New US GaN patent war may cripple exports of top China vendor

A recent patent lawsuit filed by US-based gallium nitride (GaN) technology specialist Efficient Power Conversion Corp (EPC) against China's top GaN devices vendor Innoscience Technology is likely to deter the latter from developing its sales abroad......»»

Category: topSource: digitimesJun 8th, 2023

Tucker Carlson Goes Shopping: Russian Economy Well Intact Despite Sanctions

Tucker Carlson Goes Shopping: Russian Economy Well Intact Despite Sanctions Western populations have been hearing for the past two years that NATO sanctions would have a devastating effect on the Russian economy, so much so that Vladimir Putin would be forced to back out of military operations in Ukraine almost immediately.  The removal of Russia from the SWIFT network and the suffocation of its exports was going to cripple the nation's banking sector and send it into an economic death spiral.  Corporate media economists and Biden Administration representatives alike compared the financial warfare strategy to a kind of "cancel culture" action on a global scale.  The very first modern cancellation of a country. Well, needless to say, sanctions did not turn out the way the establishment expected.  Initial reports in US and European media claimed that Russian businesses were struggling to stay afloat and some argued that the Russian populace might even revolt against the Kremlin in anger.  But this was all a farce, much like the majority of reports suggesting Ukrainian victory was imminent.  Rather that imploding, Russian exports and imports are thriving.  The nation printed an oil export surge at the end of 2023, as well as increased exports on a number of raw goods from oil seeds to grains in 2023.  Most of the export rise can be attributed to closer trade ties with Asia, a move which western government should have expected.  In fact, the NATO tactic of using Ukraine as a proxy battleground has only driven eastern governments like China and India closer to Russia.   Tucker Carlson, one of the few western journalists reporting on the conflict without anti-Russian bias, took the opportunity while visiting the country to go shopping in a local retail mall.  The experiment was meant to examine how much inflation and economic hardship was punishing the Russian public.  What he found, in fact, was relatively low inflation and stable price averages compared to the US.      If you thought the warhawks on social media had a meltdown over Carlson's interview with Putin, the response to the above segment was absolutely rabid.  Critics attacked Carlson, accusing him of "trying to argue that Russia's economy is better than the US economy."  They also ridiculed him for not taking Russian wages into account vs American wages in his analysis.  But, as usual, the mainstream media has missed the bigger picture.  While it is true that average American wages are substantially higher than Russian wages and the dollar has greater international buying power due to it's world reserve status, the greenback is decidedly weak in its home country and this is a factor that many in the public do not yet realize.   The cost of living in dollars for one person in the US is approximately 400% higher across the board compared to one person living in Russia.  Individual items vary - For example, a loaf of bread is 500% more expensive in the US than it is in Russia, while a bottle of coke is only 164% more expensive.  A one bedroom apartment is 500% more expensive in the US, while a beer is only 233% more expensive.  Most of Carlson's critics used the inflated average "household income" numbers in the US and compared them to single income numbers in Russia.  This is an inaccurate methodology.  US household wages average at $76,000 per year, but this involves multi-income families.  The average US single earner makes only $40,000 per year.  The point is, though Tucker Carlson may have overlooked the wage gap between Russians and Americans, the cost of living exercise in US dollars still showcases two things: 1)  Americans have the world reserve currency at their disposal, yet, it doesn't do them much good in America.  The value of the dollar isn't evident to most people in the US until they travel overseas.  This is due to expansive monetary stimulus by the Federal Reserve, which has greatly diminished the dollar's buying power within the US economy and caused 30%+ higher prices since 2020 alone. 2) The more important takeaway from Carlson's experiment is the lack of chaos in Russian markets.  Despite the global sanctions leveraged against them, Russia has proven increasingly resilient.  With their overall inflation rate expected to fall to 4.5% in 2024, it would seem the economic war against the nation has failed.  For the people who were expecting the Kremlin to be reduced to smoking ruins after a financial Apocalypse similar to Weimar Germany, this must be a disappointing realization.  What we can learn from this outcome is that trade finds a way, and cancelling an entire country is not as easy as some might think. Tyler Durden Mon, 02/19/2024 - 23:00.....»»

Category: dealsSource: nytFeb 20th, 2024

Comstock Resources, Inc. (NYSE:CRK) Q4 2023 Earnings Call Transcript

Comstock Resources, Inc. (NYSE:CRK) Q4 2023 Earnings Call Transcript February 14, 2024 Comstock Resources, 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: Thank you for standing by and welcome to the Comstock Resources Fourth Quarter 2023 Earnings Conference Call. […] Comstock Resources, Inc. (NYSE:CRK) Q4 2023 Earnings Call Transcript February 14, 2024 Comstock Resources, 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: Thank you for standing by and welcome to the Comstock Resources Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After this speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Jay Allison, Chairman and CEO. Please go ahead, sir. Jay Allison: All right, Jonathan. I love that broadcasting voice, kind of starts the day off right. Our corporate team of 255 strong, I want to thank you for joining the call this morning and we wish you a Happy Valentine’s Day. Being a pure-play natural gas company in a sub $2 natural gas market, calls for decisive actions to weather the volatility, and at the same time, continue positioning Comstock to benefit from the longer term growth in natural gas demand in the foreseeable future. America will need to deliver an additional 10 billion cubic feet of natural gas per day to the LNG facilities currently under construction in the next few years. Actions taken so far as we batten down the hatches to protect our balance sheet. Number one, in January, we released a frac crew. Number two, several months ago, we gave notice to release two rigs and they will both be finished their work by the end of this month. Number three, we suspended our quarterly dividend until natural gas prices improve. Number four, we continually evaluate our activity level as we plan to fund our drilling program within operating cash flow if possible. Number five, we formed our mid-stream joint venture last year that allows us to build out of the Western Haynesville midstream assets to be funded by the midstream partnership and not burden our operating cash flow at Comstock. Number six, we’ve positioned Comstock to have very few rigs needed to hold all of our corporate acres including the 250,000 plus net acres in the Western Haynesville. Number seven, we’re bullish on the long term outlook for natural gas and are growing our resource base in the advantage proximity to the Gulf Coast market. Number eight, lastly, our Western Haynesville “box of chocolate” on its Valentine’s Day, allows us to materially grow our drilling inventory organically versus through the M&A market. I can also assure you that our majority stockholder, the Jerry Jones family, is in 100% approval of all of our prior actions, as well as our recent moves to protect our balance sheet in this volatile natural gas market. They are in the cockpit with us helping fly this plane with a steady hand on the throttle, looking into the future where global natural gas markets are counting on our US gas to provide needed clean energy. Our goal is to look back on this point in time in the future years and say, we handled it well and continued to create corporate value in a weak period for natural gas. Now I’ll go over to the corporate script. Welcome to the Comstock Resources Fourth Quarter 2023 Financial and Operating Results Conference Call. You can view a slide presentation during or after this call by going to our website at and downloading the quarterly results presentation. There you will find a presentation entitled Fourth Quarter 2023 Results. I’m Jay Allison, Chief Executive Officer of Comstock. With me is Roland Burns, our President and Chief Financial Officer; Dan Harrison, our Chief Operating Officer; and Ron Mills, our VP of Finance and Investor Relations. Please refer to slide two in our presentations and note that our discussions today will include forward-looking statements within a meeting of securities laws. While we believe the expectations and such statements to be reasonable, there could be no assurance that such expectations will prove to be correct. Fourth quarter 2023 highlights. On slide three, we summarize the highlights of the fourth quarter. The financial results continue to be heavily impacted by the continued weak natural gas prices. Oil and gas sales, including hedging were $354 million in the quarter. We generated cash flow from operations of $207 million or $0.75 per share and adjusted EBITDAX was $244 million. Our adjusted net income was $0.10 for the quarter. We continue to have very strong results from our drilling program. In the fourth quarter, we drilled 14 or 13.3 net successful operated Haynesville and Bossier shale horizontal wells in the quarter with an average lateral length of 8,994 feet. Since the last conference call, we’ve connected 22 or 16.5 net operated wells to sales with an average initial production rate of 24 million cubic feet per day and an average lateral length of 11,966 feet. Our 2023 drilling program replaced 109% of our 2023 production with new proved reserves adds. We are continuing to make progress in our Western Haynesville exploratory play. We added 23,000 net acres to our expensive Western Haynesville acreage position in the fourth quarter alone, increasing our total acreage position in the play to over 250,000 net acres. We recently turned our eighth well to sales. The Neyland well was completed in the Haynesville formation and is currently producing at 31 million cubic feet per day. Three additional wells, the Harrison, Glass and Farley Wells are expected to come on production by the end of the first quarter. I’ll now have Roland go over the fourth quarter and the annual financial results. Roland? Roland Burns: Thanks, Jay. On slide four, we cover our fourth quarter financial results. Our production in the fourth quarter of 1.5 Bcfe per day increased 6% for the fourth quarter of 2022 and grew 8% from the third quarter. Low natural gas prices resulted in our oil and gas sales in the quarter coming in at $354 million, declining 37% from 2022’s fourth quarter despite the higher production level. EBITDAX for the quarter came in at $244 million and we generated $207 million of cash flow in the fourth quarter. We reported adjusted net income of $28 million for the fourth quarter or $0.10 per share, as compared to a net income of $12 million in the third quarter of 2023 and $288 million in the fourth quarter of 2022. On slide five, we show the financial results for the full year 2023. Our production averaged 1.4 Bcfe per day, which was a 5% increase from the prior year. Oil and gas sales in 2023 totaled $1.3 billion and were 41% lower than our sales in 2022 due to the lower gas prices we realized. Our EBITDAX in 2023 was $928 million and we generated $774 million of cash flow for the year. We reported net income of $133 million for 2023 as compared to net income of $1 billion in 2022. On slide six, we show our natural gas price realizations that we had in the quarter. During the fourth quarter, the quarterly NYMEX settlement gas price averaged $2.88, which was $0.14 higher than the average Henry Hub spot price in the quarter of $2.74. Our realized gas price during the fourth quarter averaged $2.48, reflecting a $0.40 differential to the settlement price, and a $0.32 differential to our reference price. The differentials were a little wider in the quarter starting in October, which normally occurs as we reach the end of storage injection period. In the fourth quarter, we were 16% hedged and that improved our realized gas price for the quarter to $2.51. We’ve also been using some of our excess transportation in the Haynesville to buy and resell third-party gas. We generated about $4.4 million of profits in the fourth quarter and that improved our gas price realization by another $0.03 in the quarter. On slide seven, we detail the operating cost per Mcfe and our EBITDAX margin. Our operating cost per Mcfe averaged $0.81 in the fourth quarter, 4% lower than the third quarter. Lower gathering costs were offset though by higher production and ad valorem taxes. Our gathering costs were down $0.03 to $0.33 during the quarter and our lifting costs were also $0.01 lower than the third quarter rate at $0.23. Our production ad valorem taxes increased $0.03 in the third — from the third quarter level and G&A came in at $0.02 per Mcfe, which was $0.03 lower than the third quarter. Our EBITDAX margin after hedging came in at 68% in the fourth quarter, up from the 65% level we had in the previous quarter. On slide eight, we recap our spending on drilling and other development activity. In 2023, we spent a total of $1.3 billion on our development activities, including $1.2 billion on our Haynesville and Bossier shale drilling program. Spending on other development activity including installing production tubing, offset frac protection and other workovers totaled $54 million. In 2023, we drilled 67 wells or 55.5 wells net to our interest and turned 74 or 55.7 net operated wells to sales. These wells had an overall average IP rate of 25 million cubic feet per day per well. On slide nine, we cover our natural gas and oil reserves that were determined using the required SEC prices. Our SEC-approved reserves decreased 26% in 2023 to 4.9 Tcfe due to the low gas price used in the determination. The required SEC gas price decreased 60% for 2023 to $2.39 per Mcf, down from the $6.03 that was used in 2022. Our 2023 drilling activity added 571 Tcfe-approved reserves to our year in reserves which replaced 109% of our 2023 production. But we also had 1.8 Tcfe of negative revisions due to the lower proved undeveloped reserves caused by our reduction in drilling activity and the low natural gas price that was used to determine which undrilled locations we would drill In addition to the total 4.9 Tcfe of SEC proved reserves that we had at the end of the year, we have another half a Tcfe approved undeveloped reserves that aren’t included as they are not expected to be drilled within the five-year required — time period required by the SEC rules. We also have another almost Tcfe of 2P or probable reserves and 4.6 Tcfe of 3P or possible reserves for a total reserve base of around 10.9 Tcfe on a P3 basis, all determined at the low SEC pricing. On slide 10, we’ve used NYMEX gas price of $3.50 per Mcf to determine the reserves to show the impact of the low prices on the year end reserves. Using this price, our approved reserves would have been similar to last year at 6.6 Tcfe. In addition, our overall reserves we would have had an additional of another 2 Tcfe approved undeveloped reserves that are outside the five-year period, and then we would have 2.5 Tcfe of 2P or probable reserves and another 8.7 Tcfe of 3P or possible reserves for a total overall reserve base of 19.8 Tcfe on a P3 basis, all determined at a $3.50 NYMEX gas price, which in our view lined up closer to the long term futures prices for natural gas. On slide 11, we recap our balance sheet at the end of 2023. We did end the quarter with $580 million of borrowings under our credit facility, giving us a total of $2.7 billion in debt, including our outstanding senior notes. Our borrowing base for our bank credit facility is currently at $2 billion, of which we have an elected commitment of $1.5 billion of that amount. So we ended the year with overall financial liquidity of just over $1 billion. I’ll now turn it over to Dan to kind of discuss our operations in more detail. Daniel Harrison: Okay. Thank you, Roland. Over on slide 12, this shows where our current drilling inventory stands at the end of the year into the fourth quarter. Our inventory is split between our Haynesville and Bossier locations. We have it divided up into four buckets. Our short laterals run upto 5,000 feet. Our medium laterals run between 5,000 feet and 8,500 feet. We have our long laterals between 8,500 feet and 10,000 feet. And then our extra-long laterals extending out beyond 10,000 feet. Our total operated inventory currently stands at 1,706 gross locations and 1,303 net locations. This equates to a 76% average working interest across our operated inventory. Our non-operated inventory has 1,253 gross locations and 160 net locations. This represents a 13% average working interest across the non-operated inventory. If you break down our gross operated inventory, we have 291 short laterals, 347 medium length laterals, 438 long laterals, and 630 extra-long laterals. The gross operated inventory is split 51% in the Haynesville and 49% in the Bossier. 37% of our gross operated inventory or 630 locations have laterals greater than 10,000 feet and 63% of the gross operated inventory has laterals exceeding 8,500 feet. The average lateral length in our inventory now stands at 8,971 feet and this is up slightly from 8,949 at the end of the third quarter. Our inventory provides us with 25 years of future drilling locations. On slide 13, is a chart outlining our progress to date on our average lateral length and drilled based on the wells that we’ve turned to sales. During the fourth quarter, we turned 17 wells to sales with an average length of 11,870 feet and this is thanks to the continued sales of our long lateral drilling program. The individual lengths range from 5,736 feet up to 15,243 feet, while our record longest lateral still stands at 15,726 feet. During the fourth quarter, 12 of the 17 wells we turned to sales had laterals exceeding 10,000 feet, including seven of those wells longer than 14,000 feet. To date, we have drilled a total of 80 wells with laterals over 10,000 feet long and 28 wells with laterals over 14,000 feet. During the fourth quarter, we didn’t turn any wells to sales on our new Western Haynesville acreage. To date, in 2024, we have turned one well to sales in the Western Haynesville and we do expect a total of four wells to be turned to sales by the end of the first quarter. In 2023, we turned a total of 74 wells to sales with an average lateral length of 10,820 feet and this is up 8% from our 2022 average lateral length of 9,989 feet. Slide 14 outlines our new well activity. We have turned to sales and tested 22 new wells since the time of our last call. The individual IP rates range from 9 million a day up to 42 million a day with an average test rate of 24 million cubic feet a day. The average lateral length was 11,966 feet with the individual laterals ranging from 5,736 feet up to 15,243 foot lateral. The Hamilton Verhalen B number 2 well located in East Texas, which had a 9 million a day IP rate, suffered mechanical casing failure during completion, which resulted in this well producing from only half of the completed lateral. In addition to the first seven wells producing in the Western Haynesville at the end of 2023, we recently placed our eighth well online. The Neyland number 1 was drilled in the Haynesville and to date, it’s currently producing 31 million cubic feet a day. This well is still in the process of being tested and cleaning up. We do anticipate three additional wells being turned to sales by the end of the first quarter. We currently have two rigs running on our Western Haynesville acreage and we are currently planning to keep two rigs running in the Western Haynesville for the remainder of the year. On slide 15, this summarizes our D&C costs through the fourth quarter for our benchmark long lateral wells that are located on our legacy core East Texas and North Louisiana acreage. This covers all our wells having laterals greater than 8,500 feet long. During the quarter, we turned 17 wells to sales that were on our core East Texas and North Louisiana acreage, 13 of the 17 wells were our benchmark long lateral wells. In the fourth quarter, our D&C cost averaged $1,482 a foot on the 13th benchmark long lateral wells and this reflects a 5% decrease compared to the third quarter. Our fourth quarter drilling cost averaged $610 a foot, which is a 15% decrease compared to the third quarter. The lower drilling cost reflects a slight downward trend on pricing we’ve experienced throughout 2023 and also our drilling costs in the third quarter was abnormally higher due to some drilling issues we had in that quarter. Our fourth quarter completion cost came in at $871 a foot, which is a 3% increase compared to the third quarter. The increase in completion costs were primarily attributable to some slightly higher plug drill-out cost in the fourth quarter due to the longer laterals. We currently have seven rigs running. We are in the process of releasing one rig this weekend and end of the month, early next month, we’ll be releasing a second rig. We currently expect to run five rigs for the rest of 2024. On the completion side, we are currently running two frac crews. We do expect to maintain one to two frac crews running for the remainder of the year. I’ll now hand the call back over to Jay. Jay Allison: Thank you, Dan. Thank you, Roland. If you’ll turn to slide 16, we’ll summarize our outlook for 2024. We remain very focused on proving up our Western Haynesville play and continuing to add to our extensive acreage position and its exciting play. At the end of 2023, our Western Haynesville acreage position totaled over 250,000 net acres. Following the creation of our mid-spring joint venture late last year, the capital costs associated with the build-out of the midstream assets in Western Haynesville will be funded by the midstream partnership and will not be a burden on our operating cash flow. We believe that we are building a great asset in Western Hansville that will be well-positioned to benefit from the substantial growth in demand for natural gas in our region that is on the horizon, driven by the growth in LNG exports that begins to show up in the second half of next year. We are actively managing our drilling activity level to prudently respond to the current low gas price environment. We have already released one of our three completion crews, as Dan said, and two of our operated rigs on our legacy Haynesville footprint, bringing our total operated rig count to five rigs, of which two are drilling in the Western Haynesville. We are focused on preserving our balance sheet in this gas price environment. We’ll continue to evaluate our activity level as we plan to fund our drilling program within operating cash flow. We are going to suspend our quarterly dividend until natural gas prices improve. Our industry-leading lowest cost structure is an asset in the current natural gas price environment as our cost structure is substantially lower than the other public natural gas producers. And lastly, we’ll continue to maintain our very strong financial liquidity, which totaled around $1 billion at the end of the fourth quarter. I’ll now have Ron provide some specific guidance for the rest of the year. Ron? Roland Burns: Thanks, Jay. On slide 17, we provide the updated financial guidance for the first quarter of this year and the full year. First quarter D&C CapEx guidance is $225 million to $275 million and the full year D&C CapEx guidance is $750 million to $850 million. The lower spending versus last year is related to the announced release of two drilling rigs in our press release last night in response to low gas prices. We’ve continued to see signs of some deflationary pressures on service costs, including an improvement in our completion costs per stage. We anticipate spending an additional $30 million to $40 million on lease acquisitions in the first quarter and $40 million to $50 million over the course of the year. Capital expenditures related to Pinnacle Gas Services will be funded by our midstream partner and are expected to total $30 million to $40 million in the first quarter and $125 million to $150 million for the full year. For both the first quarter and the full year, our LOE is expected to be in a range of $0.24 to $0.28 per Mcfe. GTC are expected to be $0.32 to $0.36 per Mcfe and production and ad valorem taxes are expected to average $0.16 to $0.20 per Mcfe. DD&A rate is expected to average $1.30 to $1.40 per Mcf this year. In the first quarter, our cash G&A is expected to total $7 million to $9 million and $30 million to $34 million for the full year. In addition, we’ll have non-cash G&A in the first quarter of $2.7 million to $3 million and $10 million to $12 million for the full year. With the increase in SOFR rates in our current debt levels, cash interest expense is now expected to total $43 million to $47 million in the first quarter and $195 million to $205 million for the year, while non-cash interest will remain approximately $2 million per quarter. Effective tax rate will remain in the 22% to 25% range and we continue to expect to defer 95% to 100% of our reported taxes this year. We’ll now turn the call back over to the operator to answer questions from analysts who follow the company. See also 15 States with the Best Healthcare in the US and Top 20 Biggest Mortgage Companies in the US. Q&A Session Follow Comstock Resources Inc (NYSE:CRK) Follow Comstock Resources Inc (NYSE:CRK) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Certainly. One moment for our first question. And our first question for today comes from the line of Derrick Whitfield from Stifel Financial. Your question, please. Derrick Whitfield: Good morning, all, and thanks for your time. Jay Allison: Yes, sir. Derrick Whitfield: Let me first commend you on a strong year end and your decision to reduce capital outflows in the current depressed gas price environment. With respect to your 2024 outlook, could you speak to the average gas price that underpins your spending within cash flow view? Any additional steps you’d likely take to further reduce capital if gas continues to deteriorate? Roland Burns: Yeah, Derrick, I mean — of course, that’s a moving target where gas prices are, and I think that probably where the gas price was in the market, maybe about two or three weeks ago was probably exactly kind of where that’s in balance. So it’s going to be a kind of a volatile deal. But I think the things that we’ll continue to monitor are, what are our service costs. They are trending down a little bit as far as the — some deflationary actions kind of happening on that side. But the other levers that we can pull or continue to look at dropping another rig, that’s the most effective way to reduce capital expenditures. That has the most impact on creating net operating cash flow. And so that’s what we’ll continue to monitor the activity like we do each year and look to tighten up the ship wherever we can to kind of maximize the operating dollars that we have. Derrick Whitfield: Terrific. And as my follow-up, I wanted to shift over to the Western Haynesville, with the understanding that it’s a long-game resource, could you speak to the gains you’re experiencing in operational efficiency, the degree you’re expecting your breakevens to improve over time, and if you’re expecting a meaningful difference in the breakevens between the Haynesville and Bossier intervals? Daniel Harrison: So, Derrick, this is Dan. I’d say, we’re definitely gaining ground and going up the curve still faster on our Western Haynesville wells. We’re — we’ve — we’re drilling our first two well pad actually currently. We got — the second rig is going to its first two well pad next. That’s going to definitely help our efficiency there. We still have had some things that we’ve gained-on on the drilling front that’s still increasing our drill times. So, we — and we still see a little bit more running room there to get faster. So I think, we definitely are seeing an increase there on the Western Hainsville wells and we’re seeing those costs come down in the core area, probably as far as the moving the needle on efficiencies, probably not as much. I mean, we’ve been there for a long time and got everything pretty streamlined, but down to the two frac crews, same vendor, we see some kind of some savings there, just really good solid performance. We brought in some three new rigs, new build rigs. So I think we’re going to have some better performance there just kind of overall. So, I think we will, and of course, we’re seeing the cost savings come down with the activity levels. We’re probably down 10% or so this year since the beginning of last year. And obviously difficult times, we — I think everybody gets pretty streamlined and pretty efficient and the costs come down, but obviously, we’d like to see maybe prices be a lot higher and be battling some of those things, but yes, that’s where we’re at. Derrick Whitfield: Very helpful. Thanks for your time. Operator: Thank you. One moment for our next question. And our next question comes from the line of Charles Meade from Johnson Rice. Your question, please. Charles Meade: Good morning, Jay, to you and your whole team there at Comstock. Jay Allison: Good morning. Charles Meade: Dan, I’m going to start with just a really quick clarifying question with you. I think I heard you say in your prepared comments that you’re planning on running between one and two completion crews for the remainder of the year, did I catch that right? Daniel Harrison: That’s right. So if you look — if you just do the math, I mean, we’ve got two — kind of two dedicated fleets to us, but if you do the math with the number of wells we’re going to turn to sales, it comes out to like 1.7 frac crews, is what we’ll need this year. Charles Meade: Got it. And then — Daniel Harrison: One running full-time and one with some gaps in between. Charles Meade: Got it. And then my follow-up, Jay, I recognize that this is kind of maybe a simplistic way to start this, but I recognize you guys look at a lot more data and have a lot more considerations than somebody sitting in my chair does, so — but in my chair, I look at the futures curve here, and we don’t get up two bucks until July, and so from my seat, it looks to me like the right number of completion crews to be running right now for at least the next several months is zero. And I recognize that’s not a realistic case, but can you bridge the pieces — to kind of bridge the view — it looks like the right number is zero, but why the right number for you guys is 1.7 or one to two for the next several months? Jay Allison: Well, I think that’s a really good question. Number one, I think if you look at how proactive we’ve been, typically on a conference call like this, you’re going to release a frac crew, we’ve already done that. Second of all, maybe you have contracted to have that frac crew and you have to use them. We don’t have any contracts. It’s a well above well. I think the other thing, just as far as cost, I mean, usually in a conference call like this, you’re going to release two rigs, and it takes two or three, four months to release those rigs, and we were proactive back in December to give notice, and as Dan has said, we’ll have both of those released by the beginning of March is our goal. So then, Roland was asked a question about the price of natural gas to stay within operating cash flow, which is kind of your question......»»

Category: topSource: insidermonkeyFeb 15th, 2024

Top 20 Most Innovative Economies in Asia

In this article, we will look into the top 20 most innovative economies in Asia. If you want to skip our detailed analysis, you can go directly to the Top 5 Most Innovative Economies in Asia. Technological Advancement in Asia According to the IMF, Asia emerged as a leader in applied research, accounting for a […] In this article, we will look into the top 20 most innovative economies in Asia. If you want to skip our detailed analysis, you can go directly to the Top 5 Most Innovative Economies in Asia. Technological Advancement in Asia According to the IMF, Asia emerged as a leader in applied research, accounting for a patent share of 54% in 2019. This can be attributed to major economies in the region including China, Japan, and Korea, placing Asia ahead of Europe and America in terms of patent production. Moreover, frontier Asian economies such as South Korea, invest heavily in research and development. Singapore and New Zealand lead the basic science patent output in Asia and the Pacific. On the other hand, non-frontier economies have capitalized on high-tech imports, foreign investment, and participation in the global value chain. Additionally, the rise in tertiary education enrollment rates in countries such as India and Vietnam is providing the necessary skills to their workforce to adapt and innovate. Non-frontier economies in Asia have also evolved their digital infrastructure. For instance, the number of secure internet servers has amplified 200 times, resulting in a reduced gap compared to high-income countries. India has emerged as a leader in information technology. Many economies including China, Japan, and South Korea are working at the forefront of digital technology adoption including robotics and e-commerce. China is the world’s biggest user of robots, accounting for around 30% of the market. Despite its innovation and impressive achievements in research and development, the region still faces multiple challenges to fully capitalize on its innovative potential. Technology adoption and scientific developments are restricted within a cluster of few firms and countries, while other economies lag. The uneven distribution limits regional productivity in Asia. Moreover, small and medium enterprises (SMEs) in the region face multiple challenges such as little to no access to cutting-edge technologies and a lack of capabilities to utilize them, especially in the digital domain. This restricted access inhibits the growth of SMEs in Asia. Asian economies must tackle these challenges to foster sustained and inclusive growth, benefitting the region as a whole. Major Players in the Asian Market Some of the key players driving innovation in the region include Alibaba Group Holding Limited (NYSE:BABA), Sony Group Corporation (NYSE:SONY), and POSCO Holdings Inc. (NYSE:PKX). On January 30, Alibaba Group Holding Limited (NYSE:BABA) announced its new serverless solution and a vector engine technology at the AI and Big Data Summit in Singapore. The new solution enables users to access as many computer resources as they need. It allows users to only pay for what resources they use, bringing the inference costs 50% down. Vector engine technology transforms text and data into an HD space. The space allows the embedding of structured and unstructured contexts to facilitate tasks. At the summit, Alibaba Group Holding Limited’s (NYSE:BABA) Cloud launched a new tool, PAI-Artlab for designers. This will help them simplify the process of model training and image generation. On January 23, Sony Group Corporation (NYSE:SONY) reported that it had signed a three-year sponsorship agreement with World Athletics. This agreement will leverage Sony Group Corporation’s (NYSE:SONY) technological capabilities at all World Athletics Series events from 2024 to 2026. This also includes the upcoming championships in Glasgow and Tokyo in 2025. The company will utilize its expertise to record and share the excitement of these events around the world, with the help of the Alpha mirrorless camera and top-notch broadcast solutions. Moreover, the wholly-owned subsidiary of Sony Group Corporation (NYSE:SONY), Hawk-Eye Innovations will be ensuring fair competition through its officiating services. POSCO Holdings Inc. (NYSE:PKX) is a leading integrated steel manufacturing company in South Korea. On February 2, the company announced that it had taken a major step toward hydrogen reduction steelmaking. The company launched a new development center, focusing on HyREX technology. It is a process that utilizes hydrogen instead of fossil fuels. This will help POSCO Holdings Inc. (NYSE:PKX) reduce its carbon emissions. The center will have different teams for research, construction, and testing, aiming for the completion of the 300,000-ton test facility by 2027. Now, let’s have a look at the top 20 most innovative economies in Asia. Top 20 Most Innovative Economies in Asia Methodology To compile our list of the top 20 most innovative economies in Asia, we employed metrics including R&D Expenditure, High Technology Exports in US$, and Digital Adoption Index (DAI). Firstly, we sorted countries based on their R&D expenditure. We then sourced their DAI and high-technology exports from the World Bank. We assigned ranks to the countries on our list based on each metric. Finally, we allotted weights as 40% to R&D Expenditure, 40% to High Technology Exports, and 20% to DAI to our metrics. Our list ranks the countries in descending order of the weighted average calculated across our metrics. Please note that we have not included Israel in our list due to the current geopolitical situation in the country. The war on Gaza by Israel has led to major economic losses in the country, making it difficult to assess its innovation. By the way, Insider Monkey is an investing website that tracks the movements of corporate insiders and hedge funds. By using a 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 (see the details here). 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. Top 20 Most Innovative Economies in Asia 20. Armenia R&D Expenditure as a Percentage of GDP (2021): 0.21% High Technology Exports (2021): $37.5 million Digital Adoption Index (2016): 0.621 Insider Monkey Score: 6.73 Armenia is ranked among the top 20 most innovative economies in Asia. In 2021, the country spent 0.21% of its GDP on research and development. In 2021, the high technology exports of Armenia were reported to be $37.5 million. 19. Bahrain R&D Expenditure as a Percentage of GDP (2014): 0.1% High Technology Exports (2019): $171 million  Digital Adoption Index (2016): 0.786 Insider Monkey Score: 6.33 Bahrain ranks 19th on our list. The country reported a DAI of 0.786 in 2016. The high technology exports of the country were reported to be $171 million. 18. Kazakhstan R&D Expenditure as a Percentage of GDP (2021): 0.13% High Technology Exports (2020): $2.49 billion Digital Adoption Index (2016): 0.670 Insider Monkey Score: 5.8 Ranked 18th on our list, Kazakhstan reported an R&D spending of 0.13% in 2021. The country reported high technology exports of $2.49 billion in 2020. 17. Iran R&D Expenditure as a Percentage of GDP (2019): 0.79% High Technology Exports (2021): $96.7 million Digital Adoption Index (2016): 0.509 Insider Monkey Score: 5.5 Iran is ranked 17th on our list. In 2019, it spent 0.79% of its GDP on research and development. The high technology exports of the country were $147 million in 2021. 16. Indonesia R&D Expenditure as a Percentage of GDP (2020): 0.28% High Technology Exports (2021): $7.49 billion Digital Adoption Index (2016): 0.457 Insider Monkey Score: 5.2 Indonesia ranks 16th on our list. In 2020, the country spent 0.28% of its GDP on research and development. The high technology exports of the country were $171 million in 2021. The country reported a DAI of 0.786 in 2016. 15. Oman R&D Expenditure as a Percentage of GDP (2021): 0.29% High Technology Exports (2021): $662 million Digital Adoption Index (2016): 0.653 Insider Monkey Score: 4.7 Oman is ranked among the top 20 most innovative economies in Asia. In 2021, the country spent 0.29% of its GDP on R&D. In 2021, the high technology exports of the country were reported to be $662 million. 14. Philippines R&D Expenditure as a Percentage of GDP (2018): 0.32% High Technology Exports (2021): $38.2 billion Digital Adoption Index (2016): 0.439 Insider Monkey Score: 4.7 The Philippines is ranked 15th on our list. In 2018, the country spent 0.32% of its GDP on research and development. The high technology exports of the country were $38.2 billion in 2021. 13. Saudi Arabia R&D Expenditure as a Percentage of GDP (2021): 0.46% High Technology Exports (2020): $217 million Digital Adoption Index (2016): 0.669 Insider Monkey Score: 4.7 Saudi Arabia ranks 13th on our list. The country reported a DAI of 0.669 in 2016. In 2021, Saudi Arabia reported an R&D spending of 0.46%. The high technology exports of the country were reported to be $217 million in 2020. 12. Cyprus R&D Expenditure as a Percentage of GDP (2021): 0.81% High Technology Exports (2021): $88 million Digital Adoption Index (2016): 0.677 Insider Monkey Score: 4.5 Cyprus is ranked 12th among the most innovative economies in Asia. In 2021, the country reported an R&D expenditure of 0.81%. The high technology exports of the country were reported to be $88 million in 2021. 11. Qatar R&D Expenditure as a Percentage of GDP (2021): 0.68% High Technology Exports (2021): $147 million Digital Adoption Index (2016): 0.707 Insider Monkey Score: 4.4 Qatar is ranked 11th on our list. The country had a DAI of 0.707 in 2016. In 2021, it spent 0.68% of its GDP on research and development. The high technology exports of the country were $147 million in 2021. 10. India R&D Expenditure as a Percentage of GDP (2020): 0.65% High Technology Exports (2021): $27.4 billion Digital Adoption Index (2016): 0.510 Insider Monkey Score: 4.2 India is one of the most innovative countries in Asia. In 2020, the country spent 0.65% of its GDP on R&D. The high technology exports of the country were $27.4 billion in 2021. 9. Vietnam R&D Expenditure as a Percentage of GDP (2020): 0.43% High Technology Exports (2020): $102 billion Digital Adoption Index (2016): 0.521 Insider Monkey Score: 4.0 Vietnam is ranked among the most innovative economies in Asia. The country spent 0.43% of its GDP on R&D in 2020. The high technology exports of Vietnam were reported to be $102 billion in 2020. 8. Turkey R&D Expenditure as a Percentage of GDP (2021): 1.4% High Technology Exports (2021): $5.72 billion Digital Adoption Index (2016): 0.632 Insider Monkey Score: 3.1 Turkey ranks 8th on our list. The country reported a DAI of 0.632 in 2016. The high technology exports of the country were reported to be $5.72 billion. In 2021, the high technology exports of the country were $5.72 billion. 7. Thailand R&D Expenditure as a Percentage of GDP (2021): 1.3% High Technology Exports (2021): $45.8 billion Digital Adoption Index (2016): 0.619 Insider Monkey Score: 2.9 Thailand is one of the most innovative countries in Asia. In 2021, the country spent 1.3% of its GDP on research and development. The high technology exports of the country were $45.8 billion in 2021. 6. United Arab Emirates R&D Expenditure as a Percentage of GDP (2021): 1.5% High Technology Exports (2021): $2.90 billion Digital Adoption Index (2016): 0.822 Insider Monkey Score: 2.5 The UAE is ranked 6th among the top 20 most innovative economies in Asia. In 2021, the country spent 1.5% of its GDP on research and development. In 2021, the UAE reported the high technology exports of $2.90 billion. Click to continue reading and see the Top 5 Most Innovative Economies in Asia. Suggested Articles: 15 Countries With The Most Affordable Healthcare for US Retirees 10 Most Innovative Economies in South and Central America 15 Easiest Countries for Second Passport for US Citizens Disclosure: None. Top 20 Most Innovative Economies in Asia is originally published on Insider Monkey......»»

Category: topSource: insidermonkeyFeb 6th, 2024

Ansys (ANSS) Reportedly Gets Takeover Offer From Synopsys

The Wall Street Journal notes that Ansys (ANSS) and Synopsys (SNPS) are holding discussions regarding a merger and a deal can be announced in early 2024. Ansys ANSS has received a takeover bid from Synopsys SNPS, per a report from The Wall Street Journal. Citing sources familiar with the matter, WSJ added that the deal could be announced in early 2024 if talks do not fall apart.Synopsys is a vendor of electronic design automation (EDA) software for the semiconductor and electronics industries. The company offers a full suite of products used in logic synthesis and functional verification phases of chip design, including a broad array of reusable design building blocks. It also sells physical synthesis and physical design products, as well as physical verification products.Earlier, Bloomberg reported that Ansys was exploring strategic options, including a possible sale amid takeover interest, but had not mentioned the prospective buyers.ANSYS, Inc. Price and Consensus ANSYS, Inc. price-consensus-chart | ANSYS, Inc. QuoteThere is no official comment on the matter from either of the companies. Following the news, shares of ANSS soared 18.1% on Dec 22, 2023, and closed the session at $357.98 per share, while shares of SNPS lost 6.3%.The deal will give rise to a giant in the EDA software space as ANSS and SNPS have a market capitalization of $79.7 billion and $31 billion, respectively.Canonsburg, PA-based Ansys is a dominant name in the high-end design simulation software market. The company’s software solutions are used by most of the well-known manufacturing companies. Virtual prototyping instead of physical prototyping helps these companies save a considerable amount of money. ANSS’ robust product portfolio and cross-domain offering will continue to drive the customer base going ahead.Ansys is gaining from strong demand across most of the sectors. In the automotive sector, higher demand for electric vehicles and advanced driver assistance systems or ADAS solutions is driving growth. It is likely to benefit from rapid growth in the high-tech industry, led by ongoing development in artificial intelligence and machine learning.Aggressive acquisition strategy has also played a pivotal part in developing its business in the last few years.However, Ansys’ third-quarter performance was affected by restrictions on exports to China. Management highlighted that these new restrictions are likely to elongate transaction cycles, causing delays in the closing of certain deals in the fourth quarter. As a result, management now projects non-GAAP revenues in the range of $2,234-$2,284 million compared with the earlier prediction of $2,257-$2,327 million. We expect the metric to be $2.25 billion, suggesting 8.8% growth year over year.ANSS currently carries a Zacks Rank #3 (Hold).Stocks to ConsiderSome better-ranked stocks worth consideration in the broader technology space are Blackbaud BLKB and Watts Water Technologies WTS. Watts Water Technologies sports a Zacks Rank #1 (Strong Buy), while Blackbaud carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Blackbaud’s 2023 EPS has inched up 1.8% in the past 60 days to $3.86. BLKB’s long-term earnings growth rate is 23.4%.Blackbaud’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 10.6%. Shares of BLKB have gained 49% in the past year.The Zacks Consensus Estimate for Watts Water Technologies 2023 EPS has improved 3.9% in the past 60 days to $8.08.WTS’ earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 11.8%. Shares of WTS have rallied 42.5% in the past year. Zacks Naming Top 10 Stocks for 2024 Want to be tipped off early to our 10 top picks for the entirety of 2024? History suggests their performance could be sensational. From 2012 (when our Director of Research, Sheraz Mian assumed responsibility for the portfolio) through November, 2023, the Zacks Top 10 Stocks gained +974.1%, nearly TRIPLING the S&P 500’s +340.1%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2024. Don’t miss your chance to get in on these stocks when they’re released on January 2.Be First to 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 Synopsys, Inc. (SNPS): Free Stock Analysis Report Blackbaud, Inc. (BLKB): Free Stock Analysis Report Watts Water Technologies, Inc. (WTS): Free Stock Analysis Report ANSYS, Inc. (ANSS): Free Stock Analysis ReportTo read this article on click here.Zacks Investment Research.....»»

Category: topSource: zacksDec 27th, 2023

Nokia (NOK) Trims Operating Margin Guidance, Revises Strategy

In a revised strategy, Nokia (NOK) is aiming to streamline business operations with a lowered operating margin target. It has also shed light on near-term outlook. Nokia Corporation NOK has released updated guidance with a revised operating margin outlook for fiscal 2026. The company also provided insights into its modified approach to business operations and preliminary assumptions for fiscal 2024.Nokia’s business segments cater to distinct customer bases, each with unique research and development requirements, market fluctuations and different target margins. Moving forward, it has decided to grant more autonomy to its business verticals regarding investment decisions, growth strategies, portfolio management and strategic partnerships. Along with streamlining the operating model, Nokia will also disclose the cash flow and regional sales figures for each business group. This greater transparency will likely provide investors with enhanced clarity regarding each segment's financial performance.The Mobile Network segment is witnessing a declining trend in 2023, and management anticipates that the market environment will likely remain unfavorable in this segment in the near future. AT&T’s decision to replace Nokia with a single vendor in the form of Ericsson is expected to have a negative impact on the top line. The slowdown in 5G deployment in India is also a concern.Consequently, the operating margin is estimated to be in the low single digits in 2024. However, the company is taking various initiatives to boost resilience in its operations and improve profitability. It is also aiming to capitalize on fast-growing markets such as Cloud RAN, O-RAN, Enterprise and defense. In Mobile Networks, Nokia is optimistic about returning to faster-than-market growth in 2026, with a comparable operating margin range of 6-9%.In 2024, the company is expecting mid-single-digit net sales growth (at constant currency) with steady operating profit in the Nokia Infrastructure segment. The positive momentum is supported by robust performance in optical networks and secured enterprise contracts in IP networks. Influx of government funding in the second half of 2024 will likely induce a recovery in the fixed networks. Backed by these positive factors, the Network Infrastructure division is expected to achieve an operating margin ranging from 12% to 15% by fiscal 2026.In 2024, Nokia expects modest revenue growth in the Cloud and Network services, supported by the steady deployment of 5G core technology and strength in the enterprise sector. The company is focusing on integrating SaaS and Network as Code to bolster its business model. A strong focus on digital operations, private wireless, AI and analytics, security and 5G core will likely boost prospects.The company has registered faster-than-market growth in these segments in recent periods and is aiming to sustain this favorable trend. In Cloud and Network services, a stable to slightly increasing operating margin is projected for 2024, with a comparable operating margin estimated in the range of 7-10% for fiscal 2026.Nokia Technologies has secured long-term patent license agreements with major smartphone players like Apple and Samsung. The company is also extending its business presence into automotive, multimedia and consumer electronics. Nonetheless, the primary focus remains on resolving outstanding litigation issues with smartphone clients. Operating profit from this segment will likely exceed EUR 1 billion in 2024 upon the successful settlement of the litigation issue by the end of 2023. In 2026, management is expecting a comparable operating profit of more than EUR 1.1 billion.For 2026, Nokia reduced its overall comparable operating margin target to at least 13% from the prior estimation of at least 14%. Weakness in the Mobile Networks vertical is expected to have a negative impact on operating profit. However, the company reiterated its revenue guidance, which is expected to grow faster than the market in 2026. The outlook for free cash flow is also kept unchanged and is expected at 55-85% conversion from comparable operating profit.NOK aims to create new business and licensing opportunities in the consumer ecosystem. It facilitates its customers to move away from an economy-of-scale network operating model to demand-driven operations by offering easy programmability and flexible automation needed to support dynamic operations, reduce complexity and improve efficiency. It seeks to expand its business into targeted, high-growth and high-margin vertical markets to address growth opportunities beyond its traditional primary markets.The stock has declined 36.3% in the past year against the industry’s growth of 0.1%.Image Source: Zacks Investment ResearchNokia currently has a Zacks Rank #4 (Sell).Stocks to ConsiderModel N Inc MODN, carrying a Zacks Rank #2 (Buy) at present, delivered an earnings surprise of 20.78%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 3.33%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.MODN provides revenue management solutions for life sciences and technology companies, including applications for configuration, price, quote, rebate management and regulatory compliance.NVIDIA Corporation NVDA, currently carrying a Zacks Rank #2, delivered an earnings surprise of 18.99%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 19.64%.NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus evolved from PC graphics to AI-based solutions that support high-performance computing, gaming and virtual reality platforms.Arista Networks, Inc. ANET, carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has delivered an earnings surprise of 12%, on average, in the trailing four quarters.ANET holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is gaining market traction in 200- and 400-gigabit high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations. Infrastructure Stock Boom to Sweep America A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made. The only question is “Will you get into the right stocks early when their growth potential is greatest?” Zacks has released a Special Report to help you do just that, and today it’s free. Discover 5 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.Download FREE: How To Profit From Trillions On Spending For Infrastructure >>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 Nokia Corporation (NOK): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Model N, Inc. (MODN): Free Stock Analysis Report Arista Networks, Inc. (ANET): Free Stock Analysis ReportTo read this article on click here.Zacks Investment Research.....»»

