Why The Sainsbury / Asda Merger Is Necessary But Not Sufficient
Why The Sainsbury / Asda Merger Is Necessary But Not Sufficient.....»»
ARCA biopharma Announces Third Quarter 2023 Financial Results
Company is currently engaged in a strategic review process, evaluating additional development of its assets, collaborations and other strategic options WESTMINSTER, Colo., Oct. 18, 2023 (GLOBE NEWSWIRE) -- ARCA biopharma, Inc. (NASDAQ:ABIO), a biopharmaceutical company applying a precision medicine approach to developing genetically targeted therapies for cardiovascular diseases, today reported third quarter 2023 financial results and provided a corporate update. In April 2022, the Board of Directors established a Special Committee and, in May 2022, retained Ladenburg Thalmann & Co. Inc. ("Ladenburg") to evaluate strategic options, including transactions involving a merger, sale of all or part of the Company's assets, or other alternatives with the goal of maximizing stockholder value. The Company and Ladenburg have reviewed several potential strategic transactions and continue to evaluate further potential development of the Company's existing assets, in order to maximize stockholder value. The Company does not have a defined timeline for the strategic review process and the review may not result in any specific action or transaction. Third Quarter 2023 Summary Financial Results Cash and cash equivalents were $38.5 million as of September 30, 2023, compared to $42.4 million as of December 31, 2022. ARCA believes that its current cash and cash equivalents, consisting primarily of money market funds, will be sufficient to fund its operations through the end of 2024. General and administrative (G&A) expenses were $1.6 million for the quarter ended September 30, 2023, consistent with $1.5 million for the corresponding period in 2022. G&A expenses in 2023 are expected to be consistent with those in 2022 as the Company maintains administrative activities to support our ongoing operations. Research and development (R&D) expenses were $0.3 million for the quarter ended September 30, 2023, compared to $1.0 million for the corresponding period in 2022, a $0.7 million decrease. R&D personnel costs decreased approximately $0.6 million for the quarter ended September 30, 2023, as compared to the corresponding period in 2022, due to decreased headcount. In July 2022, we implemented a strategic reduction of our workforce by approximately 67%, or 12 employees. Personnel reductions were primarily focused in research and development and general and administrative functions. The restructuring was a result of our decision to manage our operating costs and expenses. During the nine months ended September 30, 2022, we recorded total restructuring charges of approximately $790,000, of which $490,000 and $300,000 were recognized in research and development and general and administrative expenses, respectively, in connection with the restructuring, all in the form of one-time termination benefits. R&D expenses in 2023 are expected to be lower than 2022. Total operating expenses for the quarter ended September 30, 2023 were $2.0 million compared to $2.6 million for the third quarter 2022. Net loss for the quarter ended September 30, 2023 was $1.4 million, or $0.10 per basic and diluted share, compared to $2.3 million, or $0.16 per basic and diluted share in the third quarter of 2022. About ARCA biopharma ARCA biopharma is dedicated to developing genetically and other targeted therapies for cardiovascular diseases through a precision medicine approach to drug development. At present, ARCA is evaluating options for development of its assets, including partnering and other strategic options. For more information, please visit www.arcabio.com or follow the Company on LinkedIn. Safe Harbor Statement This press release contains "forward-looking statements" for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding potential future development plans for Gencaro and rNAPc2, if any, and the Company's review of strategic options. Such statements are based on management's current expectations and involve risks and uncertainties. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors, including, without limitation, the risks and uncertainties associated with: ARCA's financial resources and whether they will be sufficient to meet its business objectives and operational requirements; ARCA's ability to raise sufficient capital on acceptable terms, or at all; the Company's ability to continue development of Gencaro or rNAPc2 or to otherwise continue operations in the future; the Company's ability to complete a strategic transaction; results of earlier clinical trials may not be confirmed in future clinical trials; the protection and market exclusivity provided by ARCA's intellectual property; risks related to the drug discovery and the regulatory approval processes; and the impact of competitive products and technological changes. These and other factors are identified and described in more detail in ARCA's filings with the Securities and Exchange Commission, including, without limitation, in ARCA's Annual Report on Form 10-K for the year ended December 31, 2022, and subsequent filings. ARCA disclaims any intent or obligation to update these forward-looking statements. All forward-looking statements in this press release are current only as of the date hereof and, except as required by applicable law, ARCA undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements are qualified in their entirety by this cautionary statement. Investor & Media Contact: Jeff Dekker 720.940.2122 ir@arcabio.com (Tables follow) ARCA BIOPHARMA, INC. BALANCE SHEET DATA (in thousands) (unaudited) September 30, 2023 December 31, 2022 Cash and cash equivalents $38,487 $42,445 Working capital $37,900 $41,567 Total assets $39,184 $43,085 Total stockholders' equity $37,968 $41,673 ARCA BIOPHARMA, INC. STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Nine Months Ended .....»»
Microsoft"s $68.7 billion Activision acquisition clears key hurdle after UK regulator provisionally approves deal
The merger first announced in January 2022 has faced several hurdles as regulators have raised concerns about the risks posed to competitors. Microsoft first announced its acquisition of Activision Blizzard in January 2022.AP Photo/Jae C. HongMicrosoft and Activision Blizzard may finally be at the finish line.The CMA provisionally greenlit Microsoft's acquisition of the "Call of Duty" developer.It comes after a lengthy period in which the deal was threatened because of competition concerns.Microsoft's blockbuster acquisition of Activision Blizzard has provisionally been given the green light by the UK's antitrust body, clearing the path for the $68.7 billion deal, following strong opposition from regulators.The UK's Competition and Markets Authority CMA said on Friday that remedies put forward by Microsoft for its proposed deal to buy the "Call of Duty" developer resolved key issues raised by the regulatory body in April when it moved to block the merger.Last month, Microsoft and Activision submitted a revised version of the deal first announced in January 2022, as it sought to address central concerns that competition would be harmed, particularly in cloud gaming.Part of the restructuring of the deal meant Microsoft would no longer purchase Activision's cloud gaming rights, which would instead be sold to Ubisoft, the developer behind the "Assassin's Creed" series.That means Microsoft would no longer have the option to exclusively offer Activision's roster of games on the Microsoft-owned Xbox Cloud Gaming service."The CMA considers that the restructured deal makes important changes that substantially address the concerns it set out in relation to the original transaction earlier this year," the regulator said in a release announcing its decision."In particular, the sale of Activision's cloud streaming rights to Ubisoft will prevent this important content — including games such as 'Call of Duty,' 'Overwatch,' and 'World of Warcraft' — from coming under the control of Microsoft in relation to cloud gaming."Sarah Cardell, CEO of the CMA, said that although Microsoft had now made sufficient amends to the proposed deal, "it would have been far better, though, if Microsoft had put forward this restructure" during the regulator's "original investigation.""This case illustrates the costs, uncertainty, and delay that parties can incur if a credible and effective remedy option exists but is not put on the table at the right time," she said.The CMA will conduct a consultation until October 6, before the acquisition agreement expires on October 18.Brad Smith, Microsoft vice president and chair, said in a statement issued to Insider, "We are encouraged by this positive development" as "we presented solutions that we believe full address the CMA's remaining concerns related to cloud game streaming."Activision said in a statement issued to Insider, "The CMA's preliminary approval is great news for our future with Microsoft.""We're pleased the CMA has responded positively to the solutions Microsoft has proposed, and we look forward to working with Microsoft toward completing the regulatory review process," it added.Read the original article on Business Insider.....»»
Futures Rise, Dollar And Yields Slide Ahead Of Fed Decision
Futures Rise, Dollar And Yields Slide Ahead Of Fed Decision US equity futures rose, alongside European markets, as traders awaited the Fed's rate decision that will be scrutinized for the policy outlook and "dots" rather than the widely expected pause in hikes. As of 7:45am ET, contracts on the S&P 500 and the Nasdaq 100 both added about 0.2%, with spoos trading up to 4,500. Treasury yields fell across the board, taking their cue from sliding UK rates after inflation unexpectedly slowed and printed far below expectations (CPI core 6.2%, Exp. 6.8%, CPI MoM 0.3%, Exp. 0.7%). The Bloomberg Dollar Spot Index traded near the lows of the day, lifting most Group-of-10 currencies. Brent crude reversed earlier losses after it retreated from $95. Gold was little changed, while Bitcoin declined for the first time in three days. In premarket trading, major technology and internet stocks were mostly higher. Instacart slipped as much as 5%, one day after surging following one of the year’s biggest US initial public offerings but closing at session lows. Intel shares pared an earlier decline as analysts said that the chipmaker showed some progress in its Innovation conference. However, there was disappointment that the event lacked a new customer announcement for the firm’s 18A semiconductor manufacturing process. Here are some other notable premarket movers: ARS Pharmaceuticals shares drop as much as 47% in US premarket trading, set for their biggest fall on record if the move holds, after the biotech said that the FDA has issued a letter requesting additional study for neffy — an epinephrine nasal spray to treat allergic reactions — in order to support drug approval, according to a statement. Pinterest shares rise 3.4%. Analysts were impressed by Tuesday’s investor day, saying that the social networking company was upbeat and that the long-term targets look achievable. Taysha Gene Therapies shares drop as much as 5.8%, after the biotech scrapped the development of its TSHA-120 gene therapy program to treat a rare neurodegenerative disorder following feedback from the FDA. Analysts cut their price targets on the stock, saying that while the update was disappointing, investors were focused on the company’s development of a treatment for Rett syndrome. As previewed overnight, today all eyes will be on the Fed's 2pm decision (and Powell's presser) which is expected to hold for the second time this year following a slowing in inflation, while leaving the door open for another increase as early as November. Wall Street will be focused on whether Fed officials’ forecasts for interest rates, the so-called dot plot, show whether they seem determined to hike again. More here “While rates should remain steady, a question mark remains over the longer-term outlook,” said Richard Flynn, UK Managing Director at Charles Schwab. “Now that inflation has peaked, we are likely to see the Fed shift to a more surgical approach. There continues to be a possibility of a hike later this year as central bankers target remaining sticky areas, but one more boost is unlikely to trouble the market.” Britain’s CPI rose 6.7% from a year earlier in August, the slowest pace in 18 months, and less than the 7% expected by economists. The probability of a quarter-point rate increase by the BOE at its meeting on Thursday — almost guaranteed earlier this week — fell to less than 50%, according to swap pricing. Gilt yields tumbled, and US Treasury yields dipped in sympathy after rates on both the five- and 10-year notes hit the highest levels since 2007 on Tuesday. In Europe, stocks rose and the pound weakened after British inflation slowed unexpectedly. The Stoxx 600 rose 0.6%, with retail and real estate leading gains. Sterling fell as much as 0.5% against the dollar to its lowest level since May as traders bet that the Bank of England is nearing the end of its hiking cycle. UK bonds soared. Here are Europe's top movers Delivery Hero shares gain as much as 8.2% as Hauck & Aufhaeuser starts coverage of the food-delivery company with a buy rating, while two other analysts reiterated their bullish stance after the stock dropped to the lowest since May following first-half earnings last month. UK stocks outperform, with midcaps leading the charge, after data showed that inflation fell unexpectedly to the lowest level in 18 months, easing pressure for further interest-rate increases from the Bank of England. Ypsomed shares rise as much as 5.3% to a record high after the Swiss pharmaceutical company announced a long-term supply agreement with Novo Nordisk for large quantities of auto injectors. The pact has “very significant” earnings potential for Ypsomed, according to ZKB. M&G shares gain as much as 4.6% after the UK fund manager reports forecast-beating operating profits for the first half-year of 2023. Clariant shares rise as much as 3.6% after Jefferies raised the recommendation on the stock to buy from hold, saying the Swiss specialty chemical company’s increased urgency to resolve the performance of its Sunliquid biofuel unit is a “key positive.” Self Storage shares soar as much as 66% to NOK39.9, as T-C Storage HoldCo, an indirect subsidiary of Teachers Insurance and Annuity Association, agrees to launch a recommended voluntary cash tender offer for 100% of the company at NOK40 per share. Finsbury Food shares rise as much as 23% to 109.5p after Dbay agrees to buy the UK specialty bakery company in a deal valuing the company’s share capital at about £143.4 million. Baloise shares drop as much as 9.9% after the Swiss insurer’s profit figures came in somewhat below expectations, according to analysts, and Vontobel says higher claims in non-life will hit earnings in 2H. Talanx shares fall as much as 7.6% after an offering of 4.88m shares by the German reinsurance company priced at €61.50 apiece, representing about a 6.5% discount to Tuesday’s close. Air Liquide shares decline as much as 3.4% after Stifel cites comments from CEO, CFO in a London sell-side meeting late Tuesday, saying trading might be more difficult in second half than 1H, especially in Electronics and Industrial Merchant units. Earlier in the session, Asian stocks fell for a third day as caution prevailed ahead of the Federal Reserve’s policy decision, with surging oil prices driving inflation and raising the possibility of higher-for-longer interest rates. The MSCI Asia Pacific Index dropped as much as 0.6% on Wednesday, led by health-care and energy shares. Japanese and Australian stocks slipped. Brent held close to $94 per barrel, setting the stage for another interest-rate hike by the Fed this year. Chinese equities dipped after the nation’s lenders kept their benchmark lending rates unchanged, following the central bank’s move last week to hold policy rates steady as officials assess the economic impact of existing stimulus. The CSI 300 Index is edging closer to the lowest level this year. Japan's Nikkei 225 gradually weakened after the latest trade data showed Japanese exports and imports remained in contraction territory, albeit not as bad as feared. Indian stocks declined the most in two months and were the worst performers in the region led by a selloff in index majors including HDFC Bank and Reliance Industries. The S&P BSE Sensex fell 1.2% to 66,800.88 on Wednesday, while the NSE Nifty 50 Index declined by the same magnitude. The MSCI Asia Pacific Index was down 0.7%. HDFC Bank contributed the most to the Sensex’s decline, decreasing 4%, following a downgrade by Nomura on rising concerns over private sector lender’s margins post merger with parent HDFC. All but one sectoral index on the BSE closed with losses amid a broad selloff in the market as traders exercised caution ahead of Federal Reserve’s rate-setting meeting. Out of 30 shares in the Sensex index, seven rose and 23 fell. Australia's ASX 200 was dragged lower by the commodity-related sectors including energy after oil prices eased back from YTD highs although losses were cushioned by resilience in consumer stocks. In FX, the Bloomberg Dollar Spot Index is flat ahead of the Fed decision later on Wednesday. the yen touched the psychological level of 148 per dollar, the lowest in more than 10 months. The pound traded as much as 0.5% lower to $1.2334 after UK inflation report; money markets price a 52% chance of a quarter-point hike on Thursday, compared with about 90% yesterday. In commodities, crude futures decline, with WTI falling 1.4% to trade near $89.90. Spot gold drops 0.1%. Goldman analysts raised their forecast for crude back to triple digits as worldwide demand hits unprecedented levels and OPEC+ supply curbs continue to tighten the market. The Wall Street bank pushed up its 12-month forecast for Brent to $100 a barrel from $93. However, most of the rally “is behind us,” the bank said in a note. Bitcoin is under modest pressure but resides in particularly narrow parameters and is yet to meaningfully deviate away from the USD 27k handle pre-FOMC. In rates, treasuries were underpinned by gilts, with futures paring portion of Tuesday’s losses led by belly of the curve. US yields are lower by as much as 3bp in belly of the curve with 5s30s steeper and 2s5s30s fly richer by ~2bp on the day; 10-year yields near 4.34% trail gilts by ~7bp in the sector. UK 2s richer by 14.5bp on the day, lowest yield since July. FOMC expected to keep rates unchanged at the 2pm announcement; the dot-plot update is expected to indicate another hike before year-end in a close call. Gilts outperform in an aggressive bull-steepening move after an unexpected drop in UK inflation opened the door for Bank of England to pause rate hikes in Thursday’s decision. US session includes Fed rate decision at 2pm New York time, released with latest staff projections. Looking to the day ahead now, and the main highlight will be the Fed’s latest policy decision and Chair Powell’s press conference. Other central bank speakers include the ECB’s Elderson. Data releases include the UK CPI and German PPI for August. Lastly, today’s earnings releases include FedEx. Market snapshot S&P 500 futures up 0.1% to 4,496.25 STOXX Europe 600 up 0.6% to 459.08 MXAP down 0.8% to 161.48 MXAPJ down 0.6% to 500.28 Nikkei down 0.7% to 33,023.78 Topix down 1.0% to 2,406.00 Hang Seng Index down 0.6% to 17,885.60 Shanghai Composite down 0.5% to 3,108.57 Sensex down 1.2% to 66,775.50 Australia S&P/ASX 200 down 0.5% to 7,163.33 Kospi little changed at 2,559.74 Brent Futures down 1.2% to $93.21/bbl Gold spot down 0.1% to $1,929.80 U.S. Dollar Index little changed at 105.09 German 10Y yield little changed at 2.74% Euro up 0.1% to $1.0695 Top Overnight News from Bloomberg The PBOC said it has sufficient policy space to support the Chinese economy, adding to expectations there may be more easing to come, including rate cuts, after this month's pause. The comments came shortly after Chinese banks left their benchmark loan rates unchanged. BBG The European Union is “very far” from imposing new tariffs on Chinese electric cars, a top official told CNBC, just days after the bloc launched an investigation into subsidies given by Beijing. CNBC UK inflation undershoots the Street by a wide margin, w/headline coming in at +6.7% (down from +6.8% in Jul and below the Street’s +7% forecast) and core at +6.2% (down from +6.9% in Jul and below the Street’s +6.8% forecast). BBG The UAW weighed an expansion of its strikes against Detroit’s automakers on, after union President Shawn Fain said more plants faced walkouts if carmakers didn’t sweeten their offers. The union will have a Facebook Live event today at 10 a.m. local time in Detroit, where it will likely discuss whether more plants will join the strike. BBG The United States is discussing terms of a mutual defense treaty with Saudi Arabia that would resemble military pacts with Japan and South Korea, according to American officials. The move is at the center of President Biden’s high-stakes diplomacy to get the kingdom to normalize relations with Israel. NYT Republicans are working on Plan Bs to avoid to a shutdown after days of chaos (some of those Plan Bs involve asking Democrats for help), but time is of the essence and there is still enormous division within the caucus. The Hill At today's meeting Fed officials are likely to make fairly straightforward revisions to their economic projections. For 2023, we expect a substantial upward revision to GDP growth (+1.1pp to +2.1%) and moderate downward revisions to the unemployment rate (-0.2pp to 3.9%) and core inflation (-0.4pp to 3.5%). For November, we think that further labor market rebalancing, better news on inflation, and the likely upcoming Q4 growth pothole will convince more participants that the FOMC can forgo a final hike this year, as we think it ultimately will. On neutral, we expect the median longer run rate dot to finally rise a bit to 2.75%. GIR Pimco warned markets may be underestimating the risks of both one more Fed hike and a US recession, making haven assets a preferred play. Money manager Geraldine Sundstrom recommends sticking to assets that offer a pickup in yields, including US agency mortgages and some financial credits. BBG US stockpiles fell by 5.25 million barrels last week, the API is said to have reported. That would bring holdings to the lowest in more than nine months if confirmed by the EIA today. Inventories at Cushing also slid. BBG We have nudged up our 12-month ahead Brent forecast from $93/bbl to $100/bbl as we now expect modestly sharper inventory draws. The key reason is that significantly lower OPEC supply and higher demand more than offset significantly higher US supply. Overall, we believe that OPEC will be able to sustain Brent in an $80-$105 range in 2024 by leveraging robust Asia-centric global demand growth (1.8mb/d) and by exercising its pricing power assertively. GIR A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly lower with risk appetite dampened ahead of the incoming deluge of central bank policy announcements including the latest FOMC rate decision and dot plot projections. ASX 200 was dragged lower by the commodity-related sectors including energy after oil prices eased back from YTD highs although losses were cushioned by resilience in consumer stocks. Nikkei 225 gradually weakened after the latest trade data showed Japanese exports and imports remained in contraction territory, albeit not as bad as feared. Hang Seng and Shanghai Comp conformed to the subdued mood after the PBoC unsurprisingly maintained its benchmark 1-year and 5-year Loan Prime Rates at 3.45% and 4.20%, respectively, while Country Garden’s dollar bondholders have been left in the dark regarding a coupon payment which was due on Monday although the developer still has a 30-day grace period. Top Asian News Chinese Loan Prime Rate 1Y (Sep) 3.45% vs. Exp. 3.45% (Prev. 3.45%); 5Y (Sep) 4.20% vs. Exp. 4.20% (Prev. 4.20%) PBoC official said China's monetary policy still has ample policy room to respond to unexpected challenges and changes, while they will continue to implement prudent monetary policy and step up counter-cyclical adjustments. Furthermore, the PBoC will keep liquidity reasonably ample and enhance the stability of credit growth, according to Reuters. NDRC Vice Chairman Cong Liang said China's macroeconomic policies have been effective and that China's economy faces a lot of difficulties and challenges, while he added that economic positives are increasing and those shorting China will surely be proven wrong. US State Department said Climate Envoy Kerry met with Chinese Vice President Han and emphasised the need for China to raise ambition in efforts to accelerate decarbonisation and reduce emissions of methane, according to Reuters. China exported zero germanium and gallium products in August which are materials key to the semiconductor industry, according to customs data. European bourses are in the green, Euro Stoxx 50 +0.5%, with the FTSE 100 +0.7% outperforming after sub-forecast inflation data and associated GBP softness. Sectors are primarily firmer, Real Estate and Banking names are outperforming on the UK data while Energy and Basic Resources lag with benchmarks mixed/softer. Stateside, futures are essentially flat across the board ahead of the FOMC, ES +0.1%, NQ +0.1%; Top European News ECB's Schnabel says new supply-side shocks may pose upside risks to inflation; Dynamics in wage growth remain strong, while labour shortages persist; Energy shock threatens to leave permanent scars in the euro area. via a slide release The Times' Shadow MPC voted 7-2 in favour of a 25bps hike to the Bank Rate to "ensure inflation is finally under control". Swedish Finance Ministry says new spending in the 2024 budget totals SEK 39bln (exp. ~40bln); prioritising fighting inflation and supporting households/welfare. Swiss Government Forecasts (SECO): downgrades 2023 CPI (2.2%), upgrades 2024 CPI (1.9%); upgrades 2023 GDP, downgrades 2024 GDP; says global economy likely to take longer to recover from challenges assumed in the June forecast. Click here for more detail. UK PM Sunak has reportedly summoned his cabinet, according to Sun reporter Cole; "Looks like we may be hearing the new Net Zero plan today". FX Sterling undermined by softer than forecast UK CPI metrics pre-BoE as casts doubt over 25 bp rate hike, Cable retreats from 1.2397 to 1.2335 before recovering. Yen finally relents in battle to say above 148.00 vs. Dollar regardless of verbal intervention from a top Japanese FX diplomat. DXY regroups, but remains cautious within the 105.00-260 range awaiting Fed guidance. Euro retains sight of 1.0700 against Greenback and is flanked by option expiries. Loonie loses post-Canadian inflation data thrust as crude prices retreat, Usd/Cad straddles 1.3450 ahead of BoC minutes and conscious of 1.1 bn expiry interest nearby. PBoC set USD/CNY mid-point at 7.1732 vs exp. 7.2926 (prev. 7.1733) PBoC official Zou said the global FX market has seen great volatility this year and said more attention will be paid to changes in the yuan exchange rate against a basket of currencies. Zou added there is a solid foundation to keep the yuan exchange rate basically stable and said they will resolutely correct one-sided pro-cyclical behaviour for the yuan exchange rate, while they will resolutely curb disruptions to market order and guard against exchange rate overshooting risks. US Treasury Secretary Yellen said the Treasury generally understands the need to smooth out volatility in exchange rates but not to influence forex levels, while she added that the view on any Japanese yen intervention would depend on the circumstances, according to Reuters. Japan's top FX diplomat Kanda says excessive yen moves are not desirable and watching FX with a high level of urgency, while they will take appropriate steps on FX as needed and are closely communicating with US and overseas FX Fixed Income Gilts front-run debt recovery before Central Bank cavalry arrives as softer than consensus UK inflation data calls 25 bp BoE hike into question. 10-year bond extends to 96.49 from 95.99, Bunds and T-note tag along within 127.74-30 and 109-10/03+ respective ranges awaiting FOMC. Commodities Crude benchmarks pressured after seven consecutive sessions of upside and ahead of multiple days of broader macro risk events, with pressure potentially also emanating from the downbeat APAC tone. Dutch TTF has trimmed initial upside and has reverted back to the sub-37.50/MWh trough, as participants continue to focus on Australian updates. Most recently, downside came alongside Offshore saying negotiations resulted in some concession on both sides. Spot gold is flat with numerous technicals in close proximity, Palladium outperforms potentially on EU auto registration numbers while base peers have managed to lift off of initial lows. US Energy Inventory Data (bbls): Crude -5.3mln (exp. -2.2mln), Gasoline +0.7mln (exp. +0.3mln), Distillate -0.3mln (exp. +0.2mln), Cushing -2.6mln. Goldman Sachs raises its 12-month ahead Brent forecast to USD 100/bbl (prev. USD 93/bbl), expects modestly sharper inventory draws. Click here for more detail. Chevron (CVX) says no agreement has been reached with unions following further consultation sessions held this week with the Fair Work Commission. Ongoing lack of agreement reinforces the view that there is "no reasonable prospect of an agreement between the parties". Engaged in meaningful negotiations to finalise enterprise agreements with market competitive remuneration and conditions. However, unions continue to ask for terms significantly higher than the market. Australia's Offshore Alliance says negotiations before the commissioner were useful and resulted in some concessions on both sides; adds that members remain open to compromise but Chevron must table a viable offer. China's state planner NDRC to increase retail prices of gasoline and diesel by CNY 385/t and CNY 370/t respectively from September 21st. Geopolitics Gulf Cooperation Council Countries and the US called for the completion of the demarcation of Kuwaiti-Iraqi maritime borders and urged Iraq to settle its internal legal status to ensure regulation of maritime in the Khor Abdallah Waterway, while they also urged Iran to fully cooperate with the IAEA, according to a joint statement. Iranian President Raisi said Washington should prove its goodwill and determination for the revival of the 2015 nuclear pact, while he reportedly demanded that the US end its sanctions on Iran. US military official says the joint military exercises with Armenia will begin today on time. Ceasefire has reportedly been announced in Karabakh, according to Sputnik Armenia and Ifax; Karabakh Armenians to meet with Azeri authorities on September 21st, Ifax reports; Armenian Deputy Foreign Minister says Yerevan could theoretically live under Azerbaijan but dialogue is crucial. Russia's Kremlin says Russian President Putin is to meet China's top diplomat Wang Yi. US Event Calendar 07:00: Sept. MBA Mortgage Applications, prior -0.8% 14:00: Sept. Interest on Reserve Balances R, est. 5.40%, prior 5.40% 14:00: Sept. FOMC Rate Decision (Lower Boun, est. 5.25%, prior 5.25% 14:00: Sept. FOMC Rate Decision (Upper Boun, est. 5.50%, prior 5.50% DB's Jim Reid concludes the overnight wrap The long-term study shows how this has been the worst start to a decade for US Treasuries since our data begins in 1800 and yesterday incrementally added to this as 10yr US yields hit 15-plus year highs, with 2yrs at 16-year highs, just as we approach an important trio of central bank meetings. That starts with the Federal Reserve tonight, before we hear from the Bank of England tomorrow, and then the Bank of Japan on Friday morning. But despite all the recent speculation that central banks are near the end of their tightening cycles, the backdrop this week has been a much more hawkish one. For instance, oil prices hit new 10-month highs intra-day though they were marginally lower on the day by the close. We also had an upside surprise from Canada’s CPI, which added to the sense that rate cuts weren’t coming anytime soon. Of course, the main focus today will be on the Federal Reserve’s decision tonight, along with Chair Powell’s subsequent press conference. In terms of the actual decision, they’re widely expected to leave rates unchanged, so the bigger focus is likely to be on their latest Summary of Economic Projections, which includes the dot plot for where officials see rates over the years ahead. At the last quarterly release in June, the dot plot pointed to two further rate hikes by year-end, and we got one of them at the most recent meeting in July. Our US economists still expect the Fed to signal one further hike this year, but they think Powell will leave open the question of when that tightening could occur, and will lean heavily on a message of data dependency. And even though they expect the Fed’s forecasts to show softer inflation, they think that stronger growth and lower unemployment should counterbalance that, meaning that the 2024 dot will show one less rate cut in 2024 as well. See their full preview here. We’ll see where things stand after the Fed’s decision, but a key story for much of yesterday was the continued rise in oil prices. Brent Crude almost reached $96/bl yesterday morning but it retreated to close a touch below Monday’s 10-month high (-0.10% to $94.34/bbl) and this morning is trading at $93.23/bbl as we go to print. So a big correction in the last 15 hours from the peaks. Elsewhere on the energy front, we saw a sizeable spike in European natural gas prices. One month TTF gas futures were up +9.84% to EUR 37.4/MWh, their highest level in three weeks, amid delays to production at Norwegian gas fields. In other inflationary news, we had another upside inflation surprise out of Canada, as CPI hit +4.0% in August (vs. +3.8% expected). That led investors to price in a much higher likelihood that the Bank of Canada would hike rates next month, with the likelihood up from 25% on Monday to 51% after the close yesterday. In turn, Canadian sovereign bonds significantly underperformed, with the 10yr yield up +11.4bps yesterday to a new post-2008 high. Those inflationary developments led investors to price in higher rates for longer. Indeed, the rate priced in for the Fed’s December 2024 meeting hit a new high for the cycle at 4.63%. That means less than three 25bp cuts are now priced in by end-2024. That helped boost yields across the curve, with the 2yr Treasury yield (+3.7bps) closing at a new high for this cycle at 5.09%, and the 10yr yield (+5.6bps) also closed at a new cycle high of 4.36%. It was much the same story in Europe, where yields on 10yr bunds (+3.0bps) and BTPs (+0.7bps) hit a 6-month high, whilst yields on 10yr French OATs (+2.8bps) closed at their highest since 2012. The only exception to this pattern were yields on 10yr gilts (-4.9bps), which fell ahead of this morning’s CPI report for August. That’ll be released shortly after we go to press, and will be the last big data release ahead of the Bank of England’s decision tomorrow. Headline is expected to pick up two tenths to 7% YoY with core down a tenth to 6.8% YoY. The prospect of higher rates provided a tough backdrop for equities, though the S&P 500 crept back up in the last few hours of trading from being down -0.8% at the early session lows to close 'only' -0.22% lower, albeit to a 3-week low. The moderate decline was a broad-based one, with 8 of 10 S&P 500 sector groups down on the day. The other major US indices saw similar declines, including the Dow Jones (-0.31%) and the NASDAQ (-0.23%), whilst the small-cap Russell 2000 (-0.42%) fell to its lowest level since late-June. In Europe the picture was a bit more positive, but the STOXX 600 still fell -0.04%. In Asia, the Nikkei (-0.36%), Hang Seng (-0.58%), CSI (-0.31%), Shanghai Composite (-0.34%) and the KOSPI (-0.05%) are all slightly lower alongside S&P 500 (-0.11%) and NASDAQ 100 (-0.16%) futures. Early morning data showed that Japan’s exports dropped -0.8% y/y in August (v/s -2.1% expected) and against a -0.3% in July, making it the second month of declines (even if better than expected) mainly due to weak exports to China (-11.0% y/y). Meanwhile, imports weakened -17.8% y/y in August less than the expected fall of -20.0% as against a revised decline of -13.6%. In FX, the Japanese yen pared its initial gains against the dollar to trade at 147.81 (+0.03%) after US Treasury Secretary Janet Yellen stated that the US would show understanding over Japan’s intervention to support its currency if the measures are aimed at smoothing out undue volatility. You're unlikely to see anything ahead of the FOMC and BoJ (Friday) but this maybe makes intervention a bit easier going forward. Elsewhere, the People’s Bank of China (PBOC) left its 1-yr and 5-yr loan prime rates unchanged at 3.45% and 4.2%, respectively. When it came to yesterday’s other data, US housing starts fell significantly more than expected in August, with an annualised rate of 1.283m (vs. 1.439m expected). That’s their lowest level since May 2020, when the economy was still affected by the initial wave of Covid-19. However, building permits moved up to an annualised 1.543m (vs. 1.440m expected), which is their highest level since October. Permits tend to be the more reliable data point so the uncertainty around housing continues after Monday's poor NAHB. Separately in the Euro Area, the final August CPI reading was revised down to +5.2%, compared with the initial flash reading at +5.3%. To the day ahead now, and the main highlight will be the Fed’s latest policy decision and Chair Powell’s press conference. Other central bank speakers include the ECB’s Elderson. Data releases include the UK CPI and German PPI for August. Lastly, today’s earnings releases include FedEx. Tyler Durden Wed, 09/20/2023 - 08:14.....»»
11 Crypto Stocks with Biggest Upside
In this article, we will take a look at the 11 crypto stocks with biggest upside. To see more such companies, go directly to 5 Crypto Stocks with Biggest Upside. Cryptocurrencies soared last month after a three-judge appeals panel in Washington vacated a decision by the U.S. Securities and Exchange Commission that blocked Grayscale’s attempt […] In this article, we will take a look at the 11 crypto stocks with biggest upside. To see more such companies, go directly to 5 Crypto Stocks with Biggest Upside. Cryptocurrencies soared last month after a three-judge appeals panel in Washington vacated a decision by the U.S. Securities and Exchange Commission that blocked Grayscale’s attempt to convert Grayscale Bitcoin Trust into an Bitcoin (BTC-USD) exchange-traded fund. Several cryptocurrencies rallied strongly after this decision, including Bitcoin, Ethereum, Dogecoin and Binance Coin. Analysts see this decision as a critical milestone for the industry. Another win for the crypto industry came last month when a US judge ruled that Ripple Labs Inc did not violate federal securities law by selling its XRP token on public exchanges. However, many analysts believe the crypto industry is facing the same concentration of value problem that is seen in the stock markets: just a few cryptocurrencies account for most of the gains in the industry and the industry is littered with meme coins and coins that have no solid underlying projects. As a result analysts and experts keep cautioning investors, which creates skepticism and volatility in the industry. But what are the reasons behind the skepticism? Did the industry lose hope on the future of money and how digital currencies promise to change it with decentralization? Has the fundamental thesis that once made cryptocurrencies the darlings of the global markets shifted? Many mainstream analysts now believe cryptocurrencies have now gone in the background when compared to other truly disruptive technologies like AI and Cloud computing. For example, a Refinitiv report said that of the many technologies that changed our lives over the past few years, AI is the most disruptive. Other disruptive technologies include high-speed internet, Cloud computing and blockchain. But surprisingly, according to the report, analysts are not excited about crypto. “This stands in stark contrast to cryptocurrencies, where institutional traders of all ages remain largely unexcited despite the efforts of many to make these markets more accessible.” So that means the whole crypto chapter was a façade and cryptocurrencies do not promise any good for the world? A report by Oliver Wyman Forum on the crypto outlook for 2023 and beyond answers this question in detail. It says: “The short answer is no – and that’s a good thing. Many parts of the sector show real promise for useful innovations to provide more efficient and effective financial products and services for businesses and consumers. The calamities of the past year revealed major flaws in the business models and practices of many crypto ventures, notably in the exchange and lending spaces, but they did not reflect fundamental weaknesses in the industry’s underlying technology or its ability to transform many areas of financial services. The challenge ahead – for digital asset businesses, investors, developers, policymakers, and consumers – is to focus on that promise, identify and rectify the flaws, and develop rules of the road (both formal and informal) that offer protections for investors and users while fostering truly valuable innovation.” Just because the governments around the world initiated a crackdown against crypto and the industry is littered with scams and meme coins does not make the fundamental thesis behind crypto invalid. There are investors and major companies still betting on the future of digital money and they believe sooner or later the world will move to digital currencies, DeFi and related technologies. Last month, JPMorgan said in a report that it sees “limited downside” to the crypto markets in the near term. The bank said in a report that the reversal of crypto rally seen after the Ripple Vs SEC court decision could be because of a “broader correction in risk assets such as equities and in particular tech, which in turn appears to have been induced by frothy positioning in tech, higher U.S. real yields and growth concerns about China.” The Oliver Wyman report said that despite the problems, innovation continues to take place in the crypto industry. The report cited data according to which last year, during the peak of the crypto winter, the industry saw a rise in crypto developers. It also quoted data from Celent which says that 91% of institutional investors are “interested” in investing in tokenized assets. The report however warned that the speculative element in the industry will remain strong. It however advised investors to focus on crypto projects with solid underlying assets and technologies. The report said that the industry has taken the form of an ecosystem, strongly interconnected, causing regulators and outsiders to see it as a whole. The report said this is not the right approach: “Second, and more important, the world’s tendency to lump everything in digital assets together as crypto creates substantial indirect impacts. Policymakers are likely to accelerate the movement to bring digital assets clearly within the regulatory perimeter, and to do so by applying tougher regulatory standards than they would have prior to the recent debacles. Some of this policy action will fail to adequately distinguish between different parts of the digital assets ecosystem. Similarly, funding for digital assets projects of all kinds is likely to be tougher to find going forward than it was when crypto was spinning gold for investors.” source: pixabay Our Methodology For this article, we conducted a survey of mainstream financial media and consulted at least 12 finance websites to see which cryptocurrency-related stocks have the biggest upside according to these websites. We picked 11 stocks that appeared most frequently on these websites. Some notable stocks include Paypal Holdings Inc. (NASDAQ:PYPL), NVIDIA Corporation (NASDAQ:NVDA) and Block, Inc. (NYSE:SQ). Crypto Stocks with Biggest Upside According to Mainstream Financial Media 11. Aerohive Networks Inc. (NYSE:HIVE) Number of Hedge Fund Holders: 4 Canadian-based crypto mining firm Aerohive Networks Inc. (NYSE:HIVE) ranks 11th in our list of the best crypto stocks with upside potential according to financial media. Aerohive Networks Inc. (NYSE:HIVE) produced 274 bitcoins in August. 10. Canaan Inc. (NASDAQ:CAN) Number of Hedge Fund Holders: 4 Chinese firm Canaan Inc. (NASDAQ:CAN) is known for its Blockchain servers and ASIC microprocessors for use in bitcoin mining. As of the end of the second quarter of 2023, 4 hedge funds reported owning stakes in Canaan Inc. (NASDAQ:CAN). Canaan Inc. (NASDAQ:CAN)’s management talked about the challenges the company is facing and the expected obstacles in a latest earnings call and said: “We believe that the broader market lacks sufficient upward momentum. In addition, large scale miners financing capabilities remain constrained. The recent hash rate growth curve also indicates a notable decline in the overall industry’s incremental hash rate investment and deployment during the first three quarters of this year. This trend aligns with our market assessment. Furthermore, policy changes concerning crypto-currencies and mining in various countries introduced further uncertainty to both the industry and our operations. In some cases, these changes could present unforeseen challenged to our actual operations. Given all the factors I have just outlined, we have a highly cautious outlook for the third quarter of 2023. We expect that revenues from the — for the quarter will be approximately $30 million. This forecast reflects our current views on the market and operational conditions and actually results may be subject to change. Overall, as you might already be aware, we have navigated several Bitcoin cycles since our inception in 2013. Our task is to confront and resolve the challenges we encounter. Much like Bitcoin itself, where every day we create new history with each new day, we become more experienced and stronger than the day before. We remain fully committed to performing ahead of the market curve. Next month, on September 12, we plan to celebrate the company’s 10th anniversary in Singapore. Canaan stands out industry [voting] (ph) and proudly holds the distinction of being the first NASDAQ listed company in our industry. Over the past decade, our evolution from a project group into a multinational company with leading chief design capabilities has been remarkable.” 9. Hut 8 Mining Corp. (NASDAQ:HUT) Number of Hedge Fund Holders: 6 Earlier this year crypto mining company Hut 8 Mining Corp. (NASDAQ:HUT) announced that it will combine with U.S. Data Mining Group, Inc. in an all-stock merger of equals. As of the end of the second quarter of 2023, 31 hedge funds out of the 910 hedge funds tracked by Insider Monkey had stakes in Hut 8 Mining Corp. (NASDAQ:HUT). The biggest hedge fund stakeholder of Hut 8 Mining Corp. (NASDAQ:HUT) was Steven Tananbaum’s GoldenTree Asset Management which owns a $2.2 million stake in the company. Like HUT, hedge funds also like Paypal Holdings Inc. (NASDAQ:PYPL), NVIDIA Corporation (NASDAQ:NVDA) and Block, Inc. (NYSE:SQ). 8. Marathon Digital (NASDAQ:MARA) Number of Hedge Fund Holders: 10 Digital asset tech company Marathon Digital is engaged in crypto mining services. 7. Riot Platforms, Inc. (NASDAQ:RIOT) Number of Hedge Fund Holders: 18 Riot Platforms, Inc. (NASDAQ:RIOT) shares have been on an absolute tear this year as the stock has almost doubled year to date through September 11. As of the end of the second quarter of 2023, 18 hedge funds tracked by Insider Monkey had stakes in Riot Platforms, Inc. (NASDAQ:RIOT). The biggest stakeholder of Riot Platforms, Inc. (NASDAQ:RIOT) was Paul Marshall and Ian Wace’s Marshall Wace LLP which had an $18 million stake in the company. 6. Coinbase Global, Inc. (NASDAQ:COIN) Number of Hedge Fund Holders: 27 Coinbase Global, Inc. (NASDAQ:COIN) ranks 6th in our list of the crypto stocks with high upside potential according to mainstream financial media. Last month, Coinbase announced it would buy an equity stake in Circle, the issuer of dollar-pegged USD Coin (USDC-USD). Insider Monkey’s database of 910 hedge funds shows that 27 hedge funds out of the 910 hedge funds reported owning stakes in Coinbase Global, Inc. (NASDAQ:COIN). The most significant stakeholder of Coinbase Global, Inc. (NASDAQ:COIN) was Catherine D. Wood’s ARK Investment Management which owns an $867 million stake in the company. Like Coinbase Global, Inc. (NASDAQ:COIN), Paypal Holdings Inc. (NASDAQ:PYPL), NVIDIA Corporation (NASDAQ:NVDA) and Block, Inc. (NYSE:SQ) are some crypto stocks analysts believe will rise in the future. Click to continue reading and see 5 Crypto Stocks with Biggest Upside. Suggested articles: 30 Most Valuable Currencies in the World in 2023 12 Best Technology ETFs To Buy 25 Countries with the Highest Cryptocurrency Ownership Disclosure: None. 11 Crypto Stocks with Biggest Upside is originally published on Insider Monkey......»»
