solar facility, the 10 MW Leinster battery energy storage system and interconnecting transmission infrastructure, all of which are now integrated into TransAlta's existing 169 MW Southern Cross Energy North remote network in Western Australia. The facilities are fully contracted to BHP for a term of 15 years and are expected to reduce BHP's scope 2 emissions at Mount Keith and Leinster by 12 per cent annually. TransAlta Announces Growth Targets to 2028 On Nov. 21, 2023, the Company held its 2023 Investor Day event and announced it had updated its strategic growth targets to 2028, which strengthens the Company's commitment to being a leader in clean electricity by delivering customer-centred power solutions. The growth targets include: adding up to 1.75 GW of new capacity to the Company's fleet by investing approximately $3.5 billion to develop, construct or acquire new assets through to the end of 2028, with a focus on customer-centred renewables and storage through the advancement of its 4.8 GW development pipeline, and expanding this development pipeline to 10 GW by 2028. TransAlta Declares 9 Per Cent Dividend Increase On Nov. 21, 2023, the Board approved an annualized $0.02 per share increase, or 9 per cent increase to our common share dividend and declared a dividend of $0.06 per common share to be paid on April 1, 2024. The quarterly dividend of $0.06 per common share represents an annualized dividend of $0.24 per common share. TransAlta Enters Joint Development Agreement with Hancock On Nov. 21, 2023, the Company entered into a joint development agreement with Hancock, Australia's fourth largest iron ore producer. This arrangement will build on TransAlta's expertise in supplying power to remote mining operations in Western Australia. TransAlta will work collaboratively with Hancock to define and supply behind-the-fence generation solutions for Hancock in the Port Hedland area. TransAlta to Acquire Heartland Generation from Energy Capital Partners On Nov. 2, 2023, the Company announced that it had entered into a definitive share purchase agreement with an affiliate of Energy Capital Partners, the parent of Heartland Generation Ltd. and Alberta Power (2000) Ltd. (collectively, "Heartland"), pursuant to which TransAlta will acquire Heartland and its entire business operations in Alberta and British Columbia. The acquisition will add 10 facilities to TransAlta's fleet, totalling 1,844 MW of new capacity. The transaction is expected to close in the first half of 2024, subject to customary closing conditions, including receipt of regulatory approvals. The purchase price for the acquisition is $390 million, subject to working capital and other adjustments, as well as the assumption of $268 million of low-cost debt. The Company will finance the transaction using cash on hand and drawing on its credit facilities. The assets are expected to add approximately $115 million of average annual EBITDA including synergies.  Approximately 55 per cent of revenues are under contract with highly creditworthy counterparties, with a weighted-average remaining contract life of 16 years. Corporate pre-tax synergies are expected to exceed $20 million annually. TransAlta Completes Acquisition of TransAlta Renewables to Simplify Structure and Enhance Strategic Position On Oct. 5, 2023, the Company completed the acquisition of TransAlta Renewables pursuant to the terms of the previously announced arrangement agreement between the parties (the "Arrangement"). TransAlta acquired all of the outstanding common shares of TransAlta Renewables ("RNW Shares") not already owned, directly or indirectly, by TransAlta and certain of its affiliates, resulting in TransAlta Renewables becoming a wholly owned subsidiary of the Company. Prior to the Arrangement, TransAlta and its affiliates collectively held 160,398,217 RNW Shares, representing 60.1 per cent of the issued and outstanding RNW Shares, with the remaining 106,510,884 RNW Shares held by TransAlta Renewables shareholders ("RNW Shareholders") other than TransAlta and its affiliates. The Arrangement was approved by RNW Shareholders at a special meeting of shareholders held on Sept. 26, 2023, and by the Court of King's Bench of Alberta on Oct. 4, 2023. The consideration paid totalled $1.3 billion, which consisted of $800 million of cash and approximately 46 million common shares of the Company. TransAlta Tops Newsweek's Inaugural List of World's Most Trustworthy Companies On Sept. 14, 2023, the Company announced that it ranked first on Newsweek's inaugural "World's Most Trustworthy Companies 2023" list for the Energy and Utilities category. The list identifies the top 1,000 companies in 21 countries and across 23 industries. Newsweek's 2023 World's Most Trustworthy Companies were chosen based on a holistic approach to evaluating three pillars of public trust – customers, investors and employees. The list was compiled based on an extensive survey of over 70,000 participants, gathering 269,000 evaluations of companies that people trust as a customer, as an investor or as an employee. Garden Plain Wind Facility Achieved Commercial Operation In August 2023, the Garden Plain wind facility was commissioned adding 130 MW to our gross installed capacity. The facility is fully contracted with Pembina Pipeline Corporation and PepsiCo Canada, with a weighted average contract life of approximately 17 years. Tent Mountain Pumped Hydro Development Project On April 24, 2023, the Company acquired a 50 per cent interest in the Tent Mountain Renewable Energy Complex ("Tent Mountain"), an early-stage 320 MW pumped storage hydro development project located in southwest Alberta, from Evolve Power Ltd. ("Evolve"), formerly known as Montem Resources Limited. The acquisition includes land rights, fixed assets and intellectual property associated with Tent Mountain. The Company and Evolve own the Tent Mountain project within a special purpose partnership that is jointly managed, with the Company acting as project developer. The partnership is actively seeking an offtake agreement for the energy and environmental attributes that will be generated by the facility. Year Ended and Fourth Quarter 2023 Highlights  $ millions, unless otherwise stated Year Ended Three Months Ended Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2023 Dec. 31, 2022 Operational information Adjusted availability (%) 88.8 90.0 86.9 89.5 Production (GWh) 22,029 21,258 5,783 6,005 Select financial information Revenues 3,355 2,976 624 854 Adjusted EBITDA(1) 1,632 1,634 289 541 Earnings (loss) before income taxes 880 353 (35) 7 Net earnings (loss) attributable to commonshareholders 644 4 (84) (163) Cash flows Cash flow from operating activities 1,464 877 310 351 Funds from operations(1) 1,351 1,346 229 459 Free cash flow(1) 890 961 121 315 Per share Net earnings (loss) per share attributable tocommon shareholders, basic and diluted 2.33 0.01 (0.27) (0.61) Funds from operations per share(1),(2) 4.89 4.97 0.74 1.71 FCF per share(1),(2) 3.22 3.55 0.39 1.17 Dividends declared per common share 0.22 0.21 0.12 0.11 Weighted average number of common sharesoutstanding 276 271 308 269 Segmented Financial Performance   $ millions Year Ended Three Months Ended Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2023 Dec. 31, 2022 Hydro 459 527 56 133 Wind and Solar 257 311 82 92 Gas 801 629 141 264 Energy Transition 122 86 26 19 Energy Marketing 109 183 14 63 Corporate (116) (102) (30) (30) Adjusted EBITDA 1,632 1,634 289 541 Earnings (loss) before  income taxes 880 353 (35) 7 Full Year 2023 Financial Results Summary For the year ended Dec. 31, 2023, the Company demonstrated strong performance mainly due to the continued strong market conditions in Alberta in the first half of the year, higher production in the Gas and Energy Transition segments, and higher hedged volumes and lower realized gas prices in the Gas segment, partially offset by lower wind and water resources. The Energy Marketing segment's performance was lower compared to 2022 due to the lower realized settled trades during the year on market positions compared to the prior year. Total production for the year ended Dec. 31, 2023, was 22,029 GWh compared to 21,258 GWh for the same period in 2022, an increase of 771 GWh or 4 per cent, primarily due to: Production from the Centralia facility within the Energy Transition segment experienced fewer planned and unplanned outage hours compared to the prior year and was able to dispatch during periods of higher merchant pricing for the region; Strong production in the Gas segment that was both higher than the prior year as well as higher than expectations for the year. The Gas segment was available during periods of supply tightness, allowing our facilities to operate during periods of peak pricing; partially offset by The Gas segment being unfavourably impacted by relatively mild weather in the fourth quarter of 2023, due to warmer than average weather conditions compared to the same period in 2022 which had tighter supply due to the extreme cold weather in Alberta. Production for the renewables fleet for the year ended Dec. 31, 2023, was 6,012 GWh compared to 6,236 GWh for the same period in 2022, a decrease of 224 GWh or 4 per cent, primarily due to: Lower than average renewable resources in the year that impacted production in both the Hydro and the Wind and Solar segments; Hydro production was further impacted by lower availability due to increased planned maintenance outages compared to 2022; partially offset by The addition of the Garden Plain wind facility, the partial return to service of the Kent Hills wind facility, and the addition of the Northern Goldfields solar and battery storage facilities during the year. Adjusted availability for the year ended Dec. 31, 2023, was 88.8 per cent, compared to 90.0 per cent in 2022, a decrease of 1.2 percentage points, primarily due to: Planned outages in the Hydro segment, mainly at our Alberta Hydro Assets; and Planned outages at Sundance Unit 6, Sheerness Unit 1, Keephills Units 2 and 3 and Sarnia in the Gas segment; partially offset by Lower planned outages at Centralia Unit 2 in the Energy Transition segment; and The partial return to service of the Kent Hills wind facilities. Adjusted EBITDA for the year ended Dec. 31, 2023, was $1,632 million compared to $1,634 million in 2022, a decrease of $2 million, or 0.1 per cent. The major factors impacting adjusted EBITDA are summarized below: Hydro adjusted EBITDA decreased by $68 million, or 13 per cent, compared to the same period in 2022, primarily due to lower ancillary services volumes, lower spot power and ancillary services prices and lower than average water resources, partially offset by realized gains from hedging and sales of environmental attributes; Wind and Solar adjusted EBITDA decreased by $54 million, or 17 per cent, compared to 2022 primarily due to lower environmental attribute revenues from lower offset and credit sales, lower spot power pricing in Alberta, lower wind resource across the operating fleets, and lower liquidated damages recognized at the Windrise wind facility, partially offset by the commercial operation of the Garden Plain wind facility, the Northern Goldfields solar facilities and the partial return to service of the Kent Hills wind facilities; Gas adjusted EBITDA increased by $172 million, or 27 per cent, compared to 2022, primarily due to higher power prices from hedges partially offsetting the impacts of lower Alberta spot prices, lower natural gas commodity costs and higher production, partially offset by lower thermal revenues, higher carbon prices and higher carbon costs and fuel usage related to production; Energy Transition adjusted EBITDA increased by $36 million, or 42 per cent, compared to 2022, primarily due to higher production from higher availability and higher merchant sales volumes, partially offset by lower market prices compared to the prior year; Energy Marketing adjusted EBITDA decreased by $74 million, or 40 per cent, compared to 2022 primarily due to lower realized settled trades during the year on market positions in comparison to prior year and higher OM&A. Energy Marketing results were in line with management's expectations and performance was consistent with our revised full year financial guidance provided in the second quarter of 2023; and Corporate adjusted EBITDA decreased by $14 million, or 14% per cent, compared to 2022, primarily due to increased spending to support strategic and growth initiatives and higher costs associated with the relocation of the Company's head office. Cash flow from operating activities totalled $1,464 million for the year ended Dec. 31, 2023, compared to $877 million in the same period in 2022, an increase of $587 million, or 67 per cent, primarily due to: Higher gross margin on lower natural gas costs included in fuel and purchased power, partially offset by lower revenues net of unrealized gains and losses from risk management activities and higher carbon compliance costs; Higher OM&A from increased spending on strategic and growth initiatives, higher costs associated with the relocation of the Company's head office, and increased costs due to inflationary pressures; Lower current income tax expense as previously restricted non-capital loss carryforwards were utilized to offset taxable income; Higher interest income on higher cash balances and favourable interest rates; and Favourable change in non-cash operating working capital balances with lower accounts receivable and collateral provided as a result of declining volatility in the market and market prices, partially offset by lower accounts payable and collateral received related to derivative instruments. Free Cash Flow totalled $890 million for the year ended Dec. 31, 2023, compared to $961 million for the same period in 2022, a decrease of $71 million, or 7 per cent, primarily driven by: Higher distributions paid to subsidiaries' non-controlling interests as related to timing of distributions paid to TransAlta Cogeneration LP ("TA Cogen"), partially offset by lower distributions paid to TransAlta Renewables; Higher sustaining capital expenditures due to higher planned major maintenance costs for the Hydro and Gas segments, which were partially offset by lower planned major maintenance in Wind and Solar and Energy Transition segments; Lower provisions being accrued compared to the prior year without settlement; Adjusted EBITDA items noted above, partially offset by Higher cash balances and favourable interest rates increasing interest income; and Lower current income tax expense as previously restricted non-capital loss carryforwards were utilized to offset taxable income. Earnings before income taxes totalled $880 million for the year ended Dec. 31, 2023, compared to $353 million in the same period in 2022, an increase of $527 million, or 149 per cent. Net earnings attributable to common shareholders totalled $644 million for the year ended Dec. 31, 2023, compared to $4 million in the same period in 2022, an increase of $640 million, primarily due to: Adjusted EBITDA items discussed above; Unrealized mark-to-market losses in 2022; Lower income tax expense due to a recovery relating to the reversal of previously derecognized Canadian deferred tax assets and lower US non-deductible expenses relating to the US operations, partially offset by higher earnings from Canadian operations; Higher asset impairment reversals due to decommissioning and restoration provisions for retired assets being favourably impacted by a change in timing of expected cash outflows partially offset by lower discount rates; Increased interest income due to higher cash balances and favourable interest rates; and Higher depreciation and amortization due to revisions to useful lives on certain facilities and commercial operation of new facilities. Fourth Quarter Financial Results Summary During the fourth quarter of 2023, weather impacts were relatively mild compared to the prior period and the fourth quarter of 2022, which had extreme cold weather in Alberta, resulting in periods of exceptional peak pricing in 2022. Production for the three months ended Dec. 31, 2023, was 5,783 GWh compared to 6,005 GWh for the same period in 2022. The decrease of 222 GWh, or 4 per cent was primarily due to: Lower dispatch of the Alberta Gas assets due to warmer temperatures; Lower availability, partially offset by Higher production in the Wind and Solar segment with the addition of the Garden Plain wind facility. Adjusted availability for the three months ended Dec. 31, 2023, was 86.9 per cent compared to 89.5 per cent for the same period in 2022, a decrease of 2.6 percentage points primarily due to: Planned outages in the Gas segment and Hydro segment, partially offset by Higher availability for the Wind and Solar segment, mainly due to the partial return to service of the Kent Hills wind facilities; and Lower unplanned outages in the Energy Transition segment. Adjusted EBITDA for the three months ended Dec. 31, 2023, was $289 million compared to $541 million in the same period of 2022, a decrease of $252 million, or 47 per cent. The major factors impacting adjusted EBITDA are summarized below: Hydro adjusted EBITDA decreased by $77 million or 58 per cent, due to decreased revenues from lower merchant and ancillary prices in the Alberta market and lower ancillary services volumes; Wind and Solar adjusted EBITDA decreased by $10 million or 11 per cent, due to lower merchant pricing in Alberta, lower wind resource in Eastern Canada and the US and higher OM&A due to new long-term service agreements, partially offset by higher revenues related to the partial return to service of the Kent Hills facilities and the addition of the Garden Plain wind facility and Northern Goldfields solar and battery storage facilities; Gas adjusted EBITDA decreased by $123 million or 47 per cent, due to lower realized prices and production volume in the Alberta market, lower thermal revenues due to lower steam revenue pricing at the Sarnia facility compared to 2022, and higher OM&A with the inventory write-down at the Sundance and Keephills 2 facilities; Energy Transition adjusted EBITDA increased by $7 million or 37 per cent compared to 2022, primarily due to higher production that was due to lower unplanned outages, partially offset by lower revenues as a result of lower market prices; Energy Marketing adjusted EBITDA decreased by $49 million or 78 per cent compared to 2022, primarily due to lower realized settled trades during the fourth quarter on market positions in comparison to prior period; and Corporate adjusted EBITDA was consistent with the same period in 2022. FCF totalled $121 million for the three months ended Dec. 31, 2023, compared to $315 million in the same period in 2022, a decrease of $194 million, or 62 per cent primarily due to: Lower adjusted EBITDA items noted above, partially offset by Lower distributions paid to subsidiaries' non-controlling interests on lower net earnings in TA Cogen and no dividends paid to TransAlta Renewables shareholders. Loss before income taxes for the three months ended Dec. 31, 2023, was $35 million compared to net earnings of $7 million in the same period of 2022, a decrease of $42 million. Net loss attributable to common shareholders for the three months ended Dec. 31, 2023, was $84 million compared to a net loss of $163 million in the same period of 2022, an improvement of $79 million, or 48 per cent primarily due to: Adjusted EBITDA items discussed above; Lower income tax expense due to lower earnings before tax in 2023 and the reduction of non-deductible expenses in the US; Lower depreciation and amortization from the revision of useful lives on certain facilities, partially offset by commercial operation of new facilities; and Gains on sale of assets decreased compared to the same period in 2022, due to certain sales of gas generation assets in 2022. Alberta Electricity Portfolio For the three months and year ended Dec. 31, 2023, the Alberta electricity portfolio generated 2,988 GWh and 11,759 GWh, respectively, compared to 3,353 GWh and 11,476 GWh of energy for 2022, respectively. The annual production increase of 283 GWh, or 2 per cent, was primarily due to: The commercial operation of the Garden Plain wind facility in the third quarter of 2023; Hedged production with higher power prices for the year ended Dec. 31, 2023, compared to 2022, primarily due to the opportunity to secure additional margins with strategic hedges for the hydro assets; Higher production from our Gas assets due to strong market conditions in the first half of 2023, partially offset by lower water resources in the Alberta Hydro assets. Gross margin for the three months and year ended Dec. 31, 2023, was $215 million and $1,248 million, respectively, a decrease of $206 million and an increase of $71 million, respectively, compared to the same periods in 2022. The annual increase was primarily due to: Higher power price hedges, partially offsetting the impacts of lower Alberta spot prices and lower natural gas prices compared to 2022; partially offset by Lower ancillary services revenues due to the Alberta Electric System Operator procuring lower volumes given its decision to reduce the cumulative volume of imports into Alberta. Alberta power prices for 2023 were lower compared to 2022, as 2022 experienced exceptional pricing. The average spot power price per MWh for the three months and year ended Dec. 31, 2023, was $82 per MWh and $134 per MWh, respectively, compared to $214 per MWh and $162 per MWh in the same periods in 2022. This was primarily due to: Moderate temperatures in the last six months of the year compared with the prior year; Higher total renewable generation in the Alberta market from new wind and solar facilities and higher wind resources during the fourth quarter of 2023; and Lower natural gas prices. Hedged volumes for the three months and year ended Dec. 31, 2023, were 1,742 GWh and 7,550 GWh at an average price of $92 per MWh and $111 per MWh, respectively, compared to 1,907 GWh and 7,228 GWh at an average price of $106 per MWh and $86 per MWh, respectively, in 2022. Liquidity and Financial Position We expect to maintain adequate available liquidity under our committed credit facilities. As at Dec. 31, 2023, we had access to $1.7 billion in liquidity, including $345 million in cash, net of bank overdraft; which significantly exceeds the funds required for committed growth, sustaining capital and productivity projects. Cash amount of $800 million was used for the acquisition of TransAlta Renewables. 2024 Financial Guidance The following table outlines our expectations on key financial targets and related assumptions for 2024 and should be read in conjunction with the narrative discussion that follows and the Governance and Risk Management section of the MD&A for additional information: Measure 2024 Target Updated Target 2023 2023 Actuals Adjusted EBITDA $1,150 million - $1,300 million $1,700 million - $1,800 million $1,632 million FCF $450 million - $600 million $850 million - $950 million $890 million FCF per share $1.47 - $1.96 $2.77 - $3.10 $3.22 Annual dividend per share $0.24 $0.22 $0.22 The Company's outlook for 2024 may be impacted by a number of factors as detailed further below. Market 2024 Assumptions Updated Target 2023 2023 Actuals Alberta spot ($/MWh) $75 to $95 $150 to $170 $134 Mid-C spot (US$/MWh) US$85 to US$95 US$90 to US$110 US$76 AECO gas price ($/GJ) $2.50 to $3.00 $2.50 $2.54 Alberta spot price sensitivity: a +/- $1 per MWh change in spot price is expected to have a +/-$5 million impact on adjusted EBITDA for 2024. Other assumptions relevant to the 2024 outlook 2024 Expectations Energy Marketing gross margin $110 million to $130 million Sustaining capital.....»»