Category: topSource: zacksDec 13th, 2023

Tencent shrugged off a new US AI chip ban, saying it"s stockpiled enough Nvidia processors for "a couple more generations"

The Chinese tech giant says it's sitting on a massive stockpile of Nvidia H800 processors. Martin Lau, president of Tencent Holdings, attends the third day of the annual Allen & Company Sun Valley Conference, July 13, 2017 in Sun Valley, Idaho.Drew Angerer/Getty ImagesTencent president Martin Lau said on Wednesday the company is holding a vast stockpile of chips.Its inventory is enough to last its AI development a "couple more generations," Lau said.The US issued a new AI chip export ban to China in October, sparking fears that Tencent could be hit.A top Tencent exec said on Wednesday that the Chinese tech giant is holding a huge stockpile of Nvidia processors, downplaying fears that new US export bans might cripple its business."Now in terms of the chip situation, right now we actually have one of the largest inventory of AI chips in China among all the players," Tencent president Martin Lau said in a Q3 earnings call.Lau said Tencent was one of the first in China to put in large orders for the H800 chip, the GPU specifically created by Nvidia for the China market. In October, the Biden administration banned the export of the H800 to China as part of a broader move to curb China's — especially the Chinese military's — access to US technology and advanced semiconductors.Lau addressed concerns that business would be affected, saying Tencent's stockpile of H800 chips is large enough to sustain development of its AI model, Hunyuan, for the foreseeable future."We have enough chips to continue our development of Hunyuan for at least a couple more generations," Lau said. "So the ban does not really affect the development of Hunyuan and our AI capability in the near future."But Lau also said Tencent will eventually have to pivot toward China-made AI chips."Going forward, we have to figure out ways to make usage of our AI chips more efficient," Lau said.Advanced chips like the H800 are key to tech firms staying competitive in AI , because they're essential to the speedier training of models. Chinese tech firms like Tencent and Alibaba have largely relied on US-made chips.Nvidia's H100, for example, was the chip used to train OpenAI's chatbot ChatGPT.The US originally banned the export of the H100 and equivalent models to China, but Nvidia later released new versions of those chips, including the H800, designed as workaround processors to ship to China.So the US banned exports of those new chips, too.Before the ban, however, China's biggest tech players such as Baidu, Alibaba, and Tencent collectively spent $5 billion to stockpile a total 100,000 advanced chips from Nvidia, The Financial Times reported in August.Chinese companies are rapidly debuting new AI models to rival their US counterparts, but have so far been playing catch-up.Tencent's model, Hunyuan, is expected to focus mostly on gaming and enterprise software, which are key pillars of the tech firm's business.Read the original article on Business Insider.....»»

Category: worldSource: nytNov 16th, 2023

LightPath Technologies, Inc. (NASDAQ:LPTH) Q1 2024 Earnings Call Transcript

LightPath Technologies, Inc. (NASDAQ:LPTH) Q1 2024 Earnings Call Transcript November 9, 2023 LightPath Technologies, Inc. misses on earnings expectations. Reported EPS is $-0.04 EPS, expectations were $-0.02. Operator: Good afternoon, everyone, and welcome to the LightPath Technologies Fiscal First Quarter 2024 Financial Results Conference Call. Please note that, today’s event is being recorded. And at […] LightPath Technologies, Inc. (NASDAQ:LPTH) Q1 2024 Earnings Call Transcript November 9, 2023 LightPath Technologies, Inc. misses on earnings expectations. Reported EPS is $-0.04 EPS, expectations were $-0.02. Operator: Good afternoon, everyone, and welcome to the LightPath Technologies Fiscal First Quarter 2024 Financial Results Conference Call. Please note that, today’s event is being recorded. And at this time, I’d like to turn the floor over to Al Miranda, LightPath’s Chief Financial Officer. Please go ahead, Al. Al Miranda: Thank you. Good afternoon, everyone. Before we get started, I’d like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectations, involve various risks and uncertainties as discussed in its periodic SEC filings. Although, the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there can be no assurances that the projected results would be realized. In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP. We refer to these as non-GAAP financial measures. A scientist working on a complex photonics instruments in a sterile laboratory setting. Please refer to our SEC reports and certain of our press releases, which include reconciliations of non-GAAP financial measures. Sam will begin today’s call with an overview of the business and recent developments for the company. I will then review financial results for the quarter. Following our prepared remarks, there will be a formal question-and-answer session. I would now like to turn the conference over to Sam Rubin, LightPath’s President and Chief Executive Officer. Sam Rubin: Thank you, Al. Good afternoon to everyone, and welcome to LightPath Technologies’ Fiscal First Quarter 2024 Financial Results Conference Call. Our financial results press release was issued after the market closed today and posted on our corporate website. The first quarter was highlighted by our acquisition of Visimid and with it the win of a significant project for an imaging engineered solution. Both are significant steps in our strategic shift from a component manufacturer to a value-added solutions provider. To recap our investors, LightPath has been transitioning in the last few years from a pure component manufacturer focused on being the lowest cost provider to a value-added partner for complete solutions based on optical technologies, who differentiate us on mostly based on technology. A long-term lines we have been focusing on three pillars of growth: Imaging Solutions as a strategic shift, such as cameras, growth in new markets such as automotive and specifically growth in our market share of the defense business. All three pillars of growth tie into and support our transition from a components manufacturer to a provider of engineered solutions based on these proprietary technologies. This transition began a couple of years ago, starting from customized lens assemblies, which are what we call today LightPath 2.0 through camera solutions or LightPath 3.0. The first of which was our innovative mounted sport band infrared camera, which we announced in December and which enables new applications and capabilities for our customers. The latest step in this transition is acquisition of Visimid Technologies. Visimid Technology is a small engineering firm based out of Dallas, Texas, does the back end of thermal cameras. and does what Lightpath has been doing for the front end of those same cameras. Lightpath has been tailoring and customizing the optics for cameras based on our optical technologies and Visimid has been customizing and tailoring the video processing engine and support electronics for the same cameras or similar cameras. The light LightPath base business model of customizing optical assemblies to be used in inferred cameras, LightPath has established itself as a go-to for customized — customizing the electronics and software part of uncalled infrared cameras. In fact, our relationship goes back a bit, where Visimid has customized four LightPath electronics and software for our MANTIS camera prior to the acquisition. Together with Visimid, LightPath can now extend our offering of Customized Imaging Solutions to include wholly Integrated Camera Modules, increasing the offering to existing customers and providing us a bigger share of those customers’ bill of materials. Shortly after the acquisition of Visimid, Lockheed Martin, a major prime contractor in the defense world, awarded Visimid and LightPath, a major project for the design, development and later on manufacturing of a complete camera module for a new project in the Missiles Division. With the award came what will be up to $7.5 million of development work over the next three years. However, the real significance of this award lies in what will come after the development completed. Once in production, we will producing this device in volume estimated at tens of thousands of units over the program lifetime and with an ASP for LightPath of thousands of dollars per unit. And I will let that sink in second, thousands of dollars per unit, tens of thousands of units in the program. This is a major achievement for LightPath and Visimid and can be very, very significant for our future. The decision of this time to outsource the development of such an important part of their system has been the first purely due to Visimid’s technical capabilities. However, their decision to then engage with us at the scale they are now engaging and the potential manufacturing of these units in volume is really due to the combination of LightPath and Visimid, bringing our manufacturing capabilities, capacities and most importantly, ability to produce and integrate the entire subsystem. And while our strategy and having three pillars of growth are designed such that we don’t put all our eggs in one basket or one product, this award by a major time with this massive potential for revenue on the manufacturing side is seen by us as a big win to our strategy and the execution of that through the acquisition of Visimid. So this was one significant development that touches on two of our pillars of growth, The Defense Industry and The Integrated Engineered Solutions. In other areas, we continue to make progress some at better pace, others less. In the automotive market, we continue to work with new potential customers for the integration of thermal imaging into safety systems and specifically emergency braking systems. Though we have not had any significant development in the area since our last call two months ago, we do note, that some of the time lines of our end customers, meaning automotive companies themselves, might be impacted by what seems like a possible slowdown in the EV market. Though we do not have anything specific to report on this, we do expect that some of the rollout might get delayed by a year or more with some of those customers as they adjust to their own rollout of new modules and the start date of both of these new systems. During the last two months since our September call, we have continued to make progress on some of the new offerings in our camera or solutions aerial growth. Applications for our Mantis camera continue to garner interest, and we are actively engaged with several customers on developing versions specific to their use cases. For example, in industrial monitoring of high-temperature processes and more. Our innovative use case of flame detection using our Mantis, which I mentioned in the last call, is now being actively evaluated by customers with the goal of first proving the value proposition of this technology before we dive into building specific tailored solutions for their exact used case. Last, the plastic recycling applications we had previously discussed is taking longer than expected due to the complexity of the integration of what is called technically a hyper-spectral system. We still expect this to be a valuable application, but developing it would require a partner that will do the heavy lifting on the software development side. The first pillar of growth is the defense market and specifically around our unique black diamond materials and their use as an alternative to germanium. This is on track as we continue to move forward with qualifying our new materials and having them integrated into DoD projects. Noted in this area is the renewal of an order we announced in the beginning of October. That $3.4 million order is one of the first projects we know of, in which germanium was designed out purposely. Similar to that, we have other projects in which systems are being redesigned to reduce or completely remove germanium. In some cases, we are involved or even do the actual redesign work. In other cases, we know of customers working on this and are collaborating with them to expedite it as much as possible. On that same topic, we note that while the exports of germanium have finally resumed out of China, the process to receive export license in China is cumbersome, and also seems to vary considerably between different vendors and different export ports in China. With that in mind, we have decided to try and to reduce our own exposure a bit by reducing our own work on components made of germanium for customers. As a reminder, among other things, we produced customer components in which we optically machine or form lenses out of germanium. We have already communicated the customers proactively that we will be reducing our offering of components made from germanium, and we continue to work with those same customers at designing and developing alternatives made of our raw materials. We expect that this might have a short-term impact on our infrared component revenue as we discontinued some germanium work and gradually replace it with new work. However, our defense revenue continues to grow, particularly in the US, but non-defense revenue continues to be soft in China and somewhat softening in Europe. It is further exaggerated by the germanium supply and decisions around that. We are seeing slowdowns and delays in non-defense sector globally and anticipate continued softness for the next few quarters in those segments specifically. World event and economics play out — laying out confirms our decision to focus on defense and on solutions and assemblies. To conclude, our shift in strategic direction is beginning to show the results we’re looking for, both in winning some major programs and in revenue growth in that area. Al will talk about our new product classification and how we will now communicate the new product grouping to support the strategy. At the same time, our three separate areas of growth, solution, defense and automotive continue to generate multiple independent large-scale opportunities that many of them have the potential for tens of millions of dollars of new revenue resulting in what we feel is a healthy pipeline of large-scale opportunities that any of them alone can be transformative and have a significant positive impact on our business. As always, I’d like to thank our employees and stakeholders who have continued to work diligently through the various transitions and hurdles we have endured. We see a bright future and a growing company because of their dedication, patience and hard work. With that in mind, I will now pass the call on to Al, our CFO, to review first quarter financial results. Albert? Al Miranda: Thank you, Sam. I’d like to remind everyone that much of the information we’re discussing during this call is also included in our press release issued earlier today and will be included in the 10-Q for the period. I encourage you to visit our website in to access these documents. I’ll discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing the company. For the first quarter, we’ve made significant changes to our product groups. We previously organized our products in three groups, which were precision molded optics, or PMO, infrared products and specialty products. We’ve been considering changing revenue reporting along the new product lines for some time to align with our strategy. With the addition of Visimid in July, it became clear that the timing was right to make the change. We believe the new revenue groupings lend more visibility on our progress against our strategic goals. Therefore, we reorganized our products into four product groups. One is infrared components, two, visible components; three, assemblies and modules and four, engineering services. Assemblies and modules were previously included in PMO infrared or specialty product groups, depending on the lens type. We basically carved it out. So you can think of the new reporting as components being LightPath 1.0, assemblies and modules as LightPath 2.0 and 3.0 and engineering services as the activity that will create new revenue in assemblies and modules. With that said, on a consolidated basis, revenues for first quarter were $8.1 million, compared to $7.4 million in the year ago period. Sales of infrared components were $3.8 million or 47% of the company’s consolidated revenue fiscal first quarter. Revenue from visible components was $2.7 million or 33% of consolidated revenue. Revenue from assemblies and modules were $1.3 million or 16% of total company revenue and revenue from engineering services was $0.3 million or 4% of total company revenue. The increase in infrared component sales was primarily due to an increase in shipments against an annual contract of international military program. This contract was renewed during the first quarter of fiscal 2024 for a higher dollar value than the previous contract. The decrease in revenue generated by visible components is primarily due to a decrease in sales to customers in the telecommunication industry in China. Approximately one-third of the increase from assemblies and modules is due to the addition of Visimid product sales. The remaining increase is driven by sales to customers in the defense industry and increased sales of a custom visible lens assembly to a medical customer for which we have an end-of-life order and backlog going into fiscal 2025. Approximately $175,000 of the increase from engineering services is due to the addition of Visimid sales. The remaining increase is driven by revenue from one of our space-related funded research contracts. Gross margin in the first quarter of fiscal 2024 was approximately $2.3 million, an increase of 4% as compared to approximately $2.2 million in the same period of the prior fiscal year. Total cost of sales was approximately $5.7 million for the first quarter of fiscal 2024 compared to approximately $5.1 million for the same period of the prior fiscal year. Gross margin as a percentage of revenue was 29% for the first quarter of fiscal 2024 compared to 30% for the same period of the prior fiscal year. The decrease in gross margin as a percentage of revenue is due to the decrease in visible component sales, which typically have higher margins than our infrared component product group, which comprised a greater portion of our sales for the first quarter of fiscal 2024. Selling, general and administrative costs were approximately $2.7 million for the first quarter of fiscal 2024 and an increase of approximately $23,000 or 1% as compared to approximately $2.6 million in the same period of the prior fiscal year. The increase in SG&A cost is primarily due to cost of approximately $83,000 associated with the acquisition of Visimid, which closed in July of 2023. These costs were partially offset by a decrease in stock compensation. Net loss for the first quarter of fiscal 2024 was approximately $1.3 million or $0.04 basic and diluted loss per share compared to $1.4 million, or $0.05 basic and diluted loss per share for the same quarter of the prior fiscal year. Decrease in net loss of approximately $38,000 for the first quarter of fiscal 2024 as compared to the same period of the prior fiscal year is primarily attributable to favorable change in the provision for income taxes. We believe EBITDA, a non-GAAP financial measure is helpful for investors. EBITDA loss for the quarter ended September 30, 2023, was approximately $432,000 compared to $392,000 for the same period of the prior fiscal year. The decrease in EBITDA in the first quarter of fiscal 2024 was primarily attributable to other income and expenses, non-operating expenses. As of September 30, 2023, we had working capital of approximately $11.4 million and total cash, cash equivalents and restricted cash of approximately $6.9 million, of which greater than 25% was held by our foreign subsidiaries. Cash provided by operations was approximately $1.1 million for the first quarter of fiscal 2024 compared to cash used in operations of approximately $415,000 for the same period of the prior fiscal year. Cash provided by operations for the first quarter of fiscal 2024 was largely driven by decrease in accounts receivable as sales were higher in the fourth quarter of fiscal 2023 than in the first quarter of fiscal 2024. Comparatively, cash used in operations in the first quarter of fiscal 2023 and reflected a decrease in accounts payable and accrued liabilities during such period resulting from the payment of certain expenses related to previously disclosed events that occurred in our Chinese subsidiaries, which had been accrued in prior periods. Total backlog as of September 30, 2023, was approximately $21.3 million, a decrease of 7% as compared to $23 million as of September 30, 2022, compared to the end of fiscal 2023, our total backlog decreased by 2% during the first quarter of fiscal 2024. The decrease in backlog during the first three months of fiscal 2024 is primarily due to shipments against several annual and multiyear contract renewals and which orders were added to the backlog in prior periods. With this review of our financial highlights and recent developments concluded, I’ll now turn the call over to the operator to begin the question-and-answer session. See also 30 Most Popular Wine Brands in America and 25 Most Atheist Countries in the World. Q&A Session Follow Lightpath Technologies Inc (NASDAQ:LPTH) Follow Lightpath Technologies Inc (NASDAQ:LPTH) 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 today comes from Glenn Mattson from Ladenburg Thalmann. Please go ahead with your question. Glenn Mattson: Hi. Yes. Thanks for taking the question. So I’m curious, Sam, you talked about automotive and the possibility that the order that you’ve talked about in the past could get pushed out due to some slowdown in the production schedules for some of the Detroit guys EV lines. But did you — so two things. First of all, do you think that the delay up to this point, was it at all related to some early hesitation by those customers in terms of like what — how the fast they’re going to move forward or anything like that or it seems like things did change abruptly in Detroit for the EV models in general. So, curious about that. But then I guess, furthermore, do you have like some hard discussions that you’ve had with people or just from what you’re reading in the news and that kind of thing leads you to believe that there’ll be potentially a slower uptake. Sam Rubin: Yes. Sure, absolutely. First of all, I’ll start by just framing this in saying that in the situation or in the use case of adding a new technology like thermal imaging into a cars, the car manufacturers that we work with are all tending to add this into the EV line, simply because those of the new models, new platforms, sometimes new architecture altogether. It doesn’t mean that they would not roll it out in the internal combustion engine cars. It also depends, I think, on where DOT is going to go with the proposed rule of mandating some of it. But as of now, what we’ve been working on all tend to be around the EV platforms, even though are with larger car manufacturers that are — that produce far, far more than just EV. So, that’s one part. Then to answer the question, I think the — a few different things that play into the delays. To begin with the initial delay compared to where we were nearly a year ago where we thought we’re going to get the supply agreement almost any day, that came from the almost opposite direction that came from the car manufacturer that decided to rolled this out instead of in one car model in five car models. And therefore, all the timeline got shuffled around because we were suddenly talking about much larger volumes, but scaling more quickly than we were before. So, we went back to the drawing board. We had to redesign actually something in the mechanics of the modules to fit those other car modules and therefore, started renegotiating everything. At some point, already after that delays, I’d say, were more because of us not moving fast enough on the negotiation of supply agreement, coming from a point that we wanted to understand exactly all the parameters. And since automotive is new for us in that level, we wanted to be sure with crossing all the Ts and dotting all the Is properly. In retro respective, seeing maybe that the car company was not pushing aggressively on us, at that point in time, maybe would have been already a bit of an indication that there might be further delays. That said, what I’m reporting or sharing now are from direct conversations of myself with the customers. So, this is — we know exactly where the car company is. We know exactly what the situation is. We know that the car company has been, I’d say, finding challenges in integration of some of the technologies together. There isn’t — they didn’t have any technical problem with the system, definitely not with ours. But some of the other elements tend to seem to have complicated things. And they decided, as of now to try and review what they’re rolling out in terms of features went. We don’t have a specific data or delay, but in most likelihood, we’re looking at one-year pushout of the start date of rollout, simply because of the car companies, I’d say, challenges around their system architecture and integrating multiple things together. Glenn Mattson: And can you give any further color on what gives you confidence that once this starts back up or the conversation begins again, that they’ll be able to clear those hurdles? Sam Rubin: Nothing. Yes — I mean nothing changed in the form of the — there weren’t — at any point, there were no discussions or comments made in the form of we’re not sure if we’ll even include this anymore or anything like that, not at all. And so technical dialogue continues. And we have other automotive customers with which we also have technical dialogues, and we have also new designs that we’re building as we speak, actually, for one specific automotive customer. But the sense is that everyone is a little bit lower in terms of pushing on the date and so on. And then my own interpretation from seeing and reading and getting survived from people that I talk to in the industry, and then customers is as part of it is due to the EV sort of, I don’t know, direction of diorite. Glenn Mattson: Okay. Thanks for the color there. And just one — the second one on the other kind of issue that you raised on the germanium side. Is that it’s a little cumbersome to get through the process of a whatever. Can you — is that — so is it a little trickier to get germanium? Is that driving the process? Or is it more just that you potentially being a probe on the road? And so you’re trying to get ahead of it. Sam Rubin: Well, no, first of all, it’s tricky to get mail. And while we have not had to push out deliveries of anything because luckily enough, we had enough inventory work in program and managed to eventually get shipment from germanium this week, actually, I think the last week in the first time. What we’re seeing on doesn’t give us the confidence that supply is necessarily going to be smooth now. I mean I’ll give you a few examples. One is we started applying for export licenses in July when they announced it, even though it wasn’t supposed to go into effect in until August, but they still stopped all shipments in July already. We’re now mid-November and only now did we receive first shipments. When we first applied for licenses, we were told that every license is good for a year. Then we were told that every license is per order. So if you have an order for year, it will be for you. Now the last shipment, the vendor of ours in Southern China, I think I can remember which one is which, but one vendor in South, one is in the north, one vendor managed to ship and keep the license open. Another vendor was sold by custom that she gets on shipment from this license, and that’s it. So I think they don’t know yet what exactly they’re doing and where — we’re also hearing about customs stopping compounds sometimes, which are definitely not the more material, but if something includes germanium in it, they’ve been also stopping at some point. So I think knowing China and how long it takes until they figure out and what, I want to reduce their way exposure there. I also want to free up capacity for the work that is happening on converting customers over disorder material. I don’t want to reach the point that a customer wants to now switch over to an assembly made of ZBV and my capacity is all tied up into machining, Timon turn in to me because that’s the orders they have at that point. So we are proactively reducing that, even to the extent of canceling some of parts of an order we have with the customer. And we’ll be cautious now on how much gomanium we take on......»»

Category: topSource: insidermonkeyNov 10th, 2023

Village Farms International, Inc. (NASDAQ:VFF) Q3 2023 Earnings Call Transcript

Village Farms International, Inc. (NASDAQ:VFF) Q3 2023 Earnings Call Transcript November 8, 2023 Village Farms International, Inc. beats earnings expectations. Reported EPS is $-0.01, expectations were $-0.04. Operator: Good morning, ladies and gentlemen. Welcome to the Village Farms International Third Quarter 2023 Financial Results Conference Call. This morning, Village Farms issued a news release reporting […] Village Farms International, Inc. (NASDAQ:VFF) Q3 2023 Earnings Call Transcript November 8, 2023 Village Farms International, Inc. beats earnings expectations. Reported EPS is $-0.01, expectations were $-0.04. Operator: Good morning, ladies and gentlemen. Welcome to the Village Farms International Third Quarter 2023 Financial Results Conference Call. This morning, Village Farms issued a news release reporting its financial results for the third quarter ended September 30, 2023. That news release, along with the company’s financial statements are available on the company’s Web site at under the Investors heading. Please note that today’s call is being broadcast live over the Internet and will be archived for replay, both by telephone and via the internet, beginning approximately one hour following completion of the call. Details of how to access the replays are available in today’s news release. Before we begin, let me remind you that forward-looking statements may be made today during or after the formal part of this conference call. Certain material assumptions were applied in providing these statements, many of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward-looking statements. A summary of these underlying assumptions, risks and uncertainties is contained in the company’s various securities filings with the SEC and Canadian regulators, including its Form 10-K MD&A for the year ended December 31, 2022 and 10-Q for the quarter ended September 30, 2023, which will be available on EDGAR and SEDAR+. These forward-looking statements are made as of today’s date. And except as required by applicable securities law, we undertake no obligation to publicly update or revise any such statements. I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead. Michael DeGiglio: Thanks, Liz. Good morning, and thank you for joining us for today’s call. With me are Steve Ruffini, our Chief Financial Officer; Ann Gillin Lefever, Vice President of Corporate Affairs; and Patti Smith, Vice President of Corporate Control. As per our usual format, Steve and I will review the operating highlights and financial results for the quarter and then open the call for questions. So turning to the third quarter, I am pleased with the contributions from each of our businesses, particularly the across the board execution on improved profitability and cash flow, which is a true test to the sustainable business model. We generated positive cash flow in each of our operating segments, that’s bottom line cash flow not just from operations, not adjusted, pure cash flow. Each of our Canadian and US cannabis businesses also delivered a positive adjusted EBITDA and net income. And our fresh produce operations saw another quarter of significant year-over-year improvement, also with positive adjusted EBITDA. I am also pleased with trends at the retail shelf, which are a true test of whether everything we do resonates with the consumer. I am proud to report that for the month of October, we regained a number two share nationally in Canadian cannabis, recovering from the number four share at the beginning of the quarter. And more on this in a moment. The consolidated results were a further narrowing of a net loss to just $0.01 per share, another quarter of positive adjusted EBITDA and positive cash generation on a consolidated basis. These results are not possible without the business acumen, commitment and contributions from each of our team members, and I am grateful every day for the Village Farms team’s determination, and I am confident in our continued execution. Starting with our Canadian cannabis business. We are proving out what we believe is the most sustainable, profitable model in the Canadian industry. There are a number of highlights for Q3. The first is another quarter of positive adjusted EBITDA and cash flow generation. These are the direct results of our unrelentless focus on operational efficiencies. This in turn enables us to fund organic reinvestment in both the Canadian market and international markets as they become accessible. For Village Farms, organic reinvestment is critical. Simply put, we strive to build competitive moats and the capabilities which will drive future growth. These pillars include cultivation and production, commercialization, branding and innovation, all with the consumer in mind. This quarter, our reinvestment wins include the launches of new brands and products as well as a continuous quality improvement, which are contributing to our top market share rankings and more importantly profitability. It also includes the development of our international business, both export and in country, which are based on our profitable Canadian business model. The second highlight for the quarter is that our strengthened focus on newness is showing up where it matters, profitable market share gains. As a reminder, we don’t chase unprofitable market share and sometimes that means forgoing top line growth for profitability and cash flow. The increased pace of newness that I discussed in our last call continued in Q3 with a number of noteworthy launches. These included a new super brand Super Toast, targeted as a consumer preference for convenience and added strains through all three of our flower brands. We also saw the continued success of our Soar brand, which quickly became a top three premium dry flower and brand nationally after its launch one year ago. During Q3, one of Soar’s exclusive cultivars, Pineapple God, was one of the best selling premium dry flower products nationally. Also on the product side, our launch of Fraser Valley Strawberry Amnesia, which was the largest in BC history and launched as the number one SKU in Ontario. These are just a few examples of the new strains we add on an ongoing basis as part of our innovation calendar. Recently, we also expanded our category offerings, including an entirely new vape offering with our first shipments rapidly selling out and our first infused blunts under the Soar brand, which also sold out. In Quebec, as many of you know, there are just two product calls a year with launches time during Q2 and Q4. So working with our existing portfolios in between these product calls is as important as new launches themselves to ensure sustainable growth. Our success in doing so is evidenced by our continued expansion and market share in Q3 from the existing portfolio, and I am decided to see the results from the Q4 product launches, which are currently underway. Importantly, in addition to cash flow generation, our efforts are proving out on the retail shelf. Year-to-date, we are the number three rank licensed producer nationally. And as I noted at the onset, we have reclaimed the number two spot in October. As we were the second top selling producer of dry flower nationally for the third quarter, sitting only behind a competitor who attained the top spot by purchasing market share via acquisitions. I have challenged the team to retake the top spot in flower, again, through organic efforts. To that credit, the latest data shows that we are now neck-and-neck without competitor for that number one position. And I will note here that at the end of October, we had achieved five consecutive months of expansion in our share of the dry flower market nationally. What’s especially noteworthy here is a increasing breadth of contributions to our market share, by brand, by product and by geography. With respect to geography, I want to recognize the contribution of ROSE LifeSciences. ROSE holds the number two market share position in Quebec and is the fastest growing producer in the province. ROSE has been one of the most, if not the most successful acquisitions in Canada, largely due to our relentless strategic focus on driving shareholder value and a strong partnership between the Pure Sunfarms and ROSE teams. During the third quarter, we also highlighted increase in bulk non-branded sales, reflecting a purpose driven decision to return to this channel as supply dynamics improve the profitability of these sales. We achieved this alongside our return to the number two ranking nationally in branded sales, proving out the benefit of our leadership in cultivation, commercialization and innovation for multiple growth opportunities. International sales contributed less in Q3 than it did in the first two quarters of the year, a variance which reflects the start-up nature of the industry in our business. Year-to-date international sales are up more than two-and-a-half fold from last year. And I admit it’s a small base but it does underscore the growth potential and long-term trend we expect from these markets, which I will remind you typically have higher margins than the Canadian market. As we add customers in new geographies, we expect growth in this business to be more steady and predictable. Speaking of which, the Netherlands government recently issued a favorable final update to the rollout of its legal recreational cannabis program. This has provided clarity for our plans for Leli Holland, which has just — which is just one of 10 licenses that allow participation in the program. We are moving forward and excited about the opportunity what now looks to be a fully integrated supply model. Turning now to US cannabis. Balanced Health Botanicals demonstrated another quarter of stabilized performance, once again generating positive net income, adjusted EBITDA and positive cash flow. Last month we launched a new [visual] brand for CBDistillery, including a revamped website focused on wellness and attributes of its products. Even in the challenging US market for CBD, we are focused on and we are achieving profitability and cash flow generation with our continued belief in the potential of this business in a favorable regulatory environment. Now moving on to fresh produce. Our Q3 performance took another step forward of our goal in achieving sustainable long term profitability. We are effectively managing the higher cost environment, which we now operate. And we continue to make strong, steady progress in managing the Brown Rugose virus. This is not only through enhanced operating procedures across all operations, but also the implementation of virus tolerant and increasingly virus resistance strains, and minimizing the potential for future impact. We are also benefiting from higher pricing. As a result, fresh produce delivered positive adjusted EBITDA, adding to our positive total for 2023 so far, that’s a $5 million improvement over Q3 last year and brings the improvement for the year-to-date to more than $22 million. This is a great start to a new chapter for fresh produce. Our next goal is for fresh [Indiscernible] sustainable profitability and ultimately cash flow generation, and I am confident we can get there. I will now turn the call over to Steve for a more detailed review of the financials. Steve? Steve Ruffini: Thanks, Mike. As Mike noted, another quarter of solid performances from each of our businesses. Consolidated net loss for the quarter narrowed to $1.3 million or a $0.01 earnings per share from a net loss of $8.7 million or $0.10 per share for the same period last year. Notably, each quarter of this year has posted a sequential improvement over the prior. Consolidated sales for Q3 were $69.5 million compared with $71.1 million. The 2% decrease was largely the result of slightly lower cannabis sales compared to the same period last year, as well as the small negative impact on FX due to a stronger US dollar in Q3 2023 versus Q3 2022 as the USD is our reporting currency. We delivered another quarter of positive consolidated adjusted EBITDA in Q3 at $3.2 million, up $5.4 million improvement from the negative $2.2 million in Q3 last year. The improvement was driven mainly by fresh produce but also higher EBITDA from our US cannabis business as well as lower corporate costs. I will now turn to our Canadian cannabis results. As usual, I will discuss these in Canadian dollars to assist in year-over-year comparisons, absent the impact of exchange rate fluctuations. As Mike noted, our Canadian cannabis operations delivered another quarter of positive EBITDA, as well as positive cash flow and positive earnings. Total Canadian cannabis sales were 38.7 million compared with 39.8 million for Q3 last year. Breaking is down into its component parts, retail branded sales, which comprise about 80% of total Canadian cannabis sales for Q3 were $31 million, down slightly from 32.8 million in Q3 2022. International exports from Canada were down slightly to 900,000 compared to 1.1 million in Q3 last year. Export sales for the year-to-date were up 162% compared to the same period last year. As I mentioned last quarter, we are seeing an increase in inquiries in sales for non-branded or wholesale product due to what we believe is less availability, a consistent high quality biomass as many producers have been moving to asset light models or have sold through inventories to generate cash. That translated into higher non-branded sales for Q3 of $6 million, which was up from both $4.9 million in Q3 last year and $3.9 million for Q2 of this year. Pricing in this channel has improved. While demand is up, we continue to be very strategic and selective around our non-branded sales. Gross margin for Canadian cannabis for Q3 were 35% compared with last year’s 32%. Last year’s gross margins figure of 32% excludes the impact on our reported Q3 2022 margin of 27% due to the impact of acquisition accounting and inventory adjustments in our Q3 2022 results. The year-on-year increase is primarily due to a continuing lower book cost per gram as well as a slight favorable exchange rate fluctuation. As we have stated since our entry into the cannabis space, we will continue to improve our operational efficiencies as we learn, innovate and broaden our cannabis experience expertise. Selling and general, administrative expenses for Canadian cannabis for Q3 were $10.2 million, down from $10.5 million both in Q3 last year and Q2 this year. As a percent of sales, SG&A for Q3 was unchanged at 26%. Canadian cannabis adjusted EBITDA was $6.2 million compared with $6.7 million for Q3 last year as well as Q2 of this year. As already noted, adjusted EBITDA for the year-to-date is up 37% for a 400 basis point expansion into EBITDA margin to 16%. Canadian cannabis net income was $3.8 million, up significantly from net income of $200,000 for Q3 last year, more than double the $1.7 million for Q2 of this year. Cash generation after all capital expenditures and debt service payments was also positive at $5.1 million, up meaningfully from $1.3 million last year. As Mike noted at the onset, we have stabilized our US cannabis business and that is reflected in the financial results. US cannabis sales, which were generated entirely by Balanced Health Botanicals, were $5 million, down slightly from $5.1 million for Q3 last year. US cannabis gross margin was 64% compared with 69% Q3 last year, primarily due to the ongoing transition of our customer from tinctures to gummies, partly due to the success of our Synergy+ line. Adjusted EBITDA for US cannabis was positive $200,000, a slight improvement over what was essentially breakeven performance in Q3 last year. Finally, US cannabis generated net income of $79,000 as well as positive cash flow in the quarter. Turning now to fresh produce. We delivered a positive EBITDA quarter, which I had not projected when asked during our Q2 earnings call in August. This is a result of improved pricing in the later half of our third quarter and better volumes from our third party supply partners as we slowly but surely regain our volume after losing two key third party suppliers to end of calendar year 2022. Produce sales were up slightly year-over-year to $35.7 million with a strong increase in sales from our own greenhouses being substantially offset by a decrease in supply partner revenues versus last year. Sales from our own production increased 28%, which was driven by a 26% increase in the average selling price and an 8% increase in pounds produced. While there is a lot of good operational news in our third quarter report, I do want to note that, our VF Fresh gross margin was positive $1.5 million for a 4.2% gross margin versus reporting gross margin losses in this business line every quarter since Q4 2021 when we reported a positive gross margin percentage of 6.8%. Fresh produce delivered another quarter of positive adjusted EBITDA nearly $800,000, that’s a $5.7 million improvement over Q3 last year, which brings the year-to-date improvement to $22.5 million. As Q4 is typically a seasonally stronger quarter for fresh, we expect to achieve positive gross margin in EBITDA in Q4. I will note, however, that we are still dealing with some inflationary pressures on some input costs, which are challenging to pass on to our big box retail customers. Q3 net loss for fresh produce also improved significantly to a loss of $950,000 from a loss of $4.6 million for the same quarter last year. I am pleased to report a reported positive cash flow from fresh produce, which benefited from the receipt of a vendor settlement in Q3 that we reported in our earnings of Q2. As we look ahead to next year, we have made the strategic decision to deploy half of our Delta 2 facility not currently being used to grow cannabis to grow tomatoes, at least for the 2024 calendar year. Health Canada now permits other crops to be grown in licensed facilities, which was not allowed since the inception of the cannabis regulations. This pivot is due to a number of factors. One, the change in the regulations. Two, the continuing improvements in our cannabis yields, hence one of the key reasons for our cost of sales decreasing. And three, historically, our tomato operations in Delta 2 were profitable. The additional production is expected to contribute incremental cash flow and profitability to our VF Fresh division. This change will have no impact on our ability to meet expected cannabis demand, and is in fact a great opportunity for us to utilize what has been an idle area in our greenhouses to generate profitable revenues in this swing space now that regulations allow us to grow cannabis with other crops within a licensed facility. Turning now to cash and the balance sheet. Cash at the end of the third quarter increased to $40.5 million, up from $31.7 million at the end of Q2 of this year, while our working capital at the end of the third quarters was relatively unchanged compared to Q2 at $84.3 million in working capital, which are significant improvements from $21.7 million in cash and $60.8 million in working capital at the end of last year. Total debt at the end of Q3 was $53 million, down sharply from $55 million at the end of Q2. Our quarterly principal debt service payments are close to $1.5 million per quarter. And now I’ll turn the call back to Mike. Michael DeGiglio: Thanks, Steve. For 30 plus years, we have built Village Farms with a deep and reverent respect for cultivation as the core from which to build our business. Some refer to us as farmers. More recently, we were described as low cost or value growers who had no clue how to build brands. This quarter and in fact 2023 year-to-date challenges this simplistic viewpoint. It shows how deep experience and resulting competitive advantage in cultivation is enabling indeed funding leadership roles in critical areas that separate the best consumer goods companies from everyone else. Getting cultivation right as we are proving out is providing us with bandwidth to innovate and other critical functions which are now driving sustainable, profitable market share and cash flow. Importantly, these are the same pillars of success that will be the foundation as we look to expand our Canadian model as new cannabis markets open around the world. It’s a continuing growth opportunity we farmers are very excited about. So operator, I’ll turn it over to you for any questions at this point. Thank you. See also 15 Countries with the Highest Alcohol Consumption in Europe and 15 Best Gins Under $50. Q&A Session Follow Village Farms International Inc. (NASDAQ:VFF) Follow Village Farms International Inc. (NASDAQ:VFF) 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 will come from the line of Aaron Grey with Alliance Global Partners. Aaron Grey: Mike, I want to kind of jump off where you left off in terms of kind of proving out that CPG capability and going on beyond just kind of the produce that you had mentioned. So if you can speak to how you’re viewing brand architecture today, particularly with the launch of value brand Fraser Valley, which we understand was necessary to compete with some of the pricing pressure. Some of the third party does imply some of the mix shift from Pearson Farms to Fraser. So I just want to get some color in terms of how are you seeing the premium mainstream value mix evolving within the category and then as well within your own portfolio as we continue to see the industry evolve here? Michael DeGiglio: Yes, it’s somewhat is testing. I mean, we really focus on consumer insights before we launch our brand. So clearly, with Fraser Valley, that was a segment, especially on the West Coast, but now resonates on the East coast or at least in Ontario where we had sort of the number one launch there with Fraser Valley. And then the quality of Fraser Valley is just exceptional. So the quality and the pricing resonated well and it’s become a strong player for us. But equally, we launched Soar a year ago, which is in that premium category and we never expected the premium category to be more than 5% or 10% with the current economic situation, but it’s doing very well. And then third, that’s put some pressure on our Pearson Farm brand. But I think it’s an ebb and flow and the economy has a lot to do with it. So we continue to innovate. The other side of it is really newness within those brands. And keep in mind that ROSE LifeScience has a number of brands that are resonating very well, not just in Quebec but in other provinces going forward. And now we continue to drive newness innovation. We need to know where we’re going to be in 2025 right now with our launches. And it takes a lot of energy, a lot of effort, a lot of time and money, you have to continue to trial. And we’re actually working on some very unique things, which we’ll probably talk about in the next quarter going forward. But I hope that gives you some color. Aaron Grey: And then same question for me on non-branded sales. We saw a nice uptick sequentially. So was that driven more by a one-off sale, is there a new line of business you expect to generate from there on a reoccurring basis? You kind of alluded to that in prepared remarks. So just fair to say, some of that increase in mix. And then also on the other part of that on gross margin. Some of the pressure we saw in that sequentially, was that driven by some of the non-branded mix? So just how we think about that sales going forward in terms of new generating business on a reoccurring basis, and then how any type of gross margin impact we have there? Michael DeGiglio: No, actually gross margin — we’re very satisfied with the gross margin on our B2B business. Extremely satisfied. We made a strategic decision at the beginning of this year to sort of open up. We wanted to prove internally to the company as well as to our consumers and distributors and the provinces that we can be a very strong branded company. And I think we proved that out, we continue to prove it out. So that there was a big focus on just being very myopic on the branding side. However, we are focused on cash flow generation. Those were the marching orders early on. And strategically, we decided let’s open up our [B&B] business. We have capacity, the margins are good., that’s not the reason we see margin change. And then we were watching the dynamics in the industry. There was a lot of flower available and slowly that seemed to be driving up a number of companies change their model to a light asset model. And if we can drive greater profitability, greater revenue, greater sales, we are going to take that business on. And of course, for international, in a way that’s B2B as well. So this just parallels that very nicely and we’re going to continue moving forward B2B. Operator: Our next question will come from the line of Eric Des Lauriers with Craig-Hallum. Eric Des Lauriers: I was hoping you could drill in a bit more into some of the changes in produce this quarter. So I was thinking of some moving parts here. One of the profitability drivers here is the increase in volumes it sounds like. I am wondering if you could also just help us to understand or perhaps just kind of drill in a bit more deeply into some of the operational improvements that you have made. I know recently you have kind of spoken about AI investments for produce. If you could kind of just give us an update overall on the operational improvements that you have made in that segment and sort of how to think about perhaps the difference in operating expenses versus cost of goods sold kind of going forward, where should we look to see some of that improvement going forward? Thanks. Michael DeGiglio: Well, I think, look, last year was the worst year we had in produce in 33 years. So it was a very difficult year. But it was really driven by a number of factors. It was a perfect storm. Inflationary pressures that really started post-COVID that were astronomical. When you look at diesel fuel shipping 1,000 plus trucks a year that’s in our cost of sales. It was crazy. Everything went ballistic. Fertilizer costs were up 65%, 70%, corrugated costs for all the packages across the board, and labor skyrocketed across the board, even based on our foreign worker program, Department of Labor continues to drive costs up 7% a year. So all that was happening while we were battling the virus. And we are always in agriculture dealing with items out of our control viruses, bacterias, insect so on, but this was sort of one of the worst I’ve ever seen. Thank god. We’re seeing — we’re putting in every day more and more tolerance, more varieties that are tolerant, which means they may get the virus but they can tolerate it, and that’s very important. And we are now starting to see the first of totally resisted varieties. So it’s taken a long time. Even once the resistance gene was ready to be spliced into the new varieties, it still takes 11 turns of growing parent-after-parent-after-parent till it’s finally in there. So we had to be patient about it. So that’s probably the biggest impact. Simultaneously, we talked about putting AI systems that work concurrent as like a very strong co-pilot with our growers that are monitoring thousands of data points every second of the day, every day of the year......»»