The modern CEO job is completely broken — but AI could make executives useful again
CEOs have become number-crunching automatons with no creative vision. So why not just replace them with actual robots? The only job that seems to be safe from the rise of ChatGPT and other AI tech is the one that could easily be automated: CEO.Arantza Pena Popo/InsiderFrom writers and teachers to bankers and lawyers, most jobs seem ripe to be replaced by artificial intelligence — with one notable exception. The only job that seems to be safe from the rise of ChatGPT and other AI tech is, oddly enough, the most expensive and easily automated role: CEO.Chief executives have recently spent a lot of time threatening to replace their lazy, entitled, and unproductive workers with AI, but they never seem to face the same level of scrutiny other employees do. Look a little closer, though, and it becomes clear that the role of the modern CEO is not only broken, as I've pointed out before, but it could easily be done by the technology we have now. America's top CEOs make over 300 times more than the average worker, despite the fact that their primary duty is to make easily replicable optimization decisions based not on a real understanding of the business but on inputs from spreadsheets fed to them by consultants. Far from being an actual contributor to a company's bottom line, the late 20th century's "superstar CEO" movement has ushered in a generation of executives who operate mainly as figureheads with little actual responsibility or accountability.The solution is fairly simple: We must hold CEOs accountable in the same way that we do their employees or dissolve the role entirely. A chief executive must meaningfully contribute in a way that is measurable and delivers clear value for the company. Failing that, I would argue that the opaque role of the CEO should be the first one to be replaced by artificial intelligence. An AI model would likely give quicker answers, be in a continual state of self-improvement, take feedback instantly, and deliver the same kind of "operational efficiency" for which the current crop of CEOs are paid millions of dollars a year.As comedian Scott Seiss succinctly put it in a late July TikTok post: "Let's replace our employees with AI? Let's replace our CEOs with AI. Actually, AI is too advanced for that job, all you need is a Fisher Price tape recorder loaded up with a bad bunch of ideas."If it's broke, then fix itCEOs like to project an image of invincibility — without them the directionless company will fall apart. "You can't replace me," the attitude screams, "I'm just too valuable." So what exactly is it that these executives are doing on a daily basis that creates so much value? A 2018 Harvard study of 27 CEOs tried to answer this question. The final report put the executives' various tasks into impressive-sounding buckets like "people and relationships," "functional and business unit reviews," and "strategy." But digging deeper, it's clear that these painfully vague allocations of time are masking the fact that executives have a great deal of trouble telling you what they do for a living. Most of the time is spent in meetings, talking about "strategy," and making big calls rather than contributing meaningfully to the organization, either through experience or actual execution.Even when major CEOs are given the chance to clearly state the value they offer to a company, it comes across as noxious word salad. The former Proctor & Gamble CEO A.G. Lafley wrote a 2009 Harvard Business Review article called "What Only the CEO Can Do." Once described as the "most successful CEO in P&G History," Lafley made as much as $19.5 million a year in his role. Here's how he described to role of CEO: "The CEO alone experiences the meaningful outside at an enterprise level and is responsible for understanding it, interpreting it, advocating for it, and presenting it so that the company can respond in a way that enables sustainable sales, profit, and total shareholder return (TSR) growth." He also incorrectly stated that "the CEO can see opportunities that others don't see" and "make the judgments and tough calls others are unable to make" thanks to being "the one person whose boss isn't another company employee." Can you imagine any Proctor & Gamble employee bringing such a vapid and generic answer to their manager? Can you imagine telling your boss that what you did today was "interpreting the meaningful outside"? Lafley appears to summarize his position and value to the company as someone who doesn't actually do or have any responsibility for anything while also holding more power than anyone else in the organization. Alternatively, imagine asking any old AI model to describe the job of a CEO. It would probably spit out something much better than "balancing sufficient yield in the present with necessary investment in the future."It isn't as if executives can't be useful for a company. A chief financial officer focuses on cash flow, makes sure the taxes are paid, and ensures the financial statements of the company are properly prepared. A chief security officer makes sure employees don't get hacked or ensures the physical safety of workers. By contrast, a chief executive officer has become a figurehead who makes calls based on vibes with the occasional meeting or press hit mixed in.Let's replace our employees with AI? Let's replace our CEOs with AI.Don't get me wrong — a company does, generally, need a figurehead, and you need someone with a company-wide perspective who can guide an organization and make decisions. You need someone who defines the mission and then holds the company to that mission. But if the executive's only role is to make these decisions with no other contribution to or accountability for the results, the role loses much of its value. Chief executives have become the Final Managers — disconnected "ideas guys" like Elon Musk who get credit for every major success without being fired for a single major failure. Without connecting their outsize pay to the results of their decisions, there is no reason to have a CEO. If the job of a chief executive is simply to take data and regurgitate extrapolations that deliver "efficiency," I can think of no role more appropriate for AI replacement.Stars in their eyesDavid Zaslav, the CEO of Warner Bros. Discovery, has been a major part of the reason that the Hollywood strikes have gone on for months. Zaslav — who made $39 million last year — along with the other members of the Alliance of Motion Picture and Television Producers have helped suck as much as $5 billion out of the California economy (and the entertainment industry). And it's not as if his business decision-making at his own company is earning high marks with investors either: Since the merger of Warner Bros. and Discovery in 2022, the company's combined market capitalization has dropped by $20 billion. An executive who has never had to directly contribute to the product that produces the revenue to pay his... salary is the most easily automatable job of all time.Perhaps the most galling part about his leadership of one of Hollywood's flagship studios is the fact that he appears to never have been involved in the ground-level process of making a movie, TV show, podcast, or any other creative pursuit. Zaslav began his career as a lawyer and has spent decades working in media in various "strategic" capacities, but his utter disconnection from the process of creativity has helped prolong this costly, painful strike. He and the other studio heads seem to believe entertainment is a commodity that can be automated and produced at will. Since the merger, the CEO's most notable creative decisions have been to cancel shows, yank content from the company's streaming services, and shelve already-completed movies, all in the name of saving money. These aren't the moves of an executive passionate about creating high-quality entertainment that will win the public's dollars; it's the type of eye-glazing number crunching that could be done by feeding an Excel spreadsheet into an AI model.An executive who has never had to directly contribute to the product that produces the revenue to pay his (it's almost always a man) salary is the most easily automatable job of all time. Executives that only "make calls," sign contracts, or give vapid media interviews are not doing work — they're glorified productivity software, a barely relevant regurgitation machine built from a core of privilege and exploitation. These CEOs don't do the work, they just query a database of other executives and actual workers to make calls without any practical experience or actual conviction behind the decision — kind of like ChatGPT. The difference is that when CEOs "hallucinate," it tends to cost thousands of people their jobs. And almost every one of those layoff announcements refers to efficiency or "necessary changes," yet never references the biggest, stupidest expenditure of them all — a vacuously defined public steward that makes more than anybody else at the company. Chief executives have become part of the managerial-industrial complex, an entire section of the economy for people who don't contribute anything other than demanding others do their work. "Management" is not a job unless you have the core experience of the thing you are managing at such a level that you could actually do it yourself. The CEO of a tech company should be able to code, or build, or design. The CEO of an entertainment company should have been directly involved in the creation of successful movies or television shows. I'd even go as far as to say that the CEO of an airline should either be able to fly a plane or handle multiple shifts a year as a steward on one. What better way can we hold a chief executive accountable than making sure they actually execute? A CEO should be someone who has an active role in the profit generation of the business, either through actively building the company or closing the deals and partnerships that will generate said revenue. Said chief executives must also be held directly accountable to real metrics and have their pay tied directly to the success of the business, the happiness of the business' customers, and the happiness of their employees. From my own experience, companies thrive (and great workers stay) when they feel that their boss works as hard as they do and can actually express what it is they do on a day-to-day basis. In my own life running a tech PR agency, I take responsibility for new business, pitching, writing, and media training — the same jobs that the people working for me do, because no work at a company is below its chief executive. Define what a CEO is, set the terms of their success, and then hold them accountable. If you can't do that, you don't need a CEO. Or perhaps your CEO needs to make a more modest income. Or perhaps the chief executives need to be far more afraid of losing their jobs to equally capable robots.Ed Zitron is the CEO of EZPR, a national tech and business public-relations agency. He is also the author of the tech and culture newsletter Where's Your Ed At and the host of the "15 Minutes in Hell" podcast.Read the original article on Business Insider.....»»
The one job AI should actually replace: CEOs
CEOs have become number-crunching automatons with no creative vision. So why not just replace them with actual robots? The only job that seems to be safe from the rise of ChatGPT and other AI tech is the one that could easily be automated: CEO.Arantza Pena Popo/InsiderFrom writers and teachers to bankers and lawyers, most jobs seem ripe to be replaced by artificial intelligence — with one notable exception. The only job that seems to be safe from the rise of ChatGPT and other AI tech is, oddly enough, the most expensive and easily automated role: CEO.Chief executives have recently spent a lot of time threatening to replace their lazy, entitled, and unproductive workers with AI, but they never seem to face the same level of scrutiny other employees do. Look a little closer, though, and it becomes clear that the role of the modern CEO is not only broken, as I've pointed out before, but it could easily be done by the technology we have now. America's top CEOs make over 300 times more than the average worker, despite the fact that their primary duty is to make easily replicable optimization decisions based not on a real understanding of the business but on inputs from spreadsheets fed to them by consultants. Far from being an actual contributor to a company's bottom line, the late 20th century's "superstar CEO" movement has ushered in a generation of executives who operate mainly as figureheads with little actual responsibility or accountability.The solution is fairly simple: We must hold CEOs accountable in the same way that we do their employees or dissolve the role entirely. A chief executive must meaningfully contribute in a way that is measurable and delivers clear value for the company. Failing that, I would argue that the opaque role of the CEO should be the first one to be replaced by artificial intelligence. An AI model would likely give quicker answers, be in a continual state of self-improvement, take feedback instantly, and deliver the same kind of "operational efficiency" for which the current crop of CEOs are paid millions of dollars a year.As comedian Scott Seiss succinctly put it in a late July TikTok post: "Let's replace our employees with AI? Let's replace our CEOs with AI. Actually, AI is too advanced for that job, all you need is a Fisher Price tape recorder loaded up with a bad bunch of ideas."If it's broke, then fix itCEOs like to project an image of invincibility — without them the directionless company will fall apart. "You can't replace me," the attitude screams, "I'm just too valuable." So what exactly is it that these executives are doing on a daily basis that creates so much value? A 2018 Harvard study of 27 CEOs tried to answer this question. The final report put the executives' various tasks into impressive-sounding buckets like "people and relationships," "functional and business unit reviews," and "strategy." But digging deeper, it's clear that these painfully vague allocations of time are masking the fact that executives have a great deal of trouble telling you what they do for a living. Most of the time is spent in meetings, talking about "strategy," and making big calls rather than contributing meaningfully to the organization, either through experience or actual execution.Even when major CEOs are given the chance to clearly state the value they offer to a company, it comes across as noxious word salad. The former Proctor & Gamble CEO A.G. Lafley wrote a 2009 Harvard Business Review article called "What Only the CEO Can Do." Once described as the "most successful CEO in P&G History," Lafley made as much as $19.5 million a year in his role. Here's how he described to role of CEO: "The CEO alone experiences the meaningful outside at an enterprise level and is responsible for understanding it, interpreting it, advocating for it, and presenting it so that the company can respond in a way that enables sustainable sales, profit, and total shareholder return (TSR) growth." He also incorrectly stated that "the CEO can see opportunities that others don't see" and "make the judgments and tough calls others are unable to make" thanks to being "the one person whose boss isn't another company employee." Can you imagine any Proctor & Gamble employee bringing such a vapid and generic answer to their manager? Can you imagine telling your boss that what you did today was "interpreting the meaningful outside"? Lafley appears to summarize his position and value to the company as someone who doesn't actually do or have any responsibility for anything while also holding more power than anyone else in the organization. Alternatively, imagine asking any old AI model to describe the job of a CEO. It would probably spit out something much better than "balancing sufficient yield in the present with necessary investment in the future."It isn't as if executives can't be useful for a company. A chief financial officer focuses on cash flow, makes sure the taxes are paid, and ensures the financial statements of the company are properly prepared. A chief security officer makes sure employees don't get hacked or ensures the physical safety of workers. By contrast, a chief executive officer has become a figurehead who makes calls based on vibes with the occasional meeting or press hit mixed in.Let's replace our employees with AI? Let's replace our CEOs with AI.Don't get me wrong — a company does, generally, need a figurehead, and you need someone with a company-wide perspective who can guide an organization and make decisions. You need someone who defines the mission and then holds the company to that mission. But if the executive's only role is to make these decisions with no other contribution to or accountability for the results, the role loses much of its value. Chief executives have become the Final Managers — disconnected "ideas guys" like Elon Musk who get credit for every major success without being fired for a single major failure. Without connecting their outsize pay to the results of their decisions, there is no reason to have a CEO. If the job of a chief executive is simply to take data and regurgitate extrapolations that deliver "efficiency," I can think of no role more appropriate for AI replacement.Stars in their eyesDavid Zaslav, the CEO of Warner Bros. Discovery, has been a major part of the reason that the Hollywood strikes have gone on for months. Zaslav — who made $39 million last year — along with the other members of the Alliance of Motion Picture and Television Producers have helped suck as much as $5 billion out of the California economy (and the entertainment industry). And it's not as if his business decision-making at his own company is earning high marks with investors either: Since the merger of Warner Bros. and Discovery in 2022, the company's combined market capitalization has dropped by $20 billion. An executive who has never had to directly contribute to the product that produces the revenue to pay his... salary is the most easily automatable job of all time.Perhaps the most galling part about his leadership of one of Hollywood's flagship studios is the fact that he appears to never have been involved in the ground-level process of making a movie, TV show, podcast, or any other creative pursuit. Zaslav began his career as a lawyer and has spent decades working in media in various "strategic" capacities, but his utter disconnection from the process of creativity has helped prolong this costly, painful strike. He and the other studio heads seem to believe entertainment is a commodity that can be automated and produced at will. Since the merger, the CEO's most notable creative decisions have been to cancel shows, yank content from the company's streaming services, and shelve already-completed movies, all in the name of saving money. These aren't the moves of an executive passionate about creating high-quality entertainment that will win the public's dollars; it's the type of eye-glazing number crunching that could be done by feeding an Excel spreadsheet into an AI model.An executive who has never had to directly contribute to the product that produces the revenue to pay his (it's almost always a man) salary is the most easily automatable job of all time. Executives that only "make calls," sign contracts, or give vapid media interviews are not doing work — they're glorified productivity software, a barely relevant regurgitation machine built from a core of privilege and exploitation. These CEOs don't do the work, they just query a database of other executives and actual workers to make calls without any practical experience or actual conviction behind the decision — kind of like ChatGPT. The difference is that when CEOs "hallucinate," it tends to cost thousands of people their jobs. And almost every one of those layoff announcements refers to efficiency or "necessary changes," yet never references the biggest, stupidest expenditure of them all — a vacuously defined public steward that makes more than anybody else at the company. Chief executives have become part of the managerial-industrial complex, an entire section of the economy for people who don't contribute anything other than demanding others do their work. "Management" is not a job unless you have the core experience of the thing you are managing at such a level that you could actually do it yourself. The CEO of a tech company should be able to code, or build, or design. The CEO of an entertainment company should have been directly involved in the creation of successful movies or television shows. I'd even go as far as to say that the CEO of an airline should either be able to fly a plane or handle multiple shifts a year as a steward on one. What better way can we hold a chief executive accountable than making sure they actually execute? A CEO should be someone who has an active role in the profit generation of the business, either through actively building the company or closing the deals and partnerships that will generate said revenue. Said chief executives must also be held directly accountable to real metrics and have their pay tied directly to the success of the business, the happiness of the business' customers, and the happiness of their employees. From my own experience, companies thrive (and great workers stay) when they feel that their boss works as hard as they do and can actually express what it is they do on a day-to-day basis. In my own life running a tech PR agency, I take responsibility for new business, pitching, writing, and media training — the same jobs that the people working for me do, because no work at a company is below its chief executive. Define what a CEO is, set the terms of their success, and then hold them accountable. If you can't do that, you don't need a CEO. Or perhaps your CEO needs to make a more modest income. Or perhaps the chief executives need to be far more afraid of losing their jobs to equally capable robots.Ed Zitron is the CEO of EZPR, a national tech and business public-relations agency. He is also the author of the tech and culture newsletter Where's Your Ed At and the host of the "15 Minutes in Hell" podcast.Read the original article on Business Insider.....»»
BlackRock TCP (TCPC), BlackRock Capital (BKCC) Sign Merger Deal
BlackRock TCP (TCPC) signs a merger agreement with BlackRock Capital (BKCC). The combined company will have better access to capital. BlackRock TCP Capital Corp. TCPC has entered into an agreement with BlackRock Capital Investment Corporation BKCC, wherein BKCC will merge with and into a wholly-owned indirect subsidiary of TCPC. The completion of the deal, subject to the approval of TCPC and BKCC shareholders, HSR Act approval and satisfaction of other customary closing conditions, is expected in the first quarter of 2024.Following the merger, BlackRock TCP Capital will continue to trade under the ticker TCPC and the surviving entity will continue as a subsidiary of TCPC.Deal DetailsPer the terms of the deal, BKCC shareholders will receive newly issued shares of TCPC common stock based on the ratio of the BKCC net asset value (“NAV”) per share divided by the TCPC NAV per share, each determined shortly before closing.Thus, the merger will result in an ownership split of the combined company proportional to each of TCPC’s and BKCC’s respective NAVs.In relation to the merger, TCPC’s advisor, a wholly-owned indirect subsidiary of BlackRock, Inc. BLK, agreed to some shareholder-friendly actions, which include a reduction in the base management fee rate from 1.50% to 1.25% on assets equal to or below 200% of the NAV of TCPC, with no change to the basis of the calculation.It includes a waiver of all or a portion of its advisory fees to the extent the adjusted net investment income of TCPC on a per-share basis is less than 32 cents per share in any of the first four fiscal quarters ending after the closing of the transaction, to the extent there are sufficient advisory fees to cover such deficit; and coverage of 50% of merger transaction costs for both TCPC and BKCC, up to a combined cap of $6 million.Before the closing of the deal, TCPC and BKCC intend to maintain usual course of declaring and paying quarterly dividends and, to the extent necessary, will declare any special distributions required to distribute sufficient taxable income to continue to comply with each of its regulated investment company statuses.Following the merger, the combined company is expected to have enhanced scale and a large asset base, including total assets of $2.4 billion and net assets of $1.1 billion.Moreover, the combined company will likely have better access to capital, including the potential to access debt financing on more favorable terms.The merger is expected to drive meaningful operating synergies via the elimination or reduction of redundant expenses.The merger is expected to drive accretion of net investment income over time through reduced management fees, lower combined operating expenses and opportunities to grow the portfolio through combined leverage capacity.Management CommentsRajneesh Vig, the co-head of US private capital for BLK and chairman and CEO of BlackRock TCP Capital, stated, “We are very excited to announce the transaction between BlackRock TCP Capital Corp. and BlackRock Capital Investment Corporation. This is an opportune time to combine our companies. With BCIC having successfully transformed its portfolio, our investment portfolios are now closely aligned. We believe this transaction positions the combined companies for sustained growth and will create meaningful value for the shareholders of both companies.”James Keenan, the interim CEO of BlackRock Capital Investment, said, “This transaction continues our commitment to build a best-in-class platform that offers clients products and solutions to capitalize on the expanding opportunities in private debt. Over the past 20 years, BlackRock has built leading private debt capabilities to help our clients achieve their investment objectives by aligning our proven investment excellence with long-term market opportunities. This merger is a strategic next step in the growth and evolution of our business development company platform, which is an important part of our Global Private Debt business.”Over the past six months, shares of TCPC have gained 5% whereas the BKCC stock has lost 5.7% compared with the industry’s 0.4% growth. Image Source: Zacks Investment ResearchCurrently, TCPC and BKCC, each carry a Zacks Rank #2 (Buy) and BLK carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Zacks Names #1 Semiconductor Stock It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom. With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report BlackRock, Inc. (BLK): Free Stock Analysis Report BLACKROCK TCP CAPITAL CORP. (TCPC): Free Stock Analysis Report BlackRock Capital Investment Corporation (BKCC): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research.....»»
UBS Group AG (NYSE:UBS) Q2 2023 Earnings Call Transcript
UBS Group AG (NYSE:UBS) Q2 2023 Earnings Call Transcript August 31, 2023 UBS Group AG misses on earnings expectations. Reported EPS is $0.02 EPS, expectations were $0.49. Operator: Ladies and gentlemen, good morning. Welcome to the UBS Second Quarter 2023 Results Presentation. The conference must not be recorded for publication or broadcast. [Operator Instructions] At […] UBS Group AG (NYSE:UBS) Q2 2023 Earnings Call Transcript August 31, 2023 UBS Group AG misses on earnings expectations. Reported EPS is $0.02 EPS, expectations were $0.49. Operator: Ladies and gentlemen, good morning. Welcome to the UBS Second Quarter 2023 Results Presentation. The conference must not be recorded for publication or broadcast. [Operator Instructions] At this time, it’s my pleasure to hand over to Sarah Mackey, UBS Investor Relations. Please go ahead, madam. Sarah Mackey: Good morning, and welcome, everyone. Before we start, I would like to draw your attention to our cautionary statement slide at the back of today’s results presentation. Please also refer to the risk factors filed with our Group results today, together with additional disclosures in our SEC filings. On slide two, you can see our agenda for today. It’s now my pleasure to hand over to Sergio Ermotti, Group CEO. Photo by bruce-mars-8YG31Xn4dSw-unsplash Sergio Ermotti: Thank you, Sarah, and good morning, everyone. I hope you had a relaxing summer break, for us the past eight weeks were intense, as we were busy writing the next chapter of UBS’ history. This is the first ever acquisition involving two global systemically important banks. It was announced only five months ago and we closed it less than 100 days ago. This would not have been possible without extraordinary effort and dedication from my colleagues across both organizations. It also required extensive cooperation from the Swiss Government and regulators in Switzerland and around the world. We are swiftly executing on our integration plans, already achieving a number of important milestones. We established a target operating model, created a dedicated integration office and rolled out responsibilities with management appointments up to three levels below the Group Executive Board, just to name a few. We are also making progress on our cost savings and derisking plans, and resolving some legacy matters for both firms. Following a detailed analysis, we determinated and added back — we terminated and added back all Swiss Government support a few weeks ago. Lastly, we decided to fully integrate the Swiss business of Credit Suisse after a thorough strategic review. The thing I’m proudest about is that clients have rewarded our unwavering commitment with extended trust. Thanks to their restore belief in the combined firm, we were able to swiftly stabilize the current Swiss score, its Wealth, Asset Management and Swiss Bank franchises. We are happy to see markets recognizing our ongoing work. Our strategy is unchanged and the Credit Suisse acquisition will act as an accelerant to our plans. We will strengthen our position as the only truly global wealth manager and as the leading Swiss Universal Bank, with scaled up Asset Management and a focused Investment Bank. With a highly complementary footprint, we will reinforce our position in key growth markets, including the Americas and APAC, and built on our leadership in Switzerland and EMEA. We will relentlessly focus on clients and continuously improve and expand our services and products. With $5.5 trillion in assets across the combined firm, the transaction adds scale that will lead to increased efficiencies. This will allow us to better focus our resources and target investments that provide superior level of client service. We will achieve our strategy while remaining disciplined in our resource management across the entire firm. The IB consuming no more than 25% of the Group’s risk-weighted assets and the round down of the Non-core and Legacy portfolio are just two of the more visible examples of our approach. In essence, we will repeat what this bank successfully accomplished during the last decade. Before I discuss the Swiss Bank decision, let me give you a brief overview of our assessment of Credit Suisse as of March 19th. Since then and especially after we closed the acquisition in June, we conducted an in-depth analysis that has only confirmed the necessity of the decisive actions taken over that weekend. It was not just a matter of liquidity drying up. Credit Suisse’s business model and business mix was deeply flowed and its reputation severely damaged. With this structural lack of underlying profitability, unsustainable capital allocation and negative revenue and cost prospects, the bank was no longer in a position to continue on its own. This is clearly visible from the year-to-date losses Credit Suisse reported today, a culmination of the bank’s two loss-making years. Thanks to our financial and balance sheet strength, UBS was in a position to answer our risk goal [ph] from the Swiss Government, helping to stabilize the financial system. Importantly, the transaction preserves the best of Credit Suisse’s excellent client relationships, people and industry-leading products that in other plausible scenarios would have been weakened or lost. Unlocking Credit Suisse’s strength as part of UBS will allow us to build some things of a more enduring value for all stakeholders. This combination will reinforce our status as a premier global franchise, one that our own markets, Switzerland can be proud of. We are humbled by this task and the responsibility entrusted to us. But let me make one thing absolutely clear. Our ability to stabilize Credit Suisse and return the government guarantees in a timely fashion should not take away from the gravity of the situation we inherited, nor should it diminish the scope and scale of the task ahead. So that being said, let me walk you through how we come to our decision on the future of Credit Suisse Schweiz. As I promised when I returned as a CEO a few months ago, the decision would be driven by facts, not emotions and mindful of the extraordinary circumstances of the transaction. We conducted an extremely thorough review involving teams comprised of some of the best people across both firms with support from external experts where needed. Our analysis focused on four key aspects that for us, would determine the long-term viability of the business. We examine what the decision would entail for our clients, shareholders and employees and we gave special consideration to financial and funding sustainability. We started with a broad spectrum of possibilities ranging from IPO, sale, partial or full integration to a spinoff and even a dual-brand strategy. Eventually, based on our criteria, we narrowed down our selection to the two best options, a full integration or a spinoff of a focused perimeter, which would exclude segments requiring global capabilities. The final outcome was crystal clear. Full integration is by far the best choice. It is not just that the financial merits of integration are greater. It is also the best way forward for our clients for whom the industry-leading offering will improve and broaden as we combine products and capabilities from both firms. The alternative would have been a bleak one. Considering the current situation, combined with the necessity to carve out most of its global capabilities. Even a more focused spinoff of Credit Suisse right would fail to meet the needs of many of its corporate clients, as well as the entrepreneurs, it considers core. At the same time, separation from the Group would entail a costly, risky and lengthy carve-out of technology platforms, causing uncertainty for clients and employees for years to come. Moreover, our analysis revealed a substantial dependency of the Swiss subsidiary on financial resources and operational support from the parent. As a result, it would have existed as a fragile entity struggling to close its funding gap, unable to compete effectively and failing to deliver sustainable returns. We believe this would not have been an acceptable proposition for clients, employees and very likely regulators. By contrast, being a part of UBS ensure it will have continuous banking from one of the most stable and trusted global financial institutions. The strength of UBS will underpin the franchise and provide access to efficient funding as demonstrated by our ability to return all extraordinary government and central bank facilities. We take our social responsibilities very seriously. This is why I have repeatedly emphasized the fact that employment-related consideration must be a key decision-making factor in our evaluation. We have analyzed their impact in both absolute terms and in relation to the Swiss job market. Every last job is painful for us. Unfortunately, in this situation, cuts were unavoidable regardless of the selected scenario. We are committed to minimizing the impact on employees by treating them fairly, providing them with financial support, outplacement services and retraining opportunities. Our aim here is to enable those affected to take advantage of a quite healthy Swiss job market, where more open positions in finance are available than there are job seekers. Let me emphasize the vast majority of the cost reduction will come from natural attrition, retirement and internal mobility. Around 1,000 redundancies will result from the integration of Credit Suisse Schweiz. This will be spread over a couple of years, starting in late 2024. Importantly, the alternative spin-off scenario — in the alternative spin-off scenario, restructuring would also have been necessary and resulted in about 600 redundancies. In addition, the necessity to profoundly restructure other parts of Credit Suisse is expected to lead to about 2,000 additional redundancies in Switzerland over the next couple of years. After waiting all the above factors, we come to the view that a full integration is the best way forward. Our decision reinforces our commitment to clients, employees and the Swiss economy. Our goal is to make the integration and the transition for clients as smooth as possible. The two Swiss ring-fenced entities will operate separately until their planned legal integration in 2024. Credit Suisse brand and operation will remain separate during that time. We will gradually migrate clients onto our system and expect to finish this process in 2025. Given this, nothing will change for clients in the foreseeable future and they do not have to take any immediate action. We will continue to provide the premier levels of service that they have come to expect, and with the time, they will begin to see the further benefits of the combined franchise. As we progress in the integration, we remain fully committed to our personal, private, institutional and corporate clients. In terms of lending, thanks to our even stronger capital base, our intention is to keep the combined exposure unchanged. We are sensitive to the important role both firms play in the lives of our employees and their communities. We want to remain an employer of choice in Switzerland, offering attractive career opportunities. Last but not least, as we combine, we will honor all agreed sponsorships of civic, sporting and cultural activities in Switzerland at least until the end of 2025. I have made it aboundantly clear to our colleagues that they must not be distracted by the integration. We cannot take our eyes of our vision and must remain focused on client needs. After all, competition in the Swiss market remains robust. The cantonal banks in aggregate will continue to have the highest market shares in all relevant Personal and Commercial Banking products and our branch network even after the merger is the third biggest. We welcome the challenge. Competition is what makes all of us better and what makes the Swiss financial system stronger. Now given the events leading up to the acquisition, stabilizing the Credit Suisse client franchises globally has been our most immediate priority. Since closing in June, we have won back clients’ confidence as evidenced by the positive asset flows and strong engagement across Wealth Management and the Swiss business. We saw formidable momentum in deposits with $23 billion in inflows for the quarter, $18 billion of which come into Credit Suisse’s Wealth Management and Swiss Bank. Meanwhile, UBS Wealth Management has delivered the highest second quarter net new money performance in over a decade. We are pleased to share that this positive trend has carried on into July and August. While the quarter is not over yet, so far, we have attracted net new assets of $8 billion for the combined wealth management businesses. It is encouraging and rewarding to see the franchise stabilize so quickly, winning back the more than $200 billion of client assets that left Credit Suisse over the past year won’t be easy, but recapturing as much as we can is one of our top priorities. Let’s move to assets that have been designated as Non-core. First, let me briefly touch on the $9 billion risk-weighted assets that will be included in the combined Investment Bank. These assets were selected through a disciplined process designed to enhance our Global Banking and derivatives operations. The transfer businesses are expected to be accretive from next year. They will help drive economies of scale, while adding only 13% to the Investment Bank’s current non-op risk-weighted assets. The remaining $17 billion of Credit Suisse’s Investment Bank, as you can see from the chart, will be transferred to the newly formed Non-core and Legacy unit. This will also include Credit Suisse’s entire Capital Release Unit, as well as selected assets from the combined Wealth and Asset Management businesses that are not aligned with our risk appetite or strategy. Overall, the Non-core and Legacy will comprise of $224 billion in LRD with a significant portion of high quality and liquid assets, and $55 billion in risk-weighted assets including — excluding op risk risk-weighted assets. With the perimeter largely defined, we are already executing on our strategy to exit these assets in a timely and efficient manner. We made a good start in the second quarter, reducing positions representing a total of $9 billion in risk-weighted assets. Around half of those come from sales that we actively pursued. As I mentioned before, this is not the first time our organization has managed a successful round down of Non-core assets. Our previous experience is a big part of why we are confident in our ultimate success. A clear priority for us is to take out a substantial part of the operating cost associated with this unit. I will touch on that in a minute. Thanks to our strong capital position and markdowns we took as part of the PPA adjustments, we have substantial flexibility in order to optimize the outcome. These are not distressed assets so we can maintain positions if they preserve value. Our decisions whether to do so will be based on economic profitability, taking into account funding, operating and capital costs of the portfolio. On those positions, we do decide to exit, we will move at pace, acting fairly and protecting our clients and counterparties. The natural run-off profile is a steep one. As you can see from the chart, we will have a 50% or $27 billion reductions in non-op risk risk-weighted assets by 2026 and a similar reduction in LRD. But let me assure you that our proactive approach to accelerate the wind down will continue. Now let’s turn to cost reduction. A key element of returning to profitability and creating sustainable value across the combined firm. First, as we speak, we are actively addressing the need for deep restructuring at Credit Suisse. This is an acceleration and expansion of the work that the firm itself, so as necessary to put a stop to losing money. Secondly, additional efforts are required to generate synergies across the combined businesses. We aim to take out over $10 billion in gross expenses from the combined franchise based on full year 2022 cost base. Around half of that will come from restructuring the Investment Bank and running down Non-core assets. The other half will come from actions across the rest of our operations. There is meaningful duplication that can be removed, thousands of applications and IT platforms to be decommissioned and underserved legal entities to be merged or closed to make us more efficient and effective. Let me give you an example, of Credit Suisse’s current 3,000-plus IT application, only around 300 will be integrated into UBS infrastructure, contributing to our combined future business model. Importantly, we will continue investing to make our platforms and processes more resilient and support our existing and future growth ambitions. We will also absorb some further inflation. All told, we aim to bring the Group’s underlying cost/income ratio exit rate below 70% in 2026. We are two and a half months into one of the biggest and most complex bank mergers in history. We are executing our plans at pace and wasting no time in delivering value for all our stakeholders, including shareholders. In the next four months to six months, our focus will be on restoring underlying profitability, while progressing on other areas, including business transformation, client migration and simplification of our combined legal entity structure. On the latter, a key milestone will be the merger of our parent operating entities, UBS AG and Credit Suisse AG. This step planned for 2024 will allow us to simplify our structure and operating model, optimize capital and liquidity within the Group and will support achieving our cost savings ambitions. We expect to substantially complete our integration program by 2026. A key pillar of our strategy is to maintain a balance sheet for all seasons, one that supports our capital generative business and allows us to offer attractive capital returns. We expect to operate at around 14% CET1 capital ratio over the medium-term, and as we exit 2026, we aim to achieve an underlying return on CET1 of around 15%. As you know, we have suspended share repurchases for the time being, but we remain committed to growing our dividend and returning excess capital to shareholders through buybacks. We will update you on our plans in this regard with the fourth quarter results. With that, let me hand over to Todd. Todd Tuckner: Thank you, Sergio. Good morning, everyone. It is a privilege to be with you today as Group CFO, especially at this watershed moment for UBS. Since my appointment, my focus has been on the financial consolidation of the two firms, progressing the work done on transaction adjustments, optimizing our liquidity and funding position, firming up our cost savings and enhancing financial reporting controls for the expanded group. Regardless of whether staff come from Credit Suisse or UBS, I’ve been extremely impressed with the dedication of the finance team. I’m proud of what we, as a unit, have already been able to accomplish, and we, like the entire firm continued to execute at pace. We recognize that this is a complex deal, but our aim is to be clear and forthcoming in explaining the financial implications of our actions during this critical period and beyond. Today, I’ll cover our second quarter operating performance, the impact of the merger on our balance sheet and capital as of day one, and finally, our integration plan and outlook. Let’s start with the quarter on slide 17. I’ll refer to UBS Group AG’s consolidated results, which this quarter include one month of Credit Suisse’s operating performance presented under IFRS and in U.S. dollars. On a reported basis, the second quarter profit was $29 billion, both pre- and post-tax. These results were largely driven by the net impact from items related to the acquisition, principally negative goodwill of $28.9 billion and integration-related expenses and acquisition costs. Excluding these items, the Group pre-tax profit was $1.1 billion, of which $2 billion from the UBS subgroup and negative $0.8 billion from the Credit Suisse subgroup. Turning to slide 18. The negative goodwill of $28.9 billion is calculated as the difference between the consideration UBS paid and the fair value of the acquired net assets after taking into account the various PPA adjustments of negative $25 billion. The roughly $6 billion difference between the negative goodwill reported today and the amount included in the Form F-4 registration statement just prior to closing is principally explained by two factors. First, Credit Suisse generated operating losses over the first five months of 2023 that were not captured in the F-4, which was prepared as if the transaction occurred on December 31, 2022. Second, we applied additional net negative PPA adjustments to Credit Suisse’s financial assets and liabilities, reflecting a more detailed fair value assessment post-closing. The total net PPA adjustments of negative $25 billion consists primarily of marks of negative $14.7 billion in connection with financial assets and liabilities. This includes negative $12.4 billion on mainly fixed rate accrual assets and liabilities, of which around $8.5 billion relates to our core businesses and around $4 billion to Non-core and Legacy. In addition, we made negative $2.3 billion of further necessary adjustments to fair value positions, mostly related to Non-core and Legacy. The negative $8.5 billion of marks on core business accrual financial instruments, include for example, PPA adjustments on the Swiss mortgage book, which were almost entirely interest rate driven. The majority of the accrual basis positions are expected to mature within the next three years to four years and if held to maturity will pull to par. Of the total marks on accrual positions, $6 billion pre-tax or $5 billion net of tax, our CET1 capital neutral as FINMA has granted us transitional relief, which mainly applies to Swiss mortgages. The transitional treatment is subject to linear amortization concluding by June 30, 2027. The negative marks of $2.3 billion on fair value assets and liabilities that I mentioned earlier, reflect UBS’ assessment of the complexity, liquidity and model risk uncertainties in the book, as well as the relevant markets for potential strategic exits. We also made PPA adjustments of negative $4.5 billion to capture UBS’ determination of Credit Suisse’s provisions and contingent liabilities related to litigation, regulatory and similar matters. This includes $1.5 billion of incremental provisions Credit Suisse took in the second quarter. Other net PPA adjustments totaling to negative $5.5 billion largely relate to GAAP differences associated with pension accounting, but also goodwill and intangibles, and fair value marks on non-financial assets and liabilities, including software and real estate. Of the total negative $25 billion of PPA adjustments, negative $17 billion is CET1 capital relevant, with the balance relating to the $5 billion regulatory waiver I mentioned earlier and other items that are filtered out of CET1 capital, such as pension accounting differences, goodwill and intangibles. Overall, we believe the negative goodwill, including the PPA adjustments therein, in addition to underpinning almost $240 billion of acquired RWA provides us with sufficient capacity to absorb the cost to achieve our two key savings objectives; first, an efficient wind down of the Non-core businesses and associated overhead we acquired; and second, positive operating leverage and synergies in our core franchises, all while remaining capital generative over the integration time line. We are highly confident that we can successfully integrate Credit Suisse, enhancing our business model and operating metrics, while continuing to ensure we maintain world class capital ratios and a balance sheet for all seasons. On page 19, we illustrate how the transaction strengthens key financial measures from day one, offering us a highly attractive starting point as we commence this journey. Since the acquisition, our capital position is even stronger with almost $200 billion total loss absorbing capacity and a CET1 capital ratio of 14.4%. Additionally, our tangible book value per share is up 49% quarter-on-quarter, and today, we manage over $5.5 trillion of invested assets with a unique and meaningful presence in all the major markets across the globe. Remaining on capital on slide 20. The strength of our balance sheet is the foundation of our success and the reason why we were able to restore financial stability and client trust in such a short amount of time. As of the end of June, as just mentioned, our CET1 capital ratio was 14.4% and our CET1 leverage ratio was 4.8%. Included in our capital ratio this quarter are the impacts from the closing of the Credit Suisse acquisition, including a $10 billion operational risk RWA reduction from diversification benefits and a combined lower forward-looking risk profile. Looking through to the end of the year, we expect our CET1 capital ratio to remain around 14% as the benefit of RWA reductions, improvements in our underlying profitability mainly from cost saves and CET1 capital relevant pull to par effects from the PPA adjustments are expected to largely but not fully offset integration-related expenses. We also