Category: earningsSource: benzingaFeb 23rd, 2024

Trip.com Group Limited (NASDAQ:TCOM) Q4 2023 Earnings Call Transcript

Trip.com Group Limited (NASDAQ:TCOM) Q4 2023 Earnings Call Transcript February 21, 2024 Trip.com Group Limited beats earnings expectations. Reported EPS is $2.74, expectations were $0.34. TCOM isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day and thank you for […] Trip.com Group Limited (NASDAQ:TCOM) Q4 2023 Earnings Call Transcript February 21, 2024 Trip.com Group Limited beats earnings expectations. Reported EPS is $2.74, expectations were $0.34. TCOM isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day and thank you for standing by. Welcome to the Trip.com Group 2023 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I’ll now like to hand the conference over to your first speaker today, Michelle Qi, Senior IR Director. Please go ahead. Michelle Qi: Thank you. Good morning, and welcome to Trip.com group’s fourth quarter and full year of 2023 earnings conference call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board; Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are forward-looking statements made under the safe harbor provisions of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Trip.com Group’s public filings with the Securities and Exchange Commission. Trip.com Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights, and financial performance for the fourth quarter of 2023, and the full year for 2023, as well as outlook for the first quarter of 2024. And then we will have a Q&A session, after the prepared remarks. With that, I will turn the call over to James. James, please. James Liang: Thank you, Michelle. And thanks everyone for joining us on the call today. China’s border reopening in 2003 has ignited a global travel search. Our enhanced leadership in product and service has empowered us to significantly outperform the market. In 2023, our total OTA business reached a record high achieving a GMV of approximately RMB1.1 trillion or USD $160 billion [ph]. This marks the year-over-year increase of 130% and growth about 30% compared to 2019. Currently, our total net revenue also grew by 122% year-over-year, and a 25% compared to 2019. We significantly improved our adjusted EBITDA margin to 31% in 2023, which is the highest level over the past decade. In September 2023 we begin buying back our own stock using the existing quota. Additionally, the Board has approved the 2024 capital return program, further increasing our overall quota to a total of USD $581 million. This decision demonstrates our strong confidence in the long term value potential of the company. The China town market has been growing significantly, with outbound travel playing an increasingly large role due to easier visa access and the gradual resumption of international flights. Our global business is also thriving, particularly in the APAC region, reflecting a strengthened market presence and improve the product competitiveness. Expanding our international operations with diversified products worldwide remains a key priority for us. As travel demand rises, we also recognized the increasing importance of enhancing our service. Through exceptional customer service, AI technology and the reliable content, we continue to invest in improving user experience. Our commitment to globalization and great quality collectively now as our digital strategy drives us to continuously innovate and improve. The year 2023 mark the China’s reopening to the world, and 2024 will be a year of consolidating and expanding global tourism. I’m holding our digital strategy we aim to become a leading player in Asia market and a global market in a three to five years. With that I’ll turn the call over to Jane, for operational highlights. Jane Sun: Thank you, James. Good morning, everyone. As a quick overview, our net revenue in Q4 grew by 104% year-over-year and increased by 24% compared to 2019. During this period, the travel industry witnessed a strong momentum. As rising travel sentiment drove growth and supply side constraints continued to ease. Both, our hotel and air reservations grew by approximately 130% year-over-year. For the full year of 2023, our total net revenue achieved year-over-year growth of 122% and 25% compared to 2019. This outstanding result was due to the robust release of travel demand and the exceptional performance across all of our business segments. Additionally, our adjusted EBITDA margin in 2023 significantly improved to 31%, reflecting the successful optimization of our cost structure and overall productivity enhancement. Now let me walk you through different market performance. First, China Domestic. In Q4, the China domestic market continued to exhibit robust growth. Our domestic hotel bookings witnessed a year-over-year growth of over 130% or more than 60% compared to 2019. Demand for travel showed no signs of slowing down during the winter season. Popular destinations such as Harbin in the northern part of the country, experienced a surge in visitors. Notably, individuals have been prioritizing travel expenditures over other daily expenses, indicating a shift towards experiential spending. This change in consumer behavior has significantly favored travel industry as more people allocate their resources towards exploring new places and creating memorable experiences. We have continued to expand our user base among the elderly demographics through the deep integration of product integration, content generation and marketing efforts. In Q4, the number of the users over 50 years old, increased by more than 90% compared to 2019. And this is just a beginning to capitalize on the market opportunity for retired community, which has been in power and ample time. Second, outbound market. Despite the winter seasonality in Q4, outbound travel from China, maintain the same level of the recovery as the peak season in Q3. The gradual easing of supply side constraints, such as increased international flight capacity, and certain clearance of the Visa block, played a significant role in facilitating this positive trend. Chinese travelers continue to exhibit high demand for travel to overseas destinations. Moreover, many countries implemented visa free policies, specifically targeting at Chinese travelers, further enhancing the appeal of these destinations and securing their popularities. In Q4, Trip.com Group’s outbound air ticket and hotel bookings recovered to more than 80% of pre-pandemic level, surpassing the market overall recovery rate of 60%. Thailand, Singapore, Japan, Korea, Malaysia remain as the top outbound travel destination on our platform. Third, global markets. On the international front, we actively enhance our global market presence. Through the strong synergy of improved products, enhance the services and targeted marketing efforts, we have witnessed a steady growth in APAC region. In Q4, total GMV of our overseas OTA brand grew by more than 70% year-over-year, and increased by more than one 100% compared to 2019. Now, let me walk you through a few strategic highlights. First, globalization. As 2023 was about a return to travel, then 2024 will be the year when people go further than ever before. The travelers become more comfortable and confident then touring around the world. They are taking to the skies, rails, roads and the seas to experience unforgettable adventures. From music festivals to exotic adventures, travelers are increasingly seeking more than just a typical gateway. They are craving for immersive cultural experiences thrilling adventures, and the music, euphoria. All value a meaningful connections and quality time with their families and friends. In light of this evolving travel preference, Trip.com Group is providing comprehensive travel information and insights as well as expanding our global offering in products and services. Recognizing that the total addressable market in the major Asia regions is larger than that of China. Our goal is to further extend our business skills by establishing ourselves as the leading player in Asian market and global market with the next three to five years. Our global OTA platform currently operates in 39 countries and regions across Asia, Europe, and the rest of the world. We offer users a wide range of travel options through our one stop model. With our exceptional 24/7 multilingual in-house customer service, and global SOS support, our global users can receive immediate assistance through our AI Chatbot, or connect with live representatives within an average time of 30 seconds only. Over 60% of our global bookings are made directly through Trip.com. We have been successful in gaining mindshare and market share in the key Asia regions, including Hong Kong, Singapore, Korea, Japan, Thailand and Malaysia. Second, inbound markets. China inbound travel is an untapped opportunity. Inbound tourism plays a vital role in country’s economy. For tourism dependent countries, such as Thailand, inbound travel can contribute to more than 10% of its GDP. For developed nation, inbound travel can contribute to around 1% to 3% of its GDP. China’s current level is less than 0.5%. If China can reach a global average, between 1% to 2%, it would unlock a great market potential of another RMB1.5 trillion to RMB2 trillion market. Recognizing the importance of inbound travel, China has included its integral part of its 14th five-year plan. The government has taken steps to facilitate inbound tourism by granting visa free access, making travel more convenient for international visitors. China has extended its visa free policies to citizens from 10 countries so far, including France, Germany, Italy, Netherlands, Spain, Ireland, Switzerland, Singapore, and Malaysia and Thailand. Since the implementation of this visa free policy, there have been a remarkable increase in inbound travel to China from these countries, with a rising of nearly 30% in December when compared to November, as reported by Chinese National Immigration administration. In 2023, Trip.com, has already observed a significant surge in visitor numbers, with a four-digit increase compared to 2022. Moreover, government is making progress in many areas, such as simplifying visa application process, facilitating foreign credit card payments, and enabling online travel reservations with foreign passports. We anticipate that the forthcoming inbound tourism policy will bring about favorable changes, creating new opportunities for the industry. With Trip.com Groups, extensive customer reach and a robust supply chain, we are well prepared to capitalize on the future growth of inbound travel. Third, AI, the integration of artificial intelligence has emerged as a transformational force, revolutionizing the way we experience and navigate the world. Since the emergence of the large language models in early 2023, we have been actively exploring the potential of these new technologies to make travel more convenient, personalized, and memorable for everyone. Our AI assistants, TripGenie is revolutionizing trip planning, with personalized itineraries, instant bookings, and the rapid response to queries. Utilizing natural language processing in our extensive travel data, we aim to simplify the travel planning and reservation process. Our focus is on the constant enhancement of our model to align with users’ behavior and data, providing seamless and hassle free travel experience. Additionally, Trip.com offers AI driven travel recommendation lists, to improve booking experiences. These dynamic lists aim to meet diverse needs of users, utilizing the latest travel trends, real time pricing information and top rated options. This not only enable our partners to showcase their offering, but also provides user with reliable insights for informed decision making. We remain dedicated to enhancing our capability alongside the advancements in the AI technology, as we firmly believe, it is potential to drive exponential growth. Fourth, corporate responsibility. Our travel industry has shown remarkable resilience in the phase of pandemic, as we navigate this recovery, our commitment to delivering high end, high quality customer experiences remain crucial. Equally important is our dedication to contributing to the growth of our partners in the industry as a whole. We recognize the significance of our role in not only providing exceptional services, but also in bolstering economic growth and achieving common prosperity. By creating more job opportunities, and actively contributing to economic development, we strive to make a positive impact on the communities we serve. Therefore, we are firmly committed to embracing sustainability as a fundamental component of our long term growth strategy. At Trip.com Group, we developed a sustainability strategy that prioritizes customer service quality, aiming to promote the sustainable development of our industry through community friendly, environmental friendly, family friendly, and stakeholder friendly guidelines. First on community friendly, we firmly recognize the sustainable tourism is a driving force of economic growth and job creation. According to Award Travel and Tourism Council’s forecast, the sector will contribute to $15.5 trillion USD to GDP by 2033, representing 11% — 11.6% of the global economy. Moreover, it will employ approximately 430 million people around the world with nearly 12% of the global workforce. Trip.com Group, takes a comprehensive approach to bolster sustainable development within the travel industry. As part of our commitment to support the driving growth in the local communities, we have made sustainable investment in our rural revitalization strategy. This strategy focuses, to bolstering tourism by constructing high end accommodation and providing training for tourism professionals, thereby stimulating economic growth and development in remote areas. Notably, a number of Trip.com Group country retreats, has increased from 8 to 27 over the past year. The annual per capita income of the local residents involved in the country retreats have risen by over RMB40,000. This economic growth contributes to achievement of the common prosperity enable more individuals to start their own business and secure employment opportunity within their community, ultimately contributing to an improved quality of life. Second, environmental friendly. To show our commitment to environmental preservation, we have introduced to our carbon hotel standard in 2023. This industry framework collaborates with our hotel partners to enhance accommodation, sustainability, and promote environmental protection. That initiative has yield promising results with over 1500 partners being recognized as low carbon hotels. Furthermore, we have made significant strides towards providing sustainable travel choices across all of our business lines. In addition to Green Hotel initiatives, we have also introduced Green Flights program, which enables travelers to qualify and offset carbon footprint of the air travels and provide eco-friendly travel options to help reduce environmental impacts. Through green vehicle initiatives, we advocate for the use of electric vehicles or EVs to reduce carbon emission in ground transportation, we also launched an innovative Green Corporate Travel initiative, which includes low carbon labels for flights, cars, trains, and hotel supported by robust system for precise carbon emission calculation. In the previous year alone, over 16 million customers of Trip.com Group chose to use green products. Third, family friendly. Trip.com Group placed great importance on family friendly initiatives, to strive to create a gender inclusive and diverse workforce. Currently, female employees make up more than 50% of our workforce, reflecting our commitment to fostering a balanced environment. We have implemented policies to support pregnant employees starting from 2023. Employees who have been with our company for three years plus can receive a child care subsidy of RMB50,000 for each child. Furthermore, Trip.com Group is proud to be the first company in China to adopt hybrid work model. Vis-a-vis, this approach not only enhance employee satisfaction, but also promote productivity and creativity within our organization. Fourth, stakeholder friendly. We strive to put our customer first, providing exceptional services and value, meeting their needs and ensuring their satisfaction. Second, we’re committed to delivering great value to our partners, contributing to the growth of our industry and collectively creating more job opportunities for the society. And certainly, we work hard to create value for our employees and shareholders fostering a positive and rewarding environment to allowing them to thrive and benefit from our success. In conclusion, the travel industry has been thriving since the start of 2023. Driven by strong demand, we expect the industry to continue flourishing, faster economic growth and cross cultural connection. In light of this positive outlook, we are committed to innovating and strengthening our global offering to capitalize on these trends. We are confident in our ability to contribute to the growth and success of the travel industry in many years to come. With that. I will now turn the call to Cindy. Cindy Wang: Thanks, Jane. Good morning, everyone. For the fourth quarter of 2023 Trip.com Group, reported a net revenue of RMB10.3 billion, representing a 105% increase year-over-year and a 25% decrease quarter-over-quarter. Despite this sequential decrease, which was mainly due to normal seasonality, the revenue was still 24% higher than the 2019 level. For the full year of 2023, net revenue reached RMB 44.5 billion, representing a 122% increase year-over-year and a 25% increase from 2019. This growth was mainly driven by the strong release of travel demand, following China’s reopening at the beginning of the year. Accommodation reservation revenue for the fourth quarter reached RMB3.9 billion, representing a 131% increase year-over-year and a 32% growth compared to the 2019 level. In the fourth quarter, China market continue to demonstrate robust growth. Domestic hotel booking grew over 60% above the pre-pandemic level. And outbound hotel booking remained at more than 80% of the pre-pandemic level. In addition, hotel bookings, our overseas platform continued to show triple digit growth. For the full year of 2023, accommodation reservation revenue totaled to RMB17.3 billion, marking a 133% increase from 2022, and a 28% increase from 2019. Transportation ticketing revenue for the fourth quarter was RMB4.1 billion, representing an 86% increase year-over-year and an 18% growth compared to 2019. For the full year of 202, transportation ticketing revenue was RMB18.4 billion, representing a 123% increase from 2022 and a 32% increase from 2019. The growth was mainly due to the strong growth in our domestic and global air ticketing business and robust recovery in outbound — of outbound air ticketing bookings. Package tour revenue for the fourth quarter was RMB 704 million, representing a 329% increase year-over-year and recovering to 88% of the 2019 level. In the fourth quarter, domestic package tour continues to outgrow the 2019 level. On the other hand, that recovery in outbound package tour is still lagging behind, but that gap has been significantly narrowing. For the full year of 2023, package tour revenue is RMB 3.1 billion, representing 294% increase from 2022 and the recovery to 69% of the 2019 level. Corporate travel revenue for the fourth quarter was RMB 634 million, representing a 129% increase year-over-year, which is 70% higher than the 2019 level. Air ticket bookings has increased by double digit compared to the 2019 level, while hotel bookings have more than tripled the 2019 level. For the full year of 2023, corporate travel revenue was RMB 2.3 billion, representing a 109% increase from 2022 and an 80% increase from 2019. Excluding share based compensation charges, our total adjusted operating expenses were 17% lower than the previous quarter and 1.6% higher than the same period in 2019. For the full year of 2023, total adjusted operating expenses were 8% higher than the 2019 level. Adjusted product development expenses for the fourth quarter decreased by 19% from the previous quarter, and increased by 10%, compared with the same period in 2019. Adjusted G&A expenses for the fourth quarter decreased by 16% from the previous quarter, and decreased by 1% from the same period in 2019. For the full year of 2023. The combined total of adjusted product development expenses, and adjusted G&A expenses were 15%, higher than the 2019 level. The total headcount of our product development, and G&A teams remained significantly lower than during the same period in 2019. Adjusted sales and marketing expenses for the fourth quarter decreased by 15% from the previous quarter, and decreased by 6%, compared with the same period of 2019. For the full year of 2023, adjusted sales and marketing expenses as percentage of net revenue was 20%, compared to 26%, during the same period in 2019. This was mainly due to improve the marketing efficiencies and a strong release of pent up demand from beginning of the year. Adjusted EBITDA for the fourth quarter was RMB 2.9 billion, representing a growth of 899% year-over-year, and a 117% compared to 2019. Adjusted EBITDA margin for the fourth quarter was 28% in comparison to 6%, in the same period of 2022 and 16%, during the same period of 2019. For the full year of 2023, adjusted EBITDA was RMB 14 billion, representing a growth of 550% year-over-year and an increase of 78% compared to 2019. Adjusted EBITDA margin for the full year over 2023 was 31%, compared to 11% in 2022 and 22% in 2019. Diluted earnings per ordinary share and per ADS were RMB 1.94, or US dollar $0.27. For the fourth quarter of 2023, excluding share-based compensation charges and fair value changes of equity security investments and exchangeable senior notes. Non-GAAP diluted earnings per ordinary share and per ADS were RMB 4, or U.S. $0.56 for the fourth quarter. For the full year of 2023, diluted earnings per ordinary share and per ADS, were RMB 14.78 or US dollar $2.08. Excluding share-based compensation charges and fair value changes of equity security investments and exchangeable senior notes, non-GAAP diluted earnings per ordinary share and per ADS, were RMB 19.48 or U.S. dollar $2.74. As of December 31 2023, the balance of cash and cash equivalents restricted cash, short term investments held to maturity time deposits, and financial product was RMB 77 billion, or U.S. dollar $10.9 billion. Given that the rapid business growth this year has significantly strengthened the group’s cash flow. And we strongly believe that the company share price is undervalued. As of February 22 2024, we’ve repurchased U.S. dollar 224 million of our shares and reduced our share count by approximately 1% versus 2022. According to the regular capital return policy, the Board of Directors has recently granted authorization for the company to implement strategic capital return initiatives. These initiatives may encompass discretional annual share repurchase, discretional annual cash dividend, or a combination of both. This reflects our dedication to our shareholders investment and our belief in the strong long-term prospects of our business and the travel industry. To conclude, we are delighted that the travel market has been recovering significantly. Our performance has effectively reflect the rising consumer confidence and demand for travel. We are committed to drive strong growth in 2024 along with the continued upward trajectory in the travel market, and, most importantly, to create value for our long term shareholders. With that operator, please open the line for questions. See also 25 Best Places in the US to Retire on $5000 a Month and 20 Oldest Companies In The World. Q&A Session Follow Trip.com Group Limited (NASDAQ:TCOM) Follow Trip.com Group Limited (NASDAQ:TCOM) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] Our first question comes from the line of Joyce Ju, from Bank of America. Your line is open. Joyce Ju: Good morning James, Jane and Cindy, congrats on those strong results and thanks for taking my question. This quarter, the company’s international platform Trip.com actually saw another robust quarter and the management also mentioned a lot in your opening remarks, that the globalization is actually our important, like, long term goal. Could you kindly elaborate a little bit more on this front? What’s the Trip.com’s current achievement, more details any color what we find? And the near term midterm even longer term goals and also their consequence, like, strategies to achieve that. How would your digital strategy help to reach this goal? Thanks a lot. James Liang: Thank you very much for the question. Our digital strategy focuses on globalization and a great quality. We believe our long term growth relies on the progression of our globalization strategy, which aims to build global products supply chains, services and technology for our worldwide users. Asia is a top travel destination for travelers from China and other parts of the region. By leveraging our strong supply chain, diverse product offering an industry leading service and technology, we strive to provide exceptional service for users in Asia and subsequently around the world. With respect to great quality, our mission is to provide the best travel experience with the best technology. For example, we have introduced TripGenie, an AI based travel assistant, to enhance the travel planning experience. We’re also using AI to improve the efficiency of our customer service, content generation and IT operations. Thank you Operator: Thank you. One moment for our next question. And our next question comes from line of Alex Poon from Morgan Stanley. Your line is open. Alex Poon : Good morning. Congratulation management for very strong quarter. My question is regarding our recent business performance, particularly around Chinese New Year, and after four different segments, including domestic, outbound and Trip.com. And how should we elaborate or extrapolate from this strong CMI [ph] performance into Q1 and the rest of the year? Thank you so much. Jane Sun : Thank you, Alex. As of 2023, our business has fully rebounded to pre-COVID levels. From this year forward, we will stop using 2019 as a benchmark, I would say except for our outbound travel segment. With regard to the recent performance, let me starting with the market performance. The China travel market has shown strong momentum, quarter-to-date, especially during the Chinese New Year. Number of domestic tourists grow by 34% year-over-year, or 19% above the 2019 level. And outbound travel continues to recover with flight capacity during the Chinese New Year holiday, reaching around 70% of the 2019 level. And we are very happy to see that the several — see that several countries have not offering Visa free entry for Chinese travelers. With regard to our own performance, our company continues to outpace the market growth, solidify our position and gaining a significant market share. During the recent Chinese New Year holiday, our domestic hotel and air reservations have increased by more than 60% and 50% year-over-year respectively. And our outbound hotel and air reservation have both surpassed the 2019 level. At January of 2023, including the Chinese New Year holiday was a low base for travel activities and the travel momentum only started to pick up after the Chinese New Year. Therefore, we anticipate stronger year-over-year growth in the first half of Q1 this year and followed by a comparatively softer second half just because of the [indiscernible]. And with regard to the international market, our Trip.com business has maintained a mid to high double digit year-over-year growth. Therefore, we continuously to see a very strong growth in the travel market. Thank you. Operator: Thank you. One moment for our next question. And our next question will come from Alex Yao from JP Morgan, your line is open. Alex Yao : Thank you, management, for taking my question. So the Civil Aviation Administration of China, I see, it has projected that the outbound flight capacity will reach 80% of pre COVID levels by the end of 2024. This seems relatively slow considering the capacity has already reached 70% during the Chinese New Year holiday. From your perspective, what factors might contribute to this slow recovery? When does management anticipate a full recovery in the outbound travel sector? Thank you. Jane Sun: Thank you, Alex. We hold a very strong confidence in the full recovery of outbound travel. Firstly, our platform has observed a significant surge interest in the outbound travel, which indicates a robust demand for our users. Furthermore, China is becoming increasingly open to attract inbound tourism, which forms a part of the demand for travel related international travel. Secondly, the market supplier situation is improving, we have noticed a steady recovery in the number of inbound and outbound flights. Additionally, visa policy has become increasingly favorable. For instance, we observed that the markets offering visa free policies to Chinese travelers showed much better recovery during the Chinese New Year period, compared to other destinations. Lastly, it’s important to know that the most markets outside of China, are project to require two to three years to fully recover their international travel. Even the 70% to 80% recovery of outbound passenger volume in 2024, will indicate a year-over-year growth of approximately 65% to 90%. This clearly illustrates the potential for the strong growth in outbound travel in the coming year. And with our own data, during the recent Chinese New Year holiday, our group already saw our air and hotel reservations fully bounced back and beyond the 2019 level. Thank you......»»