Category: topSource: insidermonkeyNov 9th, 2023

Teva Pharmaceutical Industries Limited (NYSE:TEVA) Q3 2023 Earnings Call Transcript

Teva Pharmaceutical Industries Limited (NYSE:TEVA) Q3 2023 Earnings Call Transcript November 8, 2023 Operator: Hello, and welcome to the Q3 2023 Teva Pharmaceutical Industries Limited Earnings Conference Call. My name is Alex. I’ll be coordinating the call today. [Operator instructions] I will now hand over to your host, Ran Meir, SVP of Investor Relations. Please […] Teva Pharmaceutical Industries Limited (NYSE:TEVA) Q3 2023 Earnings Call Transcript November 8, 2023 Operator: Hello, and welcome to the Q3 2023 Teva Pharmaceutical Industries Limited Earnings Conference Call. My name is Alex. I’ll be coordinating the call today. [Operator instructions] I will now hand over to your host, Ran Meir, SVP of Investor Relations. Please go ahead. Ran Meir: Thank you, Alex. Thank you, everyone, for joining us today. We hope you have had the opportunity to review our press release, which was issued earlier this morning. A copy of this press release, as well as a copy of the slides being presented on this call, can be found on our website at Please review our forward-looking statements on Slide no. 2. Additional information regarding these statements and our non-GAAP financial measures is available on our earnings release and in our SEC Forms 10-K and 10-Q. To being today’s call, Richard Francis, Teva’s CEO, will provide an overview of Teva’s Q3 results and business performance, recent events and our priorities going forward. Then Dr. Eric Hughes, our Head of R&D and Chief Medical Officer, will discuss progress on our innovative pipeline. Our CFO, Eli Kalif, will follow up by reviewing the financial results in more detail including our 2023 financial outlook. Joining Richard, Eric, and Eli on the call today is Sven Dethlefs, Head of North America business, who will be available during the question-and-answer session that will follow the presentation. Please note that today’s call will run approximately one hour. And with that, I will now turn the call over to Richard. Richard? Richard Francis: Thank you. Ran. And thank you everybody for joining us today. I like to begin by saying that we are deeply saddened by the terror attack in Israel on October 7. Since that day, Teva’s board, leadership team and I have made the safety and wellbeing of our Israeli colleagues our upmost priority. I visited and met employees of the facility in Israel immediately after the attack. Many have families and friends who have perished or being kidnapped. What really stood out and inspired me was that despite all the difficulties, they are running together to bring medicines to the patients who need them, especially now. I am personally humbled by their incredible resilience, care and sense of purpose. Now we have increased support of our emergency supply of medicines to hospitals, pharmacies and patients, and we have partnered with our longstanding partners to donate products and provide other humanitarian aid. Through it all, our production remains largely unaffected, and gratefully none of our sites have incurred direct damage as a result of the war. We continue to secure continuity plans to be certain we can maintain our business continuity, while most importantly taking care to ensure that our colleagues are safe and well in these difficult times. Now moving on to Slide 5, I’d like to update you on strong performance in Q3 as we continue to execute our Pivot to Growth strategy. Now our strong performance of our growth was delivered by our growth engines, AUSTEDO, AJOVY and generic business. Revenues were up 7% in US and in local currency. Our gross margin continues to improve. We sort of increased by 50 basis points versus Q3 2022. We’re pleased to announce an exciting partnership with Sanofi in Q3, the deal to really maximize our TL1A asset. Because of these results, I’m pleased to announce that we’re going to increase our outlook of revenue to $15.1 billion to $15.5 billion for 2023. Now to move on to the next slide, to continue to maybe update you on our Pivot to Growth strategy. As you’ll remember, this was based on four pillars. Deliver on our growth engines, step up innovation, sustaining generics powerhouse, and focus our business. So we’re just going to touch on some of the progress we’ve made in Q3. As I’ve just mentioned, AUSTEDO is performing well and is on track to hit $1.2 billion for 2023. And we remain committed and confident of hitting the target of $2.5 billion in 2027. UZEDY was launched earlier in the year. I’ll give you an update on that we’re pleased to announce with our partner, Alvotech, that we’re doing an FDA inspection in early Q1 in 2024. It raises the opportunity that we may be able to launch Humira next year. With regard to innovation, I’m joined on this call by Eric Hughes who will go into more detail, but a couple of highlights are obviously around a Olanza team, long-act team, for treatment for schizophrenia in Phase 3 study. This is progressing really well ahead of schedule. So we’re confident we’ll be able to report results in that in the second half of next year. To create such a generic power house, we make good progress and as you’ll see, we have growth across all of our regions. And then finally, on pillar four, focus our business. We continue to do the work to create a standalone business unit for Teva api. I’m pleased to announce the appointment of our CEO for that business that allows them to complete in the global market. And moving on to the next slide, just a touch upon one of that the news we had in Q3, the exciting collaboration with Sanofi. I’m pleased with this collaboration, because it really strengthens our Pivot to Growth strategy. It allows us to partner with a global leader in immunology, both from an R&D and commercial perspective, while retaining 50% of the economics going forward, which is important as we want to drive long-term growth to Teva. We see this asset as an asset that can drive long-term growth because of the size of the market we’ll be operating in. I’ll come to that a bit later on. Now back to performance. On the next slide, as I said, we had strong performance in Q3. Revenue was $3.9 billion, up 7%. That was driven by both our innovative business, as well as our generic business. Instead of continued its impressive growth up 30%, while AJOVY continued to grow well at 22%. Pleased to show that we saw growth across all of our regions with particular strong performance in the US and international markets. Now, to double-click and dive a bit deeper, I’d like to move on to AUSTEDO. AUSTEDO, once again, we confirm we are committed to the $1.2 billion target for 2023. Revenue was up to $339 million for Q3, up 30%, and supported and underpinned by good, strong TRx growth of 29%. Now, on the next slide, I want to reiterate our commitment to the $2.5 billion target for 2027. We’re doing this by investing in our brand and building capability in the company. As we mentioned earlier in the year, we have increased our salesforce, we have invested in improving our patient support services, as well as looking to launch this brand into the European market by 2026. Now, we see the opportunity, not only because we’re investing in building capability, but there’s a significant unmet medical need when it comes to patients suffering from tardive dyskinesia. And tragically, there’s a lot of patients who still need to benefit from AUSTEDO, so we have work to do there and an ability to improve patient’s lives. Now moving on to the next slide, AJOVY. We’re on track to reach or even exceed the $400 million for 2023, with good growth in Q3 and revenues of $114 million. As I said, revenue, sorry, as I said, growth was 22%. What I like about a AJOVY is not the fact that we’re just growing it in all of our regions, but we remain very competitive in what is a competitive sector and segment of the market, highlighting our sales and marketing and medical commercial capabilities. Now moving on to the next slide, the newest member of our innovative family is UZEDY, a long-acting treatment for risperidone launched in May of this year. Now we’re pleased with the launch, and as you can see, UZEDY is capturing over 55% of all NBRx in the risperidone long-acting market. And this is driven by the strong feedback we’re receiving from physicians and patients. Patients obviously appreciate the subcutaneous injection versus intramuscular. I think the physicians find the fact that UZEDY can reach therapeutic doses within six to 24 hours to be really helpful when they’re treating patients who have a relapse. This market is an attractive market. It’s a $4 billion market, and we think UZEDY will have a real part to play in that market. Now as I’ve said before, 2023 is a set-up year for 2024. We need to make sure we get access or we’ll look for more inclusions in our hospitals, and we’re making very good progress on that. So look forward to updating on UZEDY as we near the end of the year. Now, moving away from our innovative portfolio to our generic business, and as I said earlier, I’m pleased to show that we’re growing our generic business across all of our regions, US included. And as you can see, strong growth in the US is 15%, solid growth in Europe, and good growth in emerging markets and local currencies of 17%. Now, to move on to our pipeline, which is obviously a key pillar of our strategy, our Pivot to Growth strategy, and step up innovation, just to look at the late stage assets we have. I’ve talked about Olanzapine, and how we encouraged we are with the recruitment of our patients into that Phase 3 trial, and we look to be announcing, what Eric and his team will look to be announcing those results in the second half of next year. Once again, to reiterate, this is a significant market, and with Olanzapine that really isn’t a satisfactory long-act team, a version of this product, this molecule in the market. So we’re excited about this and the help we can now bring to this patient population. Moving on to ICS/SABA, another product that entered Phase 3 clinical trial in Q3. We’ve started to recruit patients already. And this is a significant opportunity. As I mentioned on previous calls, based on the guidelines in the US, there are 10 million patients who should be on an ICS/SABA combination. And so if you just take 30% of these, the market is still significant at $2.5 billion. So a real opportunity to continue to drive growth at Teva in our innovative business. And then finally, on Anti-TLA1, I have spoken a bit about it, and I’m sure Eric will touch on this as well, but just to highlight the size of the opportunity in UC/CD, which we see as around $28 billion, for what we think we have a best-in-class product. And then on my final slide, I’d just like to close out with our recent progress on our ESG strategy and initiatives. Now Q3, we make good progress on executing our ESG strategy, and we make good progress against some of our ESG targets. And I’m pleased to announce on behalf of the team that the company received some awards. We are winner of the Best Company for ESG Reporting in the Healthcare sector. And also in 2023, Best Corporate Social Responsibility Initiative. So really highlighting the work and the progress we’ve made on our ESG strategy. Now with that, I would like to hand over to my colleague, Eric Hughes, who will walk you through some of our pipeline news. Eric Hughes: Thank you, Richard. Can I have the next slide? So as Richard mentioned, we’re excited by the improved sales of AUSTEDO, which is a testament to AUSTEDO’s safety and efficacy. To build on what we’ve already achieved with AUSTEDO, we want to make sure that the flexibility and the convenience of AUSTEDO is improved with our patients and we’re happy to present this data from our real-world studies called START. This study was a real-world study to look at how our four-week titration pack is used. What we see in this study is that 78% of the subjects completed the study, 97% were adherent to the medication, 76 reached the optimal dose, and 95% reached a dose greater than 24 milligrams per day. But why is this important? Well, the important thing is to get patients on the right dose that’s optimal for them, use the flexibility of our set-o, and maintain patients on effective treatment. And you can see that in this study, we had actually a very good response rate in the Abnormal Involuntary Movement Scale of 4.8, which is actually numerically better than our pivotal studies. So we believe with the titration pack, the flexibility of the dosing, and these adherence rates that we see in our START study, we will maximize the ability of patients to recede and obtain the proper dose and stay on treatment. Okay, next slide. As Richard mentioned, we’re also excited to see the improved sales of AJOVY. AJOVY is a program that we have for migraine, and we can recapitulate our Phase 3 studies in its effect on the monthly migraine days that we improved. So in this study called UNITE, there’s a prospective study, but the uniqueness of this study was that we looked at patients with migraine who also had depressive symptoms. And this is important because depression is a comorbidity with migraine, that eats chronic migraine, increase disabilities, and decreases in quality of life. So we designed UNITE to prospectively look at both the effects on monthly migraine treatment and as well as depressive symptoms. And we’re pleased to show that the primary endpoint was achieved and recapitulated our good results and the monthly migraine rates, but also in the secondary endpoint on depressive symptoms. So this is the first study to show, in fact, that we have a significant effect not only on monthly migraine, but also on depressive symptoms in a CDRP, either subcutaneous or oral. So very excited to see this. I think there’s a great benefit to patients. Go to the next slide. Now we’re also excited to present more data on UZEDY from our pivotal studies in the sub-analysis. In the RISE study, our pivotal study, we looked at the disease duration across all the patients that we enrolled. And here you can see that we had patients that were less than five years, all the way up to greater than 20 years. And why is this sub-analysis important? Well, there is the thought that after many years, greater than 20 years, the treatment of schizophrenia becomes slightly resistant to treatment. But here we can see that clearly there’s no impact on disease duration on the effectiveness of this disease. So greater than 20 years is a very good population to have shown treatment effect in. Equally as important is those patients that are less than five years duration of their treatment. Here again, even in this population which has a higher relapse rate, early in treatment, we also had a great effect, which is important because in LEIs, this is a continuing theory that LEIs are an effective way of starting treatment. Thank you. Next slide, please. Now, Richard mentioned the Olanzapine LAI study. It’s going very well. We’ve enrolled over 550 patients to date. And I just want to review quickly what the study design is for our Phase 3 program. We do have three doses against placebo for eight weeks to the primary endpoint. And then we’ll roll those subjects over into three doses again for up to 48 weeks to build our safety database. This study is enrolled very quickly. And I’ll go over timelines of the readout. But we’re excited to see that a study enrolls quickly. This is obviously a testament to the capabilities of the R&D organization as well as the desire of investigators to use an injectable Olanzapine. And the next slide. Finally, I just want to touch base on our TL1A program. Richard mentioned that we had a deal signed with Sanofi to advance this very important product forward. As I mentioned many times in the past, this is a very important underserved market. There are over 4 million patients diagnosed, about 2.7 million are treated. However, the treatments have good effects that only last for so long, people frequently cycle through treatments, and many of these patients actually end up still getting surgery as their disease progresses. So more treatments are important in this disease area. We believe we have the best-in-class potential for TL1A. We have a potent compound with great selectivity. We’ve shown good safety in our asthma study, and we’ve shown low anti-drug antibodies today. The collaboration with Sanofi is going to capitalize on the potential of this target. This target has a potential to go across many different disease indications. It’s a pleiotropic cytokine that affects many different pathways, so the possibilities are large for this group. As I’ve mentioned, we’ve accelerated the program, and we’re putting all our effort on getting our interim analysis read out in 2024. So looking forward to more in collaboration with Sanofi. And just to review our milestones in development, so I mentioned TL1A, we’re moving forward, we’re putting resources and investment in making sure that we achieve our interim analysis in the second half of 2024. I have been talking about Olanzapine LAI and its acceleration. We have been reporting that we were going to report the results out in the first half of 2025, but I’m happy to say we’ve accelerated that to the second half of 2024. We’ve enrolled patients in our Anti-IL15 POC study for celiac disease, and we will have our PK from our SAV and MAD studies coming out in the second half of 2024. We are well on our path to have our first patient dose in our Anti-PD1 IL2 program in the first half of 2024 as and when we submit our IND. And as Richard mentioned, ICS/SABA has now launched into our Phase III program, and we’re looking for results in first half of, or second half of 2026. So lots of things going on. I’m glad to see that we’re accelerating our programs and keeping to our timelines. And with that, I’m going to pass it off to Eli. Eli Kalif: Thank you, Eric, and good morning, and good afternoon to everyone. I’ll begin my review of our Q3 2023 financial result with slide 25. Starting with our GAAP performance. Revenues in the third quarter of 2023 were $3.9 billion, representing an increase of 7% compared to Q3 2022, both in reported terms and in local currency. To provide you some color on our revenue performance in the region. In North America, with overall strong performance was 11% growth in Q3 2023, compared to third quarter last year, this growth was mainly driven by higher revenue from generic products AUSTEDO and AJOVY partially offset by lower revenue from BENDEKA and TREANDA. As Richard mentioned, revenues in our generic business in North America increased by 15% in Q3 2023, mainly due to revenues from generic 0:20:54.2, partially offset by increased competition to other generic products. Revenues in our Europe segment was flat in local currency terms. We continue to see strong growth in AJOVY and a solid growth in our generic business in the third quarter. This was, however, largely offset by lower revenues from our legacy brand including COPAXONE. Revenues from our international market segment increased by 20% in local currency terms. This was mainly driven by higher revenue from our generic products, largely coming from price increases as measured to AUSTEDO higher costs due to inflationary pressures. This increase was partially offset by regulatory price reduction and generic competition to off-patent products in Japan. GAAP operating income was $355 million in the third quarter of 2023 compared to an operating income of $419 million in the third quarter of 2022. The lower operating income in the third quarter of 2023 was mainly due to higher legal settlements and lost contingencies, higher R&D and S&M expenses, partially offset by higher gross profit. Our higher R&D expenses in the third quarter of 2023 compared to the third quarter of 2022 were mainly due to an increase to support our late-stage innovation pipeline that Richard and Eric mentioned earlier in line with our Pivot to Growth strategy. In addition, last year in the third quarter of 2022, our R&D expenses were lower due to an adjustment in payments related to a contract with one of our R&D partners. We also saw an increase in our S&M expenses compared to the third quarter last year, mainly due to promotional activities related to AUSTEDO and UZEDY, as well as exchange rate fluctuations in our Europe segments. We had a GAAP income of $80 million compared to the net income of $56 million in Q3 2022, and a GAAP earning per share of $0.07 compared to GAAP earning per share of $0.05 in the same period a year ago. The higher net income in the third quarter of 2023 was mainly due to reduced tax expenses in 2023 compared to Q3 2022. Our tax rate in Q3 2023 was mainly affected by increased deferred tax assets resulting IP-related integration plans. Such integration plans have been adopted, among others, in an effort of addressing the global adoption of OECD Pillar Two minimum effective corporate tax, commencing in 2024. The increase in our net income was partially offset by lower operating income, as discussed above. Foreign exchange rate movements during the third quarter of 2023, net of hedging effects, negatively impacted our revenues, and GAAP operating income by $9 million and $53 million respectively, compared to the third quarter of 2022. This was primarily result of the impact of the stronger US dollars against currencies of certain international markets in which we operate partially offset by the benefit from Europe appreciation. Approximately 46% of our revenue in Q3 2023 came from sales denominated in non-US dollar currency. Turning to slide 26. You can see that the total non-GAAP adjustment in the third quarter of 2023 were approximately $598 million compared to $602 million in Q3 2022. Notable GAAP adjustment this quarter include legal settlement, loss continuances of $314 million, mainly related to estimated provision recorded in connection with certain litigation cases in US. Additional notable adjustments included amortization of purchase and tangible assets of $145 million, the majority of which is included in cost of sale. Now moving to slide 27 for review of our non-GAAP performance. As I mentioned, our third quarter revenue were total approximately $3.9 billion, represented growth of 7% compared to the third quarter of 2022. Now let’s move down to the P&L starting with a gross profit margin. Our non-GAAP gross profit margin was 53.5% in the third quarter of 2023 compared to 53% in Q3 2022. This improvement in non-GAAP gross profit margin was mainly driven by a favorable mix of products, including higher revenue from AUSTEDO in our North America segment, partially offset by higher costs due to inflationary and other macroeconomic pressures. As I mentioned last quarter and as expected, this was an approximate 130 basis points sequential improvement in our non-GAAP gross profit margin in Q3 2023 compared to the second quarter of 2023. This sequential improvement in gross margin was driven by continuous shift towards a more normalized portfolio mix, mainly driven by strong growth in AUSTEDO, continued growth in AJOVY as well as improvement in our cost of goods sold due to the expected easing of the inflationary pressures and other measures, we are taking to drive productivity in our supply chain. Our non-GAAP operating margin in Q3 2023 was 26.5% versus 27.2% in Q3 2022. This decrease in operating margin was mainly due to an increase in R&D expenses, partially offset by higher gross profit margins, as I just mentioned, as well as lower G&A expenses. We entered the third quarter with non-GAAP earning per share of $0.60, compared to $0.59 in Q3 2022, mainly due to a higher non-GAAP operating income, partially offset by higher financial expenses in Q3 2023. Now, let’s take a look at our spend base on slide 28. As you can see, our quarterly spends base increased by $213 million or $171 million on a local currency basis. This increase was due to a higher cost of goods sold related to a higher revenue, compared to the third quarter of 2022, as well as higher operating expenses related to higher R&D and S&M that I just mentioned earlier, partially offset efficiency in our G&A expenses. As we move forward, we expect our operating expenses to be approximately from $1 billion to $1.50 billion in the fourth quarter, including a quarterly run rate of R&D expenses to be in the range of $230 million to $250 million as we continue to progress our product line including the late stage [inaudible] as this. This is in line with our Pivot to Growth strategy to position the business for long-term growth and success. Turning to free cash flow on slide 29. In the first three quarters of 2023, we generated $0.9 billion of free cash flow versus $1.1 billion during the same period last year, a decrease of $200 million. This resulted mainly from changes in working capital items including on average higher inventory levels as well as lower net income as a result of lower gross profit and higher operating and finance expenses. Today, we are reframing our 2023 free cash flow guidance. Our 2023 free cash flow is expected to be in the range of $1.7 billion to $2.1 billion. Our fourth quarter free cash flow expectation includes a sequential ramp up in our revenue and profitability with a meaningful contribution from AUSTEDO. In addition, we continue to drive working capital improvements including significant inventory efficiencies and continuation of the positive impacts from accounts payable as a result of expansion in our vendor payment program which we launched earlier this year. This free cash flow outlook range does not include the first upfront milestone payment payable to us under the exclusive collaboration with Sanofi for our Anti-TLA1 which we announced in October. Turning to slide 30. Our net debt at the end of Q3 2023 was $17.7 billion compared to $18.4 billion at the end of 2022. Our gross debt was $20 billion compared to $21.2 billion at the end of 2022. The decrease in our gross debt was mainly due to $1.6 billion senior notes repaid at maturity and $64 million of exchange rate fluctuations, partially offset by $500 million outstanding under the revolving credit facility as of September 30th, 2023. As I mentioned last quarter, in July 2023, we withdraw a total amount of $700 million under our $1.8 billion revolving credit facility. The proceeds of which were used to repay $1 billion of our senior notes at maturity in July. In September 2023, we repaid $200 million, and as of today, $500 million is outstanding under the revolver credit facility. Our net debt-to-EBITDA improved compared to Q2 2023, coming now at 4.03x for Q3 2023 due to foreign exchange rate movement as well as free cash flow generation in the third quarter. As part of our capital allocation strategy, debt reductions continue to be our focus, and we expect to continue to work towards our long-term financial target of being 2x net debt-to- EBITDA by end of 2027. Turning to slide 31, which presents our upcoming debt maturities. As I mentioned, we have already repaid $1 billion of our 2.8% senior note at maturity in July 2023, so there are currently no additional maturity payments due in 2023. Following our successful refinancing of approximately $2.5 billion of debt through our stability-linked senior notes during the first quarter of 2023, we have aligned our near-term debt maturities with our annual free cash flow guidance for this year. We believe we are well positioned to continue to serve our debt, and with these upcoming maturities over the next couple of years with our ongoing cash flow generation. Now, turning to our 2023 non-GAAP outlook on slide 32. As Richard highlighted earlier, we had a solid third quarter and year-to-date performance in terms of our revenues across all regions. This includes continuous strong momentum in our key growth engines, especially AUSTEDO, continued growth in AJOVY as well as solid performance in our core generic business globally. In addition, we are seeing relatively high revenue from COPAXONE compared to our initial expectations, which we now expect to be approximately $550 million for the full year. To reflect this revenue performance in the first nine months, along with the expected development in the fourth quarter, we are increasing our full year revenue guidance range by $100 million. We are now expecting our revenue to be between $15.1 billion to $15.5 billion for the full year of 2023. We also continue to expect sequential improvement in our margins in the fourth quarter. As previously communicated, we are driving and continuing the shifts in our portfolio mix, mainly driven by strong growth in AUSTEDO, as well as further improvement in our cost of goods sold. To reflect our year-to-date tax performance that I referred earlier, we are now expecting our annual non-GAAP tax rate for the full year 2023 to be in the range of 12% to 15%. And we expect our fully diluted share count to be approximately 1.123 billion shares for the full year of 2023. Today, we are also reaffirming our 2023 non-GAAP outlook for operating income, EBITDA, earning per share, and free cash flow as provided in February. I want to reiterate that our full year revenue, operating income, adjusted EBITDA, diluted EPS and free cash flow outlook ranges do not include the first upfront milestone payment payable to us under the exclusive collaboration with Sanofi for our Anti-TLA1, which we announced in October. With that, this concludes my review of Teva results for the third quarter of 2023. And now I will hand it back to Richard for a summary. Richard Francis: Thank you, Eli and thank you, Eric. So in summary, strong Q3 performance driven by AUSTEDO, the launch of UZEDY and AJOVY and good performance across our generic business in all three regions. Through that, as you heard from Eli, we’re increasing our guidance and revenues this year. And I’m pleased to show that the Pivot to Growth strategy is starting to get traction as I’ve highlighted with the AUSTEDO and collaboration with TLA1 with the capability build that Eric and his team have done that’s allowed us to accelerate our landscape along that team product in Phase 3 studies as well as with the Teva api, the recruitment of our CEO. With that, I’ll hand it over to people to ask questions. See also 11 Best S&P 500 Stocks To Buy According to Ray Dalio’s Bridgewater Associates and 12 Best Day Trading Stocks To Buy. Q&A Session Follow Teva Pharmaceutical Industries Ltd (NYSE:TEVA) Follow Teva Pharmaceutical Industries Ltd (NYSE:TEVA) 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 for today comes from Umer Raffat of Evercore ISI. Umer Raffat : Hi, guys. Thanks for taking my question. I noticed a dose level C was dropped in your TL1A trial. I’m assuming that was the highest dose. So I have a two-part question. One, can you confirm that among the dose level A and B that was kept, you have at least a 500-milligram dose in there? And secondly, I understand that the decision to drop the dose level C was informed by optimizing, evolving biomarker data. Could you please elaborate on that as well? Thank you. Richard Francis: Hi, Umer. Thanks for the call. Thanks for the question. Eric, I’ll hand over to you. Eric Hughes: Thank you, Umer. So yes, we amended our study design and we dropped the dose. This was driven largely in part by our comparative in-vitro data. As I mentioned, the potency of the compound is, we believe, is best-in-class. We think the selectivity drives a lot of our potential biomarker movement. We were looking at free TL1A levels, which I think are important in dose selection. And we used this in combination with RPK and what we observed in other development programs when we look at exposures in the programs. So we took advantage of this. And we optimized the study by dropping a dose and increasing actually the size slightly in the other arms. So we’re happy with the changes. I think that makes the program more efficient and more useful data that will come out of it. And I can’t comment on dosing or which dose was removed at this time. Operator: Our next question comes from Balaji Prasad from Specialty Pharma Equity Research. Balaji Prasad: Hi, good morning. This is Balaji from Barclays. Couple of questions from me. Richard, just want to get your sense if you think that Teva has reached a spot where you are comfortable or actively seeking to expand your pipeline or portfolio either with BD or in licensing. Second, you’re in the guidance. I still see a $400 million spread so late into the year, which is rather interesting. Is it fair to assume that you are still expecting some large one-offs so late in the year that can still impact to the extent of a few hundred million dollars if approved? Thank you. Richard Francis: Thanks, Balaji. Thanks for the call and the question. I appreciate that. So on the BD, to ask that question, yes, we are actively looking to do BD and in license. We started that and we’ve been doing that actively. I think we are excited about the products we have in innovation within the market and in our pipeline. That said, as we committed in the Pivot to Growth, we want to build on that. And we think we have capacity to add products both in our pipeline and also commercially. So we are actively doing that. But we want to be very selective, make sure it fits to our portfolio, our TA strategy. So that does take some time. With regard to the guidance, I think the question was the 15.1 to the 15.5 bit of a range there. Do we expect to one-off to drive that? I’ll let Eli answer that. So, over to you, Eli? Eli Kalif: Yes, thanks, Balaji, for the call, for the question. Sorry. And basically, we are actually keeping the guidance, of course, for AUSTEDO so you can actually look on the first three quarters and understand the growth there, year-over-year Q4, just on AUSTEDO. But, namely, in terms of the other elements and the other lines on the revenue, there is nothing there in specific that is going to be changed versus the next. And considering this is an analogy of Q4 that we have each year. Operator: Our next question comes from Jason Gerberry of Bank of America. Jason Gerberry: Hey guys, thank you for taking my questions. I guess firstly, just on the TL1A partnership, I actually had a follow-up question regarding the $600 million milestone for starting Phase 3. Is that contingent just on showing something static as a benefit, or do you actually need to generate data that are competitive with the more advanced TL1A programs? Just wondering how much risk there is to kind of capturing that $600 million milestone and moving forward. And then my second question, just on your EBITDA guide for the year. I guess to get to the midpoint or the high end of the range, it’s a pretty substantial, sequential step up. I get that there’s going to be more brand revenue, better mix, better margin in the fourth quarter, but you presumably won’t have the generic Revlimid contribution. So, how should we think about OpEx swings here in fourth quarter versus sort of the run rate in the three quarters leading into 4Q? Like would we expect a step down in OpEx or is there some other factor that can drive this big sequential uptick? Richard Francis: Okay, Jason, thanks for the question. I’ll start and answering them and I’ll let my colleagues contribute. So, on the TL1A, the Phase 3, there were no conditions around the Phase 3. The Phase 3 is about completing the Phase 2 — sorry, Phase 2, complete the Phase 2 and having to get approval to move into the Phase 3. So, that’s what the deal is on. There are no criteria around that. So, I think hopefully that’s very clear. With regard to the EBITDA range, I think it was, and a bit about OpEx. So, maybe I’ll start this and then Eli can contribute. So, you have seen and Eli did talk about our OpEx guide but this is in line with our strategy. This is in line with what we plan to execute. We’re driving AUSTEDO, making sure that brand is supported, appropriately the same for UZEDY product we just launched in schizophrenia. And obviously, Eric and his team have started to hit the ground running, particularly on the Olanzapine and also TL1A recruiting, faster than we expected. So, that obviously incurs cost, but I think that’s a good thing, particularly if that’s part of our Pivot to Growth strategy. So, those are the reasons why the OpEx has probably gone up. There’s a reason why it’s gone up, but we’re pleased with them because it’s in line with what we want to do. Now, obviously going forward, just to give a bit of flavor for the OpEx and the R&D, obviously TL1A in partnership with Sanofi will have a 50% of that cost taken by Sanofi. So as we move into next year and possibly depending on where it closes this year, we’ll have a contribution from Sanofi. So I think that we’ve thought about that, that allows us to manage our pipeline and to be very thoughtful, but also think big about what we want to do at TL1A. Now we have this collaboration. So and then the final part I’ll say is as we commented before, Revlimid was a contributor in Q3. We see that as a significantly less contributor in Q4, a very, very smaller part of that. So you take that into account. But Eli, maybe you like to add a bit more flavor to that as well......»»

Category: topSource: insidermonkeyNov 9th, 2023

15 Highest Paying Countries for Pharmacists

In this article, we will look at the 15 highest-paying countries for pharmacists. We have also analyzed the pharmacy industry along with its key market players. If you want to skip our detailed analysis, head straight to the 5 Highest Paying Countries for Pharmacists.  The global Pharmacy Benefit Management (PBM) market was valued at $513.98 […] In this article, we will look at the 15 highest-paying countries for pharmacists. We have also analyzed the pharmacy industry along with its key market players. If you want to skip our detailed analysis, head straight to the 5 Highest Paying Countries for Pharmacists.  The global Pharmacy Benefit Management (PBM) market was valued at $513.98 billion in 2022, and it is expected to reach $809.79 billion by 2030, with a projected CAGR of 6.0% from 2023 to 2030. This growth can be attributed to the rise of chronic diseases, increasing costs of drugs, and skyrocketing demand for specialty drugs.  Moreover, the rise of telemedicine and remote work in the pharmacy industry has become the new norm. The increasing influence of telemedicine and telehealth services has created a demand for remote pharmacy consultations and prescription order entry. This rise has been accelerated by the COVID-19 pandemic which highlighted the importance of remote healthcare access.  There is no doubt that internet penetration and the growing number of internet users have a pertinent role in facilitating telepharmacy services. Access to the internet allows patients to connect with pharmacists virtually and enables consultations and prescription fulfillment from the comfort of their homes. Moreover, telepharmacy offers cost savings and operational efficiencies for healthcare providers. This also explains why telemedicine has become one of the best work-from-jobs for 2023.  Speaking of cost savings, to address the high pharmaceutical costs, CVS Health Corp (NYSE:CVS) Caremark has launched Caremark Cost Saver, a program in partnership with GoodRx Holdings Inc (NASDAQ:GDRX), with an aim to reduce pharmacy out-of-pocket expenses. This initiative benefits CVS Caremark’s eligible members as it automatically grants them access to GoodRx Holdings Inc (NASDAQ:GDRX)’s prescription pricing for lower-cost general medications. Patients using this service can save on their drug costs at the pharmacy counter. The amount saved is applied towards members’ deductibles and out-of-pocket limits. No action is required from plan members which further simplifies the process for tens of millions of Americans served by CVS Health Corp (NYSE:CVS) Caremark. It is also worth noting that CVS Health Corp (NYSE:CVS) has been trying to position itself at the forefront of healthcare transformation as they are cutting approximately 5,000 corporate-level jobs. They have done so to shift their focus and spending towards healthcare by focusing on its stores, pharmacies, and clinics. This move was followed by CVS Health Corp (NYSE:CVS)’s acquisition of primary care provider Oak Street Health for $10.6 billion and its earlier acquisition of Signify Health for $8 billion, as the company continued to expand into the healthcare sector. On the financial end, CVS Health Corp (NYSE:CVS) reported its first-quarter results, with earnings per share of $2.20, even though the expectation was $2.09, and revenue of $85.28 billion, compared to an expected $80.81 billion. However, their Q1 profit was $2.14 billion, down from $2.35 billion a year earlier. They attributed the decrease to costs related to their recent acquisitions.  ClearBridge Value Equity Strategy made the following comment about CVS Health Corporation (NYSE:CVS) in its first quarter 2023 investor letter: “At the same time, we exited health insurance company Cigna, whose strong outperformance over the last year has resulted in shares trading at a significant premium relative to competitor CVS Health Corporation (NYSE:CVS). Additionally, we view CVS Health’s underperformance as driven by temporary issues and believe it has a good likelihood of succeeding in its improvement initiatives following upgrades to the management team and its acquisition of Oak Street Health. As a result, we elected to swap our position in Cigna into CVS Health to capitalize on the valuation gap while maintaining similar exposure within the sector.” On the other hand, GoodRx Holdings Inc (NASDAQ:GDRX) is offering savings on antivirals, medications, and vaccines for the upcoming cold and flu season. Last flu season in 2022, the CDC reported over 27 million illnesses, 300,000 hospitalizations, and 19,000 deaths of influenza. GoodRx Holdings Inc (NASDAQ:GDRX) aims to make flu shots more accessible as they are collaborating with Walgreen Company, Walmart Inc (NYSE:WMT), and Weis Markets Inc (NYSE:WMK) to provide flat-rate pricing for flu shots. Prices are under $40 for ages 6 months to 64 years and under $70 for those 65 and older. GoodRx Holdings Inc (NASDAQ:GDRX) also facilitates access to antivirals and medications for flu treatment by advising annual flu shots and potentially separate administration of the RSV vaccine for optimal protection during the tripledemic of flu, COVID-19, and RSV.  Owing to their exceptional pricing strategies, here is what Saga Partners has to say about GoodRx Holdings, Inc. (NASDAQ:GDRX) in its Q2 2022 investor letter: “The Portfolio first bought GoodRx at the end of 2020. I discussed the initial thesis in the H1’21 Investor Letter explaining how GoodRx is a prescription marketplace. GoodRx aggregates all available prescription prices across pharmacy benefit managers (PBMs). PBMs are the companies that negotiate prescription pricing with pharmacies on behalf of their insured customers. Historically, uninsured patients had to pay excessively high retail cash prices for prescriptions as a consequence of the contracts between pharmacies and PBMs. Through a discount card provider like GoodRx, consumers could get a coupon to access the much lower PBM prices. PBMs benefitted from discount cards generating incremental demand and earning the administration fees paid by pharmacies. PBMs then shared part of their administration fee with GoodRx. As the prescription discount card space developed, GoodRx established itself as the dominant company with the second largest company (SingleCare) being about quarter of its size. Part of GoodRx’s success was their patent that enables only them to contract with multiple PBMs on a single interface. This meant that it was likely that the lowest prescription prices for people not using insurance were likely to be found on GoodRx, attracting more customers to GoodRx’s platform, which further incentivized PBMs to offer even lower prices on GoodRx to win that demand…” (Click here to see the full text)” Methodology To list the highest-paying countries for pharmacists, we identified the countries with the highest demand for pharmacists and then made a list for 23 countries with the average salaries for pharmacists. Of those 23, the 15 with the highest average salaries were selected and have been ranked. We acquired the data for the average salaries of pharmacists for each country from ERI Economic Research Institute. The list is presented in ascending order. Here is a list of the highest-paying countries for pharmacists. 15. France Average Salary: $78,395 To practice in France as a pharmacist, individuals must be registered with the Chamber of Pharmacists and meet strict qualifications requirements, competence, and ethical standards. While pharmacists must complete a six-year PharmD program, they also have plenty of options for post-graduate specialties like clinical practice or laboratory medicine. France is one of the highest-paying countries for pharmacists 14. Germany Average Salary: $85,197 To practice as a foreign pharmacist in Germany, you need to obtain approval, known as “approbation,” from the competent authorities in the respective German state. This process involves submitting your qualifications for evaluation, language proficiency, and passing a knowledge test. The specific requirements may vary by state. Germany is also one of the highest paying countries for cyber security experts.  13. Netherlands Average Salary: $86,860 To work as a pharmacist in the Netherlands, one must meet specific requirements like fluency in Dutch is essential, as pharmacists have to work with Dutch-speaking patients. They also need a recognized pharmacy degree, which may require sending one’s foreign diploma for evaluation. Then, passing the AKV test, assessing the degree, and obtaining a Declaration of Professional Competence are following necessary steps. Additionally, one also needs a job offer from a Dutch employer to apply for a work permit. The entire process can vary in duration but typically takes several months to complete. Pharmacist salaries in the Netherlands vary based on qualifications and experience. However, generally, it is one of the top-paying countries for pharmacists in the world. 12. Austria Average Salary: $87,433 Austria had a pharmaceutical market estimated at $9.2 billion in 2021, with 15% of total healthcare spending directed towards pharmaceuticals. The country’s pharmaceutical industry is led by companies like Boehringer Ingelheim Group, Novartis AG (NYSE:NVS), and Pfizer Inc (NYSE:PFE). With over $14 billion in pharmaceutical exports in 2020 and growing domestic production, Austria offers pharmacists a promising career pathway. Its healthcare system, which covers 99% of the population, ensures stability for the sector and hence, promising employment opportunities for pharmacists. Austria is one of the highest-paying countries for pharmacists.  11. Norway Average Salary: $90,610 To practice as a pharmacist in Norway, you need a bachelor’s or master’s degree in Pharmacy, equivalent to Norwegian standards. After obtaining your degree, you must apply for authorization from the Norwegian Directorate of Health. Additionally, you typically require a residence permit, unless you’re an EU/EEA/EFTA citizen, in which case registration with the police suffices. Proficiency in the Norwegian language is often necessary for pharmacy work in Norway, and pharmacists from non-EU/EEC countries may need to complete national courses and pass relevant tests. It is one of the highest-paying countries for pharmacists in Europe.  10. Belgium Average Salary: $91,219 Belgium is home to renowned pharmaceutical companies like UCB S.A, Janssen Pharmaceutica, and GSK plc (NYSE:GSK) that provide ample job opportunities. Belgium’s central location in Europe also benefits its role in the pharmaceutical sector. Belgium is one of the highest-paying countries for data scientists.  9. New Zealand Average Salary: $91,458 To become a pharmacist in New Zealand, one has to complete a Bachelor of Pharmacy from a recognized university like the University of Auckland or the University of Otago, followed by a one-year internship in a hospital or community pharmacy. The next step is to register with the Pharmacy Council of New Zealand to practice as a licensed pharmacist. New Zealand is one of the highest-paying countries for pharmacists.  8. Canada Average Salary: $98,742 To become a licensed pharmacist in Canada, you need a pharmacy degree from a Canadian university, pass the PEBC national board examination (except in Québec), and gain practical experience through an internship, all the while demonstrating fluency in English or French. Licensing is regulated provincially, and international pharmacy graduates have specific pathways through programs like the International Pharmacy Graduate Program and the International Pharmacy Bridging Program. It is a country with a high demand for pharmacists as well as the best country for pharmacist immigration.  7. Australia Average Salary: $99,174 To become a registered pharmacist in Australia, individuals must complete an accredited university pharmacy degree with prerequisites in subjects like Biology and Chemistry. After graduation, students complete an intern training program and pass the Pharmacy Board of Australia’s registration exam to become eligible for general registration as pharmacists. International practitioners may also need to register and undergo further examination. Australia is one of the best countries for pharmacists to work for.  6. United Arab Emirates (UAE) Average Salary: 101,360 To become a pharmacist in Dubai, a minimum of two years of experience in a retail pharmacy, a diploma or degree in pharmacy, along passing the Dubai Health Authority (DHA) registration exam are necessary. Centers like the Pharma International Institute provide coaching for exams like DHA, MOH, KAPS, PEBC, HAAD, and Prometric. UAE is one of the highest paying countries for ESL teachers.  Click here to see the 5 Highest Paying Countries for Pharmacists.  Suggested Articles: 15 Highest Paying Countries for Data Scientists 15 Highest Paying Countries Software Engineers 15 Highest Paying Countries for Engineers Disclosure: None. 15 Highest Paying Countries for Pharmacists is originally published on Insider Monkey......»»