expect to maintain a CET1 capital ratio of around 14% and a CET1 leverage ratio of more than 4% over the medium-term. You have often heard us referring to our balance sheet for all seasons and our capital-generative operating model that allows us to service clients and invest in the business through the cycle. It’s how we’ve operated over the last decade and it’s how we intend to continue to operate going forward. So rest assured, maintaining a balance sheet for all seasons will remain among our very top priorities. On liquidity and funding on slide 21, we closed the quarter with an average liquidity coverage ratio of 175%, well above our prior quarter level and a net stable funding ratio of 118%. The liquidity coverage ratio increase largely reflects the elevated HQLA levels at Credit Suisse, including the effect of the usage of the Swiss National Bank facilities. As Sergio highlighted, positive net new deposits in the past few months enabled us to repay ELA+ and terminate the public liquidity backstop facility as announced earlier this month. We expect to continue attracting net new deposits, and as of this week, we’ve already seen in the third quarter, $13 billion of positive net new deposit flows in our combined Wealth Management and Swiss franchises. While this will help us narrow the inherited funding gap and continue to manage our liquidity coverage ratio at prudent levels, we expect to resume execution of our funding plans shortly. In addition to maintaining significant liquidity and funding buffers on a consolidated basis, we’re actively managing the allocation of financial resources among our significant legal entities, which also have standalone funding requirements and will continue to operate, while we progress towards our target legal entity structure. We’re working towards merging Credit Suisse AG into UBS AG in 2024 as this is a critical step to removing resource allocation bottlenecks and enabling the realization of business and operational efficiencies. Now on to slide 22. Excluding Credit Suisse’s performance in June, the effects of the acquisition I mentioned earlier and a gain on sale of $848 million in Asset Management last year, UBS’ pre-tax profit in the quarter was $2 billion, up 12% year-over-year. Before turning to the UBS subgroup business division, starting on page 23, let me first point out that for the second quarter, the negative goodwill, as well as a substantial portion of integration-related expenses have been retained and reported in Group functions. Starting with the third quarter, we intend to consolidate the reporting of our business divisions across the UBS and Credit Suisse subgroups, and will report integration-related expenses in the respective combined segments. All references to figures are in U.S. dollars and comparisons are year-over-year unless stated otherwise. In Global Wealth Management, we delivered net new money of $16 billion, the strongest second quarter in over a decade, with inflows across Switzerland, EMEA and APAC, and despite $5 billion in seasonal tax payments in the U.S. We also delivered net new fee generating assets of $13 billion or an annualized growth rate of 4% with positive flows across all regions, as well as net new deposits of $5 billion. These strong inflows across net new money, fee-generating assets and deposits, demonstrate our continuous focus on active client engagement and the trust our clients place in us. This was especially important during a quarter where the macro backdrop and developments with Credit Suisse placed a premium on our investment advice and the stability of our GWM franchise. Profit before tax was $1.1 billion, down 4% despite strong growth in EMEA and Switzerland of 15% and 9%, respectively. Positive topline contributions from all regions outside of Americas supported a 1% revenue increase, which was more than offset by higher expenses. In the Americas, revenues were down 4%, mainly as net interest income reflected continued rotation into higher yielding deposits and investments from transactional and suite deposit accounts. Although, we expect NII in the Americas to continue to tick down sequentially from ongoing cash sorting and deleveraging in the current rates environment, we nevertheless continue to see the U.S. market as a strategic priority for us and hence we continue to invest in the business for future growth. As a result, we expect our pretax margin in the Americas to be low double-digit to mid-teens over the near-term. On to total GWM revenues. Net interest income was up 14% year-over-year and down 3% sequentially. The latter reflecting mix shifts and lower deposit and loan balances, partly offset by higher deposit margins. Recurring net fee income decreased 3% due to negative market performance, while positive inflows were offset by client’s continued repositioning into lower margin solutions. As a reminder, we bill based on daily balances in the Americas and on month-end balances everywhere else. As such, second quarter revenues did not fully reflect June’s market rally, which we’re seeing benefit the third quarter. Transaction-based income decreased 6%, impacted by investor uncertainty, particularly in Americas and APAC. However, towards the end of the second quarter and into the third quarter, we’re seeing a pickup in both client sentiment and transactional momentum, especially in APAC. Operating expenses ex-litigation, integration-related expenses and FX were up 3%, driven by increases in technology and personnel expenses. Turning to Personal and Corporate Banking on slide 24. We delivered another record quarter, excluding past one-off gains. Profit before tax was up 54% to CHF612 million. Revenues increased 24%, with increases across all revenue lines, highlighting continued momentum in the business. Net interest income increased by 45% year-on-year and 12% quarter-on-quarter. Sequentially, we continue to see loan growth, while the deposit base remained roughly stable. Costs were up 9%, driven by continued tech investments and higher personnel expenses. The cost-to-income ratio was 51%, a 7-percentage-point improvement year-on-year, demonstrating strong positive operating leverage. We saw a strong momentum with 10% annualized growth in net new investment products and almost 6,000 net new clients, reflecting the trust our clients continue to place in us. Moving to slide 25. In Asset Management, the profit before tax was $90 million. Excluding last year’s gain on sale, total revenues decreased 5% with lower net management fees driven by market headwinds, asset mix, as well as lower performance fees. These headwinds were partially offset by 1% lower costs. Net new money in the quarter was strong at $17 billion, a 6% annualized growth rate. Net new money excluding money markets and associates was $19.5 billion, with positive momentum in SMAs and alternatives. Turning to slide 26. In the Investment Bank, the profit before tax was $139 million. The operating environment for the Investment Bank’s trading businesses was defined by significant lower equity volatility levels compared to the prior year period. Within Global Markets, this resulted in a meaningful decline in client activity levels across both equities and FRC, where revenues of $1.5 billion were down 11%, broadly consistent with our peer group. Our financing business continued to deliver strong results, reporting its best second quarter and best first half on record. This demonstrates the resilience of our balanced portfolio of risk-efficient businesses as we continue to invest in capabilities that are critical to our clients. Global Banking revenues of $371 million were down 2% as the second quarter saw the global fee pool hit its lowest quarterly level since 2012. In the second quarter, we significantly outperformed the fee pool in EMEA and gained share in global M&A. Operating expenses were up 2%, predominantly on higher tech investments, offsetting lower provisions for litigation, regulatory and similar matters. On slide 27, I now turn to Credit Suisse AG’s full second quarter results, which were separately published earlier today. Credit Suisse AG’s reported pre-tax loss for the second quarter was CHF8.9 billion. This result includes several large items, including $2.2 billion in adjustments to fair value marks, $1.8 billion in software write-downs, $1.3 billion in additional litigation provisions and $1 billion for a goodwill impairment. Stripping out these and other items that are not representative of Credit Suisse AG’s underlying performance in the quarter, the adjusted operating loss was CHF2.1 billion. Not included in this figure are the results of a few legal entities that fall outside of Credit Suisse Ag’s consolidation scope. Including those entities, the Credit Suisse subgroup’s pro forma second quarter adjusted operating loss was CHF2 billion. In discussing the Credit Suisse subgroup performance in the second quarter, I’ll focus on this CHF2 billion adjusted loss as it better informs the starting point for the Group in combination with UBS’ quarterly underlying performance. On slide 28, Credit Suisse’s quarterly adjusted pre-tax loss was largely driven by operating losses in the Credit Suisse Investment Bank and the Capital Release Unit, as well as elevated funding costs in Credit Suisse’s Corporate Center. Sequentially, revenues declined by 38%, driven by Credit Suisse’s Investment Bank down 78%, where the sharp drop in revenues was due to little to no new activity in the context of expected exits following the acquisition. Second quarter revenues also reflected elevated funding costs, primarily from the Swiss National Bank facilities. Going forward, we’ll focus on two key priorities in relation to Credit Suisse’s Investment Bank and Capital Release Unit. First, rebuild activity and profitability levels of the businesses we decided to retain as part of our core Investment Bank. Second, actively manage the wind down of businesses and positions that are not aligned to our strategy. These include those already in the Credit Suisse Capital Release Unit and Investment Bank not retained as core and will be managed and reported within our Non-core and Legacy segment beginning in the third quarter. Moreover, as the wind down is executed, we’ll decisively take out all costs in relation to resources, technology and real estate that are not needed to support either what is retained in our core Investment Bank or what is strictly required to efficiently wind down businesses and positions managed by our Non-core and Legacy team. In contrast to Credit Suisse’s Investment Bank and Capital Release Unit, we saw relative stability across Credit Suisse’s Wealth Management, Swiss Bank and Asset Management segments. In Credit Suisse Wealth Management, we’ve seen a stabilization of net new assets trending from substantial outflows in April to net inflows in June, with $14 billion of net new deposits in the quarter. We remain focused on introducing Credit Suisse’s clients to the unrivaled value proposition of the combined firm to counterbalance any headwinds to our flows from lag effect stemming from past or future attrition of Credit Suisse relationship managers. In addition to clear and decisive actions to retain client assets, we also implemented Client Adviser Incentive programs with a clear objective to win-back and sustainably retain client assets. Quarter-to-date, these actions have helped us to attract net new deposits of $10 billion and positive net new assets in the Credit Suisse Wealth Management franchise. Credit Suisse’s adjusted operating expenses were down 10% sequentially, reflecting actions initiated before and after the merger announcement, as well as voluntary attrition of employees. As of the end of the second quarter, headcount was down by over 8,000 compared to the end of 2022, split roughly equally between internal and external staff. I now turn to slide 29. On an illustrative and underlying basis, the sum of the UBS subgroup pre-tax profit of $2 billion and the Credit Suisse subgroup pre-tax loss of $2.2 billion after translation to U.S. dollars, equals a combined pro forma Group operating loss of around negative $0.3 billion. You can consider this indicative level as a useful starting point to contextualize the trajectory of our underlying profitability going forward and assess the steps we are taking to achieve our ambitions. First and foremost, we’re executing on our cost reduction plans at pace and we expect positive combined underlying profits in the second half of 2023. We expect to deliver underlying exit rate cost savings of over $3 billion by the end of the year, which will benefit our 2024 results and to incur a broadly similar amount of integration-related expenses in 2H 2023. While neutral to our underlying performance, I would note that such integration-related expenses will be partly offset by pull to par effects of over $1.5 billion. Second, asset and deposit retention and win-back initiatives will continue to support the positive momentum across our Wealth Management businesses. In particular, we expect to see positive underlying contribution from the Credit Suisse Wealth Management franchise by the first half of 2024. We will apply the same systematic approach to client and asset retention and win-back across all of our core franchises, especially following today’s announcement in connection with the Swiss businesses. Third, our second quarter 2023 pro forma results include $550 million of funding costs related to the Swiss National Bank facilities that Credit Suisse reported in its Corporate Center. The repayment of these facilities will lead to materially lower funding costs in the third quarter and further benefits in the fourth quarter for the combined Group. Continuing on the NII topic, sequentially for 3Q 2023, we expect a low single-digit percentage decline in our combined Wealth Management businesses with positive contribution from the Credit Suisse franchise and a mid-single-digit percentage decline in our Swiss businesses. This excludes the pull to par effects I mentioned earlier. These elements in combination with disciplined resource management and a focused execution mindset across the leadership team give us confidence in our ability to deliver a successful integration, starting with approaching breakeven in the third quarter and returning to positive underlying profitability before the end of the year. With that, I’ll hand back to Sergio for his closing remarks. Sergio Ermotti: Thank you, Todd. As we speak, the geopolitical and macroeconomic outlook remains volatile and difficult to predict. But, of course, major developments on this front will impact our business in the short-term. As always, our first priority is to stay close to clients and help them manage the challenges and opportunities presented by this uncertain environment. For us, this is business as usual and we remain focused on this priority. At the same time, we are — we will also execute on our integration plans with the termination and pace. That will unlock significant economies of scale, allowing us to fund future investments as we continue to pursue growth opportunities. We are well aware of the additional trust and responsibility that accompany this transaction. We will not be tray that trust, remaining faithful to our strong culture and conservative risk management. I’m excited about the opportunities that lie ahead of us. I strongly believe UBS will emerge as a stronger global financial institution, one of even greater value to its clients, while remaining safe and delivering superior returns. With that, let’s get started with questions. See also 25 Countries with the Highest Internet Penetration Rates in 2023 and 19 Countries Where Drones are Banned. Q&A Session Follow U B S Ag (NYSE:UBS) Follow U B S Ag (NYSE:UBS) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] First question is from Jeremy Sigee from BNP Paribas. Please go ahead. Jeremy Sigee: Good morning. Thank you very much for all the information. There is a lot to get through and a lot of questions. I’ll just ask two things. One is, could you talk about the Swiss integration, which obviously takes time, and I think you said, it’s going to legally close in 2024 and then physically integrate in 2025. I just wondered what determines that timeframe and how you manage, how you intend to keep the businesses stable, whilst they’re in that slight sort of limbo period. So that’s my first question. And the second question is about sort of capital stack. The 14% CET1 target, I imagine it implies that you’re going to reissue AT1 and rebuild the AT1 part of your capital stack and I saw a headline the other day that you might even do that this autumn. I just wondered if you can comment on that aspect, your intentions in terms of issuing AT1? Thank you. Sergio Ermotti: Thank you, Jeremy. So, well, first of all, on the integration, of course, now that we go through — as I mentioned, it’s very important to understand the sequence of how we’re going to go through the merger of the different legal entities. We — as I mentioned before, our intention is to merge the two parent company, UBS AG and Credit Suisse AG, and as a follow through, different entities underneath, we’ll go through the same process. So we need to optimize the timing from a different aspects and last but not least, also the one of regulatory approvals. So we are starting now the process to do that in terms of the Swiss business. The way we will manage that is by, as I mentioned, first of all, assuring that all people employed in the Swiss businesses at UBS and Credit Suisse will not be subject to any redundancies until the end of 2024. So what’s the most important message is to clients that nothing changes for them and our view is to make it very smooth for clients to go through the transition. And so once we go through this kind of legal process and regulatory process of merging the two entities, we did — at the same time, we are also tackling the IT migration, the operational migration and this is something that will only be completed early on in 2025. So what we — the message here is to — is a balance between showing the way forward to our people, to clients, but without rush and in a stable manner so that people — our clients continue to be served in the way they expect to be served. In terms of the CET1 target, well, of course, AT1 continues to be an important element of our capital stack and strategy. I will not comment on speculations of this. We are watching the market carefully. We will assess the timing and the need of tapping the markets when appropriate. But, yes, of course, we are looking at the AT1 markets and we will make our consideration when appropriate. Jeremy Sigee: Very helpful. Thank you. Operator: The next question is from Alastair Ryan from Bank of America. Please go ahead. Alastair Ryan: Yes. Thank you. It’s Alastair, BofA, and Sergio, good morning, and great to have clarity on the strategy, and obviously, the market is delighted as you are that the flows have come back. Just then on operating costs, very clear ambitions and it looks like you’re bringing forward a little, 27 to 26 when you’ve landed everything. But just given the size of the operating costs in the old Credit Suisse Investment Bank and Non-core, can you give us any sense about how quickly you can go there. So the — a large restructuring charge, integration charge in the second half, but does that cost number move out quickly so that you normalize profitability or is there still quite a long tail to the cost in that part of the business. It’s just IB classic, the revenues have gone, the costs are still lingering how quickly they go? Thank you. Sergio Ermotti: I’ll pass it to Todd. Todd Tuckner: Hi, Alastair. Yeah. In terms of the speed at which we expect to take out costs, as Sergio and I said, we’ve been operating at pace in terms of the cost takeout, which is among our top priorities in terms of, in particular, restructuring, the parts of Credit Suisse that need immediate attention and restructuring and so you see how we’re making very strong progress out of the gate in terms of the cost takeout through the second half of 2023 and the cost to achieve those cost take out as well. We’ve obviously modeled to get to the targets that or the landing zones that we described earlier in terms of returns and a cost income ratio at the end of 2026. But as you say, that the costs do have a long tail in some cases and that’s because of the complexity of the operation that we have to unpack, because you have significant infrastructure and technology, you have a very large array of legal entities, over 1,000 legal entities that have to be addressed. And just back one proof point on the software components. There are 3,000 applications and the work that our team has done suggests that we will only integrate 300 into UBS. That takes time, and so, yes, there is a long tail that you can count on us to operate quickly. The last thing I would say is in terms of clarity on a sense of as those things hit through, because we give a degree of clarity through the second half of the year and we give sort of our landing zone, we will come back with further clarity once we do the business planning process in the second half of the year and that will be with our fourth quarter earnings in early February. Sergio Ermotti: And I would probably complement Todd’s observation, because it’s very important that, the fact or the vast majority of the assets in Non-core and Legacy are supported by the Credit Suisse IB platform. So as we progress in winding down, call it, the core day-to-day operation from the front office standpoint of view, whatever is left is going to be Legacy infrastructure, IB infrastructure that is only there for Non-core. And so you can see how then this will be a very important element in determining how quickly we get rid of Non-core assets, because as a consequence of that, we accelerate the winding down of this operation. So, but I think, it’s exactly what we are working on and we will give you more detail in early on next year when we present our Q4 results and our three-year plan. Alastair Ryan: Thank you. Operator: The next question is from Chris Hallam from Goldman Sachs. Please go ahead. Chris Hallam: Yeah. Good morning, everybody, and thanks for taking my questions. Just two from me. First, in Wealth Management, you’ve talked about now essentially being at scale in every growth market globally. But in tangible terms, what does that enhance scale enabled you to do that perhaps you weren’t able to do previously and have you seen any proactive response from competitors and reaction to that enhanced scale? That’s my first question. And then, second, looking at the Banking business in Switzerland. Now the dust has settled, does all the volatility we saw earlier in the year changed at all, how you think strategically about running the combined Swiss Bank speed in terms of capital funding, liquidity, et cetera. I guess just sort of simply has your risk appetite changed in Switzerland? Sergio Ermotti: Thank you. So, well, I mean, look, in terms of scale, of course, there is an economic — economy of scale. So being able to leverage UBS’ IT platform as we onboard all the assets, it’s a huge advantage, because we have, call it, marginal cost effects. But also when you look at the geographic footprint of the two operations, they are extremely complementary in some areas by relationships, but also in geographic terms, i.e., for example, in Brazil, right? So we had a lot of operation, Credit Suisse is much stronger. We now create a very important player. In Asia, we really reinforced our position and both in North Asia and Southeast Asia. I think that in Switzerland is quite clear and also across Europe where there are different markets where ideally, it’s a very fragmented market in general, Wealth Management, particularly in Europe. So there, we create economy of scales and things that we would have not been able to fund from an organic standpoint of view. So it’s very important. As I mentioned before, also Credit Suisse across the Board in Asset Management and Wealth Management brings capabilities and excellent products that can be then leveraged into our — into the UBS client franchise. Have we seen competitors? Yeah. I mean, the reaction of competitors, of course, they started to take advantage of the fragile situation of Credit Suisse already during 2022, late 2022, of course, at the beginning of the year and it’s a pretty normal situation. So, now having said that, I think that, as you saw from the flows, clients are now comfortable and they understand the value added of the franchise, we are able to retain and actually re-attract by clients......»»
Sasol Limited (NYSE:SSL) Q4 2023 Earnings Call Transcript
Sasol Limited (NYSE:SSL) Q4 2023 Earnings Call Transcript August 24, 2023 Tiffany Sydow: Good morning, and welcome to Sasol Limited’s Financial Year 2023 Results Presentation. Thank you for taking the time to listen to our announcement today. My name is Tiffany Sydow from Investor Relations. And with me today is Fleetwood Grobler, President and CEO […] Sasol Limited (NYSE:SSL) Q4 2023 Earnings Call Transcript August 24, 2023 Tiffany Sydow: Good morning, and welcome to Sasol Limited’s Financial Year 2023 Results Presentation. Thank you for taking the time to listen to our announcement today. My name is Tiffany Sydow from Investor Relations. And with me today is Fleetwood Grobler, President and CEO of Sasol and Hanré Rossouw, Chief Financial Officer. Fleetwood will start today’s presentation with an overview of the business performance. The financials will be covered in more detail by Hanré, and Fleetwood will conclude with a brief update on our strategy. The Q&A session will commence immediately thereafter, where you will have an opportunity to ask your questions via the webcast or teleconference facility. I’d now like to refer you to our forward-looking statement on the slide. This contains important information regarding statements that are made in this presentation. Please have a look at it in your own time. I will now hand over to Fleetwood to commence today’s presentation. Fleetwood Grobler: Good day, everyone, and welcome to our annual financial results update for 2023. To frame our performance for the period, there is a distinct set of factors which contributed. We continue to face macro challenges with headwinds on demand and pricing, particularly in the chemicals alongside persistent inflation with elevated feedstock and energy costs. We are also encountering specific challenges in our operating environment, notably in South Africa, where we have been impacted by the performance of state-owned enterprises. However, in addition to benefiting from an elevated oil price and a weaker rand-dollar exchange rate, we’ve also seen real progress in the mitigation actions that we have taken in the areas within our control. Photo by andreas gucklhorn on Unsplash This is driving better performance in areas like Secunda operations, amongst others, more resilience with the ability to reset to more aggressive targets on Sasol 2.0 following recent outperformance and progress towards the longer-term goals. Given this backdrop, our financial results for the year is reflective of these mixed factors. One particular noteworthy impact is evident in the significant impairment on the Synfuels liquid fuels refinery. Suffice to say that in Secunda operations, the various chemicals cash-generating units in the integrated value chain still show significant headroom. Hanré will discuss this in more detail later. More broadly, the cost and operating challenges we have faced and have required us to reassess the steps we need to take to ensure Sasol remains a sustainably profitable organization. We are taking stock of our current reality while intensifying our attention on priority actions to deliver on the reset phase of our strategy. We need to remain realistic and focused on delivery as we head into another financial year. As with previous results presentations, I will start by covering some of the business highlights for the year across our people, planet and profit pillars. For some 18 months between November ’21 and March ’23, we did not experience any workplace fatalities. Regrettably, this changed with the tragic passing of Mr. [indiscernible] from Secunda Operations; and Mr. Stephen [indiscernible] from Mining, both in the last quarter of this financial year. We express our heart failed condolences to their families. Notwithstanding these fatalities, safety remains deeply ingrained in our ethos as we see positive trends in our safety performance. I will unpack this in greater detail shortly. Our commitment to social well-being in our communities remains undeterred as evidenced by the over ZAR $850 million, we’ve invested in various programs. We remain active contributing to community upliftment initiatives that realize positive and beneficial outcomes for the most vulnerable in our society. On our planet pillar, we continue to progress our renewable energy procurement program. We are well on track to achieve 1,200 megawatts of large-scale renewables integration in our SA value chain by 2030. In Mozambique, our gas drilling campaign continues to yield positive results, providing additional flexibility in our sustainability road map. We are also expanding sustainable aviation fuel or SAF opportunities through our proposed joint venture with Topsoe which I will talk about later. On the profit pillar, Sasol delivered a marginally weaker set of financial results for FY ’23 for the reasons I mentioned earlier. Despite continued volatility over the period, the Board declared a final dividend of ZAR 10 per share, in line with our dividend policy. Turning to safety. I already mentioned the two tragic fatalities we experienced in the second half of the financial year ’23. Any loss of life or harm is unacceptable. And we remain resolute in our commitment to creating a caring, sustainable and zero harm workplace. We ended the year with more lost workday cases compared to the previous years, mainly driven by higher activity on the back of the total East factory shutdown. Important in this decrease in our high severity incident rate is moving from 16% in financial year ’22 to under 10 this year, supported by our dedicated efforts to drive our safety, health and environment interventions. Our fires explosion and release severity rate also reflected a downward trajectory for the period. Our high severity injury prevention program remains the backbone for improving our sheet performance, and we have now shifted our focus to further maturing it. Through our humanizing safety initiative, focus remains on showing care through every layer of the influence instead of a compliance-driven approach only. We remain committed to improving our safety performance and constantly adapting and streamlining our approach to align with evolving reporting requirements. Looking at the operating environment, a combination of a few material factors continues to pose near-term challenges to our business. This includes global economic volatility and in South Africa specifically, an uncertain regulatory environment and other business challenges. All this taking place against a backdrop of far-reaching policy shifts such as the recalibration of the relations between the U.S. and China and the move towards more muscular industrial policy as we are seeing with the Inflation Reduction Act, or IRA in the U.S. The IRA combined with the European Union’s carbon border adjustment mechanism could potentially have a significant impact on industrial policies and global trade relations contributing to the uncertain business environment. The legal and regulatory environment in South Africa includes a range of complexities, such as the domestic gas price, environmental compliance, fuel blending mandates and carbon tax. We continue to navigate these challenges and uncertainties through proactive engagements with all stakeholders. This includes ongoing engagements with Nersa to facilitate approval of our gas price applications for financial years ’23 and ’24, pending approval we have not been allowed to increase prices since financial year ’22 despite the impact of rising inflation, higher capital costs and commodity prices. Looking at environmental compliance, in July 23, we communicated that Sasol’s application for an alternative emission load basis for sulfur dioxide from our Secunda boilers was declined by the National Air Quality Officer. Sasol has subsequently launched an appeal of this decision with the Minister of Forestry, fisheries and the environment and await the decision. Challenges also exist around renewable energy investments with some now at risk of being undermined by grid allocation uncertainty, constrained grid capacity in certain resource rich provinces in South Africa is making it increasingly difficult to bring renewable energy projects online. Investment and upgrades of the transmission network will be critical to alleviate this risk. In terms of our other business impediments, many of these are well known, such as persistent load shedding and infrastructure constraints, in particular, the poor performance of the national provider of rail and port logistics services. Although I think it is important to be specific about these areas of uncertainty as we move forward, it is also important to keep them in perspective. I would firstly reiterate that we have constructive dialogue around these issues across a range of stakeholders. And secondly, we are progressing well in making our business more resilient. As we recap our Sasol strategy shared at the Capital Markets Day in September 21, we defined a path to realize our next zero ambition along three horizons. Reset our business to enable us to transition and ultimately reinvent ourselves to a more sustainable company. At that time, certain assumptions of what the world would look like and how Sasol would perform underpin these horizons. Since then, our operating environment and the reality has changed materially. We believe we are on the right strategic pathway, although the macro economy has not developed in the way that we or others anticipated at the time. The headwinds that I’ve talked to at length make it critical to double down our efforts to deliver on the reset phase of our strategy to ensure that we have a business that’s as resilient as possible with a robust balance sheet to support it. This will help create financial headroom to self-fund our transition and progress our long-term goals while continuously calibrating that against our means and affordability. In the past year, we remain committed in stabilizing our business through our operational mitigation plans and have seen good progress in this regard. Looking at our energy business, our mining productivity of 951 tonnes per continuous miner per shift was 3% lower than the prior year due to unplanned safety stoppages and operational challenges experienced earlier in the year. The second half of the year, our focused efforts realized a 5% improvement in productivity, while we diligently progressed the rollout of our full potential program. In Mozambique, production was 2% higher than the prior year, reflecting a strong production performance, which was underpinned by the additional wells brought online in our PPA license. Secunda operations production for the year was 1% higher than prior year despite the planned total East factory shutdown. This performance was achieved as a result of management interventions to reduce the impact of coal quality variability and higher availability of natural gas. Owing to this performance, the Energy business recorded a 1% improvement in gross margin. In the Chemicals business, Chemicals Africa sales volumes for the financial year were 1% higher than last year despite ongoing infrastructure challenges in South Africa. Chemicals America sales volumes were 9% higher and compared when compared to the prior financial year. In response to market demand and pricing pressures, we adjusted our operational rates downward during the first half of the year. However, I’m pleased to share that we have since raised our utilization rates and have achieved monthly production records on several units at our Lake Charles Chemicals complex. In Europe, after normalizing for the wax divestment, sales volumes decreased by 19% the lower sales volumes were due to reduced demand and customer destocking across most of our business divisions with production rates at several of our units also proactively reduced to avoid inventory build. For chemicals, gross margin is down 20%, reflective of a weak macro environment with reduced global demand and higher energy and feedstock costs. The pivotal focus of our endeavors in the second half of the year was to improve the quality and productivity of coal supply in our Secunda operations. I am pleased to report that our full potential program designed to provide sustainable improvement across all our collieries is starting to deliver early gains. We commenced in January 23 with the first caller safer front end and have seen improvement in production over the last six months and will continue to build on this momentum. Learnings from this phase will be embedded in the rollout at Shondoni and Thubelisha collieries in the coming months. We have successfully maintained the coal stockpile within the targeted levels of 2 million tonnes through the increase in owned production and a successful coal purchasing strategy. We are progressing several levers to improve productivity and coal quality over the short to medium term. I talked through this in great detail at interim results, which includes mechanical interventions for roof control improved coal blending to minimize the variation of coal quality to Secunda facility and continuous minor interventions to limit the cutting of stone in the roof and in the floor of the coal seam. Collectively, these shorter-term levers are all necessary to unlock higher production output from Secunda operations, which is what we have built into our plan for financial year ’24. Beyond this, I will reiterate that we need to implement the medium- to longer-term levers to restore production back to historic levels. These include the completion of the full potential program rollout employment of a destoning technology to remove things from the coal and unlocking additional reserves to place and to replace the existing Isibonelo supplier contract coming to an end. We conducted a successful destoning test using our own coal, which was concluded in March of this year. The results are promising, and we are aiming to make a final investment decision for our destoning facility during this financial year ’24. Lastly, the appointment of focused executive leadership positions for mining was the right thing to do. And we are seeing the benefits in terms of operational learnings and a much higher level of transparency. With the imminent retirement of Riaan Rademan as Executive Vice President, Mining, I am pleased to confirm that his successor is Hermann Wenhold, our current Senior Vice President of Mining. In turn, Hermann successor is also an internal candidate, Sandile Siyaya currently under mining ExCo both appointments are effective on 1 November ’23 and will ensure leadership continuity at mining, which is a key to ongoing delivery of our initiatives. In South Africa, we stepped up reliability at both Secunda operations and Natref in the second half of the financial year through a range of technical interventions as demonstrated in our delivery against market guidance for both sites. Furthermore, our teams ensured a successful total shutdown of the East factory at Secunda and increased natural gas availability at the site to maximize production. Looking at, we will continue our reliability improvement initiatives, ensure ongoing mitigation of coal quality challenges and proactively manage the risks associated with the legal and regulatory challenge as outlined earlier. At our international sites, we successfully completed Train 2 repairs at ORYX, allowing us to achieve stable operations on both trains, which bodes well for ongoing improvement in utilization rates at that plant. We proactively reduced some of our operating rates in the U.S. and European businesses in response to weaker market demand and pricing pressures. We will continue to manage operating rates to mitigate financial losses until we see a recovery in the market. As anticipated at the half year, the performance of all our U.S. units improved in the second half of the financial year, and the Ziegler unit reached 100% available capacity by the end of quarter three per our guidance. The commercial ramp-up of our Lake Charles Specialty Chemical units will continue throughout financial year ’24. Turning to our Mozambique gas drilling campaign, I am delighted to report that the positive results we see across our licenses. We continued our infill well drilling under our PPA license increasing well stock from ’19 to ’24, which contributed to the higher production rates at Secunda operations. Our PSA development project remains on track, progressing within budget and schedule despite the inflationary and other pressures. Another important milestone is the completion of the construction and commissioning of the initial gas facility, which is a precursor to the integrated gas facility, which is still to come. We are awaiting regulatory approval of the initial facility, which enables us to — for gas to flow to our operations earlier in South Africa while we wait for the CTT project to come online. Our exploration strategy has also resulted in a successful gas discovery in Block PT5-C which is located in Southern Mozambique, which could bolster our reserves and further extend our plateau. Of course, it is still early days, and there is further exploration and appraisal work required to determine commercial viability. In line with our commitment to secure sustainable future gas, we’ve already invested approximately USD 530 million in Mozambique in plateau extension projects. Our success in Mozambique gives us more feedstock flexibility towards the end of the decade, which is a critical step towards meeting our greenhouse gas reduction targets by 2030. Given the factors I’ve outlined, covering both internal and external dynamics, I will now touch on just a few financial metrics before I hand over to Hanré. Our adjusted EBITDA reduced by 8% to around ZAR 66 billion. Earnings were significantly impacted this year by the write-down of our Synfuels liquid fuels refinery cash-generating unit. Our net debt now standing at USD 3.8 billion is down marginally with a net debt-to-EBITDA of 1.3x significantly below our covenant levels. Core headline earnings per share decreased by 30% to ZAR 47.71 compared to the prior period. In line with our commitment to maintain shareholder returns, as I’ve already mentioned, we declared a final dividend of ZAR 10 per share. We continue to benefit from our Sasol 2.0 transformation program mitigating some of the higher inflation and lower margin volatility in recent years. Furthermore, we are stepping up some of the targets as we head to the finish line in financial year ’25. On that note, I will now hand over to Hanré to take us through the detailed financial results for the reporting period. Hanré Rossouw: Thank you, Fleetwood, and good morning, ladies and gentlemen. As Fleetwood highlighted, our financial results were impacted by a range of factors, owing to the challenging external operating environment as well as internal operational issues. Encouragingly, we have seen significant business improvement in the second half of the financial year. I’m confident that we will build on this momentum to enhance business performance. We continue to work hard to mitigate the factors within our control, and I will talk more about our progress on cost and capital management supported by our Sasol 2.0 program. Additionally, we endeavored to remain agile and build resilience in a complex operating environment. To start with some specifics on the impact of the macro environment. After support from a rising oil price in the first half of the year, we were negatively impacted by a softening of the oil price in the second half resulting in an overall decrease of 5% when compared to the prior financial year. This was offset by the rand weakening 17% to an average of ZAR 17.77 to the dollar. The weaker closing exchange rate of ZAR 18.83 negatively impacted the translation of our U.S. dollar-denominated debt. We saw our commodity chemical prices decreased due to poor demand and additionally capacity build in Asia, resulting in excess supply. This is evident in the 29% decrease in polyethylene prices compared to the previous period. We have seen some respite in lower ethane and energy prices in the latter part of the year, positively contributing to margins in our Chemicals business. However, this continues to be at elevated levels compared to historic levels. Chemical margins and global demand remain depressed, negatively impacting our chemicals business, particularly in America and Europe. Looking ahead, we expect the uncertain global economic environment to continue weighing on prices and demand in the short to medium term with continued volatility in oil prices and weaker margins for the refined products and chemicals. We anticipate higher ongoing inflation, which requires us to carefully manage our cost and capital strategies. Our strategic response is based on three pillars to navigate the challenging landscape and ensure our resilience. Firstly, our adaptability to market dynamics requires an ability to swiftly adjust our strategies and operations in response to changing market conditions. By staying agile, we are able to effectively mitigate risks. Secondly, margin optimization is critical and includes improving operational efficiencies and streamlining processes. And thirdly, we will continue to improve our cost competitiveness through ongoing cost and capital discipline, assisted by our Sasol 2.0 program. I have full confidence in Team Sasol’s ability to adapt and thrive amidst this uncertainty. Turning now to our financial results for the year. It is key to recognize that our profitability was not only impacted by factors within our control, but also by multiple factors beyond our control. Given the challenging backdrop, our EBITDA decreased by 8% compared to the previous financial year with cash generated by operations increasing by 15%. We continue to benefit from our diversified energy and chemicals portfolio evident in the profitability mix with the Energy business contributing 56% of total EBITDA generation. I will unpack the EBITDA performance per segment later in the presentation. Our earnings before interest and tax for the year were significantly impacted by remeasurement items, which includes a combination of impairments, reversals, exploration write-offs and asset disposal gains in the prior year. The most notable impairment relates to the Secunda liquid fuel refinery cash generating unit or CGU. I will provide more detail regarding this in the next slide. Lastly, our core headline earnings of ZAR 47.1 per share decreased by 30% compared to the previous year. We continue to strengthen the cash flow generation ability of our business which supports a final dividend of ZAR 10 per share declared. The development of our emissions reduction road map or ERR demonstrates our commitment to sustainably carving out our path to achieve our 2030 greenhouse gas emissions reduction target as well as compliance with air quality requirements. As we progress our sustainability journey we need to continuously evaluate and refine our road map, ensuring we follow a measured and balanced approach to balance the people, planet and profit impact of our transition. With this in mind, we have revised our reference case that was dependent on gas to restoring Secunda volumes back to historic levels. We have reassessed the affordability associated with additional gas. And as such, incorporated lower production volumes post 2030. This adjustment, together with other factors such as current lower volume output of Secunda, higher cost of capital, higher feedstock cost, and changes in capital assumptions resulted in the full impairment of the Secunda liquid fuels refinery CGU, of approximately ZAR 35 billion. It is important to note that the Secunda Chemicals cash-generating unit, CGU are demonstrating resilience with no impairment incurred due to the production of higher-value products. We are diligently evaluating and progressing various technology and feedstock solutions that could potentially aid in partially restoring our production volumes. However, it is important to note that the maturity of these solutions need to be progressed before it be considered in the impairment assessment. I will now provide some detail on the business segments, starting with the Energy business. Our mining business saw a 16% decline in adjusted EBITDA mainly as a result of lower export sales volumes and prices as well as higher external coal purchases given our lower productivity. We have seen incremental improvement in productivity since the implementation of our Full Potential program. Our Gas business benefited from higher internal gas prices, although our selling price to the external market remained flat, pending the nursing decision on our financial year ’23 and ’24 pricing applications. The increase in adjusted EBITDA of 3% was supported by the weaker exchange rate and lower cash fixed cost. In our fuel segment, adjusted EBITDA was up by 5% compared to the previous year. Supported by the higher rand per barrel oil prices. This was offset by the lower Natref refining margin on the back of higher crude oil premiums incurred in the first half of the financial year. Turning to the Chemicals business. Chemicals Africa saw a 10% decrease in adjusted EBITDA compared to the previous year, mainly due to lower sales prices. This was offset by slightly higher sales volumes despite the planned total Secunda East factory shutdown in the financial year compared to a phased shutdown in the previous financial year. In Chemicals America, adjusted EBITDA was down by 96% compared to the previous year, driven by lower sales prices as well as higher feedstock costs mainly in the first half of the financial year. Overall, ethylene and derivative margins improved in the second half as feedstock costs reduced but margins remain significantly below levels seen in prior years, continue to negatively impact profitability. Chemicals Eurasia’s adjusted EBITDA decreased by 74% compared to the previous period impacted by higher feedstock and energy costs associated with the ongoing war in the Ukraine. Energy costs reduced in the second half of the financial year, resulting in significant inventory devaluations and impacting profits. Given this as well as weaker demand, production rates at several of our units were reduced. Turning now to our Sasol 2.0 transformation program, we are pleased with the savings we have realized to date, which has given us more headroom to withstand the impact of the volatile economic landscape and higher inflation. We have realized over ZAR 7 billion in net sustainable annual cash fixed cost savings and ZAR 6.4 billion gross margin improvements since the start of this program, exceeding our targets for both of these metrics to date. This was achieved mainly through the implementation of continuous assessment and refining of the operating model as well as embedding market-driven strategies to improve customer experience and increasing profitability of our products. Given the high inflationary environment, we have also updated our capital target from the ZAR 20 billion to ZAR 25 billion in financial year ’20 real terms to ZAR 26 billion to ZAR 32 billion in financial year ’23 real terms. Our maintain and transform capital for the financial year remained well within this targeted range. We continue to embed a risk-based capital allocation approach in accordance with our capital allocation framework. Lastly, we managed working capital ratio to turn over close to our 12-month rolling average target of 15.5% to 16.5%. Although marginally above this range on a 12-month basis, we ended the year at 12.4% through focused management interventions. Given the impact of the external operating