Category: topSource: insidermonkeyFeb 22nd, 2024

Unisys Corporation (NYSE:UIS) Q4 2023 Earnings Call Transcript

Unisys Corporation (NYSE:UIS) Q4 2023 Earnings Call Transcript February 21, 2024 Unisys Corporation beats earnings expectations. Reported EPS is $0.51, expectations were $0.36. Unisys Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day. And welcome to the Unisys’ […] Unisys Corporation (NYSE:UIS) Q4 2023 Earnings Call Transcript February 21, 2024 Unisys Corporation beats earnings expectations. Reported EPS is $0.51, expectations were $0.36. Unisys Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day. And welcome to the Unisys’ Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Michaela Pewarski, Vice President, Investor Relations. Please go ahead. Michaela Pewarski: Thank you, operator. Good morning, everyone. Thank you for joining us. This morning, Unisys released its fourth quarter and full year financial results. I’m joined this morning to discuss those results by Peter Altabef, our Chair and CEO; Deb McCann, our CFO; and Mike Thomson, our President, and COO, who will participate in the Q&A session. As a reminder, certain statements in today’s conference call contain estimates and other forward-looking statements within the meaning of the securities laws. We caution listeners that the current expectations, assumptions, and beliefs forming the basis for our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to differ materially from our expectations. These items can also be found in the forward-looking statements section of today’s earnings release furnished on Form 8-K and in our most recent Forms 10-K and 10-Q as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We will also be referring to certain non-GAAP financial measures such as non-GAAP operating profit or adjusted EBITDA that exclude certain items such as post-retirement expense, cost reduction activities and other expenses, the company believes are not indicative of its ongoing operations as they may be unusual or nonrecurring. We believe these measures provide a more complete understanding of our financial performance. However, they are not intended to be a substitute for GAAP. The non-GAAP measures have been reconciled to the related GAAP measures, and we have provided reconciliations within the presentation. The slides accompanying today’s presentation are available on our website. With that, I’d like to turn the call over to Peter. Peter Altabef: Thank you, Michaela. Good morning and thank you all for joining us to discuss the company’s fourth quarter and full year results. Our fourth quarter performance capped a successful year for the company. Despite ongoing macroeconomic uncertainty, we delivered on our targets and progressed toward our long-term goals. In 2023, we grew full year revenue by 1.8% as reported and 1.6% in constant currency. Our non-GAAP operating margin was 7% for the year and adjusted EBITDA margin was 14.2%. All of these metrics were above our original guided ranges and above the upwardly revised ranges we provided last quarter. Excluding License and Support, revenue grew 4.9%, both as reported and in constant currency in 2023. During the year, we strengthened our foundation for growth in multiple ways. First, we demonstrated strong client loyalty. Renewing 96% of the contracts was more than $1 million in TCV that came up per renewal in 2023. We also improved our new business signings and pipeline in 2023. New business TCV grew 18% from the prior year and we grew our new business pipeline by 19%. During the year, we also built awareness for our solution portfolio with clients, partners, industry analysts and advisors. For instance, we improved our ranking in nearly half of the major 2023 Analyst and Advisor reports that had included Unisys in the prior year. We also forged several new partnerships, including two arrangements with consulting partners that are expected to drive referrals to Unisys as their preferred solution integrator. At the same time, we strengthened and expanded key relationships with hyperscalers, OEMs and other alliances. Finally, we made investments in innovation to expand our next generation solutions and advance industry specific solutions such as Unisys logistics optimization. These accomplishments support future growth and advance us toward our long-term goal. Before Deb reviews our fourth quarter and full year financial results, I will provide an update on some of our leading indicators and key strategic initiatives. Beginning with client time, fourth quarter TCV increased more than 300% sequentially and more than 50% year-on-year, resulting in a full year TCV increase of 3%. Excluding L&S, fourth quarter TCV was up more than 300% sequentially and 135% year-over-year, bringing full year Ex-L&S TCV growth to 27%. Fourth quarter new business TCV, which consists of expansion, new scope and new logo increased approximately 50% sequentially and 80% year-over-year. New business TCV during both the quarter and the year was primarily driven by growth with existing clients. Among our notable client wins for the fourth quarter was a five -year renewal and new scope contract with a leading biotechnology company encompassing both DWS and CA&I solutions. This contract includes new scope elements including communication and collaboration technology support, software asset management, and mobile expense management. Turning to our pipeline, our total company and Ex-L&S qualified pipelines are relatively flat year-over-year. A strong result given healthy fourth quarter signings and the headwinds from fewer expected scheduled renewal signings in 2024. Ex-L&S new business pipeline grew 19% year-over-year. Within our new business pipeline, we’re seeing encouraging signs with prospective clients. Our new logo pipeline is up 32% year-over-year. Several key 2023 go-to-market initiatives have contributed to the quality and strength of our pipeline, especially our new logo pipeline. In our direct sales teams, we introduced new pricing tools, training, and standardization that has brought increased rigor and speed to our proposal, pricing and review processes. For 2024, we have further refined our commission structures to better align incentives with key objectives, such as cross-selling and growing certain next-generation solutions. Our marketing efforts are another key contributor to new business pipeline growth. Our digital marketing campaigns have improved visibility to both our portfolio and our thought leadership. This is most evident in the rankings and sentiment toward Unisys among analysts and advisors that influence client purchasing decisions. As I mentioned earlier, our 2023 ranking improved in nearly half of the major analysts’ reports in which we appeared in the prior year. And we received new leader rankings from highly regarded firms such as Avasant, Everest and ISG. We were also included as a leader or major player in new IDC reports in digital works place and application monetization. The results of our annual analyst and advisor perception survey, which we commissioned through an independent research firm, further validate our gains with industry influences. For example, this year, more than half of respondents view Unisys’ digital and workplace market vision as better than our competitors, up 28 points. And almost three quarters of respondents recently recommended Unisys to a client, an increase of 14 points in influencer advocacy. I’ll now discuss Ex-L&S pipeline and client activity in each of our segments. DWS pipeline is up 15% year-over-year, including more than 100% growth in our modern workplace pipeline. We’re seeing growing interest in intelligent solutions, such as our smart PC refresh offering. We also have several large new opportunities in traditional workplace services. We believe our commitment to delivery excellence in mission critical services is differentiating Unisys with [inaudible] DWS market. Our CA&I pipeline is also progressing, up 3% year-over-year, despite more than 80% growth in 2023 science. Demand tied to public sector digitization is leading to new opportunities. For example, we have several prospects seeking to modernize licensing and permitting, as well as identity access and management platforms. We also have several opportunities to help clients modernize healthcare, higher education, and justice related record management systems. EMEA is an emerging bright spot within CA&I, where pipeline grew nearly 60% year-over-year. We deployed client technology officers on key accounts in the region, replicating a model we rolled out in DWS in that region. Incorporating client technology officers brings thought leadership to the forefront of our conversation with these clients. In the Specialized Services and Next-Gen Compute portion of ECS, we expanded our product portfolio in 2023 with enhancements to our existing cargo portal and the launch of Unisys Logistics Optimization. We also advanced development of more early-stage industry offerings for banking and financial services clients. Earlier this year, we integrated Unisys Logistics Optimization with our first pilot-client’s cargo management system and completed a successful pilot using live data within a test environment. Currently, we are moving into production with our client’s live environment. Given the early signs of success and strong market demand, we are rapidly accelerating our commercialization efforts and formalizing our partner, pricing and channel strategy. Across the company, clients are continuing to adopt, explore and experiment with artificial intelligence, including generative AI. Our effort here centers on using AI to advance business outcomes, such as accelerating revenue and product development, reducing R&D and SG&A expenses, and improving customer or employee set attach. We are also supporting our clients’ efforts to develop their own AI strategies and upskill their talent. For example, in DWS, we are consulting with clients on their training, measurement and business case creation for generative AI tools. We view AI as a powerful tool to help our clients and ourselves achieve breakthroughs faster, better and more efficiently than before. We are focused on expanding and infusing AI into new and existing solutions, rather than selling standalone AI solutions. At a high level, there are three key elements to our approach to data and AI. The first is what we call insights and relationships. We have many high-quality clients, many of which have decades-long relationships with Unisys. Intimate understanding of our clients’ most important business aspirations and challenges, coupled with an eye to emerging industry trends relevant to the client, are critical to identifying the highest value use cases for AI and helping our clients navigate AI investment opportunities. This is complemented by our deep industry domain expertise. Second is capability creation, where we accelerate solutions that yield the greatest impact for our clients. This approach also includes techniques to make data actionable to enable faster realization of benefits of AI and data analytics. We continue to evolve and utilize the best tools, engineering talent, advanced models and architectures, as well as those of our alliance partners. The final element is delivery and realization. Here, our clients embrace the AI-powered solutions we deliver to achieve their strategic objectives and ambitions. Some solutions we are seeing client interest in are delivering personalized content to improve customer interactions, leveraging data and analytics and predictive modeling to increase factory or cargo productivity or synthesizing law and regulations to increase compliance. Internally, we’re applying the same approach. We’re focused on using generative AI tools to speed delivery of solutions and to improve productivity within our delivery and corporate functions. For example, our legal team deployed a new AI tool in the fourth quarter for initial document review, which has already reduced the document review resources required for certain matters. Regardless of the application, responsible AI, ethics and compliance are strong guiding principles underlying our approach. Let’s talk for a minute about Unisys logistics optimization. In general, we believe we’re entering into a new period where companies such as Unisys that are nimble, have an engineering core and can combine capabilities such as AI and quantum in innovative ways will bring more relevant and compelling solutions to clients. Accessible data is critical to successful application of generative AI. And many of our clients are challenged by the complexity of disparate datasets siloed within their infrastructure estates. We believe we can bring clients economic value by helping them modernize their applications, minimize their technical debt and CapEx and unlock the value inherent in their data. Unisys logistics optimization is an example of that. We can leverage a unique combination of advanced quantum computing expertise. AI, Acumen developed through our working structuring and building data sets, and decades of experience optimizing workflows within industries. We believe Unisys logistics optimization can serve as a blueprint for delivering tangible business value for our clients and for generating new revenue streams for Unisys. I would like to conclude with a brief update on how we are attracting, retaining and developing our associates. In 2023, initiatives included global AI training and increased internal fulfillment, which set up sourcing and helped reduce our trailing 12-month voluntary attrition to 12.4% at year end, down from 18% last year. In 2024, we are strengthening our winning culture and sense of community. A top priority this year is the launch of a new career passing program to empower associates to take control of their career development. It will also enhance our mobility platform by matching associates with roles that advance them towards their career goals. We’re also modifying and enhancing our recognition and rewards programs to encourage associates to acknowledge each other’s successes and career milestones. Lastly, we are launching a year-long events program to provide space for open discussions about our workforce experiences and challenges. With that, I’ll turn the call over to Deb. Deb McCann: Thank you, Peter, and good morning, everyone. My discussion today will refer to slides in the supplemental presentation posted on our website. I will refer to revenue as reported as well as in constant currency, but with segment revenue growth only in constant currency. I will also provide information excluding License and Support, or Ex-L&S, to allow investors to assess progress we are making outside the portion of ECS, where revenue and profit recognition is tied to license renewal timing, which can be uneven. As Peter highlighted, we exceeded our upwardly revised 2023 revenue and profitability guidance and laid a strong foundation to support our future growth. Our performance this year progressed us towards our longer-term goals and demonstrates the resilience of our recurring revenue in an uncertain macroeconomic environment. We also furthered our cost initiatives, which will remain a priority in 2024, and will lay the groundwork for continued profitability and cash flow improvement. Looking at our results in more detail, you can see on slide 5 that fourth quarter revenue was $558 million, up 0.1% year-over-year, or a negative 2.1% decline in constant currency. The decline was expected and driven by license renewal timing in our ECS segment. For the full year, revenue was $2.02 billion, up 1.8% year-over-year as reported, and up 1.6% in constant currency. Excluding License and Support, fourth quarter revenue was $413 million, up 6.8% year-over-year as reported, or 4.3% in constant currency. For the full year, Ex-L&S revenue was $1.59 billion, up 4.9% year-over-year as reported and in constant currency. These Ex-L&S solutions accounted for 79% of total company revenue and had a next-gen solutions mix of 38% in 2023. Now let’s look at our segment revenue, which you can find on slide 6. A reminder that the segment revenue growth rates I am about to discuss are in constant currency. In the fourth quarter, digital workplace revenue grew 6.3% year-over-year to $139 million, driven by new business with existing clients. For the full year, DWS revenue was up 7% to $546 million. Growth resulted from new business signed during 2022 and strong in-year project revenue, particularly in the United States, Canada and Europe. Key solutions in 2023 included modern device management as well as traditional workplace services. Fourth quarter, CA&I revenue declined 0.5% to $139 million due to a prior year benefit from the sale of surplus IP addresses. Excluding this impact, segment growth would have been more than 2% with strong sales in our Digital Platform and Application or DP&A solutions. Full year CA&I revenue was $531 million, up 2.2% year-over-year. We had a good year of growth with both commercial and public sector clients, offsetting some softness we have seen in the banking and financial services sectors, where budgets have been more challenged. Many of our commercial and public sector clients embraced higher value DP&A solutions in hybrid infrastructure, cybersecurity and application modernization, which leverages our engineering core. More of our clients view the future as hybrid, taking multi-cloud approaches to infrastructure, incorporating private cloud, co-locations, and public clouds for tailored flexibility and security. Our balance of expertise in mission critical services, hyper scaler partnerships, and next-generation capabilities in data, artificial intelligence and application modernization align us well with these hybrid strategies. We are optimistic about the opportunities to further grow the CA&I segment in 2024. In our Enterprise Computing Solutions segment, fourth quarter revenue was $203 million, a decline of 12.2% due to lower License and Support revenue. This was partially offset by modest growth in specialized services and next-gen compute. For the full year, ECS revenue was $648 million, down 3.9% from 2022, again with strength in specialized services and next-gen compute, partially offsetting a decline in L&S revenue caused by the renewal schedule timing. License and Support revenue was $144 million in the fourth quarter and $429 million for the full year, exceeding our upwardly revised guidance of $420 million due to closings some smaller renewals earlier than anticipated. Notable fourth quarter renewals included signings with commercial and public sector clients in the United States and Canada and in Latin America. It is important to remember that ClearPath Forward license revenue is highly dependent on the specific client contracts up for renewal and the term and consumption levels of those renewals. Backlog was $3 billion at year end versus $2.4 billion at the end of third quarter and $2.9 billion last year. Sequential and year-over-year backlog growth was due to both the timing of renewals as well as strength in new business signings in our digital workplace segment. Turning to slide 7, we can see the fourth quarter gross profit was $181 million at 32.5% margin down 160 basis points from the prior year due to the timing of higher margin L&S solution renewals. Excluding L&S, our fourth quarter gross margin was 16.5%, up from 11.8% in the prior year. Most of the expansion was due to the realization of savings from the prior year quarter’s cost reduction charges, which we include in Ex-L&S gross margin. Full year gross profit was $551 million, an increase of more than $22 million. Gross margin expanded 70 basis points to 27.4%. Improved delivery and pricing in our Ex-L&S solutions and the realization of savings from prior year cost reduction charges allowed us to generate $22 million of incremental gross profit despite a $50 million headwind from L&S Solutions. Full year Ex-L&S gross profit grew by 42% in 2023 to $240 million. This reflects a 15.1% gross margin compared to 11.2% last year. This improvement was largely driven by improvements in the CA&I segment and SS&C solutions with ECS, including the realization of savings from prior year cost reduction charges partially offset by a revenue reversal associated with a previously exited contract within all other. I will now touch briefly on segment gross profit, which you will find on slide 8. Fourth quarter DWS gross margin was 15.3%, up slightly from 15.1%, driven by new business with existing clients, partially offset by investments we’ve made to modernize field service dispatch systems that were implemented late in the year and will help drive future delivery efficiency. Full year DWS gross margin was flat year-over-year at 14%. As we scale, we expect rising utilization, improved pricing power, growth in modern workplace and our delivery investments to drive steady gross margin improvement in 2024 and beyond. Fourth quarter, CA&I gross margin was 16.3%, down from 19% in fourth quarter 2022, primarily due to a benefit in the prior year from the sale of surplus IP addresses. Full year CA&I gross margin was 15.4%, up from 9.1% or 630 basis points in the prior year. More than 200 basis points of this improvement resulted from our cost initiatives, such as labor market and contingent labor optimizations and increased use of automation. The remaining 400 basis points was due to delivery improvement of certain accounts from 2022. Our focus on these key accounts helped de-risk the segment from future losses and strengthen key client relationships for future growth. In 2024, our CA&I team is building out more standardized solution architectures and increasing the use of generative AI to accelerate solution development and speed revenue generation. Fourth quarter ECS gross margin was 67.4% compared to 73.3% in the prior year, again due primarily to L&S renewal timing. Full year ECS gross margin was 61.2% compared to 64.5% in the prior year, driven by lower L&S revenue, partially offset by a 370 basis point improvement in SS&C margins, driven by improved pricing as well as expansion signings with existing clients in sectors like life sciences and financial services. Turning to slide 9, fourth quarter non-GAAP operating margin was 11.5% compared to 20.2% in the prior year with adjusted EBITDA of $100 million, a margin of 18% compared to 26.7% in fourth quarter 2022. This was driven by lower L&S profit due to license renewal timing and higher compensation costs. Full year non-GAAP operating margin was 7% versus 8% in 2022 and adjusted EBITDA was $286 million, a margin of 14.2% compared to 16.5% in 2022. The full year decline was largely due to lower gross profit contribution from our License and Support solution. Fourth quarter GAAP net loss was $165 million or a diluted loss of $2.42 per share compared to diluted earnings of $0.12 per share in fourth quarter 2022. On a non-GAAP basis, fourth quarter net income was $35 million or non-GAAP diluted earnings of $0.51 per share compared to $1.22 per share in fourth quarter 2022. Our full year net loss was $431 million or a diluted loss of $6.31 per share compared to $1.57 per share loss in 2022. On a non-GAAP basis, full year net income was $42 million or non-GAAP diluted earnings per share of $0.60 compared to $1.10 per share in 2022. The fourth quarter and full year net losses were largely driven by actions we took to reduce our U.S. pension liabilities by approximately $500 million in total using pension assets, not corporate cash. These actions resulted in two non-cash pension settlement losses in the first and fourth quarters, which totals $348 million and reflect accelerated recognition of accrued pension expense associated with the pensioners that were transferred as part of the two transactions. These annuity purchases reduce the volatility in our GAAP pension deficit and our projected future cash contributions, as well as the future costs of a full pension risk transfer of our U.S.