Category: topSource: insidermonkeyOct 9th, 2023

LightPath Technologies, Inc. (NASDAQ:LPTH) Q4 2023 Earnings Call Transcript

LightPath Technologies, Inc. (NASDAQ:LPTH) Q4 2023 Earnings Call Transcript September 14, 2023 LightPath Technologies, Inc. beats earnings expectations. Reported EPS is $0.02, expectations were $0.01. Operator: Good afternoon, everyone, and welcome to the LightPath Technologies Fiscal Fourth Quarter and Full Year 2023 Financial Results Conference Call. All participants’ will be in listen-only mode. [Operator Instructions] […] LightPath Technologies, Inc. (NASDAQ:LPTH) Q4 2023 Earnings Call Transcript September 14, 2023 LightPath Technologies, Inc. beats earnings expectations. Reported EPS is $0.02, expectations were $0.01. Operator: Good afternoon, everyone, and welcome to the LightPath Technologies Fiscal Fourth Quarter and Full Year 2023 Financial Results Conference Call. All participants’ will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. At this time, I’d like to turn the conference over to Al Miranda, LightPath’s Chief Financial Officer. Please go ahead, Al. Al Miranda: Thank you. Good afternoon, everyone. Before we get started, I’d like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectations, involve various risks and uncertainties as discussed in its periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there can be no assurances that the projected results would be realized. In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP. We refer to these as non-GAAP financial measures. REDPIXEL.PL/ Please refer to our SEC reports and certain of our press releases, which include reconciliations of non-GAAP financial measures. Sam will begin today’s call with an overview of the business and recent developments for the company. I will then review financial results for the quarter and fiscal year. Following our prepared remarks, there will be a formal question-and-answer session. I would now like to turn the conference over to Sam Rubin, LightPath’s President and Chief Executive Officer. Sam? Sam Rubin: Thank you, Al. Good afternoon to everyone, and welcome to LightPath Technologies’ Fiscal 2023 Fourth Quarter and Full Year Financial Results Conference Call. Our financial results press release was issued after the market closed today and posted on our corporate website. The fourth quarter was highlighted by significant developments in several of our pillars of growth, which I have been discussing as part of our strategic shift from a component manufacturer to a value-added solutions provider. To recap for our investors, LightPath has been transitioning in the last few years from a pure component manufacturer focused on being the lowest cost provider to a value-added partner for complete solutions based on optical technologies whose differentiators are mostly technological. Along those lines, we have been focusing on three pillars of growth: imaging solutions, such as cameras; growth in new markets, such as automotive; and the defense business, all of those driven by our differentiating technologies such as our proprietary material. As previously outlined, one pillar of growth revolves around the defense business, increase, driven mainly by leveraging our unique infrared material. To achieve significant growth and market share in that established defense market while still commanding a premium, we’re leveraging these exclusive materials for infrared imaging as an entry point into new programs and to become the supplier of choice for infrared optics in the aerospace and defense industry. One advantage of our materials is that they are an alternative to germanium, the dominant material used in lenses for infrared imaging. The DoD and the White House have identified germanium as a strategic vulnerability within the supply chain. With most of the germanium originating from China and Russia, alternatives are strategically important. China is the world’s largest supplier and recently announced a limit on the exports of gallium and germanium. Our family of chalcogenide glasses branded as Black Diamond or BD is the leading alternative for germanium. In anticipation of this possibly happening and to mitigate the potential supply chain liability, we have been working with the DoD and various government agencies to accelerate the qualification and the readiness of our new materials. Most of this work is funded directly by those agencies. Recently, we announced the U.S. Department of Defense via the Defense Logistics Agency, DLA, will provide the funding necessary to qualify our Black Diamond chalcogenide glass as a substitute for germanium. These materials will be in addition to our BD6 material, which is already fully qualified and field deployed in multiple systems. The DLA funding will be made in two phases. The first phase of $250,000 is earmarked explicitly for three of LightPath’s Black Diamond glasses. The second phase is expected to cover the remaining six materials and total approximately $1 million. While new defense contracts can take a significant amount of time to come to fruition, this is a very positive lead indicator to the success of this strategy. This most recent announcement represents one of multiple fundings we have received to support the development of these materials, totaling over $2 million to date. Those funds are not included in our published backlog numbers. Currently, we can produce up to 10 tons a year of BD materials. According to different public estimates, the U.S. defense market consumes between 50 to 150 tons of germanium annually for the use in optics alone. Therefore, we are also discussing with DoD about the possible increase in capacity. Our recent expansion in Orlando facility sets the foundation for such a capacity expansion. Previously, our BD6 raw material would only be available in the form of finished optical lenses or integrated assembly in our customer solutions. However, the time it takes to produce prototypes for new optical design is one of the challenges to customers looking to make a change and to move away from germanium into new materials. So to aid the market transition from germanium into the new materials, we will make our most popular glass, BD6, available as raw material. Doing so will help accelerate the transition away from germanium. We are also mindful that export restrictions could have a short-term adverse effect on sales of our products that currently use germanium, and that while the recent developments around our material support significant growth in that area for LightPath, it does take about two years from the moment a system is redesigned until — redesign starts until we see volume production orders. The second pillar of the growth strategy concerns the adoption of thermal imaging in more applications, and right now, primarily with a focus on automotive. In the last two to three years, we have been working with multiple automotive companies at different levels of the supply chain to design, test and qualify thermal imaging as an additional safety sensor, primarily for emergency braking systems. Those efforts are often independent of some of the other activities and advancements in automotive such as LiDAR or autonomous vehicles. On May 29, the U.S. Department of Transportation Institute of Highway Safety announced their intention to set a rule mandating emergency braking systems in all new cars and have explicitly called out the gap in performance of those systems at night, naming thermal imaging as a technology that could solve this. Since this announcement, we have seen increased interest in those solutions and customers looking to possibly deploy those systems to more car models than originally discussed. We are very pleased to have had a two-year head start on many of the other players, time which we used to get field qualified by at least one major car manufacturer and established ourselves as an important player in this field. Our success in positioning ourselves in this market has led to some of our customers including and using our name in their proposals as a selling point. And in one case, at least in one case, a car manufacturer specifically suggesting to potential vendor that they work with us. The ASPs between $20 — are between $20 to $50 per car. This can be transformational to the company. This technology relies on our infrared materials, molding technology and design and assembly at a subsystem level, all of which really providing a successful proof for our strategy to leverage those technologies to become a solutions provider. The third pillar of growth, which ties directly into the first two, is our transition from a component manufacturer to a provider of engineered solutions based on optical technology. This transition began a couple of years ago, starting with — from customized lens assembly, which are what we tend to call LightPath 2.0. Through camera solutions, the first of which is our innovative Mantis broadband inferred camera, which we announced in December and which is enabling our customers to do things they could not do before. The latest step in this transition is acquisition of Visimid Technologies. Visimid Technologies does to the back end of the thermal cameras, what LightPath has been doing to the front end, the optics. Like LightPath’s business model of customizing optical assemblies to be used in infrared cameras and then making the large profit in production, Visimid has established itself as the go-to for customizing the electronics and software part of uncooled infrared cameras. In fact, Visimid has customized for LightPath the electronics and software of our Mantis camera. Together with Visimid, LightPath can now extend our offering of customized imaging solutions to include a wholly integrated camera core, where the camera can be customized from its electronics, software and optics, producing an integrated calibrated camera core for OEM customers to integrate into their systems. With Visimid, our engineered solutions business will now have two distinct offerings. One is the customized solutions, as I just described. The second is offering standard products that are derivatives of such projects, which we can then offer to customers with little to no customization. An example of that is a new product we announced last week of a high frame rate thermal camera core, something that was developed by Visimid some time ago, and now we can offer it as a standard product. In short, the Visimid acquisition boosts not only our technical capability by adding more disciplines such as electronics and software but also brings with it a portfolio of designs we can commercialize and a pipeline of new project opportunities. The complexity of those opportunities leads to the fact that some of them have the potential of engineering charges of millions of dollars per project. To conclude, we believe that with our expanded manufacturing facility in Florida, the acquisition of Visimid, and the recent developments in automotive and defense, we are well positioned to take advantage of the larger opportunities that lie ahead and continue transforming the company to grow it substantially above its current size. Lastly, before I pass the mic over to Al, I would like to commend our team for the ongoing growth of sales in the U.S. We ended the fiscal year with a 19% growth, 19% growth in the U.S. sales year-over-year. While this is not easily evident in our — in the consolidated view due to the sharp decline of sales in China, it is a major achievement in our biggest and most important market. And for that, I want to congratulate the team. It is the hard work and focus on execution that is positioning LightPath to deliver on the promises of our technology and capability and translate that into growth and shareholder value. With that in mind, I will now turn the call to our CFO, Al Miranda, to review our fourth quarter and year-end financial results. Al? Al Miranda: Thank you, Sam. I’d like to remind everyone that much of the information we’re discussing during this call is also included in our press release issued earlier today and in the 10-K for the period. I encourage you to visit our website at to access the documents. I will discuss some of the primary financial performance metrics and provide additional color on them to better assist the investors. On a consolidated basis, revenues for the fiscal fourth quarter were $9.7 million, compared to $8.9 million in the year ago period. Sales of infrared products were $5.5 million or 56% of the company’s consolidated revenue. Revenue from precision molded optics, or PMO products, was $3.2 million or 33% of consolidated revenue. Revenue from specialty products were $1 million or 11% of total company revenue. The increase in infrared product sales was primarily driven by sales of diamond-turned infrared products and is primarily attributable to customers in the defense and industrial markets. The decrease in PMO revenue is primarily attributed to a decrease in sales to customers in the telecom and commercial markets, which is partially offset by increases in defense and industrial customers. PMO sales in China continue to be soft across all industries. The increase in specialty optics during the quarter was a result of increased sales of custom visible lens assemblies to the medical industry. Gross margin in the fourth quarter of fiscal 2023 was approximately $3.1 million, an increase of 10%, as compared to approximately $2.8 million in the same period of the prior fiscal year. Total cost of sales was approximately $6.6 million for the fourth quarter of fiscal 2023, compared to approximately $6.1 million for the same period of the prior fiscal year. Gross margin as a percentage of revenue was 32% for both the fourth quarters of fiscal ’23 and fiscal ’22. The mix of revenue by product group for the fourth quarter of fiscal ’23 was more heavily weighted towards specialty products with less PMO products, which typically have similar margins, while the percentage of infrared products was similar, as compared to the same period of the prior fiscal year. Selling, general and administrative expenses were approximately $3 million for the fourth quarter of fiscal 2023, an increase of approximately $223,000 or 8%, as compared to approximately $2.8 million in the same period for the prior fiscal year. The increase in SG&A cost is primarily due to increase in stock compensation and other personnel-related costs, including commissions on higher sales. We also incurred costs of approximately $140,000 in the quarter associated with the acquisition of Visimid, which closed in July 2023. Net loss for the fourth quarter of fiscal 2023 was approximately $809,000 or $0.02 basic and diluted loss per share, compared to $1.4 million or $0.05 basic and diluted loss per share for the same quarter of the prior fiscal year. The decrease in net loss for the fourth quarter of fiscal 2023 is primarily due to a favorable difference in the provision for income taxes. Our EBITDA for the quarter ended June 30 was approximately $72,000, compared to $107,000 for the same period of the prior fiscal year. The decrease in EBITDA in the fourth quarter of fiscal 2023 was primarily attributable to increase in operating expenses, including SG&A and new product development, which were partially offset by higher revenue and gross margin. Turning now to our fiscal 2023 full-year results. Revenue for the year was $32.9 million, a decrease of approximately $2.6 million or 7%, as compared to $35.6 million in the prior fiscal year, driven both by PMO and IR products. Sales of infrared products were $16.7 million or 51% of the company’s consolidated revenue in fiscal 2023. Revenue from PMO products was $13.4 million or 41% of consolidated revenue. Revenue from specialty products was $2.8 million or 8% of total company revenue. The decrease in infrared product sales was primarily driven by sales of BD6-based molded infrared products particularly to customers in China, commercial and industrial markets. These decreases were partially offset by increased revenue from BD6-based products driven by customers in the defense industry as Sam mentioned earlier. Sales of diamond-turned infrared products were nearly flat for fiscal year ’22 and ’23. However, there were shifts in customer mix. The decrease in PMO revenue is primarily attributable to a decrease in sales to customers in the telecom and commercial markets, again, partially offset by increases in defense and industrial customers. Again, on a fiscal year basis, PMO sales in China continue to be soft across all industries. The increase in specialty optics during the year was a result of increased demand for collimator assemblies and increased sales of custom visible lens and assemblies to the medical industry. On a global level, revenue has shifted geographically as well as based on product. Year-over-year sales increased in the U.S. by 19% as Sam mentioned earlier. It decreased in China by 55% and decreased in the EU by 27%. U.S. sales can be attributable to our shift towards defense products and a positive economy. China’s decline is similarly two-fold, a poor economy and a lack of demand for telecom and industrial products in country. The EU decline is a little more nuanced. Germany, which is a large market for us is in a mild recession or flat. But the real decline is related to a key customer’s annual contract and the year-over-year timing of deliveries, and therefore, more transitory than really a trend that we’re seeing in the EU. While the 19% growth in the U.S. might not be easily evident when looking at our consolidated numbers, we do view it as a very important validation of our strategy and execution of this strategy. Gross margins in fiscal 2023 were approximately $11.1 million, a decrease of 6%, as compared to approximately $11.8 million in the prior fiscal year. Total cost of sales was approximately $21.9 million for fiscal 2023, compared to approximately $23.7 million for the prior fiscal year. Gross margin as a percentage of revenue was 34% for fiscal 2023, compared to 33% for fiscal 2022. The lower revenue level for fiscal 2023, as compared to the prior fiscal year resulted in less contribution towards fixed manufacturing costs. Improving the gross margin of 34% at that lower revenue level reflects the benefit of a number of the operational and cost structure improvements that we have been implementing. Those improvements were partially offset by some elevated costs in the second-half of fiscal 2023 as the construction and consolidation of the Orlando facility required us to temporarily outsource certain production processes adding to costs. SG&A costs were approximately $11.4 million for the fiscal 2023, an increase of 2%, as compared to approximately $11.2 million in the prior fiscal year. The increase in SG&A for fiscal year 2023 is primarily due to increase in stock compensation, partially due to direct retirements that occurred during the second quarter of fiscal 2023, as well as increases in other personnel-related expenses and the Visimid closing costs mentioned. Net loss for fiscal 2023 was approximately $4 million or a $0.13 basic and diluted loss per share, compared to $3.5 million or $0.13 basic and diluted loss per share for the prior fiscal year. The increase in net loss for fiscal 2023, as compared to fiscal 2022 is attributable to approximately $927,000 increase in operating loss resulting from lower revenue and gross margin and increased operating expenses. Our EBITDA for fiscal 2023 was a loss of approximately $355,000, compared to income of $1.2 million for fiscal 2022. The decrease in EBITDA for fiscal year 2023 is primarily attributable to lower revenue gross margin, coupled with increased SG&A expenses and a significant decrease in other income. As of June 30, 2023, we had working capital of approximately $14.9 million, and total cash, cash equivalents and restricted cash of approximately $7.1 million, of which greater than 25% of our cash and cash equivalents was held by our foreign subsidiaries. During fiscal year 2023, we had a lot of activity around cash management. First and most significantly, we had an oversubscribed equity raise in January, contributing $9.2 million in cash. During the course of the year, we used cash in operations of approximately $2.8 million cash burn. We invested $3.1 million in capital expenditures in production, plant and equipment predominantly in Orlando. In the normal course of business, we paid down $900,000 in debt. In addition, we used $1 million to pay our debt down and renegotiate to remove onerous terms and conditions from our credit facility with BankUnited. Doing so also included using cash to secure the current loan but simultaneously enabled us to make the subsequent Visimid acquisition, an important strategic move as Sam mentioned. The last item of substantive note is the increase in accounts receivable of $1.4 million which occurred in Q4 and is directly related to $9.7 million in sales for the quarter. Inventory also increased, particularly in WIP in the second-half of our fiscal year. The increase in AR and inventory contributed to the aforementioned $2.8 million of operating cash burn. Both AR and inventory will stabilize in Q1 and Q2 of fiscal 2024. That said, we feel well positioned on cash for the company’s growth in fiscal year 2024. Lastly, the increase in backlog during the first nine months of fiscal 2023 was primarily due to several large customer orders. One such order was $4 million supply agreement with a long time European customer of precision motion control systems and OEM assemblies. Shipments on these large orders began in the fourth quarter and was shipped during the following 12 to 18 months. This review of our financial highlights and recent developments is concluded, I’ll now turn the call over to the operator to begin the question-and-answer session. Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Brian Kinstlinger with Alliance Global Partners. See also 10 Small Cap Growth ETFs and 10 Best ESG ETFs. Q&A Session Follow Lightpath Technologies Inc (NASDAQ:LPTH) Follow Lightpath Technologies Inc (NASDAQ:LPTH) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Shervin Z: Hey, guys, this is Shervin on for Brian. Thanks for taking my questions and congrats on a good quarter. Sam Rubin: Thank you. Shervin Z: I have a handful of questions. Starting off with Mantis. When do you expect the valuations to end and lead to production decisions? Do you have any greater visibility or confidence when production will start to ramp? Sam Rubin: Yes. So to give a glimpse of the Visimid acquisition now, we’re getting a bit of a boost since some of their customers have interest in Mantis or even activities around that. So I would say we expect this fiscal year to ship a couple of hundreds of those, whether in different forms, via Mantis or integrated into other Visimid products. I think the biggest application we’re seeing now in terms of the most significant upside is a fire detection or flame detection in which is a $2 billion market of flame — optical flame detectors that exist, and that Mantis can add a considerable value there in improving the sensitivity and adding more functionality. So it’s a matter of teaming up with some of those — one or more of those vendors of the existing flame detectors, and ideally one that has a large installed base that can roll out a Mantis-based flame detector quickly. But let’s say, this year, probably a couple of hundreds. Shervin Z: Great. That’s awesome to hear. So a similar question, but when it comes to supporting autonomous braking systems, are you working or looking to work directly with Tier 1s or the OEMs? And how long before significant adoption there? I know that the Department of Transportation made that announcement, but are you seeing demand start to move as suppliers get ready? Sam Rubin: Yes. Yes. That’s a great question. So at this point, we’re not working directly with Tier 1. So we’re working with integrators that then work with Tier 1 with the place we kind of like to be in terms of our exposure, our liability exposure, but also sort of the requirements needed from that. In terms of rolling out, we’re — the one company that we’ve mentioned a couple of times that we are already qualified into them, and we’re now in negotiation of a supply agreement with them. And if that is the case, then this year — this year, meaning this fiscal year, we’ll start towards the end of it, we’ll start seeing already shipments or product sales. Shervin Z: Great. Also awesome to hear. Last couple of questions. Like you mentioned, government tends to move pretty slow. I know you mentioned one opportunity already within the DoD, but how do you think about the adoption of BD6 and other materials to replace the dependence on germanium. Are there other opportunities that higher in the pipeline that are looking to replace germanium with BD6? And I have another follow-up. Sam Rubin: Yes. So BD6 being already fully qualified and utilized is already embedded in quite a bit of systems. What — the main interest right now is the new materials because since none of the materials is a one-to-one replacement for germanium, you need more than one material — one type of material for that. Additionally, the new materials also offer advantages, compared to germanium. So smaller systems or better performance in extreme temperature conditions are two of the bigger — the most important advantages we’re seeing. I’d say that as far as I know, they are right now two major systems in the redesign process. With one of them, we’re expecting to start receiving technical details in the next couple of months probably. So even though government does move slowly, there are cases where they’re trying to accelerate it. Shervin Z: Speaking of one-to-one, you mentioned that right now, you guys have the production passage of 10 tons per year of the Black Diamond material versus currently 50 to 150 tons in germanium are consumed per year. Thinking about tons, if you’re weighing them both, does 1 ton of BD replaced 1 ton of germanium? Sam Rubin: Pretty much probably. Never thought about it that way. You’d probably need a bit more — you need more of the Black Diamond to replace germanium simply because germanium today has an advantage where the scrap from it can be recycled and regrown into a new germanium ingot, where that technology does not exist today for the Black Diamond material. That is one of the projects we are reviewing with DoD for DoD to finance that because that will offer a substantial reduction in costs of the Black Diamond in the long-term. But right now, without that technology, you would need more Black Diamond material to begin with to achieve the same number of lenses like germanium. Shervin Z: That perfectly segues into my next question in terms of the DLA funding to qualify the other BD products. I know government, again, we said, moves slow. How soon are you expecting this first phase of funding? And then once you receive the funding, how long does it take to qualify the other BD products? And are there expanded use cases outside of BD6 with your other BD products? Sam Rubin: Yes, absolutely. So the government does move slowly, like you said. The DLA project has been a year in the making. So it happens to be that it was signed and completed right around the time China made the announcement of germanium, but probably more coincidence than the government suddenly moving quickly. Based on that, we actually started working on that project already a few months ago. So we have a head start. I would say, by the end of this calendar year, meaning in the next three to four months, we expect to be very close to finishing the first phase of the DLA. Of course, their payment to us is gradual along the way, so we don’t need to wait until the end of it to receive the actual dollars. But probably towards Q1 of next calendar year, our fiscal Q3, we will have already — we will start shipping those materials out to customers to integrate into systems. That said, the urgency is very clear to a lot of customers, and we are working very closely with customers to enable them to start already redesigning or designing their systems with those materials now without waiting for the final sort of formal manufacturing readiness, MRL or TRL level that they need. And we do that by sharing with them data as we’re measuring, as we’re going through, as we’re starting to produce small materials. And within reason, they can usually use that to already fine-tune or do 80% of their design work so that once the specs are locked in and everything gets done, they are already far advanced in the redesign costs. Shervin Z: Great, thank you for answering all my questions. Really, really excited to all these growth drivers kick in. Sam Rubin: Same here, absolutely. Good to hear from you. Thank you. Operator: Next question is from Glenn Mattson with Ladenburg Thalmann. Please go ahead......»»

Category: topSource: insidermonkeySep 17th, 2023

OpGen, Inc. (NASDAQ:OPGN) Q2 2023 Earnings Call Transcript

OpGen, Inc. (NASDAQ:OPGN) Q2 2023 Earnings Call Transcript August 10, 2023 OpGen, Inc. misses on earnings expectations. Reported EPS is $-0.93 EPS, expectations were $-0.71. Operator: Welcome to OpGen’s Second Quarter 2023 Earnings Call and Business Update. Before we turn the call over to OpGen management, please note that any forward-looking statements made during this […] OpGen, Inc. (NASDAQ:OPGN) Q2 2023 Earnings Call Transcript August 10, 2023 OpGen, Inc. misses on earnings expectations. Reported EPS is $-0.93 EPS, expectations were $-0.71. Operator: Welcome to OpGen’s Second Quarter 2023 Earnings Call and Business Update. Before we turn the call over to OpGen management, please note that any forward-looking statements made during this call are based on management’s current expectations and observations and are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. Such risks and uncertainties include, but are not limited to OpGen’s ability to continue to finance its business and operations, the results of alternatives to mitigate the company’s cash position, including restructuring or refinancing its debt, seeking additional capital, reducing business activities, strategic transactions and other measures, including obtaining relief under applicable bankruptcy laws. OpGen does not undertake any obligation to publicly update any forward-looking statements to reflect events or changed circumstances after this call. For a further discussion of factors that could cause results to differ, please see the company’s filings with the Securities and Exchange Commission including, without limitation, the company’s most recent Form 10-K and Form 10-Q for the second quarter and the first half of 2023 that will be filed with the SEC. Joining the call today are Oliver Schacht, OpGen’s President and Chief Executive Officer; and Albert Weber, the company’s Financial Officer. Now I will turn the call over to Oliver for introductory remarks. Oliver Schacht: Thank you all for taking the time to join today’s call. Albert and I look forward to sharing several business and financial updates highlighting the commercialization efforts that have been underway. We will not be taking questions during today’s call. During the second quarter, we continued to see traction across all our platforms and we have seen several successful recent commercial contract plannings. OpGen continues to emphasize commercialization opportunities to leverage our current platform and further nurture existing partnerships. For Curetis, we announced the completion of two interim milestones of our collaboration project with InfectoGnostics under the PREPLEX brand. We also completed the first phase, including an expanded scope of our collaboration project with FIND in Q2. The completion of these milestones during the feasibility phase resulted in revenue of approximately $900,000, of which $609,000 was recognized during the first half of 2023. The latest milestone deliverables support users and treatment decision-making, adding options to allow for mobile and cloud-based data access and harnessing the power of next-generation sequencing strain analysis. Based on the successful feasibility phase, we extended the collaboration with FIND by entering into a second phase of the project and expect to begin full IVD assay development, software development, as well as analytical testing during this next phase. We also had a major U.S. milestone on the clinical and regulatory front. Following the successful completion of data readout from our successful Unyvero UTI clinical trial, OpGen submitted a de novo classification request with the FDA seeking marketing authorization. Following the FDA’s substantive review of our submission, we received a formal communication from the FDA requesting certain additional information at the end of June. The FDA has provided option with 180 days to fully respond to all of their requests and we anticipate being in a position to complete all of the additional data analysis, as well as certain in-house wet lab testing well before them, with the goal of responding to the FDA in full during the fourth quarter of 2023. We are looking forward to working closely with the FDA during the remainder of their interactive review towards an eventual clearance of the Unyvero UTI product for marketing in the United States. During the second quarter, OpGen also entered into a strategic non-exclusive agreement with Fisher Healthcare, a division of Thermo Fisher Scientific for distribution in the United States of the Unyvero A50 platform and in vitro diagnostic test for bacterial pneumonia, as well as its research use-only test for urinary tract infection. During the quarter, we have successfully completed the vendor setup of OpGen on the Fisher Healthcare Systems, have held an introductory all-hands training session for their entire U.S. sales team and defined a digital marketing campaign with key positioning and messaging. Together with Fisher and the information from their CRM system and customer data, we have already identified several hundred high priority leads across the U.S. and individual in-depth product sales training of all sales teams is already underway with about half of the territory sales teams already fully trained and the remaining teams expected to complete training during the third quarter. There are already several specific commercial customer opportunities that the Fisher team and our team are collaborating on. In the month of June, OpGen received 10 Unyvero A30 C-Series instruments. These C-Series instruments incorporate all learnings from extensive testing of the 10 A30 B-Series instrument, which have been upgraded to the latest C-Series standard also. The C-Series instruments have been optimized to improve manufacturability, serviceability and should extend the lifetime of key moving parts inside these instruments. This will also lower the manufacturing cost of A30 instruments. With the assistance of a U.S. Chinese strategic advisory firm, we continue to have an active strategic corporate business development campaign to over 40 Chinese corporate IVD companies, potentially interested in the Unyvero A30 platform. As mentioned previously, we believe there is an attractive opportunity to partner with the Chinese organization familiar with the markets to possibly license or otherwise monetize the A30 platform. Recent Unyvero A50 platform collaboration with BCB has included in-person meetings in both Germany at the Curetis development and manufacturing site and in China during the month of May. Next steps in the ongoing A50 collaboration in pneumonia with our Chinese distribution partner BCB, would be clinical studies to work towards a final submission for review by the Chinese National Medical Product Administration or NMPA. We expect the overall process to obtain NMPA clearance to take somewhere around 24 months to 30 months per guidance from Chinese regulatory advisers to our partner. On the Ares isolate sequencing services front, we have also seen progress in Q2. Following the successful completion of a feasibility phase, working with a major healthcare network in the Southeastern United States, the Ares team is now receiving regular routine clinical isolate shipments twice a week. Under a commercial contract with that healthcare network, we would expect annual testing volumes to initially be in the range of 1,000 to 2,000 samples per year with further medium-term growth potential. A recently signed agreement and purchase order confirms significant six-figure dollar revenue for the first full year from that U.S. customer alone. On the IP front, OpGen’s subsidiary, Ares Genetics, successfully defended a key patent that was being contested in Europe. This genetic resistance prediction screening database accurately detects the bacterial infection guiding patient treatment. Genetic resistance prediction against antimicrobial drugs and microorganism using structural changes in the genome was granted in Europe on January 6, 2021 and in China on January 10, 2023. In September 2021, a Swedish opponent filed an opposition against the patent grant through the European patent office. In a hearing on Thursday, June 22, 2023, the opposition division of the European Patent Office ruled in favor of maintaining Ares patent with broadly cover — which broadly covers the prediction of AMR in pathogens based on any genetic determinants involving two or more nucleotides. With that, I will now turn the call over to Albert Weber, OpGen’s Chief Financial Officer. He will review financial results for the second quarter of 2023 and recent financial developments. Albert? Albert Weber: Thank you, Oliver, and welcome to everyone on the call. I will discuss the second quarter and first half year highlights and financial results. OpGen’s second quarter revenue for 2023 was approximately $736,000, compared to revenue of $967,000 in the second quarter of 2022. First half of 2023 revenue of approximately $1.65 million grew by approximately 15%, compared to revenue of approximately $1.44 million in the first half of 2022. This increase in 2023 was primarily due to the revenue generated from the FIND collaboration project, but also included Unyvero product sales, revenue we received under our Acuitas AMR Gene Panel commercial contracts, as well as Ares related service revenues. For the second half of 2023, we plan to work on generating revenue from existing commercial agreements, including several recently signed commercial customer contracts in the U.S. for Unyvero and Acuitas, as well as from new collaborations and customers in the U.S. in particular. Our total operating expenses decreased in the second quarter of 2023 to $5.9 million, compared to $6.2 million for the comparable quarter in 2022. For the first half of 2023, we saw a decrease of approximately 6% in operating expenses from $12.6 million in the first six months of 2022 to $11.9 million in the comparable period this year. Our second quarter 2023 research and development or R&D expense was $1.4 million, compared to $2.3 million for the corresponding period of the previous year, i.e., a 39% reduction. This decrease was mainly due to a reduction in payroll-related costs, as well as the conclusion of the prospective multicenter clinical trial for Unyvero UTI in the third quarter of 2022. First half R&D expense in 2023 was $3.2 million, compared to $4.6 million during the first half of 2022. Our second quarter 2023 general and administrative or G&A expense was $2.4 million, compared to $2.1 million for the corresponding period of the previous year. G&A expense remained consistent year-over-year with the first half of 2022 and the first half of 2023 at $4.8 million. Our sales and marketing expenses stayed consistent at approximately $1.2 million for both the second quarter of 2023 and the second quarter of 2022. Similarly, sales and marketing expenses stayed consistent at approximately $2.2 million for both the first half of 2023 and the first half of 2022. Taking a look at our cash position. We ended 2022 with approximately $7.4 million cash, and as of June 30, 2023, we had a cash position of approximately $3.2 million. In early May of this year, we announced the closing of a $3.5 million public offering. We intend to use the proceeds from these offerings for the following; support continued commercialization of our FDA-cleared Acuitas AMR Gene Panel test in the U.S.; commercialize our products with a focus on the Unyvero platform and diagnostic tests; support further development and commercialization of the Ares Genetics database and related service offerings; support direct sales and marketing efforts to the customers and collaborators for all of our products and services; invest in manufacturing and operations and infrastructure to support the sale of our products; continue to invest in R&D for the Unyvero platforms and products; and repay certain outstanding indebtedness of the company and its subsidiaries. Having met our debt repayment obligations from the first tranche of our EIB debt pool by April this year, there are two additional tranches in principle of €3 million and €5 million, respectively, plus accumulated and deferred interest to be repaid. While the second tranche initially became due in June, we signed a standstill agreement with the EIB debt following the partial payment by us of €1 million in June 2023, provide or stay on further repayment of such tranche until November 30, 2023 or such earlier time that both parties in their best interest agree on a restructuring of the outstanding and upcoming repayments. Notwithstanding the temporary stay on repayment of our debt as previously reported and in light of our business performance and current cash position, we do not expect that our current cash will be sufficient to fund operations beyond September 2023. Since the end of the second quarter, we have pursued options to improve our cash position or mitigate a liquidity shortfall. Nevertheless, there is substantial doubt about OpGen’s ability to continue as a going concern. We continue to consider all alternatives, including restructuring or refinancing our debt, seeking additional debt or equity capital, reducing or delaying our business activities, selling assets, other strategic transactions and other measures, including obtaining relief under U.S., as well as applicable for bankruptcy laws. There is no guarantee that we will be able to identify and execute on any of these alternatives or that any of them will be successful. If we are unable to successfully identify and execute on any of these alternatives, the company will have insufficient cash to continue operating beyond September 2023. During and since the end of the second quarter, we have had several highlights relating to our revenue generation. The continued receipt of revenue from such commercial opportunities is premised on our being able to mitigate our cash situation in order to continue as a going concern. After, we had recognized approximately $300,000 in revenue from the FIND collaboration in 2022, we recognized more than $600,000 in revenue from this project in the first half of 2023. The teams at FIND and Curetis have agreed on the scope of extending the contract. The next phase will be looking at full in vitro diagnostic assay development and software development, as well as analytical testing of an antimicrobial resistance or AMR test for blood culture samples in low and middle income countries or LMICs. This next phase is expected to take about 10 months and has an assigned budget of up to approximately $600,000 for the aforementioned activities. The first payment of about $200,000 became due upon signing of the contract extension and the remaining amount would be coming in the form of two equally sized not shown [ph] tranches upon delivery of certain data and development packages in the coming three quarters. Subsequent development phases, such as clinical trials, regulatory submissions and seeking market approval is needed for the specific LMICs and preparing for future commercial launch in these countries would be subject to possible further expansions of the collaboration contract between FIND and us. Third parties have also agreed that they would in good faith negotiate a license to the A30 platform for certain LMICs and the terms and conditions of such license in the future is that will become necessary. Furthermore, we continue to see revenue growth opportunities for our Unyvero products and Ares Genetics services globally and especially here in the U.S., including, in particular, with respect to our distribution partnership for our Unyvero products with Fisher Healthcare that we entered into during the second quarter. We expect to see traction and momentum building for our Unyvero sales in the U.S. under this distribution partnership. We have also recently signed several new contracts with customers for further Unyvero system placements here in the U.S., including a strategic account with a global diagnostics corporate customer for Unyvero pneumonia and blood culture reference testing, a multiyear contract with a hospital from a larger network of hospitals across the Western U.S. for Unyvero LRT BAL another Unyvero UTI Lab account, as well as adding a prestigious children’s hospital as an Acuitas customer. During the second quarter, we also signed contracts for two new Unyvero system placements with one of our Acuitas customers, demonstrating scientific potential of our product lines. Our Ares team is also in active dialogue with some of our Acuitas accounts about opportunities of adding Ares ISS and Ares cloud-based offerings for these accounts. Thus, we are starting to see some upselling and cross-selling opportunities across our entire portfolio of IVD and ROU offerings in AMR. Taken together, in recent weeks, we have signed commercial contracts totaling potential annualized revenue volume of up to $1.5 million, adding to our topline revenue growth potential. Beyond a total of up to $1.5 million in FIND contracted funding to-date, additional non-dilutive financing opportunities remain a strategic priority for OpGen. As shown year-to-date, we look to complement these opportunities with equity funding that will expand our collaboration potential and could allow us to partner with organizations like FIND, BARDA, the European Union and other funding bodies. It is key to understand that none of these non-dilutive funding opportunities provide for full 100% funding of the respective projects. Typically, funding quotas ranged from somewhere in the 40% to maybe 70% or 80% ranges. It is therefore vital to ensure that OpGen is able to provide its own co-funding for these projects. Otherwise, non-dilutive funding would not likely materialize. This concludes the financial update. I will now turn the call back to Oliver. Oliver Schacht: Thanks, Albert. I would now like to highlight our upcoming activity. As we mentioned earlier, we continue to make strong headway on the commercial front, which could not be supported without dedication from our team. As part of that, we will have a changing of the guard at Ares, where Srinivas [ph] has been promoted to Ares CEO; and Johannes Weinberger to Ares Chief Scientific Officer as of August 2023. We are excited to have their direction in this exciting stage of the business. We thank our former Managing Directors, Arne Materna, and Stephan Beisken for their commitment in building Ares to what it is today. Both of them will stay on as independent part-time consultants supporting the Ares team in the next phase of its development. For the coming quarters, we expect to see a growing number of commercial accounts being signed in the U.S. We anticipate growing our revenue base across the Unyvero, Acuitas and Ares product lines in the U.S., intend to continue working with our international distribution partners in Europe, as well as our current and potential future partners in China for Unyvero A50 and A30, respectively. Thank you all for your continued support and for participating in this afternoon’s call. Please visit the Investors section of our website or our SEC filings for updates on the company. Thank you very much. See also 10 Worst Performing Commodities in 2023 and Ark Invest Stock Portfolio: Top 11 Picks. Q – : Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Follow Opgen Inc (NASDAQ:OPGN) Follow Opgen Inc (NASDAQ:OPGN) We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»