environment, we need to intensify our efforts to remain resilient, profitable and cash generative. We have, therefore, pushed to reset our targets for financial year ’24 and ’25 by increasing our targets for cash fixed cost and gross margin improvement by more than 20%. This amounts an additional ZAR 4 billion in annual EBITDA enhancements by financial year ’25. Our focus remains on bolstering the strength and maturity of our pipeline of initiatives and we are confident that we will maintain momentum in achieving the 2.0 targets for the coming financial years. Looking next at the outlook for the financial year ’24. In mining, we expect productivity to step up to between 975 to 1,100 tonnes per continuous miner per shift as we continue to roll out our full potential program to the remaining collaries. In our Gas segment, we have increased the volume guidance to 113 million to 119 billion standard cubic feet as we are seeing the benefits of the investment in our gas drilling campaign in Mozambique. The increase in production volumes at our Secunda operations is directly linked to the performance of our mining operations. As such, we forecast volumes of 7 million to 7.3 million tonnes for the year with our South African liquid fuel sales volumes to range between 51 million and 54 million barrels. In our Chemicals business, sales volumes for Chemicals Africa is expected to be between 0% to 5% higher compared to prior year, following the recovery from the operational challenges in the first half, and we supply — and supply constraints we experienced. In Chemicals America, we expect sales volumes to be between 0% to 5% higher than the prior year as we increase utilization rates supported by the anticipated improvement in market conditions. We will continue to monitor conditions and adjust our plant operating rates in response, ensuring minimal inventory build-up. Chemical Eurasia sales volumes are expected to range from 5% lower to 5% higher than prior year, given the significant volatility and uncertainty that remains in the operating environment. We continue with prudent capital management with the objective to invest appropriate capital to safeguard asset reliability across all our operations, whilst progressing our transform objectives. Or maintain and transform capital for the financial year of ZAR 50 billion includes the total Secunda factory shutdown as well as the ramp-up of capital spend on the PSA project, which remains within budget and schedule. We have also seen an increase in capital spend towards our compliance road map, which includes our environmental and clean fuels two projects. To date, minimal discretionary growth capital has been incurred was spent mainly towards the Sasol green hydrogen pilot project, which produced our first green hydrogen. Total capital of ZAR 31 billion exceeded our market guidance of ZAR 27 billion to ZAR 28 billion mainly driven by higher-than-expected inflation and weaker rand-dollar exchange rates, which impacts a substantial portion of our capital portfolio. Our capital forecast of ZAR 33 million to ZAR 34 billion for the financial year ’24 in nominal terms is aligned with our Sasol 2.0 targets. We continue to ensure our capital strategy aligned with our overarching vision of operational excellence, reaching our greenhouse gas reduction target and sustainably growing within a dynamic operating landscape. In wrapping up then, a reminder that our capital allocation framework continues to serve as the foundation of our investment decisions as we assess capital requirements across competing priorities. We continue to prioritize our sustenance capital to ensure we have sustainable operations well into the future as we progress our emissions reduction road map, our pathways are becoming increasingly well defined. We continuously evaluate and enhance our capital spend towards our road map. We remain focused on the best risk-adjusted returns. And in achieving this, we are dedicated to explore all opportunities to utilize our capital more effectively while understanding our limits and risks. Our current net debt of USD 3.8 billion decreased slightly compared to the comparative period. And we continue to work towards our goal of further reducing debt levels. Our liquidity headroom of nearly USD 6 billion is well above our target to maintain liquidity in excess of USD 1 billion. We have further significantly optimized our debt maturity profile through the successful refinancing of our near-term debt maturities, which was a critical achievement given the current volatility and market uncertainty. A key priority remains sustainable returns to our shareholders. I’m pleased with the declaration of our final dividend, as Fleetwood also mentioned, which brings our total financial year ’23 dividends to over ZAR 10 billion. In our second order of allocation, our approach to discretionary capital will revolve around prioritization of long-term growth initiatives in collaboration with partners such as the proposed Topsoe joint venture. Another example of ensuring efficient capital allocation to support our growth ambitions is Sasol Ventures, our venture capital fund launched in February. Since then, we have refined the investment strategy for the fund and actively evaluated a number of opportunities. As we move forward, the portfolio will be deliberately and carefully formulated ensuring investment into technologies which will support the delivery of our strategy. Thank you for listening, and I will now hand back to Fleetwood to provide more detail on the progress made in the delivery of our strategy. Fleetwood Grobler: Thank you, Hanré. In the final section of my presentation, I will talk you through our strategy, the progress we’ve made on our sustainability journey our continued contribution to society and our priorities for the next financial year. For the past year, we have seen extraordinary volatility in the global landscape and there are a number of important underlying factors which are relevant to our transition. Energy Security continues to be a source of great concern across the globe. With energy prices spiking after the war broke out in the Ukraine in early ’22, while we’ve seen a slight reprieve in some of these energy costs in the last six months, availability and affordability of energy remains a key issue. Regulatory and policy uncertainty is also a critical factor. Consistent and effective policy and regulation is required both to encourage investment and reward risk taking in the Pathway 2 transition. Unfortunately, some of the more recent developments in the broader South African business have instead created more uncertainty that add to the challenges of investing with confidence towards transition. We remain committed to prioritizing an affordable and sustainable transition for our business. We are faced with what is commonly known as the energy transition trilemma. And it is imperative that we invest in the energy transition itself. But simultaneously, also consider our commitments to today’s energy needs largely shaped by oil and gas. Swift action is required, but we must equally recognize the importance of our means and affordability of this transition. We’ve seen a few shifts in strategy from our peers in the recent months in response to some of these challenges with most reaffirming the need for a value-accretive and demand-driven energy transition. Our triple bottom line strategy, people, planet profit remains intact. Looking now at our environmental performance, we’ve achieved a greenhouse gas reduction of approximately 5% in financial year ’23 compared to our ’17 baseline. Lower production rates from our SA operations as well as poorer coal quality and other inefficiencies associated with lower production rates contributed to the greenhouse gas reduction. Taking this into account we must estimate that the real greenhouse gas emission reduction would be less than the 5% shown on the slide. Note that we expect slightly higher greenhouse gas emissions in financial year ’24 as a result of higher production in SA. This being said, we continue to implement our greenhouse gas reduction initiatives with significant step changes expected post 2025. After the integration of renewable energy and phased boiler shutdowns. We have made steady progress on our greenhouse gas emission reduction journey towards our 30% target. Our major 2030 levers are unchanged. Integration of renewable energy, transitioning away from coal as a feedstock and greater energy efficiency across our operations. The relative percentage in each block may change as we optimize the overall program. Allow me to highlight some key milestone progress in the past year. Six months ago, I announced the first significant tranche of renewable power purchase agreements, which were signed. We have since concluded a few more agreements in excess of 600 megawatts for Secunda. Representing more than half of the commitment of 1,200 megawatts by 2030. In addition, the 69-megawatt Masenga Emoyeni Wind farm is under construction in the Eastern Cape and is expected to come online in 2024. In Selberg, we have commissioned a 3-megawatt solar farm adjacent to our operations to facilitate the green hydrogen project, which includes a retrofit of an existing electrolyzer. We are very proud to announce that Sasol produced its first green hydrogen in June of this year during the commissioning phase. Once operational, the Masenga wind farm, together with the Sussberg, solar farm, will provide sufficient renewable power to commercialize green hydrogen in South Africa. This is a huge step forward in the energy transition, not just for Sasol, but also for South Africa. As mentioned in the past, the signed PPAs remain subject to standard conditions precedent and grid access. In our Chemicals business, we have concluded approximately 24 megawatt of PPAs in Europe with the first solar power received at our Augusta site in April this year. We now have two plants in Europe, Brunsbuttel and Augusta supplied with renewable energy. Turning to the feedstock transition lever. Our plan to reduce consumption of coal over time will require innovative solutions to utilize the coal we have more efficiently as well as transition to other feedstocks over time. The turndown of gasifiers or coal intake together with a fine coal briquetting project will facilitate the bulk of this reduction. The briquetting project is making good progress towards an FID decision. Alternative feedstocks, means that we will continue to use transition gas in the near term until sustainable sources of carbon become affordable for example, biomass, which is in early phases of assessment. As mentioned earlier, our gas drilling campaign in Mozambique becomes increasingly important to enable this transition. With the plateau extension up to 2028 from existing fields, we have more feedstock flexibility up to 2030. The recent onshore gas discovery in the PT 5C block also has potential and this — should this become a viable supply in future together with any other exploration prospects in Southern Mozambique. The recent Connecticut gas discovery near Secunda, also provides potential gas supply options, and we are engaging with them to understand this opportunity better. Given the recent market tightening on LNG globally, it does not make economic sense for Sasol to pursue LNG to supplement our feedstock supply by 2030 at current prices. For this reason, we will not execute this option and instead prioritize our own supply of gas from existing assets or near-field acreage with due consideration of risk and reward. Lastly, we are executing a suite of projects to unlock energy efficiency benefits some of which involves innovative solutions being explored by our research and technology teams. We will turn down our boilers in a phased approach once renewable energy is online. This will have a further benefit of also reducing our sulfur dioxide emissions from the site, in line with our request to be regulated on an alternative load-based limit. These levers are not without risk. We are systematically working through the risks and mitigating the ones which are within our control. However, there are some factors which are outside of Sasol’s Control, which rely on regulatory processes and decisions and globally supply chains to progress. Our immediate focus is, firstly, to reset the business and to maintain our steady progress to reach our 2030 targets, but we have also not lost sight of our reinvent aspirations to reach our 2050 net zero ambition. I’m excited to announce that Sasol and Topsoe signed a 50-50 joint venture agreement, which will focus on unlocking opportunities related to SaaS production. The JV will develop, own and operate ventures producing sustainable aviation fuels from sustainable feedstock sources based on Sasol and Topsoe’s leading technologies decarbonizing the aviation industry. The JV agreement is still subject to merger control conditions before becoming operational. We have made good progress in developing a portfolio of catalytic green hydrogen projects, including the strategic integrated projects consented by the South African government in December ’22. And namely Sasolburg, green hydrogen production, high shift study to produce sustainable aviation fuels in Secunda and the study for a Boegoebaai green hydrogen development program. We are prioritizing investment in key proof-of-concept activities focusing on repurposing our assets in Secunda and Sasolburg. In the U.S. We believe the Lake Chile site provides multiple attractive opportunities for enhancing value through co-location and for expansion as a sustainability up with partners. We continue to progress studies to advance these opportunities. I’m also pleased to announce the first production of low-sulfur 10 ppm diesel at our Natref refinery in Susselberg in June of this year. and we are on track to meet the clean fuels two compliance specifications in due course. We have also completed a prefeasibility study on the hybrid refinery concept which involves the introduction of bio-based feedstock to the refinery to reduce greenhouse gas emissions in future. This is a very positive step for Sasol and affirms our commitment towards energy security for South Africa. Sasol remains a significant contributor to our society and a key investor in our communities. I’m very proud of the leading role we continue to play driving positive change. In financial year ’23, we contributed over ZAR 56 billion in taxes and royalties across all jurisdictions. We remain one of the largest corporate taxpayers in South Africa. We have invested close to ZAR 100 billion in sustenance capital in our South African assets over the last six years, with over ZAR 175 billion planned to be spent up to 2030, demonstrating our commitment to South Africa and its future. Our spend this past year on majority black-owned businesses in South Africa was approximately ZAR 42 billion, almost 25% higher than financial year ’22 spend. Spend on black women-owned businesses also increased by 32% to approximately ZAR 29 billion. We remain committed to broad-based black economic empowerment through sustainable transformation. Continued investment in the communities we operate in is a priority for us. ZAR 1.4 billion in skills and development this year makes us one of the largest investors in South Africa in this area. To name a few examples of our targeted interventions in Mozambique. We trained over 500 people on entrepreneurship, also providing funding for half of them for new businesses. And in North America, we sponsored consulting and business training to small business owners in Southwest Louisiana area. We’ve also invested over ZAR 850 million globally in socioeconomic and skills development. And I would like to draw your attention to a few highlights in this area. We invest in multiple education initiatives to support the development of technical and vocational skills to address the shortage of critical skills needed in the workplace. Sponsorship of tertiary education through bursaries, technical education and schools and teacher training underpins our initiatives to improve socioeconomic conditions in our society. Our Sasol for Good program encourages our own employees to get involved in their communities through various volunteer schemes donating their time, skills and resources to social development causes. Through this program and direct employee contributions, close to ZAR 15 million was donated to multiple initiatives such as packing meals for the needy, donations to flood effective areas in South Africa and assistance to nonprofit organizations. We continue to make investments in the community infrastructure of our fence line communities, creating and enabling an environment in which both communities and business can thrive. This year alone, we invested over ZAR 170 million in water and sanitation repairs, health screening initiatives, maintenance of clinics and construction of sporting facilities, for example, the one in Inhassoro training center in Mozambique, amongst others. Lastly, I take great pride in Sasol’s sponsorship of South Africans women’s football team, Banyana Banyana. The team’s recent successes on the global football stage is testament to their hard work and dedication, well done Banyana Banyana. Our focus on achieving future Sasol ambitions is still firmly embedded and the pathway firmly rooted in our reset transition and reinvent levers. The realities of the operational and business headwinds faced in the last year has impacted our performance in the reset phase of the journey, but we have responded by intensifying our efficiency initiatives to ensure we continue to be able to deliver our strategy. Looking ahead, there are several key areas where we must maintain relentless focus. Safety of our people remains a top priority. The pursuit of zero harm while maintaining safe and reliable operations is not negotiable. I’m pleased with the advancements we’ve made in our sustainability journey. That being said, there is more work to be done to refine some of the levers to 2030 to optimize capital spend, balance demand and decarbonize sustainably. Sasol’s road map development is underpinned by the principles of a just transition, taking into account push and pull factors and the context of national circumstances in Southern Africa, maintaining strong cost and capital discipline through our Sasol 2.0 transformation program is critical to manage some of the short-term challenges. And the increased targets Hanré announced will help mitigate some of the extraordinary cost pressure we’ve seen in the last 12 to 18 months. I am confident that the ongoing interventions at our mining operations to mitigate poorer coal quality and low productivity will result in improved performance in this area over time. Unlocking the full potential of Lake Charles investment and value uplift remains an important priority despite the market headwinds we faced this past year. Lastly, we commit to follow a balanced capital allocation process, focusing on safeguarding shareholder returns and further deleveraging of the balance sheet. Delivery of all these goals will improve business outcomes and ultimately, provides sustainable shareholder returns. In conclusion, I want to emphasize the importance of our employees. In recent years, we had to adapt to existential challenges forcing us to reset our organizational culture and the way we conduct our business. We continue to evolve our culture to establish a diverse and high-performing resilient workforce that experiences equity, inclusion and a sense of belonging as well as embracing innovation and collaboration. I want to thank Team Sasol for once again rallying around our objectives to recalibrate and reset the business and forge ahead towards a sustainable future Sasol. Your unwavering dedication propels us forward on this remarkable journey. This concludes our results presentation for today. Thank you for watching and listening. We will now take a 5-minute break before we commence with a question-and-answer session. Thank you. A – Tiffany Sydow: Good morning, and welcome to the question-and-answer session for Sasol’s 2020 final financial results. With us today in the room are to my left, Priscillah Mabelane, EVP of the Energy Business, to my far left, Simon Baloyi, Energy EVP of the Energy Operations and Technology, Stream. To my right, Mr. Riaan Rademan, who is the EVP of the Mining Operations and to my far right, Brad Griffith, EVP of Chemicals. Participating online, we also have three participants Charlotte Mokoena, our EVP of HR, and Stakeholder Relations. Vuyo Kahla, EVP of Strategy, Sustainability, and Integrated Services and also Hermann Wenhold, who’s our current SVP of Mining. Your questions can be posted online, via the streaming platform on the right hand side of the screen, you should see a dialogue box, which you can post your questions. Alternatively, you can also dial in via the Chorus Call link, which was provided and you can voice over your questions via a queuing system. I’ll be switching between the two platforms to allow everybody a fair opportunity to ask their questions. We’ve taken the liberty of theming the questions to make the sessions slightly more efficient today. I’ll start with a few of the online questions which have come in via the webcast platform. And I think let’s start with the financial questions, which I’m going to direct to Hanré. I’ll perhaps do two questions at a time, Hanré. The first one talking through the earnings impact going forward of the massive impairment, and the depreciation impact by annum, that comes from Herbert Kharivhe at Investec. I think a key question there also, are we still looking at 2050 as the useful life? And then, the second question also from Herbert Kharivhe, is the oil book, hedge book reflective of breakeven prices? See also 12 Most Automated Industries in the US and 15 Countries That Tip the Most in 2023. Q&A Session Follow Sasol Ltd (NYSE:SSL) Follow Sasol Ltd (NYSE:SSL) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Hanré Rossouw: Thanks. Thanks, Herbert, for the questions. I think firstly on the depreciation impact of the impairment, given that we are writing down ZAR 36 billion of the asset value, of course, it reflects in the annual depreciation charge. So, the immediate impact for financial year ’24 would be about ZAR 1.2 billion to ZAR 1.3 billion lower depreciation since we’ve, of course, immediately written off that value. And I think over the next 30 years, then the useful life remains at 2030, so that will be spread out roughly about a ZAR 1 billion per year, then ongoing basis. That translates about ZAR 2 per share on the core HEPS basis. I think in terms of your question around the oil hedge book, you would note that we have reduced – significantly reduced over the last two, three years, our hedge cover ratio. So, we’re sitting for oil around a quarter of our oil is hedged. We’ve also moved down our rand/dollar hedging to a more appropriate level. So what we do is not – to risk out, to hedge out all risks, but it’s more of a Monte Carlo scenario on what is the extreme shocks that the business will have to endure. So given that our breakeven is sitting now around a $50 to $60 a barrel, that is still a level that that we are targeting. And it effectively, then we do see a quarter of the book given our significant, risk mitigation together with the stronger balance sheet that we don’t have to fully hedge all our oil at all. Tiffany Sydow: Thank you, Hanré. Another two questions coming in, one from [Ashton Donberg from Novus ARC]. How much of a premium in dollar per barrel did you pay to source crude oil? And then I think a couple of questions around, gas from Sashank Lanka at Bank of America. A couple of questions, investment of the ZAK 530 million in Mozambique gas drilling. How will this be reflected in CapEx over the coming years? Yearly CapEx arising for this, and then I think also moving back to the impairment, is there more to come on the Secunda CGU impairment, and how much lower volumes be post 2030? Is Sasol now running the refinery as a terminal value asset and are there any potential impairments in the Eurasia segment given the weak outlook there? A couple of questions in one. Hanré Rossouw: It’s a mouthful, so please remind me if I miss anything, Tiffany. I think just on the premium on the hedge book, just to note that we’ve not continued the use of cap and collar in terms of hedging. So we are now only using put options. So the question relates to what is the premium that we pay on those hedges. So that — for the last financial year and currently, it’s hovering around the $2 to $3 a barrel. So effectively, it’s an insurance cost that we expense, to cover that downside risk on oil. In terms of the Mozambican oil, just to note that that $530 million investment that Fleetwood quoted, that is the amount already spent. We’re, just about halfway through our investment program in Mozambique. So the peak period would be over the next two to three years, whereafter that will decline or not, I think of course it is a continuous capital allocation discussion. So as we see prospectivity improving, we might accelerate that or decelerate that, depending on the exploration results, but we do believe that there’s lots of potential in terms of gas from Mozambique. Did that cover everything, Tiffany? Tiffany Sydow: Yes, I think just on the potential impairments on Eurasia? Hanré Rossouw: So on Eurasia, I think and perhaps just a comment on impairments in general, and at risk of seeking out on IFRS and accounting standards, one has to recognize that that impairments are reactive to an extent. We do on an annual basis assess the carrying value of our assets. So where they’re is limited headroom in some assets, we will watch that closely. But when we see improvements in our business that – could potentially reverse an impairment, and we saw that in the decimalization business, we reversed an impairment, kind of we will do that as well. So that that assessment will happen annually perhaps just to note on Secunda, we – in the financial statements at Note 8, give a lot of detail on what drives the impairment. A big aspect of that has been a reduction in the macro assumptions for example, the Brent oil price is now down to $88 a barrel over the long-term. WACC rates have increased and we note the sensitivities on those. And then also, we don’t include any enhancements due to IFRS. You – cannot include an announcement until it’s affected. So, we’ll continue to look at options, not only for our chemicals business. But also Secunda in terms of where we can reverse those impairments, and we see that as a challenge for us in the business. And I think that really talks to the longer term, transition strategy as well, that we are driving. Tiffany Sydow: Thank you, Hanré. That covers the full suite of questions. I’m going to move to operationally, operational questions from a few people. So the first one comes from Gustavo Campos at Jefferies. How would you evaluate the overall impact of Eskom and Transnet constraints for this fiscal year? And how do you see those potential challenges going forward? And then the second question also from Sashank Lanka from Bank of America, what should be the mining productivity once the full rollout is done. And for the overall business, what is the upside to ’24 volumes we can expect on a normalized basis? Fleetwood? Fleetwood Grobler: Thank you, Tiffany, and thank you for those two questions. So let me contextualize the impact we’ve seen in our chemicals business, for example, with respect to state owned enterprise impact. So when I look at the two aspects that, impacted chemicals, one was that we couldn’t move the product to the coast or the port and therefore we either lost the sale or delayed it substantially. And the other aspect is that we had to move the product from rail to road. Now that in itself, the latter increased our logistic cost by 27%. And that also incurred, and we’ve – we said most of that was in the first half of the year around ZAR 0.7 billion. If I include the first element. It was just over ZAR 1 billion that we have, seen as an impact on our chemicals Africa bottom line because of these two factors that – I’ve indicated. Now we are, and I’ve mentioned it in my presentation, that we are actively engaging, and we’ve got constructive engagements, also with Transnet and Portnet on various issues. One of the aspects that we are dealing with is our trajectory between Sasolburg and Secunda with respect to ammonia rail tank cars. Where we have worked with them jointly to put more rolling stock under Sasol’s, watch into that trajectory as well as that we assist with the maintenance of that rolling stock. Of course, these are ongoing discussions, but we are encouraged by the collaboration that we’ve seen, and we’ve also seen improvement in the last months with respect to some of the other rail trajectories, to either Richards Bay or into the port of Durban. So I think, we’re looking forward towards an improvement. I think the government is doing and pulling all stops to improve the situation. So from a collaboration point of view, I’m encouraged. If I look at the load shedding part of it, we are actively, as Sasol also part of business South Africa, where we are contributing in the collaboration efforts between business and government, and you would know that we’ve published, recently, over 120 CEOs represented business, signed a pledge where we would put shoulder to the wheel to assist with energy security, to help with the logistics factor that I’ve mentioned now, which is mostly on the state-owned enterprise, as well as crime and corruption. Sasol is playing a much bigger part in the first two where we are helping with resources to, assist with Eskom in terms of the leadership on power stations to help them, solidify and look at KPIs to run those power stations, in a way that could be more sustainably. Although, we found that there’s top notch people in Eskom currently working those agendas. So, we can just bring further experience to what we have had in our own power generation facilities. And I think that just adds to a more robust recovery plan of energy availability in South Africa. So those efforts are ongoing. And as I’ve said also on the logistics side, we are having, our inputs in terms of that. So all in all, positive development, have we seen the final outcome yet? No. We’re working on it, but I’m encouraged. So, I think the second, point that was raised was, what should we – should the mining productivity be at the exit run rate? So today, and I’m going to ask, Riaan to help me here and in terms of the focus of where we will end. First of all, the range that I’ve indicated, is primarily the focus on our Secunda collieries, the target we want to achieve for the Secunda collieries, which is more than 95% of our volume, output for our feedstock – is the number that we are improving year to full potential. So, we believe that at the end of this year, we will have a steady – improvement. So, the average guidance that we’ve given – you is the average over the year, we aim that by July onwards that means in the next financial year, that we will target for the Secunda collieries and run rate of 1,230 tonnes per continuous miner per shift. And then hopefully, maintain that through the financial year from there on. So that’s how we think about, that run rate. And then, we also mentioned that, that is a key focus area that we currently have......»»
BioLargo, Inc. (PNK:BLGO) Q2 2023 Earnings Call Transcript
BioLargo, Inc. (PNK:BLGO) Q2 2023 Earnings Call Transcript August 18, 2023 Operator: Greetings. Welcome to the BioLargo Second Quarter 2023 Earnings Results Conference Call. At this time all participants’ are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn […] BioLargo, Inc. (PNK:BLGO) Q2 2023 Earnings Call Transcript August 18, 2023 Operator: Greetings. Welcome to the BioLargo Second Quarter 2023 Earnings Results Conference Call. At this time all participants’ are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brian Loper. You may begin. Brian Loper: Thank you, John. Good afternoon, everyone, and welcome to BioLargo’s Q2 2023 quarterly results conference call. By now, everyone should have access to the earnings press release, which was issued yesterday prior to market open, and the 10-Q report filed with the SEC. This call is being webcast and is available for replay. In our remarks today, we may include statements that are considered forward-looking within the meaning of the securities laws, including forward-looking statements about future results of operations, business strategies and plans, our relationships with our customers, market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Copyright: nexusplexus / 123RF Stock Photo Forward-looking statements are based on management’s current knowledge and expectations as of today and are subject to certain risks and uncertainties, and may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in our most recent Form 10-Q, Form 10-K and other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. And with that, I’ll now hand the call over to BioLargo’s Chief Executive Officer, Dennis Calvert. Dennis Calvert: Hey, Brian, thank you very much. This is Dennis Calvert. I appreciate everyone joining us today. And as usual, we got a lot to share, so we’re going to plow through a lot of information quickly. And again, it’s our privilege to have the chance to talk to you today. So BioLargo, we make life better, sustainable, innovation, focused on making a better clean air, clean water, cleaner earth, making life better across a number of fields as an innovator and solution provider. Our strategy is pretty basic: invent it, prove it and partner it. And we have gotten multiple platform technologies in cycle, with a couple of commercial endeavors under our belt and more coming. So we’re going to highlight those today. We’ve already covered the Safe Harbor statement by Brian. Thank you very much for that, Brian. Part of our messaging is very important. Who are we? What are we doing? Well, we’re scientists, engineers, entrepreneurs, passion by making a difference in health and sustainability, focus on a mission of making life better. How do we do that? We focus on best-in-class, very important, best-in-class solutions with engineering-forward technologies, heavy science, heavy engineering, focused on solutions, without problems without good solutions. That’s the emphasis of the company, and we got a number that are really significant in terms of making a high-impact, impact-driven company. This is a pretty new slide. We’re often asked the question, how do you got so much going on, how do you explain it in one shot? Well, this is an attempt. This is an attempt. You have to stay. I’m not going to go through all the words, but really, if you think about it, the parent company is focused on finance and strategy. The engineering group supports all of the operating units and innovators. The Water company is primarily focused on R&D. And the engineering company does have some clients while we’re building support for our technologies and commercial endeavors. And now as a result of all this innovation, putting this together for a commercial assault, we have four commercial operating entities. Clyra, of course, we talked about. Our Energy, a new subsidiary with a new battery technology and development, not yet commercial. ONM Environmental, where our odor and VOC control products are housed. Then Commercial, now, well over eight years, and now breaking records. And then, of course, this new enterprise called BioLargo Equipment Science and Technology. Colloquially, we would say, best — the best equipment, focused with an emphasis on PFAS, but also the entire catalog of technologies and solutions focused on primarily the water industry. And so this is a nice way to think about the company, an innovation engine with resources to support the development, the commercialization and, ultimately, the exit focused on either spin out, merger and acquisition or licensure. At the 5.5-year mark, we’ve done 88% of what we did last year. That represents 127% period over last period, so that’s six months ending this year. Over last six months’ ending period, we’re up 127%. Notice that, that 88% takes us to a total of about $5.9 million, and we’ve still got half the year to go, and we’ve got some exciting news about the expansion going on at Pooph. We’re going to talk also about the quarter-over-quarter. So give me a minute, we’ll get to that in a second. Pooph is a very exciting product line. Remember, this is a product that’s sold through our partnership. It’s an extension of our industrial products that we’ve been selling for about eight years and continuing to grow organically. Made a partnership with a marketing group, Ikigai Marketing, developed a brand called Pooph. We secured the supply chain agreement as the manufacturer. We licensed technology with a very discrete specific license focused on pet odor control. And we bargained for 20% of the brand exit eventually, when Pooph decides to exit and sell the company. Their stated mission is to ramp it up to about $100 million a year in sales and looking for an exit of 3.5 times to 7 times on the exit. That’s their stated mission. The rollout at Walmart, there’s about 2,000 stores that are currently carrying the product. That’s a rough estimate. It is very difficult to keep up with the logistics as it rolls out. It did take a little longer than anticipated. And as a result, there’s still about 1,000 stores to still achieve the fulfillment of inventory, so it can be sold on the shelves. Now the good news is there’s an addition of about 12 additional retailers, who come on board recently and that number is expanding. So we do believe the Pooph revenues will continue to expand significantly, and we would really say dramatically. And to that point, they’ve informed us that they believe that by the end of the year 2023, they’ll have approximately 20,000-plus retail stores under contract to carry the line. Now we always hesitate just a bit, because the logistics associated with securing these agreements sometimes can take a month, sometimes can take three and, in the biggest case, we’ve seen it take even five to six months. So really, I think the way everyone should consider this is it’s exciting because it represents a big broad distribution plan. Contracts are already in place to carry much of that along the way. There will be additional retailers that will come on in the next three to four months plus. But as you reach maturity at that kind of impact, 20,000-plus retail outlets, assuming minimums, it becomes a force to be reckoned with plus DTC, that’s direct-to-consumer, Amazon and Walmart, which are already under contract. So as these are achieved over the coming months, we’d like to say four to, let’s call it, nine, something like that, we don’t know exactly, we’ll see this impact translate to revenues. And it represents about a 10 times over current selling resources that are in place for this product. Remember, as a supply chain partner, as they grow, we grow. As they make money, we make money. It’s a very good situation, and they’ve shown some brilliance. As we said in our press release, they are a company that executes with precision. We’re here to support them any way we possibly can. And we think the financial implications of this alone, as these numbers are achieved, it holds the good prospect of heading towards certainly positive cash flow and even surpassing our overhead on a fully loaded GAAP accounting non-cash basis. The spike. The spike from Q1 to Q2, right? So Q1 was a huge, huge performance. And to give Ikigai and Pooph credit, they properly stocked up in preparation of a national account with a big national footprint, so that they have the inventory on hand to meet the demand and the time frames, whatever that was, for deployment as Walmart rolled out the product. As a result of having such a high level of inventory, we saw a falloff in the purchase orders from Pooph in Q2. And now as we’re into Q3, we’re watching those numbers come back to stabilizing and beginning to increase again. And of course, that’s reflective with the additional retail accounts, the logistics catching up with the launching of these retail stores. And so we’re going to watch that number trend backwards in a nice growth trend that we believe is reflective of their historical, which is averaging about 20% quarter-over-quarter growth on the Pooph side. And of course, that represents historically 80-some percent of our total revenue performance, and so that’s a big deal for the company. So more to come. Of course, our cash position reflects that. Q1 was such a big quarter. ONM produced positive cash in excess of $1 million. So that was a big deal for the company. Q2 was down. As a result, we used more cash, but we have been able to increase our net shareholder equity, which we’ll talk about in just a second, and so very much in line with the Pooph sales. Our cash used and cash generated is marrying that trend. And again, we’re going to watch the trend head back north here in Q3, which we’re very happy for, of course. Net stockholder equity increased to $4.12 million as a result of the end of the second quarter, that was primarily attributable to Q1’s excess revenue, of course, a big impact. And then Q2, we also brought in additional capital to support our battery technology and the medical company, which is really good. Because what that does is it lessens the burden on the corporate office, if we can allow for direct investment into those opportunities, which we have, because we believe this is so substantial and the investors believe so, too. So that’s been a very good situation for the company as well to leverage those assets with direct investment rather than dilution at the parent to give us that diversity and capital to grow. I’ll remind everybody that, that $4 million, as the company evaluates potential uplifting strategies, those are very important numbers. In addition, of course, reducing the burn rate is very, very critical. And so as most people look at the company with these trends, we’ve got a lot of analysts talking about Q4, Q1, heading into that positive cash flow scenario where our existing commercial success is sufficient to actually carry the company to the point where it may not need to raise much capital to sustain itself, if at all. And of course, we’re careful because we think that the current valuation is low, and we want to minimize dilution. And we do believe that these commercial endeavors will raise our profile and increase awareness for the company. So in summary, the additional final information is important, 5.188, 127% year-over-year for the same period, critical number, and 88% of last year — last quarter — last year’s revenue in the first six months. So in six months, we’ve done 88% of what we did last year. Now we did see a big drop off at 61%. So that number was big in Q1 and low in Q2. Think the explanation is right in front of us. Stocking up at Walmart and the delay in fulfillment really did impact us all, but that number is already turning. And so we’re pleased for that. I think the other critical numbers, engineering, we’ve talked about this before. As we’re ramping up infrastructure for these developing assets, the engineering group is spending quite a bit of time supporting those. So that creates internal billings, all of which is eliminating the consolidation. So they did the work that, if built, would have been approximately $550,000. But from a revenue perspective, for third-party contracts, that number is $131,000 for the Q2. And of course, BioLargo is supporting many of our endeavors with R&D work and, of course, supporting the AOS for its commercial launch. And then on the Clyra side, you’ll notice an increase in the loss at Clyra, that’s because money has come into Clyra, giving it the tools to expand for sales and marketing and its efforts to get the word out about technology and products throughout their industry. So they are very aggressively now marketing around the industry. Okay, the family of companies. I’ll just reiterate that the company, as we mentioned, essentially — let me go back to it real quick. As we mentioned in slide number five, here it comes, the company has a portfolio of technologies in various stages of development. We believe each one of these has a chance to be a disruptor in their space. They’re all moving forward in some meaningful way. and I’m happy to answer some questions about those in the Q&A. So I think, for the moment, we’ll stop, open this up for Q&A, and see if we can get some more detailed information for all of you. Brian? A – Brian Loper: Great. Thank you, Dennis. Excellent overview of what we have going on here. So some general questions about BioLargo and how things are coming along. Can you talk about full-time employees at BioLargo and any hiring plans? Dennis Calvert: Yes. I can verify our exact number. I want to say 32 or 33, something like that, on full-time employees. The — we have a number of people that also share some time. So consultants that also give us talent to do some very specific things that are of high value for the company. And then we have a cadre of contractors that we bring them under the engineering group when we win some of these large bids. So that’s the team. Relative to hiring, I think the concept is pretty simple. We want to hire as we grow, not before. It’s easy to say. It’s very difficult to do. But that is what we’re doing. We don’t want to expand our overhead until we see commercial adoption with some traction on our AEC for PFAS and our Water Technologies and Clyra, the same thing. We just want to keep it lean and mean until we get that first market adoption that starts to propel into repetitive business. And we believe that’s here in front of us. And so it will put some pressure on our team. As you can imagine, in particular, the engineering group is supporting old technology, innovating new and serving clients. They’ve got a lot on their plate. And so I can see us really focusing on hiring additional staff in the engineering group as either these long-term contracts are secured or we see the swell of commercial activity to justify that additional staff. And again, given the relationships, we think that’s doable in the short run, and it needs a more strategic plan in the long run, subject to capital and revenue. See also Ken Fisher’s Top 15 Energy Stock Picks and Michael Burry’s Top 10 Stock Picks For Q3. Q&A Session Follow Biolargo Inc. (OTCMKTS:BLGO) Follow Biolargo Inc. (OTCMKTS:BLGO) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Brian Loper: Okay. Thank you very much. So everyone knows, BioLargo is segmented, right? That new slide that you put in there is great visual to get a sense of the different divisions, how the subsidiaries work with the mother ship here? So on the topic of water, can you talk a little bit more about the AEC? Are any other projects waiting on the results or completion of that? Are there other adopters that will get their own projects underway? Have the results so far at the Midwest customer achieved non-detect status? A little bit more on the AEC. Dennis Calvert: Sure. Yes, sure. We could just give a short update on the business in general. So up until now and for the next quarter or so, we’re going to be transitioning from incubating the AEC asset at the parent and at the engineering level into BioLargo Equipment. So that’s the idea. And on the P&L basis, that’s going to take us a little bit of time to make the full integration. But from a selling and positioning perspective, it happens pretty quick. And so the way to think about that is when you look at what Tonya Chandler has done, a couple of very important things. She’s now being asked to speak all over the country on a regular basis. And I think it was about a week ago, maybe five days ago, she did a seven hour continuing education class in Las Vegas to a group of engineers for continuing education credit on PFAS, for seven hours. That’s a lot of PFAS for seven hours. Anyway, it’s quite special that, and in addition, we’ll be at WEFTEC coming up in the fall, and we’ll make a big presence. We’ll have a whole team there, a very large booth, multiple assets, demonstration units and our data. And it really is the first time that we’ve been in a position to present ourselves on a unified front as a technology and solution provider to that industry. On the floor, on the deck, at one of the largest trade conferences in the world, WEFTEC, in Chicago coming up in, I think, it’s October. Anyway, relative to the selling channel, we’ve got about eight agreements representing now, pushing 100 reps that are qualified and in process of taking our information to the marketplace. And we have a number of projects that have indicated an interest in moving forward with us, and we’re hoping that in the very near future, we’ll have some of these head into secured contracts. It’s interesting, with the regulatory change and the increased awareness, and then with some of the settlements that are going on, on these very large class actions, multistate class actions, I think the last settlement was almost $10.2 billion for group and a class action of water agencies suing for PFAS contamination as one of the polluters, There’s a swell of interest going on in PFAS, and we’re extraordinarily well positioned. Having said that, there’s still this regulatory threshold that has not become mandate, which won’t occur until Q1 of 2024. So that’s another six to nine months away. Now Tonya and the team are on the cutting edge of knowledge about the interface with hazmat drinking water versus wastewater or versus product treatment technologies, what you do with the waste stream, we are expert in these areas. And as a result of that knowledge, we believe we’re very well positioned to succeed in a dramatic way. What we’re watching on early adopters is still very much old technology. We don’t see new technology being adopted. We see old carbon ion exchange systems, which we know will not achieve the specifications that are being prescribed for performance, and they have other practical limitations in cost and waste disposal. So as we watch that market, we have yet to see a competitor bring forth the technology that could compare to the value proposition that we set forth in ours. Now I will also say that from a technical advancement perspective, our technology continues to advance and get better. We’re not prepared to make a lot of disclosure about that, but our performance economically and our performance relative to the significant small waste stream as compared to the alternatives is multiples of what we thought it would be in our favor. That’s the key. So it’s better than we thought it would be. And so our performance results on all these trials that we’re doing continue to enhance our claims. But some of that may be patentable, so we’re really keeping some of that close to the vest until we can get our enhanced patent activity on record. But it’s very exciting because it also means that our economic proposition becomes even that more compelling. So remember, when we started, we were 1,000 at the waste stream. We think it’s multiples of that. And again, we haven’t seen competition really knock on the door with that kind of claim. Now there’s a lot of companies talking about innovation in the space, and it’s — and there’s a lot of venture capital swelling, and the government is swelling with capital. But the truth is early adopters have moved. Many of the early adopters have adopted technology that will not meet the mark. And the market is as ripe as it ever was. The other thing that’s interesting is when you talk about the future of this market, the future, we said it one time, some people are saying it could be a $1 trillion market. That’s a lot more common now than it was even nine months ago. There’s a swell of activity that’s going on at PFAS because of all the litigation, all the settlement, all the public outcry an awareness. And the impact of PFAS is going well beyond drinking water, well beyond. It’s almost ubiquitous in the environment. So I’ve said before, this is going to keep us busy for 20 years. No question. We’re going to be busy for 20 years on this one......»»