-qualified defined benefit pension plans as they lower the annuity purchase premium that is based on total liabilities. Capital expenditures totaled approximately $19 million in the fourth quarter and $79 million for the full year. In 2024, we expect capital expenditures of approximately $90 million to $100 million, supporting both L&S and Ex-L&S growth while keeping in line with our CapEx light strategy. Turning now to slide 10, free cash flow. We generated $4 million of free cash flow in the fourth quarter, bringing our full year free cash flow to negative $5 million, compared to negative $73 million last year. This put us ahead of the expectations we provided last quarter of negative $25 million to negative $30 million, which is largely the result of improvements in working capital and higher than expected profitability. In 2024, we expect to be free cash flow positive by approximately $10 million. This reflects expectations for cash taxes to decline to approximately $50 million, compared to approximately $63 million in 2023, for net interest payments that are in line with 2023 levels of approximately $20 million. Pension contributions of approximately $20 million as well as environmental, legal and restructuring and other payments of $75 million to $80 million, relatively in line with 2023. Turning now to slide 12, our cash and cash equivalence balance was $388 million at year end, relatively consistent with $392 million at the end of 2022. Our net leverage ratio, including all-defined benefit pension plans, was 2.9x up from 2.1x at the end of 2022. Leverage was higher primarily due to the increase in the GAAP pension deficit, which I will discuss shortly. Our liquidity is strong and cash balances are well ahead of where we anticipated they would be when we started the year, with no major debt maturities in 2024 and no borrowings against our revolver. I will now provide an update on our global pension plans. Our global GAAP pension deficit, which can be seen on slide 13, was approximately $700 million, compared to approximately $540 million at the end of 2022. About $70 million of this $160 million increase was related to the purchase of insurance contracts by our overfunded UK plans as a first step in eliminating the plans from our corporate balance sheet, effectively eliminating the surplus associated with these overfunded plans. The remaining roughly $90 million increase was due to the net impact of lower discount rates, partially offset by returns in plan assets. At the end of the year, we report a detailed estimated 10-year expected cash contribution forecast, which you can see on slide 14. Expected contributions to our global pension plans for the five-year period beginning in 2024 are $484 million, $48 million lower than our projections at the beginning of 2023. We will continue to evaluate opportunities for additional reduction in our global defined benefit pension obligations, depending on overall market conditions, which could result in material non-cash settlement charges, like those we have incurred over the past few years. I will now discuss our guidance ranges and provide additional 2024 color, which can be seen on slide 15. Looking ahead, the revenue growth upside we captured in 2023 in both our Ex-L&S and L&S Solutions creates a more difficult comparison for 2024. Specifically, we had nearly $40 million of incremental revenue and profit in 2023 from signing a multiyear L&S renewal that had been expected to be a single year renewal. It is important to note that even with this contract signing in 2023, we see positive trends in the continued and in some cases expanding use of our platforms. And so we now expect $370 million average annual L&S revenue for the three years beginning in 2024, a $10 million annual increase from our previous projections of $360 million. For total company revenue, we expect a guidance range for constant currency revenue growth of negative 1.5% to positive 1.5%. Revenue growth in constant currency equates to revenue growth of negative 1% to 2% as reported. This revenue guidance also assumes approximately $375 million of License and Support revenue and growth in our Ex-L&S Solutions of 1.5% to 5.0% in constant currency. 2024 non-GAAP operating profit margin is expected to be 5.5% to 7.5%. The midpoint is slightly below our 2023 margin due to lower L&S gross profit due to renewal timing, partially offset by improvement we expect in our Ex-L&S solutions where we expect to expand our gross margin by 150 to 200 basis points in 2024. Delivering on our 2024 guidance will position us for accelerating profitability and free cash flow in 2025, which is when we also expect to see a larger impact from SG&A cost savings and additional margin expansion from continuing delivery actions, we are taking to improve our gross margins. Looking at the first quarter specifically, Ex-L&S revenue is expected to be approximately $385 million to $390 million, which translate to low single digit growth. Due to renewal timing, we expect L&S revenue of approximately $70 million to $75 million compared to $137 million in the prior year period. The first quarter is expected to be our lowest L&S revenue quarter of the year. And we expect 45% of L&S revenue in the first half of the year with the remaining 55% in the second half. Given the cadence of L&S renewal timing, this translates to our expectation for a first quarter total company revenue decline of approximately 10%. We also expect a first quarter non-GAAP operating margin in the low single digits. I am pleased with the performance we have delivered this year and excited for what’s to come in 2024 as we progress further towards achieving our operational and financial goals. I will now turn it back to Peter. Peter Altabef : Deb, thank you very much. With that, we’ll turn the call over to questions. Operator? Operator: [Operator Instructions] The first question today comes from Rod Bourgeois with DeepDive Equity Research. See also 13 Best Short Squeeze Stocks To Buy Now and 13 Best Momentum Stocks To Buy Now. Q&A Session Follow Unisys Corp (NYSE:UIS) Follow Unisys Corp (NYSE:UIS) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Rod Bourgeois: Okay, great. Thank you. So first, I want to ask about the bookings and pipeline activity. And it’s a two part question. So your quarter-to-quarter and year-to-year bookings surges were very strikingly strong there. And it also enabled some backlog expansion. So my first question on that is, how did you pull that off? And essentially in your turnaround progress, what’s the main effort that’s enabled that level of bookings activity? And then I’ll ask a follow-up on that as well. Peter Altabef: Yes, Rod. So thanks for the question. I’ll take the first part of that and then let Mike take the second part. We have consistently said it’s, there is lumpiness, particularly in our renewal timing. And so what we had in the fourth quarter was simply a very strong quarter of renewals and also a strong quarter of what we consider new business, which is new logos, expansion and new scope of existing clients. As I said in my discussion earlier, much of our success in 2023 was really a very, very strong new business year. And we have indications of a much stronger new logo year in ‘24. So I would say, we are pleased with the fourth quarter performance. It is lumpy, but that’s kind of the way our business is. But the most important element I would say to answer your question is really the growth and the pipeline quality for Ex-L&S. So if we take L&S out and say, that’s going to go up and it’s going to go down. We had strength in L&S in 2023. We increased our guidance for L&S in 2024. All that is good. And obviously that’s very important for cash flow and profit as well. But long term, that strength of Ex-L&S and increasing the profitability, increasing the revenue, increasing the quality of pipeline, that will give us more, we hope, that will give us more breathing room going forward. Mike, any thoughts on that? Mike Thomson: Yes. Hey, Rod. Thanks for the question. Yes, look here, I think you covered a good chunk of it, but I would say that is the byproduct of a lot of the hard work that we’ve been doing all year. The macros have been a little tough and folks have been a little delayed in signing. And some of those renewals came in the fourth quarter for the Ex-L&S business. I think that the things I would call out that I would want you to take away is not only where they sign, but they ultimately signed at higher value. So our pricing power was really strong in regards to the offerings that we brought forth. There was new scope associated with those signings. The expansion and consumption of those accounts were strong as well. So not only did we do 96% sign for the year and had a very strong fourth quarter. We saw cross-selling, we saw expansion, we saw pricing power contained and embedded in that. So we ended up increasing revenue, increasing margin on those renewals, which as you know, makes a stronger backlog and booking for the subsequent year or ‘24 as well. So we’re really pleased with the execution. We’re pleased with the ability for us to kind of differentiate in the market and see the acceptance of our next-gen solution by that existing base. So the byproduct of a lot of hard work, I think. Rod Bourgeois: Okay, great. And then the follow-up on that is when you have that level of bookings, it detracts some from the pipeline, at least in the near term. From your commentary, it sounded like the pipeline with new logos is still strong even after the Q4 bookings. And so I guess what I want to ask here is in your pipeline with existing clients, do you expect that pipeline to re-expand in upcoming months? In other words, it seems like you should be heading into a period of pipeline replenishment, and I’m looking for any outlook on that front. Peter Altabef: Mike? Mike Thomson: Yes, Peter, if you don’t mind, I’ll take that one and then flip it back to you or Deb if you want to have some additional commentary. So, Rod, I guess the short answer is we’re happy too with the base of our prospecting portion of the pipeline. You’re exactly right. Even though we increased our backlog year-on-year, signing that level of renewals and new business certainly depletes that pipeline, but we’ve got a great line of site into the prospecting aspect of that. And we have a new logo, strong pipeline. We talked about some of the increase there as well. So both a new logo and an expansion, and we fully expect the same kinds of levels of increases in the existing base for the things that are up for renewal in the current year as well. So, again, I think pretty consistent to your question, pretty consistent with our prospects for growth in ‘24. Peter Altabef: Yes, Rod, I don’t have anything to add. Yes, Deb and I, we’ll yield to Mike on that. Deb McCann: Right. Peter Altabef: I guess the only thing I would add is when we do talk about pipeline, Rod, the fact that we have 18% new business growth in the pipeline. And you’re right. A lot of that is new logo. I do expect the new scope to increase over time. There is a little bit of reloading of that. But I’m really happy with where the pipeline is from a quality standpoint as well. So when we look at where we are in the kind of staging, we think that we’re significantly better off than we were last year at this point. Rod Bourgeois: All right, if I can flip one more in, I’ve got to ask, the L&S average revenue outlook, you’ve upped that. That’s really important. Can you just talk about what’s enabling that? We might have seen some of the early signs of that brewing last year, but it’s nice to see it coming through in your actual outlook now. So can you talk about the enabler of the L&S revenue outlook uptick? Peter Altabef: Yes, so, David, if I could take that. Deb McCann: Oh, you want to start? Okay. Peter Altabef: Yes, I was going to start and then let you follow up on that. Deb McCann: Okay, great. Peter Altabef: When we look at what happened in 2023, there were a couple of things that happened in the L&S. We had a better L&S year 2023 than we thought we would have. Now, part of that was due to a contract that we thought would be a one year renewal, and it turned out to be a five year renewal. So that was the clients doing, not ours. We were happy to make that five year renewal instead of a one year. But beyond that, you saw increases in revenue on L&S, kind of in several of our relationships due really to consumption patterns. And so this was kind of an example of what we’ve been talking about, Rod, you’re right. And we were able to see that in actuality in 2023. Now, the interesting thing about 2024 is one would assume because we had a five year renewal instead of a one year renewal in 2023 that our L&S revenue would take a hit in 2024 for that. The reality is we’re increasing our L&S expectations for 2024 and increasing the three year average for ‘24, ‘25 and ‘26. And so that overcomes, first of all, the renewal. Right? We’ve got to fill that gap, if you will. And it goes beyond that. And that is really largely because of those consumption patterns. So we’re pleasantly looking at the numbers for L&S. It still will be lumpy from year to year. But we do believe that is a nice sign to see. Deb, over to you. Deb McCann: Right. And I think, Peter, you covered it. I think, we’re in the past often it would be L&S performed better, but it impacted the next years. And so we’re happy to see that this, even though the events that happened in ‘23 that had L&S overachieving, it isn’t having an impact on future years. So I think Peter said it all. Operator: The next question comes from Anja Soderstrom with Sidoti. Anja Soderstrom: Hi, thank you for taking my questions. And I have some follow-ups on the commentary. So you are saying the new logo has been strong. And what has been driving the new logo and where they are coming from? Are they replaced — are you replacing someone else or? Peter Altabef: Yes, so thanks Anja, very good question. As I said in my remarks, the majority of our new business revenue in the year, which is both new logo, new scope and expansion, came from existing clients, which happens every year frankly. But also the same this year. We do expect new logo revenue to increase in 2024. Now to your question about where new logo revenue comes from, it really can only come from a couple of sources. So one source is it’s just brand new work. So think of generative AI consulting work or those similar projects. They might not have existed before. So everyone in our business is kind of scrambling for that work. The second source is from clients that had work that was internal to their operations. And they’ve decided to give it to an external provider like us. And the third element is where we are competing for existing work that is within external provider. And we kind of take that work away through the competition process. So those are kind of the three elements. Mike, any thoughts on that? Mike Thomson: Yes, I think the two that Peter mentioned are certainly the most prevalent. There is the first time, I’ll say, outsourced managed service component. And then there is obviously the market share component of that. And we have been aggressively active in all markets. We’ve seen a pretty nice uptick in EMEA as it pertains to new logo. The other piece I would add to that is also the cross-sell in our existing base, right, when we talk about new business. We’re about 39-ish percent cross-sold, so we do have opportunity to grow new business in the existing base through cross-selling. But I would say the heavier two components are going after additional market share and first-time outsource for managed service contracts, as Peter alluded to. Anja Soderstrom: Okay, thank you. In terms of consumption patterns, what has been the biggest surprise to you? Peter Altabef: Mike? Mike Thomson: Yes, so I assume, Anja, you’re talking about consumption pattern in L&S with that question. Look, I think when you look at what’s going on in the market right now and obviously all of the efforts around AI and building out models and needing more compute and needing more power, we’ve been seeing probably over the course of the last 18 to 24 months continued increases in consumption. And that’s one of the reasons why we ultimately upped our future three year average by $10 million because it’s a byproduct of what we’ve been seeing over the course of the last 18 to 24 months. And I think it’s frankly just a natural spin-off of the build-out of LLMs and other more complex models and storage needs, things along that line from a compute power perspective. So really pretty consistent to what we’re seeing in the market overall. Peter Altabef: Anja, thanks for your comments. No, go ahead, please. Anja Soderstrom: Okay. I have one more question in terms of the banking or financial services, it’s been a big challenge you said during the past year. What are you seeing there now? Is that easing up or? Peter Altabef: Yes, so Deb, do you want to comment on that from a number standpoint? And then Mike can provide some color in terms of marketing. Deb McCann: Yes, so we discussed that in our CA&I section, just saying that there is a little softness there. Where budgets have been a little challenged and so a lot of our growth this year was really more commercial and public sector. So I don’t have the specific numbers in front of me, but that’s the color around some of that CA&I revenue. So I think as far as the softness, I’m not sure, Mike, if you want to comment on any trends you’ve seen, different than that. Mike Thomson: Yes, look, I think it’s a little more just hesitancy in the macro. I don’t view it as being something that is in perpetuity where they’re just not spending. I think there’s, we’re just seeing more free spending in commercial and public sectors. And I would say a little bit of hesitancy in banking and financial services. But I would echo or at least comment that when we look at the new logo pipeline in ‘24, there are plenty of folks in those sectors embedded in that new logo pipeline. So again, I think it’s probably just an output of macroeconomics that we’re starting to see loosen a little bit. Operator: The next question comes from Arun Seshadri with BNP Paribas. Arun Seshadri: Hi, everybody. Thanks for taking my questions and appreciate all the details and the outlook today. Just wanted to understand if you look overall at Ex-L&S revenue growth guide, given your signings, it seems like you’re being somewhat conservative for 2023. I think you guided for a pretty wide range of outcomes on top line in Ex-L&S and came in near the high end. Are you taking a similar conservative approach? Is that a result of, I guess, hesitancy in the macro on the broader enterprise side? Do you still expect to see more, I guess, spending from the commercial and public sectors? Just some color would be helpful. Peter Altabef: Yes. So Arun, thank you very much for that. I guess let me start and then turn it over to Deb. So the first thing I would say is we really do not ever try to give a conservative approach to our numbers. So our numbers are our expectations in 2023 we thought that we were exceeding those expectations. And so we raised guidance during the year. And then of course, the ultimate numbers came out even better than the raised guidance. But I think that is just more a function of the uncertainty in the market, Arun. There was a lot going on in 2023. And, frankly, we’re very pleased with the fact that we performed, L&S was better than expected, Ex-L&S was better than expected. We kind of outperformed our guidance across the board. In 2024, we are expecting healthy growth in Ex-L&S and healthy growth in the profitability of Ex-L&S. And that’s part of really kind of what we hope to be a multiyear expansion. So turning it over to Deb, but I think we’ve built in for us, some pretty good numbers in Ex-L&S for ‘24. And Deb will go through those in detail. But I certainly hope that we excel over those. But we’re starting for pretty good numbers. Deb? Deb McCann: Hi, thanks, Peter. Yes. So for 2023, like Peter said, we saw ourselves out performing, we raised guidance even between Q3 and the end of the year, it was very specific items where a few smaller deals came in L&S that we didn’t anticipate. And then there were some uncertainties in our Ex-L&S revenue that we were working through and were able to get all of that worked through. And so that enabled us to come in over our guidance. So I think Peter said it well. And I think we’re very comfortable kind of where we’re saying for 2024 with Ex-L&S growth, continued growth, more than 150 to 200 basis points of Ex-L&S gross margin expansion, as we really look to the mix, change the mix shift towards more of a higher margin solution as we continue delivery improvements, automation. A lot of the work we’re doing around SG&A to get that more normalized with our peers. So a lot of the work we’re doing is really, we feel makes us comfortable with our 2024 guidance. Arun Seshadri: Thank you. Just a follow-up from me, from a cost saving standpoint, it sounds like you still expect a fairly significant margin uptick in 2025 versus 2024. I just wanted to see if you could provide any context in terms of, I guess numerically, obviously it’s early to call, but just from a SG&A percent of revenue and from a gross margin perspective, how much additional upside do you think there is in 2025 versus 2024, obviously as the pension contribution ramps in ‘25 and that’s sort of the baseline for the question. Peter Altabef: Yes, that’s also really good question. So Deb I’m going to get it to you in just one second and that is so we have put Deb in charge of kind of a multiyear SG&A effort. That effort started in earnest last year relatively early last year and will extend through this year and ‘25 and ‘26. So Deb has put together a plan working with the rest of our team that we expect will lower SG&A as a percentage of revenue over that time frame and continue to lower it over that time frame. So it’s not a one-time thing for us, Arun. It’s very well planned. It has its own project leader and we are performing according to plan. We lowered what we thought would be SG&A spend. We will lower it again in ‘24 and expect to continue to lower it in ‘25 and ‘26. That is at the same time making more investments that are SG&A investments in things like artificial intelligence. So where we think under Deb’s leadership, we’ve got a solid approach to this and certainly we’ll let Deb outline how that approach works over time. Deb McCann: Right, yes, so Arun, I would say the gross margin expansion is a little more of a slow and steady. So we plan an Ex-L&S to do $150 million to $200 million and that’s what we had laid out kind of a slow and steady margin improvement. That along with our L&S revenue of $370 million average a year and that’s at about 65% gross margin and then as well as the SG&A efforts Peter talked about. I think you’re right that is a little more we expect to achieve on an annualized basis about 70% of that by the end of this year and so that does take because we have to do some investments in order to save. So that will, as opposed to the gross margin, that’s more slow and steady. SG&A will kind of be more of a, you’ll see that more in 2025. And then in addition to that, to get to the free cash flow that we laid out, there’s some other things on the free cash flow side that we’re working, such as improving our working capital dynamics. Some of the more one-time cash flow items will start to go down over these next few years and so that’s another important part of the formula to get us to those free cash flow numbers we’ve laid out as part of our long-term targets. Arun Seshadri: Thank you so much. Mike Thomson: If I could jump in as well, just one quick comment. Deb mentioned $150 million. It was 150 to 200 basis points of improvement in gross margin. And if you look at the Investor Day materials that we put out, you would see in there that it infers additional improvement in basis points in 2025 and ‘26, kind of consistent in that matter now, we’re not saying that is kind of a linear path and it’s going to be the same amount every year, so we will ebb and flow a bit. But as Peter mentioned in his opening remarks, we’re doing quite a bit in regards to the associate base, right-skilling, right-shoring, AI, automation, speeding up sourcing, all kinds of elements embedded in kind of managing that resource delivery. So we think that’s going to yield additional benefits in the outer years to get us aligned with the projections that we put out in Investor Day. Arun Seshadri: Got it, thank you everyone. Can I ask one last thing? On the pension cliff, it sounds like you’ve made a good amount of progress reducing that cliff the 2026 to ‘29 cliff by some $10 million to $20 million a year. Any sort of high level thoughts on sort of your plans for 2024 in terms of further progress there? Thank you. Peter Altabef: Yes, Deb, do you want to say something? Deb McCann: Sure. Yes, so we’re, the contributions came down and that’s primarily driven by asset returns. And so there’s, we try to manage that and we don’t have full control over asset returns. And so we put in the slide deck a sensitivity so you can understand that. But as we’ve spoken about and continue our plan to really look at continuing to de-risk the plan, we took out, we had two annuity purchases in 2023. We’ll continue to look at that given market conditions if another one makes sense. And so the goal there is just to lower the amount of liabilities using plan assets, not corporate cash, to just overall lower the risk there and the volatility of the overall pension plan. So that’s one of our strategies, a key strategy for now, but we’re always looking at all of our options as it relates to pension, pending market conditions and what makes sense at the time. Operator: You’re welcome. This concludes our question and answer session. I would like to turn the conference back over to Peter Altabef for any closing remarks......»»