Category: topSource: insidermonkeyAug 13th, 2023

Inotiv, Inc. (NASDAQ:NOTV) Q3 2023 Earnings Call Transcript

Inotiv, Inc. (NASDAQ:NOTV) Q3 2023 Earnings Call Transcript August 10, 2023 Inotiv, Inc. misses on earnings expectations. Reported EPS is $0.07 EPS, expectations were $0.26. Operator: Good afternoon, ladies and gentlemen. And welcome to Inotiv’s Third Quarter 2023 Earnings Results Conference Call. At this time, all lines in listen-only mode. [Operator Instructions] This call is […] Inotiv, Inc. (NASDAQ:NOTV) Q3 2023 Earnings Call Transcript August 10, 2023 Inotiv, Inc. misses on earnings expectations. Reported EPS is $0.07 EPS, expectations were $0.26. Operator: Good afternoon, ladies and gentlemen. And welcome to Inotiv’s Third Quarter 2023 Earnings Results Conference Call. At this time, all lines in listen-only mode. [Operator Instructions] This call is being recorded on Thursday, August 10, 2023. I will now turn the conference over to Mr. Bob Yedid. Thank you. Please go ahead. Bob Yedid : Thank you, operator. And thank you everyone, for joining us today with Inotiv’s management team. Before we begin, I’d like to remind everyone that some of the statements that management will make on this call are considered forward-looking statements, including statements about the company’s future operating and financial results and plans. Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected. Any such statements represent management’s expectations as of today’s date. You should not place undue reliance on these forward-looking statements, and the company does not undertake any obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise. Please refer to the company’s SEC filings for further guidance on this matter. Management also will discuss certain non-GAAP financial measures in an effort to provide additional information for investors. A definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures are included in the company’s earnings release, which has been posted to the Investors section of the company’s website and is also available in the Form 8-K filed with the Securities and Exchange Commission. If you haven’t obtained a copy of today’s press release, you may do so by going to the investor section of Inotiv’s website. Joining us from the company this afternoon are Bob Leasure, President and Chief Executive Officer; Beth Taylor, Chief Financial Officer; and John Sagartz, the company’s Chief Strategy Officer. Bob will begin with some opening remarks, after which Beth will present a summary of the company’s financial results, and then we’ll open the call for questions from our analysts. It’s my pleasure to turn the call over to Bob Leasure, CEO. Bob, please go ahead. Bob Leasure: Thank you, Bob. Good afternoon, everyone. Before we dive into the quarter’s results, I’m going to start the call by framing some of our efforts today, noting how far we’ve come in the last few years and how we positioned ourselves to continue to execute on our plans and goals. Our investments and growth have been guided by seven strategically planned key objectives. First right structure after several acquisitions, we are currently in the final stages of outmoded infrastructure, right sizing the company’s global footprint in order to improve client service and program management. As well as competitively positioned our company as a mid-sized full-service CRO and research model and diet provider. We feel that completing this objective will allow us to keep things even more effectively with smaller as well as larger CRO and research model providers. Second, we reduce the dependency on third party providers and focus on becoming a full service provider. In order to meet our client’s needs, we developed internal capabilities both organically and through acquisitions. And in doing so we have been able to reduce our reliance on third parties for external services. This in turn, reduces cost but also enhances speed, quality, overall value for our customers. We expect this will support continued gross margin improvements. Third, strategic capital investments, our capital investments have included updating our global technology which was appropriate and necessary now that Inotiv is significantly larger organization. We’ve also updated our enterprise resource planning and customer relationship management systems, as well as our enterprise solution and laboratory systems for managing preclinical studies and her labs. Additionally, we are committed to addressing deferred maintenance and acquired site and expanding acquired facilities to allow for growth and leveraging our fixed cost structure. Four, rebranding, we’ve rebranded our services business as Inotiv. And we are driven by philosophy that customers should expect more from their CRO, and further the awareness that we now provide a more complete spectrum of services. Fifth, animal welfare, we are passionate regarding our continued commitment to and standards for animal welfare. This has included focusing increased monies and attention to retain experienced caring staff, recruiting and retaining talented and passionate leadership, providing appropriate training, implementing our site optimization plan and making investments and facilities when required. Six, workplace satisfaction, we’ve worked diligently to foster a positive and entrepreneurial work environment around our shared purpose of helping clients bring lifesaving therapies to people around the world. This shared purpose combined with fair compensation goes a long way to recruiting and retaining top talent. To this end, we are very proud to have been selected as the recipient of Energage’s Top Workplaces USA Award earlier this year and have seen significant improvement in our ability to recruit and retain people. Seventh, supply chain synergies, we’ve been working with our supply chain and vendor to generate synergies from increased volumes from acquisitions, and a broader range of services. This has led to additional vendor and alternative supply opportunities which enables cost reductions from greater purchasing power that we continue to realize. I also think it’s important to reiterate briefly how the company has evolved over the past six years, and how our focus on these key objectives outlined today have prepared us for the next chapter of our story. Early 2018 with two locations, and 120 people, the company was firmly focused on preclinical safety assessment segment of the drug development market. In 2018 and 2019, we completed several acquisitions and began to develop new services organically. That organization became Inotiv in 2019, targeting small to mid-sized biopharma companies that our clients believe are being underserved by larger CROs. Over the next four years. Some of these organically grown service offerings included safety pharmacology, juvenile toxicology, sand reporting, Clinical Pathology, Biotherapeutics and genetic toxicology. Expanding our range of services has now enabled us to reduce our reliance on third party suppliers to meet our clients’ needs, enhance margins and improve the overall value provided to our customers. In 2021, we began to further expand our offerings to the acquisitions, which not only enhanced and at these preclinical services, but also provided a strong foundation to build our discovery based platform. In fiscal year 2022, we secured access to key research models to support and complement our DSA services and became a major supplier of both small and large research models and diets through the acquisition of Envigo and subsequently two other critical research model providers. Hiring these businesses enhanced our ability to access critical research models and address the major risk we identified in supply chain. Also, these acquisitions provide our customers with the additional confidence in our ability to meet their needs, which is even more important. Now that access to NHP is limited. Since the expansion into research model business, we prioritized improvements in animal care and welfare by enlarging our veterinary team consolidating facilities, which allowed us to make significant infrastructure improvements in the remaining facilities. Ultimately, we believe these efforts will allow us to increase our margins, remain competitive with regards to new business development, while continuing our key strategic objective of enhancing animal welfare. Today, through these acquisitions, and the eight organically developed service offerings, we now currently operate 24 sites across the US and Europe serving over 3,000 customers employing over 2,200 professionals worldwide, including industry recognized experts across a wide range of scientific disciplines. We have evolved into a CRO with the ability to serve clients who require a full breadth of products and services under one roof while delivering those services with a personal touch and being highly responsive with scientific credibility. We still have room for improvement. But we get better every month, and we believe we will be much better in the future. If you haven’t done so recently, I encourage you to review the solutions page of our industry website. There you’ll find a comprehensive discovery, preclinical and clinical safety assessment services, and an extensive offering a standard and custom research models support services, diet and bedding for research and development. At present, Inotiv has become an organization that enables clients to advanced programs from concept to clinic by strategic filling the gaps with our spectrum of services and products. Now our story shifting to Inotiv’s next chapter. And our strategy will continue to evolve in 2023 and further take shape in 2024 as we plan to further improve our service levels profitability and continue our growth. With this in mind, let’s get to the financial results. Year-to-date 2023 revenues were $431.7 million, or up 9% versus the same period last year. Our revenue for the last nine months for discovery and safety assessment and research model services grew 11% and 8% respectively, as compared to the same period a year ago. The third quarter of 2023 was the strongest performing quarter of the fiscal year, with revenues of $157.5 for Q3 2023 vs Q3 2022. Revenues were down 9% year-over-year. However, it was our first quarter of profitability. DSA revenue decreased 5% year-over-year in Q3, primarily driven by our discovery services, which we believe is a result of the decline in the overall biotech funding in the market. Plus the timing of some general toxicology services somewhat offset by increased revenues from general — from the genetic toxicology services in connection with the new business at our Rockville facility. RMS revenue for the quarter was down 10% mainly due to significantly reduce volume of NHP, and small animal sales somewhat offset by increased pricing. Integration plans remained on target for this quarter. This has been important to increase effectiveness and reduce our cost. We have previously announced nine site closures and completed eight as planned by the end of this June. The ninth previously announced planned closure is Blackthorn facility and UK, is consolidation into Hillcrest is expected to be finalized by the end of Q3 of next year. In addition, we are closing a small facility in Spain, which is now substantially complete and we will relocate our facility in Everett Washington to our expanding operations in Fort Collins, Colorado , which we expect to complete in fiscal Q1 of 2024. Over the last 12 months, we have largely now completed 9 of the 11 closures mainly by consolidating the operations of these closed facilities into existing operations. Moreover, most of the planned expansions are now also completed. Final expansion balance remains on track to be completed by the end of the fourth quarter of this fiscal year. We already have work book to fill this increase capacity, expect revenue to begin in Q1 for fiscal 2024. We are now focused on the sale of assets from sites which were closed including Boyertown in Cumberland, along with our Israeli businesses, which are under contract, and negotiations are ongoing regarding the sale of other locations in Haslett, Michigan, Spain, France, and Blackthorn in UK. We believe these asset sales may potentially be completed over the next two to three quarters. Our integration efforts and site closures also given us the opportunity to restructure our transportation system for research models business, which is currently in the process. In addition to improve margins related to consolidating our operations. We also believe that sale of the sites plant for closure will generate additional cash for the company. From the perspective of future growth, we will focus on optimizing operations with our new facility footprint, realizing the benefits from the investments recently made at many of our sites, which will also allow us to bring more service capabilities online. Overall, we expect to grow our DSA business from $160 million in 2022 to an estimated $180 million in 2023 to an excess of $200 million in 2024. We ultimately believe this DSA expansion projects we’ve just recently completed will allow us to grow our DSA sales by 40% to 50% above the 2022 DSA sales levels, allow us to leverage our DSA fixed cost structure and infrastructure. We also anticipate we have capacity to grow the RMS business and expect to reduce our RMS expenses by proximately $20 million after all these restructuring changes are implemented. We believe the lack of NHP imports from Cambodia continues to affect the industry’s entire supply of research models being imported into the US. According to the USDA’s Global Agricultural Trade System 2023 imports of NHPs to the US year-to-date through June now at 47.9% lower than those the same period of 2022. We have begun to identify additional suppliers and increased our imports of NHPs from countries outside of Cambodia. Pricing of NHPs and related costs continue to increase. We continue to generate positive margins; we’ve been meeting our customers’ requirements. Our safety and assessment service offerings have not been impacted by the industry shortage. However, the suppliers identified in countries other than Cambodia and China and NHP volume available from them are not sufficient to make up for the volume of NHP exports from Cambodia in prior years. We sold fewer NHPs in Q3 than we did in Q2, Q2 was less than Q1. We expect to have fewer NHPs available for sale in Q4 than we actually sold in Q3. We will sell less NHPs in fiscal 2023 versus fiscal 2022. And if the situation in Cambodia and China stays the same, we expect fewer NHP is available for sale in fiscal 2024 versus fiscal 2023. Due to increases in pricing, our sales dollars have remained fairly consistent this year, despite the reduced volumes. If we’re able to implement continued price increases, we could see similar sales dollars in 2024 compared to ‘23 on lower volumes. Based on the current trends, and taking into account the unknowns that exist for the NHP situation. We believe that future quarters for the company will be able — our company will be able to achieve normalized average EBITDA run rate of about $20 million per quarter. And that should be achievable through all fiscal 2024. As we begin to utilize the recently added DSA capacity and selling new services, and if there is an increase in supply of NHPs available for sale, these estimates may increase. We continue to expect improvements in our business as we optimize and integrate our DSA and RMS segments and see results from our focus on key initiatives, we will continue to monitor the NHP situation and adjust our plans accordingly with or without imports from Cambodia. We understand this is a significant industry issue in US and needs to be resolved in order to maximize the industry’s ability in US to bring important lifesaving therapies to the market. Looking to the future, as we continue to explore how we can better support our customers, and their development of novel medicines going forward, we have embarked on a program to standardize to capture of our data generated in discovery, safety and clinical studies. The goal is to structure our data in a way that should in the future, enable an AI approach to integrate them to find correlations between discovery and safety data, and clinical outcomes that can innovate and accelerate our translational medicine offering. Longer term, we are confident in the product service portfolio we have assembled and continued to optimize and our customer service value proposition that is particularly attracted to biopharma sector, and in the skill and experience of the team we have globally executing on our vision. With this, I would like to turn the call over to Beth for the financial overview. Beth Taylor: Thanks Bob. For the nine months ended June 30 2023, revenues totaled $431.7 million, a 9% increase from the $397.2 million recorded during the first nine months of 2022. RMS revenue for the nine months increased 8% to $296.8 million from $276.1 million in the same period in 2022. In our math, we continue to operate in an extremely dynamic pricing environment for larger research models in particular NHP. DSA revenue for the nine months increases 11% as compared to the same fiscal period last year. The increase in DSA revenue was primarily driven by additional year-to-date fiscal 2023 revenue generated from Integrated Laboratory Systems that was acquired in January 2022. Plus new services related to genetic toxicology, inorganic growth in general toxicology services, these increases in DSA service revenues were partially offset by decreases in our discovery services primarily related to the decline in overall biotech funding in the market. For the 2023 third quarter, total revenue decreased 9% to $157.5 million from the $172.7 million recorded during the prior year period. DSA revenues for the fiscal third quarter decreased by 5% to $46.8 million when compared to the prior year period. As previously mentioned, the lower revenues experienced in our DSA segment were primarily driven by declines in overall biotech funding in the market. Plus the timing of general toxicology services somewhat offset by increased revenue from genetic toxicology services in connection with our new business t our Rockville facility. RMS revenue for the fiscal third quarter was down 10% to $110.7 million year-over-year, mainly due to reduce volume of NHP sale somewhat offset by favorable pricing over several products, particularly the NHP. For the quarter, total gross profit improved to $55.2 million, or 35% of total revenues from $50.9 million or 29.5% of total revenues in last year’s third quarter. Gross profit for our DSA segment in the fiscal third quarter decreased to $17.3 million or 37% of segment revenue from $21.8 million or 44.3% of segment revenue in last year’s third quarter. Overall, we were pleased with the DSA gross profit as it showed improvements over the last 12 months. The decrease in gross profit versus last year Q3 was primarily due to an unusually high gross profit in Q3 of 2022 due to the miss and timing of studies in our safety assessment services. DSA gross profit in 2023 was also impacted by the lower revenue in our discovery services. As our new services start to come online, we expected generate further demand from both new and current customers alike ultimately, based on this broader range of services and growth, we believe we will be able to boost our DSA margins from 30% to the mid 30% range in 2024, with long term targets going into the upper 30% range. The net book-to-bill ratio for DSA in the third quarter was 1.08x with a slightly positive book-to-bill for the trailing 9 and 12 months. DSA backlog was $149.1 million at June 30 2023, compared to $143.2 million at June 30, 2022. Additionally, our conversion rate which is our ability to convert our backlog to sales has continued to improve over the last three quarters. RMS segment gross profit in the third quarter of fiscal 2023 was $37.9 million, or 34.2% of total revenues, compared to $29.1 million, or 23.6% of revenues in last year’s period. The increase in margin in the current quarter was driven by several factors including improved pricing for several product lines, partially offset by the absorption of duplicate costs as we implemented our site optimization plan. General and Administrative expenses rose to $26.6 million in the third quarter of fiscal 2023 from $21.7 million in last year second quarter. However, these expenses were down by $2.5 million from Q2 of 2023. G&A expenses for the third quarter reflected $4.1 million in legal and third party fees primarily related to [inaudible] NHP matters. The Cumberland Virginia ongoing investigation, defense on pending securities litigation in recognition of a charge to fully accrue for a settlement of a purported class action and a related action in California, the settlement is subject to court approval. This compares to the previously reported legal and third party fees in Q2 of 2023 of $6.7 million. Operating income for the quarter was $8.8 million, an increase from $4.8 million of operating income during last year’s third quarter, reflecting both the $4.9 million in higher G&A expenses, and a $4.6 million decrease in other operating expenses driven primarily by decreased acquisition, integration and restructuring expenses. Interest expense increased to $10.8 million, up from $8.4 million in last year’s third quarter, reflecting our higher debt balance for borrowing obtain for acquisitions and capital investments, and higher interest rates. Consolidated net income attributable to common shareholders in the third quarter of fiscal 2023 total $1.8 million or $0.07 per diluted share. This compared to consolidated net loss attributable to common shareholders of $3.7 million or a $0.15 loss per diluted share in the third quarter of 2022. Adjusted EBITDA was $30.5 million or 19.4% of total revenue as compared to adjusted EBITDA of $37 million or 21.4% of total revenue in last year’s third quarter. We are pleased with the $30.5 million of adjusted EBITDA this quarter as it sequentially increased each quarter this year. Up from adjusted EBITDA of $17.1 million, or 11.3% of total revenue in the second quarter of fiscal 2023 and a negative $5.5 million of adjusted EBITDA in Q1 of fiscal year 2023. Net cash provided by operations for the third quarter was $3.7 million, compared to cash used by operations of $9.4 million in the same period last year. The increase in cash provided by operations was primarily driven by improved net working capital compared to the same period last year. CapEx in the third quarter was $4.5 million or 2.9% of total revenue, and reflected investments in completing our DSA capacity expansions in Rockville, Maryland, in Fort Collins, Colorado, enhancements in laboratory technology and improvements for animal welfare. For the first nine months of fiscal year 2023, capital expenditures totaled $21.3 million. Our balance sheet as of June 30, 2023, included $22.2 million cash and cash equivalents as compared to $24.6 million at March 31, 2023. Total debt, net of debt issuance costs as of June 30 2023, was $375.6 million, compared to $374.1 million at March 31 2023. The balance sheet also includes assets held for sale of $8.7 million and liabilities held for sale of $2.3 million. Due to the decreasing availability of NHPs in the US, we are recasting our full year revenue guidance to at least $570 million in revenue, which is down from $580 million in previous guidance. We are also updating fiscal 2023 adjusted EBITDA guidance to be at least $60 million down for the year from the previous guidance of $70 million. We expect to continue to remain in compliance with our financial covenants for the fiscal year. We still expect capital expenditures to be approximately 5% of revenue in fiscal 2023. We anticipate a more modest level of capital investment in 2024 of less than 5%. The capital expenditures are down from our five year average of 14% as we build capacity, new service offerings and implemented our site optimization plan. We are pleased with our sequential financial performance this fiscal year and the progress that we are seeing from our investments, our site optimization implementation, and additional capacity investments in our DSA segment. And we remain optimistic as we continue to grow and capture a significant portion of the opportunities in our market. And with this financial overview, we will turn the call over to our operator for questions. Q&A Session Follow Inotiv Inc. (NASDAQ:NOTV) Follow Inotiv Inc. (NASDAQ:NOTV) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] And your first question comes from the line of Tim Daley from Wells Fargo. Tim Daley: Great. Thanks for the question here. So Bob, very impressive book-to-bill here in DSA at 1.08 implies roughly $5 million sequential increase in net orders in the quarter. So were there any pull up here, any pull forward. Just how our bookings going in the fourth quarter so far, just trying to kind of help us figure out a bookings rate on a sequential basis moving forward. Bob Yedid: Both or Beth, there, are you there to answer Tim’s question? Bob Leasure: I’m sorry. I think it was on mute. Sorry Bob. Alright. Tim, sorry. Thank you. I’ve been talking here. Nobody could hear me. I apologize. So Tim, to answer your question, our bookings for the third quarter actually very strong, one of our strongest ever. The net bookings, so came just over one because the cancellations. So we’re still seeing high level cancellations as we have in previous quarters. And I think that will continue. It’s one of the reasons why we increased the salesforce over the last year. And as we’ve done that, we’ve seen our ability to increase in quotes, for our quoting level for the quarter was probably record for us, as was our closing. And I think we hope to see, continue to see those trends. One of the areas where we’ve been off in the last six to nine months is in the discovery service. As we talked about revenues in discovery are going to one of the reasons, we decrease guidance is because our discovery revenues are going to be out this year from what we originally projected. However, I also said in the last call in March, we added a specific discovery sales team to the market back in the first half of this calendar year in January, February and March. And we’re starting to see really a significant improvement there. And I’m starting to see really good trend in the discovery, which maybe is an indication that some of the biotech funding is back, and they’re coming back and putting some of the projects back in, because that’s been one of the strengths so far in the first part of this quarter. So I don’t have the ability to predict going forward. How this will — booking will be, but I do expect cancellations will continue as people were very cautious with their money. I think that the quoting activity remains fairly strong. I’m hopeful that we’ll continue to close a good level. And so far, pleased with what we’re seeing so far this quarter. Tim Daley: All right. Great. And then I guess just for Beth, I think you guys called out assuming that Cambodia and China conditions remain a $20 million quarterly run rate of EBITDA is a good number for 2024. So is that kind of a way to be thinking about at least the baseline for 2024 is $80 million of EBITDA for the full year. And thank you for time, appreciate it. Beth Taylor: Yes, I would be thinking of it in terms of $80 million for the year with an average of $20 million per quarter. Bob Leasure: We average, if you look at the last two quarters, were probably 48, which is an average of 24. And I would say that we look at the 48% reduction of what’s coming into country. There’ll be a significant reduction. We’re looking at that and pricing and saying okay, let’s make sure as I said, let’s set a conservative estimate that we feel like we can depend on, and if nothing is changed. If the biotech funding goes up, if we’re able to recover some of these discovery sales, if we’re able to see some other additional opportunities for those fees, then that’d be great. But at this point, let’s recognize the environment that we’re in. Operator: And your next question comes from the line of Matt Hewitt from Craig-Hallum Capital Group. Matt Hewitt: Good afternoon. Thanks for taking the questions. And congratulations on navigating what’s a pretty challenging environment. Maybe first up regarding the NHPS. I heard what you said as far as Cambodia still pretty locked down. It sounds like you’re finding some supply in some other geographies or some other countries. But as we think about opportunity there, I guess, well, there’s maybe two questions. First, were you able to unlock some of your existing inventory? Or sell some of the existing inventory? And I guess number two, is there an opportunity for you to take in animals in one or more of your international sites? Or is that not an option? Bob Leasure: What was the last question, Matt? Matt Hewitt: Would it be possible yes, to take to take custody of animals in one of your European locations? Bob Leasure: Okay. First, we do actually distribute NHPs in Europe. And we have and that market, we don’t –we have not ever taken Cambodians into Europe, don’t expect to net markets really not changed for us. So that has never been part of our, Cambodians have never been part of a European plan. And we don’t anticipate changing that. We’re not going to do anything with Cambodians for the moment, anywhere. So I think that was a part of it. And the first part of the question was, yes, we have been able to bring in from other countries, and others. And it kind of depends on what also our customers want. But you asked about our inventory. I don’t want to get, really don’t want to get into a lot of inventory. But yes, we have sent in the past sold from our inventory. But no, we have not sold all of our inventory, and we’ve not really installed our inventory. Matt Hewitt: Got it. All right. And then maybe second question, as you look at, as you rolled out some of these new services, and clearly, you’re having some success there. Have you looked at? Or is there any kind of a metric that you can provide that if you look across your 3000, over 3000 customers worldwide? How many are using two services or three services? And maybe how is that metric changed over the past year? Thank you. Bob Leasure: I don’t have a good metric on that, Matt. I know that we have — we’re bringing our DSA groups together, discovery and with our safety assessment group. And combining those we are now looking forward, we’re starting to discuss and figure out how to do a better job of bringing our research models, customer base to our discovery base, which will evolve into our safety assessment base. And to do that, we’ll be making some changes, adding some scientific strength to our bench in the coming year. And looking quite forward to evolving that part of the business so we really could bring the RMS business a lot closer with the discovery business and having cross sell more than we have in the past. But did I think we need to make some improvements to the scientific team. And we’re planning to do that. And those will be announced in the future. So looking forward to that. And I think what we can do now that we’ve kind of what I say finished a lot of what were the brick and mortar changes that we needed to make. And I think there’s an opportunity, lot of opportunity that we’ve not touched yet. Operator: And your next question comes from the line of Dave Windley from Jefferies. Dave Windley: Hi. Good afternoon. Thanks for taking my questions. Bob, I’m wondering if you wouldn’t mind breaking out your bookings from some of your newer services. I think you’ve pulled out in the past, biopharmaceutical gene tox, wondering how much traction how much those are contributing so far. Bob Leasure: Yes, I’d say, thank you, Dave. I do have somewhat awareness, this and I don’t have a right in front of me. But we started those services up the end of calendar year last year. And we’ve started to see that in that backlog grow in the services start to grow. It’s still, we still are not exceeding a million a month in those services for those new facilities, but it’s grown fairly rapidly over the last six months. And that backlog is grown quite a bit. But it’s, it may be put in perspective that maybe $3 million to $4 million, $5 million in their backlog, $4 million of backlog now. And it’s really hard to pull apart because many of those services are part of much larger programs. And some of those services were things that we were selling before, but we are outsourcing. So it’s sometimes really hard to say, that’s something we didn’t have in a backlog before. Because all we’re outsourcing before. Dave Windley: Okay, that’s good reminder there. In that regard, sticking on that side of the business, but thinking about your adjusted guidance, I think you’re attributing most of the revenue decline in the full year guide to availability of NHPs. You also mentioned in an earlier answer, a little bit of discovery. It looks like overall revenue; you expect your revenue to be sequentially down by $30 million-ish. Should we think about that all coming out of RMS? Or is some of that DSA? And I’m thinking again, because your net book-to-bill this quarter was pretty decent as I think Matt said. Bob Leasure: Yes, we’re going to see most of that come out of the RMS. So and I don’t slide down $30 million. I think it’s done. We’ve brought it down $10 million. Dave Windley: $10 million reduction guide, I mean sequential from the third quarter. Sorry, that wasn’t clear enough. Bob Leasure: Yes, so I think it’s been different from what we thought and I think that will come from the RMS side, not the DSA side. And that will be primarily NHP related so that for the year our NHP revenue is probably a little higher than I thought we would be, I thought our DSA sales a little lower than I thought would be for the year. Dave Windley: Okay, interesting. Okay. So then, on the RMS side, can you, Beth, give us a sense of how much of the revenue either for the quarter or year-to-date is still tied to NHPs? How much your NHP is driving RMS now? Bob Leasure: Well, it’s always been an important part of our revenue. But I, Dave, put a kind of a little bit of perspective for it, the volume of NHPs that we sold in the third quarter this year, probably in excess of number of NHP, are probably at least 40% less than we sold last year. So when I say that what the imports from the US are down 40. I think what I say 49%. We’re seeing that. And we, as a result, we have much less gone out the door now on a quarterly basis. We don’t break out any, don’t think we break out NHP revenues from RMS revenues. Dave Windley: Okay. So but thinking about your commentary, which appreciate the helpful comments to begin to frame ‘24. Thinking about $110 million number in the third quarter. And it sounds like your base case expectation is that the volume of NHP that will be available to you will continue to shrink. And so I guess I’m wondering how much of that revenue run rate is subject to the decline accessibility to NHPs. And how much is kind of more stable because it’s tied to [inaudible]. Bob Leasure: Here’s interesting thing. I think when I just told you the volume, the number, the volume of NHPs went up in third quarter was down over last year. If you, so that $110 million included 40% reduction in volume, right, from last year. Okay. I think overall, we could be down 40%, 45% next year. So I don’t know that we, I think– I don’t know we could see a greater fall off next year in the sales of any space than we saw from an RMS business that we saw in the third quarter. Because that now that is baked in that reduction is significant baked in. I do think that based on when things are coming in, we could have some variations between quarters of when they go out. So it may not be every quarter either, it may be some quarters are better than others. But I think overall, on average, the quarter that we saw may be the quarter that with that significantly less volume that we could see. Dave Windley: Okay, last question for me is – Bob Leasure: I hope that helps out. Dave Windley: Yes. So you’re kind of saying no more decline from the third quarter volumes. Bob Leasure: On average. David, we could have quarters that we, in total, I think that we see it fairly consistent. It doesn’t mean that every quarter is going to be the same. And that’s, it could but on average for the year, I think that’s counting on that 40% decline is something that 40%, 45% decline is something that we can have to maybe get used to. Dave Windley: Right. Okay, last question for me, earlier in the year, both at the entity Inotiv level and the industry level, there’s a lot of conversation about working with the US Fish and Wildlife Service to both get approved, kind of have a pathway and get approved a parentage test, to try to satisfy and kind of reopen the supply chain satisfy the Fish and Wildlife Service about the provenance of animals coming from Cambodia and reopen that supply chain. Your competitor yesterday, it really didn’t come up. I’m wondering if you could give us an update on where that stands, what progress has been made, if any, and what upcoming court case and [inaudible] meetings might mean for that dialogue? Bob Leasure: Well, David, I have to the conclusion that we’re not big enough and important enough to really make a big difference in what’s going to take place with US Fish and Wildlife, or the DOJ, the government and those actions, we follow it closely. But they’re going to do what they want to do; what they choose to do what they think is best. And I really don’t have the ability to predict what they’re going to do, which I think is why we’re trying to just be realistic given the landscape we have today, we’re trying to figure out how to play within the landscape we have today. If that changes, what, great, we’re ready for it. But if it doesn’t change, let’s make sure our business model works based on status quo today. And I think it’s very tough thing for our industry. It’s very tough for drug discovery development in the US to see that happen. But as far as our company, let’s take that as the basis and move forward from there, instead of everyday wake up frustrated, that it’s not changed, let’s wake up realizing that is today’s normal. And when it’s ready to change, we’ll be ready for it. And let’s set that expectation. And it’s really important for our management team. And I think for our leadership team, I want them to wake up every day knowing they’re successful. And having them come to work every day thinking they’re not successful because of something we’re really waiting for the government to do or not do is not fair to them and not fair to us. So let’s adjust our plans. So they can wake up feeling successful every day and not feel like we’re dependent on something we can’t control. Operator: Your next question comes from the line of Frank Takkinen from Lake Street Capital Markets. Frank Takkinen: Great. Thanks for taking the questions. I wanted to clarify on the renewed EBITDA guidance. I understand the revenue guidance change but was hoping to get a little bit more color on the EBITDA guidance change, figure it would be maybe a little bit less than the same proportion of revenue coming down, but maybe talk to margin expectations. And then is there an expected uptick in operating expense as well to get to that $60 million. Bob Leasure: Well, As I outlined, for the year compared to where we are, I’m pretty pleased with the — even with the reduction of volume, the pricing for the NHPs has held up fairly well, the RMS sales held up pretty well. But they’re really two major things for the year that we’re offering. Our discovery sales may be down about $10 million from where we’d like to plan for them to be. And that’s a reduction in top line. And then we probably had legal fees in excess of $9 million or $10 million, where they got to be. On the discovery sales, probably 80% of that goes to the bottom line. So that those two things make up a pretty big between that I think should make up the biggest difference where we’re off for this year versus where we hope to be. But given all the challenges we had this year, and all the changes that have taken place in industry, and the biotech funding and the NHPs, we’re pretty pleased with this quarter, we’re very pleased with where we are today, and the ability to get all of these things that we had a year ago in December, people talk to me say how in the world are you going to finish four or five expansions and eight or nine site closures and change this and that it’s good news our organization has done that. And now those things are done. So we have a lot less variables. As far as this quarter what we thought is, again, just what I told David, let’s look at where we are realistically with NHPs, where we are at the market. And let’s make sure that we identify something realistic, yes, we could lead guidance really high and try to stretch and do something that’s not natural for the company, and achieve a short term, quarter to meet the guidance. But that probably is not the best long term decision for our company, when I tried to give guidance too is what I think is the best long term decision for our company. And what Beth referred to in her point was what is really a reoccurring expectation. Our last two months quarters are pretty good $24 million, I think that we can maintain that. Yes, our goal is obviously to maintain at least that, but let’s set an expectation that we can that we feel comfortable with, with those lower volumes of NHP that we may see in the future. And in our timing, when they may come in and be available for sale. Some cases, we’re expanding the quarantine periods that may take, if we do that and take an extra four weeks of quarantine, for whatever we’re being very careful, that may choose to change when things go out. And when we ship things all of a sudden, now it’s the NHPs going at 30,000- 40,000 apiece, you change 300 NHP, [inaudible] you just change your top line by and bottom line significant $10 million there 50% of that go to the bottom line or at least 30%. So there’s, we’ve got to be very careful of how we set those expectations. Plus, we have as far as the NHP business, if you think about it, we have a very high fixed cost structure and a very high standard for animal welfare. So, even though we have less NHPs going, we still have to cover that fixed cost structure. So those on their lower volume that remains we can’t take a shortcut on animal welfare in our investments. So we’re watching those things very closely. Frank Takkinen: Got it, that’s helpful. And then now that you have a lot of the site closure, broadly speaking, site optimization behind you, you’ve got a solid infrastructure to grow off of now. Maybe speak to your confidence behind your longer term 18% to 22% EBITDA margins. And if you’re at all thinking about a timeline to when we could reach a profitability profile like that. Bob Leasure: Well, I think as biotech funding, or as we increase our market share, we have great leverage, I think in our DSA model. And I think there’s an outline this before how we get to this 22% with the increase margins from the DSA business as we grow that. And as the costs continue to come out of our RMS side, and those things will continue over the next six to nine months. What I’m doing by outlining this current guidance is probably taking a lot of pressure growing to DSA sales business, in the midst of a reduced biotech funding, I hope we can — we grew and about 10%, last year 160 to 180. So maybe it’s trending in 160s. So they were low single digit double digits. Maybe we can do that again next year. When we were doing this two years ago, when biotech funding was high, we were growing that business at 25%- 30% a year. But this environment is a little different. For what I’m trying to say is, okay, it’s okay. It doesn’t matter if it takes us 12 months to get there or 18 months to get there, doesn’t need to take us six months. And let’s put a realistic expectation. Yes, I hope we can get there sooner, our team could help them get there sooner, and we’re looking at how to drive it sooner. And every once awhile, we see some pretty good momentum. So if we don’t get there next year to the 22% maybe 19% here, obviously, it’s possible. And we don’t have all the cost and savings in and we don’t have all the margins in. And so it’s obviously possible for us to get to 22%. But I think what we need to do is make sure we get there in a way that we’re building the company for with a very strong foundation for the future. We don’t need to be in hurry. We are off this mark. Operator: And your last question comes from the line of Yuan Zhi from B. Riley. Yuan Zhi: Thank you for taking our questions. Bob, high level, can you provide some comments on the demand of NHPs? How does that compare to last year based on your observation? You mentioned the supply part from government tracking data, then I have a couple of follow up questions. Bob Leasure: Yes, Yuan, our demand I think fairly high. And I think it’s going to continue to be there because I think it’s going to — when the supply chain takes a while to empty out. People had inventory. People have things in quarantine, people have things getting acclimated. So it takes a while for the supply that existed in November, to start to be reduced. Now that we’re only importing half of what we had before this, this supply bottlenecks are going to get, are going to get a little tough, I believe. There are also some changes going on to what type of NHP somebody may want now, it may not be Cambodia, and maybe they’re choosing to go to different space. So I think there’s a shift and what people were looking for. We continue to look at that closely. But I think that the demand is still there. If we had more, I think the demand would be there for more. But that’s, I don’t think that’s going to be the case. Yuan Zhi: Got it. In addition, can you please clarify the accounting method relative to NHP biologic assets? Did you use first in first out or locking last first out to calculate the inventory and cargo. Bob Leasure: We are, actual cost. So each animal will have its cost of what it costs to bring it, buy it and import it. And so as we saw that the actual cost is against that. We do as we as I may or may not have alluded to earlier, we do have overhead, it has to be covered by those margins, such as speeding, labor, utilities, sewage, insurance, transportation, a lot of those costs are expensed. They’re not in our inventory. We expense those as we go. Yuan Zhi: Got it. And the one last questions on the supply of NHP is outside of Cambodia. Have you noticed an increase of cost of those supplies? And do you have some kind of contract or price locking in place for those supplies? Bob Leasure: We do have some price contracts which lock in prices. And yes, we have seen prices increase. And I expect that to continue to — Operator: Mr. Leasure, there are no further questions at this time. Please proceed. Bob Leasure: All right. Thank you, everyone for joining today’s call. It’s a lot of great questions, a lot of information. Our team looks forward to what the future holds for Inotiv. We’ve positioned the company for strong growth. And I’d like to thank our investors for being part of this journey with us. We understand our industry has faced some challenges and some changes. We’ve made adjustments to address these challenges. We also believe that we have substantial opportunities going forward, as all of our efforts to date has significantly enhanced our capabilities in the marketplace. Moreover, our capital investment program has largely been accomplished already and we expect lower CapEx spend as a percent of revenue going forward, and completing the necessary infrastructure upgrades to the business, we now have the advantage of both scale and in house capabilities. We believe that we can continue to effectively increase our sales volume through greater cross selling to our existing customers while developing relationships with new customers alike. We are now well positioned to better control the timing of start and delivery of projects, as well as to provide high levels of customer service of all times. We look forward to the next call, and seeing many of you at upcoming Healthcare Investment Conferences. Thank you and I may add one more. Happy birthday, Robert. Thank you very much. Operator: Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may all disconnect. Follow Inotiv Inc. (NASDAQ:NOTV) Follow Inotiv Inc. (NASDAQ:NOTV) We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»

Category: topSource: insidermonkeyAug 12th, 2023

4 Safe Picks as Things Look Dicey for Wall Street This August

August is experiencing bouts of volatility, so it’s prudent for investors to place bets on safe stocks such as these for a steady stream of income. August, traditionally, has been one of the worst months for Wall Street. The month goes through a volatile phase as stock market participation gets reduced, resulting in lesser trading volumes. And this August is certainly living up to its reputation, which is leading to increased gyrations among stocks. A trifecta of events that recently unfolded has also created market turbulence. All in all, the S&P 500 and the Dow have lost 2.6% and 1.2%, individually, so far this month. The tech-laden Nasdaq slipped 4.4% since the beginning of August and has now entered negative territory for the quarter. So, what led to market upheavals? The selloff was ignited by a downgrade of several small to mid-sized U.S. banks by Moody’s. The rating agency warned that these U.S. lenders may find it hard to make money in a higher interest rate environment. Threats of an imminent recession may also impact such lenders. Another rating agency, Fitch, downgraded the U.S. government’s long-term credit rating from AAA to AA+. Fitch Ratings expressed concerns that the debt burden in the United States may escalate soon, and they were compelled to demote U.S. credit rating mostly because of the debt ceiling crisis in Washington. Meanwhile, a deepening slowdown in China’s economy is also unsettling investors. China’s exports and imports took a beating in July due to subdued demand for commodities across the globe. What’s more, the second-largest economy in the world is now on the verge of a malicious situation called deflation. Consumer prices have barely risen for quite some time in China, while wholesale and real estate prices are plummeting as consumers aren’t willing to spend. China is already in high debt, and such deflationary issues may now easily cripple its economy, which will have a spiraling effect globally. Thus, from an investment perspective, since August is experiencing bouts of volatility, it’s prudent for investors to place bets on safe stocks such as Runway Growth Finance Corp. RWAY, Crescent Capital BDC CCAP, Getty Realty GTY and Cogent Communications CCOI for a steady stream of income. These stocks are dividend payers, which means they have a sound business model that helps them stay afloat amid market vagaries. To top it, these stocks have a low beta (ranges from 0 to 1), making them unperturbed to market volatility. They have a Zacks Rank #1 (Strong Buy) or 2 (Buy). Runway Growth Finance is an externally managed business development company. The company has a beta of 0.76 and a Zacks Rank #2. RWAY has a dividend yield of 12.3%. The Zacks Consensus Estimate for its current-year earnings has moved up 0.6% over the past 60 days. The company’s expected earnings growth rate for the current year is 25.3%. Crescent Capital is a business development company. The company has a beta of 0.85 and a Zacks Rank #2. CCAP has a dividend yield of 9.9%. The Zacks Consensus Estimate for its current-year earnings has moved up 5.3% over the past 60 days. The company’s expected earnings growth rate for the current year is almost 13%. Getty Realty is a real estate investment trust. The company has a beta of 0.86 and a Zacks Rank #1. GTY has a dividend yield of 5.5%. The Zacks Consensus Estimate for its current-year earnings has moved up 7.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 5.6%. Cogent Communications offers low-cost, high-speed Internet access, private network services, and colocation center services with ultra-low latency data transmission. The company has a beta of 0.45 and a Zacks Rank #2. CCOI has a dividend yield of 6.4%. The Zacks Consensus Estimate for its current-year earnings has moved up 13.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 156.3%. Getty Realty Corporation (GTY): Free Stock Analysis Report Cogent Communications Holdings, Inc. (CCOI): Free Stock Analysis Report Crescent Capital BDC, Inc. (CCAP): Free Stock Analysis Report Runway Growth Finance Corp. (RWAY): Free Stock Analysis Report To read this article on click here. Zacks Investment Research This article originally appeared on Zacks Sponsored: Find a Qualified Financial Advisor Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now......»»

Category: blogSource: 247wallstAug 11th, 2023

"Happy Days Are Here Again... But You Can"t Print Grain, Or Oil, Or Uranium"

"Happy Days Are Here Again... But You Can't Print Grain, Or Oil, Or Uranium" By Benjamin Picton, senior strategist at Rabobank US non-farm payrolls underwhelmed on Friday, and it is clear that inflation is now defeated. Well, not really. But you wouldn’t know it from the way the bond market reacted to the figures. The US 10-year treasury yield gave up 14bps after official figures showed that employment rose by *only* 187,000 in July. The market was looking for a gain of 200,000, so it was a slight miss for the month. The source of much of the optimism seems to be downward revisions for employment in June and May, but even with those revisions employment is still growing faster than the labor force. Consequently, the unemployment rate ticked lower to 3.5% and growth in average hourly earnings held at 4.4%. Conclusive? Bond market jubilation wasn’t completely contained to the long end. There wasn’t much movement in the implied probability of a further rate hike in the Fed Funds futures, but the implied rate as at December next year fell by about 10bps. The bond market seems to be suggesting that the jobs figures point to a faster economic slowdown and more active easing cycle from the Fed in an attempt to pilot the economy into a beautiful soft landing, rather than ending up as a dark smudge on the tarmac. While the bond market went Pollyanna on Friday, equities read things differently. The S&P500 was off by more than half a percentage point and the NASDAQ down by more than a third of a percentage point (with tech stock valuations no doubt supported by falling bond yields). The Dow Jones has now fallen for three straight sessions after setting a new record for most consecutive up days between July 10th and 26th (13 in a row). “Sell in May and go away” appears to have been bad advice this year, but are we now at the beginning of an overdue correction in equity markets? A cursory check of the total assets on the Fed’s balance sheet show that we are now back below the levels reached in early March, before the collapse of SVB, Signature Bank and First Republic necessitated another one of those ‘mid-course corrections’ whereby balance sheet reduction was put into hard reverse. Between July and September the US Treasury is expecting to cram more new issuance into the market than was previously suggested. Lower tax receipts, higher outlays and the effects of the debt ceiling negotiations earlier in the year on delaying new issuance seems to have created a bulge in the debt marketing pipeline. While the Treasury is mopping up cash, the Fed has also swung from being a net buyer of debt to a net seller, suggesting that securities will be more plentiful and cash more scarce. This, combined with the perception that we are nearing the end of the Fed hiking cycle is a likely driver for the bear steepening that we have seen since the end of June. P/E ratios on the S&P500 are above 20x at the moment. So, as they say on Twitter: “whomst equity risk?” With valuations that high, and dividend yields running at a piddling 1.54%, it seems hard to get bulled-up on equity beta from here. That may be why we are seeing average 1-day price moves following earnings releases showing negative for every sector except materials and financials despite broadly strong bottom-line growth. So, is this as good as it gets for equities? Or does the prospect of an impending easing cycle from central banks present enough of a carrot to keep equities bid as a relative value play versus bonds? Developments in commodity markets are even more interesting. My colleague Teeuwe Mevissen covered Belarussian incursions into Polish airspace and Russian rocket attacks on Ukrainian grain facilities close to the Romanian border last week. This morning we are seeing CBOT wheat futures up more than 11USc/bu following reports of a Ukrainian drone strikes on a Russian warship and oil tanker in the Black Sea over the weekend. The situation is developing into a tit-for-tat as Ukraine seeks to cripple Russia’s capacity to fund its war effort through commodity exports. Understandably, the world’s gaze is fixed on the situation in Ukraine, but this isn’t the only flashpoint for commodities. Last Tuesday we wrote about the coup in Niger impacting upon the supply of uranium to the French nuclear industry. Niger supplies 25% of Europe’s uranium, and signs that the military junta is cosying up to Wagner Group potentially puts close to 60% of the world’s mined uranium under the influence of the Kremlin. Even more concerningly, Russia itself dominates the market for uranium enrichment, while the West has allowed its own capabilities in this area to wither on the vine via comforting delusions of the End of History. Clearly there are many risks here, with potentially severe implications for energy security and decarbonisation efforts. The United States is alive to these risks, but has perhaps been too slow off the mark in addressing them and in convincing her allies to do the same The Associated Press reported over the weekend that the US is considering stationing military personnel on commercial ships traversing the Strait of Hormuz to deter Iranian seizures of tanker vessels. This would be an unprecedented move aimed at ensuring the integrity of 20% of the world’s oil trade, which flows through the region. Again, Western Europe has the most to lose here. So, yields are down for the time being but you can’t print grain, or oil, or uranium, so risks of further supply shocks remain. For the time being though, happy days are here again! Tyler Durden Mon, 08/07/2023 - 11:25.....»»

Category: blogSource: zerohedgeAug 7th, 2023

10 Oversold Canadian Stocks To Buy

In this piece, we will take a look at ten oversold Canadian stocks to buy. If you want to skip an introduction to the Canadian economy and the stock market, then take a look at 5 Oversold Canadian Stocks To Buy. Canada and the U.S. are tightly interlinked. The countries have a nearly two centuries-old […] In this piece, we will take a look at ten oversold Canadian stocks to buy. If you want to skip an introduction to the Canadian economy and the stock market, then take a look at 5 Oversold Canadian Stocks To Buy. Canada and the U.S. are tightly interlinked. The countries have a nearly two centuries-old relationship. The US and Canada are strong trading partners, with Canada being America’s largest trading partner as of 2021 end. This close relationship between the two countries also leads to several Canadian firms seeking to take advantage of America’s lucrative capital markets and raising equity capital by selling shares on exchanges such as the New York Stock Exchange (NYSE) and the NASDAQ. More than two hundred Canadian firms are listed on both the Toronto Stock Exchange (the ten biggest stock exchange in the world and the third biggest in North America as of January 2023) and the NYSE and NASDAQ. This figure has grown significantly since data from the Bank of Canada shows that twenty years back, in 2003, 181 Canadian firms had listed their shares on U.S. exchanges, which itself had marked 100% growth over the previous two decades. According to the bank, some of the benefits to investors of Canadian firms from listing on U.S. exchanges include a broader risk base as more investors share it and reduced transactional costs due to greater liquidity. When we look at the number of total companies that are listed on the NASDAQ and the NYSE, it would appear that perhaps more Canadian firms should be selling their shares in America. After all, there are more than two thousand firms that have listed their shares on the NASDAQ, so the Canadian share of the total pie is nevertheless quite small. This is due to several factors such as different reporting requirements for Canadian firms (for instance, Canadian firms are mandated to publish earnings reports in IFRS) which can lead to two balance sheets and a less diversified economy that with fewer sectors with large companies. As opposed to the U.S., where technology is the king of the stock market, in Canada, some of the largest firms are in traditional sectors such as finance, energy, and industrial segments. While America’s stock markets are dominated by well known household name firms such as Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT), most people are unlikely to know which is the biggest Canadian company in terms of market capitalization. Shifting gears and taking a look at what’s happening at the other side of the border, like most other countries, Canada too is battling the bane of high inflation. The overall annual inflation rate in the country stood at 2.8% as of June 2023, marking a 0.6% decrease over the figures in May. This drop was fueled primarily by a 16% reduction in energy prices. Canada exports copious amounts of oil, a drop in global energy prices also benefits the country since a large portion of its refining needs are also met by imports. However, while energy costs dropped, consumers still continued to feel the inflationary heat, as grocery prices and mortgage interest costs jumped significantly as well. Data from Statistics Canada shows that in June, groceries were up by 9.1%, marking a ten basis point increase over May’s reading. Bakery products were the worst offenders as their prices grew by 12.9% in May while fresh fruits jumped by 10.4%. However, the high interest rate environment, which has seen Bank of Canada raise interest rates to 4.75%, has made its impact on mortgage interest payments as they grew by 30% in June. Looking at the stock market, when compared to their American peers, Canadian stocks have seen rather modest returns this year. For instance, the S&P/TSX Composite Index has returned 3.48% year to date, which pales in comparison to multi double digit returns offered by indexes such as the NASDAQ 100. However, this doesn’t mean that all Canadian firms have had a poor run on the market. For instance, Hut 8 Mining Corp. (NASDAQ:HUT) is up 296% year to date and Bitfarms Ltd. (NASDAQ:BITF) is up by a slightly lower 281%. Both of these are penny stocks and operate in the cryptocurrency mining sector. So, with the backdrop, let’s take a look at some oversold Canadian stocks. For more details about oversold stocks, you can check out 10 Oversold Bank Stocks To Buy. The firms that top this list are GFL Environmental Inc. (NYSE:GFL), TELUS International (Cda) Inc. (NYSE:TIXT), and Fusion Pharmaceuticals Inc. (NASDAQ:FUSN). Image by MayoFi from Pixabay Our Methodology To compile our list of the most oversold Canadian stocks, we selected Canadian stocks that were rated Buy or better on average and had a Relative Stock Index (RSI) score of less than 40. 10 Oversold Canadian Stocks To Buy 10. ImmunoPrecise Antibodies Ltd. (NASDAQ:IPA) Latest 14 Day RSI Score: 31.26 ImmunoPrecise Antibodies Ltd. (NASDAQ:IPA) is a biotechnology company that provides substances and compounds that generate antibodies used to fight infection and related products that enable peptide production and immunization screening. The firm’s second quarter of 2023 earnings missed analyst estimates, and the two analysts that cover the stock have rated it as a Buy. A penny stock, its shares are down by more than fifty percent year to date. During Q1 2023, only one of the 943 hedge funds that are part of Insider Monkey’s database had owned a stake in ImmunoPrecise Antibodies Ltd. (NASDAQ:IPA). Ken Griffin’s Citadel Investment Group is the firm’s lone hedge fund investor since it owns 145,514 shares that are worth $403 million. Along with TELUS International (Cda) Inc. (NYSE:TIXT), GFL Environmental Inc. (NYSE:GFL), and Fusion Pharmaceuticals Inc. (NASDAQ:FUSN), ImmunoPrecise Antibodies Ltd. (NASDAQ:IPA) is an oversold Canadian stock to Buy. 9. Repare Therapeutics Inc. (NASDAQ:RPTX) Latest 14 Day RSI Score: 30.16 Repare Therapeutics Inc. (NASDAQ:RPTX) is an advanced biotechnology company that develops products to repair DNA damage that can lead to tumors and other complications. The firm has missed analyst EPS estimates in three out of its four latest quarters, but despite this, the shares are rated Strong Buy on average. In fact, positive ratings have continued for the firm as of late, with Stifel upgrading the stock to Buy in June 2023. Repare Therapeutics Inc. (NASDAQ:RPTX)’s average share price target is $27, for a sizeable upside over the current price. After sifting through 943 hedge funds for their first quarter of 2023 investments, Insider Monkey discovered that 15 had held the firm’s shares. Repare Therapeutics Inc. (NASDAQ:RPTX)’s largest investor out of these is Mark Lampert’s Biotechnology Value Fund / BVF Inc with an $81 million stake that comes courtesy of 8.2 million shares. 8. KWESST Micro Systems Inc. (NASDAQ:KWE) Latest 14 Day RSI Score: 29.42 KWESST Micro Systems Inc. (NASDAQ:KWE) is an aerospace company that is headquartered in Vancouver, Canada. It sells products to both military and civilian users, with the portfolio consisting of items such as laser defense and drone countering systems. The firm was out with a crucial product upgrade in July when it shared that it had filed a patent in the U.S. for a product that will enable users to detect lasers such as LIDAR and even determine the source of the laser and the object that is generating it. Insider Monkey took a look at 943 hedge fund portfolios for this year’s March quarter and found two KWESST Micro Systems Inc. (NASDAQ:KWE) investors. 7. Restaurant Brands International Inc. (NYSE:QSR) Latest 14 Day RSI Score: 29.13 Restaurant Brands International Inc. (NYSE:QSR) owns popular fast food and restaurant joints such as Tim Hortons and Burger King. Through these, it sells a variety of different products such as coffee, hamburgers, chicken, fries, and other eatables. As consumer spending continues to remain elevated and the service sector generates strong employment, Restaurant Brands International Inc. (NYSE:QSR)’s shares are up by more than 12% year to date. However, the firm’s second quarter results might be a crucial one to watch out for, since Starbucks missed some sales estimates in its results for the period. By the end of March 2023, 27 of the 943 hedge funds surveyed by Insider Monkey had held the firm’s shares. Restaurant Brands International Inc. (NYSE:QSR)’s largest investor in our database is Bill Ackman’s Pershing Square since it owns 24 million shares that are worth $1.6 billion. 6. Theratechnologies Inc. (NASDAQ:THTX) Latest 14 Day RSI Score: 25.43 Theratechnologies Inc. (NASDAQ:THTX) is the third biotechnology and penultimate biotechnology firm on our list. It develops treatments for people suffering from HIV complications, with the products helping them lead a better life. On the earnings front, Theratechnologies Inc. (NASDAQ:THTX) has not been performing well, as it has missed analyst EPS estimates in three of its latest four quarters – including Q2 2023. Five of the 943 hedge funds part of Insider Monkey had owned a stake in Theratechnologies Inc. (NASDAQ:THTX) as of Q1 2023. Guy Levy’s Soleus Capital is the largest shareholder through a $7.3 million stake. GFL Environmental Inc. (NYSE:GFL), Theratechnologies Inc. (NASDAQ:THTX), TELUS International (Cda) Inc. (NYSE:TIXT), and Fusion Pharmaceuticals Inc. (NASDAQ:FUSN) are some oversold Canadian stocks with strong analyst sentiment.   Click to continue reading and see 5 Oversold Canadian Stocks To Buy.   Suggested Articles: 12 Best Agriculture ETFs To Buy 12 Best Bargain Stocks to Buy in August 10 Oversold NASDAQ Stocks to Buy Disclosure: None. 10 Oversold Canadian Stocks To Buy is originally published on Insider Monkey......»»