Lisata Therapeutics, Inc. (NASDAQ:LSTA) Q2 2023 Earnings Call Transcript
Lisata Therapeutics, Inc. (NASDAQ:LSTA) Q2 2023 Earnings Call Transcript August 17, 2023 Operator: Welcome to the Lisata Therapeutics Second Quarter 2023 Financial Results and Business Update Conference Call. Currently, all participants are in a listen-only mode. Following managements’ prepared remarks, we will hold a question-and-answer session. [Operator Instructions] As a reminder, the call is being […] Lisata Therapeutics, Inc. (NASDAQ:LSTA) Q2 2023 Earnings Call Transcript August 17, 2023 Operator: Welcome to the Lisata Therapeutics Second Quarter 2023 Financial Results and Business Update Conference Call. Currently, all participants are in a listen-only mode. Following managements’ prepared remarks, we will hold a question-and-answer session. [Operator Instructions] As a reminder, the call is being recorded today, Tuesday, August 15, 2023. I will now turn the call over to John Menditto, Vice President of Investor Relations and Corporate Communications at Lisata. Please go ahead, sir. John Menditto: Thank you, operator, and good morning, everyone. Welcome to Lisata’s Second Quarter 2023 Conference Call to discuss our financial results and the opportunity to provide a business update. Joining me today from our management team are Dr. David Mazzo, President and Chief Executive Officer; Dr. Kristen Buck, Executive Vice President of Research & Development and Chief Medical Officer; and James Nisco, Vice President of Finance and Treasury. Yesterday, Monday, August 14, we issued a press release aftermarket trading closed announcing our second quarter 2023 financial results, which is available under the Investors and News section of the Company website along with the webcast replay of this call. If you have not received the news release or if you’d like to be added to the Company’s e-mail distribution list, please e-mail me at jmenditto@lisata.com. Before we begin, I remind you that comments made by management during this conference call will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Lisata. I encourage you to review the Company’s filings with the Securities and Exchange Commission, including, without limitation, its forms 10-Q, 8-K and 10-K, which identify specific risk factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, Tuesday, August 15, 2023. Lisata undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that, I’ll now turn the call over to Dr. Mazzo. Dave? Dr. David Mazzo: Thank you, John, and good morning, everyone. Thank you for joining us today as we provide an overview of recent business highlights, discuss our second quarter 2023 financial results and give an update on the progress of our various development programs. I’m kicking off today’s call with a heightened sense of excitement and optimism for the future of Lisata. During the second quarter, we continued the advancement of our clinical development programs for the treatment of advanced solid tumors. As those familiar with the Company know, Lisata is a clinical-stage pharmaceutical company focused on the development of a novel solid tumor targeting and penetration technology to improve the efficacy of anticancer drugs. Our development portfolio contains programs that are designed to bring significant therapeutic improvements in the treatment of solid tumors in a pharmacoeconomically attractive paradigm. LSTA1, our lead product candidate is the subject of multiple planned and ongoing clinical trials being conducted globally in a variety of solid tumor types and in combination with multiple anticancer agents of different modalities. Based on substantial preclinical and most importantly, early clinical data in humans, we believe that LSTA1 has the potential to become an integral part of a revised standard of care treatment regimen for many difficult-to-treat cancers. During this call, our Chief Medical Officer, Dr. Kristen Buck, will provide more specifics on our clinical programs following our review of financial results. However, before moving on to the financial and clinical overview, we are pleased to announce a significant milestone in the form of a technology transfer agreement of our tumor penetrating nanocomplex, or TPN, platform with Impilo Therapeutics, Inc., a recently formed company, led by David Slack, former Lisata Chief Business Officer. The TPN platform targets intracellular delivery of RNA-based drugs to prevent solid tumor growth. TPN is designed so that it not only binds to proteins overexpressed on the surface of human cancer cells but also passes through the membrane by way of a cell-penetrating peptide. Once inside the cells, the TPN is expected to release an RNA-based drug directed against the tumor. The noted technology transfer will place the TPN technology in the capable hands of the team with profound expertise in RNA-based therapeutics development, further enhancing its potential impact in the field. Under the terms of the technology transfer agreement upon closing Lisata will receive an equity stake in Impilo Therapeutics. Lisata will also receive a seat on Impilo’s Board of Directors, but is not obliged to commit any capital or additional resources to the program’s future development. With that, I now will turn the call over to James Nisco, our Vice President of Finance and Treasury, to review and provide commentary on our financial results. James? James Nisco: Thanks, Dave. Good morning all. I’m pleased to join you today to present a summary of our second quarter 2023 financial results. Starting with operating expenses. Research & development expenses remained constant at approximately $3.2 million for the three months ended June 30, 2023, and three months ended June 30, 2022. The Expenses this quarter were primarily due to study start-up activities associated with the LSTA1 BOLSTER trial, enrollment activities for the LSTA1-ASCEND study and chemistry, manufacturing and control activities for LSTA1 to support all development activities. General and administrative expenses were approximately $3.7 million for the three months ended June 30, 2023, compared to $3.5 million for the three months ended June 30, 2022, representing an increase of $0.2 million or 6.5%. This was primarily due to severance costs associated with the elimination of the Chief Business Officer position on May 1, 2023, partially offset by non-recurring merger related costs in the prior year. Overall, net losses were $4 million for the three months ended June 30, 2023, and compared to $6.6 million for the three months ended June 30, 2022, a decrease of approximately 40%, primarily due to $2.2 million in non-dilutive funding received as an approved participant of the Technology Business Tax Certificate Transfer program sponsored by the New Jersey Economic Development Authority. Turning now to our balance sheet and cash flow. As of June 30, 2023, the Company had cash, cash equivalents and marketable securities of approximately $57.6 million. goodluz/Shutterstock.com The Company is confident that its projected capital will fund its current proposed operations into the first quarter of 2026, encompassing anticipated data milestones from all its ongoing and planned clinical trials. This completes my financial overview, and I will now turn the call over to our Chief Medical Officer, Dr. Kristen Buck for the review of our clinical development pipeline. Kristen? Dr. Kristen Buck: Thank you, James, and good morning, everyone. As those that follow us know, Lisata’s pipeline is built on a portfolio of proprietary and patented technology that is grounded in strong scientific rationale and a body of published preclinical and early clinical data. Our platform technology is designed to address major impediments to the successful treatment of advanced solid tumors in the context of increasing pharmacoeconomic pressures on the health care system. We appreciate the critical importance of generating meaningful clinical data to advance our platform technology, and I can assure you that our entire organization has this goal top of mind in everything we do. With that, I will now provide an overview of our lead product candidate, LSTA1, LSTA1, for the treatment of advanced solid tumors in combination with other anticancer agents. Despite advances in cancer therapy today, many solid tumors remain difficult to effectively treat. Cancers, such as pancreatic cancer, gastric cancers and other solid tumor cancers are surrounded by a dense fibrotic tissue known as the Stroma, which limit the access of most pharmacotherapies to the tumor. Many tumors also exhibit a hostile tumor microenvironment, or TME, which suppresses the patient’s immune system and makes it less effective in fighting cancer. The combination of dense stroma on a hostile tumor microenvironment negatively impacts the ability of many cytotoxic agents and immunotherapies to effectively treat these cancers. This coupled with the fact that most anticancer therapies are not efficient in targeting only cancer tissue defines the major challenge of maximizing effectiveness and safety in the treatment of solid tumors. To combat this, Lisata’s approach is to activate the C-end rule, or CendR system, a naturally occurring active transport system to selectively deliver anticancer drugs through the stroma and into the tumor. Lisata’s lead product candidate, LSTA1 is an investigational drug that actuates the CendR active transport mechanism while also having the potential to modify the tumor microenvironment and make it less immunosuppressive. LSTA1 targets tumor vascular endothelial cells as well as tumor cells themselves based on its affinity for alpha v beta three and beta five integrins that are upregulated on these cells but not on healthy tissue. LSTA1 is a 9-amino acid cyclic internalizing RGD peptides that once found in these integrins, is cleaved by protease. Protease is expressed in the tumor microenvironment to release a peptide fragment called the CendR Fragment. The CendR fragment then has high affinity for and binds to an adjacent receptor called neuropilin-1 also upregulated on tumor endothelial and tumor cells to activate the Cend C-end rule active transport pathway and bury anticancer drugs more efficiently into solid tumors. Additionally, LSTA1 one has been shown in a range of preclinical models to modify the tumor microenvironment, making it less hostile to immune cells and adding to the efficacy of anticancer drugs used against solid tumors. These results come internally from Lisata and from collaborators and research groups around the world and have been the subject of over 300 scientific publications. Along with our collaborators, we have amassed significant nonclinical data, demonstrating enhanced delivery of a range of emerging anticancer therapy, including immunotherapy and RNA-based therapeutics. Clinically, LSTA1 has demonstrated favorable safety, tolerability and activity to enhance delivery of standard of care chemotherapy for patients with metastatic pancreatic cancer. Our development programs are designed to exploit the potential of LSTA1 to enhance a variety of anticancer treatment modality in a range of solid tumors. Currently, LSTA1 is the subject of about a dozen plans for active clinical trials globally for the treatment of various solid tumors. Let me touch on a few of these individually. The ASCEND trial is a 155 patients, double-blind, randomized, placebo-controlled clinical trial evaluating LSTA1 in combination with gemcitabine and nab-paclitaxel in patients with metastatic pancreatic ductal adenocarcinoma. The trial is being conducted at up to 40 sites in Australia and New Zealand led by the Australasian Gastro-Intestinal Cancer Trials Group or AGITG, in collaboration with the NHMRC clinical trial center at the University of Sydney. We originally projected enrollment completion by the second quarter of 2024. However, with the study nearly 75% enrolled, we could achieve last patient in sooner than that. Just recently, we, along with our clinical research partner, Warpnine treated our first five patients in the iLSTA1 trial in Australia, evaluating LSTA1 in combination with standard of care chemotherapy that is gemcitabine and nab-paclitaxel chemotherapy and immunotherapy using durvalumab as a first-line treatment in locally advanced non-resectable pancreatic ductal adenocarcinoma. This is the first of several planned trials in which we are expanding the study of LSTA1’s impact on existing therapies to include immunotherapies. We also expect enrollment completion in this trial by the second quarter of 2024. The Company’s BOLSTER trial of LSTA1 is a Phase IIa placebo-controlled basket trial in the United States, Europe, Canada and Asia, evaluating LSTA1 in combination with standards of care in solid tumors, including head and neck, esophageal and cholangiocarcinoma. This trial includes both cytotoxins and immunotherapy standards of care. Enrollment is now open. However, we, like many others, are being impacted by the global cisplatin shortage, which is part of the standard of care regimen for cholangiocarcinoma patients. This has led to severe shortages of the drug, long delays in obtaining any available material and unfortunately price gouging by some suppliers resulting in prices reaching hundreds of times of what cisplatin would normally cost. Despite these challenges, our team has identified and secured a supply of cisplatin, sufficient to the needs of the BOLSTER trial, and we expect this material in our hands and available to patients in our studies within about one month. Once this requirement — this required component of Bolsters protocol is at the investigational sites, we look much forward to announcing the first patient treated in the cholangiocarcinoma arm. Next is the CENDIFOX trial, a Phase Ib/IIa open-label trial of LSTA1 in combination with neoadjuvant folfirinox based therapies in pancreatic, colon and appendiceal cancers. It continues to make steady progress with approximately 80% of the study enrolled. We expect enrollment completion by the fourth quarter of this year with data readout in 2024. This trial will provide us with post treatment biopsy immuno-profiling data as well as long-term outcome data. LSTA1 is also currently being evaluated in combination with gemcitabine and nab-paclitaxel in a Phase Ib/IIa open trial — open-label trial in China, led by our licensee in that territory, Qilu Pharmaceutical. During the 2023 ASCO Annual Meeting, Qilu Pharmaceutical presented an abstract during preliminary data from the study, which corroborated previously reported findings from the Phase Ib/IIa trial of LSTA1 plus gemcitabine and nab-paclitaxel conducted in Australia in patients with metastatic pancreatic ductal adenocarcinoma. Final data are expected by the end of the second quarter of 2024. iGoLSTA, a Phase Ib/IIa proof-of-concept, safety and early efficacy studies, evaluating LSTA1 in combination with nivolumab and FOLFIRINOX as a first-line treatment in locally advanced non-resectable gastroesophageal adenocarcinoma, is still pending initiation as a function of availability of funding by our partner, WARPNINE. We hope to have further update on timing related to the execution of the study by the end of the third quarter of this year. In addition to the ongoing clinical trials I just mentioned, we also plan to have other studies up and running in the next few months, including LSTA1 in combination with temozolomide in Glioblastoma Multiforme, commonly known as GBM. This study is designed as a Phase IIa double-blind, placebo-controlled randomized proof-of-concept study evaluating LSTA1 when added to standard of care Temozolomide versus temozolomide and matching LSTA1 placebo in patients with newly diagnosed Glioblastoma Multiform. It will be conducted across multiple sites in Estonia and Latvia, and it is targeted to enroll 30 patients with the randomization of 2:1, LSTA1 plus standard of care versus placebo plus standard of care. Target for first patient treated is in the fourth quarter of 2023. Importantly, and as recently announced, LSTA1 has been granted orphan designation by the U.S. Food and Drug Administration for malignant glioma. This action by FDA not only highlights the unmet medical need but also recognizes the potential of LSTA1 to benefit patients in this indication. Lastly, we are planning to study LSTA1 in combination with hyperthermic intraperitoneal chemotherapy or commonly referred to as HIPEC, delivered via intraoperative intraperitoneal lavage in peritoneal carcinomatosis, a cancer that develops as a result of the contiguous spread of primary cancers such as ovarian, colorectal and appendiceal along the peritoneal layer. The study will be a Phase I single-center unblinded randomized controlled trial to determine the safety and tolerability of LSTA1, administer intraperitoneal in patients with currently on metastasis for colorectal, appendiceal or ovarian cancer undergoing cytoreductive surgery and HIPEC. 21 total patients will be randomized 2:1 to receive LSTA1 with HIPEC versus HIPEC alone after cytoreduction surgery. We anticipate that this study will also be up and running in the fourth quarter of 2023 and the first patient being treated shortly thereafter. For those who are interested, a more complete description of our trials is available in the Appendix section on the corporate presentation on our website. Additionally, in the body of the presentation, there are two milestone slides that displays the anticipated timing of key execution milestones and data readouts for the clients. With that, I will now turn the call back to Dave. See also 15 Smallest Stocks In Warren Buffett’s Portfolio and 12 Best NASDAQ ETFs. Q&A Session Follow Lisata Therapeutics Inc. (NASDAQ:LSTA) Follow Lisata Therapeutics Inc. (NASDAQ:LSTA) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Dr. David Mazzo: Thanks, Kristen. As we look back to the beginning of the year and even further to the status of development of LSTA1 in the clinic at the time of the formation of Lisata in September of 2022, it becomes immediately apparent that our team has made notable progress advancing this program according to the two pillars of our development strategy, rapid and focused development of LSTA1 in mPDAC and broad application of LSTA1 in combination with a variety of anticancer agents applied to a variety of solid tumor types. We have designed our studies to be scientifically and medically rigorous and to provide results expeditiously while also assuring that we are operating in a maximally capital-efficient manner. Now with more than two years of capital available on our balance sheet, we believe we are well placed to focus on the execution of our development plans and to achieve our goal of getting meaningful clinical data readouts as soon as possible. And with that overview, operator, we’re now ready to take questions. Operator: [Operator Instructions] We have a question from Joseph Pantginis with HCW. Unidentified Analyst: Sara On for Joe. I was wondering, based on the brisk enrollment that you’ve seen for the ASCEND can you possibly gauge expectations where we could expect the potential data readout. Dr. David Mazzo: Thanks, Sara. I appreciate your question. Right now, the ASCEND trial protocol is very specific. It’s a blinded trial, the two cohorts as Kristen described, and the current statistical analysis plan calls for a complete analysis and a data readout at the end of the trial. So based on current projections, let’s just say, the second quarter 2024 to complete enrollment, we should expect a data readout sometime about a year to 18 months after that. I will say, however, we’re looking at other means that might get us to some earlier data. And we’ll be in a position to talk about those sometime during the fall. But of course, they do require agreement with our partners, AGITG and CTC in Australia, and we want to be sure that we don’t compromise the integrity of the blinded study. Operator: We have a question from Steve Brozak with WBB Securities. Steve Brozak: Yes. Given the fact that the patient profiles that you’re looking at are really, really seriously ill patients, what type of outcomes do you look at? Because you’re looking at patients where the current standard of care can be very, very harmful, chemotoxins that are used on these patients. So how would you judge outcomes that would be, let’s say, optimal or even things that would be nontraditional as far as what you expect? And I have one follow-up after that. Dr. David Mazzo: Thanks, Steve. I’ll answer the question generally, and then I’ll turn it to Kristen, who may be able to provide some additional specifics. But generally speaking, as you pointed out, let’s use mPDAC as the example. Now under current standard of care, the median survival after diagnosis these days is still only around 9-or-so months and less than 10 or so percent of the people diagnosed survive out to five years. So it’s a really devastating and lethal disease even with the current chemotherapy treatments. We’re looking to substantially improve that, of course. And so ultimately, in cancer, while quality of life and progression-free survival are important endpoints, what we’re looking to do ultimately is to extend overall survival in a meaningful way. And now I’ll turn to Kristen to see if she’d like to provide some additional color......»»
Western Asset Mortgage Capital Corporation (NYSE:WMC) Q2 2023 Earnings Call Transcript
Western Asset Mortgage Capital Corporation (NYSE:WMC) Q2 2023 Earnings Call Transcript August 12, 2023 Operator: Welcome to the Western Asset Mortgage Capital Corporation’s Second Quarter 2023 Earnings Conference Call. Today’s call is being recorded and will be available for replay beginning at 5:00 p.m. Eastern Standard Time. Now I’d like to turn the call over […] Western Asset Mortgage Capital Corporation (NYSE:WMC) Q2 2023 Earnings Call Transcript August 12, 2023 Operator: Welcome to the Western Asset Mortgage Capital Corporation’s Second Quarter 2023 Earnings Conference Call. Today’s call is being recorded and will be available for replay beginning at 5:00 p.m. Eastern Standard Time. Now I’d like to turn the call over to Mr. Jeff Haas of Financial Profiles. Please go ahead, Mr. Haas. Jeff Haas : Thank you, Alan. I want to thank everyone for joining us today to discuss Western Asset Mortgage Capital Corporation’s financial results for the second quarter of 2023. Yesterday, the company issued its earnings press release, which is available in the Investor Relations section of the company’s website at www.westernassetmcc.com. In addition, the company has included a slide presentation on the website that you can refer to during this call. In addition, the company yesterday jointly announced with AG Mortgage Investment Trust that they have entered into a definitive merger agreement under which AG Mortgage Investment Trust will acquire the company in a stock and cash transaction. Details of the proposed transaction are contained in the joint press release, which is posted on the Investor Relations section of the company’s website and filed with the SEC. With us today from our management team are Bonnie Wongtrakool, Chief Executive Officer; Robert Lehman, Chief Financial Officer; Greg Handler, Chief Investment Officer; and Sean Johnson, Deputy Chief Investment Officer. As a result of yesterday’s announcement regarding the transaction with MITT, we will limit this call to our prepared remarks and will not be conducting a question-and-answer session during the call. I will now review the safe harbor statement. This conference call will contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecast due to the impact of many factors beyond the control of the company. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the Risk Factors section of the company’s reports filed with the Securities and Exchange Commission. We disclaim any obligation to update our forward-looking statements unless required by law. With that, I will now turn the call over to Bonnie Wongtrakool. Bonnie? Bonnie Wongtrakool : Thank you, Jeff, and welcome, everyone. Before I discuss our second quarter financial results, I would like to say a few words about yesterday’s announcement that WMC has entered into an agreement to merge with AG Mortgage Investment Trust, also known as MITT. The joint press release, which is available on our website, discusses the details of the proposed transaction and its benefits to our shareholders as well as MITT. I will now touch on the key highlights of why we have entered into this transaction. First, WMC shareholders will receive cash consideration in addition to MITT stock. The cash payment will be made by MITT’s external manager, Angelo Gordon, and will comprise just under 10% of aggregate merger consideration to shareholders. Based on this past Monday’s closing stock price of MITT’s common stock, for each share owned in WMC, our shareholders would receive $10.11 in MITT stock plus $1.12 in cash for a total consideration of $11.23 per share. This represents a 34% premium to WMC’s closing price on July 12, 2023. Second, the combined company will have a reduced general and administrative expense ratio and a more optimized capital structure. As a result, we expect the combination of our businesses to be accretive within 1 year of closing and to support an attractive growth profile for the combined company. Third, the combined company will be backed by strong commitment and resources from Angelo Gordon, MITT’s external manager, which is a leading global alternative asset manager with extensive expertise in residential credit and the proprietary best-in-class securitization platform that will support future growth of the residential mortgage portfolio. Furthermore, Angelo Gordon has agreed to waive $2.4 million of management fees during the first year after closing. Fourth, WMC and MITT have complementary investment strategies as both focused on residential mortgage credit. The combined company will have an investment portfolio valued at $5.7 billion consisting of approximately 86% of non-agency residential mortgage loans, 5% of agency residential mortgage-backed securities and 6% of other residential investments. WMC’s legacy commercial investments will represent approximately 3% of the total investment portfolio on a pro forma basis. Given the increased scale of the combined company, we expect the investor base to expand, which should lead to enhanced trading liquidity and volume. Finally, in light of the synergies between the 2 companies, we expect significant operating efficiencies in the amount of $5 million to $7 million on an annual basis. This is before taking into account the effective resetting of WMC’s management fee and Angelo Gordon’s management fee waiver, which I previously noted. A joint proxy statement and prospectus is expected to be filed in the coming weeks that will include additional details regarding the transaction, and we encourage you to join us as fellow shareholders in voting to approve the proposed transaction. With that, I will now turn to our quarterly results. During the second quarter, we did not acquire any target assets and instead focused primarily on strengthening our balance sheet and increasing our liquidity. Specifically, we reduced our recourse debt by approximately $24.3 million using the proceeds from the sale, repayment or paydown of investments. Our GAAP book value per share decreased 10.8% from the prior quarter, while economic book value per share increased 5.7%. We generated lower net interest income during the quarter, driven by a lower net interest margin and lower income from our interest rate swap positions, while our operating expenses increased sequentially from the prior quarter, primarily due to onetime expenses related to our strategic process. Consequently, our distributable earnings of $1.3 million or $0.22 per share in the second quarter were down to $846,000 from the first quarter. We maintained our quarterly dividend to be consistent with the first quarter level at $0.35 per share. We remain confident in the overall credit quality of our portfolio. The residential loans that we own have been diligently underwritten and are supported by significant homeowner equity and the residential portfolio is performing as expected. Now I’ll hand it over to Sean and Greg to go into more detail about the investment portfolio. Sean? Sean Johnson : Thank you, Bonnie. During the second quarter, interest rates remained volatile against the backdrop of changing expectations regarding future Federal Reserve actions. The 10-year treasury rate resumed its upward trajectory as events in the banking sector calm down and the bond market refocuses attention on inflation measures that while improved, remained somewhat elevated relative to the Fed’s longer-term target levels. Against higher rates, credit spreads generally widened across many risk assets with some asset classes impacted more than others. Similar to last quarter, residential credit spreads fared better than commercial real estate spreads. Our Residential Whole Loans continue to perform in line with our expectations. Of nearly 3,000 mortgages, fewer than 1% were more than 90 days delinquent at quarter end, reflecting the effectiveness of our credit underwriting standards, which focus on high-quality borrowers who have meaningful equity in their homes. At origination, our weighted average loan-to-value ratio of this pool of mortgages was just under 66% and the average FICO score for our borrowers was 749. Nearly half our non-QM loan portfolio consists of adjustable rate mortgages. More than $90 million of current non-QM loan holdings are scheduled to reset over the next year with more than $318 million scheduled to reset in the next 4 years. Our NIM should benefit as these loans are almost entirely funded with fixed-rate securitized debt. Second quarter non-QM prepayments were 7.7 CPR compared to 7.5 CPR in the first quarter and 6.2 CPR in the fourth quarter of last year. As a result, premium amortization from loan prepayments in the quarter was $736,000 consistent with $721,000 in the first quarter. We continue to believe that higher mortgage rates will weigh on refinancing activity in our portfolio keeping prepayments relatively low. We did not acquire non-QM loans during the quarter as our focus was on paying down recourse debt and maintaining sufficient liquidity on our balance sheet. We did monetize $8.7 million of Non-Agency CRT securities during the quarter using the proceeds to pay down recourse debt. Now a few words on our view of the overall housing market, which remains favorable. While overall demand is cooled in response to higher rates, it’s also created a more balanced market. Home prices are showing modest growth in recent months. Given the strong labor market across the country, we do not see a significant risk of widespread defaults, particularly as it relates to our lower LTV portfolio. With that, I’ll turn the call over to Greg Handler to discuss our commercial holdings. Greg? Greg Handler : Thanks, Sean. As we noted last quarter, the overall market sentiment for commercial real estate credit remains challenged. The Fed rate hikes have resulted in higher mortgage coupons negatively impacting cap rates and property valuations as equity investors adjust to the higher capital costs. Additionally, the fundamental concerns over office values have remained at the forefront of investors’ minds, particularly given some recent notable high-profile people. The office market continues to face an uncertain future with significant questions about the long-term viability of lower-quality properties. Our exposure to office building is minimal across our commercial investments. We do not see as much fundamental concerns in the non-office CRE sectors. Notably, the multifamily housing, industrial, hospitality and retail sectors, where operating cash flows have generally recovered to and, in many cases, are now exceeding pre-COVID levels. Now turning to our commercial portfolio. During the second quarter, spreads continued to widen across the commercial mortgage credit sector, but our commercial holdings were only modestly impacted. At quarter end, we held 5 Commercial Whole Loans with a combined fair market value of $79 million, a slight discount to their $80 million par value. All of these loans have performed in line with expectations. We received a small partial paydown on one of these loans during the quarter and expect all these loans to pay off at par over the next several quarters as properties are either sold or refinanced. Within non-agency commercial mortgage-backed securities, our single asset, single borrower credit portfolio is valued at $49 million, down from $53 million at the beginning of the quarter as rates rose and spreads widened. This portfolio consists of 8 loans, which are primarily backed by Class A retail and hotel properties that cater to leisure travelers. And we continue to see positive operating momentum at a number of these properties. These properties have generally high-quality assets with strong equity sponsors, so we believe their collateral values have not been materially or permanently impaired. However, given the current negative sentiment for commercial real estate, this portfolio is currently marked at 67% of the combined principal balance, despite the fact that the loans had an approximate 66% original loan-to-value and all but one of them representing less than $1 million of the $49 million portfolio remained current. We remain focused on optimizing the recovery value in our commercial portfolio and intend to use those proceeds to pay down our recourse debt level and to opportunistically reinvest into new target assets that continue to offer attractive risk-adjusted returns. I’ll now turn the call over to Bob Lehman, our CFO. Bob? Q&A Session Follow Western Asset Mortgage Capital Corp (NYSE:WMC) Follow Western Asset Mortgage Capital Corp (NYSE:WMC) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Robert Lehman : Thank you, Greg. We provided you with great detail on our portfolio in both our second quarter press release and our earnings presentation. I’m going to focus only on items that warrant additional attention. We reported distributable earnings of $1.3 million or $0.22 per share for the second quarter as compared to $2.2 million or $0.36 in the first quarter. The decline in distributable earnings was — from the first quarter was primarily driven by lower net interest income and lower income from our interest rate swap positions, while our core operating expenses increased modestly from quarter-to-quarter, primarily due to higher professional fees. GAAP — book GAAP value for the quarter was $14.69 per share, a decrease of $1.77 or 10.8% from the first quarter. The decrease was primarily driven by spread widening across our residential and commercial holdings. Economic book value, which reflects the value of our retained interest in the consolidated securitization trust rather than the associated gross assets and liabilities increased by 5.7% for the quarter to $18.54 per share. Turning to leverage. Our recourse leverage ratio at quarter end was 2.6x, consistent with the prior quarter. Turning to liquidity. We ended the quarter with unrestricted cash of $17.4 million. Subsequent to quarter end, we replaced an existing repo facility with a new longer term $65 million fixed rate non-mark-to-market securitized funding vehicles. As a result, we no longer have any financing arrangements with Credit Suisse as a counterparty. In summary, we remain focused on actions that will solidify our capital structure and maintain our liquidity. With that, I will now turn the call over to Bonnie. Bonnie? Bonnie Wongtrakool : Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Follow Western Asset Mortgage Capital Corp (NYSE:WMC) Follow Western Asset Mortgage Capital Corp (NYSE:WMC) We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»
T2 Biosystems, Inc. (NASDAQ:TTOO) Q2 2023 Earnings Call Transcript
T2 Biosystems, Inc. (NASDAQ:TTOO) Q2 2023 Earnings Call Transcript August 7, 2023 Operator: Greetings. Welcome to T2 Biosystems, Inc. Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal prestation. [Operator Instructions] Please note, this conference is being recorded. I will now […] T2 Biosystems, Inc. (NASDAQ:TTOO) Q2 2023 Earnings Call Transcript August 7, 2023 Operator: Greetings. Welcome to T2 Biosystems, Inc. Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal prestation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Trip Taylor, Investor Relations at T2 Biosystems. You may begin. Philip Trip Taylor: Thank you, operator. I’d like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. Those include statements related to T2 Biosystems’ future financial and operating results and plans for developing and marketing new products. Forward-looking statements are based on estimates and assumptions as of today and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements, including the risks and uncertainties described in T2 Biosystems’ annual report on Form 10-K filed with the SEC on March 31, 2023, and other filings the company makes with the SEC from time to time. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. With that, I would like to turn the call over to Chairman and CEO, John Sperzel. John? John Sperzel: Thank you all for joining our second quarter 2023 earnings and business update call. Today, I’ll start by discussing our performance, including the key achievements we have made across our three corporate priorities. I’ll then turn the call over to John Sprague, our Chief Financial Officer, who will review our second quarter financial results and our outlook for 2023 before I provide closing remarks, and we open the call for questions and answers. The T2 Biosystems team has recently achieved a number of key milestones. During the second quarter, we received record quarterly sepsis test panel orders. We received the second largest sepsis driven T2Dx instrument order in company history. We filed a 510(k) submission with the FDA for the T2Biothreat panel. We applied for FDA breakthrough device designation for a Candida auris diagnostic test, and we received breakthrough device designation from the FDA last month. We established a clinical collaboration on the T2Bacteria Panel with Vanderbilt University Medical Center. We strengthened our balance sheet by raising capital and by converting a portion of the CRG debt to equity. We believe that each of these milestones represents important progress toward driving increased adoption and utilization of our sepsis products, expanding our market opportunity and providing flexibility to pursue our growth and development initiatives. Our recent accomplishments contribute toward advancing our mission to fundamentally change the way medicine is practiced through transformative culture independent diagnostics that improve the lives of patients around the world. When it comes to sepsis, our main area of focus, we believe drastic changes are needed. There are an estimated 11 million sepsis-related deaths worldwide each year, more than all cancers combined. Sepsis is the number one cost of U.S. hospitalization, costing our health care system an estimated $62 billion annually. Sepsis is the number one cause of death in U.S. hospitals, causing the death of 270,000 Americans annually and 80,000 more die each year in hospice. And sepsis is the number one cause of 30-day rehospitalization in the U.S., causing 19% of sepsis survivors to be rehospitalized within 30 days and 40% to be rehospitalized within 90 days. Current treatment methods are failing patients, payers and providers. As a reminder, T2 Biosystems has the only FDA-cleared products able to detect sepsis causing pathogens directly from blood in just 3 to 5 hours. We believe our products have a significant competitive time to result advantage as our competitors continue to rely on positive blood culture results that can take one to five days and longer for fungal infections, resulting in delayed targeted antimicrobial therapy. Data shows that the risk of death can increase by up to 8% for each hour of delayed targeted antimicrobial therapy. As we advance our mission, we’re focused on three corporate priorities: accelerating our sales, enhancing our operations and advancing our pipeline. We’ll discuss each of these priorities in more detail. Starting with our first priority, accelerating our sales. During the second quarter, we achieved total revenue of $2.0 million, comprised entirely of product revenue. And notably, we received record quarterly sepsis test panel order volume. Sepsis test panel revenue was $1.3 million, representing an increase of 7% compared to the prior year period, despite ending the quarter with a $350,000 back order. Had we been able to clear the back order as of June 30, sales of our sepsis test panels would have increased by 36% compared to the prior year period. In addition to our record quarterly sepsis test panel orders, we executed contracts for 11 T2Dx Instruments during the second quarter, of which four were in the U.S. and seven were outside the U.S. There continues to be a significant commercial opportunity for our products in international markets, reflected by continued sales of our T2Dx Instruments and our sepsis test panels to our international distribution partners. Our second quarter results included our second largest sepsis driven instrument sale in the company’s history, to satisfy a new contract that one of our European distributors won to supply our sepsis products to hospitals in Poland. The initial term of the contract is for three years and includes seven T2Dx Instruments, as well as orders for our sepsis test panels, including the T2Bacteria Panel, the T2Candida Panel and the T2Resistance Panel. The contract has the potential for nine additional T2Dx Instruments to be sold and deployed to hospitals in Poland, which may occur during the second half of 2023, and the potential to extend the contract for an additional two years. Poland has a population of over 40 million people, making it one of the most populous member states in the European Union and more than 1,200 hospitals. A study of severe sepsis in ICU patients in Poland found mortality rates between 46% and 54% and the length of stay in the ICU ranging from eight days to 13 days. We believe our product’s ability to rapidly detect sepsis causing pathogens and antibiotic resistance genes can enable clinicians to achieve faster targeted antimicrobial therapy, reduced length of stay in the ICU and improve patient outcomes. Our discussion with our European distributors affirm our belief that there is a significant opportunity to deploy more of our products into an increasing number of hospitals in Poland and throughout Europe. Increased adoption and utilization of our sepsis products are being driven by a number of factors, including our efforts to increase awareness of their clinical and economic value. Our commercial, medical affairs and service teams are closely aligned, educating current and potential customers on identifying use cases, expanding testing criteria and implementing testing in hospital sepsis protocols. During the second quarter, we announced a clinical collaboration with Vanderbilt University Medical Center to implement and evaluate our FDA-cleared T2Dx Instrument and T2Bacteria Panel in a clinical setting and to conduct a prospective study. Vanderbilt will assess the capability of the T2Bacteria Panel to improve clinical interventions and antibiotic usage for patients with a bloodstream infection. We believe this collaboration provides an opportunity to generate additional data to further demonstrate the value of the T2Bacteria Panel in one of the top academic medical centers in the United States. We anticipate additional findings from the Vanderbilt study will aid in the clinical data library and further assist our medical affairs team in their education efforts. Data is continually being published and presented by key opinion leaders around the world, as was on display at the recent European Society of Clinical Microbiology and Infectious Diseases or ECCMID, where three new studies were presented. At the American Society of Microbiology Conference in June, laboratory leaders from Butler Hospital, part of the newly formed independent health system, shared their experience with the T2Bacteria Panel. Their data demonstrates that the T2Bacteria Panel detects key infections in their patient population within 3 to 5 hours as well as broad coverage, having identified positive patients for each of the T2Bacteria Panel targets. The team at Butler has developed a protocol to trigger the use of the T2Bacteria Panel and presented case studies showing that the T2Bacteria Panel allowed for targeted therapy as much as 37 hours faster than blood culture-based methods. Moving to our second priority, enhancing our operations. We’ve taken a number of important steps to enhance our operations, including our cost structure, balance sheet, supply chain and manufacturing. We believe these steps are essential for our long-term success, including our NASDAQ listing. In May, we implemented a strategic restructuring program, which included a reduction of the company’s workforce by nearly 30%, which now stands at 100 employees and has resulted in a significant reduction of our operating costs. As part of the restructuring program, we converted $10 million or approximately 20% of our CRG debt into equity, which strengthens our balance sheet. We view the conversion of debt to equity as a show of strong support from CRG. Finally, we announced our intent to explore strategic options, including acquisition, merger, reverse merger, other business combination, sale of assets or licensing, which we continue to explore despite a significant improvement in our balance sheet since early May. On our first quarter earnings call, we discussed raw material issues that had limited our ability to produce sufficient volume of sepsis test panels to meet customer demand. As a reminder, this was identified during routine internal in-process inspection. So a product that was shipped to customers or distributors was not affected. While we cleared the majority of the back order that existed at the end of the first quarter, we ended the second quarter with a back order of approximately $350,000. We’ve made significant changes that we expect to address and resolve the back order, including the hiring of a new Vice President of Operations, improvements to the controls around our manufacturing capabilities, the advanced purchase of new critical raw materials and the engagement of a consultant with significant experience manufacturing our products. We continue to have strong demand for our sepsis test panels from hospitals around the globe, and we expect to resolve the back order to meet the current and future customer and distributor demand for our products. Finally, I’d like to provide an update on our NASDAQ compliance plans. The NASDAQ stock market has rules that require all companies listed on the NASDAQ Capital Market to maintain a $1 minimum bid price and to maintain a minimum value of listed securities of at least $35 million. On July 6, 2023, we participated in an appeal hearing with the NASDAQ in which we presented our plans to regain compliance with both the $1 minimum bid price and the $35 million minimum value of listed securities, and we requested additional time to regain compliance with those requirements. We’re pleased to report that the NASDAQ has provided T2 Biosystems with a formal response, approving our appeal and granting an extension to regain compliance until November 20, 2023, and we are executing on the plans that we presented to the NASDAQ. Moving to our third priority, advancing our pipeline. Our new product development priorities target sepsis, bioterrorism and line disease, which represent areas of significant unmet medical need in which rapid detection can lead to faster targeted antimicrobial treatment and improved patient outcomes. Near term, we’re prioritizing test menu expansion on our FDA-cleared T2Dx Instrument. Longer term, we’re developing a next-generation instrument and comprehensive sepsis test panel. We are developing five new products intended to expand the test menu on our T2Dx Instrument, including the T2Biothreat Panel, the T2Resistance Panel, the T2Lyme Panel, a Candida auris test and the addition of an Acinetobacter baumannii, test to our existing FDA-cleared T2Bacteria Panel. Olesia Bilkei/Shutterstock.com Each new test panel or test represents a differentiated solution to rapidly identify harmful pathogens and potentially allow clinicians to achieve faster targeted antimicrobial therapy. We believe expanding the test menu with these five new products will increase both instrument adoption and test utilization. The T2Biothreat Panel is a direct from blood molecular diagnostic test designed to run on the FDA-cleared T2Dx Instrument and simultaneously detect six biothreat pathogens identified as threats by the U.S. Centers for Disease Control and Prevention, or CDC, including organisms that cause anthrax, tularemia, glanders, plague and typhus. If not treated promptly, infections with these biothreat pathogens can result in mortality rates of 40% to 90%. The T2Biothreat Panel is able to detect these biothreat pathogens within 4 hours directly from blood and rapidly provide clinicians with the needed information to appropriately treat infected patients. We believe the T2Biothreat Panel demonstrates very high sensitivity and specificity for a direct from blood multi-target biothreat product and is the only such product developed by a U.S. owned company, which we think will be an important factor in the discussions with U.S. government entities regarding purchases of the T2Biothreat Panel. We filed an FDA submission for 510(k) clearance for the T2Biothreat Panel in early May 2023. We are actively engaged with the FDA on the submission and we anticipate a positive outcome. The T2Resistance Panel is a direct from blood molecular diagnostic test designed to run on the FDA-cleared T2Dx Instrument and simultaneously detect 13 antibiotic resistance genes known to cause antibiotic-resistant infections in just 3 to 5 hours without the need to wait days for a positive blood culture. The T2Resistance Panel, which is marketed and sold in Europe under CE Mark detects resistance genes that may confer resistance to common antimicrobials such as carbapenems, methicillin and vancomycin. We have advanced the U.S. clinical trial, including completing patient enrollment, and we plan to file an FDA submission for 510(k) clearance after completing additional internal testing, including stability testing. As a reminder, the T2Resistance Panel was granted breakthrough device designation by the FDA, which provides for a prioritized review process upon submission and has received funding under our contract with BARDA. The Candida auris test is a direct from blood molecular diagnostic test designed to run on the FDA-cleared T2Dx Instrument and detect Candida auris species in just 3 to 5 hours without the need to wait days for a positive blood culture. Candida auris is a multidrug-resistant fungal pathogen that has a mortality rate of up to 60% and is recognized as a serious global health threat by the CDC and the World Health Organization. Candida auris is difficult to identify with standard laboratory methods, which can lead to inappropriate treatment. CDC estimates the costs associated with U.S. fungal diseases in general, are as high as $48 billion annually and has called on public health professionals to help lower the burden of fungal disease by continuing to raise awareness of the life-threatening benefits — sorry, life-saving benefits of early detection and proper treatment. As a reminder, we currently market and sell the T2Candida Panel, the only FDA-cleared diagnostic test able to detect sepsis causing fungal pathogens directly from blood in just 3 to 5 hours without the need to wait days for a positive blood culture. The T2Candida Panel runs on the FDA-cleared T2Dx Instrument and simultaneously detects five Candida species, including Candida albicans, Candida tropicalis, Candida parapsilosis, Candida krusei, and Candida glabrata. Rapid detection of these pathogens as well as Candida auris is essential to getting infected patients on targeted antifungal therapy and improving patient outcomes. I’m pleased to report that we recently received FDA Breakthrough Device designation for the Candida auris test, which provides greater and more frequent access to the FDA and may accelerate our path to FDA clearance. The Acinetobacter baumannii test is a direct from blood molecular diagnostic tests designed to run on the FDA-cleared T2Dx Instrument and detect Acinetobacter baumannii in just 3 to 5 hours without the need to wait days for a positive blood culture. We plan to add the Acinetobacter baumannii test to our FDA-cleared T2Bacteria Panel to expand our pathogen detection capabilities. The addition of Acinetobacter baumannii will increase the detection capabilities of the T2Bacteria Panel to approximately 75% of all sepsis-causing bacterial infections, commonly found in blood culture. Acinetobacter baumannii can cause bloodstream infections, especially in critically ill patients, which range from benign transit bacteremia to septic shock, and has been reported to have a crude ICU mortality rate of 34% to 43%. Acinetobacter infections rarely occur outside of health care settings in the United States and can disproportionately impact those with weakened immune systems, chronic lung disease or diabetes. Acinetobacter can be resistant to many antibiotics, including carbapenems, highlighting the importance of rapid detection and targeted antimicrobial treatment. We believe that we have sufficient data to file an FDA submission for 510(k) clearance, and we plan to file that during the second half of 2023. The T2Lyme Panel is a direct from blood molecular diagnostic test designed to run on the FDA-cleared T2Dx Instrument and detect Borrelia burgdorferi, the bacteria that is the major cause of Lyme disease in the U.S. The T2Lyme Panel is intended to test individuals with signs and symptoms of Lyme disease and aid in the diagnosis of early Lyme disease, and we believe it will provide a significant advantage over the currently recommended serological testing that requires the presence of antibodies, which can take the body four to six weeks to create post-infection. In 2022, our T2Lyme Panel was named a winner in the Lyme Innovation Accelerator or LymeX, a partnership between the U.S. Department of Health and Human Services and the Steven & Alexandra Cohen Foundation, the largest public-private partnership for Lyme disease that plans to award up to a total of $9 million to future award winners. We also received FDA breakthrough device designation for the T2Lyme Panel, which allows for a prioritized review process upon submission to the FDA. We have completed the early assay development for the T2Lyme Panel, and we established a preliminary level of detection of 2 CFU per ml. We believe — we plan to initiate commercialization of the T2Lyme Panel as a laboratory developed test and subsequently commenced a U.S. clinical trial to support submission for 510(k) clearance. Looking ahead at longer-term products. We’re developing a next-generation instrument and a comprehensive sepsis test panel. The next-generation instrument is designed to increase the number of detections from a single whole blood sample. The comprehensive sepsis test panel is a direct from blood test panel designed to detect greater than 95% of all bloodstream infections caused by bacterial and Candida species and antibiotic resistance genes identified as threats by the CDC in a single test with a time to result of approximately 3 hours. The next-generation instrument and comprehensive sepsis test panel have been funded under our contract with BARDA. With that, I’ll now turn it over to John Sprague to provide a detailed update of our second quarter financial results and our updated financial outlook for 2023. John? John Sprague: Thank you, John. Second quarter 2023 revenues were $2 million, a 67% decrease compared to the prior year period, driven by a $3.4 million reduction in BARDA research contribution revenues and lower COVID-19 test sales. Sepsis test panel sales were $1.3 million, a 7% increase compared to the second quarter of 2022. Second quarter 2023 cost of product revenues were $4.9 million, a 4% decrease compared to the prior year period, driven by lower COVID-19 test sales. Research and development expenses were $3.9 million, a 52% decrease compared to the prior year period, driven by decreased BARDA contract activities. Selling, general and administrative expenses were $6.3 million, a 20% decrease compared to the prior year period, driven by decreased Medical Affairs spending. In May 2023, we initiated a workforce reduction of nearly 30% across production, research and selling, general and administrative groups that will reduce our future expenses. The second quarter 2023 net loss was $6.3 million, $0.08 per share compared to a second quarter 2022 net loss of $18 million, $5.10 per share. Cash and cash equivalents were $16.1 million as of June 30, 2023. In the second quarter, we raised $18.5 million net through the ATM facility, and we have raised an additional $10.9 million net through the facility in the third quarter. In June 2023, CRG converted $10 million, approximately 20% of its outstanding debt to common and preferred stock, strengthening our balance sheet and improving our cash flows. The preferred stock will convert to common stock in the third quarter of 2023, subject to shareholder approval. We now believe the U.S. launch of the T2Resistance Panel will occur in 2024, and we expect total 2023 sepsis and related product revenues of $9.5 million to $10.5 million, representing growth of 13% to 25% compared to 2022. We expect second half sepsis in related product revenue to be skewed to the fourth quarter. We anticipate no revenue from BARDA during the second half of 2023. Thank you, and back to John Sperzel for closing remarks. John Sperzel: Thank you, John. We achieved key milestones across our three corporate priorities during the second quarter of 2023. Commercially, we received record quarterly sepsis test panel orders and received the second largest sepsis driven T2Dx Instrument order in company history. Operationally, we significantly improved our cost structure and strengthened our balance sheet, implemented a plan to eliminate the product back order, and we are executing a plan to regain compliance with the NASDAQ listing requirements. Scientifically, we advanced a number of new product initiatives that have all received FDA breakthrough device designation, including the T2Resistance Panel, the T2Lyme Panel and the Candida auris test. We view this as recognition from one of the most stringent regulatory agencies in the world that our products have a unique ability to positively impact health care. We believe that applying our patented technology to these three areas: sepsis, bioterrorism and Lyme disease, which represent multi-billion dollar market opportunities presents a significant opportunity to create shareholder value. I’d like to turn the call back to the operator to open the line for questions. Operator? See also 15 Worst Performing Energy Stocks in 2023 and 26 Best Universities in the World With No Tuition Fee. Q&A Session Follow T2 Biosystems Inc. (NASDAQ:TTOO) Follow T2 Biosystems Inc. (NASDAQ:TTOO) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] First question today is coming from Ben Haynor from AGP. Ben, your line is live. Benjamin Haynor: Good afternoon, gentlemen. Thanks for taking the questions. First off for me, on the Vanderbilt collaboration, did I hear you correctly that they already have a protocol established for that study? And then it sounds like maybe they already have some data if I heard that — if I got that right, you mentioned the 37 hours faster. Is that correct? John Sperzel: Ben, there is a protocol for the Vanderbilt study. The 37 hour faster than blood culture-based method was based on a study at Butler Hospital. So those were two separate things, both of them very favorable and positive. Benjamin Haynor: Yeah. Okay. And is there — I know it’s always hard to gauge when data might be published or a study might be published on this. But do you have a sense of how quickly things could come out of that collaboration? John Sperzel: On Vanderbilt not yet. We’re obviously pretty excited about it. And once we have a line of sight, we’ll share that. Benjamin Haynor: Okay. And then obviously, the clinical data library continues to fill. Is there anything that you see out there really validating that could wind up in a clinical data on the library or is there anything — I guess another way to asking it, is there anything that you feel like is missing that would really push potential customers over the edge to [indiscernible]? John Sperzel: The three common denominators that we see in clinical studies that we participate in or done independently by investigators are faster time to pathogen detection, faster time to targeted therapy and reduced length of stay in the hospital or ICU. We saw that in a peer-reviewed journal where meta-analysis were done at 14 independent studies, and the results were very consistent with our clinical trial and all the studies that we’ve seen out in the fields. Benjamin Haynor: Okay. Got it. And then on the gross margin, I know you’ve had some issues there with raw material availability and other things. What can that look like as you get some of these things figured out on a marginal basis what is the gross marginal, gross margin look like as you get this figured out. John Sperzel: John Sprague, can you take that? John Sprague: Yeah. So Ben, our contribution margins that sales less direct labor and direct materials are in the 70% to 80% range for these tests. And our overhead, as we’ve recently reduced with the restructuring in May will be steady going forward. We haven’t disclosed that level of granularity. But I think if you strip out the material challenges we had in the first quarter, you’re going to see the margins quickly turning to positive in the future. Benjamin Haynor: Okay. Got it. And then lastly for me. You mentioned the preferred converting to common, I think in the current quarter, do you run into any share comp limitations on that front or how does that occur? John Sperzel: So when we look at the debt that CRG held prior to the convert, it was approximately $50 million, approximately $10 million was converted into equity. A portion of that was in common stock, a portion of that is in preferred stock. The preferred will convert to common subject to stockholder approval at the stockholder meeting on September 12. Benjamin Haynor: Okay. And then that presumably would take place post reverse split or at the same time? If a reverse split is approved, the caveat necessary......»»