Category: topSource: insidermonkeyFeb 22nd, 2024

Global-e Online Ltd. (NASDAQ:GLBE) Q4 2023 Earnings Call Transcript

Global-e Online Ltd. (NASDAQ:GLBE) Q4 2023 Earnings Call Transcript February 21, 2024 Global-e Online Ltd. reports earnings inline with expectations. Reported EPS is $-0.13 EPS, expectations were $-0.13. GLBE isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Welcome to the […] Global-e Online Ltd. (NASDAQ:GLBE) Q4 2023 Earnings Call Transcript February 21, 2024 Global-e Online Ltd. reports earnings inline with expectations. Reported EPS is $-0.13 EPS, expectations were $-0.13. GLBE isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Welcome to the Global-e’s Fourth Quarter and Full Year 2023 Earnings Announcement Conference Call. This call is being simultaneously webcast on the company’s website in the Investors section under “News and Events”. For opening remarks and introductions, I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead. Erica Mannion: Thank you, and good morning. With me today from Global-e are Amir Schlachet, Co-Founder and Chief Executive Officer; Ofer Koren, Chief Financial Officer; and Nir Debbi, Co-Founder and President. Amir will begin with a review of the business results for the fourth quarter and full year of 2023. Ofer will then review the financial results for the fourth quarter and full year of 2023, followed by the company’s outlook for the first quarter and full year of 2024. We will then open the call for questions. Certain statements we make today may constitute forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including those set forth in the section titled “Risk Factors” and our prospectus filed with the SEC on September 13, 2021, and other documents filed or furnished to the SEC. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this call. You should not put undue reliance on any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by applicable law, we make no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which these statements are made or to reflect the occurrence of unanticipated events. Please refer to our press release dated November 21, 2024, for additional information. In addition, certain metrics we will discuss today are non-GAAP metrics. The presentation of this financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operating decision making. For more information on the non-GAAP financial measures, please see the reconciliation tables provided in our press release dated November 21, 2024. Throughout this call, we provide a number of key performance indicators used by our management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in our press release dated November 21, 2024. I will now turn the call over to Amir, Co-Founder and CEO. Amir Schlachet: Thank you, Erica, and welcome everyone to our fourth quarter and full year 2023 earnings call. 2023 was a record-breaking year for us here at Global-e, and it was brought to a great close by fourth quarter, which was our strongest quarter ever, crossing for the first time a milestone of over $1 billion of GMV within a single quarter. We finished Q4 with a record $1.19 billion in GMV, up 42% year-on-year, and record revenues of over $185 million, up 33% year-on-year, supported by the strong performance of our merchants over the holiday sales period, including Black Friday and Cyber Monday. The adjusted gross profit margin for Q4 was 42.7%, up 140 basis points from the same quarter of last year, and our adjusted EBITDA margin was 19%, or $35.2 million, our highest ever in a single quarter, reflecting nearly 62% growth compared to the same quarter of last year. Such increased profitability yielded an accelerated cash generation, with the business generating $93.5 million in operational cash flows in Q4. Looking at the full year of 2023, GMV came in at close to $3.56 billion, an increase of over 45% year-on-year, and revenue for the full year came in at $570 million, an increase of over 39% year-on-year. Annual adjusted gross profit increased even faster, growing by almost 46% from 2022, reaching roughly $245 million, and representing an adjusted gross profit margin of 42.9% for the full year, an increase of nearly 190 basis points year-on-year. Finally, adjusted EBITDA for the full year was $92.7 million, up more than 90% compared to $48.7 million last year, representing our continued commitment to delivering durable yet profitable growth, thanks to the high efficiencies and tight cost controls. Last but not least, we finished the year with more than $300 million of cash and cash equivalents on our balance sheet, providing a solid foundation for the continuation of our fast and profitable growth trajectory, and for the realization of our strategic plans going forward. As we reflect on these strong annual financial results and the substantial growth we managed to generate, it is important to remember that these were achieved while we faced a challenging and at times volatile macroeconomic environment, further exuberated by the challenges presented by the ongoing war in Ukraine, as well as the aftermath of the horrific Hamas terrorist attack on October 7th. Our hearts go out to all those who were affected by these events, and we continue to provide all possible support to our team members and their families in both Israel and Ukraine. As such, we could not be more proud of our incredible team members across all our offices and locations worldwide, for having navigated all these challenges so successfully, and could not be more thankful to the thousands of merchants who entrust us with their business every hour of every day. Beyond the strong financial growth and figures, 2023, I’m sorry, was also another pivotal year for us in terms of the substantial leaps we took forward along all our long-term strategic pillars, as we continue to enrich and develop our various offerings. First and foremost, we continue to onboard and add many new brands across the globe to the large portfolio of enterprise brands we work with, as global direct-to-consumer online trading continues to be a strategic priority for brands worldwide. We are not just the leader in global direct-to-consumer e-commerce. We’re also the only true global player in the market. We already support 31 different outbound markets. And last year alone, we actively shipped packages to 224 distinct destination countries and territories around the world. We quite literally enable our merchants to sell to anyone in nearly every place on earth. As an example of this continued expansion, just this last quarter, we launched with Glossier, EleVen by Venus Williams and Perfect Moment in the U.S., with Phantom Wallet in Canada, with Whistles and the Harry Potter store by Warner Brothers in the U.K., with Mugler, a L’Oreal brand , Jean-Paul Gaultier and Ledger, a leading crypto wallet brand, in France, with Etoile and Modes in Italy, with LuaVis in the Netherlands, with Jetzt in Germany, with ideal [ph] in Belgium, with Zanerobe in Australia, with Salt Murphy and Avec Amour in Hong Kong, and with Retouch in Japan, just to name a few of the many brands that went live with us in the last quarter of 2023. During Q4, we also went live with Stellar Equipment out of Sweden, as well as with God Save Queens, our first Polish merchant, further extending our geographic outreach. Besides adding new merchants, we also continue to expand the scope of our business with existing merchants and merchant groups. Just this last quarter, adidas, Nobull, and the Kooples all extended the list of markets operated through globally. Triangle Swimwear went live with an additional brand called Casa Del Mar, and Kylie Jenner who went live with another one of her brands, the fashion brand KHY. From a product perspective, looking back at 2023, we introduced many new features and key developments into our enterprise platform. Those included improved support for preorders via tokenization, support for cryptocurrency payments via our new integration with crypto.com, support for orders which include items fulfilled from different countries as part of a single order, support for several new countries in our multi-local offering, integrations into new platforms such as Wix.com, and much more. Alongside these, we continue to work towards the launch of our enhanced demand generation offering based on the assets and capabilities we acquired as part of the voter-free transaction, and expect the first major parts of this exciting new offering to be released towards the second half of the year. Moreover, as we have discussed in earlier quarters. During 2023, we also invested considerable resources in harnessing the new and transformative technology of generative AI to enhance the quality and efficiency of various aspects of our business. The most recent example of such a successful implementation comes in the form of our shopper facing customer services. After several months of beta testing and before the recent peak trading season, we introduced into production our new automated Customer Service Chatblog Based on Open-AI’s ChatGPT technology, which has been security connected to our systems and databases, thereby enabling many of our shoppers to receive highly accurate answers to their support queries in real time without a need for human intervention. We believe this is a manifestation of the tremendous business value such technologies can unlock over the next few years. Another area in which we have made great progress during 2023 was our strategic relationship with Shopify. The agreement for which was renewed for another year during Q4. On the enterprise side, we have almost finalized the migration of all our legacy in store base onto the new native integration. In addition, our support for Shopify’s new checkout extensibility feature has gone into general availability since January 2024. With a significant number of merchants already running on this new and improved checkout with globally cross-border capabilities seamlessly embedded within it. On the Shopify markets pro side, which went into general availability in the U.S. in September, we continue to see an encouraging adoption rate with more and more merchants every week effortlessly switching it on and going global. Between these positive early signs and the exciting roadmap of new features and capabilities we are working on together with Shopify, we believe that the innovative Shopify markets pro offering has the potential to grow significantly over the next few years. In summary, we are extremely pleased with our achievements and results for 2023. And we are equally excited towards the many opportunities for growth that await us in 2024 onwards across all our strategic growth billows. As Ofer will elaborate on when he presents our guidance for 2024, we expect our strong growth momentum to continue this year with around 32% of annual growth expected in both GMV and revenues. And with that, I will hand it over to Ofer to dive deeper into our quarterly and annual financial results as well as our outlook for Q1 and for the full year of 2024. Ofer Koren: Thank you Amir and thanks everyone for joining us today for our earnings call. As Amir stated, we are indeed very pleased with our Q4 and full year 2023 results. Q4 was a strong quarter of fast growth and robust cash generation as we continue to execute and push forward both top-line growth and scale efficiencies. I’d like to point out again that in addition to our GAAP results, I’ll also be discussing certain non-GAAP results. Our GAAP financial results along with the reconciliation between GAAP and non-GAAP results can be found in our earnings release. As Amir mentioned at the beginning of this call, we have experienced rapid growth of GMV in Q4 as we generated $1.19 billion of GMV, an increase of 42% year-over-year. We benefit from the secular trend of growth in e-commerce which continues to take share from brick-and-mortar retail and from the increased focus of merchants on their direct to consumer channels. However, it is important to note that due to the continued recessionary concerns and the sensitive macroeconomic and geopolitical situation in many of the world’s largest economies, in the short term there is still relatively high uncertainty regarding consumer demand which remains volatile. In Q4 we generated total revenues of $185.4 million, up 33% year-over-year. Service fee revenues were $89.9 million, up 43%, and fulfillment services revenue were up 24% to $95.5 million. The higher growth of service fee revenues compared to fulfillment services revenue was mainly driven by the higher share of our multi-local service with high performance of the largest multi-local merchants in Q4. Throughout 2023, our existing merchant base continued to stay and to grow with us as reflected in our annual NDR rate of 127% and GDR rate of over 97%. Note that our NDR in 2023 excludes border-free volumes as border-free merchants traded with us only for part of 2022. Moving down the P&L, growth in non-GAAP gross profit continues to outpace revenue growth. In Q4, non-GAAP gross profit was $79.1 million, up 37% year-over-year, representing a gross margin of 42.7% compared to 41.3% in the same period last year, driven by the higher share of service fee revenue. GAAP gross profit was $76.3 million, representing a margin of 41.2%. Moving on to operational expenses, we continue to invest in the development enhancement of our platform to further strengthen our offering. R&D expense in Q4, excluding stock-based compensation, was $18.2 million, or 9.8% of revenue, compared to $17.8 million, or 12.8% in the same period last year. Total R&D spend in Q4 was $25.2 million. We also continue to invest in sales and marketing to enhance our pipeline while maintaining efficiencies. Sales and marketing expense, excluding Shopify-related amortization expenses, stock-based compensation, and acquisition-related intangibles amortization, was $17.8 million, or 9.6% of revenue, compared to $9.9 million, or 7.1% of revenue in the same period last year. Shopify warrant-related amortization expense was $37.4 million. Total sales and marketing expenses for the quarter was $58.8 million. General and administrative expenses, excluding stock-based compensation, acquisition-related expenses, and acquisition-related contingent consideration, was $8.6 million, or 4.6% of revenue, compared to $8.9 million, or 6.4% of revenue in the same period last year. Total G&A spend in Q4 was $15.5 million. Adjusted EBITDA totaled $35.2 million, representing a 19% adjusted EBITDA margin, increasing from $21.8 million, or 15.6% margin, in the same period last year. Net loss was $22.1 million, compared to a net loss of $28.5 million in the year-ago period, driven mainly by the amortization expenses related to the Shopify warrants and to transaction-related intangibles. Switching gears and turning to the balance sheet and cash flow statements, we ended 2023 with $317 million in cash and cash equivalents, including short-term deposits and marketable securities. Cash generation has accelerated with operating cash flow in the quarter at $93.5 million, compared to an operating cash flow of $57.3 million a year ago, driven mainly by adjusted EBITDA growth and working capital dynamics. Moving to our financial outlook and guidance for 2024, despite the prevailing macro-related uncertainties, we expect 2024 to be another year of fast growth and improved adjusted EBITDA for Global-e. For Q1 2024, we’re expecting GMV to be in the range of $875million to $915 million. At the midpoint of the range, this represents a growth rate of 27% versus Q1 of 2023. We expect Q1 revenue to be in the range of $138.5 million to $145 million. At the midpoint of the range, this represents a growth rate of 21% versus Q1 of 2023. For adjusted EBITDA, we’re expecting a profit in the range of $16 million to $20 million. For the full year of 2024, we anticipate GMV to be in the range of $4.59 billion to $4.83 billion representing over 32% annual growth at the midpoint of the range. Revenue is expected to be in the range of $731 million to $771 million representing a growth rate of nearly 32% at the midpoint of the range. As we expect, overall take rates to stabilize throughout the year. For adjusted EBITDA, we’re expecting a profit of $121 million to $137 million, representing over 39% growth at the midpoint of the range, thanks to increased efficiencies and economies of scale. As reflected in the guidance, we expect our fast growth to continue in 2024, with around 32% top-line growth, alongside improved adjusted EBITDA margin. The slower top-line growth we expect in Q1 is a result of a number of factors. First, is the lower contribution for new merchants, as large merchants we have signed are expected to launch only in the second half of the year. Second, is the fact that we expect the trading that still exists on the legacy board of free platform to weigh on our growth in the first half of 2024, as a high share of its remaining GMVs generated by traditional retailers, especially department stores, which are facing challenges with many even experiencing declining sales trends. We believe, we will see improvement once we migrate many of these merchants to the Global-e platform. Third, is the continued volatility in consumer demand in the short term, in light of weakness in some of the largest economies, as well as some softness we observed in trading volumes of consumers around the globe during February. We expect our overall growth to accelerate in the remaining of the year, driven by ramping Shopify markets pro-planned launches of large merchants in the second half of the year, and a lower impact from border-free on a year-on-year comparison. In conclusion, we continue to enhance our capabilities to support merchants worldwide in their direct-to-consumer journey. The opportunity in front of us is immense and we are well positioned to capture it. We believe this will enable us to combine durable top-line growth and cash generation in the coming years. And with that, Amir, Nir and I are happy to take any of your questions. Operator? Operator: Thank you. [Operator Instructions] Our first question comes from Brian Peterson from Raymond James. Please proceed. See also 15 Best Stocks For Long Term Growth and 50 Funny Things To Ask Chatgpt and Google’s AI Chatbot. Q&A Session Follow Global-E Online Ltd. (NASDAQ:GLBE) Follow Global-E Online Ltd. (NASDAQ:GLBE) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Brian Peterson: Hi, guys. Thanks for taking my questions. Yes, Ofer. I understand that you already [Indiscernible] already that December and November were pretty strong. You guys made it to the top in February. Would love to understand maybe how things progressed from December to January. It’s where any regional friends that you’ve got are. Ofer Koren: Yes. So Brian, thank you for the question. It’s Ofer. I think that, as we mentioned, we have seen increased volatility in consumer demand in the past year and especially in the last few months. And as we already communicated in the previous quarter, we saw a drop in September and October, a relatively steep drop in same store sales. And a very nice recovery towards the end of October with a very, very strong peak and excellent results around Black Friday, Cyber Monday weekend. Then during December, this continued with a lighter end to the year. And as I just mentioned, things continue to be volatile. And we do see a lot of shifts in consumer demand. And since the beginning of February, we have seen some softness in consumer sentiment again around the globe and weakness in some of the large economies. So, this has been with us only for the last two or three weeks. But still important to note. Brian Peterson: A question. There are a lot of market pros and pros. Is there any way to get better some help in how to think about the contribution in 2024 or any perspective you guys can share there? Thank you. Amir Schlachet: It’s a, Brian, it’s a little choppy or your line is a little choppy. Could you repeat the contribution of what were you asking about exactly? Brian Peterson: Yes, sorry. Hopefully this is better. No, the reference to Shopify’s market’s growth so far, is there any perspective that you can give in terms of expectations in 2024? Amir Schlachet: Yes, so as we mentioned, we’re very happy with the progress that we’ve made in Shopify markets pro both from a technical perspective, the developments we’ve deployed and that we’re working on together with Shopify and also the rate of adoption. It is still in early days, but we believe that over the next quarters and years, it can grow into a significant business. Brian Peterson: Thanks, sir. Amir Schlachet: Thanks, Brian. Operator: Our next question comes from Will Nance from Goldman Sachs. Please proceed. Will Nance: Hey guys, appreciate you taking the questions. So just, I guess another question on, I think you mentioned volatile consumer trends over the past several months and maybe more recently in February. I guess, could you maybe talk about, the approach that you took to guidance? I mean, obviously, the color on 1Q is very helpful. It sounds like there is a ramp based, baked into the guidance for the remainder of the year. Some of that Shopify, just kind of color on what you’re assuming for the remainder of the year as it relates to the macro. And then, if we look back over the last couple of years, there’s been several kind of exogenous events that have impacted the numbers and resulted in kind of less outperformance than maybe you guys would have hoped. Just wondering if you could contextualize this guidance in terms of just how much kind of macro weakness over the course of the year the guidance can absorb given, the continued levels of uncertainty. Amir Schlachet: Sure, Will. Thank you for the question. So since there is a high level of uncertainty, we have not assumed an improvement in macro conditions throughout the year. However, we also haven’t looked at the lowest point. As I mentioned, we saw some weakness since the beginning of February. So we sort of look at the average since the beginning of the year, not taking into account the lowest point, but also not taking into account any improvement in macro conditions as, again, the level of uncertainty is still high and we have no control of that. Will Nance: Got it. Makes sense. And then I think, you called out border-free. Just wondering if you could just maybe help us size in terms of, what’s the contribution in numbers today and maybe roughly what are you kind of baking in for the remainder of the year for that business. Amir Schlachet: Yes. So in terms of volumes, today border-free, sorry, is approximately 5% of the volumes. It’s sort of a high level number. It is decreasing in share over time, one, because we are not onboarding any new merchants onto border-free. And two, as we mentioned, the type of merchants that we see on border-free, legacy, mainly U.S. legacy merchants, a lot of department stores, and since they are sort of facing their own challenges with their business model, it has an impact on their sales as well. So this is decreasing over time. Will Nance: Got it. That’s helpful. Sorry, just the clarification on the expectations for the remainder of the year. Are you guys assuming that the same-store sales there remain negative for the remainder of the year? Amir Schlachet: Yes. Yes, we do. However, I think we do think that mainly in the second half, as we migrate those clients, we will see a one-off increase that will stay with us. But due to the higher conversion rates that we typically see on the Global-e platform. So we do foresee an improvement. However, it will be gradual as they would migrate one by one. And since those are large legacy merchants, it takes some time. So we do expect to see some improvement, but it will be gradual. Will Nance: Got it. Thanks for taking the questions, guys. Amir Schlachet: Thanks, Will. Operator: Our next question comes from Samad Samana from Jefferies. Please proceed......»»