Category: topSource: insidermonkeyAug 5th, 2023

Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) Q2 2023 Earnings Call Transcript

Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) Q2 2023 Earnings Call Transcript August 4, 2023 Operator: Good morning everyone. Welcome to Petrobras webcast with analysts and investors regarding our Results for Q2 of 2023. It’s a pleasure to be here today. This event will be presented in Portuguese with simultaneous translation into English. The links for […] Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) Q2 2023 Earnings Call Transcript August 4, 2023 Operator: Good morning everyone. Welcome to Petrobras webcast with analysts and investors regarding our Results for Q2 of 2023. It’s a pleasure to be here today. This event will be presented in Portuguese with simultaneous translation into English. The links for both languages can be found on our Investor Relations page. We would like to inform that all participants will follow the broadcast over the internet as listeners. After our intro, we will have a Q&A session where you can send your questions to Today with us we have Carlos Travassos, Chief Engineering, Technology and Innovation Officer; Clarice Coppetti, Chief Corporate Affairs Officer; Claudio Schlosser, Chief Logistics, Commercialization and Market Officer; Joelson Falcão Mendes, Chief Exploration and Production Officer; Mário Spinelli, Chief Governance and Compliance Officer; Maurício Tolmasquim, Chief Energy Transition and Sustainability Officer; Sergio Caetano Leite, Chief Finance and Investor Relations Officer; and William França, Chief Industrial Processes and Products Officer. To initiate we will watch a video with a message from our President, Jean Paul Prates. Jean Paul Prates: Good morning. It is an honored to be here again to share our results with all of you. It has been six months of achievements and accomplishments, which reflect the quality of the work that we are doing within Petrobras. In this first semester of management, we were able to establish a new commercial strategy that is producing the results we wanted so much, more flexibility and competitiveness for fuel prices. At the same time, we are committed to leading the energy transition in the country in a fair, safe, and inclusive way driven by partnerships we are building with companies of technical excellence and by the growing decarbonization of our operations. One of these results is the neutralization of Scope 2 emissions since all electricity purchased by Petrobras now has a proven renewable origin. It is important to highlight that we approved the revision of the strategic elements for our 2024-2028 strategic plan, as well as the driver to increase low carbon investors to up to 15% of our total investments. In the operational side, FPSO’s Anna Nery in the Campos basin and Almirante Barroso in the Búzios field started up production. FPSO’s Anita Garibaldi and Sepetiba are expected to join them soon, helping us to continue increasing pre-salt production. The utilization factor of our refineries reached 93% with the highest level since 2015, even with several scheduled shutdowns at our refineries, respecting safety, environment and health issues. And we achieved record sales in the first half with 10-ppm diesel accounting for 62% of the total diesel sales of Petrobras. Regarding Diesel R, which is our diesel with 5% of renewable content, we project to increase our processing capacity by 146% later this year. We increased our investments to $5.7 billion in the first half of the year, and we kept our debt under control at a gross debt of $58 billion while our operating generation reached $10 billion. In the first half of 2023, we continued with our total focus on people. We had an unprecedented initiative with the launch of our diversity supplement to reinforce awareness among our internal public and our society at large. All these results were achieved in the first half of this year represent only the beginning of a journey that will take us increasingly further for our benefit and for the benefit of the shareholders and the society. Thank you very much. Operator: Now we will initiate our results of Q2 of 2023. And now I will hand it over to Sergio Caetano Leite. Sergio Caetano Leite: Good morning. I am very pleased to be here today to discuss our results for the second quarter. During this quarter – during this quarter our gross recurring EBITDA was BRL12 billion. This our operational cash flow demonstrates the resilience of our company despite an adverse foreign scenario. We have approximately BRL10 billion, BRL9.6 in operating cash flow. Our debt – our net debt over EBITDA also shows the control of our indebtedness and the financial soundness of our company that would be 0.74 times. Now, the return on capital employed is almost 13%. This is 12.8%. Our net profit totaled $5.8 billion, free cash flow $7 billion, and we continue contributing sustainably. We’re promoting inclusive developing paving R$56.1 billion in taxes contributing towards social development. Our dividends totaled $6.2 billion and we have a comfortable cash flow of $15.8 billion. So despite external adversities, Petrobras financial soundness is positive and the results take us this. This is why we’re – this is one of the ten best years of the company. Now here you can see the foreign environment. There was a drop in Brent. It was significant. We’re talking about the second quarter of 2022, $114 in Brent. Now during this quarter, $78 per barrel, this is the drop of the barrel price was highly significant although the exchange rate is in line with last year’s quarter. The drop of Brent is another factor that I will comment subsequently. And this is why this dropped our results, although we continue with sustainable development and the company continues resilient. Our EBITDA demonstrates that we are aligned with the drop of the Brent and the appreciation of the dollar, but there is an important interpretation since the beginning of the year. I mean Q1 and Q2, our adjusted EBITDA is very close, almost at the same level of a recurrent EBITDA or recurring EBITDA. This is because there has been a lower disinvestment program because of our asset portfolio. This – so our company continues adjustment presenting very important value. Below you can see the devaluation of Brent, which impacts significantly our operations. There was a lower Brent reduction in exploration and production. Now, refining and marketing captures the foreign scenario factors. If we consider the EBITDA with a stock turnaround, we have a drop of 33% vis-à-vis Q1 with a replenishment cost, we have an EBITDA minus 42%. Gas and power aligned with the refining area. So we have a 33% drop if we consider the first quarter in comparison to Q2. Now, our cash generation, as I mentioned, continue strong and robust. There was a slight contribution of non-recurring results that are because of the sale of Potiguar and Norte Capixaba Complex our debt management from – allowed us to – to amortize $0.7 million and these are data. This is data that is aligned with the market in reality. In oil and gas, Petrobras has presented one with the best results despite an adverse scenario. Now, when we talk about our debt, there was a slight spike in our total indebtedness because of the freight of Anna Nery and Almirante to Búzios, but our financial debt maintains its dropping trajectory. We drop, we’ve lowered 0.6% million in debt. Our gross debt is within the limits that we establish and what we announced in our strategic plan. Now our next slide. Now, portfolio management. This is a question – this is a constant question mark from our investments. We have a dynamic portfolio in Petrobras. So, this means that we are going to work with these divestments with investments and with partnerships. There are assets that are of interest and we can do this through partnerships. So, all our portfolio is being reassessed under a different view. This is a long-term view. In addition or aligned with what we announced regarding the signed contracts for divestments, they remain, there are fields Albacora Leste that was sold in Q1. We have Norte Capixaba cluster or complex or Potiguar Complex. Now, in terms of cash inflow generated from these divestments until June of 2023, we are talking about the end of the second quarter, well, this was $3.5 billion. Well, our net results reflect the stringiness of the market, the drop of the Brent and the appreciation of the dollar vis-à-vis the dollar what is important is the crack spread of the diesel. The market is being pressured by the low offering of Russian diesel dropping 40% will hire operating expenses US$0.4 billion. And this has been reduced to – when we compare it to other quarters. Now, what we give back to society? This is part of our ESG program. It is highly consistent and strong. We give back to society in terms of taxes and we gave back R$56.1 billion. Another important fact was we reviewed the shareholders’ remuneration policy. In this policy review – we will maintain important aspects that will guarantee the financial soundness of the company, the control of that. We maintained the same periods, we continue with the same guides of indebtedness. We have a reference, we have our gross debt and how we pay out quarterly our dividends. And we’ve reformulated our formula going from 60% to 45% of free cash flow designated to dividend pay-out. This level is in line with the major worldwide enterprises. I am here considering independent enterprises and also state companies. Remuneration to shareholders, I would like to highlight the main dates that were already announced to the market here for the second quarter remuneration. The base data will be August 21. The first tranche will be paid of – the person will be paid November 21 and the second December 15. We continue controlling our debt using capital principle that is part of the guidance of the company. And we continue committed to generate and to distribute value. Now our buyback program. Well, Petrobras is one of the companies that communicates most with the market in Brazil and abroad. These are the shares that are mostly traded abroad. What we do have impacts, and this is why we have to be careful, therefore, our buyback program will start in a conservative fashion. We will buy 157.8 million preferred shares. This will be done with preferred shares, which represent a small amount of these Free Float that would be 3.5%. And this is a pilot program will last around 12 months. So, we expect, to conclude this, we believe that this will not cause major price fluctuation and it’s the first share buyback program that Petrobras will use to remunerate their shareholders. So, these – so they can be bought in parcels. So what this domain highlights, here, you can see more in our IR sites. And now I will give the floor to Maurício Tolmasquim, Chief Sustainability and Transition Officer. Maurício Tolmasquim: [Foreign Language] But I am just giving you a general overview. So here we see a lower emission rate of greenhouse gases in refining. Since the beginning of the operation, which was in 2019, we signed the first charter contract for hybrid support vessels, meaning using batteries and marine fuel. This allowed us to reduce emissions by about 15%. We certified our energy production through I-REC, renewable energy certificate guaranteeing that 100% of the electricity purchased in – was generated by renewable sources. And we invested BRL 200 million in a new gas treatment system at REPLAN and REFAP, which reduces emissions in particulate matters, which have a negative health impact. So these are Scopes 1 and 2, meaning decarbonizing the company’s processes. In Scope 3 which refers to products with a lower carbon footprint. Our goal is to expand our diesel production capacity with renewable content by 2023, especially through processing. So this was authorized by ANP to operate another unit with REPAR, expanding our production to 12 million liters per day. We signed a cooperation agreement and we began a new test with, for maritime transport with a chartered vessel from Transpetro, which has 24% renewable content, which also allows us to reduce emissions by about 17%. So those were the highlights I had for you, and I’ll pass it over to my colleague here, Joelson. Q&A Session Follow Petroleo Brasileiro Sa Petrobras (NYSE:PBR) Follow Petroleo Brasileiro Sa Petrobras (NYSE:PBR) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Joelson Falcão Mendes: Good morning, everyone. It’s a pleasure to be here. We’re going to start by discussing the growth of our operated production in the second half, or excuse me, in the first half of 2023, we have seen significant growth. There was a slight reduction from the first quarter to the second, which is expected considering our maintenance operations, which had been programmed and planned. Our own production is also in line with what we had planned. It seems like we are going to finish the year along what we have planned without major issues and in line with what happened in the second quarter of 2022. Our pre-salt owned production as expected had a significant increase, which represents 78% of our own production already with more than 2 million barrel equivalent from coming from pre-salt. Next slide, please. In Buzios, we have a relevant production level. We are producing 800,000 BOEDs total. It’s very significant and due to the relevance of this production. In five years only, we have an accumulated production of 1 billion barrels of oil, which was much faster than what we did in Campos Marlim in the 2P field as well. So it’s extremely significant how quickly we were able to grow our production from Buzios with these five units, which are the five original units foreseen, we have an additional six that will produce oil in excess to this. Next slide, please. Another important activity that we had during the second quarter was returning all of our production from the Bahia Terra Cluster. We had to adapt our production there according to the new requirements from the ANP. And we had a long contact with them with the risk analysis for all of the activities needed. And it was a new outlook on safety and how our activities are done. So next slide, please. At the end of last year, we also participated in a bid round and we were able to acquire three important blocks in investment of over BRL 700 million in the Norte de Brava field, which is the most significant one in investments. We acquired 100% of it and it’s close to an area where we are already in production, which is very important. We want areas where we already have an infrastructure that can be used. Also, Água Marinha, we had some partners there and also Sudoeste de Sagitário with other partners. So this consolidates our exploration strategy with profitable assets close to our activities in borders that we already know very well. There are other frontier areas in Brazil, but these are well-known areas where we can produce with lower extraction costs and certainty of that exploration area. We’re very confident that we’re going to get good results from these areas, and we’re planning to start this exploration next year. Wells are planned for 2024. Next slide, please. Within our strategy of recovering more and getting more value from the assets that we have, we concluded a major seismic survey in Tupi and Iracema through partnerships. So this is a major area. We have very high quality images, which will allow us to plan how this area will be explored. And of course, this is a deep conversation that we’re having with the ANP to decide how we can have another production in this area. So it was an extension and we expect this to have a lot of value for Petrobras and for Brazil if we can increase the prediction time in these areas. Next slide. This slide shows the extraction cost for pre-salt, which is in line with what we had during the first quarter in mature areas deep waters and shallow waters. Naturally, we would see lifting costs go up. There’s a reduction in production due to the depletion of these fields, and there are also need other associated costs. So the total cost of oil produced is quite significant for our financial results around $35 per barrel, which is in line with what we had been expecting considering all of these production changes that make us very competitive. That’s my last slide, so thank you very much and I’ll pass it on to Marcos [ph] Travassos. Thank you. Carlos Travassos: Thank you, Joelson. Good morning. So I’m going to start my presentation here by discussing some of the advances that we had in technology. Our company has the highest number of active patents in Brazil, over 110,000. So for the second year in a row, we had a record number of patents licensed. 214 were made available for licensing, so we’re made available to the market. During this time, we received some awards related to innovation. We received the MIT Award as one of the most innovative companies in Brazil. There’s no ranking, but we are among the top most innovative companies. There we also received the Elite Awards in Nevada and the U.S. for our HAZOP program, and we also received the Valor Inovação Award as the one of the most innovative oil and gas companies in the world and the second most innovative company in Brazil across all industries. It’s our best historical result and it’s a very relevant and important award for us. It shows that we’re really valuing innovation, which is so important for transformation. This is what the company has been doing and has been getting prepared for. The next slide will show some of these innovations. You can see our FPSO all electric. And the next project will include our combined cycle technology. So we’re going to use all of the technology that we have in our units to reduce our emissions rate. We also saw some advances in remote operating marine technologies. We have artificial intelligence being used by these drones, onshore monitoring as well. We also advanced through our PEP70 Well Efficiency Program. Our goal is to reduce the cost of each well in pre-salt and PEP70 was our goal, which is to reduce values of about a $100 million to $70 million. So we concluded this program achieving these results. And downstream as Tolmasquim has said, we also had an agreement for industrial scale tests to produce bio-aromatics in Riograndense refinery based on vegetable oils. So we were able to get plant-based products and next year they will be processed and tested, which can be very important for our refineries as we’ll increase our FCC load through plant-based oils also generating products with a lower carbon footprint. We advanced in our robotics program. So to the right, you see our Petrobot, which is in testing for equipment inspection. And finally on the right, we have our fire fighting robot created in a partnership with some startups, which is now being tested in a smaller version to be used in our platforms. Next slide, please. This slide discusses some of our projects. At the center, we see Almirante Barroso, which is five, we started our operation there on March 25. Then on [indiscernible] with production ramp up. To the right, we see the auction for the P-32 area to find a sustainable density for this platform. We had 31 new wells in operation in the first half of 2023, an increase of 25% in their interconnection. And you can see the whole of P-78. This is our first project after we revitalized and reinvigorated our hiring strategies. So this is our own area that’s going to operate in the Búzios field. We also have FPSO Sepetiba in MERO 2, which is headed towards Brazil. It’s close to South Africa and expected to arrive by September. This will be our last unit to go into operation in 2023. And we also have FPSO Anita Garibaldi, and its last few stages to go into production and it will start its operations in August. So Anita Garibaldi is the second unit that will go into operations in the Marlim Sul field. Also, we’re announcing that we’re publishing today the Barracuda REVIT. So this is a call for bid for a production unit that has the capacity of 100,000 barrels. And this is also a part of our renewal program for Bacia de Campos. The next slide shows some of the advances that we have downstream. We had some significant advances to expand and modernize our refinery. We also published today an auction for the second train for RNEST. We’re going to increase our processing capacity for that refinery from 115,000. This revamping will increase it by 15,000 and we expect to have 130,000 more in the second cycle. So the processing capacity will be 260,000 barrels of oil per day and it will generate 30,000 jobs in direct and indirect employment in [indiscernible]. We also see our coke drums at RBPC, which is a very challenging project. It was the biggest implementation that they ever had there, and they – it was revitalized and modernized in our coking activity there. Here we have our image of acid water in the REPLAN treatment plant. Here we will add 10,000 cubic meters diesel. The works is according to the deadline. And here we also recently celebrated the deployment of the Reduc HDT work. This was a REVAP work where we added a new reactor. The one that you can see and hit this, we will have more diesel in Reduc. And the last image you can see GASLUB. We resumed the work of GASLUB. I have to register in record time. The last time that there was a shutdown, we needed 30 months for analysis and for a new bid. And now we’ve resumed the GASLUB works in only six months with engineering contracts, with building assembling contracts and other contracts. We are here in Itaboraí, in the UPG work in GASLUB. And all GASLUB – and GASLUB, we started the UTE. This is a project that is conditioned to an auction and we will present a proposal throughout 2024. But we’ve started the contract. This is a demand for these types of auctions for this thermal plant unit. And here I end my presentation and I will give the floor to the Chief Industrial Processes and Products Officer, William França. William França: Thank you, Travassos. Can you hear me? Can you hear me and see me? Yes. So during this quarter, our results were excellent in terms of operation in our natural gas plants and refining our natural gas plant had high results here the best in the history, the sustainability plant excellent. We also had a burning rate that this measures the quality of decarbonization in our natural gas area. We had very good burning rates. This means that we’re evolving in energy efficiency lowering our carbon footprint, which is very positive. Well, I’m sorry, I didn’t say good morning to everyone. Now, in our refineries, our utilization factor was 93%. This is a result of our planning and logistics and marketing and allowed us to increase the utilization factor guaranteed by the excellent operational availability of our assets. Here you can see our refineries, therefore, this is a very good result. The best result since 2015. This is the best result in the history of refining pre-salt oil in refinery input. We are almost 70% the oil that comes from pre-salt. We are increasing the share of pre-salt in the processing of our unit. We increased gasoline days almost 70% and this result was positive because we ended the REVAP, Reduc, REPLAN shutdown and RPBC although there were shutdowns in the refineries, we achieved this result. This means that we can make even more progress in the utilization factors of our refineries during the second semester. Carlos Travassos: William, your microphone is muted. William França: Our result of oil byproducts highlighting diesel oil, once again, we achieved a record in with 2.11 million cubic meters of produced diesel and we will reach another record in July with 2.38. Here we have 2.38 million and then we will outperform in August because we started at the end of July with the 700. Our unit was readapted. We included another reactor and other offsite accessories says that here we have offsite structure to produce diesel with 4,000 cubic meters a day and due to our operational availability and the trust on the unit, we will outperform and we will outperform July and this is due to the excellent working structure of our commercialization area. This is Tolmasquim mentioned, we have excellent result in gas emission in emission intensity. Here, we had 103.7 results and we reached 102 in region. That is the best historic result in all refining. We’re close to the standard number achieved by refineries. There are refineries with something lower than 90 like RefTOP. So emissions intensity Tolmasquim in June, we had the best historic result in terms of CO2 with 37.2. This shows that we are evolving in trust, increasing utilization factor, and lowering our carbon footprint regarding the assets of our refineries. Your microphone is closed once again. Now I would like to broaden refining to implement. So we are studying some robotics sales in our company. We are working firmly in our decarbonization process. So thank you everyone. And I’ll now pass it over to my friend, my longtime friend, 36 years Director, Claudio Schlosser. Claudio Schlosser: Thank you, William, and everyone else. It’s a great pleasure to be here. I’m talking about the highlights of the office and we’re going to start with this slide, presenting sales of derivatives in our market. Our oil product sales, which had an increase versus 2022. We had some effects that led to this. One of them was the higher competitiveness for gasoline. We also had LP seasonality – LPG seasonality and diesel. This diesel effect was partially offset – because during this time, we saw a higher rate of diesel mix-ins from 10% to 15%. This happened in mid-April. So if we look at the data from the second half of 2022, we were very aligned despite these divestments in the Reman refinery in Amazonas. One item that was mentioned by William was the excellent result of availability, which led to historical levels in refinery availability, which really supported the sales of these oil products. As a consequence, we had lower margins, but our margins were still above our historical levels. This increase in refinement allowed us to capture this margin across all of our industries. So it reduced oil exports and we allowed the country to process more oil. As another highlight, gasoline sales grew 5% this quarter. It happened, especially due to the higher competitiveness against our main alternatives for clients. And in addition to that, we had an increase in fuels for light vehicles, that is automobiles, motorcycles. Gasoline had more competitiveness versus hydrated ethanol due to tax reasons. This can be explained by tax reasons. And just for your reference, Petrobras Gás participation in the second half of 2022 was 40.3%, and in the second quarter it was 42.3%. And it shows how we have significantly evolved during this cycle. Looking at the foreign market, we had higher exports due to our production of oil products and our availability. Due to the concentration of programmed downtime during the first half of 2023 in refinement. Next slide, please. So this slide discusses oil sales. There was a reduction in exports, which was expected due to this increase in availability in the refinery park and the higher utilization of pre-salt oil in refinery loads. And this adds a lot of value to how these assets are generating value. We had about 150,000 barrels per day produced nationally in comparison to other quarters. Another point that allows us to understand this variation was the inventory in the first quarter. So it was favor in the first quarter, because we were carrying out some ongoing exports from the previous year, which ended up being carried out in the first quarter. So that had an impact of a 100,000 barrels a day. Next slide please. The next topic is the approval of the new commercial strategy. This was widely communicated, and I’d like to take this opportunity to underscore that this was a very positive change for Petrobras. We started having more room to work in our commercial strategy, and of course, this is aligned with the best production conditions, our refinement assets, the use of our logistical assets to have much more competitive prices and to be able to compete in markets that add value to the company. So overall, this measure optimizes our refinement and logistics assets. Another essential value that was reported in this strategy was the mitigation of volatility peaks, which gives our clients a more stable price environment. This allows us to work in balance with the international market in a way that is sustainable and profitable. Next slide, please. This is my last slide in the presentation. It was widely discussed and presented by Tolmasquim, our Director. And I’d just like to underscore our hybrid vessel. Not only does it reduce emissions, but it also reduces costs. And this is a part of our offense a lot program, which is focusing on better reliability and safety, but also in logistics costs. So this was an important effort that was carried out. We are advancing significantly in reducing emissions. And I can also mention the new test that we are performing using 24% biodiesel produced from plant sources. And there’s also a pioneer process of green recycling of one line, which is following international ESG best practices. So that’s all we had to say. Thank you for your attention and we’ll give the floor back to Carlos. A – Carlos Travassos: Thank you, Schlosser. And we’re now going to begin the questions and answer session. The first question we got was from Vicente Falanga from Bradesco BBI. And he asks, Sergio. Sergio, how do you see the company’s minimum optimal cash $28 billion? Can you work with less than that? Sergio Caetano Leite: Hello, Vicente, I hope you are doing well. Well, we are still creating a strategic plan for 2024 to 2028. As you know, these answers will be addressed in the projections that will happen in this plan. But I’d like to remind you that our – the minimal cash is $5 million in our PO. So our reference is $8 billion. So this is well in line. That’s our idea. We want to keep it like that. Thank you. Carlos Travassos: Thank you, Sergio. The next question was also asked by Vicente. It’s a question for Schlosser. Schlosser, Petrobras is selling gasoline below marginal levels. For how long does the pricing committee believe that this kind of discount will be sustainable for? Schlosser, you have to turn on your microphone. Claudio Schlosser: Thank you, Carlos. Vicente, thank you for your question. As we presented before, the essential value of our commercial strategies based on three points to be competitive, having competitive prices for our clients and generating assets through marginal value. And another very important value is international volatility. So we’re providing to our clients price stability. What we’re seeing right now is a lot of uncertainty about the global economy. And this affects the demand for energy, how much is expected and the supply of oil and fuel due to these geopolitical issues, the Ukraine war. So this short-term combination of factors led to high volatility in the market. The reference levels adopted by the international market fluctuated wildly. And another important point is an inflow of Russian products to Brazil. Our monitoring shows that in July, Russian diesel was over 80% of our production in Brazil. So we’re monitoring the market every day and whenever it’s necessary, we’ll have readjustments in our commercial strategy. Obviously, we can’t advance these decisions yet, so thank you for your question, Carlos. Carlos Travassos: Next question from Gabriel Barra from Citibank for Joelson. Joelson, could you elaborate on the information regarding the government discussions and with the environmental authority regarding the – first Amazonas the margin equatorial development? How much will you invest in exploration and development? Could Suriname and Guyana be an alternative for long-term investments? Joelson Falcão Mendes: Thank you, Gabriel, for your question. Well, the portfolio management – margin has five basins that goes from Rio Grande do Norte until the Amazon basin in Amapá. So we initiated our environmental licensing projects in two basins for Amazon and Portuguese in a sequence of wells, one in Amazon and another wells in the Portuguese basin. And we already supplied all the information requested by IBAMA for these two areas, these two licensing processes already from Petrobras’ point of view. And we have let the government view the – the government is informed by all of our actions and we have exchanged information with IBAMA that is environmental agency trying to ask questions. In July, we ended this communication. So now this is being analyzed by IBAMA. We have no pending issues and we depend – we don’t have to give any more information. Regarding investments, well, we expect in our planning and 16 wells in the five basins in five years, this is an exploratory investment of US$3 billion in these areas. All the areas here in Latin America and also Western Africa are of our interest because they’re similar to our activities. We have planned exploratory activities for Columbia next year in Suriname, Uruguay and Africa. Our exploratory team is in communication and is paying attention to auctions and is talking to partners. These are areas where we will possibly invest, but this is still under negotiation and we have to wait for the end of these negotiations. We are reassured that this year we will be able to initiate one of the most advanced basins in terms of licensing process and this would be a first well. Carlos Travassos: So thank you very much Joel. So we have an additional question from Gabriel Barra about Braskem. According to there is a discussion regarding the cell of Braskem and some are interested in buying the control of a company. Could you give us the view of the management regarding the prospects for the oil sector and investment? Should this be a long-term focus for Petrobras, the petrochemical sector? As he’s facing technical problems, we will go to the next question and Sergio will answer the question about Braskem. Sergio Caetano Leite: Can you hear me? So thank you. Thank you for the question. Braskem is appearing in the media. The operators are questioning these proposals together with a partner. In our strategic plan, they mentioned the management of the company – I’m sorry, we’re having sound problems. I would like to apologize. We’re receiving very choppy sound. This is a business that makes sense for our company in the mid and the long run. Carlos Travassos: Thank you, Sergio. The next question from Bruno Montanari, Morgan Stanley and it’s for Schlosser. Regarding the company’s commercial policy, there are questions regarding market international reference with dispersion and parity accounts that go from 10% to 30% currently. Now, naturally each player has a cost structure which hinders the comparison. Now from the Petrobras system point of view, could you mention in average where the price of the company is when we compare to the marginal bands and the cost of the client? Claudio Schlosser: Bruno, thank you for your question. Here we have the opportunity to reflect on each one of the agents that perform in the Brazilian market. For instance, you are talking about a parity, the dispersion of the educators just demonstrates how the supply alternatives are different or can be different depending on the scale, infrastructure, logistic costs. And this is all reflected on the efficiency of this agent. And when they import certain byproduct in terms of Petrobras, we also have our own costs and productions opportunities and also the import and export fronts of oil or fuel. Our efficiency is significant because we’ve implemented this type of logistic. So when we implement this commercial strategy, we already incorporate within it all of these elements. These are the elements, these are differential, a competitive elements of Petrobras. So we have the best production conditions and logistic conditions. And this is one of the elements of our commercial strategy as a competitive price mitigating market volatility as we see currently as we mentioned. Now regarding the current positioning of the price, regarding reference marginal value, we cannot disclose this because we would expose data that is very sensitive for the company from the competition point of view. So this is it. Carlos Travassos: So thank you very much Schlosser. The next question is for you from Bruno Montanari regarding the commercial policy. Assuming that the independent importer is in competitive in terms of price, how can the company believe that the market will balance from here and due to the structural need to import diesel and gasoline? Can import – can Petrobras import with a competitive margins? What about Russian diesel with the company consider importing Russian diesel for the market? Claudio Schlosser: Well, now regarding the market balance, it is very important to remember that the greatest diesel importers and gas for Brazil are the distributing companies. They make up their mix with different suppliers nationally, international and this from different origins. This could be Russia. When we analyze the month of July, we can see that over 80% of the imported diesel by third parties to Brazil came from Russia. This is a product that presents certain restrictions from sanctions, but it has flown in the international market. Now from our side, we are meeting the commitments with our customers. We are optimizing our refining complex, broadening the use of our cluster and our logistic assets and complementing our national offering with very specific imports. Petrobras tries to operate – to optimize its operations of foreign trade to use its logistic capacity and analyzing the synergies of its assets with this what happens at the end of the line. With promising results is that we practice competitive margins regarding the margins offered by other players that are not integrated. So regarding opportunities import of Russian diesel, we are constantly assessing the risks and returns. As I said, there are particularities regarding the sanction and this is why we observe closely the sanction loss regarding Petrobras Global activities. So thank you, Schlosser. Carlos Travassos: The next question from Bruno Amorim from Goldman Sachs. And this is geared to Sergio regarding the dividend policy. The new policy was very clear, but this means that all no free cash flow will be for dividend payout and by batch, can you pay an extraordinary dividends at the beginning of next year due intend to draw the net debt of the company. Sergio Caetano Leite: Thank you for your question. In reality, our dividend payout policy is similar to our past policy. We’re have – they’re having problems with the sound again, can you hear me? Well, your audio is a little bit choppy. Well, unfortunately the sound of my laptop isn’t very good. As I said, the current policies anticipate the payout of extraordinary dividends. So yes, we expect to payout these dividends. The decision is going to depend on the technical analysis of the company in the short, mid and long run. And then the analysis of certain adjustments and now these adjustments will be concentrated at the end of the year when we have a general outlook of the results of the company throughout the entire year. Now, regarding the net debt, the financial that is dropping our debt is impacted by the charter, but it’s at a comfortable level regarding RPL [ph] and the levels are very, are according to what we expect in our strategic plan. But we also follow up. There could be a fine tuning throughout our next strategic plan. And thank you for your question. Thank you, Sergio. Carlos Travassos: The next question from Lilyanna Yang from HSBC. And she said, in this management, will Petrobras in take their investments to a new level? Can you talk about the strategic view regarding energy transition? Could you elaborate on the rationale in expanding investments in biofuel and negotiations with you Unigel? And when can we expect an announcement about complete strategic plan for 2024 between 2028? Now Tolmasquim and William have the floor in order to answer the question. Maurício Tolmasquim: I am going to start talking about energy transition and biofuels and then I will give it back to William that who will talk about fertilizers and Unigel and he will give us necessary information. So thank you very much for this question. There are three main reasons why Petrobras will embark in the biofuel business. Number one, will be that Brazil is one of the countries with the greatest amount of available land water. And so these three factors together, there are very few countries that present these three factors together. Number two, is that despite the electrification of a number of transportation means all the logistic of the country is for liquid fuels. So to use biofuel, well you leverage the existing logistic factor. Number three, is highly connected to Petrobras that is that we can use or we can adapt the existing refining units to produce this biofuel. So Petrobras has a comparative advantage when we compare it to other players, because these are adaptations of existing units and Petrobras has an excellent trajectory in all segments in highway transportation. It’s to put the vegetable oil in would be between 5%, 7% together with oil and this is produced through treatment. They produce diesel and therefore this is a patent from [indiscernible] from the research center. Then we have air transportation with the unit that is dedicated where you can only use vegetable oil and then you can produce fuel and there will be a major demand throughout the world as of 2027, because there is a mandate that all companies will have to decarbonize themselves as of this period. There will be SAF, there will be a worldwide demand for SAF and Petrobras has an advantage. Maritime transportation where we mentioned we are carrying out a experience of vessels that combine biodiesel to their – and we also have a biodiesel production and we produce the bunker and that there is an advantage here. And finally, the petrochemical industry, which is a major trend, how to pro – produce plastics. So there is a test that will be performed in the Rio Grande density refinery using bio oil and vegetable oil. Therefore, from the strategic point of view, if there is a country that has to embark in biofuel is Brazil. And if there is a company that has to embark in biodiesel in Brazil, it’s Petrobras, because precisely we have all the refining investments and therefore it is possible to adapt their – our refining unit. Now, I will give it back to William that is in charge of refining and he will talk about fertilizers and he will answer the question about Unigel. William França: So thank you very much Lilyanna. Thank you for your question. It is interesting when you ask this number one that the verticalization is important when you see how things compliment themselves. I’m talking refining, petrochemical and the fertilizing production – fertilizer production. So we are studying fertilizers. We are analyzing the return of the company to fertilizers. We are already working with a working troop coordinated by the officers in order to start up this. There is an advantage that it doesn’t need natural gas. It could use asphalt residue from Repar. So the refinery from Paraná compliments and lanza [ph] that is right beside the refinery. Therefore we are assessing the economic feasibility as you mentioned to start UFN-III, we have a work, this is a gas plant with 80% that is 80% mechanic. We are studying how we complete UFN-III Três Lagoas that will have capacity of 3,200 tons day of urea of ammonia. So we are also, we compliment – we, gas no where we have, we will have the production of lubricant using oil gas from Reduc. There’s a plant that will start in the middle of the year. And in this plant we will have a CO2 plus production. Now the CO2 plus this is rich in raw material to produce a ethane to polypropylene. We have a non-compete with Braskem [ph] but because of this Braskem is very important as Sergio mentioned. So it will be very important here due to the important, the size and the integration of Braskem with this process. So the integration with the refining industries is very important because they supply enough the natural gas, because of our refineries, are right beside our couplets like a Massad Rio de Janeiro [indiscernible] there is a strong integration with raw material petrochemical lubricants, and also fertilizers, well, where gas lube will have remaining of 2 million cubic meters of gas that we will be able to use for fertilizers as well for an addition integration for a Biofine plant using totally green raw material and producing biodiesel. Diesel are 100 and our SAF, our Sustainable Aviation Fuel, what is this? This is the use of a refined hydrogen with green raw material. We will carry out a test in November in the Riograndense refinery with Ultrapar and Braskem. This is a green refinery. We will have 2,000 tons of soybean in our catalytic cracking unit to produce green NAFTA and green propane. We’re talking about raw material that comes from renewable sources for petrochemical plants. And this will be successful. This is an international patents. We trust [indiscernible] and this will be the first totally green refinery in the country. So we are complementing petrochemical, biorefining lubricants, fertilizers, and refining. Thank you for the question. Carlos Travassos: Thank you, Tolmasquim. Thank you, William. And the next question will be asked by Rodrigo Almeida from Santander Bank for Schlosser and William again. After nearly three months of the new pricing policy being announced, what advances have you made in gaining competitiveness for the company considering the competition with Russian diesel? How are internal production costs and commercial costs changed with the increase in production? Is there any significant cost dilution? How has the company dealt with a higher production of products that have a limited demand in the domestic market? Claudio Schlosser: Rodrigo, our entire commercial work as its starting point, a planning process that is quite complex. It involves over a 100,000 variables, 40,000 restrictions. So it’s a very complex process, but what I can tell you is that I joined the company 36 years ago and our process was exactly that it was based on that foundation. And not only Petrobras, companies around the world are adopting this planning mechanism and it takes into consideration, for example, the production of each kind of oil per refinery per unit. And it also uses all of the logistics restrictions which are also placed there. And why do we depend on the model? What information do we get from it? As a final result, we optimize our refinement and logistics assets. So what we’re seeking are economic assessments for each of our operations and for each production alternative that we have, both taking oil to some refinery or exporting it. Similarly, following this planning model, we have different production fronts from all sorts of oil products. It analyzes changes in quality. So its entire goal is to find a more efficient process. So the utilization of our refineries and increasing production was supported by these economic assessments and they had a very positive result for the company. Considering costs as you mentioned, I would draw your attention to this. Most of the costs or the cost of the product sold is mostly including the entire business, a result of the raw material oil. If we add in the energy it takes for it to be produced, then it’s basically over 90%. So the dilution effect is basically in existence. So we don’t really take it into consideration in our planning and optimization plans. So in the operational plan, we don’t take this into account. A lot of it is connected to the bread I don’t know if William has any comments about this, but I’ll pass it over to him. William França: Thank you, Claudio. Yes, that was a good question, Rodrigo. Thank you. To add to what Claudio said, our refinery cost has a synergy across all of our refineries. Some of them have a higher cost due to their complexity location, and others have a lower cost. But since there is a synergy across all kinds of refinement, our cost is about $2 or $2.5 per barrel, which is quite reasonable considering our refinement. And even considering the last program to down style – downtime which increased our cost, we were able to keep that stability around $2 to $2.5 per barrel. And I’d also like to highlight this. We’re getting very good utilization factors around the level of 93% to 95%. In May, we had 95%. In June, we were able to stay at 93%. Obviously, this depends on planning as was said. So planning is what is going to define what load is received in each refinery, the different products of course. And obviously, we have availability, which is a significant factor. Looking at our systems, they have a certain maximum load, but we also have maximum loads that are adjusted and authorized by agencies. So it defines the maximum loads that we have with environmental agencies. So this is due to planning and we hope to work at 95 or even a bit higher, but of course it will depend under the pan demand of our logistics provider. Thank you. Carlos Travassos: Thank you, William. The second question from Rodrigo is from Sergio, and he asks about capital allocation. So Sergio, I’d like to understand if the additional project for energy transition being studied are influencing your minimal cash and your reference cash indications that you passed to us before. In theory, the company will conclude 2023 with cash levels above the indications that we have for the minimum and for the reference. And it would be interesting to learn a bit more about what will be done with this excess cash on the short term. Sergio Caetano Leite: Hi, Rodrigo. Thank you for that question. As I said before, we are at a very comfortable position in cash. We don’t have on the horizon any sort of radical changes to manage excess cash. And excess cash can be used to pay additional dividends. It can become additional dividends. If the administrators understand that that’s the best use for our capital. So thank you very much again. Carlos Travassos: Thank you, Sergio. Still on this topic. We got a question from Pedro Soares from BTG Pactual addressed to you. He would like to know a bit more about extraordinary dividend payouts. We know that this possibility is established in our payout policy, but we would like to hear from you if it would make sense to have a new statutory reserve to use resources to expand the company or if that doesn’t make any sense? And if there’s an extraordinary payout, will it only be defined when we receive results from the fourth quarter? Sergio Caetano Leite: Hi, Pedro. Thank you for your question. So some of it has been addressed in the previous answer, but yes, the extra results may be used for payouts extraordinary or additional payouts. But if a reserve is created considering what you said, since it doesn’t exist yet, it would need to be approved by an extraordinary shareholders meeting and we would need to have a justification for it but it is feasible. Connected to – but it needs to be connected to shareholders and their interests need to be represented? Carlos Travassos: Thank you, Sergio. The next question is from Monique Greco from Itaú BBA. And it will be addressed to Spinelli. So Spinelli, can you tell us a bit about the first impressions you’ve had since you took on this position? And if you can tell us what has been your focus in your office? Mário Spinelli: I’m Mário, thank you. Good morning and thank you for your question. I knew this office because I was an ombudsman for the company for nearly six years. So we have a governance system at Petrobras, which has already been robust but can be strengthened. Our compliance participates in decision making processes. So whatever decisions are received by the Board are examined by our governance department. And when it comes to compliance, we also have a very robust system and this is paying attention to new challenges. So in our compliance department, we have been looking at all acquisitions of sexual harassment in the company, which is very important even for our reputation. So we’re going to try to make compliance come closer to the business working with our managers. And similarly, it’s important to highlight that when we need to work with a more repressive initiative we just had the 10-year anniversary of the Anti-Corruption Act in Brazil. But you have to know that Petrobras is the company that most uses more – most enforces this Act that most punishes for corruption. Of course, we don’t want it to happen when it does – when it does happen we need to punish it. So over $90 million have been applied in fines to companies, there has been a volume of sanction applied to all levels of the government and Petrobras represent 21% of them. So I had the opportunity of working with this Bill, and I’m very happy to see how Petrobras is using it. And the most important part is that 61% of these sanctions or the initiative is being enforced by us, by our Directors. So identifying regularity was done by the manager itself, which shows that our compliance culture is being spread across the company. So these are some of our results and future challenges. Thank you. Carlos Travassos: Thank you, Spinelli. The next question from Monique will be asked to William. William, even with the maintenance carried out in the last quarters, the company has maintained high utilization levels for its refineries. Is there still some space to increase these utilization rates? And what would be the desired level for a refinery or for the entire refinery structure? William França: Well, I’ve answered a similar question to that, but I’ll add-in some information. We’ve been able to get very high utilization factors increasing availability. Carlos Travassos: Sorry, your microphone was closed, William. William França: So as I said, we have higher availability in our refineries considering our commercial and logistical plan, but there’s an essential factor here. We need to, well, we have good availability, but we have to ensure that all aspects are respected including safety, environment, integrity and that includes diversity. So we’ve talked about diversity before and we need to maintain the same levels. So we’re very happy to say that we have recordable incident rates in our refinery infrastructure of 037 [ph], which is the global benchmark. Of course, we can’t rest on those laurels. We know that SMS is a running truck. You always have to pay attention to the brake because if you let go, it will go down. So you always have to keep attention and respect all of the procedures that will ensure that your activities are done safely, respecting the environment, respecting people, their global health and with integrity. Okay, Monique so it’s very important to highlight that operational results are important, but they need to be done sustainably. Thank you for your question. Carlos Travassos: Thank you, William. We’re going to repeat Gabriel Barra’s question about Braskem to Sergio since he had a technical issue. Sergio, there’s a discussion on selling Braskem and some people are interested in buying it. So can you give us the management’s take on these investments in the petrochemical industry? Should this be one of the company’s long-term focuses? Sergio Caetano Leite: Gabriel, thank you. We didn’t get enough sound during the first part of my answer, but around May, we launched a review of the company’s strategic directives and this guides a new plan, which is ongoing. It takes one-year to generate these strategic plans, so it’s at the end of its conclusion. So with diversification for petrochemicals and fertilizers, this will allow us to look at petrochemicals differently. So it’s also important to see that major integrated companies have a strong position in petrochemicals. Petrobras has a strong stake at Braskem because we understood that petrochemicals were important to develop our business as a whole. So this integrion provides value and there’s a matter of long-term security here, since the long-term scenario is lower, margins for example, for gasoline. So we will require oil to be used in more noble purposes. So if you consider these three things that Braskem has a strategic compliance, allowing it to or determining it to diversify in the petrochemical industry. If you look at the medium- and long-term perspective and the importance for the resilience of our business, yes, we can consider that petrochemicals are very attractive and aligned to our long-term strategy. Thank you for your question. Carlos Travassos: The next question is from Luiz Carvalho from UBS to Schlosser. He’s asking for the national spread of gasoline on Brent was at negative levels. Other local products could export diesel at these levels, but from our understanding both points represent that the company is below the marginal price levels. So how do you understand this? Does this assumption make sense? Can Petrobras be below its pricing interval exporting for a marginal value? Does that make sense for the company? Claudio Schlosser: Thank you, Luiz for your question. This topic involves marginal values for Petrobras. So as a highlight – I’d like to highlight that this is the result of a complex operational plan, as we said before, involving different areas and the alternatives that we have to run our business. What I would add about to what has already been said is that basically refining is a joint process. So when you’re refining a bear of oil, you’re not producing a single product. You have a basket of gas products, and the relationship between them influences the marginal value of one to the other. So to summarize it for these reasons, the marginal values is not limited to exportation. It involves production, importing the products. So it cannot be only compared to exportation. And the other value that we have to highlight here is the mitigation due to volatility peaks in the market. We have a very volatile market. If we looked at the previous strategy, Petrobras would make these adjustments immediately for this volatility, and would provide stability for their clients. So we were able to overcome this moment and we’re still monitoring the domestic and international markets. And when we have to adjust the prices up or down, we will according to technical parameters in our commercial strategy. Carlos? Carlos Travassos: Thank you, Schlosser. The next question from Luiz Carvalho is for Sergio, and it asks about the strategical plan. Sergio, the strategical plan included diversification. Now, as the plan is being developed, what have been your focus in your internal discussions? Will you make more organic investments, or is there a procedural for mergers and acquisitions? How much diversification is the company considering 6% or 15% of the CapEx direction for low carbon? Would that also include these activities, petrochemicals, renewable developments, or should we see new investments in M&As? Sergio Caetano Leite: This range between 6% and 15% is specific for energy transition in the world. There is a business of low carbon actions and initiatives of low carbon. Today, 6% that we see in the CapEx, the use of 6% of Petrobras CapEx is US$4.4 billion. And it is used, and it is part of our way of operating internally, decarbonizing our operations. And this has been successful. We are amongst the greatest investors in decarbonizing the operations of oil and gas. Now it’s obvious that Petrobras has to recover a space that was left behind. We did go toward Scope 3 of decarbonization, and there is this range. We establish this rate between 6% and 15%, specifically for energetic transition, decarbonization of our operations and new investments. Any M&A that emerges in the area will fit within the range between 6% and 15%. It has to be within the range of CapEx allocation. Now for these new investments, Petrobras has decided the upper management has decided to embark in partnerships with big companies like Petrobras. Because we do understand that partnerships faster the accelerated – transference of a know-how, and they mitigate are – that is inherent, inherent. When you embark in a new business area, the company may consider an M&A or a certain acquisition as long as it is between 6% and 15%. But these M&As must meet a number of criteria strategic compliance, whatever is the M&A. It has to be accordance with our strategic planning. It has to be in compliance. We are not going to invest in transition for the sake of investing. The economic part is important. We need a return, we need a consistent cost structure. So dimension and a strategic compliance would be the main criteria that we take into account when we think about mergers and acquisitions. Carlos Travassos: Sergio, the next question from Régis Cardoso from Credit Suisse for Schlosser, it’s about fuel prices. Can we guarantee a country’s supply when there is high volatility and international prices? Could Petrobras be forced to increase it? Import levels taking to, although it can take it can result in economic losses. What is the share of Russian fuel in Brazil? Claudio Schlosser: Well, the Brazilian market is properly supplied, and there are a number of agents that work in this market. So in addition to Petrobras, there are other national companies. We have distributing companies, we have diesel and gas importers, independent importers, and even distributors are the main importers. And in addition, there is an alternative of biofuels. Now, when we talk about Russian diesel, there has been an evolution since the beginning of the year reaching values above 80% in July. And this environment results in great competitiveness. Petrobras six is a market share that allows us to use our assets, our logistics structure, and our refining as is creating value in a sustainable fashion and also part of our commercial strategy. Carlos Travassos: So thank you Schlosser. We have a last question that is for you for Rodolfo Angele, JPMorgan. In May Petrobras published a new policy prize seeing opportunity cost for clients and opportunities for Petrobras. How can the Russian diesel dynamic and the refining capacity will impact the second semester? Could you talk about the range of gasoline prices currently? Claudio Schlosser: So thank you, Rodolfo. I would just like to highlight the commercial strategy and its evolution. In the past there was a reference that was the price of import parity. Ours has been implemented, it is underway. We have two market references. One is the alternative cost of the client, and the other one is the marginal cost. The Russian diesel is an additional alternative for supply, and we already mentioned this now simultaneously, the essential part of our commercial strategy is volatility of prices. Nonetheless, we continuously are seeking the optimization of a refining assets and seeking other opportunities like import and the export of oil and byproducts to create more value for the company. Now, regarding margins and positioning because of the competition, we cannot disclose our position vis-à-vis the internal references, but we want to clarify that each agent has its own characteristics for production, for import. Here we have, we have a logistics system for supply and even with other alternatives. And this results in commercial strategies that are totally different from these agents with diversity, that results in a new dynamic for the market. So now I give it back to you. Sergio Caetano Leite: So thank you very much, Schlosser. So now we bring our Q&A session to an end. Should you have additional questions, they can be sent to our IR team. And the presentation of the event is available in our site. And in brief, we will make available the audio. Thank you very much and have a very good day. Follow Petroleo Brasileiro Sa Petrobras (NYSE:PBR) Follow Petroleo Brasileiro Sa Petrobras (NYSE:PBR) We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»