15 Worst Performing Tech Stocks in 2023
In this piece, we will take a look at the fifteen worst performing technology stocks in 2023. If you want to skip a background on the tech sector and particularly the stock market, then take a look at 5 Worst Performing Tech Stocks in 2023. When it comes to mega cap stocks, the technology sector […] In this piece, we will take a look at the fifteen worst performing technology stocks in 2023. If you want to skip a background on the tech sector and particularly the stock market, then take a look at 5 Worst Performing Tech Stocks in 2023. When it comes to mega cap stocks, the technology sector has been the best performing segment on the stock market during the first half of 2023. This sharp rebound came after the sector tumbled during the turbulent economic environment last year that saw significantly higher fuel prices lead to soaring inflation. During this turmoil, the consumer technology sector was hit particularly hard, with chip firms for instance finding it difficult to ship sufficient products into the market. The worsening consumer environment was dealt an added blow when the Federal Reserve acted fast to combat inflation by rapidly increasing interest rates. Such a decision has several broad implications, one of which was a disruption in the bond market which made fresh debt more lucrative than previously issued securities. However, while dismay in the bond caused mayhem in the banking industry in March, the technology sector soared to reverse all of its 2022 losses and add a little bit of gains on top. For instance, the S&P 500 Information Technology stock index had stood at 3,107 points in December 2021, and after dropping to roughly two thousand points at the bottom in October 2022, went on to touch 3,167 in mid July 2023. Technology stocks, defying all expectations, had performed well even when interest rates had touched multi decade highs. This trend has started to taper off a bit during the current quarter, as the index is down by a marginal 1.74% as of early August. Yet, the S&P technology index and the NASDAQ 100’s year to date returns are roughly the same, with the former trailing the latter by 100 basis points. Some notable firms that rode the tech wave in H1 2023 are Microsoft Corporation (NASDAQ:MSFT), NVIDIA Corporation (NASDAQ:NVDA), Meta Platforms, Inc. (NASDAQ:META), and Tesla, Inc. (NASDAQ:TSLA). The tilt of the 2023 stock rally towards big tech becomes clear when we look at the S&P SmallCap 600 Capped Information Technology index. As compared to the 39.59% in returns offered by the technology index, the small cap index has yielded 17.7% – missing out on the premium that mega cap stocks enjoy due to their liquidity, brand awareness, and interest in emerging new technologies such as artificial intelligence. And, not all stocks have delivered strong returns in 2023 either. One of the worst performing firms in terms of stock market performance has been the penny stock Akumin Inc. (NASDAQ:AKU). A nano cap stock, Akumin is a medical services provider with services such as magnetic resonance imaging (MRI) and computational tomography (CT) scans. Its shares have been on a downturn since 2021 and currently trade for less than a dollar. If Akumin Inc’s 75% year to date drop is too less for your taste, then consider a stock that is down 99.38% in 2023. Allarity Therapeutics, Inc. (NASDAQ:ALLR), a firm that is developing treatments for breast cancer, has seen a woeful 2023. A decision to announce a reverse stock split and an attempt to raise $11 million in equity while it was worth $4 million on the stock market are some events that have colored its share price red this year. The stock tanked by nearly a quarter in one day after the $11 million capital raise decision. This announcement had come after the firm had delayed its cancer trials due to a lack of enrollment, and year to date, the stock is down 99.38% to currently trade at $2.24. Safe to say, Allarity is not having a good day on the stock market. As for the outlook for the technology sector for the rest of this year, much depends on the future course of action taken by the Federal Reserve and the ability of the economy to withstand high interest rates for a longer period. While Q2 2023 economic growth remains robust, the full impacts of the interest rate hikes might not have rippled through the economy so far, and agencies such as Fitch continue to forecast a recession despite others such as Bank of America Corporation (NYSE:BAC) and JPMorgan Chase & Co. (NASDAQ:JPM) having revisited their earlier forecasts predicting recession. With these details in mind, let’s take a look at the worst performing technology stocks in 2023, out of which the particularly ill fated ones are Satixfy Communications Ltd. (NYSE:SATX), AERWINS Technologies Inc. (NASDAQ:AWIN), and Ascent Solar Technologies, Inc. (NASDAQ:ASTI). Our Methodology To compile our list of the worst performing technology stocks in 2023, we ranked all technology firms according to their year to date performance and then picked the top 15 of them in terms of year-to-date losses. While we could have narrowed the list down by market capitalization, for instance by setting minimum market capitalization, this was avoided since the list would miss out on some firms with rather sizeable percentage point share price drops. Worst Performing Tech Stocks in 2023 15. Meta Materials Inc. (NASDAQ:MMAT) Year To Date Losses As Of August 6, 2023: 78.18% Meta Materials Inc. (NASDAQ:MMAT) is a materials science firm that sells products used in MRI scanners and other applications. The stock last tumbled in April when it announced a new public placement. During Q1 2023, nine of the 943 hedge funds polled by Insider Monkey had invested in the firm. Meta Materials Inc. (NASDAQ:MMAT)’s biggest investor is Israel Englander’s Millennium Management with a $604,000 stake. Along with AERWINS Technologies Inc. (NASDAQ:AWIN), Satixfy Communications Ltd. (NYSE:SATX), and Ascent Solar Technologies, Inc. (NASDAQ:ASTI), Meta Materials Inc. (NASDAQ:MMAT) is one of the worst performing tech stocks this year. 14. AgileThought, Inc. (NASDAQ:AGIL) Year To Date Losses As Of August 6, 2023: 80.81% AgileThought, Inc. (NASDAQ:AGIL) is an American technology consulting firm. The firm has been in a bit of turmoil as of late, as its chief financial officer resigned in July and a replacement was already in place. By the end of this year’s first quarter, seven of the 943 hedge funds part of Insider Monkey’s database had bought a stake in AgileThought, Inc. (NASDAQ:AGIL). Out of these, the firm’s largest shareholder is Israel Englander’s Millennium Management with a stake worth $629,000, which was a new position added during the quarter. 13. Movella Holdings Inc. (NASDAQ:MVLA) Year To Date Losses As Of August 6, 2023: 81.6% Movella Holdings Inc. (NASDAQ:MVLA) is a technology consulting firm that provides corporate customers with services to integrate technologies such as artificial intelligence into their business operations. The stock tanked in February after it listed its shares on the NASDAQ exchange by merging with a SPAC. 17 of the 943 hedge funds polled by Insider Monkey for their Q1 2023 shareholdings had invested in Movella Holdings Inc. (NASDAQ:MVLA). 12. Verb Technology Company, Inc. (NASDAQ:VERB) Year To Date Losses As Of August 6, 2023: 83.44% Verb Technology Company, Inc. (NASDAQ:VERB) is a software as a service (SaaS) company whose platform allows video based software products such as webinars and other solutions. Its financial turmoil is evident from the fact that it sold its sales division assets in June to make room for core technology development. Insider Monkey dug through 943 hedge funds for their March quarter of 2023 investments and found out that two had invested in the firm. Out of these, Verb Technology Company, Inc. (NASDAQ:VERB)’s largest investor is Hal Mintz’s Sabby Capital with a $1 million stake. 11. WiSA Technologies, Inc. (NASDAQ:WISA) Year To Date Losses As Of August 6, 2023: 87.58% WiSA Technologies, Inc. (NASDAQ:WISA) is a small electronics firm that supplies chip products for consumer electronics audio systems. It had a solid first quarter that saw it heavily beat analyst EPS estimates, but the shares have been on a downward spiral since February. During 2023’s March quarter, only one hedge fund out of the 943 that were part of Insider Monkey’s database had invested in the firm. This lone WiSA Technologies, Inc. (NASDAQ:WISA) investor is Hal Mintz’s Sabby Capital with a $180,998 investment. 10. Marti Technologies, Inc. (NYSE:MRT) Year To Date Losses As Of August 6, 2023: 88.93% Marti Technologies, Inc. (NYSE:MRT) is a Turkish company that operates a fleet of vehicles for users to utilize for their transportation needs. The firm listed its shares for trading on the NYSE through a SPAC merger on July 11th, and the shares fell by 47.4% during the first day of trading alone. 9. Inpixon (NASDAQ:INPX) Year To Date Losses As Of August 6, 2023: 89.63% Inpixon (NASDAQ:INPX) is a technology company that enables users to scan their indoor environments and manage the space by using technology. The firm has announced that it is merging with an aircraft design company and the transaction is expected to close by Q4 2023. After sifting through 943 hedge fund portfolios for this year’s first quarter, Insider Monkey discovered that one had held Inpixon (NASDAQ:INPX)’s shares. This investor was Steven Cohen’s Point72 Asset Management which owned $10,750 worth of shares. 8. WeTrade Group, Inc. (NASDAQ:WETG) Year To Date Losses As Of August 6, 2023: 89.72% WeTrade Group, Inc. (NASDAQ:WETG) is a Chinese technology company that offers payment processing and other services to small companies and individuals. The stock is down 89.72% year to date, with some of the performance likely tied to China’s weak economic environment. Two out of the 943 hedge funds surveyed by Insider Monkey had held a stake in WeTrade Group, Inc. (NASDAQ:WETG) as of Q1 2023. 7. Near Intelligence, Inc. (NASDAQ:NIR) Year To Date Losses As Of August 6, 2023: 90.40% Near Intelligence, Inc. (NASDAQ:NIR) is a cloud company that provides customer management and marketing services. The stock was rated Speculative Buy by Benchmark in July 2023 and Outperform by Northland in April 2023. As of March 2023, nine of the 943 hedge funds surveyed by Insider Monkey had bought a stake in Near Intelligence, Inc. (NASDAQ:NIR). 6. Powerbridge Technologies Co., Ltd. (NASDAQ:PBTS) Year To Date Losses As Of August 6, 2023: 92.21% Powerbridge Technologies Co., Ltd. (NASDAQ:PBTS) is a Chinese software company that provides business customers with a platform to manage their financial, operational, and manufacturing platforms. Its shares are currently under scrutiny by the NASDAQ exchange, and the firm is shaking things up as it announced the establishment of a new agricultural technology joint venture in July 2023. Satixfy Communications Ltd. (NYSE:SATX), Powerbridge Technologies Co., Ltd. (NASDAQ:PBTS), AERWINS Technologies Inc. (NASDAQ:AWIN), and Ascent Solar Technologies, Inc. (NASDAQ:ASTI) are some of the worst performing technology stocks in 2023. Click to continue reading and see 5 Worst Performing Tech Stocks in 2023. Suggested Articles: 15 Worst Performing NASDAQ Stocks In 2023 20 Worst Performing Economies in 2023 10 Oversold NASDAQ Stocks to Buy Disclosure: None. 15 Worst Performing Tech Stocks in 2023 is originally published on Insider Monkey......»»
Conformis Reports Second Quarter 2023 Financial Results
BILLERICA, Mass., Aug. 02, 2023 (GLOBE NEWSWIRE) -- Conformis, Inc. (NASDAQ:CFMS), an orthopedic medical device company that features personalized knee and hip replacement products, announced today financial results for the second quarter ended June 30, 2023. Second Quarter 2023 Summary Total revenue of $13.0 million, a decrease of 15% year-over-year on a reported and constant currency basis. Product revenue of $12.5 million, a decrease of 17% year-over-year on a reported and constant currency basis. Conformis hip system revenue of $1.0 million, an increase of 30% year-over-year. Cash and cash equivalents of $26.2 million as of June 30, 2023. Announced merger agreement to be acquired by restor3d in cash acquisition; special meeting of Conformis stockholders scheduled for August 31, 2023 to adopt merger agreement. Three months ended June 30, Increase/(decrease) ($, in thousands) 2023 2022 $ Change % Change % Change (as reported) (constant currency) United States $ 10,777 $ 13,415 $ (2,638 ) (20)% (20)% Rest of world 1,719 1,727 (8 ) —% —% Product revenue 12,496 15,142 (2,646 ) (17)% (17)% Royalty revenue 527 153 374 244% 244% Total revenue $ 13,023 $ 15,295 $ (2,272 ) (15)% (15)% Second Quarter 2023 Highlights Revenue Decrease in product revenue year-over-year was primarily due to declines in U.S. knee orders following our business model transition and manufacturing/supply chain challenges. Royalty and licensing revenue increased year-over-year as a result of revenue recognized under the License Agreements with Bodycad and Exactech. Gross Margin Product gross profit margin was 38% in the second quarter of 2023, compared to 35% in the same period last year. The product gross margin rate increased year-over-year primarily as a result of higher selling prices on our fully personalized knees due to our Platinum Services℠ Program, volume transition to our lower cost Imprint™ knee system, and decreased cancelled case inventory expense partially offset by increased labor and material costs and lower manufacturing volumes. Total gross profit decreased $3.6 million to $1.8 million, or 14% of revenue, for the second quarter of 2023, compared to $5.5 million, or 36% of revenue, in the same period last year. The decrease in gross margin was driven primarily by a settlement paid in connection with the Osteoplastic Settlement and License Agreement. Operating Expenses Total operating expenses of $14.1 million decreased $4.1 million, a 22% reduction year-over-year, driven by cost management efforts, lower litigation expense, and lower variable expenses as a result of the decline in revenue. Sales and marketing expenses decreased $2.5 million primarily due to lower tradeshow, commission, and personnel expenses. Research and development expenses decreased $1.8 million primarily driven by lower personnel, revenue share, and project related expenses. General and administrative expenses increased $0.2 million primarily driven by an increase in professional services, partially offset by a decrease in legal expenses. Net Loss Net loss was $13.0 million, or $1.78 per basic and diluted share, in the second quarter of 2023, compared to a net loss of $15.5 million, or $2.15 per basic and diluted share, in the same period last year. Foreign currency exchange transaction loss was $0.0 million in the second quarter of 2023, compared to foreign currency exchange transaction loss of $2.4 million in the same period last year. Weighted average basic and diluted shares outstanding of 7.3 million for the second quarter of 2023, compared to weighted average basic and diluted shares outstanding of 7.2 million for the same period last year. All share and per share information has been retroactively adjusted for all periods presented to give effect to the 1-for-25 reverse stock split that occurred in November 2022. Capital Structure and Liquidity Cash and cash equivalents totaled $26.2 million as of June 30, 2023, compared to $37.8 million as of March 31, 2023. Merger Agreement to be Acquired by restor3d On June 22, 2023, Conformis entered into an agreement and plan of merger with restor3d, pursuant to which, upon the terms and subject to the conditions described therein, restor3d will acquire Conformis via merger. Pursuant to the merger agreement, upon the closing, each share of Conformis common stock, other than shares to which appraisal rights are properly exercised and not withdrawn under Delaware law, will automatically be converted into the right to receive $2.27 in cash, without interest. A special meeting of Conformis stockholders has been scheduled for August 31, 2023. Conformis' board of directors has unanimously resolved to recommend that Conformis stockholders vote to adopt the merger agreement. If the merger is consummated, Conformis's common stock will be delisted from The Nasdaq Capital Market and deregistered under the Securities Exchange Act of 1934. Please see "Additional Information and Where to Find It" and "Participants in the Solicitation" below for important additional information regarding the proposed merger and related matters. Note on Non-GAAP Financial Measures In addition to disclosing financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides certain information regarding the Company's financial results or projected financial results on a non-GAAP "constant currency basis." This information estimates the impact of changes in foreign currency rates on the translation of the Company's current or projected future period financial results as compared to the applicable comparable period. This impact is derived by taking the adjusted current or projected local currency results and translating them into U.S. dollars based upon the foreign currency exchange rates for the applicable comparable period. It does not include any other effect of changes in foreign currency rates on the Company's results or business. Non-GAAP information is not a substitute for, and is not superior to, information presented on a GAAP basis. Company management uses these non-GAAP measures internally to measure operational performance. About Conformis, Inc. Conformis is a medical technology company focused on advancing orthopedic patient care and creating a world without joint pain. Its product portfolio is designed to maximize surgeon and patient choice by offering fully personalized solutions through its Image-to-Implant® Platinum Services℠ Program as well as data-informed, standardized solutions that combine many benefits of personalization with the convenience and flexibility of an off-the-shelf system. Conformis' sterile, just-in-time, Surgery-in-a-Box™ delivery system is available with all of its implants and personalized, single-use instruments. Conformis owns or exclusively in-licenses issued patents and pending patent applications that cover personalized implants and patient-specific instrumentation for all major joints. For more information, visit www.conformis.com. To receive future releases in e-mail alerts, sign up at ir.conformis.com. Cautionary Statement Regarding Forward-Looking Statements Statements in this press release about our future expectations, plans and prospects, the anticipated timing of our product launches, and our financial position and results, total revenue, product revenue, gross margin, operations and growth, as well as other statements containing the words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "project," "should," "target," "will," or "would" or the negative of these terms or other and similar expressions are intended to identify forward-looking statements within the meaning of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make as a result of a variety of risks and uncertainties. Such risks and uncertainties include, but are not limited to, (i) the risk that the proposed merger transaction with restor3d may not be completed in a timely manner or at all, which may adversely affect the business and the price of our common stock, (ii) the failure to satisfy any of the conditions to the consummation of the proposed transaction, including the receipt of approval by our stockholders, (iii) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, (iv) the outcome of any legal proceedings that have been or may be instituted against us or restor3d related to the proposed transaction, (v) whether our cash resources will be sufficient to fund our continuing operations for the periods anticipated, and whether we may be unable to continue as a going concern if the merger with restor3d is not consummated and we are unable to raise additional capital; (vi) risks related to our estimates and expectations regarding our revenue, gross margin, expenses, revenue growth and other results of operations, and (vii) the other risks and uncertainties described in the "Risk Factors" sections of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, Quarterly Report on Form 10-Q for the fiscal quarters ended March 31, 2023 and June 30, 2023, and other public filings with the U.S. Securities and Exchange Commission (the "SEC"). In addition, the forward-looking statements included in this press release represent our views as of the date hereof. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date hereof. No Offer or Solicitation This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval with respect to the proposed merger or otherwise. Additional Information and Where to Find It In connection with the proposed merger transaction with restor3d, Conformis filed a Definitive Proxy Statement with the SEC on July 24, 2023. The Definitive Proxy Statement and proxy card is being mailed to Conformis stockholders in advance of the special meeting relating to the proposed merger, which is scheduled to occur on August 31, 2023. BEFORE MAKING ANY VOTING DECISION, CONFORMIS STOCKHOLDERS ARE URGED TO READ IN THEIR ENTIRETY THE DEFINITIVE PROXY STATEMENTS (INCLUDING ANY FUTURE AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER OR INCORPORTED BY REFERENCE IN THE PROXY STATEMENT BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of the Definitive Proxy Statement, definitive additional materials and such other documents containing important information about the proposed merger transaction at the SEC's web site at www.sec.gov, and on Conformis's website at www.conformis.com and clicking on the "Investors" link and then clicking on the "SEC Filings" link. The contents of the websites referenced above are not deemed to be incorporated by reference into the Definitive Proxy Statement. In addition, the Definitive Proxy Statement and ...Full story available on Benzinga.com.....»»
Old National Bancorp (NASDAQ:ONB) Q2 2023 Earnings Call Transcript
Old National Bancorp (NASDAQ:ONB) Q2 2023 Earnings Call Transcript July 30, 2023 Operator: Welcome to the Old National Bancorp Second Quarter 2023 Earnings Conference Call. This call is being recorded and has been accessible to the public in accordance with the SEC’s Regulation FD. Corresponding presentation slides can be found on the Investor Relations page […] Old National Bancorp (NASDAQ:ONB) Q2 2023 Earnings Call Transcript July 30, 2023 Operator: Welcome to the Old National Bancorp Second Quarter 2023 Earnings Conference Call. This call is being recorded and has been accessible to the public in accordance with the SEC’s Regulation FD. Corresponding presentation slides can be found on the Investor Relations page at oldnational.com and will be archived there for 12 months. Management would like to remind everyone that certain statements on today’s call may be forward-looking in nature and are subject to certain risks, uncertainties and other factors that could cause actual results or outcomes to differ from those discussed. The company refers you to its forward-looking statements legend in the earnings release and presentation slides. The company’s risk factors are fully disclosed and discussed within the SEC filings. In addition, certain slides contain non-GAAP measures, which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors understanding of performance trends. Reconciliations for those numbers are contained within the appendix of the presentation. I’d now like to turn the call over to Old National CEO, Jim Ryan. Mr. Ryan, please go ahead. Jim Ryan: Good morning. We are pleased to be with you today to share details about our strong second quarter performance. Simply put, the quarter was business as usual for Old National, with growth in deposits, solid liquidity and credit quality, disciplined loan growth and well-managed expenses. The strength of our franchise remains evident in the results outlined on Slide 4. We reported EPS of $0.52 for the quarter, adjusted EPS was $0.54 per common share with adjusted ROA and ROATCE of 1.33% and 22%, respectively. Our adjusted efficiency ratio was a low 49%. Tangible book value, excluding AOCI, also increased 15% year-over-year. Deposit balances were up 4% during the quarter, with growth in core deposits of 2% as we continue to compete for new banking relationships effectively. Our total cost of deposits was 115 basis points and we maintained our deposit pricing discipline with a low 23% total deposit beta cycle to date. Our credit quality remained stable with 6 basis points of non-PCD related charge-offs. We remain watchful and consistent with other banks, are focused on potential pockets of softness. Like our deposit portfolio, our loan portfolio is granular and relationship driven, which should continue to serve us well. We remain confident in our client selection and underwriting. And as you know, Old National has taken a proactive approach to managing credit. This approach has served us well in the past and you see evidence of that stance this quarter’s work to address any credit deterioration aggressively. On the client side, engagement remained high in the quarter. We expect full relationships with our borrowing clients. And to the extent that new or existing clients lack that potential, we will manage accordingly. We do, however, continue to expect disciplined loan portfolio growth in 2023. In other areas, it’s more of the same. Our below peer deposit costs should drive a funding advantage, we expect to see organic growth of our wealth management client base and we continue to focus on disciplined expense management, while building tangible book value. We also continue to invest in top revenue-generating talent and expand into dynamic new markets within our footprint. We recently celebrated the opening of our first Metro Detroit area commercial banking office with a terrific new team, and we announced two prominent commercial relationship managers have joined our Nashville wealth management team. Before I turn things over to Brendon, I also want to take a moment to share that our Old National family continues to recover and heal from the Louisville tragedy on April 10 that claimed the lives of five of our team members and impacted so many others. More than three months later, our ONB family continues to do our best to love, care for and support one another. Additionally, in June, our Downtown Louisville team began serving clients at a new location in the heart of Downtown Mobile. Once again, I want to thank countless individuals and organizations who have cared for and supported our family during this challenging time. I also want to acknowledge and thank our team members for their resiliency and their commitment to supporting one another. With that, I will now turn the call over to Brendon to cover the quarterly results in more detail. Brendon Falconer: Thanks, Jim. Turning to our quarter-end balance sheet on Slide 5. We continue to effectively navigate the challenging operating environment, achieving a more efficient balance sheet. We improved our earning asset mix with cash flows from our investment portfolio reinvested in loans, while their funding mix improved through higher deposit balances and lower borrowings. As a result, our loan-to-deposit ratio improved by 100 basis points, while strong earnings bolstered our capital levels and contributed to tangible book value growth despite facing AOCI headwinds. On Slide 6, we present the trend in total loan growth and portfolio yields. Total loans grew by 2%, in line with our expectations. We sold approximately $300 million of non-relationship C&I loans at par during the quarter as we look to manage liquidity while prioritizing lending to our clients with full banking relationships. The investment portfolio decreased by 2%, mainly due to portfolio cash flows and declines in fair values. Despite rate shifts, the duration remained steady at 4.4 years and is not expected to extend further. Cash flows from the portfolio are expected to be $1.2 billion over the next 12 months. Moving to Slide 7. We show our trend in total deposits, which increased $1.3 billion or 4% quarter-over-quarter. Core deposits grew approximately $800 million, including $490 million of normal seasonal public inflows. The trend in average deposits reflects the continued mix shift away from non-interest bearing accounts into money markets and CDs. Market conditions continue to put upward pressure on deposit rates with interest-bearing deposit costs increasing 57 basis points to 1.66% and resulting in a cycle-to-date interest-bearing deposit beta of 33%. Total deposit costs were relatively low at 1.15%, which equates to a cycle-to-date total deposit beta of 23%. While it’s challenging to estimate the terminal beta, we had a strong track record of managing deposit rates and are confident we can maintain our funding cost advantage throughout the remainder of the rate cycle. Our disciplined approach to exception pricing has allowed us to successfully defend deposit balances and our targeted promotions have resulted in above peer deposit growth. Slide 8 provides our quarter-end income statement. We reported GAAP net income applicable to common shares of $151 million or $0.52 per share. Reported earnings includes $6 million in pretax merger-related and other charges. Excluding these items, our adjusted earnings per share was $0.54. Our profitability continues to be strong with an adjusted return on average tangible common equity of 22.1% and adjusted return on average assets of 1.33%. Moving on to Slide 9. We present details of our net interest income and margin. Both metrics surpassed our expectations as we reported a linked quarter increase in net interest income and experienced lower-than-anticipated margin compression. Our strong performance was bolstered by the 0.25 point rate hike by the Fed in May and our better-than-expected deposit growth. Furthermore, we continue to make progress towards achieving our targeted neutral rate risk position by the end of the rate cycle, while prudently adding protection against any sudden reversal and Fed rate policy. Slide 10 shows trends in adjusted non-interest income, which was $82 million for the quarter. Our primary fee businesses remained stable, but we did benefit from a $4 million increase in other income that we would not anticipate in our run rate next quarter. The items driving that increase were company-owned life insurance revenues, a recovery from a prior charged-off asset and positive derivative valuations associated with the transition from LIBOR to SOFR. Continuing to Slide 11, we show the trend in adjusted non-interest expenses. Adjusted expenses were $241 million, and our adjusted efficiency ratio was a low 49.4%. Our expenses were well controlled and consistent with the previous quarter, excluding a $5 million increase in incentive accruals related to our strong year-to-date performance. This would equate to a Q3 run rate of $237.5 million. On Slide 12, we present our credit trends, which remained stable, reflecting the strong performance of both our commercial and consumer portfolios. Delinquencies have decreased and net charge-offs have remained steady at a modest 6 basis points, excluding the 7 basis point impact from PCD loans. The rise in non-performing loans primarily stems from the anticipated migration of PCD credits as we maintain an aggressive approach to resolving these loans. While charge-offs from this portfolio are expected to remain elevated in the short term, we expect minimal impact on provision expense, given that we currently carry a $39 million or approximately 4% reserve against this book. Our second quarter allowance, including reserve for unfunded commitments stands at $338 million or 104 basis points of total loans. The modest reserve increase was largely driven by loan growth, partially offset by adjustments in our economic forecast. We continue to rely on a 100% weighted Moody’s S3 scenario that projects peak unemployment of 7.2% and negative GDP growth of 3.1%. Barring any significant deterioration beyond these economic assumptions, we expect provision expense to remain limited to portfolio performance and loan growth. Shifting to key areas of focus on Slide 14, you will see further details on our loan portfolio. Our commercial loan book, which constitutes approximately 70% of our total loans is granular and well diversified. Our non-owner occupied CRE is also well diversified across various asset classes and geographies. Regarding non-owner occupied office properties, the majority of the portfolio was comprised of suburban or medical offices with a significant portion of credit tenant leases. Only a negligible percentage, less than 1% of total loans is attributed to properties located within central business districts that are geographically dispersed across 11 Midwestern cities in our footprint. On Slide 15, we provide highlights from a recent examination of fixed rate CRE maturities over the next 18 months, less than 1% of total loans that are non-owner occupied CRE mature within 18 months and carry a note rate of less than 4%. Our approach to underwriting CRE includes a 300 basis point margin over the current rates at the time of origination. While these maturing credits have surpassed the original underwriting stress coupon, we have observed improved net operating income from higher rents. This improvement has been sufficient to uphold debt service ratios in line with our underwriting guidelines, and we believe the refinance risk in this portfolio to be minimal. Slide 16 details our Q2 commercial production. The $1.9 billion of production was well balanced across all product lines and major markets. As discussed on last quarter’s call, we have tightened our pricing standards, enhanced our credit structure and reinforced with our RMs, the importance of acquiring a full banking relationship for new loan requests. As a result of these actions and strong Q2 production, our pipeline has decreased to $3.1 billion and is consistent with low to mid-single-digit loan growth we expect in the back half of the year. On Slide 17, we present further insights into our deposit base. Our average core deposit balance is meaningfully lower than peers. 81% of our accounts have less than $25,000 on deposit and carrying an average balance of just $4,500. It’s important to highlight that we maintain strong enduring relationships with our deposit customers, 50% of which have been with the bank for over 15 years. Our top 20 deposit clients represent only 5% of total deposits and have a weighted average tenure of greater than 30 years. Lastly, our broker deposits were 3.5% of total deposits at the end of the quarter, which we expect to be well below peer average. On Slide 18, we provide a comprehensive overview of our capital position at the end of the quarter. We observed improvements in all regulatory capital ratios and maintain stability in our TCE ratio despite facing the negative impact of increasing AOCI. Our above peer return on tangible common equity, coupled with our peer average dividend payout ratio should result in us accreting capital at a faster rate than most. Additionally, we anticipate 30% of our outstanding AOCI to accrete to capital by the end of 2024. We did not repurchase any shares in the quarter and do not intend to do so in the near term as we focus on capital growth. In summary, our strong second quarter performance marked the successful conclusion of the first half of 2023, with results slightly exceeding our expectations. We have improved the efficiency ratio of our balance sheet through a better earning asset mix, strong core deposit growth led to a better funding mix, and we grew tangible book value per share by 15%, excluding OCI impact. Despite the challenging rate environment, our net interest income grew quarter-over-quarter, largely due to the strong execution of our deposit strategy. We have demonstrated an ability to both expand our customer base while maintaining peer-leading deposit costs. Our credit portfolio remains stable and our disciplined approach to managing expenses is evident in our quarterly adjusted efficiency ratio of 49.4%. Slide 20 includes thoughts on our outlook for the remainder of 2023. We believe our current pipeline should support second half 2023 loan growth in the low to mid-single-digit range, with full year growth in the mid to high single-digit range. We continue to target at or above industry deposit growth and we are reconfirming our guide on 9% to 12% year-over-year net interest income increase with a stronger conviction towards the higher end of this range. The key assumptions in this guidance include one more rate hike and a through-the-cycle interest-bearing deposit beta of 43% to 53% by year-end and non-interest bearing deposits falling to 28%. We expect fee businesses to be stable in the back half of 2023 with the exception of the $4 million in non-run rate items we noted earlier. Our expense outlook is adjusted to approximately $949 million for full year 2023, excluding merger-related charges and property optimization related expenses. This reflects our prior guidance of $939 million, adjusted upward by $10 million for higher incentive accruals. $5 million of this has already been accrued at quarter end. Provision expense share continue to be limited to loan growth, portfolio changes and non-PCD charge-offs as we believe we have adequate reserves against the PCD book. Turning to taxes. We expect approximately $8 million in tax credit amortization for the remainder of 2023 with a corresponding full year effective tax rate of 25% on a core FTE basis and 23% on a GAAP basis. With those comments, I’d like to open up the call for your questions. We do have the full team available including Mark Sander, Jim Sandgren and John Moran. Q&A Session Follow Old National Bancorp (NASDAQ:ONB) Follow Old National Bancorp (NASDAQ:ONB) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] We’ll take our first question from Ben Gerlinger with Hovde Group. Please go ahead. Ben Gerlinger: Hey, good morning, everyone. Jim Ryan: Good morning, Ben. Ben Gerlinger: Hate to do a modeling question upfront, but you guys gave a lot of guidance with both the left and right side of the balance sheet, more specifically to the cost of liabilities and deposits going forward. The one piece that I think was missing and I kind of just backed into it a little bit, what was the average earning asset yield or what you might see an uptick in terms of the next rate hike. So putting it all together, I’m coming up with a margin around 3.4% kind of at year-end. I might be off by a couple of bps here and there, but is that — do you think that’s a fair assumption? And then what would be some possible factors that could be above or below that? Brendon Falconer: Yeah. I think you’re in the ballpark, Ben. I think what we need to think about is what is the velocity of deposit pricing going forward and how well can we do against that deposit beta guide we got. I can tell you today, the velocity does seem to have slowed. I know we’re one month into the third quarter. But I think there’s some potential upside there. And we do have still a significant amount of fixed asset repricing, fixed pricing assets that we’ll replace for the next 12 months, that’s meaningful. It could and it should help defer a lot of this kind of late cycle deposit repricing that we have. So I think those are the two items that probably offset margin pressure going forward. Ben Gerlinger: Got you. And then just kind of following up on that. Is it just erring on the side of conservatism, because you guys do have a really healthy deposit franchise that your beta kind of — that doesn’t whipsaw nearly as much as some of the lower quality peers, I guess, you could say. So like is it more just elongation? It just seems a little conservative to me, but you guys probably have a better advantage point. Brendon Falconer: I think our through the cycle deposit beta that we put out there, I think that range, I think, seems reasonable. Time will tell. But what we continue to say whatever the deposit betas do for the industry, we think we outperform it at the end of the day. That’s our best guess today in this environment and will we try to outperform it? Absolutely. One thing we’re certainly confident is we can be better than peers. Ben Gerlinger: Got you. That’s great. And then one more kind of just changing topics a little bit. You guys kind of historically modeled for the worst-case scenario based on Moody’s S3 and with that as the backdrop, if you guys are slowing loan growth, does that kind of negate the economic factors associated with CECL? Or is it more bad could get worse and their modeling, therefore, you go lower. What I’m really getting at here is you’re slowing loan growth, should the provision come down as well, assuming there’s no credit events? Brendon Falconer: See, our provision should be generally limited to loan growth and non-PCD charge-offs. And so if loan growth moderates a little bit, that should moderate provision expense going forward. Ben Gerlinger: All right. Sounds good. Appreciate it. Great quarter. I hope the rest of year continues this trend. Jim Ryan: Thanks, Ben. Operator: Next, we’ll go to Scott Siefers with Piper Sandler. Your line is open. Scott Siefers: Good morning, guys. Thank you for taking the question. Just wanted to ask a question on NII. So obviously, really good performance. I’m glad to see the sturdy guide. Brendon, maybe if you could offer just sort of any thoughts you might have or be comfortable with sort of when and why you would see NII ultimately bottoming? And to the extent possible, what would happen to it thereafter? I mean, presumably, it becomes a function of loan growth and sort of back book repricing, but maybe just sort of nuances of upcoming ebbs and flows in NII in the aggregate? Brendon Falconer: Scott, yeah, I think it’s impossible to predict with any level of kind of precision when on bottoms out and at what level, I can tell you that we continue to run an asset under the balance sheet, and the next rate hike will help offset any deposit headwinds as we’ve talked about a little earlier. I think the pace of deposit repricing has slowed a little bit. So I don’t want to call the end. But certainly, there’s more probably downside pressure than upside opportunity at this point. Scott Siefers: Okay. And as it relates to the non-interest bearing deposits, which — so I think we have gone down to — or assume they go down to 28% from roughly 30% today. Maybe just sort of a background as to what you guys are thinking that leads you to believe that’s the right number? In other words, what are sort of the risks, but also what you’re seeing that suggest they will settle out fairly soon? Brendon Falconer: Yes. We’re monitoring the pace of that transition out of non-interest bearing into higher interest-bearing account. This is probably maybe the most aggressive of the assumptions in there, but probably has maybe the smallest impact in terms of our guide. So I don’t think it moves around our NII guidance significantly if we missed that by a couple of percentage points. But Scott, honestly, it’s our best guess. That’s a tough one to call, but we’re monitoring the behaviors, and we feel comfortable with that level now, and we’ll update you if that changes. Scott Siefers: Okay. Perfect. All right. Thank you very much. Jim Ryan: Thanks, Scott. Operator: Thank you. And next, we’ll go to David Long with Raymond James. Your line is now open. David Long: Good morning, everyone. Jim Ryan: Good morning, David. David Long: Let’s stick with the deposit discussion here. And the question I have is, it seems like June, there was a lot of competition as banks wanted to show deposit growth in the quarter. Is your sense that maybe deposit competition has eased in July? And then as a second part of that, throughout the second quarter and into here in July, where are you seeing the biggest competition? Is it the G-SIBs? Is it the regionals? Is it the community banks? Where is it most competitive? Thanks. Mark Sander: Yeah. I don’t think that — David, it’s Mark. I don’t think that competition has eased. I would say the pace of increase has eased is what Brendon was trying to convey. So we stay competitive. We’re staying in the upper half of the market in terms of our rate positioning. And I just think there’s still fierce competition and where it’s coming from, frankly, everywhere. And so more of a midsized banks than anything else, the SIFIs don’t have to compete as much as — but all of our markets have plenty of competition, and I think it’s still pretty healthy out there. David Long: Got it. Cool. Okay. And then Secondly, I wanted to ask about your appetite to hire additional commercial bankers. I know you guys have had a lot of success over the last year or two in that. Are you still looking to hire within your footprint? And if so, what is the commercial banker that’s attractive to look you like? Mark Sander: The answer to your question is yes. So we’ll always stay in the market. We’ve got a long-term view, and we’ve suspend — a lot of it will repeat it. Good revenue producers pay for themselves quickly even in this environment. We’re building a model for the long term. And people — we’ve got a good story to tell, and we want to take advantage of that when people are looking to make a move and frankly, being proactive with people who might not be looking to make a move. We have slowed the pace of hiring this year largely because we don’t need to add folks, we just are being opportunistic. But we still hired nine revenue producers across wealth and commercial in Q2, and we’ll continue to look for it. The prototypical profile is a seasoned 10 to 15 or more year banker who’s relationship banking within our markets, I guess, is the best way to put it. David Long: Got it. Thanks, Mark. Appreciate it. Thanks, everyone. Jim Ryan: Thanks, David. Operator: Next, we’ll go to Chris McGratty with KBW. Your line is now open. Chris McGratty: Good morning. Jim Ryan: Good morning, Chris. Chris McGratty: Hey. Brendon, maybe another one for you. I think the market consensus is that we stay higher for longer after this week’s Fed move. If that plays out to the earlier comments on margins. Should the narrative get a little bit harder next year? Or is it kind of a balancing effort you can kind of hold margins? Brendon Falconer: I think it’s a balancing act, right? It’s that fight to hold margin, which we all play — and I think we have an advantage over most others given the quality of our deposit franchise with the velocity of deposit costs can slow. Like I said, we have a lot of earning assets at fixed rates that are going to reprice meaningfully higher. Our fixed rate book is going to reprice 180 basis points above kind of run-off fields. Our invest portfolio that we’re reinvesting into loans is plus 400 basis points. So I think we have the tools and the balance sheet to help fight for flat in a higher for longer rate environment. Chris McGratty: Okay. That’s helpful. And then in terms of capital, Jim, you talked to just about everything is kind of on hold given the environment. What are you looking for to kind of make a switch to returning more capital? Jim Ryan: There’s an awful lot to play out here with respect to the economy and the last rate move. I think like all investors, right? I mean I think we’re trying to answer those questions. And then I think we get more comfort in how do we think about returning capital in which form. So I think we get more clarity as the year continues to progress and would have better OpEx heading into next year. Chris McGratty: Okay. And maybe if I could just sneak one more in. Brendon, I think you mentioned $4 million of kind of non-run rate fees. So that would put you kind of $77 million, $78 million kind of ballpark for quarterly fees. I want to make sure I understood that. And then given the tax benefit in the quarter, I know you gave a full year guide, but do you have what the back of the envelope is for the back half of the year with that adjustment? Brendon Falconer: Yeah. So I think that $78 million, $77 million is the right — the right number for fee going forward given sort of mortgage and capital markets headwinds. And then on the tax rate, I think that full year guide probably approximates the back two quarters. Chris McGratty: All right, perfect. Thanks. Jim Ryan: Thanks, Chris. Operator: Thank you. Next, we’ll go to Terry McEvoy with Stephens. Your line is now open. Terry McEvoy: Hi. Good morning, everyone. Jim Ryan: Good morning, Terry. Terry McEvoy: Maybe the decline in the loan pipeline, the $5.4 billion to $3.1 billion, how much of that is internal focus on the full relationship and just tightening things up versus just less market demand out there? Mark Sander: Yeah. Terry, it’s Mark. I wouldn’t put percentages on it, but more is driven by our internal, our focus than it is external. I mean, certainly, CRE markets have retracted a bit and they are not as active. So there’s some of that, but more of it is, frankly, our rationing our balance sheet. And as Jim and Brendon both alluded to in our comments, we’re a relationship bank, and we always are that way. But occasionally, in the past, you’ve got times where you lead with credit in this environment, we’re not doing that. Deposits have to come day one. And if the pipeline didn’t have — reflect that, we move them out of the pipeline. So we’ve rationed our pipeline down proactively. Terry McEvoy: I see. And then just overall managing the size of the balance sheet, what’s your appetite for additional loan sales? And will the cash flow from the securities portfolio be utilized to fund loan growth? Brendon Falconer: Yeah, Terry, this is Brendon. Yeah, we’re lastly use the best portfolio to continue to fund loans. And I think to the extent that deposits continue to grow to fund our loan growth. We’ll use that. If it doesn’t, there’s opportunities to continue to pair, but it won’t be significant or sizable. Terry McEvoy: And maybe just one last one. I mean the expense guide, I just want to make sure it fully captures what Jim talked about in terms of the Southeast Michigan and Detroit build out, what you’re doing in wealth management, what you’re doing in Nashville, you’ve got a lot of growth initiatives, but you’ve really been able to self-fund it. And haven’t raised the expense guidance, which I think has been a real positive surprise. I’m just making sure all those initiatives you feel like are captured in that — in the expense guide for this year? Brendon Falconer: Yes, Terry. Absolutely, it’s all captured in. Jim Ryan: That’s the goal, right? I mean I think we have continued opportunities to invest in people and any technology needs. But at the same time, we’ve got to figure out ways to self-fund that. And so we want to be incredibly disciplined around with what that looks like. Terry McEvoy: I totally agree. Thanks for taking my questions. Jim Ryan: Thanks, Terry. Operator: Thank you. Next, we’ll go to Brody Preston with UBS. Your line is open. Brody Preston: Hey. Good morning, everyone. Jim Ryan: Good morning, Brody. Brody Preston: Hey. I just wanted to follow up, Brendon, I think you said that there might be some I think upside on NII or maybe it was Jim that said that just dependent on what happens with the velocity of the deposit beta guide. I think the spot rate in the deck — excuse me — you said was 1.98%. And so I guess how has the velocity change from that 1.98% level? Brendon Falconer: Yeah, it slowed materially. But it’s early days in the quarter, and so we don’t want to declare victory and say that’s a permanent change of velocity, but we have seen some positive trends on that front. And obviously, we’ll continue to watch it. Brody Preston: Got it. And I saw the uptick in brokered deposits quarter-over-quarter, and it looked like it was fairly spread out between the front end and the back end. But I wanted to ask just like just given NIBs came in a bit better than what I expected. Are you guys planning on maybe slowing the pace of brokered? Or is there a potential for you to pay brokered deposits back? And would that kind of feed into maybe a slowing of the increase in the deposit cost trajectory? Brendon Falconer: Yeah, it’s all about core deposit growth trajectory to the extent that we continue to grow core deposits at rates better than brokered. We’ll continue to do that and deemphasize our use of brokered. Brody Preston: Okay. Okay. And then the last one for me, just in terms of the loan pipeline, I’m sorry if I missed it. Do you have a sense for, I guess, what portion of it is kind of fixed rate versus floating rate at this point? And what kind of new fixed rate origination yields are? Brendon Falconer: Yes, we do. It’s about 75% floating and 25% fixed. Brody Preston: Okay. And is there a difference between what the origination yields are on the fixed rate versus the floating rate? Brendon Falconer: Yeah. We actually put it in the slide deck. Our floating rate just in June was 7.61%, and fixed was around just above 6%. That could move up a little bit, given our potential, obviously, rate hike coming here shortly. Brody Preston: What drives that delta, Brendon, between commercial fixed and commercial floating being 150 to 160 basis points kind of difference at this point in the rate cycle? Brendon Falconer: Yeah, it’s just a walk curve. You think about the average tenure of these fixed rate deals, five years, that 5-year swap service is about that below. Brody Preston: Got it. Got it. Okay. Great. Well, thank you very much for taking my questions. I appreciate it. Jim Ryan: Thanks, Brody. Operator: Next, we’ll go to Jon Arfstrom with RBC Capital Markets. Your line is open. Jon Arfstrom: Hey, thanks. Good morning. Jim Ryan: Good morning, Jon. Jon Arfstrom: Hey. A couple of follow ups. Just on the margin, Brendon, to just put it all together, do you feel like is the margin inflecting now? I mean if the Fed is done this week, is it inflecting imminently in your mind? Brendon Falconer: I think, as I said, I think there’s probably more downward pressure than upward opportunity in this, but it’s so dependent on, again, the velocity of deposit repricing and where these terminal betas. And there’s opportunities to continue to grow NII on the earning asset side because fixed rate assets repricing. Is it enough to offset it? We just don’t know yet. Jon Arfstrom: Okay. Slide 14. This is great because it’s — you don’t have exposure to the central business district. So I think the banks that don’t have the exposure to tend to talk about it more openly. But you’re in a lot of big cities. What are you seeing in terms of central business district office real estate? Is it — do you feel like it’s as big of a problem as we make out to be on the outside? Just curious what you’re seeing. Jim Ryan: I think you just answered your own question. I think it’s not as big of a problem as it’s made out to be and yes, we all have our eye on it. It’s not like it’s robust and there aren’t much in the way of new opportunities, certainly, but the risk there exists. I think it’s perhaps a little overly stressed in the media. I think we have ours well circled and to the extent we need to well reserved for the couple of opportunities that where there are issues. Jon Arfstrom: Okay. Okay. Good. And then, Jim, one for you. Anything on regulatory that concerns you on the — you are well under $100 million, but what — anything that you’re hearing that you think would have an over — outside impact on Old National? Jim Ryan: No. I think obviously we’re paying really close attention to what’s being set out there. And we have always been in the position of having good regulatory relationships, and this is now not the time to reduce any emphasis on the work you do, right? And so we just got to continue to improve at every single thing we do to meet regulatory expectations, exceed regulatory expectations. But as I see those things, I think that the toughest one seemed to be aimed at banks north of $100 million. And obviously, there’s a lot of distance between where we’re at today and that number. So I think we’re in a great spot. I actually think we’re in the sweet spot for kind of profitability in terms of bank of our size, where we have the scale to go off and hire and invest in technology. And yet we’ll maybe miss some of the toughest things that come to our industry. So I think we’re in a really strong spot to be for the next few years. Jon Arfstrom: I agree. Returns look really good. So all right. Thank you. Appreciate it. Jim Ryan: Thanks, Jon. Operator: There are no further questions at this time. I’ll now turn the call back over to Jim Ryan for closing remarks. Jim Ryan: Well, as always, we appreciate your participation. Thanks for the one or two questions that I actually got that weren’t directed towards Brendon and Mark. Lynell and John and Brendon and the whole team are here to answer any follow-up questions. So once again, thank you for all your participation and support. Operator: This concludes Old National’s call. Once again, a replay along with the presentation slides will be available for 12 months on the Investor Relations page of Old National’s website, oldnational.com. A replay of the call will also be available by dialing 800-770-2030, access code 5258325. This replay will be available through August 8. If anyone has any additional questions, please contact Lynell Walton at 812-464-1366. Thank you for your participation. 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Mr. Cooper Group Inc. (NASDAQ:COOP) Q2 2023 Earnings Call Transcript
Mr. Cooper Group Inc. (NASDAQ:COOP) Q2 2023 Earnings Call Transcript July 26, 2023 Mr. Cooper Group Inc. misses on earnings expectations. Reported EPS is $0.17 EPS, expectations were $1.21. Ken Posner: Good morning and welcome to Mr. Cooper Group Second Quarter Earnings Call. My name is Ken Posner and I’m SVP of Strategic Planning and […] Mr. Cooper Group Inc. (NASDAQ:COOP) Q2 2023 Earnings Call Transcript July 26, 2023 Mr. Cooper Group Inc. misses on earnings expectations. Reported EPS is $0.17 EPS, expectations were $1.21. Ken Posner: Good morning and welcome to Mr. Cooper Group Second Quarter Earnings Call. My name is Ken Posner and I’m SVP of Strategic Planning and Investor Relations. With me today are Jay Bray, Chairman and CEO; Chris Marshall, Vice Chairman and President; and Kurt Johnson, Executive Vice President and CFO. As a quick reminder, this call is being recorded. Also, you can find the slides on our Investor Relations webpage at investors.mrcoopergroup.com. During the call, we may refer to non-GAAP measures which are reconciled to GAAP results in the appendix to the slide deck. Also, we may make forward-looking statements, which you should understand could be affected by risk factors that we’ve identified in our 10-K and other SEC filings. We are not undertaking any commitment to update these statements if conditions change. I’ll now turn the call over to Jay. Jay Bray: Thanks Ken, and good morning everyone, and welcome to our call. Let’s turn to slide 3 and review the second quarter highlights. Starting with financial performance, I was extremely pleased with a 300 basis point gain in operating ROTCE, which hit 11.7%, and the growth in tangible book value per share, which increased to $58.81. At the same time, the capital and liquidity remain at near-record levels. Turning to operations, the servicing team produced excellent results with $182 million in pre-tax income. The portfolio reached $882 billion at quarter end, but if you include pending acquisitions, such as HomePoint, we’re over $950 billion, which is nearly on top of our $1 trillion target. Late last year, we told you to expect a surge in bulk MSR sales with cycle-wide yields, and that is now playing out as we foresaw it. Also contributing to portfolio growth, we completed the acquisition of Rushmore Servicing, which now makes us one of the largest special servicers. I’d like to offer a hearty welcome to the 300 new team members who joined the Cooper family. We value the world-class skills you bring to our platform and the trusted relationships you’ve built with important institutional investors. Originations reported pre-tax income of $38 million, which exceeded the guidance we gave you last quarter. Despite incredible volatility in mortgage rates over the last years, we’ve never stopped investing in our platform, and I’m very pleased with our progress driving efficiencies through automation and our consistent best-in-class recapture performance. Now, turning to capital management, we repurchased 1.2 million shares for $57 million, which brings us to a cumulative 31% of shares repurchased since inception. Furthermore, I’m very pleased to announce that our board has approved increasing the repurchase authorization by another $200 million. You should take this as a signal of our very strong confidence in Mr. Cooper’s business model, and specifically the outlook for continued growth and strong returns, which we do not see reflected in the stock price. Finally, we were very pleased to be certified as a great place to work for the fifth consecutive year and with world-class team member engagement, I might add. It’s very important for us to provide a purposeful, inclusive environment for our team members because their happiness is essential to providing our customers with the service and advocacy they deserve. So, let me pause here to say thank you to everyone at Mr. Cooper for making this such a great team to be a part of. Now, let’s move to slide 4 as I’d like to pull up for a minute and talk about the bigger picture. As you know, when it comes to residential mortgage servicing, Mr. Cooper has the strongest and most consistent growth record in the industry with a portfolio CAGR of 30% over nearly 15 years. Now is not the time or place to dive into the details, but suffice it to say, over the last decade, we’ve acquired hundreds of portfolios totaling over $700 billion from more than 1,500 sellers, which, by the way, gives us a significant information advantage when bidding for pools. What I’d emphasize is that throughout this time, we were constantly investing in our servicing platform. In fact, internally, we talk about perfecting the platform, which, of course, is a never-ending process. But as a result, today we are the leader in all the key performance drivers, like cost of service, loss mitigation, and recapture. These are decisive competitive advantages and the reason why we are close to becoming the nation’s largest servicer. I don’t think any of our peers would dispute that we’ve earned our leadership position through focus, discipline, creativity, and hard work. Nor do I think there’s much question among investors and analysts about our competitive advantage in servicing. So let’s turn to slide 5 and talk about return-on-equity. In 2020 and 2021, Mr. Cooper capitalized on the refinancing boom, driving ROTCE to very strong double-digit levels, thanks to a fantastic performance in both our DTC and correspondent channels. During 2022, we passed through a transition period where origination earnings eased off due to the fastest mortgage rate increase in generations. And while it took a few quarters for servicing margins to kick back in, thanks to our balanced business model and the contribution from our large portfolio, returns are now back on the cusp of our minimum target of 12%. We are of course pleased with the direction returns have been tracking, but honestly we’re focused on more ambitious goals. And I would add there’s a lot of excitement internally about the potential for creating shareholder value as we continue to execute our plan and demonstrate to the market a sustained higher return on equity profile. So let’s talk about some of the strategic initiatives we’re working on. First, our strategy is premised on cost leadership. Based on benchmark data, we believe we already enjoy a significant cost advantage over peers. Nonetheless, we’re working to drive further reductions in unit costs, which will help us generate greater operating leverage as we deploy capital into portfolio growth. And while at the same time deepening our competitive mode until no one can compete with us. Second, our DTC platform is extremely profitable and we’d like to see it make a bigger contribution to overall results. That means continued work on cost, speed, and customer experience while we explore new products and channels. And third, we’re working to grow our self-servicing business, which leverages our platform and provides incremental income, including gain on sell from recapture, without tying up capital or liquidity. We’re in active discussions with potential new clients and we’re also building out our asset management capability in preparation for launching an MSR fund later this year. In closing, I’ll comment that we were quite pleased to see the stock price reached a new high since the WMIH merger in 2018. However, with the stock still trading at a discount, we don’t think the market fully appreciates our competitive advantages, the benefits of the HomePoint acquisition, and the progress we’re making on strategic initiatives. And with that, I’ll turn it over to Chris to discuss our strong operating results. Christopher Marshall: Thanks, Jay. Good morning, everyone. Hey, before I begin my comments, I also want to add my thanks to all my teammates at Mr. Cooper for their tremendous effort, which directly translated into the great results we had this quarter. I’m also extremely proud of being certified as a great place to work for the fifth year and also being named one of the best places to work in Texas. With all these accolades, you can assume things are going very well at Mr. Cooper right now. So with that, let’s turn to slide 6 and talk about servicing, where we earned a record $182 million in pre-tax operating income. Based on these results, as well as the pending acquisitions we’ve announced, we’re raising our full-year guidance for operating income by 17%, from $600 million to $700 million. And this doesn’t include one-time gains from a trust collapse we’re working on, which we expect to close in the second half and which will contribute an additional $50 million or more. Now this healthy contribution is exactly what you should expect from our balanced business model, as low CPR means limited activity for originations, but much stronger servicing earnings. And while many firms talk about having balance, you can see that our overall results are considerably more stable and consistent than our peers. However, while cyclical trends are favorable right now, the real story in servicing is our relentless focus on perfecting our platform, which is honestly like a religion for us. Currently, we’re laser focused on our customer call center, where we have a year-end goal of taking out 50 million dollars in annual operating costs, while improving our customers’ experience. Our strategy is to drive lower call volume by making information much easier for customers to access on their own, which is a win-win for them and the company. We’ve been steadily making progress here, as you can see from the chart on the upper right, where calls per loan have dropped by 26%, with progress accelerating in the last few quarters. This is a huge productivity driver for us, as you can see in the chart on the lower right, where call center headcount has actually declined, even as our portfolio has grown. As you may recall, last year we upgraded our IVR to a state-of-the-art system, which allows us to better leverage customer data and machine learning. And now we’re starting to see very meaningful improvement in IVR containment, especially in areas like authentication and payments. We’re also having considerable success with chat technology, including both human chat agents and the use of chatbots for standard servicing questions, where we’re seeing excellent rates of first chat resolution. By putting the information they need at their fingertips, we’re making life easier for our customers. And needless to say, for those customers who need help with more complicated issues, our people are always there to help them. Now let’s turn to slide 7 and take a closer look at our portfolio growth. As Jay mentioned, the portfolio ended the quarter at $882 billion, but factoring in pending transactions, it would have been $957 billion. I’d add that based on our internal forecast, we’re expecting to hit our trillion-dollar target by year-end, which would be 12 to 18 months ahead of schedule. Although, as always, that would be subject to our first priority, which is returns. Among these pending transactions, the largest is the HomePoint acquisition at $83 billion in UPB, which is scheduled to close in the third quarter. Now as a reminder, we’re not taking over any operations, so there’s no integration to speak of post-closing. We’re planning to onboard the HomePoint loans in late 2023 or very early 2024, at which point we’ll realize the full economics of this transaction. We also have $25 billion in pending bulk acquisitions, which include a large portfolio we’re acquiring from a seller we know quite well. And what I’d share with you is that this seller values our strong customer service and very smooth on boarding process. And we continue to see a buyer’s market for MSR with plenty of attractive pools trading at unlevered pre-tax yields in the low double digits for conventional loans and even higher for Ginnie Mae, which is exactly what we guided you to expect when we shared our proprietary forecast late last year. What’s new since then and what you’ll find interesting following the turmoil earlier this spring, we’re now seeing a sharp increase in regional banks bringing MSR pools to market. We’re also excited about opportunities to grow our subservicing business. We have a very experienced executive team with very deep industry relationships calling on potential new clients, including originators, banks, and MSR investors. Additionally, as you know we’re in the process of launching an MSR fund, which is intended to be another source of subservicing. We’re expecting our acquisition of the platform company to close in the third quarter, subject to regulatory approval, positioning us to begin a fundraising campaign in the fourth quarter. And finally, we’ve expanded our menu of subservicing products with our new special servicing capability. So let’s turn to slide 8 and spend just a minute on this. During the quarter, we closed on our acquisition of Rushmore Servicing, and we’re now integrating Rushmore onto our platform and merging it with our existing special servicing unit, RightPath. Since Rushmore is a well-established and highly regarded player, we’ve decided to operate under their existing brand, and I’m pleased to share that we’ve not only retained Rushmore’s existing clients, but we’re already signing new ones. Should the credit cycle take a turn for the worst, Rushmore could play a very constructive role in the marketplace, helping MSR investors and other servicers manage delinquent portfolios, while working to keep as many customers as possible in their homes, which of course is everyone’s goal. Now, recession remains a concern for many economists, but if the economy were to hit a speed bump, we’d be in a very strong competitive position. Not only would Rushmore turn into a major growth opportunity for us, but we’ve constructed a high-quality portfolio of owned MSR, where most of our borrowers enjoy sizable equity cushions and low mortgage rates. As of today, we’re not seeing any signs of strain, with our 60-day delinquencies continuing to decline during the second quarter on both an overall basis and in each individual loan category. Now, we’ve gotten some questions recently about the end of student loan forgiveness coming up in September. As you know, there are millions of homeowners for whom this represents a potential payment strain. As of June 30th, 16% of our customers had student loans outstanding, and as you’d expect, we’re monitoring these borrowers and standing by to provide any assistance they may need. However, we’re not anticipating any major impact for the simple reason that borrowers are generally better served prioritizing mortgage payments over other obligations, so it’s not to put their home at risk. And we’ll update you more on this next quarter as we have more data. So let’s shift gears and turn to Slide 9 and talk about Originations, which was another great story this quarter with $38 million EBT, which was above the high end of our guidance. During the quarter, we saw continued outstanding execution by our DTC platform and somewhat more rational competition in the correspondent channel. However, with mortgage rates hovering at 7%, we’re going to keep our guidance unchanged at $20 million to $30 million per quarter. And additionally, the second quarter of the year is traditionally the high watermark for originations, so seasonality may come into play in the coming quarters. Jay mentioned our ambitions to expand the scale and scope of our DTC platform, which is best in class in terms of refinance recapture rates and margins. Nonetheless, we’re continuing to invest in the platform with the goal of making further gains in speed and efficiency and producing an even better customer experience. You’ve heard us talk about Project Flash, which involves digitizing and automating tasks in the originations workflow. And just to give you an update, you can see in the chart on the upper right, how we’re driving impressive efficiency gains with direct processing cost per loan down 45% over last year. Not only does this mean lower cost today, but this progress bodes extremely well for our ability to scale up in the next cycle whenever that might occur. In addition to Flash, we’re making a number of investments in our DTC sales platform, for example, rolling out more self-served tools for digital savvy customers and implementing much more powerful CRM databases. These investments will contribute to a more streamlined customer experience while driving further efficiency and scalability. Our recapture performance continues to be best-in-class with refinance recapture at 80% in the quarter, which is close to 4 times the industry average. This is extraordinary execution considering that most of our customers come to us through the correspondent and bulk channels. By the way, we recently signed a letter of intent to provide recapture services to a leading MSR investor on a white label basis. And this is the first for us, and it represents a brand-new growth channel for DTC. We’ll update you more on this after our contract is signed, and hopefully, that will be next quarter. Regarding the correspondent channel earlier in the year, we saw some signs of irrational competition in terms of pricing and MSR valuation assumptions. But since then, some of the more aggressive players have backed off, market pricing has improved and as you can see, we nearly doubled volumes in the quarter. As a reminder, we’re totally focused on returns and are completely channel-agnostic. And at this point in the cycle, we continue to see higher returns in the bulk channel due to the huge volume of sellers and a relatively concentrated network of buyers with limited capacity, but more rational pricing and correspondent is creating a more compelling environment. Now if you’ll turn to Slide 10, I’ll provide an update on Xome. Last quarter, we guided to Xome breaking even on strong sales momentum and that’s exactly what’s happened to a 25% improvement in sales and EBT actually being slightly positive. And while profitability is an important milestone, we’re obviously looking ahead to the time when this unit is generating the much larger it’s capable above. Now it’s hard for us to be precise on timing because many variables are in play. Across the entire market, foreclosure volumes are starting to pick up with one data source citing a 13% increase year-over-year. However, not seeing much movement in the FHA data, whether you look at foreclosure inventories or sales where levels are still quite low relative to pre-pandemic levels. Now bear in mind, FHA data lags by a few months. So perhaps we’ll see more movement in the next report which would be more consistent with the sales momentum we’re seeing on our own platform. And if the economy deteriorates and you see some weakness in the labor housing markets, foreclosures could move meaningfully higher which would be a huge positive for Xome. On the other hand, I’d comment in the second quarter, the FHA extended its pandemic era streamlined and partial claims programs to all delinquent borrowers and it subsequently sought comments on additional programs that could help borrowers facing financial hardship. Now as a servicer, we think these are good borrower-friendly programs, and we’re seeing strong initial take-up rates among our own customers with upwards of 20% of delinquent customers taking advantage of them since they were rolled out a month or so ago. Now there may be significant recidivism as well. But nonetheless, we’d expect these programs to slow the pace of normalization and foreclosures. To summarize, we can’t offer perfect clarity in the long-term outlook with respect to both macro and policy drivers. However, in the meantime, the Xome Exchange is doing an excellent job with execution and market share and I guide you to positive third quarter results with plus or minus $3 million in EBT, fueled by continued sales momentum. And with that, I’ll turn it over to Kurt. Kurt Johnson: Thanks Chris, and good morning, everyone. I’ll start on Slide 11, which gives you a summary of the financials. I’ll call out four items to start. First, let me provide some color on adjustments, which consisted of $6 million in deal costs related to the acquisition of Rushmore, $1 million in severance and a $4 million loss associated with equity investments, largely related to. Currently Sagent is spending at an elevated level, in line with our expectations to integrate servicing technology under cloud-based core, after which it will go to market with the first ever cloud-native servicing platform. Second, regarding the acquisition of HomePoint, I’d like to remind you that we guided to roughly $1 per share gain in tangible book value at closing, and we continue to feel very good about that accretion. Upon closing, HomePoint bonds will be assumed as part of our financing structure and will benefit from the same guarantee as our other bonds. For modeling purposes, you should expect an additional $9 million in interest expense as part of our quarterly run rate beginning in the fourth quarter of this year. Third, turning to the MSR. We marked up the MSR by $139 million to account for higher interest rates and lower CPRs, leading at quarter end valuation of 156 basis points of UPB and a multiple of 5.1 times the base servicing fee strip. Offsetting the markup, we incurred hedge losses of $111 million, which equates to coverage of 80%. This is within our communicated policy tolerance as we continue to target a hedge ratio of 75%. The mark line also included a $33 million gain from the sale of the excess servicing strip on our conventional MSR portfolio. As you may recall in recent quarters, we retained a bigger servicing fee strip from securitized pools above the 25 basis point contractual minimum as a strategy to optimize capital market execution. With this transaction, we’ve unwound this trade and in addition to the gain, the sale generated $294 million in cash which we used for portfolio growth and stock repurchase. Finally, I’d like to update you about $50 million change in our deferred tax assets in the quarter. The DTA on our balance sheet currently totals $657 million. We continue to utilize our DTAs on an annual basis to offset taxable income and minimize our cash tax payments, which strengthens our cash flow. Now let’s turn to Slide 12 and review liquidity. In the second quarter, we added a new MSR line, which increased our overall capacity by $0.5 billion, resulting in liquidity of $2.3 billion, up $176 million sequentially, completely consistent with what we communicated to you last quarter. Of the $2.3 billion, $517 million was in cash, with the remainder consisting of available liquidity on our MSR lines, which is fully collateralized and immediately available. Finally, I’ll comment briefly on advances, which declined 11% year-on-year despite growth in the portfolio. Now this is completely consistent with the favorable credit quality trends that Chris just discussed. While we are not seeing credit pressure at this time, we continue to maintain nearly $1 billion in borrowing capacity for advances, which we believe be more than sufficient to manage through a turn in the cycle. Our servicing group is focused on streamlining and recoveries as a further means to enhance service and profitability. Now I’ll wrap up my comments on Slide 13 by talking about our capital position. Our capital ratio remains rock solid at 30% as measured by tangible net worth to assets, which is well above both rating agency and regulatory requirements. Now we’ve stated that we would deploy some of this capital, but we would do so in a disciplined, patient and opportunistic manner. And that’s exactly what we’ve been doing. As Jay commented, we’re on the cusp of our minimum target for our OTC and the pending acquisitions, including HomePoint as well as our strategic initiatives will help us lift returns and sustain them going forward. The primary driver of incremental returns in the future will likely be profitability rather than leverage, but one, we’re mindful of regulatory expectations, including Ginnie’s risk-based capital rules, which take effect at the end of 2024. Additionally, our preferred source of long-term debt financing is the high-yield market, and we just don’t view current spreads as consistent with our strong credit profile. We’re focused internally on the strategic initiatives we shared with you, including lower unit costs and continued operating leverage for servicing, investing in and expanding our DTC platform and growing our base of subservicing clients. And of course, we’ll continue to deploy capital into both MSR acquisitions and stock repurchases in search of the best returns for investors. With that, I’d like to thank you for listening to our presentation. And now I’ll turn the call back to Ken for Q&A. Ken Posner: Yes. Thanks, Kurt. And Chris, can we now start the Q&A session, please? Q&A Session Follow Cooperative Bankshares Inc Follow Cooperative Bankshares Inc 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 Kevin Barker of Piper Sandler. Your line is open. Kevin Barker: Good morning, thanks for taking my questions. Congrats on a great quarter. Can you give us a little more detail on your expectations for prepay speeds going into the back half of this year and maybe even early 2024? Just given your guidance for $700 million in pretax servicing income, service — prepay speeds are obviously running well below any expectations we’ve had. Love to hear what your view is on it, just given the macro environment. Kurt Johnson: Sure, Kevin. It’s Curt. So in the forecast with the $700 million, we’re forecasting our speeds to be slightly up even from where they were in the second quarter and — but not significantly. Again, we’re seeing activity around kind of the 6% CPR continuing in our book, and we’ve seen that up to this point in time in July. Christopher Marshall: And Kevin, it’s Chris. I’d say offsetting that slight increase is we talked a little bit about the efficiencies in our call center and some of the other process work we’re doing. That’s building as we go through the year. So you’ll see a slight increase in CPR but more expense saves as the year goes on. And of course, you’ll see all that annualized in 2024. Kevin Barker: Okay. And then going — you long had an ROE target, I believe, was several quarters ago, you put out there 12% to 20%. And you’re right there at the low end of that now or very close to it. Do you anticipate continuing to operate in that ROE range over the long term, just given where you are today? Or do you expect that to drift towards the higher end given the outlook for servicing income? Thank you. Christopher Marshall: Well, I think the trend and the higher guidance that we’ve guided to says that we’ll be comfortable in that range. And again, when we put that out, it was over the long-term, we expected to stay in that range, absent a big spike in originations, which we saw. And certainly if we see that come back to us, which will eventually, then we’d be at the higher end or higher. But over the long course, we think 12% to 20% is a reasonable range for us to operate in without any macro change in the market. Kevin Barker: Just a follow-up on that. Do you feel like the current macro environment would allow you to operate in the midpoint or maybe the higher end of that range, just given the efficiencies, particularly within the Servicing segment? Christopher Marshall: Well, without nailing us down to a specific number, I’d say we’re seeing a lot of efficiencies as I said, and we’re continuing to invest in the platform at a rate no one else in the industry is. So I think the future should — the bottom of that range should be much more easy to achieve, and we’re almost there now. So yes, I would hope that we would be more in the middle of that range than at the bottom of the range. And there are a lot of — I mean, the company is performing at a very high level now. So I think if anything, maybe we’ll give guidance sometime in next year that says the minimum rises and maybe the maximum rises. But for now we’re going to stick with the guidance we’ve given you. Kevin Barker: Okay, thank you Chris, thank you Kurt. Christopher Marshall: Thank you Kevin. Operator: Thank you.[Operator Instructions] Our next question will come from Kyle Joseph of Jefferies. Your line is open. Kyle Joseph: Hey good morning guys. Thanks for taking my questions. And congrats on a strong quarter. I just wanted to move focus more on the origination side. I know you guys maintained your guidance there. But in terms of the gain on sale margin, looks like it came down a bit quarter-on-quarter. Is that just a function of mix shift and kind of give us a sense for your expectations there or what margins we’re doing specifically by channel? Christopher Marshall: It’s all mix shift, you saw more correspondent. We also had a little bit more purchase and the purchase margins are just a little bit tighter in refi, but it’s just mix shift. There’s nothing else going on. In fact, all of our margins should be ticking up as we are realizing the full year benefit of Project Flash. I think the chart it was, but you saw operating costs are down 45% year-over-year. We’re now in the midst of rolling out Flash and eventually through funding and post close. So our costs are actually coming down. Our unit costs are actually coming down. So that’s helping all the margins, but the mix shift is going to move that overall number around a little bit. Kyle Joseph: Got it. And then on Xome, obviously, strong sales in the quarter, but inventories were flat. Is that — should we read that as that inventories are getting kind of replace or the pipeline for inventory remains strong to same inventory despite the pickup in sales? Christopher Marshall: I think in the short term, there’s really not a whole lot of clarity on what’s going to happen with this pandemic mod program. So we’re going to be a little cautious in what we forecast. Keep in mind that when we follow that program to modify a loan, we’re going to paid incentive fees to do it. So Mr. Cooper is making money. And of course as Kurt said we had a reduction in advances of $300 million of cash. We generated a tremendous amount of cash in the quarter so we’re not financing that. So Mr. Cooper is making money no matter what. But there’s definitely going to be a delay in the return to normal sales volume due to foreclosures because of this program. On balance, it’s good for Mr. Cooper, but it’s going to mean a longer — and I don’t know if that’s two quarters or a year of how long it will take to get through the bulk of this pandemic modification program. So we’re giving you somewhat conservative guidance there because we really don’t know what the uptake rate will be. Jay Bray: Meanwhile, we’ve continued to invest in the Xome platform. It’s actually never been in better shape. We continue to win clients. We continue to win share, not really a matter of if it’s just a matter of when. And to Chris’ point, the latest FHA program, if it actually comes to vision, could impact that foreclosure and delinquent pipeline more. We just don’t know what the answer is going to be there. But the platform itself is continuing to perform really well and continue to win market share. Kyle Joseph: Got it. Thanks very much for answering the questions. Jay Bray: Thank you. Operator: Thank you. [Operator Instructions] Our next question will come from Eric Hagen of BTIG. Your line is open. Eric Hagen: Hey how are you doing? Good morning. I think you guys noted the expectation for banks to be sellers of MSRs. Is there any expectation you think, for banks to provide seller financing for those transactions? And even more generally, how you think maybe about the supply and availability of leverage for MSRs and maybe it impacts valuations and demand for servicing from the nonbank community? Christopher Marshall: I’ll start with that. This is Chris. We’re already seeing banks come to market and depending on what the capital rules mean we’ll probably see more. We’ve talked to a number of banks that we have very good relationships with that are just waiting to see. So we expect to see lots of product come to market. In terms of financing, we have our financing essentially established. We’re not looking for any banks to finance a direct purchase. I actually think that would kind of be unusual and would impact our ability to have a true sale. So I don’t really expect that. But I don’t know that may occur, but it’s not going to affect our financing, nor we’ve had established financing with our partners for many years and don’t expect that to change. Kurt, do you want to add? Kurt Johnson: Yes. I mean, look, I think that financing for us is very strong. We indicated last quarter that we added another $0.5 billion line that came to fruition. We’ve got financing lined up for the HomePoint acquisition. I think we still see our banking partnerships as being very, very strong and very, very stable. And we do continue to meet with banks on a pretty regular basis. And they’re all interested in lining up financing. So to Chris’ point, I don’t think we necessarily need financing from our sellers. I think we’ve got more than enough from our existing partnerships. Eric Hagen: Yes. Yes. That’s good detail. All right. Maybe you could share some detail as well around what you’re expecting to achieve with the MSR fund that you’re launching? Maybe how you’d expect to select MSRs for your own account versus what might go into that fund? Christopher Marshall: I don’t think we’re going to get into that here where we’ll focus on fundraising in the fourth quarter. Right now we’re focused on closing on the platform, which is an integral part of that. But I think we’ve evidenced over I was going to say a few years, over 10 years. We see every deal in the market, and there’s plenty of product coming to market today, certainly enough to fulfill our needs and not just a fund, but there aren’t that many buyers in the market today. It is a buyer’s market. You can be very selective on what you buy. And the intent of our fund is to — it will be run independently of Mr. Cooper, but it will take advantage of the industry-leading servicing capabilities that we have as well as our ability to source product. So we’ve got very, very strong capabilities in-house that can be leveraged, and we’re going to make that all those capabilities available to our partners in this fund. Kurt Johnson: And I would just add, if you look at over our track record, I mean, we’ve partnered we’re financial buyers in acquiring portfolios together. And so we have a strong track record of working with others, and we would expect that to continue. And we think there’s a number of financial buyers. So Chris’ point that really look to Mr. Cooper as the leader in acquisitions and want to lean in on our capabilities. So we think that will be a great partnership. Eric Hagen: Yes, yes. Sounds good. Do you have handy the weighted average price at which you guys have repurchased stock over the last year? Kurt Johnson: Yes. So over the last 6 months, I believe it’s — it’s a little bit over $48. Let me get you the exact number, Eric. Eric Hagen: Well, as you hunt for that. Thank you guys, very much appreciate it. Kurt Johnson: Yes, we’ll put it out. But I think it’s about $48 a share. Eric Hagen: Thank you guys very much. Operator: Thank you. [Operator Instructions] Next question will come from Douglas Harter of Credit Suisse. Your line is open. Douglas Harter: Thanks. You talked about looking to expand the DTC platform. Can you just talk a little bit about what it is you’re looking to accomplish there and whether you would look to do that organically or through acquisition? Kurt Johnson: I think primarily, Doug, if you think about the universe today, there’s a — if you look at the bank universe, even some of the financial buyers, they’re looking for a strong recapture platform ultimately because there’s tremendous value in retaining those customers. And so we’ve had several inbounds around can those potential partners leverage our capability with respect to recapture? And so the first client that Chris mentioned is a financial buyer that that we’re familiar with, they’re familiar with us, and they want to take advantage of the capability we have in the DTC platform. And if you kind of look out over the next few years, we think there’s going to be a lot of financial institutions and a lot of potential other partners that want to take advantage of that capability. So we’ve built — or in the process of finalizing the build of that white label capability, so we’ll be able to offer that to a number of clients. Douglas Harter: Got it. So I guess the focus would still remain on kind of recapture and what are you looking to kind of expand the purchase or or new client kind of acquisition while expanding DTC? Christopher Marshall: Well, we’ve seen significant improvement in our internal DTC purchase recapture, and we expect that to continue. So that would certainly be an element of it, and it’s something that we’re continuing to improve on and invest in, but I think it will be the lion’s share of that will continue to be focused on refinance. Kurt Johnson: Just quickly, so to answer Eric’s questions for the last quarter but $44-and-change for the year-to-date in terms of the average price of stock. Christopher Marshall: Year-to-date or full year? Kurt Johnson: Yes, for the last 6 months. It’s been $44 — a little over $44. Operator: Thank you.[Operator Instructions] And our next question will come from Bose George of KBW. Your line is open. Bose George: Hey guys, good morning. I just wanted to go back to the guidance on servicing revenues. Should we see a pickup in 4Q at HomePoint close — just wanted to — does the MSR come on day one and then sort of the when the other — when the boards onto your platform sort of incremental upside there, just to talk about the cadence? Christopher Marshall: Yes. You’re looking at that correctly, Bose. Although, the biggest part of that is going to board I think right at the tail end of the year. So it will be modest, but of course, you’ll see the full benefit of it in ’24. Kurt Johnson: And I think we guided at the acquisition and the presentation about a 9% accretion, right? Bose George: Okay. Great. And then just in terms of the earnings on the Corporate segment, is the difference going forward — I mean, I guess the guidance you gave on Xome plus the $9 million interest expense on HomePoint And then should we assume the rest of corporate is roughly flat? Kurt Johnson: Yes. I mean I think right now, we’re seeing the rest of Corporate essentially flat. You’re going to see continuation of some of these onetime charges. Obviously, we’ve got some acquisition charges that will come through in Q3 and Q4, along with the continuing operations of. Bose George: Okay. And then there’ll be the onetime $50 million gain from the deal collapse in the back half of the year as well? Christopher Marshall: That’s right. So yes, we’re again guiding to that. And then again, the onetime bargain purchase gain from the acquisition, which we initially said was $1 per share, and we’re very comfortable that’s fairly conservative around that. Bose George: Okay, great thanks. Operator: Thank you.[Operator Instructions] Next question will come from Giuliano Bologna of Compass Point. Your line is open. Giuliano Bologna: Good morning and congratulations on another great quarter of performance. Maybe switching back to the origination segment. Obviously, DTC has been a hit the platform there. And I realize there’s some timing components in terms of forwarding new MSRs, but that portfolio mostly feeds off of leads from the MSR book that you own and sub-service. Should we expect DTC volumes to continue to increase roughly in line with portfolio growth, albeit kind of on a delay as sort of those new books? And is that a material source of growth that should help the DTC platform continues to grow into ’24? Christopher Marshall: Yes. That’s exactly right, Giuliano. It’s — with more inventory, we got more opportunity. And so there’s some — granted every pool is not exactly the same. Coupons are a little different. All those things are different. But on average, the more portfolio we have, the more originations we’re going to do. Giuliano Bologna: That makes sense. And then one quick one related to Rushmore, it looks like there was a $23 million intangible recognized in the quarter. I thought that was $0.34 a share. Is that the rough kind of impact of tangible book value from the transaction? Kurt Johnson: Yes. And look, that was due to the purchase of the Rushmore platform and the contracts. So you’re spot on. That will probably be amortizing over time. We do — we did see Rushmore make money for this quarter even and we expected to see it on a go-forward basis. But that $23 million will accrete downwards and offset the earnings from the platform. Giuliano Bologna: And then one last one as taking the business all the time, but to be material in the future. Thinking about the transaction and the partnership there. Do you have a sense of if the whole platform has been integrated and if they’re marking it to clients already? Or is it still in the integration phase and soon to be marketed declines? Christopher Marshall: Yes. I think — I wouldn’t say they’re marketing it. They’re discussing it with clients. Clients are calling them because of — this is the first time there’s been a new technology even available on servicing in 40 years. The integration is not complete. There’s probably another nine months to go before. And again, this is the integration of our technology with Fiserv’s new cloud-based score referred to as Finxact. So there’s still some time to go. I think things are progressing well working very, very closely with not just the team but the Fiserv team. And look, we feel it’s a great technology. For us, we can look directly at our operations and see enormous amount of manual work coming out. I think that’s going to apply — that’s going to be very, very attractive to other servicers. But I wouldn’t think of this as a ’24 we’re going to turn the corner. I think they will begin heavily marketing it probably in the middle of ’24 with the expectation that clients will start migrating to that platform, maybe at the end of ’24, the beginning of ’25. So this is a long-term project for us. But the company is making very large investments in this integration and the technology itself; both ours and Finxact are world class. So I think the upside is very, very promising. Kurt Johnson: And really, the partnership with Fiserv is probably more exciting today than even has been historically. If you look at the Fiserv client base, once we complete this integration, and the ability to take it not only to kind of existing servicing clients but move through the Fiserv client base, it’s really attractive. And so I think we’re extremely excited about the opportunity here. Giuliano Bologna: Okay thank you so much for that color. I really appreciate for answering the questions and I’ll jump back in the queue. Thank you. Christopher Marshall: Thank you Giuliano. Operator: Thank you. I see no further questions in the queue. I would now like to turn the conference back to Jay Bray for closing remarks. Jay Bray: Thank you everybody for joining the call, and we’ll be available later today for questions. Really appreciate it. Operator: This concludes today’s conference call. Thank you all for participating. You may now disconnect, and have a pleasant day. 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Top Research Reports for Chevron, NextEra Energy & Chubb