Category: topSource: insidermonkeyFeb 22nd, 2024

Etsy, Inc. (NASDAQ:ETSY) Q4 2023 Earnings Call Transcript

Etsy, Inc. (NASDAQ:ETSY) Q4 2023 Earnings Call Transcript February 21, 2024 Etsy, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Deb Wasser: Hi, everyone. And welcome to Etsy’s Fourth Quarter and Full Year 2023 Earnings Conference Call. I’m Deb Wasser, […] Etsy, Inc. (NASDAQ:ETSY) Q4 2023 Earnings Call Transcript February 21, 2024 Etsy, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Deb Wasser: Hi, everyone. And welcome to Etsy’s Fourth Quarter and Full Year 2023 Earnings Conference Call. I’m Deb Wasser, VP of Investor Relations. Today’s prepared remarks have been pre-recorded. Joining me today are Josh Silverman, CEO; and Rachel Glaser, our CFO. Once we are finished with the presentation, we will take questions from our publishing sell-side analysts on video. Please keep in mind that our remarks today include forward-looking statements related to our financial guidance, our business and our operating results as noted in the slide deck posted to our website for your reference. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, some of which are described in today’s earnings release and our most recent Form 10-Q and which will be updated in future periodic reports that we file with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also, during the call, we’ll present both GAAP and non-GAAP financial measures, which are reconciled to GAAP financial measures in today’s earnings press release or the slide deck posted on our IR website, along with the replay of this call. With that, I’ll turn it over to Josh. Josh Silverman: Thanks, Deb. We’re pleased to speak with you today about our recent performance, but more importantly, to preview some of our exciting initiatives for 2024. We’ve built an ambitious portfolio of growth initiatives, what we consider some very bold moves, while staying focused on protecting or expanding our overall profitability. We’ve done a lot to set Etsy up for success, making some difficult choices last year to be able to invest in our Vital Few with an eye to getting Etsy back to growth. We enter 2024 energized, with the right team, a highly relevant and differentiated Right to Win strategy, a disciplined investment approach and a resilient business model. Our focus will be to make Etsy even more Etsy, leaning into our core strengths to get even better at what we do, that is unlike anyone else in e-commerce. We had a strong finish to 2023 in the core Etsy marketplace, as well as at our subsidiaries, which collectively brought Q4 in a bit better than expected, as Rachel will review shortly. The Etsy marketplace performed well during the holiday season, with our highest-ever Cyber 5 GMS up about 4% year-over-year. Both Cyber Monday and Gifting Tuesday set new records. We know Etsy is a great place to shop for gifts and our focus on this message paid off. More to come on Gifting in a moment. With this strong finish to 2023, consolidated GMS was $13.2 billion, roughly flat with 2022. Revenue was a record $2.7 billion, up about 7%. Adjusted EBITDA was about $754 million. And free cash flow was very strong at about $666 million. Etsy’s ability to deliver healthy revenue growth and strong levels of profit and cash flow gives us great confidence in the power of our special financial model and our ability to invest in long-term sustainable growth. A young woman shopping for a vintage fashion item online. 2023 was a banner year for our Etsy marketplace product development teams who delivered our highest-ever level of incremental annualized GMS. We dramatically improved experiences for buyers, making it easier to find what you’re looking for, better at highlighting the best stuff, using new signals and nudges to drive conversion rate, improving reviews and recommendations, and developing new category purchase pathways and experiences. We built entirely new ways to feature handcrafted high-quality listings at great value. Our marketing team was also extremely productive, with memorable above-the-line campaigns contributing to our highest-ever level for buyer intent to purchase on Etsy in our top three countries, increased visibility for seller-funded promotions, scaled social spend and new tools for buyer engagement. All in all, a respectable year in a tough environment. By any measure, Etsy starts 2024 a much more meaningful e-commerce company than we were just a few years ago. We’ve doubled our buyer base, which has now grown on a year-over-year basis for four consecutive quarters. And buyers on average are still shopping more frequently and spending much more on Etsy now than they were before the pandemic. Our $12 billion in 2023 Etsy marketplace GMS was roughly $3 billion more than we outlined in the three-to-five year target we set in 2019. As you can see on this chart, after many years of over-performing our sector, it’s been difficult to outgrow during the past few years, particularly given the tepid macro climate for consumer discretionary products. But this just means we have to work even harder and more efficiently to deliver accelerated top-line growth. So where do we go from here? Let’s start with the size of the prize. We all know that e-commerce is a massive business still taking share from traditional retail. We estimate that the TAM in our core geographies and categories is $500 billion just online, with our market share sitting at just about 2%. So we still have a very long runway for growth. Most other players are competing head-to-head to sell the exact same merchandise, focused on selling at $0.02 cheaper or shipping it two hours faster, and this has resulted in the commoditization of the entire experience. But that’s just not Etsy. While we have an opportunity to continue to enhance our offering to deliver on the table stakes e-commerce expectations, we also stand for something more: we offer something different in a sea of sameness. Which is why highlighting the best stuff remains one of our top focus areas, and we’re confident that we can get back to growing faster and taking share more broadly. We believe Etsy’s differentiation is partially why, based on Consumer Edge’s U.S. e-commerce retail data, we largely continued to gain share throughout 2023 when compared to our pure-play competitors in most of our top categories. Competition is indeed fierce, yet we’re up for the challenge. I’m excited to tell you how and why we believe we can win. As we built our plans to reaccelerate growth this year, we’ve been very clear-eyed about where we are today, where our competitors are and where our strengths lie. Some of what makes us special is also what’s historically held us back from being thought of for everyday purchase needs. Buyers too often think of Etsy only for very specific needs or at the end of their shopping journey, or it simply takes too much time and effort to find the best things among our now over 100 million items. Our buyers worry about the post-purchase experience. And because of that, the number of times buyers purchase from Etsy per year as well as what they spend with us are both still much lower than for some of our peers. We know Etsy has many millions of high-quality listings that offer great value. We also know that if we can provide these in a way that’s both reliable and dependable, we should be able to earn both more frequency and higher AOVs, while also still having significant room to continue expanding our active buyer base. As we work to gain share in 2024 and beyond, we’ll stay focused on our Vital Few, making some bold moves to break down brand barriers so that buyers will think to shop with us even more often across a wider range of purchase occasions, leading to significantly improved consideration and ultimately, increased frequency, which we believe is one of the keys to unlocking growth for Etsy. So while we’ll continue to focus on adding more buyers around the globe, expanding seller services and revenue streams and so on, today I’ll focus primarily on this consideration opportunity. In fact, we’ve got a portfolio of compelling initiatives lined up, designed to move the needle on consideration and frequency. In addition to Gift Mode, which I’ll tell you more about in a moment, we’re also hard at work researching options for a buyer loyalty program to give buyers explicit reasons to come back and shop more often. We’ll do a lot more on the value and the reliability front, for example, with innovation planned to improve the predictability of shipping costs for both buyers and sellers, as well as work to improve shipping timeliness, for example, shortening our estimated delivery dates this year by at least two days. While we’ve made great progress in both of these areas, we have significantly more room to go to make sure we can meet buyers’ expectations and drive significant GMS while doing it in a way that remains very Etsy. We’ve also seen some really strong growth in international markets over the last few years, and are particularly excited about plans we have to not only concentrate on building domestic vibrancy in our core markets, but also some new initiatives to drive cross-border transactions and further growth and vibrancy across key geographies, especially in Europe. We’ve got a lot in store, but for today, the one bold move I’m thrilled to tell you about is Gift Mode. As you’ve likely seen over the last few weeks, Etsy is all-in on gifting. Our goal is to evolve Etsy from being one of the places you can go to find a gift to being the indispensable partner for all of your gifting missions. Not only is Gift Mode an important product launch, it represents a significant deviation from our normal approach where we historically launch a series of measurable, incremental product improvements with minimal fanfare. With Gift Mode, we’ve meaningfully augmented our playbook to not only create a great new product experience, but also to create consumer buzz about the product in a way we’ve never done before, with unmissable stories, content and moments to build excitement. Why gifting for Etsy? Gifting can be stressful and fundamentally different than buying for yourself in multiple ways: knowing what to buy, the logistics of how, when and where your gift will arrive, what if the gift recipient doesn’t like it, and so on. A gift can be perceived as a representation of yourself or how much you care for the recipient, all of which makes it important and stressful. Given we’re known for that special item made and sent with a human touch, we believe we’re uniquely positioned to take the stress out of gift buying. Data supports that buyers crave help here. Two-thirds of Americans struggle to find the perfect present. And the vast majority, 71%, have felt anxiety about gift shopping in the past year. We believe gifting is an ideal use case for Etsy. We have an enormous conviction that this is a space we can and should own and, if done well, can lead to market share gains across our core categories. After all, do you really want to buy that special gift at a mass retailer whose brand primarily stands for commoditized and cheap? Not only is gifting a perfect Etsy use case, it’s an always-on opportunity for us to add value. Gifting is not just a seasonal buyer need. There are reasons to give gifts nearly every day of the year. According to our survey work, about 45% of gifts are purchased for personal occasions, such as birthdays, births, weddings. Another 45% of all gifting happens for holidays, both seasonal and secular holidays: Valentine’s Day, Mother’s and Father’s Day and more. And the remaining 10% are just-because gifting occasions: missing a loved one, or sending a thoughtful item to a sick relative. Further, our data shows that U.S. consumers spend an average of $1,600 a year on gifts. We estimate that on average, Etsy’s U.S. buyers spent about 2% of that, just $38, for gifts on Etsy. There are literally millions of high-quality items on Etsy, made and designed by real people, that make great gifts for every occasion, budget and interest. Yet, because we sell so many things for such a vast variety of purposes, it’s difficult for people to know when to turn to us, and we often aren’t the first place people think of or come to when they’re on a gifting journey. Only about 10% of U.S. shoppers name Etsy top-of-mind as the place to shop for gifts. And there is no single brand that really owns gifting. So we see this as an early-stage opportunity. Another way to look at this opportunity, we estimate that only 43 million of our global Etsy buyers bought a gift from our sellers last year, which means that over half of our active buyers didn’t. And that’s not even counting the tens of millions of other shoppers for whom gifting can be a compelling reason to start shopping on Etsy. Gifting represents a huge TAM. We estimate the relevant opportunity to be about $200 billion in the U.S. alone. We believe our market share is about 1%. So even moving up to 2% would be a $2 billion growth opportunity for us. Obviously, that $2 billion is already captured in the very large TAM mentioned earlier. But by defining this space and investing with focus in gifting, we believe we can move the needle on growth. So what’s Gift Mode? It’s a whole new shopping experience where gifters simply enter a few quick details about the person they’re shopping for, and we use the power of artificial intelligence and machine learning to match them with unique gifts from Etsy sellers. Creating a separate experience helps us know immediately if you’re shopping for yourself or someone else; hugely beneficial information to help our search engines solve for your needs. Within Gift Mode, we’ve identified more than 200 recipient personas, everything from rock climber, to the crossword genius, to the sandwich specialist. I’ve already told my family that when shopping for me, go straight to the music lover, the adventurer, or the pet parent. We’ve incorporated some great new ways to help the procrastinator or alleviate the general concern that Etsy gifts won’t arrive in time. Let’s show you how it works. [Video Presentation] Early indications are that Gift Mode is off to a good start, including positive sentiment from buyers and sellers in our social channels, very strong earned media coverage and nearly 6 million visits in the first two weeks. As you test and shop in Gift Mode, keep in mind that this is just the beginning. We have an exciting roadmap planned for gifting discovery journeys, logistics and experiences to gift — to make Gift Mode easier and more delightful for both the gifter and the giftee and to get both coming to us more often. Before closing, I’ll comment on the solid recent contributions from our subsidiaries. Depop’s performance significantly improved in 2023, returning to healthy year-over-year GMS growth, with very strong double-digit growth in the U.S. and strong growth in revenue. The U.S. is a large opportunity for Depop, with the resale market forecasted to be over $40 billion by 2027, growing nine times faster than the broader retail clothing sector. For the full year, Reverb significantly outperformed the musical instruments industry, and while GMS was about flat, revenue increased on a year-over-year basis. Reverb returned to GMS growth in the fourth quarter, primarily attributable to their focus on used and outlet inventory. The Reverb team made some organizational changes late in the year, which we currently expect will help the business achieve adjusted EBITDA profitability this year. We believe the best is still ahead for Etsy. Right now is the moment when many consumers are feeling stretched, with low confidence in the economy and less money to spend on discretionary items, but it’s a moment that we believe will pass. Etsy’s mission and compelling Right to Win remain relevant and sound. I’d like to officially welcome Marc Steinberg to Etsy’s Board of Directors, and believe he’ll bring unique and valuable experience as an investor and Board member in the technology, digital media and e-commerce industries. And most importantly, he shares our passion for Etsy’s mission and excitement about our future growth opportunities. I want to thank the Etsy Reverb and Depop teams. You’ve all worked with incredible heart, creativity and determination to delight our buyers and help our sellers grow. We’re going to lean in hard to our differentiation and believe we have the financial strength to do so in a sustainable way. We’ve started the year off with a bang with Gift Mode, and that’s just the beginning. I’m confident we can get back to the kind of growth that we and all of our stakeholders can be proud of. With that, I’ll turn it over to Rachel. Rachel Glaser: Thanks, Josh. And thank you, everyone, for joining our fourth quarter call. My commentary today will cover consolidated results, key drivers of performance and Etsy marketplace standalone results where appropriate. As a reminder, we divested Elo7 on August 10, 2023. So please take that into consideration when you compare year-over-year and quarter-over-quarter consolidated results. Etsy delivered $4 billion in consolidated GMS, roughly flat to the fourth quarter of 2022. FX benefit moderated to 90 basis points in the fourth quarter, down from the 130-basis-point tailwind in the third quarter. Revenue increased 4.3% year-over-year to a record $842 million. And adjusted EBITDA grew to an all-time quarterly high of $236 million, up nearly 4% from the prior year. Note that Elo7’s divestiture resulted in small headwinds to both GMS and revenue for the quarter, and was modestly accretive to consolidated adjusted EBITDA margin. Following a challenging October, Etsy’s marketplace’s year-over-year GMS trendline improved in November and December due to the solid holiday performance Josh described earlier. We had a nice end to the quarter with better-than-expected GMS growth across all of our brands, enabling us to come in slightly above our mid-December revised guidance for GMS and revenue. Within our consolidated year-over-year revenue growth of 4.3%, consolidated marketplace revenue grew 2.6% due to higher payments revenue related to a mixed shift of more international transactions that yield higher fees, growth in subsidiary payments fees and higher offsite ads revenue. Services revenue was once again a key contributor to growth, increasing 9.4% year-over-year. Etsy Ads was the primary driver of this strength, with continued improvements to add relevance. We delivered a consolidated take rate of 21%, largely flat to the prior quarter and slightly above the take rate implied at the midpoint of our quarterly guidance provided in mid-December. For the full year, our consolidated take rate increased approximately 160 basis points due to strong growth in Etsy Ads, our April 2022 transaction fee increase that was incremental for most of the first half of 2023, as well as payment fee expansion. Fourth quarter consolidated adjusted EBITDA margin was 28%, at the high end of our latest guidance, but down about 10 basis points from last year, partially due to a lower gross margin, primarily the result of an increase in the cost of refunds for orders not covered by Etsy Purchase Protection, as well as higher marketing spend. Note that due to a discrete non-income tax benefit related to Depop, our subsidiaries represented only about a 200-basis-point margin headwind in Q4. Overall, we are very proud that even with investments in important product and marketing initiatives to make Etsy a great holiday shopping destination, fourth quarter 2023 adjusted EBITDA of $236 million was higher than any quarterly period, including pandemic peaks. During the fourth quarter, consolidated product development spend increased 4% year-over-year to $117 million. As a percent of revenue, we gained about 10 basis points of leverage from the prior year, largely due to the Elo7 divestiture. On a full year basis, Etsy marketplace product development investments delivered approximately $1.5 billion in incremental annualized GMS, a significant increase from last year. Stiff headwinds pressuring our baseline GMS offset some of these excellent gains. And we are also very pleased to report that product development launches increased approximately 30% from the prior year. Fourth quarter consolidated marketing spend increased 7% year-over-year to $261 million, which drove marketing spend as a percent of revenue to increase modestly from the prior year. Given our focus on building Etsy’s brand awareness for specific purchase occasions, our consolidated brand spending increased 24% year-over-year in the fourth quarter, with the vast majority of this increase coming from Etsy marketplace spend. Our holiday campaigns, which highlighted Etsy as an indispensable partner for all gifting missions, resonated with buyers. Further, we significantly expanded Etsy’s ROI on U.S. above-the-line spend during the quarter as our media efficiencies continued to improve. Consolidated performance marketing spend decreased 4% year-over-year in the fourth quarter as we adjusted our strategy and improved ROI efficiencies. We dynamically pulled back on PLA spending as competitor spending pushed CPCs higher than the normal seasonality we see at this time of year. Offsetting this, we were able to lean into new channels and geographies, increasing spending in certain geographies and ramping mid-funnel investments with several social media partners. Our site-wide 24-hour Cyber Monday promotion, funded with a small amount of Etsy marketing dollars, delivered solid incremental GMS and a strong ROI. For the full year, consolidated marketing spend increased 7% year-over-year, and our consolidated marketing spend as a percent of revenue decreased modestly to 27.6%. Etsy standalone marketplace performance marketing spend delivered approximately $2.6 billion in incremental annualized GMS, up roughly 5% from 2022. Moving now to our Etsy marketplace GMS and buyer metrics. During the fourth quarter, Etsy marketplace GMS decreased 1.4% year-over-year to $3.6 billion. Overall, headwinds continued, including pressure on consumer discretionary product spending, softness in the Home & Living category, and a highly competitive retail environment focused on deep discounting. Our year-over-year Etsy marketplace GMS trendline improved in November and December following the challenging October that we described on our November call, bringing results in ahead of our internal expectations. International markets were once again a bright spot, with Etsy marketplace GMS, excluding U.S. domestic, up 4% year-over-year in the fourth quarter. The growth was led by positive trends in the UK, and strength in the Netherlands, Switzerland, and Austria, with largely flat trends in Germany. This slide shows full year 2023 Etsy marketplace GMS performance for our top six categories, which represented approximately 87% of GMS. Positive year-over-year GMS trends in Apparel and Paper & Party were offset by softness in Home & Living, Jewelry & Accessories and Craft Supplies. We ended the year with a record 92 million active buyers, up 3% year-over-year, marking the fourth consecutive quarter of year-over-year growth. U.S. active buyer trends continue to improve. International buyer growth remains strong. And we had 6% growth in buyers who identify as male. We added over 8 million Etsy marketplace new buyers in the fourth quarter, up over 40% from the fourth quarter of 2019. And we reactivated nearly 10 million lapsed buyers, a record number, up 13% year-over-year, and up 122% from 2019. Lastly, habitual buyer trends remained stable in the quarter, with over 7 million of these loyal buyers at the end of the quarter, largely in line with the prior two quarters. Our number of repeat buyers continued to grow a healthy 4% year-over-year to 37 million. GMS per active buyer on a trailing 12-month basis for the Etsy marketplace continued to stabilize sequentially, but declined 4% year-over-year to $126 in the fourth quarter, yet remains 22% higher than the fourth quarter of 2019. Additional Etsy marketplace metrics can be found in the appendix of this deck, as posted to our website. Moving now to the balance sheet. As of December 31, we had $1.2 billion in cash, cash equivalents and short and long-term investments. During the fourth quarter, we repurchased a total of $93 million in stock under our $1 billion June 2023 Board-authorized repurchase program, of which approximately $724 million remained available as of December 31. Our operational rigor and capital-light business model allowed us to deliver about $754 million in consolidated adjusted EBITDA in 2023 and a 27.4% margin, and to convert nearly 90% of that EBITDA to free cash flow. Our free cash flow in the fourth quarter was a healthy $283 million. As we continue to focus on growing our EBITDA and cash flow, all else being equal, we would likely see our gross leverage ratio continue to trend down. We also expect to retain a strong balance sheet with ample liquidity relative to our current leverage levels to manage the business across various macroeconomic cycles and support continued organic investments, as well as capital return to shareholders. We remain committed to an active and disciplined capital allocation strategy that prioritizes opportunities we believe will generate the highest level of long-term shareholder value. In the past, we have communicated our philosophy to offset dilution from stock-based compensation by repurchasing our shares. In 2023, capital return accounted for nearly 90% of our free cash flow, demonstrating a shift in our capital return strategy to more intentionally return a higher percentage of free cash flow, especially during times of volatility in our stock and when valuations are meaningfully below our view of fair value. We continue to see attractive organic growth opportunities for Etsy, and we expect to balance capital return, appropriate leverage and liquidity and investments in our business to deliver a long-term shareholder value. Before turning to our guidance, I’ll discuss our recent workforce realignment, which brought core Etsy marketplace headcount to about 1,780 employees at the start of 2024. As you know, we were lean even during the high-growth periods, consistently maintaining a disciplined approach to headcount and then pulling back our pace of hiring proactively as we experienced GMS headwinds in early 2022. For 2024, we wanted to build a roadmap designed to reaccelerate growth while also delivering very strong levels of profitability. We made some tough choices about how to organize our team from the top-down, focused on driving efficiencies to further speed product development, and creating more impactful marketing and customer experiences designed to build frequency and loyalty, as Josh described. In addition to our focus on people costs, we’ve taken a number of actions intended to ensure margin holds stable or expands in 2024, including reducing certain benefits and continuing to optimize our cost base. All in all, we reduced our previous internal projections for total 2024 operating costs by over $90 million. Most of these savings are being reinvested back into the all-important growth investments we plan to make this year, including the modest addition of critical hires. We are optimistic that the significant productivity and measurable value creation we see from our team can fuel Etsy’s growth this year. Now turning to our outlook. It remains a challenging macro environment, with consumer sentiment in the U.S. and international markets remaining low, making us cautious in our forecasting at the start of the year. Consolidated GMS for the first quarter of 2024 is currently estimated to decline in the low-single-digit range on a year-over-year basis. This guidance reflects our slow start to the quarter, and our current expectation that GMS for the core Etsy marketplace improves as we move through the rest of the quarter as a result of our planned product and marketing investments. However, if our trends fail to improve as we currently expect, this could become a mid-single-digit decline. Reverb and Depop are expected to provide a tailwind within the consolidated performance. We estimate Q1 2024 take rate to be between 21% and 21.5%. This can be used to estimate revenue range for the quarter. Note that earlier today, we announced to our seller community that we are strengthening our new shop onboarding process to continuing to promote as trusted marketplace, including introducing a seller onboarding fee. This initiative requires certain new technology investments, particularly for seller verification, so the net benefit to our margins will be nominal. We currently anticipate that our consolidated adjusted EBITDA margin will be approximately 26%, reflecting a heightened level of investment in the launch of Gift Mode, particularly costs associated with our big-game advertising. Our subsidiaries are expected to pose about a 300-basis-point headwind as their revenue flows through at lower margins, largely because of lower take rates. We currently expect the first quarter to be our low point in year-over-year growth for both GMS and revenue as we begin to see the expected benefits of our product and marketing investments kick in starting in the second quarter. We currently expect that consolidated revenue growth should outpace GMS growth in 2024, with full year take rate at or ahead of the Q1 level, with further expansion of Etsy Ads and the annualized impact of the recent Etsy Payments expansion into seven new markets being the primary drivers of improvement. Beyond this, we’ll continue to look for ways to drive a fair exchange of value for all three of our marketplaces. We currently expect to maintain very healthy margins, with consolidated adjusted EBITDA margin 2024 at least similar to the level we delivered in 2023. We are energized by our portfolio of growth initiatives for 2024, which we believe can reignite our growth despite the continued challenging macro. Thank you all for your time today. I’ll now turn the call over to the operator to take your questions. See also 13 Best Chinese Stocks To Buy Right Now and Earn an Extra $500 a Week With These 20 Side Hustles. Q&A Session Follow Etsy Inc (NASDAQ:ETSY) Follow Etsy Inc (NASDAQ:ETSY) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] Thank you. Our first question will come from Nikhil Devnani with Bernstein. You may now unmute your audio and video and ask your question. Nikhil Devnani: Hi there, thanks for taking the question. Appreciate it. And thanks for providing ’24 commentary as well. I just wanted to ask about the GMS outlook a little bit more. Can you talk about the kind of magnitude of improvement that you’re expecting to see in GMS as the year goes on? Do you think that there is line-of-sight back to positive year-on-year growth as well at some point in the year? And then as a follow-on, could you provide some clarity around product and marketing initiatives that are kind of backing up this outlook for improvement in GMB? Thank you. Josh Silverman: Okay, so in terms of the magnitude of the growth, we gave you what we’re comfortable giving you right now. So anything more than that, if we could have been more specific, we would have in terms of when do we get back to positive growth and et cetera. It’s certainly our aspiration. We believe we have every right to be growing not just positive but faster than e-commerce. And we think, especially when our categories stop being under such pressure and when discretionary consumer product spend in particular stops being under so much pressure, that’s going to be very helpful. We do think we outgrew our categories yet again, our pure-play competitors in our categories yet again in the fourth quarter. In terms of the product and marketing initiatives that we expect to drive a lot of growth, we laid them out in the call. And so first on consideration, that is the biggest thing; people thinking to look on Etsy. Because when they do think to look on Etsy, they usually find something really compelling. So Gift Mode is a great example of us giving you a moment in time when you should really think, I need to buy a gift, I want to go to Etsy. And gifting is an all-year kind of thing. It’s not just Mother’s Day and Christmas. There’s birthdays, anniversaries, back-to-school and on and on. And on other key elements in consideration, we’ve said we’re in early stages of planning a loyalty program, which is designed to drive consideration among loyal users, more value, more on quality and more on reliability. And I think that that portfolio of bold initiatives, I think can do a lot to continue to drive growth, combined with compelling marketing campaigns. We’re going to continue to work through the funnel on really compelling marketing campaigns as well. Nikhil Devnani: Thank you. Operator: Our next question comes from Ygal Arounian with Citi. Please unmute your audio and video and ask your question. Ygal Arounian: There you go. Sorry there’s a little delay there. Thank you. I’m going to follow up on that a little bit, maybe more narrowly focused, I guess, on the 1Q guidance. And, what — it sounds like, sitting here today, were down mid-single-digits, but kind of the expectation is that over the course of the quarter, that starts to improve. What happened so quickly, I guess, like between now and end of March or it’s just a little bit over a month. And then again, also just to dig into the marketing a little bit more. So you’re — you’ve pulled back a little bit on performance marketing. Some of that is efficiencies, some of that is coming from the competitive environment are spending more on brand. Typically, we think of the payback period for the brand marketing being a little bit longer where you’re expecting that to drive incremental growth both in the quarter and throughout the year. So are you starting to see the benefits of that? I know it’s been investment over, multiple years here. Is that starting to pay back the way you like or, how else should we think about that? Thanks. Rachel Glaser: I can certainly jump on. I mean, so the way — you’re right that January was a little bumpy. And that’s the — sort of the baseline from which we are able to provide guidance for the rest of the quarter. The way we do our planning is we estimate the incremental GMS that would be generated from each discrete product and each discrete marketing investment that we make. So they start to stack on top of each other. And we do a pretty good estimation and testing before we build our forecast so that we have a pretty high confidence level in what we think those things will deliver. So what we’re looking at that remains in the rest of the quarter, we feel good about being able to step incremental GMS from where we are today. We have experimented with our marketing spend. I mean, looking back a little bit in the early part of the quarter on some of our PLA spend, we’re now back to our normal levels. So we think we’ll get some incremental benefit from just the regular business-as-usual marketing spend. And you saw us do a very large, first time ever, big-game television ad that is — that ad continues to run through the rest of quarters, winning some of the accolades and awards from the advertising world and starting to gain some traction. I think the – it takes – it’s something like 7 to 11 views to actually create that stickiness of an ad. So we’re excited about what that brand – the repetition of that campaign and that brand can do for consideration with our customers. And there’s a lot of things we wrapped around that Drew Barrymore, our Chief Gifting Officer. And a lot of our promotional campaigns that we also laid down to attract people. So marketing and spend product, I think we expect to deliver GMS in the quarter. Josh Silverman: Yes, and just to build on that. We have been very focused year after year on what is the value creation of every single squad and what is the value creation of every single dollar we spend in marketing. It has been a very big focus of ours and we think we’re pretty good at it. What obviously we can’t predict with perfect accuracy is what’s going to happen with the baseline, what’s going to happen with the overall consumer discretionary spend in our categories. And so that’s the unknown and, we’ll wait and see. But we gave you the best guidance we know. And we do — we have reason to believe that we should see trends improve in the second half of the quarter based on the work we’re doing. Ygal Arounian: Okay, great. So you might step back a little bit further into performance. Has the environment there changed at all? Josh Silverman: Yes. So performance is dynamic on a, really, hour-to-hour basis depending on the ROI we’re seeing on every dollar we’re spending. And we’ve got pretty sophisticated algorithms that work on, is this bid — is this click worth this much right now and how much should we bid. And so to the extent that CPCs rise, we naturally pull back, or to the extent that CPCs lower, we naturally lean in. The other thing, by the way, it’s not just CPCs, it’s also conversion rates. So in times when people are really budget constrained, we see them actually — we see conversion rate across the industry go down. We see people comparison shop a lot more. And so we are looking at all of that. And not humans, but machines using AI are looking at a very sophisticated way of what’s happening with conversion rate right now, what’s happening with CPCs right now. And therefore, how much is each visit worth and how much should we be bidding. And it naturally titrates. It’s a little bit the reason why it’s hard to pinpoint exactly what our margin is going to be in any given quarter because it’s based on what’s the ROI we’re getting right now, and we’ll naturally lean in or pull back. What we won’t do is send them unprofitably. Not on purpose. So we work hard to try to understand what is the return we’re getting. And if the market we think is getting irrational or at least irrational for us, we pull back. Rachel Glaser: Thanks, Ygal. Operator, next one? Operator: Our next question comes from Lee Horowitz with Deutsche Bank. Lee Horowitz: Great. Thanks for taking the question. Maybe two, if I could. Josh, you highlighted two charts in the deck, one that shows the Etsy’s share gains versus pure-play comps. It seems to stand somewhat in contrast to the overall e-commerce market where Etsy is growing more slowly. It seems that would suggest that big-box non-pure-play competitors are taking share of the overall. I guess, why do you think consumers are leaning into these platforms that, as you say, compete on shorter speeds, perhaps a couple of bucks in price and not leaning into things like product quality or uniqueness? And maybe how do you think that may evolve in ’24 and beyond? And one follow-up, if I could. Josh Silverman: Great. Great question. So look, let’s put aside travel, online dining. If you look at e-commerce very broadly, it picks up things that are totally unrelated to Etsy. When you put those aside and you really look at just product, it’s very clear that the people gaining share are Amazon, Walmart, Temu, and SHEIN, and almost everyone else is losing share. The number of other people that are growing quickly, you can count on one hand. Almost everyone is losing share to Amazon, Walmart, Temu, and SHEIN. And so, first of all, those are people, particularly if we look at Amazon and Walmart, and they’re really the big winners. So if you look at who is actually, in terms of volume, taking volume in e-commerce, they sell essentials. And when you read their earnings call scripts, what they say in their earnings call is what’s driving their sales is essentials and their headwinds are discretionary products. The second thing is all four of those brands stand for deep discounting. And the trends we see right now are people feel their wallet is under a lot of pressure. By the way, tax returns look like they’re going to be lower this year than they were last year. You still hear low consumer confidence and concerns about inflation on core things like food prices. And people, when they have discretionary dollars, want to spend them on travel and want to spend them on dining. And so in this moment, many people are looking for the cheapest way to buy something when they need to buy something that is discretionary. Now in that environment, Etsy added 8 million new buyers. Etsy buyers spent $3.6 billion on the Etsy marketplace in the fourth quarter alone. So, tens of millions of people are — 92 million people, in fact, are opening their wallet to come and buy something on Etsy even in this environment. And in fact, the average buyer on Etsy is spending 20% more, more than 20% more today than they were pre-pandemic. But this is a time when I think products that are not the cheapest possible are out of favor. And I don’t think that’s forever. When I imagine, going forward, does everyone always wants the cheapest version of any given product? No, absolutely not. I think that that trend, this is a cycle, we’re in a moment in the cycle, and I think we’ll move to better moments in the cycle, hopefully, soon. Rachel Glaser: Let me add just a couple of quick points about things that are happening that point specifically to January and Q1 activities that are happening in the macro world. One, at Christmas time, people get a lot of gift cards. And today, Etsy doesn’t have a gift card program. And they come into January and they spend — they go into retail and they spend their gift cards at places like Walmart and Amazon. Second, they are doing a lot of returns when they’re going physically into the stores and doing a lot of returns. And the third is that big-box stores are doing all their clearance right now, so things are continuing to be at deep, deep discounts, as Josh just said. Those are three things that in, the early part of this year, Etsy really wasn’t in the game on those three areas and, I think, affected our January’s GMS to some extent. Lee Horowitz: Very helpful. And then maybe one follow-up on marketing. How do you guys just think about, I guess, efficiently deploying performance marketing dollars in 2024? Obviously you talked about dynamic — the models are dynamic, but do you feel like you need to perhaps lower the ROI thresholds, given you have a weaker consumer as you called out, but, rising auction costs from those competitors? I guess just help me understand, how you guys maybe are adjusting the way you guys think about marketing, given the challenging underlying dynamics of higher costs but tougher demand. Josh Silverman: Well, the models automatically incorporate — well, there’s some lag. It takes a couple of weeks for them to experience the fact that conversion rates, for example, are down or up, for them to incorporate that. But things like weaker demand turning — meaning, conversion rate goes down, the models all automatically incorporate that. Where we’re always refining our understanding is we run an incrementality test. For example, on PLAs twice a year, we hold part of the pantry dark. And we look at if we hadn’t bought that click, would we still have gotten it anyway? And it turns out that often, the answer may be yes. It also may be that if someone didn’t click on Etsy, but they saw Etsy, it made them think, Etsy sells that, and they come without having clicked. And so you can over or under-attribute. And so several times a year, we actually run a test to determine, what we call incrementality tests, how much of the final sale value should we attribute to the fact that someone clicked on that ad. And that changes over time as well based on competitive environments. So we are constantly adjusting based on that. And another input that goes into the model is what do we think about things like future take rate. What you’re paying today, would that impact the LTV of a buyer if you think your take rate might go up over time, or if you think you might get more or less frequency over time? So there’s some amount of judgment you make, but the models do most of the work. And we really do try to let the models do the work so that we aren’t tempted to irrationally over or under-invest in any given quarter. Rachel Glaser: That was a great point on the LTV — we’re constantly updating the model to increase LTV with every new product launch that we have. As the LTV goes up, that’s incorporated in the attribution model. So that’s happening. The other thing is you talk about performance ads, specifically, but we’ve been able to start to spend more money in new channels, like so paid social and in new geographies. And we’ve experimented with other kinds of marketing, like we use Etsy’s P&L to do some Etsy-funded promotional campaigns. So we’re constantly — it would be great to get another Google PLA channel, for instance, that works as hard for us. So that’s where we do more of our experimental marketing spend to see how we can optimize to get those channels to be ROI positive as well. Less likely would be to just drop the ROI threshold and accept a negative return. Josh Silverman: Right. Deb Wasser: All right, great. Thanks, Lee. Next question? Operator: Our next question comes from Shweta Khajuria with Evercore ISI. Shweta Khajuria: Thanks for taking my questions. Let me try two, please. On the GMS growth for this year, has the visibility for you changed, and I guess what gives you the confidence in improving GMS growth? If you could please lay out the key drivers, is it consideration and the gifting initiative primarily driving it and/or quality, value, reliability drivers? If you want to point to any of those. And then the second question is on the $90 million in savings that will largely be reinvested, could you please provide a little bit more color on biggest buckets of investments? Thank you. Josh Silverman: Yes, I’m happy to take the first, if you want to add. So, yes. So we laid out, – first, Shweta, thanks for the questions. And, that slide that had consideration and quality, value and reliability with key initiatives under each, that’s a pretty good roadmap for some of the bigger levers of the year. There are a lot of other things we’re constantly doing to just incrementally get better in ways that drive real measurable value. But the way we run this business is we task every squad in the company with a value-creation goal. So if you’re working on shortening expected delivery date or surfacing higher-quality items higher in search, there’s a customer metric, but there’s also a, how much extra GMS does that need to produce?.....»»