Category: topSource: insidermonkeyAug 5th, 2023

Natera, Inc. (NASDAQ:NTRA) Q2 2023 Earnings Call Transcript

Natera, Inc. (NASDAQ:NTRA) Q2 2023 Earnings Call Transcript August 3, 2023 Natera, Inc. misses on earnings expectations. Reported EPS is $-0.97 EPS, expectations were $1.09. Operator: Welcome to Natera’s 2023 Second Quarter Financial Results Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is […] Natera, Inc. (NASDAQ:NTRA) Q2 2023 Earnings Call Transcript August 3, 2023 Natera, Inc. misses on earnings expectations. Reported EPS is $-0.97 EPS, expectations were $1.09. Operator: Welcome to Natera’s 2023 Second Quarter Financial Results Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded today, August 3, 2023. I would now like to turn the conference call over to Michael Brophy, Chief Financial Officer. Please go ahead. Michael Brophy: Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our second quarter of 2023. On the line, I’m joined by Steve Chapman, our CEO; Solomon Moshkevich, General Manager of Oncology; and Alex Aleshin, Chief Medical Officer. Today’s conference call is being broadcast live via webcast. We will be referring to the slide presentation that has been posted to A replay of the call will also be posted to our IR site as soon as it’s available. Starting on Slide 2. During the course of this conference call, we will make forward-looking statements regarding future events and our anticipated future performance, such as our operational and financial outlook and projections. Tonhom1009/ Our assumptions for that outlook, market size, partnerships, clinical studies, opportunities and strategies and expectations for various current and future products, including product capabilities, expected release dates, reimbursement coverage and related effects on our financial and operating results. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to the documents we file from time to time with the SEC, including our most recent Form 10-K or 10-Q and the Form 8-K filed with today’s press release. Those documents identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward-looking statements. Forward-looking statements made during the call are being made as of today, August 3, 2023. If this call is replayed or reviewed later after today, the information presented during the call may not contain current or accurate information. Natera disclaims any obligation to update or revise any forward-looking statements. We will provide guidance on today’s call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. We’ll quote a number of numerical growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison. And now I’d like to turn the call over to Steve. Steve? Steve Chapman: Great. Thanks, Mike. As you can see, we had another very strong quarter. Volumes were up more than 23% versus Q2 of last year, with all products delivering strong growth. Revenues grew even faster, up 32% versus last year and 8% sequentially. We paired that revenue growth with continued COGS improvements to achieve a gross margin just above 45% compared to 39% in Q1. This, combined with stable operating expenses, led us to deliver another significant reduction in our quarterly cash burn. We were pleased to be significantly increasing the revenue guide this quarter to a midpoint of $1.025 billion, and we remain on track for our OpEx and cash burn reduction targets in the guide. We believe we are on track to hit all the financial goals we set for this year and beyond. We also continue to strengthen our leadership in data generation. In June, we attended the American Transplant Congress and unveiled key data from the ProActive trial, showing the value of our Prospera test in kidney transplant rejection. ProActive is proving to be a pivotal trial, and I’ll share some of those findings here shortly. In women’s health, we published the fourth paper from the SMART trial in the Journal Genetics in Medicine. This study was the largest prospective clinical validation of screening for sex chromosomal aneuploidies with NIPT. We were pleased to earn additional peer-reviewed recognition for SMART, further demonstrating the strength of our data and the clinical value of our Panorama test. In oncology, we crossed a key milestone in the quarter with the publication of more than 50 peer-reviewed papers. We also had a substantial presence at ASCO including readouts on key Signatera data in collaboration with some of the most well-respected healthcare institutions in the country. We shared excellent performance in the EMPower Lung trial demonstrating the utility of Signatera in lung cancer, where IO is the standard of care, which supports our on-market and reimbursed IO monitoring indication. And in CRC, we had key readouts from the GALAXY arm of CIRCULATE-Japan and the INTERCEPT trial from MD Anderson. Coupled with the completion of the enrollment in the ALTAIR trial, and several other prospective randomized studies underway, we continue building a robust platform to demonstrate the prognostic and predictive value of Signatera in CRC. Altogether, we think these trials continue to build a strong case for future NCCN guideline inclusion, which Solomon will cover later in the call. In terms of other key updates, we recently announced two very significant litigation results in our favor. First, a jury in Delaware reached a unanimous verdict in favor of Natera in the patent infringement lawsuit filed against ArcherDX and Invitae. The jury found that all of accused products, including personalized cancer monitoring used for MRD indication infringed three of our patents and that all three patents are valid. The jury also awarded a $19.35 million award in past damages including lost profits and a royalty of 10%. At a future date, a judge will determine whether to grant an injunction against ArcherDX and Invitae’s personalized monitoring MRD test. If that is not granted, we will ask the judge to award ongoing royalties at a rate higher than 10%. And second, we also announced in July, a favorable decision in the false advertising case brought by a competitor. The court reversed findings returned by a jury in March of 2022 and overturned the previous damages award, thereby reducing it from $45 million down to $0 [ph]. Great. So with that, let’s get into some of the business trends on the next slide. We had another strong volume quarter, growing more than 23% versus last year. This represents strong year-on-year growth across the business and another particularly strong Signatera quarter. We saw our typical trends in seasonality in process units in the women’s health business, where Q1 is usually our biggest quarter and Q2 is slightly down. This trend was amplified this year because we made a concerted effort this spring to reduce volume from some of the larger accounts that we’re not generating an adequate margin and didn’t have a clear path to improvement. Given our scale, we think that’s a sensible exercise, and we’ll continue to look for opportunities to improve women’s health product margins in the second half of this year. Having said that, we are still committed to the initiatives we discussed earlier this year where we’ve taken our lower margin volumes in exchange for future upside, which we’ll touch on later. Overall, in volumes, we’re in some very large markets that are underpenetrated, and we think there’s a lot of opportunity for growth. particularly in Signatera given the huge market size in the very early stages of penetration. Speaking of Signatera, the next slide shows yet another very strong year-on-year volume trend, almost doubling in size once again. Compared to Q1, we saw an acceleration in absolute units and the growth engine really continues to be in clinical indications where we have Medicare reimbursement. That trend was also apparent in the Signatera clinical ASP, which were once again well ahead of the schedule. Recall the Signatera ASPs were in the $500 a couple of years ago and that progressed to the mid-700s in Q3 and Q4 of last year. We were very pleased to be in the low 800s in Q1, and now we’ve progressed again into the mid-800s ASP range. At the same time, we’ve made some meaningful COGS progress on our tissue exome workflow and reducing supplier costs in some places, which further pushed up our gross margin for this product. There’s still more progress to be made, and Mike will get into some more details on the drivers of these trends later in the call. The volume, ASP and COGS achievements helped to drive our revenue and margin outperformance in the quarter. I’ll touch first on revenue on the next slide, which highlights our sequential revenue trends over the last five quarters. I highlighted the sequential trend from Q1 to Q2 of last year compared to this year. As you can see, we saw an acceleration of revenue growth between Q1 and Q2 of this year despite the disruption in the transplant business that we noted on the last call. The revenue growth was driven by Signatera clinical, pharma and women’s health, which Mike will discuss shortly in the call. Finally, on gross margins. This quarter, we had an excellent margin of 45%. This was amplified a bit with some onetime events. So on a normalized basis, we think margins would have been around 43% in Q2. This is a big step up from our 39% in Q1, and Mike will go over a few of the sustainable areas that led to our significant margin improvement later in the call. Our strong execution enabled us to overcome the negative impact that some of the bets we made where we took on lower margin volume in exchange for future opportunity. We believe these bets are on track. First, the California prenatal screening program volume is now largely shifted back to Panorama versus Vasistera, which has helped us on both margin and revenue. Second, we still believe there’s upside opportunity on expanded carrier screening as coverage improves in the future. And finally, of course, we believe in growing Signatera, despite it dragging down the margin. As Signatera margins improve, which they have been, the margin drag impact will reverse. While these still have room for upside with our strong COGS and ASP execution, we feel very good about continuing to deliver our strong gross margins around the middle of our guide range for the rest of the year. Okay, now let’s move on to women’s health. We now have more than 80 peer-reviewed publications in our women’s health business. As a reminder, one of those, the SMART study is the largest prospective NIPT study ever performed with greater than 20,000 patients enrolled across 21 global centers. All Panorama NIPT results included in the analysis were confirmed with molecular diagnosis as clinical truth. As I mentioned, the recent Genetics in Medicine paper is the fourth from the SMART study was published officially in May. This real world data confirmed Panorama’s excellent performance when screening for sex chromosome aneuploidies across over 17,000 pregnancies, and all screening results were validated with clinical outcomes. This is the largest prospective clinical validation study of NIPT for sex chromosome aneuploidies. In addition to this latest publication on sex chromosome aneuploidies, we also studied the performance of Panorama to detect common aneuploidies such as Trisomy 21. Our results showed a very high sensitivity and specificity resulting in a 95% positive predicted value for Trisomy 21, which is very strong. One of the most significant aspects of the SMART study are the results on 22q. The 22q results demonstrated a high prevalence for 22q of approximately one in 1,500, a high sensitivity and a low false positive rate of 0.05% resulting in a positive predicted value of 53% or approximately one in two. This PPV is excellent and as a comparison, it’s more than 10 times the positive predicted value of maternal serum screening of Trisomy 21, which is an approach ACOG still endorses. We feel the data supporting the performance in clinical utility of 22q screening is very strong. Shifting gears to carrier screening also in Q2, the FDA approved the first gene therapy for pediatric patients with Duchenne muscular dystrophy who have a confirmed genetic mutation in the gene. DMD affects roughly one in 3,500 boys causing progressive muscle weakness, heart issues, and breathing difficulties. One of the most important benefits of carrier screening is early diagnosis for conditions like DMV, so that families and doctors can prepare for and have the earliest possible access to treatments like the one that just got approved. Our Horizon carrier screen includes the option to screen for DMD along with many other conditions with treatments that are either FDA approved or currently in trials. So we think this strengthens the case for broad panel carrier screening where we think the clinical utility is strong with a positive ACMG guidelines supporting expanded carrier screening 2021 and a positive statement from the National Society of Genetic Counselors earlier this year. We are hopeful that these and other changes can allow us to help more patients and pave the way for improvements in reimbursement rates moving into next year. As many of you know, ACOG held their annual meeting in May, which led to the scheduling of two prenatal committee working groups, one in June and one scheduled for September. Based on that timing, we anticipate having more information later this fall on any changes to future guidelines. Okay, moving on to Oregon Health. Earlier in the year, we discussed the negative impact of the recent Medicare change and the change is now fully reflected in our guidance. As we said before, the impact was offset somewhat with our receiving heart reimbursement, and now that we’ve seen some of the lost kidney volumes come back as well, we think we’ve come out the other side well positioned. In addition, we’ve taken steps to realign the Oregon Health business where we are now in a position to drive volume and revenue growth while keeping our expenses stable. I wanted to start with a few key stats on clinical adoption and volume growth. On Renasight, which is our test for chronic kidney disease, we’ve continued to demonstrate strong clinical utility, including data that was presented at the National Kidney Foundation Conference in April. We’re looking forward to the publication of RenaCARE study, which we think can provide strong support going forward. In heart and lung, we’ve continued to have productive dialogue with our customers, including at the recent Annual Meeting of the International Society of Heart and Lung Transplantation. Thus far in 2023, 50% of the top 20 transplant centers have used Prospera Heart and 50% of the top 20 transplant centers have used Prospera Lung. In addition, the number of active users of Prospera Heart has nearly doubled in the past 12 months where the test volume has more than doubled. Of course, we were pleased to receive Medicare coverage and heart transplantation earlier this year, which provided some nice upside on reimbursement. We also look forward to the Prospera Heart data we expect will publish later this year from the prospective DTRT study sponsored by the NIH. In early June, we had a strong presence at the American Transplant Congress meeting showcasing the utility of Prospera and kidney and heart transplantation. This included three oral presentations and several posters in a symposium led by medical experts in the field. I’d like to spend a few minutes on the ProActive data that was featured. As a reminder, ProActive is a large prospective multi-site donor-derived cell-free DNA study in kidney transplant patients. The study has enrolled renal transplant patients from 54 participating centers that are being followed over three years. At ATC, we outlined several highlights from the interim analysis of the first 1,600 patients with 18 months of follow-up data. Importantly, the data demonstrates that Prospera Kidney is a leading indicator of rejection, predicting antibody mediated rejection up to four months, and T-cell mediated rejection up to two months in advance of biopsy. This evidence is impressive and highlights the value of Prospera as a tool for rejection that can provide early insight to graft health when used as an ongoing monitoring tool. This ProActive data bolsters recent sentiments from leading medical societies and organizations like the American Society of Transplant Surgeons and the European Society of Transplantation who have endorsed the use of donor derived cell-free DNA surveillance to rule out subclinical rejection. We look forward to publishing data from the ProActive study as early as the end of this year in sharing additional readouts in the future that we believe will help transform the current standard of care for kidney transplant patients. We think the evidence will help bolster the case for coverage of Prospera in the surveillance setting in the future. Now, I’d like to hand the call over to Solomon to cover our recent progress in oncology. Solomon? Solomon Moshkevich: Thanks, Steve. The oncology team had a great quarter with strong growth in test volumes and ASP improvements in our turnaround times, the publication of several new peer-reviewed papers and strong showing at ASCO with over a dozen posters of presentations. We were highly energized by the feedback at ASCO, particularly from clinicians who believe that now is the time to be implementing MRD assessment into routine clinical practice. This was a sentiment we heard a number of times during the conference, and we are seeing it reflected now in the volume growth as well. Let’s take a deeper look now at two key studies from ASCO. The first one I’ll cover is the EMPOWER-Lung 1 trial. This was a Phase 3 registrational trial sponsored by Regeneron, which helped to support FDA approval in 2021 of their immunotherapy agent cemiplimab for first-line treatment of advanced non-small cell lung cancer. Using banked samples from that trial, Natera measured ctDNA at three different time points, pre-treatment, week three of treatment, and week nine of treatment. The analysis validated the predictive nature of ctDNA dynamics in lung cancer patients receiving immunotherapy. Specifically, patients with an early increase in ctDNA had the highest risk of death and patients who achieved ctDNA clearance or a deep production of at least 90% had significantly improved outcomes. This study was well received as it was a focused assessment of IO monitoring, specifically in advanced lung cancer, and one of the largest data sets of its kind with 175 patients. With Medicare coverage already in place for IO monitoring across solid tumors including in lung cancer, we believe this data can help support broader adoption and perhaps broader reimbursement. As a reminder, non-small cell lung cancer is the largest patient population where immunotherapy is currently utilized with we believe upwards of 150,000 patients now eligible per year. The second study from ASCO we want to highlight is the INTERCEPT Study. INTERCEPT is an independent program of the MD Anderson Cancer Center, which integrates MRD assessment into routine clinical practice for all patients with resected Stage 2, Stage 3, and Stage 4 colorectal cancer, and if funnels patients into clinical trials if they test positive in the surveillance setting without radiologic evidence of disease. In this report at ASCO, the group shared analysis from over a thousand patients demonstrating the feasibility and utility of routine surveillance with Signatera. The two key findings were first of the patients with ctDNA detected during surveillance. Nearly half or 49% were found to have radiologic evidence of disease, though in many cases the diagnosis required reflex imaging with MRI, PET CT or biopsy, not just a standard surveillance scan. This created the opportunity for early intervention into metastatic disease before it became symptomatic, which is known to improve outcomes in CRC. Second of the ctDNA positive patients who were without radiologic evidence of disease, 59% were successfully enrolled into ctDNA guided clinical trials, gaining access to novel cellular therapies, cancer vaccines, and other novel treatments. This report is making waves in the GI community because it helps answer some key outstanding questions. Is there utility in ctDNA-based recurrence monitoring and what does one do with a positive result? This study indicates strong clinical utility enabling early therapeutic interventions for patients with metastatic disease, as well as enrollment into clinical trials, and it sets an example for the whole community in how to successfully adopt Signatera into routine practice. In the surveillance setting, we look forward to more data and insights from the INTERCEPT program in the future and to other leading cancer centers being inspired to replicate this model. Also in CRC, we completed enrollment in June for the ALTAIR trial. As a reminder, ALTAIR is part of the CIRCULATE-Japan platform, which includes three prospective arms as shown on this slide. First, the observational GALAXY study plus two randomized Phase 3 studies ALTAIR for treatment escalation in the MRD positive population and VEGA for de-escalation in the MRD-negative population. With ALTAIR, we aim to establish the utility of extended adjuvant treatment as well as treatment on molecular recurrence in MRD-positive patients. We know there is a significant percentage of MRD-positive patients who will not respond to standard adjuvant chemotherapy and who we believe may benefit from a drug called TAS-102. Given that TAS-102 is already approved for use in the metastatic setting when chemotherapy has failed. In the trial MRD-positive patients or randomized to receive TAS-102 or placebo after completing standard chemotherapy, it’s important to note that for anyone who was initially MRD-negative and who entered the VEGA trial, if follow on Signatera testing changes to ctDNA positive within two years, they can switch out of VEGA and get randomized into the treatment arm in ALTAIR. This may definitively show the benefit of treatment on molecular recurrence for CRC patients that are being surveilled with Signatera. We believe this trial will demonstrate how Signatera can improve outcomes for CRC patients with detectable ctDNA before it becomes evident on imaging. We expect primary results on ALTAIR to be available mid next year, and given the randomized nature of the study, we believe a successful outcome can be definitive and practice changing. ALTAIR and INTERCEPT should be considered in the context of Natera’s broader clinical roadmap in CRC one of our most important areas of investment. With the GALAXY study, we look forward to presenting updated data in an oral presentation at the ESMO Conference this October, now with disease-free survival data up to 24-months, and we are submitting our published data for review by the NCCN Committee. The work on these studies has been underway for many years with multiple readouts expected between now and 2026. We expect the results will continue to demonstrate both the prognostic and predictive value of Signatera and given the scale and quality of these studies, including upwards of 15,000 CRC patients across different settings of care, we think this pipeline creates a significant competitive advantage. We plan to follow the same playbook and multiple other disease indications, particularly in breast cancer. Our first study in breast cancer was the Coombes paper published in 2019, which helped us secure Medicare coverage for Signatera uniquely across all subtypes of the disease to achieve adoption. However, into practice guidelines and broader reimbursement from private payers, we believe we need to generate more evidence including additional high quality biobank studies as well as randomized clinical trials. For example, we have spoken before about the EBLISS [ph] expansion cohort. This will have three times more patients and five times more plasma time points than what was previously published with significantly longer follow-up beyond five years. We presented the results at ASCO in 2022 and looked forward to the publication of this expanded cohort. In addition, earlier this year, we published new data from the I-SPY 2 trial, which examined patients in the neoadjuvant setting before surgery. We’re now building on our partnership with the I-SPY 2 trial consortium, integrating the testing prospectively into their platform. The use of neoadjuvant treatment in breast cancer is growing in popularity, and there are several unmet clinical needs where we think Signatera can help. For example, can certain patients shorten the duration or skip chemotherapy altogether and proceed faster to surgery? Conversely, if a patient has rising levels of ctDNA, should they switch earlier to a different type of therapy? Across all of these settings, neoadjuvant, adjuvant and surveillance, we have multiple Phase 2 and Phase 3 studies in the pipeline across all subtypes of disease, but with extra emphasis in HR-positive HER2-negative disease. Given the size of that population, the only studies that have been announced to date are DARE and LEADER, which are ongoing, and which as a reminder are Phase 2 studies that monitor HR-positive HER2-negative patients in the surveillance setting and offer treatment on molecular recurrence. This clinical pipeline gives us multiple shots on goal in breast cancer and with co-sponsorship from our pharma and academic partners, the investments are efficient enough to work within our financial goals. We look forward to announcing more details in the future about all of these studies on this page. In summary, we believe the quality of our clinical data, the breadth of our Medicare coverage, the volume and speed of test adoption and the strength of our research partnerships will allow us to continue extending our first mover advantage in breast cancer. With that, I’ll turn it over to Mike Brophy to discuss our financial results and outlook. Mike. Michael Brophy: Thanks, Solomon. Okay, the next slide is just the standard results slide. These covered the volume and revenue trends and how we’re seeing strong momentum in each. Revenues were up significantly with the majority of the outperformance driven by growth in Signatera clinical and also pharma. We also saw women’s health revenues come in ahead of expectations, and that benefited in the quarter from a surge in carrier screening volumes we received late in Q1 and resulted out early in Q2, so we had those units in our Q1 test process number, but they were accrued as revenues in cause [ph] when we read the results out to patients results early in Q2, I’d estimate that to be about a $4 million revenue benefit in the quarter. Steve noted the excellent gross margin performance, and while we did have some one-time benefits in the quarter, we also saw substantial organic margin growth driven by COGS improvements, vendor renegotiations, continued Signatera ASP traction that we think can be sustainable and a shift in the Signatera mix to more recurrent monitoring units. It’s also worth recalling that we’ve intentionally penalized gross margins this year to pursue three core volume-based initiatives that Steve described earlier. We’ve benefited from volume mix shifting back to Panorama in California, but the other initiatives are not fully realized yet, so getting into the mid 40s gross margin at this early stage, I think is a very encouraging sign. Total OpEx was down slightly in the quarter compared to Q1, and the balance sheet remains very strong as we can see on the slide. All those trends contributed to another significant reduction in our quarterly cash burn, as you can see on the next slide. As Steve mentioned, we believe we are on track to reduce our annual cash burn this year by roughly $150 million. As we’ve discussed in the past, we’re driving these cash burn reductions as we get operating leverage of the commercial infrastructure we built up most recently in the oncology space. We continue to make significant investments in our COGS reduction activities, including switching our core women’s health products to more efficient sequencers and driving additional savings from improvements to our Signatera and carrier screening workflows. We saw another modest sequentially quarterly reduction in our DSOs versus Q1 as we continue to get more efficient in our revenue cycle operations, particularly for Signatera. I’ve described in the past how cash burn and DSOs can vary quarter-to-quarter, but we have seen a linear improvement in these last four quarters, so I think that’s good evidence that we are on track to reach cash flow break even in a quarter in 2024. Based on the volume ASP expense trends we’re expecting. As we said before, that forecast leaves aside any significant investment in early cancer screening. We remain on track to deliver preliminary data early next year. We’ll share that data with you before we make decisions on further investments. Okay, good. Let’s move on to our revised guidance on the next slide. As Steve mentioned, we are pleased to once again be raising the revenue guide for the year driven by stronger volumes and Signatera ASPs. Previously, the guide was $995 million to $1.015 billion and we’re now completely resetting the range so that the previous top end is now the bottom end of our guide range. Given the significant step up in Q2 revenue plus the one-time impact described above, I think the pacing for the year implies a stable Q3 with a larger step up in Q4 revenue. I think the gross margin results this quarter highlights that while gross margins will bounce around quarter-to-quarter, we think this range is clearly achievable on a full year measurement. We’re also modestly bumping up SG&A for the year to account, in part for some non-cash expenses incurred in the first half of this year, but total SG&A is still expected to be down versus 2022, and so accordingly, the cash burn guide remains intact, and we feel good about reaching our targets there, as Steve and I discussed. So with that, let me hand a call over to the operator for questions. Operator? See also 15 Cheapest and Safest Countries to Retire In and 12 Best Biotech ETFs To Buy. Q&A Session Follow Natera Inc. (NASDAQ:NTRA) Follow Natera Inc. (NASDAQ:NTRA) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] Your first question comes from Tejas Savant from Morgan Stanley. Please go ahead. Tejas Savant: Hey guys, good evening, and thanks for the time here. Steve, I want to start with the, the reproductive health business and gross margins. You talked about, California volume largely having migrated over to Panorama now and also the exit of certain accounts where there wasn’t enough margin upside. So, in light of that dynamic, why wouldn’t sort of 45% sort of be the floor for gross margins for the rest of the year? And does that sort of number contemplate the impact of bringing in exome sequencing in-house for Signatera as well? Steve Chapman: Yes, so I guess first I’ll say, we did benefit, from both of those, on a certain basis. But, I think as Mike mentioned in the gross margin, there were some onetime events, that I think accounted for, something like 250 basis points, that I think hit us in Q2, but won’t necessarily be there in Q3. So we do expect, margin improvement as the years go on. But I think, Mike, you might be better to kind of get into the details on this. Mike? Michael Brophy: Yes, so in addition to the California initiative pages, there was there’s two other big initiatives, right? One is, the growth in extended care screening volume that we described in the past couple quarters, and that that’s been really, we’ve had a had a big step up in volumes there and then also the strategy to continue to grow Signatera, and while the gross margin there is currently improving, it’s still, still dilutive to the kind of the corporate gross margin. So those two tend to have, what we think is a, as a temporary drag on gross margins. Now, we did some cost cutting beginning of the year to kind of make you net neutral on the EBIT line for that. But those are still kind of temporary drags on gross margin, but both, I think are pretty bullish signs for the future. So that’s, one out of three so far and we’re making good progress on the other two obviously. Tejas Savant: Got it. That’s helpful. And a quick follow up on Signatera, I think Steve; you talked about sort over 30% of U.S. oncologists ordering Signatera, now. Can you share what proportion of those accounts are still exclusively using Signatera for MRD and where, physicians are sort of dabbling across other providers as well? I mean is there evidence for sort of that sustainable first mover advantage is essentially sort of staying intact for you particularly, as other sort of competitors make a concerted push and does that some of the litigation that you guys mentioned here potentially delay sort of competitor entry into that market? Steve Chapman: Yes, that’s a great question. So we’ve seen continued growth in the number of accounts that are using us and particularly in the accounts that are using Natera in a sort of sustainable way. Our account retention rates have been very high, and I think that has to do with sort of the stickiness of the product. I mean once you do whole exome sequencing and set up a patient for MRD, it’s not going to make sense to go back and sort of redo the exome sequencing on that patient and set them up again for MRD testing. So I think we really haven’t seen any of the tumor-informed MRD companies out in the marketplace, if they have, it’s been on like an extremely limited basis. I think, of course, Guardant and the Reveal products are out there, we see them from time to time. We do know there are some accounts that sort of use both products, but there’s always going to be competition. And I think this is a very large market. And we think particularly in this setting, because of the stickiness dynamic that I described and because of the extensive leads that we have in peer-reviewed publications and coverage and just setting up our infrastructure, that the first-mover advantage is going to be incredibly important here. From the IP standpoint, as we’ve said before, we have a very strong portfolio of intellectual property related to cell-free DNA particularly in the field of oncology. And you’re seeing, I think, the first of those wins now with the suit that we described – the win that we described. And I think there’s other ongoing suits. If someone’s infringing on our IP, we intend to defend ourselves......»»

Category: topSource: insidermonkeyAug 5th, 2023

The Mosaic Company (NYSE:MOS) Q2 2023 Earnings Call Transcript

The Mosaic Company (NYSE:MOS) Q2 2023 Earnings Call Transcript August 2, 2023 Operator: Good morning, and welcome to The Mosaic Company’s Second Quarter 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. […] The Mosaic Company (NYSE:MOS) Q2 2023 Earnings Call Transcript August 2, 2023 Operator: Good morning, and welcome to The Mosaic Company’s Second Quarter 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Your host for today’s call is Paul Massoud, Vice President of Investor Relations and FP&A of The Mosaic Company. Mr. Massoud, you may begin. Paul Massoud: Thank you, and welcome to our second quarter 2023 earnings call. Opening comments will be provided by Joc O’Rourke, President and Chief Executive Officer, followed by a fireside chat and then open Q&A. Clint Freeland, Senior Vice President and Chief Financial Officer; and Jenny Wang, Senior Vice President, Global Strategic Marketing will also be available to answer your questions. We will be making forward-looking statements during this conference call. These statements include, but are not limited to, statements about future financial and operating results. They are based on management’s beliefs and expectations as of today’s date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release published yesterday and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures. Our press release and performance data also contain important information on these non-GAAP measures. Now I’d like to turn the call over to Joc. James O’Rourke: Good morning. Thank you for joining our second quarter 2023 earnings call. Mosaic delivered revenues of $3.4 billion, adjusted EBITDA of $744 million and adjusted earnings per share of $1.04. First, I’d like to discuss the broader agricultural market. Where fundamentals remain constructive, global demand for crops is very strong and supply is struggling to keep up. Geopolitical events are having a major impact. The war in Ukraine continues to restrict supply from one of the world’s most important agricultural regions. Last month, the UN Black Sea Grain Initiative collapsed and was followed by the bombing of several grain terminals. As a result, we expect Ukrainian exports of corn and wheat to be down by as much as 30% versus last year, which was in itself a down year. But conflict is only one part of the supply problem. Around the world, weather extremes are having a profound effect on crop production. North American yields this year could be negatively impacted by dry conditions and El Nino is hurting production across Southeast Asia and Australia. This situation is exacerbated by underapplication of nutrients, especially potash, which is crucial for drought resistance and crop resilience. To maximize yields and meet global consumption needs, growers need to increase cropping intensity, which will mean increasing fertilizer applications. The world can’t afford multiple years of underfertilization and crop production shortfalls. Today, China is importing record levels of soybean, wheat and beef. Roughly 5 million tonnes of China’s corn imports over the last 12 months were sourced from the Black Sea Grain deal. This is supply that must be replaced by other regions. The shortfall extends beyond China. Countries across Europe, Africa and Asia will need to replace lost Ukrainian supply. In India, the focus remains on food security and affordability. Recently, the government responded by banning the export of non-Basmati white rice to ensure adequate domestic supply. Constrained supply and strong demand will continue to put pressure on global stock use ratios, which are already at multiyear lows. All these dynamics together continue to support a constructive ag market. The strong ag fundamentals should lead to strong fertilizer demand for the next several years, and we’re already seeing robust demand in several of our key markets. Since the spring, improved affordability, channel inventory destocking and sustained demand for grain and oilseeds have brought customers back to the market. In North America, a strong spring application season depleted fertilizer inventories, which customers are now looking to replenish. Logistical constraints associated with low water levels on the Mississippi River and limited trucking capacity persist, but favorable grower economics are leading retailers to secure supplies early to avoid any backups. In Brazil, the market is beginning to move as we expected. Like we saw in North America, demand was deferred late into the typical window, but customers have returned to the market. In-country inventories are well below the levels seen earlier this year and growers are trying to secure tonnes ahead of the fast approaching Zafra season. In India, monsoon rains have been strong enough to drive grower demand for fertilizer. Phosphate imports are expected to be strong throughout the rest of the year. Switching to potash supply. Sanctions continue to restrict Belarusian exports. After a surge earlier in the year, rail volumes to China started to level off. We continue to expect Belarusian potash exports to be in the range of 7 million to 8 million tonnes, which is well below their historic 13 million tonnes. In North America, port terminal capacity has been constrained by multiple events. Repairs at Canpotex’s Portland terminal are ongoing and should be completed by the end of the year. In Vancouver, a 13-day strike resulted in a temporary curtailment of the Neptune Terminal, but work continues to finalize a new labor deal, and we hope this will be resolved shortly. Canpotex is making use of alternative ports in Canada and in the Southern and Eastern United States to mitigate some, but likely not all of the impact on international shipments. We expect constrained phosphate supply as well. Over the last several years, changes to China’s environmental policy led to the permanent closure of 25% of their domestic capacity. China is also focusing on food security by ensuring adequate domestic supply while also meeting rising industrial demand, both of which are expected to limit exports for the foreseeable future. Industrial demand, particularly in China’s lithium iron phosphate production, is expected to grow dramatically over the next several years. Last year, LFP production more than doubled to 1.1 million tonnes of finished fertilizer equivalent and production is expected to grow by an additional 500,000 tonnes in 2023. This new market will continue to take phosphate volumes away from fertilizer production. We expect China’s exports to be in the range of 7 million to 8 million tonnes this year or roughly 35% below 2021 export levels. Overall, the fertilizer market recovery is playing out as we expected. In a tight market, volumes are moving and prices are following. Phosphate prices have risen over the last month, while potash prices have stabilized and are now beginning to move higher. This sets the stage for a constructive second half of the year and into 2024. We believe our business is well positioned to capitalize on this recovery. Over the last several years, we’ve invested in our business to maintain our position as a reliable supplier to customers. In addition to the work we’ve done on our production assets, we’ve also invested in the infrastructure necessary to deliver that product. A few examples include the overhauling of our rail fleet, revitalizing our in-country distribution facilities and our purchase of the remaining share of golf sulfur services to secure logistics around our sulfur supply. These investments are integral to our results. In potash, sales volumes for the second quarter reflected the benefit of a strong North American spring planting season, while prices reflected the bottoming of the global market. Markets are improving, a trend we expect to continue throughout the second half of 2023. Over the last year, Mosaic has met demand by carefully managing production and inventory. We have built a flexible, low-cost system that’s able to capture market opportunities as they become available. Last month, we temporarily restarted our Colonsay mine to replace Esterhazy production, which is currently undergoing its summer turnaround. In the third quarter, we expect total potash sales volumes of 2.1 million to 2.3 million tonnes. This guidance reflects the results of a very successful summer fill program in North America, which was oversubscribed by 30%. We currently expect MOP prices at the mine in the range of $250 to $300 per tonne. In phosphates, we reported strong sales volumes in the second quarter. Our average realized price was at the high end of our guidance range, and our stripping margin benefited from lower raw materials costs. As we discussed last quarter, we are pushing ahead with increased investments in our phosphate business targeted at improving reliability. This may require short-term increases in maintenance like we experienced during the second quarter. Looking ahead to the third quarter, we have a solid order book with 70% committed and priced today. We anticipate total sales to be in the range of 1.7 million to 1.9 million tonnes and DAP prices at the plant in the range of $475 to $525 per tonne. In Brazil, we reported sequential improvements in our operating results. Our distribution margins are recovering, and we expect that trend to continue in the third quarter as Brazil demand moves higher. 90% of our third quarter volume is already committed and priced. Finally, I’d like to spend some time on our capital allocation strategy. Our approach has not changed. We remain committed to investing in our business, maintaining a strong balance sheet and returning capital to shareholders. In potash, an independent audit of the K3 mine and K2 mill expansion was recently completed, which verified a total nameplate capacity of 7.8 million tonnes at our Esterhazy potash complex. Esterhazy is now the largest potash operation in the world and certainly one of the most efficient. In addition to the underground optimization, we’ve also begun debottlenecking the K2 mill at Esterhazy by installing a new hydrofloatation process. This will add up to 400,000 tonnes of incremental production capacity with minimal additional operating costs. We’re investing $55 million in this project, which has an unlevered after-tax IRR in excess of 75%. In phosphates, we continue to move production away from commodity products and towards differentiated value-added products through the expansion of MicroEssentials capacity at our Riverview facility. Following the expansion, which is expected to be complete by the end of the year, about half of our North American phosphate sales volumes will be higher value specialty products. This is a $34 million investment with an after-tax unlevered IRR in excess of 50%. This expansion comes just ahead of next year’s launch of MicroEssentials Pro, which is the next generation of MicroEssentials. Our field trials in Brazil indicate that growers will see a yield bump on soybean acres of 3% or roughly 2 bushels per acre versus current generation of MicroEssentials. Against traditional MAP solutions, MicroEssentials Pro provides an 8% yield advantage or nearly five bushels an acre. The patent on the new formulation extends through 2038. We are very excited about the launch of MicroEssentials Pro, which builds on an already strong foundation of value creation for the growers, our customers and for our shareholders. In addition to higher-grade phosphate fertilizer, we’re also exploring entry into purified phosphoric acid for the lithium iron phosphate battery market. Our initial work has validated this opportunity and together with constructive and developing discussions with OEMs and battery manufacturers, our Board of Directors has approved an additional $60 million to commence engineering work on a commercial plant. In our Mosaic Fertilizantes business, we’re building a 1 million-tonne blending and distribution facilities in Palmeirante, in the state of Tocantins in Northern Brazil. We currently don’t have much presence in this region, so the facility will extend our distribution footprint into an attractive high-growth area. This is an $80 million investment with an after-tax unlevered IRR in excess of 20%. In total, our capital spending expectations this year remains unchanged at $1.3 billion to $1.4 billion. Our balance sheet is strong. During the quarter, we entered into a $700 million credit facility, which gives us additional flexibility to manage our capital. Our final focus is on capital return to shareholders. All excess cash will be returned to shareholders through dividends and share buybacks. Year-to-date, we’re ahead of our target. Over the last 18 months, we’ve repurchased 15% of our float and believe our shares still represent good value. Our regular dividend today is $0.80 per share, and our business positions us to consider further increases over time. To sum up, Mosaic continues to demonstrate the earnings power and resilience we have created over the last several years. Our second quarter results were strong despite deferred fertilizer demand in many markets and our outlook for the remainder of the year and beyond is quite positive. The world’s farmers have strong incentive to maximize crop production and meet global food demand. Fertilizer is critical to their success, and Mosaic will continue to meet that need. Paul Massoud: Thanks, Joc. Before we open the lines for live Q&A, we’d like to address some of the most common questions that came in last night. Our first question is on our guidance. With fertilizer markets turning higher in the last few weeks, is there conservatism in our outlook? What are we assuming in our volume and price ranges for phosphates and potash? James O’Rourke: Thank you, Paul. In potash, our volume will be dependent on the ability to ship internationally. With the continued labor unrest following the 13-day strike in Vancouver and the ongoing repairs at Portland, our export capability may be limited. But the midpoint of our guidance range is in line with our historic average, which tells you how strong the North American demand has been this summer. Demand has been very strong with our summer fill program oversubscribed by 30%. Phosphate volumes could also see some upside given the strong global demand, but we’re limited on inventory. We expect production to be higher sequentially, so there is some opportunity to exceed our current guidance range. On pricing, 70% of our Q3 order book is committed and priced. Depending on how the rest of the quarter plays out, there is an opportunity for price upside. But much of that would get realized in the fourth quarter, where we have more unpriced tonnes. Paul Massoud: Joc, our next question is on Brazil. Fertilizantes’ recovery appears to be slower than some had expected. Were there any major surprises in the second quarter? And how should investors think about that business in the second half of the year? James O’Rourke: Thank you, Paul. Weaker pricing affecting our production business and demand deferral due to grower liquidity issues extended longer into the second quarter than we had been anticipating. But the market did eventually turn. And at today’s prices, the [indiscernible] ratio for beans is very attractive, which is driving farmers to secure supply for their Zafra season. Our distribution business posted a sequential improvement in quarter two, and we see that trend continuing into the second half of the year. Second half distribution margins are expected to be at the high end of our targeted range of $30 to $40 per tonne. In production, second quarter results were impacted by unplanned outages at Uberaba and Araxá. Those issues are behind us, so we expect higher volumes in the third quarter. The other issue in our production business was working through higher cost inventories of sulfur and ammonia, which we now expect to be lower in the third quarter. Overall, with high-cost finished product destocking and distribution now complete and Brazilian operational issues behind us, the business is very well set up for Brazil’s busiest quarter of the year. Paul Massoud: Joc, our next question is on Colonsay. What was the rationale for Colonsay’s restart? Is market demand now strong enough to keep it running after Esterhazy’s turnaround is complete? James O’Rourke: Thank you, Paul. Yes. Colonsay will be needed for the foreseeable future. Over the last year, we have met potash demand by carefully managing production and inventories. In quarter two, strong demand in North America resulted in approximately 300,000 tonnes of inventory drawdown with Esterhazy’s planned summer turnaround and a very successful summer fill program, Colonsay tonnage is required to meet our customer expectations and needs. At present rates, Colonsay must run approximately five months to replace the one month Esterhazy maintenance turnaround. With strong demand in North America and a rebounding international market, the main determinant to future volumes will only be limited by export logistics capabilities. Paul Massoud: Joc, the last question that we want to address is on capital allocation. Is Mosaic still committed to returning all free cash flow to shareholders? James O’Rourke: Our commitment to return all of our free cash flow has not changed. Though to reiterate, that is a commitment to return cash flow over time, not a quarterly commitment. Returns will vary from quarter-to-quarter based on the seasonality of our business and internal capital needs. However, keep in mind, year-to-date, we have returned in excess of 100% of our free cash flow to shareholders. Paul Massoud: That concludes the fireside portion of our call. Operator, could you please open the lines for the live Q&A? Q&A Session Follow Mosaic Co (NYSE:MOS) Follow Mosaic Co (NYSE:MOS) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Steve Byrne of Bank of America. Please go ahead. Stephen Byrne: Yes, thank you. Joc, I’d like to hear your view on what you think is an appropriate potash price in the market right now, given, as you highlighted, the reduced production at Belarus, you got tight inventory levels in most of the world, lower nutrient levels in much of the soil and yet you’re expecting pricing in the high 200s mine gate. Does that seem appropriate to you? Or is there something that’s causing potash pricing to be weaker than maybe we would have thought. Some second tier pricing out there that’s coming from perhaps Russia or Belarus, is there some of that, that’s causing this? James O’Rourke: Steve, it’s a really good question. And I think you have to start with the after effects of last year where I think in some key markets, there was panic and then overpricing and then the reflection or the shadow of that was a complete walk away from the market by farmers. We talk about a potash holiday or whatever. I think as we move into particularly this third quarter, I would say that we have probably overcorrected significantly to the downside now based on basic facts. The market is not going to be demand limited. The market is definitely going to be supply limited in potash. Our expectations from the former Soviet Union, Belarus, we’re expecting it to still be in the range of 7 million, down from — 7 million to 8 million, down from 13 million. The Russian producers themselves are down as much as 4 million to 5 million tonnes this year. So I definitely think that mine gate prices are probably arguably at least $100 below what they could easily move to in probably the near term. So do I believe the prices are appropriate for where we are today? No. But at the same time, I will reiterate that from a first perspective, the volumes have to move. Those volumes are now moving and they’re moving strongly. Brazil is moving strongly as we move into Zafra. Our North American fill program is extremely successful. We’re starting to see not only volume move, but price move in China. India still has its problems, but I think that they need product. So I think all of those things lead to a very strong rebound, and I’m hoping it doesn’t create too much of a rebound that it can’t happen in a more orderly way. So overall, I would say — the fundamentals point to something that should be quite bullish. Operator: The next question comes from Joel Jackson of BMO Capital Markets. Please go ahead. Joel Jackson: Good morning, Joc and team. On phosphates, could you talk a little bit about in your release, your comment that says for phosphate in the third quarter, you expect margins will benefit from lower raw material costs in the third quarter. So does that imply that you think third quarter phosphate margins will be up sequentially? And then just in general, phosphate rock costs have been higher for several quarters. Should we expect that to continue? When would phosphate rock costs, maybe, go back down to more normalized ranges? Or is it near normal? James O’Rourke: Okay. Thanks, Joel. So assuming the phosphate prices hold, clearly, lower raw materials prices will result in a better margin. And we see actually a divergence. We’re still seeing the — at least the sulfur prices has remained low and has gone to even lower. Ammonia, on the other hand, is starting to tighten up a little bit. So we might expect ammonia to be flat or even up a little bit over the rest of the year, depending, obviously, on markets. But overall, we think that raw material costs will help our margins this year or this next six months. And what we’re seeing is we’re seeing price movement. Jenny, do you just want to clarify price movement on phosphates, particularly, I guess, Brazil right now? Jenny Wang: Yes, Joc. Phosphate price changed well, moved up towards since beginning of July. In North America, DAP and MAP price moved up over $50 per tonne and Brazil followed over the last few weeks as well. And we should see the price upward impact not only in Q3, but also into Q4. James O’Rourke: And the second half of your question or the second part of your question was the rock cost in mining. And I guess there’s a couple of issues within mining that are relevant. Our new area we’re mining in four corners. We have run into — which isn’t surprising. As we start a new area, we run into variations in the rock quality and the rock and what we’re running into as we mine. And then in South Fort Meade, we are running into — we’re in a new area in the eastern extension of that mine. In both those cases, we — in the second quarter, we were moving into new areas. So as we get into the new areas, and we’re in the main ore bodies, we expect those costs will come down as the grade and the ease of mining increases. Operator: Next question comes from Richard Garchitorena of Wells Fargo. Please go ahead. Richard Garchitorena: Great, thanks for taking my question. Looking at the slides, when you look at global shipments, it looks like you took your potash shipments down as well as phosphate assumptions for the year. Just wondering, is that a function of the limitations you’re seeing upon the port level, demand, you’re talking about strong demand in North America as well as in Brazil. And then just what’s driving the reduction on the phosphate side as well? James O’Rourke: Thanks, Richard. In terms of our phosphate volumes, if we look at the first half, they’ve probably been a little lower than what we might have expected. The markets have been good. The limitation has probably been, in general, starting inventory at the start of the year was low, and then we’re running, I would say — hand to mouth would be the way to say it. So every ton that we make is going straight to market. And that means if you’re — if anything — any hiccups, you have — you get delays. So it puts risk on the timing for particularly the end of the year. So on that — in that case, I think the market is strong. We’ll be — whatever we can produce, we’ll be able to sell. In potash is exactly what I said earlier, which is the logistics constraints, particularly for our exports will be the main limitation. Operator: The next question comes from Christopher Parkinson of Mizuho. Please go ahead. Christopher Parkinson: Great, thank you so much. Just on the potash rock cost, just given the shift in mine mix, at least temporarily towards Colonsay versus Esterhazy. How should we be thinking about the cash costs during the second half of ’23 based on your projected operates? And then any preliminary views once Esterhazy back up and presumably Colonsay stays back online. Just what would be kind of the normalized run rate that we should be considering into 2024? James O’Rourke: Yes. Thanks, Chris. If I think about this from a macro level, if you will, which is probably the easiest, I think the cost at Colonsay — cash cost at Colonsay. So we’ll look at those with the way we’re running are probably coming in $30 higher than Esterhazy. So for the one month of Esterhazy downtime that we’re replacing in the, say, the next five months of Colonsay running, that incremental 100,000 tonnes a month will be at a $30 increase in cost. Again, highly profitable still. And again, part of the — our thinking is always we want to be selling a highly profitable tonnes. So — but once Esterhazy is up and running, and again, Esterhazy will be up and running probably in a month after we finish the maintenance turnaround. And then we’ll be looking at continuing to run Colonsay because we’ll need to make up that tonne plus the — sorry, the tonnes from a month of downtime in the Esterhazy complex plus the 300,000 tonnes that we — we didn’t start up Colonsay until we absolutely had to. And that was the time we absolutely had to. So it will run for a while. And during that time, 100,000 tonnes a month will come out at a $30 higher cost than probably what our average would have been prior to that. Operator: The next question comes from Edlain Rodriguez of Credit Suisse. Please go ahead. Edlain Rodriguez: Thank you. Good morning everyone. Quick questions on potash shipments again. You have it at 62 million to 65 million tonnes. Like do you see it going back to that 70 million range over the next year or two? And part two of that same question, part of the reduction was due to fewer tonnes out of Belarus and Russia. Like why can’t the other producers ramp up to replace those lost transform Eastern Europe if the issue is not lower demand? James O’Rourke: Yes. Thanks, Edlain. Again, I just want to reiterate, the 62 million to 65 million tonnes is not demand-driven this year. It is supply driven. I’m going to give over to Jenny to just walk through the details. But let me say, the market was low to start at the start of the year. So there were constraints in terms of a slow start to Brazil, a little bit later, China contract or whatever. And so it took some time to get product really moving this year. But as we go through that, like we said earlier, the limitation is going to be logistics. And I think what will allow the other producers to make up the gap is going to depend on if you can actually move it. I would imagine that most of the other producers or most of the other sources other than maybe Canpotex are actually supply limited. And Canpotex is likely going to be logistics limited. But Jenny, do you want to just go through the supply and demand balance? Jenny Wang: Yes, I think you covered well on the supply side of the limitation from Belarus and Russia earlier and also the limitation on the logistics side for the Canadian producers. On the supply side, we are seeing a wide range of recovery in the global market, firstly, laid by the North America market. We are saying North American potash demand are growing back by 20% or more this year versus last year. So this has been proven from a strong spring application and a very strong summer field program. We’re seeing the rebounding of the demand in Brazil as well and also similarly to the other Latin American market. How this demand is going to recover this year even greater than our current estimation, which is 64 million tonnes, it is really supply driven. So back to your question when we will see this number — a shipment number to go back to 70 million tonnes? Probably next year, the supply is unlikely going to go back to 70 million tonnes. We are forecasting in 2025 when the FSU producers’ shipment could be recovered back to pre-sanction and that number might be achieved. So once again, the shipment for potash at a global level is really constrained by supply. James O’Rourke: Yes. Just to reiterate, and I think this also answers part of where Steve Byrne was coming from earlier. Until there’s a resolution of the Ukraine war and until there’s a resolution of the Belarus sanctions, this is going to be a supply-constrained market. And I don’t think any of us can really say when either of those issues are going to get resolved. Operator: The next question comes from Andrew Wong of RBC Capital Markets. Please go ahead. Andrew Wong: Hey, thanks for taking my questions. Just a question on Esterhazy capacity figure. What does that mean for your normal operating capacity? Does that mean if the mine just can produce a lot more than what it was doing previously? And what does that mean for the Canpotex allocation? James O’Rourke: Thanks, Andrew. Well, first of all, let me say the way that the nameplate capacity, if you will, is determined, is an independent audit with a short run to demonstrate that the unit operations are capable of the design. So that is complete. We are now working with Canpotex to figure out what that means from an allocation perspective. And we’ll update you on that when that is complete. In terms of the actual operating rate, you have to remember that, that is the — I’m going to call it a peak capacity. There would be a — probably a further — you’re not going to run that every day and then you’re going to have your yearly downtimes and stuff like that. So it’s a theoretical number. We’ll run Esterhazy probably reasonably hard, but I wouldn’t expect it to run at those rates. I would down rate it from that. Although once we put the new hydrofloat process in place, it may well run over 7 million tonnes. Operator: The next question comes from Vincent Andrews of Morgan Stanley. Please go ahead. Vincent Andrews: Thank you. Good morning everyone. Just a quick clarifying question would be, one, Joc, did you say that Colonsay you anticipate just sort of running for — until you make up for the — what you’re losing, having Esterhazy down, then you intend to probably turn it back off? Or is your intention to keep it running perpetually? And then my real question is whether you could talk about the MicroEssentials Pro product a little bit more and just help us understand how you’re going to price it versus that incremental yield value you talked about? And then over what period of time do you think MicroEssentials 2 replaces MicroEssentials 1 and how we should be thinking about all that? James O’Rourke: Yes. Thanks, Vincent. Yes, let me start with Colonsay. For now, Colonsay needs to run to reestablish our inventory levels to where they would have been previous to the Esterhazy shutdown. As you’re well aware, these operations shut down pretty much every summer in Canada. So we’ve managed our inventory such that we don’t have a bunch of excess coming into the summer. And so now we’ll run Colonsay first to fill that, then to make up the gap of what we had in extra we had in Q2 and what we’re seeing for the summer fill in Q3. So I would say for the foreseeable future, we could see Colonsay running. But again, I’m not going to run an operation for the sake of running it. We’re going to manage our inventories, managing our working capital carefully, and part of that means using the production capacity at Colonsay to manage that function. In terms of MicroEssentials Pro, and as I said earlier, this is a pretty exciting piece of progress. First of all, the very fact that it takes the patent level out to 2038 gives us a nice protection for a long time. But equally exciting is it appears that what we’re seeing is real agronomic benefit. And we don’t have a pricing strategy or an implementation strategy, a launch strategy quite finished out yet. But I will say our philosophy has always been that we would share the benefit from the new products basically equally between the grower, i.e., the farmer, the retailer who is selling it and ourselves. So our pricing strategy will be such that we can do that. And again, the economics should be fairly strong because the gain is fairly strong as it was for MicroEssentials. Operator: Next question comes from Josh Spector of UBS. Please go ahead. Joshua Spector: Yes, hi. Thanks for taking the questions. So I just wanted to ask it within potash, when you’re talking about making up most of the disruption within the logistics in Canada to get material out. I assume that’s going to have a higher shipment cost. So one, I’m wondering, can you quantify roughly how you’re thinking about what that could be? And two, is that a cost that you would have to eat? Or is it something that you can get potentially buyers to kind of back in on? I assume it’s going to impact your cost structure, but I want to clarify that. James O’Rourke: Yes, Josh, thank you. We are using both New Brunswick and Thunder Bay and looking at even some Southern U.S. Gulf to move the product. And obviously, those come with higher prices. I can’t give you the exact, as we would, those flow through Canpotex, which is a marketing organization that we use. And it doesn’t — what we talk about when we talk about our mine site return incorporates those extra logistics costs. So it’s very much dependent on which country or which market these are going to, it depends on whether it flows through, like I say, New Brunswick. But yes, you can assume there will be some extra costs whether the buyer will absorb those costs or ours is really a supply and demand issue rather than a — we don’t price per se, we follow a global market, and we have to take what the global market gives us. So in a sense, we’re a price taker. So if the market is tight and supply and demand drives price up, we’ll absorb — those will absorb the expenses. If the supply and demand is not, then probably it will come to the suppliers. But we think the market is tight. So we think that, that probably gets absorbed by the end user. Operator: The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead. Adam Samuelson: Yes, thank you. Good morning everyone. Yes. I was hoping to maybe dig in a little bit more on Brazil and Fertilizantes and maybe just try to calibrate on the production side. Certainly, you gave some — a clear view on the distribution business. But as I think about profitability improvement in the second half on production, can you just help maybe dimensionalize the benefits that come from the lower inputs that you’ve been buying that can finally flow through the P&L size, maybe the conversion cost improvement or rock cost improvement that comes from operations running more efficiently? And is there anything to think about from a product mix perspective, if competition on TSP and SSP has maybe been more kind of intense than MAP that might be influencing your realized price and sales mix? James O’Rourke: Yes, there’s a lot to digest in that one. I might just throw it to Jenny and ask her to talk a little bit about raw materials pricing and some pricing strategies and what we see with competition, particularly on the different grades in Brazil. Jenny Wang: Yes. So you’re right that in Brazil, we sell our phosphate product. We do have the competitions on TSP and SSP and similarly to MAP. Over the last few weeks, we are seeing the price rebound across the whole portfolio of phosphate. So therefore, the price increases that which is much more visible for MAP, that is actually the same for TSP and SSP. So we are going to see a higher price for all range of the phosphate products that we’re going to sell in Q3. On raw material prices, similarly to the raw material prices lagging in terms of the reflection in our margin, the lower-priced sulfur and lower-priced ammonia is going to take time to really be reflected in Q3. We will see a lower cost of sulfur and ammonia. But in comparison with the market benchmark, probably the speed of that comparison probably going to be a little bit lagging. James O’Rourke: Yes. Thanks, Jenny. Operator: The next question comes from Aron Ceccarelli of Berenberg. Please go ahead. Aron Ceccarelli: Hello, hi. Good morning. I have one on potash imports in Brazil. First half industry figures suggest that inputs in Brazil were down 10% year-over-year after being down in ’22 around 10% again. So this would — if this trend continues would put Brazil potash imports at around 10 million tonnes, which should be a reasonably low level. So maybe can you comment on the behavior now you see from farmers in Brazil and how you see demand picking up over there, please? James O’Rourke: Thanks, Aron. Yes, in fact, Brazil imports have been lower this year. And we — and last year for that matter. If you look overall, there was a buildup of inventory in Brazil because actual application last year was — particularly in the second half of the year was quite low as prices probably drove that. But potash imports have been lower. We’ve actually lowered our expectation for overall Brazil fertilizer use too, I think it’s 42 million tonnes now, Jenny. Thank you. 42 million tonnes from what was probably peaked at about 46 million tonnes a couple of years ago. So you are down a good 10% on overall fertilization. The one thing I want to highlight what that means, though, is it doesn’t — I don’t think that’s indicative of a decreasing market per se because Brazil has had very good harvest and Brazil as a tropical depleted soil needs to fertilize every year. So Brazil double crops. In other words, it takes two crops a year off that land every year. So the carryout of fertilizer in the crops is high. And they have to add that fertilizer back every year. They have not been doing that for the last two years. That will not continue without having some sort of agronomic impact on yields. Jenny, do you want to just talk about that a little bit of the Brazil market and the balance? Jenny Wang: Yes, I think you covered it well, Joc. I just want to say for potash, overall shipments last year reduced by 10%, you’re right. And this year, we are actually saying the shipment — total shipment in country, it’s probably going to be flat, and we do see the potential upside in the rest of the year. So I just want to reiterate, if the potash or other nutrients are under applied in that kind of a market, you will see the yield impact and the Brazilian farmers, they know that very well, and that has been reflected in the very recent buying activities. Operator: The next question comes from Jeffrey Zekauskas of JPMorgan. Please go ahead. Jeffrey Zekauskas: Thanks very much. As your potash prices have come down, your Canadian resource taxes have also come down? Is there a way to gauge what Canadian resource taxes are going to be over the next couple of quarters or into next year? James O’Rourke: Yes. Thanks, Jeff. I’m looking curiously at my partners here to see if anybody has a good answer to that. That’s probably a little more detail than I have off the top of my head. I mean, yes, I’m not — I don’t have a forecast detailed enough to kind of give you an answer to that. We can get back to you probably. That’s probably the easiest. But you’re right, it definitely does come down as it’s been quite significantly down from where the prices were earlier. So — but I apologize, I can’t give you much more than that. Clint, if you got any detail that you could add? Clint Freeland: Yes. I would just say one of the factors in that — one of the key factors in that is around price. And so I think it’s going to track or follow kind of what your price expectations are. I think from a percentage or a margin standpoint, it should remain fairly similar, but again, I think it will follow your price expectations as you go forward. Operator: The next question is a follow-up from Steve Byrne of Bank of America. Please go ahead. Stephen Byrne: Yes, thank you for letting me back in here. I was just curious about the difference between those two versions of MicroEssentials. And was that yield benefit demonstrated by some land grant universities that you can back it up with? And when do you think you might have Versions three and four. And so forth that might have some biologics in there for your collaboration with BioConsortia? James O’Rourke: Well, Steve, I was going to say welcome back. We’ve missed you. Yes, there’s — so the big thing we’re talking about really in the new generation of MicroEssentials is what we’re calling a swellable granule, which means the granule is actually able to kind of control the release and increase the release of the key components. And so it’s a coding and how we actually make the product. But the key issue there is it’s making both the sulfur and the phosphates more bioavailable — and the micronutrients more bioavailable to the plant at the plant root. So that’s kind of the layman’s, which is probably as good as I’m going to get for you. But the layman’s terms for what this product is designed to do. Now the field trials we’re doing, we’re working, again, on our own. We normally do field trials with, think, groups like the University of Illinois at their Champaign campus and on our own and with our customers and in Brazil. So we do them over a number of places. Again, as a producer and we can’t afford to introduce a product that isn’t well proven and doesn’t give good results to the grower. So we’re pretty conservative on how we do that and how we introduce these new products. But it has been in the works for a few years. And now with the patent in place, we feel comfortable we can start introducing it. It is well trialed and we’ll continue. I think there’s another season of trials that will go next year, et cetera, et cetera. In terms of the biologics, yes, we’ve been working on trying to see what biologics might be. I think that’s a little further off in the future. It is an exciting new area, again. But we really don’t want to stick our neck too far until things are really proven. So watch this space, and I think there will be new stuff in the future. Operator: The next question is also a follow-up from Edlain Rodriguez of Credit Suisse. Please go ahead. Edlain Rodriguez: Thank you. Yes, so just — I mean, just a follow-up on the potash shipments question again. I mean you’ve made it clear that the market is supply limited. That’s fine. But you want to say for the fact that Colonsay will remain operational for good. Like doesn’t the market need that supply? James O’Rourke: Yes. Thanks, Edlain. Yes, for clarification, from an actual supply and demand perspective, I agree with you 100%. All of our production is likely to be required in the market, like I say, at least for the near term, we have to do two things. We have to be able to move it out, which right now has been a little bit restricted. If you think there was a 13-day strike in — at the Vancouver port. So all of these stock workers were off and I think there’s a new ratification vote on Friday, but they’re right now in labor negotiations. But even as you come out of this, the time it takes to make the system fluid again, will probably be over a month. Our main carrier to the West Coast Canadian Pacific has said it will take at least a month to get that system fluid again. Remember, it’s not just potash, it’s not just fertilizers, it’s — there’s coal, there’s grain and everything else that moves through that port and then there’s a big intermodal as well. So the pressure on the port and the rail system if it’s shut down is pretty substantial and pretty substantial to overall the Canadian economy. But in terms of us, we need that. And if the market comes back and stay strong, no question in my mind. We would love to see Colonsay run for a long, long time. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Joc O’Rourke for any closing remarks. James O’Rourke: Well, thank you, everyone, for your attention. To conclude the call, I just want to reiterate our key messages. Mosaic delivered solid earnings in the second quarter, and we have a positive outlook for the remainder of this year. Agricultural markets are strong. Farmers around the world have strong incentive to maximize crop production. As a result, global fertilizer demand is also robust, and we expect that demand to remain strong. Mosaic today is well positioned to capitalize on the ongoing fertilizer market recovery. The transformation of our cost structure, along with the investments we’ve made over the past decade are delivering earnings power and cross-cycle resilience. So thank you for joining our call. Have a great and safe day. Operator: The conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect. Follow Mosaic Co (NYSE:MOS) Follow Mosaic Co (NYSE:MOS) We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»