Category: topSource: insidermonkeyFeb 22nd, 2024

13 Best Dow Jones Dividend Stocks According to Analysts

In this article, we discuss 13 best Dow Jones dividend stocks according to analysts. You can skip our detailed analysis of dividend stocks in the Dow and their performance over the years, and go directly to read 5 Best Dow Jones Dividend Stocks According to Analysts.  Investors have employed various dividend strategies over time to […] In this article, we discuss 13 best Dow Jones dividend stocks according to analysts. You can skip our detailed analysis of dividend stocks in the Dow and their performance over the years, and go directly to read 5 Best Dow Jones Dividend Stocks According to Analysts.  Investors have employed various dividend strategies over time to enhance their returns. Looking back at history, it’s evident that dividend-paying stocks have often outperformed other types of investments. Opting for dividend stocks from the Dow Jones Industrial Average (DJIA) can be particularly advantageous. This index comprises numerous dividend-paying stocks, notably blue-chip companies renowned for their consistent dividend increases. In 2023, the DJIA saw a significant increase of 14%, with 19 component stocks experiencing gains while 11 component stocks faced declines over the course of the year. Towards the end of the year, in December, the index reached a record-breaking high, surpassing the $37,000 mark. Apart from delivering robust returns over the years, dividends have also maintained their significance as a growing component of personal income. As per a report from S&P Dow Jones Indices, the proportion of personal income attributed to dividend earnings has consistently risen over time, underscoring their importance as a source of income. In 2012, dividend income accounted for 5.64% of per capita personal income in the U.S., compared to 4.39% in the previous decade and 3.51% two decades prior. Conversely, during this same period, interest income from capital markets has steadily declined, dropping to 7.39% in 2012 from 13.51% in 1992. According to the report, the total dividend income, adjusted for inflation to $2000, experienced a substantial rise from $187.6 billion in 1992 to $757 billion in 2012, marking an impressive growth of over 300%. In contrast, interest income grew by less than 100% over the same period. When investors consider dividend stocks for their portfolios, they often prioritize dividend yields. However, it’s important to note that companies offering high yields but lacking solid financial stability could face the risk of reducing dividends, especially amidst global economic uncertainties and increasing interest rates. Therefore, investment strategies aimed at high yields should also prioritize the quality and stability of the companies in question. The Dow Jones Dividend 100 Index Series tracks the performance of 100 high-dividend-yielding stocks within each covered market, chosen for their consistent dividend payments and strong fundamental strength. When utilizing any income strategy, market participants typically prioritize both yield and capital gain. The Dow Jones Dividend 100 Indices have demonstrated superior yields and comparable capital gains over the long term when compared to their respective benchmarks. According to a report by S&P Dow Jones Indices, for the period spanning from June 30, 2001, to June 30, 2023, the total return of the Dow Jones U.S. Dividend 100 Index, which assumes theoretical reinvestment of dividends, averaged 11.7% annually. This performance outpaced its benchmark, the Dow Jones U.S. Broad Stock Market Index, which achieved a 10.2% return over the same period. Verizon Communications Inc. (NYSE:VZ), 3M Company (NYSE:MMM), and Dow Inc. (NYSE:DOW) are some of the most prominent dividend stocks in the DJIA. In this article, we discuss some of the best dividend stocks from the Dow according to analysts. Our Methodology: For this list, we started with the 30 stocks in the Dow Jones Industrial Average and selected dividend-paying stocks from that group. We then narrowed it down to 13 dividend stocks with a projected upside potential of over 8% based on analyst price targets. The stocks are ranked according to their upside potential, as of February 22. We have also mentioned hedge fund sentiment for these stocks. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator. 13. The Walt Disney Company (NYSE:DIS) Upside Potential as of February 22: 8.40% The Walt Disney Company (NYSE:DIS) is a multinational entertainment conglomerate. It is a prominent player in the global entertainment industry, known for its diversified portfolio of brands, intellectual properties, and entertainment offerings. The company reinstated its dividends in November 2023 after ceasing its payouts for nearly three years after the pandemic. On February 8, the company declared a 50% hike in its quarterly dividend to $0.45 per share. The stock has a dividend yield of 0.70%, as of February 22. It is among the best dividend stocks on our list from Dow. At the end of Q4 2023, 89 hedge funds tracked by Insider Monkey reported having stakes in The Walt Disney Company (NYSE:DIS), which remained unchanged from the previous quarter. The consolidated value of these stakes is nearly $7.4 billion. With over 32.3 million shares, Trian Partners was the company’s leading stakeholder in Q4. 12. Verizon Communications Inc. (NYSE:VZ) Upside Potential as of February 22: 9.08% Verizon Communications Inc. (NYSE:VZ) is a multinational telecommunications company that provides communications, information, and entertainment products and services to consumers, businesses, and governmental entities. The company pays a quarterly dividend of $0.665 per share and has a dividend yield of 6.47%, as of February 22. It has been growing its dividends for the past 17 consecutive years. With an upside potential of 9.08%, VZ is one of the best dividend stocks in the Dow. The number of hedge funds tracked by Insider Monkey owning stakes in Verizon Communications Inc. (NYSE:VZ) grew to 63 in Q4 2023, from 61 in the previous quarter. The consolidated value of these stakes is over $2.63 billion. 11. Visa Inc. (NYSE:V) Upside Potential as of February 22: 9.75% Visa Inc. (NYSE:V) is a global payments technology company that facilitates electronic funds transfers throughout the world. Visa operates one of the largest retail electronic payment networks globally, connecting millions of merchants, financial institutions, governments, and consumers. On January 25, the company announced a quarterly dividend of $0.52 per share, which was in line with its previous dividend. The company holds a 15-year streak of consistent dividend growth, which makes V one of the best dividend stocks on our list. The stock’s dividend yield on February 22 came in at 0.75%. As of the end of Q4 2023, 162 hedge funds in Insider Monkey’s database reported having stakes in Visa Inc. (NYSE:V), compared with 167 in the preceding quarter. The total worth of these stakes is more than $26.5 billion. Among these hedge funds, TCI Fund Management was the company’s leading stakeholder in Q4. 10. The Goldman Sachs Group, Inc. (NYSE:GS) Upside Potential as of February 22: 9.84% The Goldman Sachs Group, Inc. (NYSE:GS) is a leading global investment banking, securities, and investment management firm. The company provides a wide range of investment banking services to corporations, financial institutions, governments, and individuals. The company pays a quarterly dividend of $2.75 per share and has a dividend yield of 2.83%, as of February 22. It is among the best dividend stocks in the Dow with an upside potential of 9.84%. Insider Monkey’s database of Q4 2023 indicated that 69 hedge funds owned stakes in The Goldman Sachs Group, Inc. (NYSE:GS), up from 68 in the previous quarter. The collective value of these stakes is over $6.33 billion. 9. Amgen Inc. (NASDAQ:AMGN) Upside Potential as of February 22: 10.03% Amgen Inc. (NASDAQ:AMGN) is a multinational biopharmaceutical company that focuses on the development, manufacturing, and commercialization of therapeutics for serious illnesses. In December 2023, the company declared a 5.6% hike in its quarterly dividend to $2.25 per share. This marked the company’s 11th consecutive annual dividend hike, which makes AMGN one of the best dividend stocks on our list. As of February 22, the stock has a dividend yield of 3.18%. Amgen Inc. (NASDAQ:AMGN) ended Q4 2023 with 69 hedge fund positions, up from 60 in the previous quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a collective value of roughly $1.8 billion. With over 1.15 million shares, Two Sigma Advisors was the company’s leading stakeholder in Q4. 8. McDonald’s Corporation (NYSE:MCD) Upside Potential as of February 22: 10.09% An American multinational fast-food chain, McDonald’s Corporation (NYSE:MCD) is next on our list of the best dividend stocks from the Dow. The company has been rewarding shareholders with growing dividends for the past 47 consecutive years and currently pays a quarterly dividend of $1.67 per share. As of February 22, the stock has a dividend yield of 2.27%. At the end of December 2023, 63 hedge funds tracked by Insider Monkey reported owning stakes in McDonald’s Corporation (NYSE:MCD), down from 70 in the preceding quarter. The consolidated value of these stakes is over $2.09 billion. 7. Johnson & Johnson (NYSE:JNJ) Upside Potential as of February 22: 11.97% Johnson & Johnson (NYSE:JNJ) is a multinational corporation that operates in the healthcare industry, focusing on pharmaceuticals, medical devices, and consumer health products. According to analysts, the stock has an upside potential of 11.97%, which makes it one of the best dividend stocks in the Dow. In addition to this, the company has been growing its dividends for the past 61 years. Currently, it pays a quarterly dividend of $1.19 per share and has a dividend yield of 3.00%, as of February 22. As of the end of Q4 2023, 81 hedge funds in Insider Monkey’s database owned investments in Johnson & Johnson (NYSE:JNJ), compared with 84 in the preceding quarter. The consolidated value of these stakes is roughly $4 billion. Ken Fisher’s Fisher Asset Management owned the largest stake in the company in Q4. 6. Chevron Corporation (NYSE:CVX) Upside Potential as of February 22: 13.6% Chevron Corporation (NYSE:CVX) ranks sixth on our list of the best dividend stocks in the Dow. The American energy company holds an impressive 37-year streak of consistent dividend growth and it currently pays a quarterly dividend of $1.63 per share. As of February 22, the stock offers a dividend yield of 4.19%. According to Insider Monkey’s database of Q4 2023, 71 hedge funds held stakes in Chevron Corporation (NYSE:CVX), down slightly from 72 in the previous quarter. The overall value of these stakes is over $21.6 billion. Warren Buffett’s Berkshire Hathaway was the largest stakeholder of the company, owning over 126 million shares.   Click to continue reading and see 5 Best Dow Jones Dividend Stocks According to Analysts.    Suggested articles: 13 Best Momentum Stocks To Buy Now 13 Best Short Squeeze Stocks To Buy Now 11 Best Small-Cap Growth Stocks to Invest In Disclosure. None. 13 Best Dow Jones Dividend Stocks According to Analysts is originally published on Insider Monkey......»»

Category: topSource: insidermonkeyFeb 22nd, 2024

5 Must-Buy Growth Stocks for Sparkling Returns in Near Future

We have narrowed our search to five growth stocks that have solid upside left for 2024. These are: AMZN, RCL, PGR, HCA, APP. U.S. stock markets ended 2023 on a strong note after a highly disappointing 2022. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — rallied 13.7%, 23.9% and 43.4%, respectively. Wall Street’s northward journey continues in 2024. Year to date, the Dow, the S&P 500 and the Nasdaq Composite — have advanced 2.5%, 4.9% and 5.1%, respectively.At this stage, it will be prudent to invest in growth stocks that have strong potential to gain in the near term.Labor Market Remains ResilientThe Department of Labor reported that the U.S. economy added 353,000 nonfarm jobs in January, well above the consensus estimate of 185,000. Moreover, the data for December was revised upward to 333,000 from 216,000 reported earlier. Similarly, the data for November was also revised upward by 9,000 to 182,000.The unemployment rate in January was 3.7%, the same as in December. The consensus estimate was 3.8%. However, the real unemployment rate (including discouraged workers and those holding part-time jobs for economic reasons) edged higher to 7.2%.The hourly wage rate increased 0.6% in January compared with 0.4% in December. The consensus estimate was 0.3%. Year over year, the hourly wage rate increased 4.5%, beating the consensus estimate of 4.1%.No Recession AheadDespite a marginal increase in the inflation rate in January, the peak inflation rate is well behind us. Personal consumption expenditure remains rock solid despite a record-high interest rate and elevated inflation. Manufacturing, although in the contraction range, has shown signs of improvement.In its latest projection, the Atlanta Fed forecast that U.S. GDP will grow at a 2.9% clip in first-quarter 2024. This will follow a growth rate of 3.3%, 4.9%, 2.15 and 2%, respectively, in the last four consecutive quarters.High Expectations for Rate CutIn the January FOMC meeting, the Fed gave enough indications that the much-hyped cut in the benchmark lending rate in March is out of sight. Notably, the central bank paused rate hikes in July 2023 and kept it steady in the range of 5.25-5.5%.Despite the Fed’s tepid rate cut signal, market participants are hopeful about interest rate cut to a good extent this year. At present, the CME FedWatch tool shows a 81.6% probability of a 25 basis-point rate cut in June and four more rate cuts of the same magnitude during the rest of 2024.Our Top PicksWe have narrowed our search to five growth stocks that have solid upside left for 2024. These stocks have witnessed positive earnings estimate revisions in the last 30 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Growth Score A. You can see the complete list of today’s Zacks #1 Rank stocks here.The chart below shows the price performance of our five picks year to date.Image Source: Zacks Investment ResearchAmazon.com Inc. AMZN is gaining on solid Prime momentum owing to ultrafast delivery services and a strong content portfolio. The strengthening relationship with third-party sellers is a positive. Additionally, a strong adoption rate of AWS is aiding AMZN’s cloud dominance.An expanding AWS services portfolio is continuously helping AMZN gain further momentum among customers. Robust Alexa skills and an expanding smart home products portfolio are positives. AMZN’s strong global presence and solid momentum among small and medium businesses remain tailwinds.Amazon has an expected revenue and earnings growth rate of 11.4% and 39%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.7% over the last 30 days.The Progressive Corp. PGR continues to gain on higher premiums, given its compelling product portfolio, leadership position and strength in both Vehicle and Property businesses. Focus on becoming a one-stop insurance destination, and catering to customers opting for a combination of home and auto insurance augurs well for PGR.Policies in force and retention ratio should remain healthy for PGR. Competitive pricing to retain current customers and address customer needs with new offerings should continue to drive policy life expectancy.The Progressive has an expected revenue and earnings growth rate of 15.5% and 45.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.4% over the last seven days.Royal Caribbean Cruises Ltd. RCL has been benefiting from solid demand for cruising and acceleration in booking volumes. Also, the emphasis on strong pricing (on closer-in-demand) bodes well. RCL stated that the momentum has continued into 2024, with booked load factors and rates surpassing those of all previous years.Given the full fleet resumption and load factors at high prices, RCL expects customer deposits to return to typical seasonality in the upcoming periods. RCL intends to focus on new innovative ships and onboard experiences to boost its offering and deliver superior yields and margins.Royal Caribbean Cruises has an expected revenue and earnings growth rate of 14.1% and 44%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1% over the last seven days.HCA Healthcare Inc.’s HCA revenues increase on the back of a surge in admissions and outpatient surgeries. HCA expects equivalent admissions to grow in the range of 3-4% in 2024. Significant growth in its Managed Medicare operations is expected to drive its performance.Multiple buyouts aided in increasing patient volumes, enabled network expansion and added hospitals to the portfolio. EPS is predicted within $19.7-$21.2 in 2024, higher than the 2023 figure.The company has been gaining from its telemedicine business line. HCA resorts to prudent capital deployment via share buybacks and dividend payments. HCA increased its quarterly dividend by 10% to $0.66 in the first quarter of 2024.HCA Healthcare has an expected revenue and earnings growth rate of 6.2% and 7.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last seven days.AppLovin Corp. APP is engaged in building a software-based platform for mobile app developers to enhance the marketing and monetization of their apps in the United States and internationally. APP provides a technology platform that enables developers to market, monetize, analyze and publish their apps.AppLovin has an expected revenue and earnings growth rate of 20.1% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 48.7% over the last seven days. Just Released: Zacks Top 10 Stocks for 2024 Hurry – you can still get in early on our 10 top tickers for 2024. Hand-picked by Zacks Director of Research, Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2023, the Zacks Top 10 Stocks gained +974.1%, nearly TRIPLING the S&P 500’s +340.1%. Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2024. You can still be among the first to see these just-released stocks with enormous potential.See New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Royal Caribbean Cruises Ltd. (RCL): Free Stock Analysis Report The Progressive Corporation (PGR): Free Stock Analysis Report HCA Healthcare, Inc. (HCA): Free Stock Analysis Report AppLovin Corporation (APP): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research.....»»

Category: topSource: zacksFeb 20th, 2024

11 Best Big Name Stocks to Buy Right Now

In this article, we will take a detailed look at the 11 Best Big Name Stocks to Buy Right Now. For a quick overview of such stocks, read our article 5 Best Big Name Stocks to Buy Right Now. Markets that were overjoyed a few weeks ago are now wavering as latest data shows inflation remains […] In this article, we will take a detailed look at the 11 Best Big Name Stocks to Buy Right Now. For a quick overview of such stocks, read our article 5 Best Big Name Stocks to Buy Right Now. Markets that were overjoyed a few weeks ago are now wavering as latest data shows inflation remains sticky and the Fed might not be ready to begin cutting interest rates before the summer of 2024.  In this environment experts are recommending holding on to big name stocks or large-cap companies that can weather economic storms and unexpected events in the market. Small-cap investors who were getting ready to see a rally amid hopes of rate cuts are expected to have a difficult time in 2024 until there’s clarity and certainty around the Fed’s next plan of action. On the other hand, large-cap stocks are continuing to see traction. A Wall Street Journal report cited Brent Lium, portfolio manager at Crossmark Global Investments, who said: “When you get nervous, people tend to go to, and hold on to, the names that they know and think of as the biggest and the best.” On the other hand, long-term analysts believe sooner or later the Federal Reserve would begin cutting rates and earnings growth and economic strength will drive the S&P 500 higher near the end of 2024. Goldman Sachs recently increased its year-end target for the S&P 500 to 5,200, up from its previous estimate of 5,100. Goldman Sachs’s David Kostin said he expects mega-cap stocks’ earnings strengths, especially those of the Magnificent Seven group of stocks, to drive the S&P 500 profits in 2024. Methodology For this article we scanned Insider Monkey’s database of over 900 hedge funds and their holdings and picked 11 large-cap stocks with the highest number of hedge fund investors. These are big name stocks highly popular among smart money investors in 2024.Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). 11. Berkshire Hathaway Inc Class B (NYSE:BRK.B) Number of Hedge Fund Investors: 117 Berkshire Hathaway Inc Class B (NYSE:BRK.B) is one of the best big name stocks to buy right now according to smart money investors. As of the end of the fourth quarter of 2023, 117 hedge funds out of the 933 funds in Insider Monkey’s database had stakes in Berkshire Hathaway Inc Class B (NYSE:BRK.B). The biggest stake in Berkshire Hathaway Inc Class B (NYSE:BRK.B) is owned by Michael Larson’s Bill & Melinda Gates Foundation Trust which owns a $7.1 billion stake in Berkshire Hathaway Inc Class B (NYSE:BRK.B). Warren Buffett’s Berkshire Hathaway Inc Class B (NYSE:BRK.B) recently posted its 13F filings for the fourth quarter of 2023. These filings show the firm dumped its entire stakes in DR Horton, Stoneco Ltd., Global Life and Markel Group. 10. Uber Technologies Inc (NYSE:UBER) Number of Hedge Fund Investors: 129 Uber Technologies Inc (NYSE:UBER) is in the spotlight after Uber Technologies Inc (NYSE:UBER) announced its first ever share buyback program according to which it will repurchase up to $7 billion of its common stock. Uber Technologies Inc (NYSE:UBER) has also given a three-year outlook during its latest investor day. For the first quarter of 2024, Uber expects gross bookings in the range of $37 billion to $38.5 billion, with adjusted EBITDA projected to be between $1.26 billion and $1.34 billion. As of the end of the last quarter of 2023, 129 hedge funds tracked by Insider Monkey had stakes in Uber Technologies Inc (NYSE:UBER). The biggest stakeholder of Uber Technologies Inc (NYSE:UBER) during this period was D. E. Shaw’s D E Shaw which owns an $886 million stake in Uber Technologies Inc (NYSE:UBER). RiverPark Advisors made the following comment about Uber Technologies, Inc. (NYSE:UBER) in its Q3 2023 investor letter: “Uber Technologies, Inc. (NYSE:UBER): UBER was the top contributor in the quarter following a better-than-expected 2Q23 earnings report and 3Q23 guidance. Gross bookings of $33.6 billion were up 16% year over year. Mobility gross bookings of $17 billion grew 25% over last year driven by a combination of product innovation and driver availability. Delivery gross bookings of $16 billion were up 12% from last year. 2Q Adjusted EBITDA of $916 million, up $552 million year over year, significantly beat Street estimates of $845 million and the company generated $1.1 billion of free cash flow. Management guided to continuing growth in 3Q Gross Bookings (17%-20% growth) and Adjusted EBITDA (of $975-1,025 million). UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates. Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than just ride sharing and food delivery, but also as a global mobility platform with the ability to sell to its 130 million users (by comparison, Amazon Prime has 200 million members) and penetrate new markets of on-demand services, such as package and grocery delivery, travel, and worker staffing for shift work. Given its $4.3 billion of unrestricted cash and $4.4 billion of investments, the company’s enterprise value of $95 billion equates to just over 20x next year’s estimated free cash flow.” 9. Salesforce Inc (NYSE:CRM) Number of Hedge Fund Investors: 131 Salesforce Inc (NYSE:CRM) has been making waves ever since the generative AI revolution began. Salesforce Inc (NYSE:CRM) is integrating AI features with its CRM platform and other products and services. Last month, BofA analyst Brad Sills added the stock to his top picks for 2024 list. The analyst praised Salesforce Inc’s (NYSE:CRM) installed base of over 150,000 customers and said Salesforce had a competitive moat and more runway to continue growing at 15% and more organically in the years to come. As of the end of the fourth quarter of 2023, 131 hedge funds tracked by Insider Monkey had stakes in Salesforce Inc (NYSE:CRM), up from 122 funds in the previous quarter. This shows a spike in hedge fund sentiment for Salesforce Inc (NYSE:CRM). Polen Focus Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its fourth quarter 2023 investor letter: “In the fourth quarter, the top relative and absolute contributors to the Portfolio’s performance were Netflix, ServiceNow, and Salesforce, Inc. (NYSE:CRM). Salesforce has continued to grow its revenues at what we see as a healthy rate despite market concerns about the impact of the weaker macroeconomy on its business and penetration rates in its core CRM offering. Even its most mature and largest offerings, Sales Cloud and Service Cloud, are still growing revenue at double-digit rates. In addition, management realized that their cost structure, especially in salespeople, had gotten too bloated. Over the past year and a half, the company has run a much more streamlined expense structure that has led to strong operating margin expansion and earnings growth. Importantly, we do not feel Salesforce has cut into its innovation or sales muscle through these cost cuts but has eliminated unnecessary excess fat from the organization.” 8. Apple Inc (NASDAQ:AAPL) Number of Hedge Fund Investors: 131 Apple Inc (NASDAQ:AAPL) may be late to the AI party but it could become a formidable player in the industry as new reports suggest that Apple Inc (NASDAQ:AAPL) is getting ready to launch a generative AI tool for iOS developers. Citi in a latest note said Apple Inc’s (NASDAQ:AAPL) upcoming developer conference could act as an AI catalyst for the stock. Apple Inc (NASDAQ:AAPL) is also reportedly working on launching new AI features for its next version of macOS, Apple Music and Spotlight search. A total of 131 hedge funds tracked by Insider Monkey had stakes in Apple Inc (NASDAQ:AAPL) as of the end of the fourth quarter of 2023. The most notable stake in Apple Inc (NASDAQ:AAPL) is owned by Warren Buffett’s Berkshire Hathaway which owns a $174 billion stake in Apple Inc (NASDAQ:AAPL). Mairs & Power Growth Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its fourth quarter 2023 investor letter: “The Fund’s relative performance was negatively impacted by what we didn’t own as well. In particular, not holding Apple Inc. (NASDAQ:AAPL) for most of the year cost the Fund more than 300bps (basis points) of performance. Apple may be the best-known company in the world and its seemingly ubiquitous iPhone holds a dominant share of the global cell phone market. Apple is even more dominant among Millennials and Gen Zers, which should lead to even greater market share as these cohorts age. This loyal user base should pay huge dividends for shareholders as Apple continues to monetize this ecosystem, especially as the company delves deeper into services, payments, and AI. We initiated a position in Apple during the fourth quarter and await a more attractive entry point to add to our position.” 7. Mastercard Inc (NYSE:MA) Number of Hedge Fund Investors: 141 Mastercard Inc (NYSE:MA) ranks seventh in our list of the best big name stocks to buy now. As of the end of the fourth quarter of 2023,  141 hedge funds out of the 933 funds tracked by Insider Monkey had stakes in the payments giant Mastercard Inc (NYSE:MA). Last month Mastercard Inc (NYSE:MA) posted fourth quarter results. Adjusted EPS in the period came in at $3.18, beating estimates by $0.10. Revenue in the quarter jumped 13% year over year to $6.5 billion, surpassing estimates by $20 million. Ensemble Capital Management stated the following regarding Mastercard Incorporated (NYSE:MA) in its fourth quarter 2023 investor letter: “Mastercard Incorporated (NYSE:MA) (7.21% weight in the Fund): Payment companies are data companies. As we discussed last quarter in our write up of Mastercard, merchants can generate significant value from analyzing payment data to better understand their customers. Mastercard has long built AI-based products to enhance payment security and provide merchants with rich data analytics. In December, they rolled out Muse, a new online shopping companion that merchants who utilize certain Mastercard services can install on their own websites. Muse seeks to replicate the instore experience of working with a salesclerk by allowing the customer to use natural language to browse products. Online shopping already works well if you know exactly what you are looking for, but Muse is striving to help customers find things to buy even when they aren’t sure what they are looking for. Mastercard (7.21% weight in the Fund): In late October, Mastercard reported earnings that investors interpreted as pointing to a near term slowdown in payment growth. The stock fell 5.6% on the day. By the end of the next week, the stock had recovered its losses and went on to reach a new all time high on the last day of the year. But the 7.9% gain on the quarter slightly trailed the S&P 500.” 6. Visa Inc (NYSE:V) Number of Hedge Fund Investors: 162 Visa Inc (NYSE:V) last month posted fiscal Q1 results. While EPS beat estimates, the stock slipped as Visa Inc’s (NYSE:V) payment volumes came in lower than expected. Visa Inc (NYSE:V) also increased its guidance for expense growth for fiscal 2024. Despite this, Visa Inc (NYSE:V) remains one of the top big name stocks to buy and hold according to smart money investors Visa Inc (NYSE:V) shares have gained about 26% over the past one year. With years of consistent dividend increases and a resilient business, retail and institutional investors prefer to buy and hold the stock during troubled times. A total of 162 hedge funds tracked by Insider Monkey had stakes in Visa Inc (NYSE:V). In its October 2023 investor letter, Lakehouse Capital stated the following regarding Visa Inc. (NYSE:V): “Visa Inc. (NYSE:V) reported a strong result with net revenue increasing 11% year-on-year to $8.6 billion and non-GAAP earnings per share increasing by 21% to $2.33. As has been the case for many years now, the scalable nature of the business allows for revenue growth to outpace its costs, which places the company in a good position to navigate through this inflationary period. The network continues to grow, with credentials and merchant locations up 7% and 17%, respectively. Cross-border travel-related spend also maintained its robust growth, increasing 26% year-on-year while Visa Direct reported 7.5 billion transactions, up 19% yearon-year, progressing on penetrating categories such as cross-border remittances. Altogether, we’re pleased with how the business is tracking and remain positive on Visa’s outlook.”   Click to continue reading and see the 5 Best Big Name Stocks to Buy Right Now.   Suggested Articles: 13 Most Buzzing Stocks To Buy Now 13 Best Grocery Stocks To Buy Now 15 Best Affordable Stocks To Buy Now, Disclosure: None. 11 Best Big Name Stocks to Buy Right Now is originally published on Insider Monkey......»»

Category: topSource: insidermonkeyFeb 19th, 2024

15 Easiest Credit Cards to Get with Bad Credit

In this article we will take a look at the 15 Easiest Credit Cards to Get with Bad Credit. You can also go directly to the 5 Easiest Credit Cards to Get with Bad Credit. According to recent data from credit bureaus, a significant portion of the population faces challenges related to creditworthiness, with many […] In this article we will take a look at the 15 Easiest Credit Cards to Get with Bad Credit. You can also go directly to the 5 Easiest Credit Cards to Get with Bad Credit. According to recent data from credit bureaus, a significant portion of the population faces challenges related to creditworthiness, with many individuals contending with low credit scores due to past financial missteps or limited credit history. As of the latest statistics, approximately 33% of Americans have credit scores below 670, categorizing them as having fair to poor credit. This shows the pressing need for accessible credit solutions tailored to this demographic, offering a means to rebuild creditworthiness and access essential financial services. Furthermore, studies reveal the profound impact that credit scores can have on individuals’ financial well-being. According to research conducted by the Consumer Financial Protection Bureau (CFPB), individuals with lower credit scores tend to face higher borrowing costs, including elevated interest rates on loans and credit cards. Additionally, they may encounter difficulties in securing housing, obtaining insurance coverage, and even finding employment, as many employers now conduct credit checks as part of their hiring process. Recognizing this need, financial institutions have developed specialized credit card offerings targeted at individuals with bad credit. These cards typically come with relaxed approval criteria, making them easier to obtain even for those with tarnished credit histories. Moreover, many of these cards offer features such as secured credit lines, low credit limits, and credit-building tools aimed at assisting cardholders in improving their credit scores over time. In the US, Bank of America Corporation (NYSE: BAC) is one of the largest financial institutions, which offers secured credit card options for individuals with bad credit. The Bank of America Corporation (NYSE: BAC)’s Secured Credit Card is a notable offering, providing individuals with the opportunity to build or rebuild their credit history. Cardholders are required to provide a security deposit, which determines their initial credit limit. Bank of America Corporation (NYSE: BAC) also offers online and mobile banking services, allowing cardholders to manage their accounts conveniently and track their credit progress. Similarly, Wells Fargo & Company (NYSE: WFC) is another major player in the financial industry, offering secured credit card options to help individuals with bad credit establish or rebuild their credit. The Wells Fargo & Company (NYSE: WFC)’s Secured Credit Card is one such offering, requiring a security deposit that becomes the cardholder’s credit line. Cardholders can use the Wells Fargo & Company (NYSE: WFC)’s Secured Credit Card responsibly to demonstrate creditworthiness over time. Wells Fargo & Company (NYSE:WFC) also provides online account management tools and access to credit education resources to assist cardholders in managing their credit effectively. These and many other financial institutions offer credit cards designed to provide a pathway to credit recovery for individuals with bad credit, empowering them to improve their financial health and achieve their long-term goals. Methodology To compile the list of the 15 Easiest Credit Cards to Get with Bad Credit, we shortlisted the top credit cards to get with bad credit, from sources like Card Rates, Bad Credit, and Forbes Advisor. And then we opted for a consensus approach relying on opinion threads from popular platforms Quora and Reddit. A score point was given each time a credit card was mentioned as easiest to get with bad credit and then all the points were added to give a total score to each credit card. Then the list of the 15 easiest credit cards to get with bad credit was ranked in ascending order (least recommended to highly recommended credit cards). By the way, Insider Monkey is an investing website that tracks the movements of corporate insiders and hedge funds. By using a similar consensus approach, we identify the best stock picks of more than 900 hedge funds investing in US stocks. The top 10 consensus stock picks of hedge funds outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years. Whether you are a beginner investor or a professional one looking for the best stocks to buy, you can benefit from the wisdom of hedge funds and corporate insiders – check details here. 15 Easiest Credit Cards to Get with Bad Credit 15. First Progress Platinum Elite Mastercard® Secured Credit Card Score: 3 The First Progress Platinum Elite Mastercard® Secured Credit Card is tailored for individuals looking to rebuild their credit. With this card, you can provide a security deposit to establish your credit line, making it easier to qualify for even with a less-than-perfect credit history. It reports to all three major credit bureaus, allowing you to demonstrate responsible credit use and improve your credit score over time. 14. Indigo® Platinum Mastercard® Score: 3 The Indigo® Platinum Mastercard® is a popular choice for those with less-than-ideal credit. One of its key features is the pre-qualification process, which allows applicants to check their eligibility without impacting their credit score. With straightforward terms and conditions, this card offers an opportunity for individuals to rebuild their credit while enjoying the convenience of a Mastercard®. 13. FIT Platinum Mastercard® Score: 4 The FIT Platinum Mastercard® is designed for individuals striving to improve their credit health. With its focus on accessibility, this card offers a simple application process and is available to those with poor credit. It provides an opportunity to establish or rebuild credit with responsible use, helping cardholders move toward financial stability. 12. NASCAR® Credit Card from Credit One Bank® Score: 4 The NASCAR® Credit Card from Credit One Financial Inc (COFI.OB) is a unique option for racing enthusiasts seeking to rebuild their credit. With features like cash back rewards and flexible payment options, this card caters to individuals with less-than-perfect credit histories. Its straightforward application process makes it accessible to those working on improving their financial standing. 11. Total Visa® Unsecured Credit Card Score: 4 The Total Visa® Unsecured Credit Card is designed to provide individuals with bad credit an opportunity to access credit without requiring a security deposit. Despite its accessibility, it’s important to note that this card may come with higher fees and interest rates. However, for those looking to rebuild their credit, it offers a starting point and reports to major credit bureaus to help establish positive credit history. 10. Applied Bank® Secured Visa® Gold Preferred® Credit Card Score: 5 The Applied Bank® Secured Visa® Gold Preferred® Credit Card is an excellent choice for individuals looking to rebuild their credit. By providing a security deposit, cardholders can establish a credit line, making it easier to qualify for those with bad credit. This card reports to major credit bureaus, allowing users to demonstrate responsible credit management and improve their credit scores over time. Additionally, it offers features such as online account management and customer service to assist cardholders in their credit-building journey. 9. Surge Mastercard® Score: 5 The Surge Mastercard® is specifically designed to assist individuals with poor credit in rebuilding their financial standing. Its quick and straightforward application process ensures accessibility for those who may have difficulty obtaining traditional credit cards. While the Surge Mastercard® may have higher fees and interest rates, it provides an opportunity for cardholders to demonstrate responsible credit use and work towards better financial stability. Additionally, it offers features like zero fraud liability and online account management to enhance the cardholder experience. 8. Fortiva® Mastercard® Credit Card Score: 5 The Fortiva® Mastercard® Credit Card is tailor-made for individuals with bad credit who are committed to improving their financial situation. With a simple application process and accessibility for those with not the best credit histories, this card serves as a valuable tool for rebuilding credit. Although it may have higher fees and interest rates, it provides a pathway for cardholders to rebuild their credit with responsible use and on-time payments. Furthermore, it offers features like account alerts and online bill payment to help cardholders manage their finances effectively. 7. Milestone® Gold Mastercard® Score: 4 The Milestone® Gold Mastercard® is a highly sought-after option for individuals with bad credit seeking to rebuild their credit scores. With features such as pre-qualification without impacting credit scores, this card offers accessibility to those with less-than-ideal credit histories. By responsibly managing their credit, cardholders can use this card as a tool to improve their financial health over time. Additionally, the Milestone® Gold Mastercard® provides benefits like zero fraud liability protection and online account access to enhance the cardholder experience. 6. Secured Chime Credit Builder Visa® Credit Card Score: 6 The Secured Chime Credit Builder Visa® Credit Card is designed to assist individuals with bad credit in establishing or rebuilding their credit profiles. With a focus on simplicity and accessibility, this card offers a straightforward application process and requires a security deposit to secure a credit line. By using this card responsibly and making on-time payments, cardholders can work towards improving their credit scores and financial well-being. Additionally, the Secured Chime Credit Builder Visa® Credit Card provides features such as mobile banking and account alerts to help cardholders manage their finances effectively and track their progress in rebuilding their credit. Click to continue reading and see the 5 Easiest Credit Cards to Get with Bad Credit. Suggested Articles: 16 Most Exclusive Credit Cards in the World Credit Suisse’s 12 Highest-Conviction Top Picks 40 Accredited Online Business Degree Programs Heading Into 2024 Disclosure: none. 15 Easiest Credit Cards to Get with Bad Credit is originally published on Insider Monkey......»»

Category: topSource: insidermonkeyFeb 19th, 2024