Category: topSource: insidermonkeyAug 4th, 2023

Scorpio Tankers Inc. (NYSE:STNG) Q2 2023 Earnings Call Transcript

Scorpio Tankers Inc. (NYSE:STNG) Q2 2023 Earnings Call Transcript August 2, 2023 Scorpio Tankers Inc. beats earnings expectations. Reported EPS is $3.13, expectations were $2.38. Operator: Hello and welcome to the Scorpio Tankers Inc. Second Quarter 2023 Conference Call. I would now like to turn the call over to James Doyle, Head of Corporate Development […] Scorpio Tankers Inc. (NYSE:STNG) Q2 2023 Earnings Call Transcript August 2, 2023 Scorpio Tankers Inc. beats earnings expectations. Reported EPS is $3.13, expectations were $2.38. Operator: Hello and welcome to the Scorpio Tankers Inc. Second Quarter 2023 Conference Call. I would now like to turn the call over to James Doyle, Head of Corporate Development and IR. Please go ahead, sir. James Doyle: Thank you for joining us today. Welcome to the Scorpio Tankers, second quarter 2023 earnings conference call. On the call with me today are, Emmanuel Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Brian Lee, Chief Financial Officer; and Chris Abella, Chief Accounting Officer. Earlier today, we issued our second quarter earnings press release which is available on our website, The information discussed on this call is based on information as of today, August 2, 2023 and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release as well as Scorpio Tankers’ SEC filings which are available at Call participants are advised that the audio of this conference call is being broadcasted live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made in not on the Investor Relations page of our website for approximately 14 days. We will be giving a short presentation today. The presentation is available at on the Investor Relations page under Reports and Presentations. These slides will also be available on the webcast. After the presentation, we will go to Q&A. For those asking questions, please limit the number of questions to two. If you have an additional question, please rejoin the queue. Now, I’d like to introduce our Chief Executive Officer, Emmanuel Lauro. Emanuele Lauro: Thank you, James and thank you for joining us today, everybody. We are pleased to report another quarter of strong financial results. In the second quarter, the company generated $235 million in EBITDA and EUR 133 million in adjusted net income. The product tanker market has been and continues to remain strong. And to put this into context, over the last six quarters, the company has generated $1.6 billion in EBITDA and $1 billion in adjusted net income, during which we have reduced our leverage by $1.3 billion and repurchased $582 million of the company shares. Deleveraging and returning capital to shareholders has been our primary focus. In the second quarter, we repurchased $260 million of the company shares which is almost half of our total repurchases since July 2022. The increase in share repurchases reflects the progress we have made on deleveraging and refinancing the balance sheet. We view the repurchases as valuable for our shareholders given that the shares are trading at a large discount to the company’s net asset value. Our balance sheet continues to improve. Today, we have $683 million in liquidity. In July, we closed our $1 billion term loan and revolving credit facility. We are in the process of closing a new $94 million credit facility. These new facilities combined lowered the company’s interest margin, accelerate the repurchases of more expensive lease financing and increase the financial flexibility of the company. Looking forward, we expect low global inventories, a robust demand and limited fleet growth to support strong product tanker fundamentals. We would like to thank you for your continued support. And I would like now to turn the call over to James for a brief presentation, James? James Doyle: Thank you, Emmanuel. Slide 7, please. We’ve seen an elevated rate environment since Q1 of last year. And as Emmanuel highlighted, over the last six quarters, we’ve generated a little over $1.6 billion in EBITDA. And since July 2022, we have repurchased $582 million of the company’s shares and paid $49 million in dividends. We had 15 vessels on time turnout contracts and the remaining 97 vessels operating in the spot market. Slide 8, please. We continue to repurchase vessels under expensive lease financing and have started to refinance some of these vessels under new bank facilities with lower interest margins. To the right, you can see the list of vessels that have been repurchased and are upcoming. As of today, we have repurchased or repaid the outstanding debt on 46 vessels. In July, we closed our new $1 billion term loan facility and we’re in the process of closing a new $94 million bank facility. The margin of lease financing ranges from LIBOR plus 350 to 525 basis points and our new one of facilities have a margin of SOFR plus 170 to 197 basis points. Slide 9, please. We’ve made significant progress in reducing expense of lease financing from $2.2 billion to $1 billion today. Timing differences between repurchasing vessels on lease financing and drawing down on new facilities means that at times, it appears increasing. Vessels with lease financing with periods in which they can be repurchased. The majority of vessels under lease financing can be repurchased within the next 12 months and there are additional vessels that we expect to repurchase this year. So, we will continue to reduce our leverage. I just wanted to highlight the timing. Given the strong earnings and proceeds from new facilities, we expect to have an elevated cash balance but keep in mind, a portion of this will be used to repurchase more vessels on lease financing. Today, as Emmanuel I mentioned, we have $683 million in cash. Slide 10, please. Well, gross debt will increase slightly in the third quarter. Net debt has remained around $1.5 billion to $1.6 billion over the last three quarters. And as of today, this declined and is currently at $1.4 billion. With no newbuildings on order, we have minimal CapEx and feel very well positioned. Slide 11. The company has significant operating leverage in Q2 so far, including time charters that is averaging $26,000 today. But as you’re aware, rates have increased significantly over the last two weeks and MRs are now at $34,000 a day and now August north of 40. At $30,000 a day, we generated almost $800 million of free cash flow per year and at $40,000 close to $1.2 billion. These are certainly exciting times. Slide 13, please. In the second quarter, significant refinery maintenance, lower refining margins and reduced our betas opportunities led to lower trading activity and a decline in rates. MR 2 saw a larger decline as Asian refinery maintenance, limited naphtha arbitrage opportunities and competition from LPG reduced long-haul volumes going from the Middle East and Asia. MR rates remain much more stable, reflecting the strong underlying global demand for consumer fuels such as gasoline and jet fuel. Despite these headwinds, rates remained well above cash breakeven levels and many of the headwinds in Q2 are in the process of reverse. Refining margins have seen a large increase in July and remain at very strong levels on a historical basis. The naphtha LPG spread has improved and the forward curve suggests Naphtha substitution for LPG will occur over the next several months which is very constructive for the LR2s. Unplanned refinery outages and historically will inventories create a scenario where any supply disruptions will lead to increased volatility in higher rates. And lastly, rates have increased significantly over the last few weeks and we think they’re going to remain strong through the rest of the year. Slide 14, please. Global inventories are well below the 5-year average for gasoline and diesel. It doesn’t matter what region or what product they’re extremely well. And typically, diesel inventory is still in the summer months ahead of a strong winter demand season and we have seen minimal builds at the name. This is very constructive for a tight market in the back half of this year and highlights how robust demand has been. Slide 15, please. Forecast for refined product demand for the second half of this year and next year have the revised upwards. Second half 2023 demand is expected to be 2 million to 3 million barrels a day higher this year than last. In our view, this is one of the most bullish driver for strong freight rates, 2 million to 3 million barrels of additional demand year-over-year against historically low inventories. While diesel demand is expected to increase at a slower pace due to lower trucking activity, the demand for gasoline, jet fuel and naphtha are expected to see large increases. We are seeing this demand on the water today. Seaborne volumes remain extremely high and are averaging 1 million to 1.5 million barrels a day more than 2019 levels. Given low global inventories increased consumption will continue to be met through imports with product tankers reallocating barrels within the world. Slide 16, please. While demand is above pre-COVID levels refining capacity is lower and more dislocated, regional capacity changes are structural and will continue to drive ton-miles and flows for the coming years. The impact of new export-oriented refineries coming online like Australia and Kuwait have led to an increase in export in the Middle East. We are also seeing the impact of European sanctions on Russia. Europe has increased its imports from the U.S. and Middle East by 600,000 to 1 million barrels of bags. All of these changes are driving an increase in ton miles as ton mile demand increases, investment capacity is reduced and supply tightens. Slide 17, please. Over the last few months, Russian exports and refined products have declined to more normalized levels. And greatly, our vessels that are servicing Russian volumes has increased significantly to 353 vessels today, of which 277 are Handymax and MR vessels. Vessels which move into sanctioned trades reduced the supply of vessels in non-sanction trades. The impact of vessel service in Russia is expected to have a significant impact on the capabilities of the global fleet going forward. Many of the vessels which have moved in this trade are 13 to 15 years old and will likely not return to the premium trades given their age and trading history. Slide 18, please. If you recall, in December, rates reached record levels while the order book was near an all-time well. And over the last 18 months, we have experienced a strong rate environment, evidenced by the volatile blue line in the graph. From a cyclical perspective, hopefully, we are in July 2003 or even July 2004. But historically, as product tanker rates increase, so the orders from new vessels. Thus, it’s not surprising that we have seen additional orders. The rationale for ordering, a strong spot market, healthy long-term time charter rates, constructive demand outlook and aging fleet is a good reason. It’s also a good rationale for investing in product tanker company. Slide 19, please. The increase in the order book has largely been driven by LR2 orders, 49 vessels year-to-date. While LR2 orders are elevated, MR orders are below their 5-year average this year and well below stoical averages. And up until this year, LR1 orders have basically been nonexistent with only 12 LR1s ordered from 2016 to 2012. So, part of the increase in LR2s is to compensate for the aging LR1 fleet, similar to how MRs have largely replaced Tani Max vessel. And within LR2, we have the optionality to trade in the crude market, less than 50% of the LR2s on the water today are trading clean products. In addition, there are constraints to ordering new vessels. There are long lead times through the delivery of newbuild vessels. Orders placed this year were for the earlier slots of the shipyard. These slots are now gone. New bills are expensive compared to historical levels and the cost of capital was higher with rising interest rates. A new build LR 2to $71 million with the 2026 or 2027, delivery date will require a high breakeven rate and needs a constructive market. Lastly, there are still concerns about different propulsion systems which are required to meet future environmental regulation. All of these factors act as a constraint. Slide 20, please. When thinking about new building orders and fleet growth, the age and training profile of the fleet must be considered. The product tensile fleet continues to get older and age and this is important because as the product tanker becomes older, the coatings which make them a product tanker develop issues. Every product pancan the water is not trading clean products. Only 60% of the Handymax and LR2 fleets are trading clean products and 70% of the LR1 fleet. Older vessels moving to trading dirty products or crude oil. Although you do see our two vessels move into these trades earlier, it does need to be accounted for. Given the age of the fleet, we expect more vessels to move into these crude oil trades as they get older, while the increasing number of vessels years and older become scrap candidates. By 2026, the product tanker fleet will have 954 vessels that are 15 to 19 years old and 811 vessels 20 years and older, an increase from 349 today. These changes will have a material impact on the fleet. And last, scrapping is at an all-time well and we do expect scrapping to increase as vessel age and environmental regulations increase. Slide 21, please. Putting this all together, despite an increase in ore in orders, the order book remains modest, using minimal scrapping assumptions on average, the fleet will grow less than 2% a year over the next three years, using higher scrapping assumptions due to fleet age and upcoming regulation, the fleet will grow less than 1% per year. Seaborne exports and ton-mile demand are expected to increase 4% at 11.9% this year and 3.4% and 6.3% next year, vastly outpacing supply. In addition, 1-year and 3-year time charter rates remain at high levels, evidence that our customers’ outlook is one of increasing exports and ton miles against the constrained supply period. The confluence of factors in today’s market are constructive individually, historically low inventories, increasing demand, exports and time miles, structural dislocations in the refinery system, rerouting of global product flows, limited fleet growth and upcoming environmental regulations. Collectively, they are unprecedented. With that, I would like to turn it over to our President, Robert Bugbee. Robert Bugbee: Good morning, everybody. Thanks so much for joining. On behalf of the management, this is a great time to be invested in STING and a great time to be further invested in STING. We’re happy with all the buybacks we’ve been able to do. I’d just like to point out a couple of things. I think that we think is really important and we focus on is, first of all, the liquidity and the financing that’s being done, that gives us tremendous amount of flexibility going forward. We’ve shown during this quarter that we’re willing, we’re wanting to sell older vessels to improve the arbitrage as well opportunity between NAV and the stock price. And the other thing is the rates is, I think I’m going to borrow from John Chappell here, one of our analysts but it’s most important where the market is going as an investor as opposed to where it’s been. And the market right now is going up. It’s inflecting upwards from a very, very strong weaker period that we’ve had for a couple of months, I mean, to average what we’ve averaged in our booking in what is the weakest part of the year is fantastic. Many for many, many years, that would be a high number, the average that we’ve got. The next part of it is we’re already earning a very large number, as James has pointed out, the 30s, mid-30s in the MRs moving through into the 40s on the LR2s, the LR2s continue to go up today. So, that creates a lot of confidence for the company going forward. And with that, I’d just like to thank you all again and open up for questions. Q&A Session Follow Scorpio Tankers Inc (NYSE:STNG) Follow Scorpio Tankers Inc (NYSE:STNG) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Omar Nokta with Jefferies. Omar Nokta: I wanted to follow up a bit on just, Robert, your comments about where rates are. And also, I know James, you touched on this. But it seemed that product tanker rates have settled in here into the typical summer doldrums that we’ve seen in the past. And what we’ve actually seen over the past, say, two to three weeks is a real resurgence and it’s really across all the product segments. And this is happening while we’ve seen some weakness or further weakness in the crude tanker side of things. So I just wanted to ask maybe a bit more if you could just dive a bit deeper into it. What’s been driving the market here recently? What’s behind the latest jump? And what can we expect going forward here? Robert Bugbee: Sure, James. I’ll go first on this. I think that the first thing we’ve seen is refinery margins really widened to the positive here. And we’ve seen, let’s say, a change, a big change in sentiment. I think we’ve moved from all, we really like a recessionary view on oil and consumer demand in products as is expressed by the paper market into the physical market now overwhelming things. I mean is the refutable that demand is going up now. We’re seeing this in this constant drawdown. And then as the prices of oil moved upwards and the prices of refined products moved up even higher than the price of oil than people are starting to — they can’t just sit there and do anything, nothing at that point. They have to start to engage in the market. And so, I think as usual, all of these things except in periods of hurricanes or war, this is being demand-led. And we had a market that was very tight anyway, as explained this week we saw the doldrums was at very high levels with very high utilization. So, as soon as you put this demand in, that was going to move the rates higher. Omar Nokta: Thanks, Robert. That’s helpful. And then maybe just as my second question as a follow-up, given the market strength in corp, you guys have a sizable critical mass across the LR2s and MRs. In prior quarters, we’re able to put away some of your ships on period contracts. How would you think about it now? I think it was 15 ships now that you’ve got on TC. What does the liquidity look like for that market at the moment given the sort of run-up we’ve been seeing? And is there appetite for Scorpio to add more? Robert Bugbee: Well, I think we’ve seen that one of the other encouraging things and the supportive to James’ view of the long-term fundamentals here is that 3-year forward rate was hardly changed in this period. So again, the physical market to just move through this period, not referencing to the paper market. And right now, this is a very, very strong move and it’s surprised us we’ve had to act very quickly to do this. We knew the market would go up, you can never find that actually work out that exact inflection point. And then inflection point started happening 10, 12, 13 days ago. Right now, it’s just not the time to look, to put ships out on time charter. You’ve got to let this come because Europe is exposed itself now on diesel. The United States is becoming exposed everywhere we’ve got the movement. If we start seeing more movements from the Middle East or product and more movements from Chinese exports, then this market could really run as we start to move into the stronger season. So right now, it’s not the time to negotiate time charter out. Omar Nokta: Thanks, Robert. It makes sense. That’s all for me. I’ll turn it over. Operator: Our next question comes from John Chappell with Evercore ISI. Please, go ahead. John Chappell: James, I want to tie together a couple of points that you brought up going in the second half of the year, both the low inventory starting point and then also the 2 million to 3 million barrels of incremental demand. We’ve been early before with inventories drawing below historical levels. Where is the incremental 2 million to 3 million barrels of supply going to come from? And when you think about that from a global map perspective, does it continue to extend the ton miles that we’ve seen over the last six quarters? Or is there a chance it could be a bit more regional, just given the maybe panic going into the winter to meet that demand? James Doyle: Well, I think we have this scenario now where inventories are so low and we saw it last year, where any type of supply disruption. So there’s been some impacts to some refineries in the U.S. Gulf, for example. We’ll have to be met with imports from different places. So I’d say it’s going to be a combination of long-haul and regional. I think if you’re looking at remaining places with capacity, it’s really the Middle East and China. Robert did mention that we could see Chinese exports increase here if they issue a new batch of Cordis [ph] which seems likely. And I think you do have some more capacity out of the Middle East. We have seen, for example, Al Zour refinery which has two out of the three CDUs up and fully running, have a material impact on the export market. But I do think given how strong demand is, it’s going to have to be a collective effort. John Chappell: Okay. But just to be clear, I mean, you do expect that incremental demand to be met with supply and not kind of further inventory draws below 5-year averages? James Doyle: The projections we’re looking at, it’s very close. So obviously, for example, if you were to lose more Russian barrels or there were to be more disruptions in European or U.S. refinery, things could be very difficult. You could see draws. And we’re seeing a lot of draws on the crude side right now as well. John Chappell: Okay. Second question relates to the fleet. You’ve sold the vessel just recently as I look at the fleet age, there’s still a handful that are over or at or over 10 years old and then, of course, a much greater handful to become 10 next year. When you think about the ARB of the current stock price and asset values right now, should we expect more maybe monetizing a bit of the older vessels as we go to the back half of the year if this areas? Robert Bugbee: Yes. But as we stated on the last call that the last quarter and as we’ve evidenced by the sale of the first one, we’re willing to do that. That would be disruptive, we’re doing it slowly. John Chappell: Yes, all right. Thanks, Robert. Thanks, James. Operator: Our next question comes from Ken Hoexter with Bank of America. Nathan Ho: This is Nathan Ho dial in for Ken. I just wanted to follow-up on Omar’s original question on sort of the bifurcation between the feed and the product tanker markets. I mean over the quarter, we’ve heard of some tankers dirtying clean product vessels. Maybe if we could just get some comments on just firstly, the economics there and how we should think about the capacity tailwind that represents for the product tanker market? James Doyle: Sure. Well, Nathan, a lot of the switching from LR2s was really started kind of in Q4 last year. I’d say you’ve probably seen at least 20 vessels move over into this trade. And you have had a strong Aframax market. I think for these smaller crude vessels, there’s a lot of new capacity coming online from Latin America, Africa and the U.S. which benefit these vessels and ton miles have obviously increased. I think on the clean side, what you’ve seen is obviously a challenging market due to kind of the naphtha arbitrage and then obviously lower distillate volumes but we see those things reversing. And so I think as we look forward, we expect both markets to be tight, especially on the product side which we know more about on the crude side, obviously, we’ve been a little bit less. Nathan Ho: Got it. And just as a follow-up on capital strategy. Just want to get a sense on how the team is looking at deleveraging from here. Obviously, a lot of debt being shed over the past year and the past few quarters. Is there a target leverage level? Or is this more of a target vessel breakeven TCE goal that we’re trying to achieve here? And maybe just also update us on where that 17,000 level could potentially trend, say, into 2024? Robert Bugbee: So James, why don’t you do with the 17,000 and I’ll deal with the other answers. James Doyle: Yes. So we expect the breakeven to come down. They’re probably a little bit higher than that ’17 because of the timing of the lease repayments. So, with the leases we have to give notice and there is a specific period or time of the year which you can repurchase the vessel. So as much as we’d like to go off and repay those vessels today. We can’t do that. The good news is, most of the lease debt around $1 billion and those vessels associated with it can be repurchased over the next 12 months. So, you will see continued announcements from us that will give you better insight as to how many vessels and the timing on that. But right now, we haven’t disclosed it yet. But obviously, over the next 12 months, we do expect breakeven to the client. And you have had higher interest rates as well during this period. Robert Bugbee: Yes. With regards to the debt level, that’s not a question we ready to answer. We can see from the terms we’ve got anyone can see from the terms of lenders. Historically, the debt level already is really low on a historical basis. But we will — the question of how you can reduce continues to reduce the debt level as we’ve mentioned potential further sale of vessels. We’ve said how confident we are in the rate environment going forward. And I think that those two combined things will lead to the ability to both repay, both lower debt plus do whatever else we want to do. Operator: Our next question comes from Sam Bland with JP Morgan. Samuel Bland: I’ve got sort of one question with two parts. First one is, can we just touch on the disruption and market tightening from sort of the Russian sanctions impact. Whatever the impact is related to Russia, is that now done and we’ve sort of seen the full impact of that? Or is there some further market tightening related to Russia that may come through, whether it’s from the dark fleet or anything else? And the sort of the second part which you related to that is I see on Slide 21, there’s another 6.3% tonne-mile demand expected in ’24. Where do you think that comes from? Is it sort of general global growth? Or is it related to Russia or anything else? James Doyle: Yes. The next year’s forecast for ton miles of the 6.3% to about 3.4% of that is just exports and the difference, 2.9%, is ton miles. And that’s really going to be driven by Middle Eastern exports and the capacity coming online as well as some potential closures in Europe and emerging market demand. So, that is not including any displaced Russian volume. I still think there’s more upside to the dislocation as a result of the conflict in Russia and Ukraine. But we have seen a majority of that impact. I think the biggest contribution from that will be what happens with the gray fleet over time. So there’s a lot of vessels, say, 12 to 15 years old that have moved in to service these trades. Now, these vessels are older and they’ll have potentially a dark trading history. So, I think as you look forward and with the fleet, I mean, we’re talking 10%, 11% of the MR fleet is servicing this trade. So, it’s going to have a long standing impact on fleet supply and trading dynamics. And that part, I don’t think we’ve seen yet. In terms of the volumes moving to the Middle East, Latin America and Africa, I think we have seen those. And obviously, we highlighted we’ve seen an increase in exports from the U.S. and the Middle East to Europe. So I’d say that part we have seen. Operator: Our next question comes from Frode Morkedal with Clarkson Securities. Frode Morkedal: Good presentation on the question so far. Yes. I guess the key words so far is demand and you mentioned demand led. So I guess there’s certainly many moving parts to demand, right? You have the Chinese product exports that may return, Russian products, exports, some mining shift, new refining capacity, refinery maintenance is malty oil demand, of course, crack spreads, arbitrage trades, low inventories and on and on, right? So many vendor demand factors. The question really is which one is the most important one or should have the greatest impact in the near to medium term? Robert Bugbee: I would say, headline demand. I mean, I think the headline demand creates comfort for all of the players and create urgency for those players who are perhaps short. So if we continue to move from this first half recession fear that older the headline oil demand and product demand will fall as a result of recession. And we move towards understanding and immittance by various sort of participants, whether they’re government or anything else that’s happening, then that creates an environment where if you’re short product, if you are short diesel, for example, in Europe going into winter, while you better come forward and start buying. And so that, I think, is the most important thing because it forces the market to sort of act in a sort of cohesive way. And it’s too difficult to estimate any way on a day-to-day basis, whether that’s going to be coming from the Middle East or China or wherever but I would start there. Frode Morkedal: My second question is on the Russian trades. Our peers that crude exports are coming off the boys to speak. But how is the situation for products now? James Doyle: You’ve seen similar to crude, you’ve seen products come down to the more normalized levels. Part of that is probably due to OPEC. But I think part of it is the increase we saw right after sanctions kind of in March where exports at 2 million barrels a day would kind of a buildup that they have had and trying to put more on the market. Obviously, refineries have to go through maintenance. And even in the U.S. Gulf for our other export regions, you can’t run at 95% and high 90s for an extended period which would suggest kind of the exports that they had. So, I think we’re going to see them on a more normalized level similar to what we’ve seen kind of historically maybe around 1.5 million barrels a day. Frode Morkedal: And this is related in the market? Robert Bugbee: Yes. Frode, I think what will be interesting to is we approach at where is watching Europe now because last year, they were able to esprestock ahead of Roxane sanction and at the same time, had a very mild winter. So if you go into the winter with lower inventories than, let’s say, last year in October and or more or less the same as last year and you have the Russian situation that you do and James described, it’s going to be put the sanctions are in place. It’s going to be much harder to pre-stock to winter. Operator: Our next question comes from Sherri Elmaghrabi with BTIG. Sherri Elmaghrabi: First, drilling down a bit more on what’s going on with Russia. Certainly, there’s potential for more upside. But with Russian oil crossing the price cap, are you seeing some tankers return to other trades because after rates look like they’ve created in some places? Or are some LR2s switching back to the clean trade? Or is it too soon for that kind of shift? Robert Bugbee: I think it’s way too soon for that. And it’s just not easy to it’s not easy anyway to take crude ship and throw it into and clean it up. You’re not going to do it at the present spread. The older the ship is, the more difficult it gets and may be really difficult. And then some of these vessels that have traded to Russia, are almost certainly not going to be accepted by the charters involved in the, let’s say, the free market clean petroleum trade. You’ve got to clean up and then you’ve got to be allowed to trade the actual product itself. Sherri Elmaghrabi: And then maybe to follow up on vessel sales, we’ve seen the pace of new build orders really pick up over the last few months. How are you thinking about fleet renewal at this time if you’re thinking about it at all? I realize newbuild prices are looking pretty full. Robert Bugbee: You mean STNG itself or general? Sherri Elmaghrabi: Yes. We know we could do both but I was meeting STING specifically. Robert Bugbee: We’re not thinking about new build this thing at all. I would be very, very low down on the capital allocation list. So much better to buy your own stock than to order a vessel that probably when you come until 2026 or whatever anyway. And I think that’s the thing we have to do to realize here is the way that the new building order book has been elongated in time to. So yes, there are more orders that you haven’t shifted what’s coming in ’23. You haven’t shifted what’s coming in ’24 and you haven’t shipped what’s coming in the first half of ’25. So, if you just do the simple math of take a dollar, do I want to spend that dollar and have investor delivered in 2026? Or would I take that dollar and put it in staying Apnea or Admo for example getting a benefit to the cash flow right at the front is not a comparison, especially when STING has such a new fleet anyway. Operator: Our next question comes from Liam Burke with B. Riley FBR. Liam Burke: Back on capital allocation, you’ve been clear about debt reduction, your buybacks earlier. I mean last quarter, you bumped your dividend from $0.10 to $0.25. Is this a dividend you anticipate paying through the cycle? Or are you going back and looking at that payout as possibly bumping it or maintaining it? Robert Bugbee: I think a lot of that depends on where the stock price is right now. Again, at this particular point I think an investor, the investor as opposed to a speculator or whatever would really want the company to use the cash flow or use the marginal dollar right now in stock buybacks than paying out a dividend that everybody gets taxed on. So, the dividend part can wait. This is a situation where the company has just had a fantastic quarter. It created great cash flow. It’s refinanced everything. The market is going upwards. We’re going into a great future dynamic. We just felt that it just wasn’t right to increase the dividend at this point with the stock trading at such a dislocation to the fundamentals. Liam Burke: Fair enough. And I guess this is for James. Things are getting a lot better at the macro. We’re looking at a creeping order book here. Some of the offset would be recycling. But what gets that activity going? We haven’t seen that in a few years. James Doyle: No, it’s a great question. I think just the number of vessels that will turn 20 to 25 years over the next two years is so massive that you’re going to have vessels that kind of serve tertiary markets or trades and those vessels are going to be scrapped. I really think you’re going to see it first as a part of environmental regulations as well. But it’s a staggering number of vessels, I think it was around 900 or 800 vessels will be 20 years and older by 2026, up from 350 today. So it’s a massive number. So we do think those will be scrapped. And I think you also have to factor in the age of the fleet. There’s a lot of vessels that are kind of 15 to 19 that are going to move into the crude oil trade. So we still think the order book is modest and fleet growth is extremely low, especially on a historical basis. Liam Burke: Great. And then just as a follow-on. As your vessels age into that category, I mean, it’s been a while. Do you have to think of a trade-off between selling it to or the NAV versus just throwing it into the crude market? Robert Bugbee: That’s what we are doing as we have been doing and what we just said, we will continue to do. Operator: Our next question comes from Chris Robertson with Deutsche Bank. Christopher Robertson: James, you kind of outlined minimal CapEx this coming quarter as well as next. And I’m wondering what does this translate into in terms of off-hire days? And are there any utilization factors in terms of ships moving in and out of the pools in the coming quarters that could impact operating days? Brian Lee: Sure, Brian. Yes, the off-hire days are minimal. We don’t have many dry docks in the next half of the year, in the next two quarters. As you see in the table in the press release, fiscal ’24, it’s more escalated because of just the number of vessels coming due for their special surveys. So for that reason, the CapEx is minimal in the coming quarters. Christopher Robertson: Okay. And then in terms of the utilization, any impact there with regards to ships moving in and out of pools? Brian Lee: I wouldn’t say that’s material. Christopher Robertson: Okay. My second question is just around the step-up in vessel OpEx from 1Q to 2Q. Do you guys see any further cost inflation or pressure is expected for the remainder of the year? Brian Lee: I think Q2 is going to be a more normalized run rate for the remainder of the year as opposed to Q1? Christopher Robertson: Okay, great. Yes, that’s it for me. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Robert Bugbee for any closing remarks. Robert Bugbee: Thank you, everybody. We appreciate your support and your interest. And everybody, enjoy the summer and we look forward to speaking to you again in the near term. Thanks very much. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Follow Scorpio Tankers Inc (NYSE:STNG) Follow Scorpio Tankers Inc (NYSE:STNG) We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»

Category: topSource: insidermonkeyAug 4th, 2023