Today's Research Daily features new research reports on 16 major stocks, including Chevron Corporation (CVX), NextEra Energy, Inc. (NEE) and Chubb Limited (CB). Monday, July 24, 2023The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including Chevron Corporation (CVX), NextEra Energy, Inc. (NEE) and Chubb Limited (CB). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.You can see all of today’s research reports here >>>Shares of Chevron have gained +10.7% over the past year against the Zacks Oil and Gas - Integrated - International industry’s gain of +20.8%. The company is considered one of the best-placed global integrated oil firms to achieve sustainable production ramp-up.America’s No. 2 energy firm’s existing project pipeline is among the best in the industry, thanks to its premier position in the lucrative Permian Basin. As a reflection of these positives, we saw CVX’s EPS jump 132% in 2022. However, Chevron was not immune to the commodity price crash of 2020, forcing it to cut spending substantially.The company’s high oil price sensitivity is a concern too. Moreover, the supermajor’s 10-year reserve replacement ratio of 100% is indicative of its inability to replace the amount of energy produced.(You can read the full research report on Chevron here >>>)NextEra Energy shares have gained +0.4% over the past six months against the Zacks Utility - Electric Power industry’s gain of +2.6%. The company continues to expand its operations through organic projects and strategic acquisitions. NextEra has many renewable projects in its backlog and their completion will reduce emissions.The merger of Gulf Power and FPL strengthens NextEra’s position in Florida. FPL’s customer base is expanding as Florida’s economy improves and continues to boost demand for its services. NextEra has ample liquidity to meet its near-term debt obligations and efficient debt management acts as a tailwind. NEE is expanding its operation in water space through acquisition.However, due to the nature of its business, it is subject to complex regulations. Risk in operating nuclear units, unfavorable weather conditions and an increase in supply costs adversely impact earnings.(You can read the full research report on NextEra Energy here >>>)Shares of Chubb have gained +8.6% over the past year against the Zacks Insurance - Property and Casualty industry’s gain of +17.4%. The company benefits from a suite of compelling products as well as services. It is focusing to capitalize on the potential of middle-market businesses. Several distribution agreements have expanded its network, boosting market presence.Chubb made investments in various strategic initiatives that paved the way for long-term growth. Strong capital position helps it boost shareholder value. Its inorganic growth story helps it to achieve a higher long-term return on equity.It boasts a strong capital position with sufficient cash generation capabilities. It expects quarterly adjusted investment income to be between $1.2 billion to $1.22 billion in the second quarter of 2023. However, exposure to cat loss induces underwriting volatility. High expenses weigh on margin expansion.(You can read the full research report on Chubb here >>>)Other noteworthy reports we are featuring today include Bayer Aktiengesellschaft (BAYRY), Newmont Corporation (NEM) and United Rentals, Inc. (URI).Director of ResearchSheraz MianNote: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>Today's Must ReadChevron (CVX) to Gain from Massive Permian AcreageNextEra (NEE) Gains from Steady Investment, Renewable FocusBetter Pricing, New Business Growth Drive Chubb Limited (CB) Featured ReportsNew Drugs Boost Bayer (BAYRY) Sales, Pricing Issue a ConcernPer the Zacks analyst, new drugs like Nubeqa and Kerendia boosts Bayer. However, the Crop Science division is facing pricing challenges for glyphosate-based products which will impact performance.Newcrest Buyout Aid Newmont (NEM) Amid Cost WoesWhile Newmont is facing challenges with rising costs impacting earnings, the acquisition of Newcrest offers a positive outlook for the company's future, per the Zacks Analyst.Growing Product Uptake, Strategic Pacts Aid Illumina (ILMN)The Zacks analyst is impressed with Illumina actively strengthening its position in high-throughput sequencing with the strong uptake of NovaSeq X. The Myriad Genetics partnership should add value.Strong Storage, Data Center Demand Aids Iron Mountain (IRM)Per the Zacks analyst, Iron Mountain is well-poised to benefit from the robust demand for its storage and records management business, data center expansions and a solid balance sheet position.Twilio (TWLO) Banks on Growing Active Customer AccountsPer the Zacks analyst, Twilio's continued focus on introducing products as well as its go-to-market sales strategy is helping it grow its active customer accounts, which is driving top-line growth.Knight-Swift (KNX) Rides on Dividend Amid Soft Freight DemandThe Zacks analyst likes the shareholder-friendly measures adopted by Knight-Swift. However, softness in freight demand hurt Knight-Swift's second-quarter 2023 results.Growing Demand in Aerospace Segment Benefits Woodward (WWD)Per the Zacks analyst, Woodward's performance benefits from solid demand in the aerospace segment due to higher commercial OEM. Rising aftermarket sales owing to passenger traffic is a tailwind.New UpgradesStrategic Buyouts Boost United Rentals' (URI) ProspectsThe Zacks analyst stresses that United Rentals' systematic inorganic strategy will expand its core equipment rental business and trench, power and pump footprint and tool offerings.Solid Annuity Portfolio and Rates Aid American Equity (AEL)Per the Zacks analyst, American Equity is set to grow on fixed index, fixed rate annuity products guarantying principal protection, better rates, guaranteed lifetime income & alternative payout optionE-Commerce Expansion to Bolster Carter's (CRI) PerformancePer the Zacks analyst, Carter's is poised to gain from the strengthening of e-commerce capabilities through investments to speed up deliveries, along with a broad array of online products.New DowngradesGeopolitical Risk, Competition Ail TotalEnergies (TTE)Per the analyst TotalEnergies (TTE) presence across the globe exposes it to geopolitical risk and rising competition among the international energy majors is also a headwind.United Natural (UNFI) Hurt by High Costs, Supply-Chain Woes Per the Zacks analyst, United Natural is battling cost inflation and supply-chain woes. Management cut fiscal 2023 earnings view as it expects similar profitability trends for the rest of the year. Weak Biotechnology and Diagnostics Units Hurt Danaher (DHR)Per the Zacks analyst, Danaher is experiencing weakness across its Biotechnology and Diagnostics Units due to decrease in the sale of COVID-related products. Forex woes are an added concern. 4 Oil Stocks with Massive Upsides Global demand for oil is through the roof... and oil producers are struggling to keep up. So even though oil prices are well off their recent highs, you can expect big profits from the companies that supply the world with "black gold." Zacks Investment Research has just released an urgent special report to help you bank on this trend. In Oil Market on Fire, you'll discover 4 unexpected oil and gas stocks positioned for big gains in the coming weeks and months. You don't want to miss these recommendations. Download your free report now to see them.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 NextEra Energy, Inc. (NEE): Free Stock Analysis Report Chevron Corporation (CVX): Free Stock Analysis Report Chubb Limited (CB): Free Stock Analysis Report Bayer Aktiengesellschaft (BAYRY): Free Stock Analysis Report Newmont Corporation (NEM): Free Stock Analysis Report United Rentals, Inc. (URI): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research.....»»
Truist Financial Corporation (NYSE:TFC) Q2 2023 Earnings Call Transcript
Truist Financial Corporation (NYSE:TFC) Q2 2023 Earnings Call Transcript July 20, 2023 Truist Financial Corporation misses on earnings expectations. Reported EPS is $0.95 EPS, expectations were $1.01. Operator: Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation’s Second Quarter Earnings Call. Currently, all participants are in a listen-only mode. A brief question-and-answer session […] Truist Financial Corporation (NYSE:TFC) Q2 2023 Earnings Call Transcript July 20, 2023 Truist Financial Corporation misses on earnings expectations. Reported EPS is $0.95 EPS, expectations were $1.01. Operator: Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation’s Second Quarter Earnings Call. Currently, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this event is being recorded. It is now my pleasure to introduce your host Mr. Brad Milsaps, Head of Investor Relations, Truist Financial Corporation. Brad Milsaps: Thank you, Tarren, and good morning, everyone. Welcome to Truist’s second quarter 2023 earnings call. With us today are our Chairman and CEO, Bill Rogers; and our CFO, Mike Maguire. During this morning’s call, they will discuss Truist’s second quarter results, share their perspectives on current business conditions and provide an updated outlook for 2023. Clarke Starnes, our Vice Chair and Chief Risk Officer; Beau Cummins, our Vice Chair; and John Howard, Truist Insurance Holdings ‘ Chairman and CEO are also in attendance and are available to participate in the Q&A portion of our call. The accompanying presentation as well as our earnings release and supplemental financial information are available on the Truist Investor Relations website ir.truist.com. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slides two and three of the presentation regarding these statements and measures as well as the appendix for appropriate reconciliations to GAAP. With that, I’ll now turn it over to Bill. Bill Rogers: Thanks, Brad, and welcome to the team. Good morning, everybody, and thank you for joining our call today. I don’t think it’s a surprise to anybody on this call that the increasing levels of uncertainty in our economy, the impact of interest rates on funding cost, and a new sort of post-March operating environment for our industry are impacting our results and plans. Truist was specifically built to increase our flexibility to respond to any condition to fulfill our purpose and commitment to all stakeholders. Capital and liquidity have taken on an increased focus and although Truist is currently well-positioned. We’re also intensely building future flexibility. This environment also challenges us to move faster with greater intensity to tighten our strategic focus and rightsize our expense chassis to reflect the new realities. We also have flexibility in strengthening our balance sheet to support our focus on our unique core client base and market opportunity. These decisions are less incremental and more time-bound than the ones previously made during our shift from integrating to operating. Mike will highlight some of these decisions in his comments and I’ll close with some of the underlying momentum. While these changes will be manifested over time, this is not business as usual and reflects an important and significant pivot for Truist and for our leadership team. We’ll provide more details about these topics and our second quarter results throughout the presentation. Before we do that, let me start where I always do on slide four on purpose mission and values. Truist is a purpose-driven company dedicated to inspiring and building better lives and communities. I’d like to share some of the ways we brought that purpose to life last quarter. In May, we announced the launch of Truist Long Game, our mobile app that leverages behavioral economics to reward clients for building financial wellness at a high-level user set goals, save money and earn rewards that are deposited into a Truist account as they make progress towards their savings goals. Based on early data, users tend to play four to five times a week with strong retention and we’ve seen positive trends towards new client acquisition. This is also the first product from our Truist Foundry, our very own start-up tasked with creating digital solutions to help meet clients where they are. Truist has also highlighting small-business owners through a small-business Community Heroes initiative which is all about focusing on the small-business owners who worked tirelessly to serve our neighbors, create jobs and build our communities and help drive our economy. Our branch teammates are visiting and connecting with tens of thousands of small business clients to say thank you and have a carrying conversation to assist with their unique needs. The response so far has really been excellent and our outreach efforts have helped drive a 31% increase in net new small business checking accounts during the second quarter alone. Lastly, I want to thank our teammates, who dedicated more than 16,000 hours during the second quarter to volunteer in their communities. I’m really proud of the good work our company and our teammates are doing to live out our purpose and to make a difference in the lives of their clients, teammates and communities. So let’s turn to the second quarter performance highlights on slide six. Second quarter results were mixed overall. Net income available to common in the second quarter was $1.2 billion or $0.92 a share. EPS decreased 16% relative to the year-ago quarter, primarily due to a higher loan loss provision and noninterest expense partially offset by higher net interest income. EPS decreased 12% sequentially as higher funding costs pressure net interest income. Total revenue decreased 2.9% sequentially, consistent with our revised guidance, and a 6.1% decrease in net interest income was partially offset by 2.6% increase in fee income led by record results at Truist Insurance Holdings. Adjusted expenses were within our existing guidance range although we are actively working to manage cost even more intensely. Loan balances were relatively stable and we’re pleased with the initial progress we’ve made to reposition the balance sheet for higher return core assets, especially in consumer, though there’s always additional work to do. Average deposits were down 2% largely due to client activity in March, the overall deposit trends have stabilized significantly since that time frame and our conversations with our clients and our pipelines have improved. We’re also prudently increasing our provision and allowance due to increased economic uncertainty. At the same time, our CET1 capital ratio increased 50 basis points driven by organic capital generation and the sale of a 20% stake in our insurance business. These same factors drove a 5% increase in tangible book value per share for March 31st. Our stress capital buffer increased from 250 basis points to 290 basis points higher than we think our steady state business model warrants, but still a good performance as Truist had the fourth lowest loan loss rates among traditional banks that participate in the stress test reflecting again our conservative credit culture and diverse loan portfolio. We also announced plans to maintain our strong quarterly common stock dividend at $0.52 a share subject to Board approval. Strategically, we continue to optimize our franchise and focus our resources on our core clients and businesses, which is why we made the strategic decision to sell a $5 billion non-core student loan portfolio at net carrying value which has no upfront P&L impact. We’re also making solid progress toward shifting our loan mix towards higher return core assets. As we adapt to the current environment, we’re highly focused on doubling down on our core franchise, simplifying where it makes sense, rationalizing our expenses, and building capital, all of which will address later in the presentation. So moving to the digital and technology update on slide seven. Digital engagement trends remain positive, reinforcing the importance of continued investment in digital due to its close association with relationship primacy client experience and account growth. As a proof point, we recently enhanced our digital on-boarding experience through a series of platform enhancements resulting in higher conversion rates for new applications, faster funding and higher average digital account balances. Our growing mobile app user base is also driving increased transaction volumes. Digital transactions grew 5% sequentially and now account for 61% of total bank transactions. Zelle transactions increased 12% compared to the first quarter and now account for one-third of all-digital transactions at Truist, which underscores the importance our clients place on our payments and money movement capabilities. Retail digital client satisfaction scores have also returned to their pre-merger highs. We are proud of our third-place ranking in the Javelin 2023 Mobile Banking Scorecard. From an overall client experience and technology perspective, we continue to enhance our capability set that includes recent improvements to our cloud-based self-service digital assistant Truist Assist since implementing these enhancements several months ago, Truist Assist has hosted over 500,000 conversations with more than 380,000 clients and is connected clients to live agents to support more than 100,000 complex needs via LiveChat. Photo by Towfiqu barbhuiya on Unsplash Over time, increased utilization of Truist Assist should lead to lower volumes in our call centers. We’re also delivering on our commitment to T3, through the launch of our Truist Insights to our small business heroes earlier this month. Truist Insights on power small businesses by providing actionable insights about financial activities, including cash flows, income and expense and proactive balanced monitoring. We first piloted Truist Insights in 2021 and this year alone have generated over 200 million financial insights for more than 4.5 million clients, who are now delivering the best valuable tool to small businesses. This is just one more way we’re bringing touch and technology together to build trust and to help our small business clients bank with confidence, where and how they want. Overall, I’m highly optimistic that our investments in innovation and digital and technology will enhance performance and further improve the client experience. Let me turn to loans and leases on slide eight. Loan growth continues to be correlated with the solid progress we’ve made to shift our loan mix towards more profitable portfolios and core clients while intentionally pulling back from lower-yielding and certain single-product relationships. Average loan balances were stable sequentially as growth in our commercial portfolio was largely offset by lower consumer balances. Commercial loan growth was driven by seasonality and mortgage warehouse lending and continued growth in traditional C&I which is a core area for us. The decline in average consumer balances was primarily due to indirect auto where we’ve intentionally reduced production, home equity, residential mortgage and student loan balances also declined and I’ll provide more details about the sale of the student loan portfolio in a few moments. At the same time, we’re seeing strong results from our Service Finance and Sheffield businesses where second quarter production grew 34% and 21% respectively from the year ago quarter. Service Finance continues to perform very well and take market share and consistent with our balance sheet optimization we’ll increase our loan sale opportunities to help support its growth. As I mentioned, we made the strategic decision to sell our $5 billion non-core student loan portfolio, which had been running off at a pace of approximately $400 million per quarter. We sold the student loan book in late June and net carrying value with no upfront P&L impact. Proceeds from the sale were used to reduce other wholesale funding. The transaction will modestly hurt NII, but boost NIM and balance sheet efficiency, exactly what we should be doing in an environment where cost of capital and funding has increased meaningfully. Moving forward, we’ll continue to better focus our balance sheet on Truist clients who have broader relationships while limiting our exposure to single product and indirect clients as well as evaluate ways to increase the velocity overall of our balance sheet. Now let me provide some perspective on overall deposit trends on slide nine. Average deposits decreased $8.7 billion or 2.1% primarily due to seasonal tax payments and outflows that occurred late in the first quarter and were consistent with industry impacts of quantitative tightening. We continue to experience remixing within our deposit portfolio as noninterest-bearing deposits decreased to 31% of total deposits from 32% in the first quarter and 34% in the fourth quarter of 2022. Interest-bearing deposit costs increased 55 basis points sequentially and our cumulative interest-bearing deposit beta was 44%, up from 36% in the first quarter due to the continued presence of higher rate alternatives and the ongoing shift from noninterest-bearing accounts to higher-yielding products. We continue to remain a balanced approach in the current environment being attentive to client needs and relationships while also striving to maximize value outside of rate paid. Our continued rollout of Truist One and ongoing investments in treasury and payments are the bullseye of our sharpened strategic focus and will remain critical as we look to acquire new relationships, deepen existing ones and maximize high quality deposit growth. Now let me turn it over to Mike to discuss our financial results in a little more detail. Mike Maguire: Great. Thank you, Bill, and good morning, everybody. I’ll begin with net interest income on slide 10. For the quarter, taxable equivalent net interest income decreased 6.1% sequentially as higher funding costs more than offset the benefits of higher rates on earning assets. Reported net interest margin decreased 26 basis points to 2.91% due primarily to an acceleration of interest-bearing deposit betas and mix-shift out of DDA into other high cost alternatives. The lower net interest margin also reflected our liquidity build late in the first quarter, while liquidity remained elevated throughout April and May, it has normalized by June and will provide some modest boost in NIM going forward. On a year-over-year basis, net interest income is still up 7.1%, and core net interest margin is up 13 basis points. This reflects the cumulative benefit we’ve seen from the rising rates during the cycle, particularly throughout 2022, but now we are losing some of that benefit in 2023. Moving to fee income on slide 11. Fee income rebounded 2.6% relative to the first quarter. Insurance income increased $122 million sequentially to a record $935 million, demonstrating the strength of Truist Insurance Holdings. Year-over-year organic revenue grew by 9.1%, the highest in four quarters, driven by strong new business growth, improved retention and a favorable pricing backdrop. Other income increased $65 million primarily due to higher income from our non-qualified plan and higher other investment income. In contrast, investment banking and trading income decreased $50 million, reflecting lower bond originations, loan syndications and asset securitizations as well as lower core trading income from derivatives and credit trading. Finally, mortgage banking income increased or may decreased $43 million, with most of the decrease related to prior quarter gain on sale of a servicing portfolio. Turning to non-interest expense on slide 12. Adjusted noninterest expense increased $67 million or 1.9% sequentially. The increase in adjusted expenses reflected a $75 million increase in personnel costs due to higher variable compensation and non-qualified plan expense and a $38 million increase in professional fees associated with enterprise technology and other investments. These increases were partially offset by a $41 million reduction and other expenses due to lower operational losses during the quarter. As a company, we have substantial opportunities to operate more efficiently and are committed to generating expense reductions. On the April earnings call, we discussed a strategic realignment within our fixed-income sales and trading business in which we discontinued certain market making activities and services provided by middle-market fixed-income platforms that had an unattractive ROE. We also identified various expense reduction activities that had already been underway, including realigning our LightStream platform to our broader consumer business and ongoing capacity adjustments to market-sensitive businesses such as mortgage. We’re actively working to identify and accelerate additional actions that could be implemented over the course of the next 12 to 18 months to generate cost reductions to reflect efficiency opportunities and changing conditions. These actions include taking a much more aggressive approach towards FTE management, realigning and consolidating businesses to advance our long-term strategy, rationalizing our tech spend to drive more efficient and effective delivery and optimizing our operations and contact centers, which will help us transform Truist into a more effective and efficient company. Taken together, we believe these actions will increase our focus, double down on our core, simplify our business, bend the expense curve, and enhance returns for our shareholders. Moving to slide 13, asset quality metrics reflected continued normalization during the second quarter. Nonperforming loans rose 11 basis points primarily due to increases in our CRE and C&I portfolios, though they remain manageable at 47 basis points. While the increase in CRE, nonperforming loans, include some office, these loans are generally paying as agreed. Our net charge-off ratio was 54 basis points inclusive of a 12 basis point impact from the sale of the student loan portfolio, excluding the student loan sale, net charge-offs were 42 basis points up 5 basis points sequentially. We’d also note that the student loan sale had no impact on our provision expense this quarter as the charge-offs taken in conjunction with the sale was essentially equal to the allowance on the portfolio. During the quarter, we also increased our ALLL ratio 6 basis points to 1.43% due to greater economic uncertainty. Consistent with our commentary last quarter, we have tightened credit and reduced our risk appetite in select areas though we maintain our through-the-cycle approach for high-quality long-term clients. Next, I’ll provide more details on our CRE portfolio, which takes us to slide 14. On June 30th, CRE, including commercial construction represented 8.9% of loans held for investment, while the office segment comprised only 1.6%. We maintain a high-quality CRE portfolio through disciplined risk management and prudent client selection. We typically work with developers and sponsors we know well and have observed their performance through multiple cycles. Our larger exposures tend to be associated with sponsors that have strong institutional ownership and we have actively managed less strategic exposures out of the portfolio since the close of the merger. Looking at office in particular, the chart at the lower right provides a breakdown of our office portfolio by tenant and Class. Our office exposure tends to be weighted towards multi-tenant Class A properties that are situated within our footprint. All factors that we believe will drive outperformance. In addition, we have a strong CRE team that is highly proactive in working with clients to get ahead of the problems. During the second quarter, we completed a thorough review of the majority of our CRE office exposure. We considered current conditions and client support in our risk rating approach. As a result, a handful of loans were moved to non-accrual, though the preponderance of the clients in exposure are paying as agreed. We believe our actions are prudent in light of current market dynamics and demonstrate our commitment to proactive and early identification and resolution of credit risk. While problem loans have increased in recent months, we believe overall issues will be manageable in light of our laddered maturity profile, conservative LTVs, and reserves which for office totaled 6.2% of loans held for investment. Turning to capital on slide 15. As you can see from the capital waterfall, Truist is well-capitalized and has significant flexibility to respond to potential changes in the risk and regulatory environment. Beginning on the left, CET1 capital increased 50 basis points to 9.6% at June 30th. This was driven by organic capital generation and the completion of the sale of the 20% stake in Truist Insurance Holdings. I would also point out that at 9.6%, we’re well above our new regulatory minimum of 7.4% which takes effect on October 1st. We expect to achieve an approximate 10% CET1 ratio by year-end through a combination of organic capital generation and disciplined management of RWA growth. This view does contemplate the headwind from the pending FDIC assessment. On top of this, Truist has more than 200 basis points of additional flexibility given the residual 80% ownership stake in Truist Insurance Holdings. As we look beyond ’23, we do expect regulatory and capital requirements to become more stringent and potentially require us to deduct AOCI from our CET1 ratio, while the final form of any regulatory changes remains to be seen Truist is well-positioned to respond due to our strong organic capital generation and the likely phasing periods of any potential new requirement. Specifically, and as shown on the right-hand side of the slide, based on estimated cash flows and assuming today’s forward curve, we would expect Truist AOCI to decline by 36% by the end of 2026. Assuming our current rate of organic capital generation remains constant, Truist should generate sufficient capital to offset the estimated remaining impact of AOCI on CET1 over this time period while maintaining the strategic capital flexibility with Truist Insurance Holdings. And now I will review our updated guidance on slide 16. Looking into the third quarter of 2023, we expect revenues to be down 4% due to seasonally lower insurance revenue and slightly lower loan balances, which will lead to continued pressure on net interest income, albeit at a slower pace relative to the decline we experienced in the second quarter. Adjusted expenses are anticipated to decline zero to 1% as seasonally lower insurance commissions and our efforts to bend the expense curve will offset several seasonal headwinds like marketing and employee benefits that should change the tailwinds in the fourth quarter. For the full year 2023, we now expect revenues to increase 1% to 2% compared to 2022. The decline from our previous outlook for 3% growth is primarily driven by lower net interest income due to higher deposit betas, slower loan growth and lower investment banking revenue. Adjusted expenses are expected to increase 7%, which is at the upper end of our previously guided range due to continued investments in enterprise technology and other areas. This excludes the anticipated FDIC surcharge. This is a number that is higher than where we’ve been targeting, but as we’ve discussed, we are pursuing a number of actions to reduce costs. In terms of asset quality, our expectation is for the net charge-off ratio to be between 40 and 50 basis points, which includes the impact of the student loan sale. Finally, we expect an effective tax rate of 19% or 21% on a taxable equivalent basis. Now Bill, I’ll hand it back to you for some final remarks. Bill Rogers: Great. Thanks, Mike. So let’s conclude on slide 17. We’re on the right path and I’m highly optimistic about our ability to realize our significant post-integration potential as summarized in our investment thesis. Our goal financially is to provide strong growth and profitability and to do so with less volatility than our peers. Our strategic pivot from integrating to operating is well underway. And while the financial benefits of our pivot have been masked by the rapid increase in funding costs and related revenue pressure, we’ve made significant strategic progress over the past year and showing up in a number of operating metrics across our business. In our Consumer Banking and Wealth segments, Retail and Small Business Banking net new checking production has been positive during four last five quarters, reflecting the success of Truist One and improved retention associated with our increasing client service metrics. Truist One also has many features that appeal to millennials and Gen Z represent 70% of the new client applications. Our Wealth Trust and Brokerage business continues to build momentum as net organic asset flows, which exclude the impact of market value changes have been positive eight of the last nine quarters. We’ve also steadily improved client satisfaction through the distinctive service provided by our branches and care agents as well as improvements to our digital processes and procedures that originated in our client journey rooms. As a result, our client satisfaction scores were stable to improving across most of our channels during the second quarter, but have been consistently rising over the past year since the integration. In Corporate and Commercial, we continue to focus on left lead loan transactions and the synergies between our CIB and CCB businesses. During the first half of the year, 25% of the left lead transactions closed by Truist were with our CCB clients. We’re also making inroads with new CCB clients as 65% of the CCB left leads I just mentioned were new relationships. In equity capital markets, transaction economics have improved approximately 300 basis points on average since the merger. And in wholesale payments, our pipeline is the highest it’s been since the merger. Each of these data points reflects our increasing strategic relevance with our clients. In addition, our IRM program, integrated relationship management is off to a great start this year as we’ve already delivered nearly 50% more IRM solutions year-to-date than during the same period a year ago. Our strong progress demonstrates what is possible post-integration when our teammates can focus their undivided attention on caring for their clients and deepening those relationships. However, just as we’re shifting our focus from integrate to operate, the economic landscape shifted from favorable to more challenging. As a result, we too much shift and make tough decisions to fit the realities of today’s economic environment and tomorrow’s regulatory requirements. This means being more disciplined about where we choose to compete and deploy our capital, whether businesses, clients or products and looking deeper and more — more structural cost opportunities that exist at Truist. These opportunities exist, but not the primary focus during the integration period where the focus was on creating the best transition possible for clients and teammates. Mike highlighted many of the specifics earlier while the details are critically important, what will ultimately matter to stakeholders is our absolute expense base and growth, and our teams are aligned internally on changing that trajectory. I’m really truly optimistic about the future of Truist as our unwavering foundation of purpose, our talented teammates, leadership in growth markets and diverse business model will continue to drive our momentum and fulfill our potential. So Brad, let me turn it back over to you for Q&A. Brad Milsaps: Thank you, Bill. Tarren, at this time, will you please explain how our listeners can participate in the Q&A session, as you do that, I’d like to ask the participants to please limit yourselves to one primary question and one follow-up in order that we may accommodate as many of you as possible today. See also 12 Most Dangerous Countries in Central and South America and 10 Best Sporting Goods Stocks To Buy Now. Q&A Session Follow Truist Financial Corp (NYSE:TFC) Follow Truist Financial Corp (NYSE:TFC) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] We’ll take our first question from Ken Usdin with Jefferies. Please go ahead. Ken Usdin: Thanks. Good morning, everyone. So I just wanted to follow-up, of course, it makes sense that the funding cost and slower loan growth is part of the change in the revenue outlook. I’m just wondering as you look forward and you think about that deposit mix and deposit cost trajectory as far as funding cost looking past the second quarter, how do you see that affecting the NII trajectory within that new revenue guide for the third and fourth? Thanks, guys. Mike Maguire: Hey, good morning, Ken. It’s Mike. I’d say as we think about the rest of the year, the same factors that have been driving, I’d say just Average Balance QT primarily in the second quarter, we had a little bit more of an impact from tax payments will continue. The mixing has been pretty consistent too from a noninterest-bearing demand perspective into higher-cost alternatives. We saw a little bit of an acceleration in the first quarter as you’ll recall, but this quarter that stabilized a bit. We were down about 5.5% on those balances and remix from I guess 32% to 31%. We would expect that trend to continue as well. I think really the factor as we think about NII trajectory for the third and the fourth quarter has much more to do with sort of the Fed policy track, right, where we had about call it close to 50 basis points average increase in the Fed funds rate in the second quarter which really did have an impact on our betas, in our funding costs, we would expect that to be about half that in the third quarter and further moderating from there. Ken Usdin: And just on the follow-up, what do you think that means for kind of the view of where you think terminal interest-bearing beta might land? Mike Maguire: It’s tough. We’re at 44% today, that’s higher than where we expect it to be. I think we — as recently as a month or so ago expressed an expectation that maybe mid-to-high 40s would be the case. I think certainly piercing 50%, but really hard to pick a number at this point, Ken, to be honest with you, a lot of it I think has to do with how long we’re higher for longer. Ken Usdin: Yeah. That makes sense. Okay, thank you. Operator: We will take our next question from Ebrahim Poonawala with Bank of America. Please go ahead. Ebrahim Poonawala: Good morning. I guess maybe the first question, Mike, just following up on what — your response to Ken around just the change in deposit beta expectations even relative to last month. Are they — like when we think about what you said on deposit beta outlook, are there any real signs that are suggesting that deposit trends are in fact slowing down and the likelihood of the beta — deposit beta update you provided today is more likely to play-out versus having to change this again next month. I’m just wondering are you seeing any tangible signs on the ground that suggest things are getting better? Mike Maguire: You know it’s — we look at it on a weekly, monthly basis, Ebrahim. And so, I think, yeah. I mean I think history would say that as we approach and reach this terminal policy rate, we should start to see some moderation in the beta creep. We’re starting to see that a little bit, but a month or a few weeks the trend does not make, and so, just being very cautious on the outlook there. I mean at 5.25 going to 5.50, the degree of rate awareness across our client set is very, very high across the industry is very, very high. And so, look I — and I think that’s probably as much as anything driven the miss on betas for the sector so far......»»
ARCA biopharma Announces Second Quarter 2023 Financial Results
Company is currently engaged in a strategic review process, evaluating additional development of its assets, collaborations and other strategic options WESTMINSTER, Colo., July 21, 2023 (GLOBE NEWSWIRE) -- ARCA biopharma, Inc. (NASDAQ:ABIO), a biopharmaceutical company applying a precision medicine approach to developing genetically targeted therapies for cardiovascular diseases, today reported second quarter 2023 financial results and provided a corporate update. In April 2022, the Board of Directors established a Special Committee and, in May 2022, retained Ladenburg Thalmann & Co. Inc. ("Ladenburg") to evaluate strategic options, including transactions involving a merger, sale of all or part of the Company's assets, or other alternatives with the goal of maximizing stockholder value. The Company and Ladenburg have reviewed several potential strategic transactions and continue to evaluate further potential development of the Company's existing assets, in order to maximize stockholder value. The Company does not have a defined timeline for the strategic review process and the review may not result in any specific action or transaction. Second Quarter 2023 Summary Financial Results Cash and cash equivalents were $40.2 million as of June 30, 2023, compared to $42.4 million as of December 31, 2022. ARCA believes that its current cash and cash equivalents, consisting primarily of money market funds, will be sufficient to fund its operations through the end of 2024. General and administrative (G&A) expenses were $1.7 million for the quarter ended June 30, 2023, is consisted with $1.7 million for the corresponding period in 2022. G&A expenses in 2023 are expected to be consistent with those in 2022 as the Company maintains administrative activities to support our ongoing operations. Research and development (R&D) expenses were $0.3 million for the quarter ended June 30, 2023, compared to $1.5 million for the corresponding period in 2022, a $1.2 million decrease. The majority of clinical and manufacturing close out costs related to our rNAPc2 (AB201) international Phase 2b clinical trial were incurred in the first half of 2022, with no comparable costs for the corresponding periods of 2023. R&D personnel costs decreased approximately $0.5 million for the quarter ended June 30, 2023, as compared to the corresponding period in 2022, due to decreased headcount. In July 2022, we implemented a strategic reduction of our workforce by approximately 67%, or 12 employees. Personnel reductions were primarily focused in research and development and general and administrative functions. The restructuring was a result of our decision to manage our operating costs and expenses. During the year ended December 31, 2022, we recorded total restructuring charges of approximately $755,000, of which $470,000 and $285,000 were recognized in research and development and general and administrative expenses, respectively, in connection with the restructuring, all in the form of one-time termination benefits. R&D expenses in 2023 are expected to be lower than 2022. Total operating expenses for the quarter ended June 30, 2023 were $2.0 million compared to $3.2 million for the second quarter 2022. Net loss for the quarter ended June 30, 2023 was $1.5 million, or $0.10 per basic and diluted share, compared to $3.1 million, or $0.22 per basic and diluted share in the second quarter of 2022. About ARCA biopharmaARCA biopharma is dedicated to developing genetically and other targeted therapies for cardiovascular diseases through a precision medicine approach to drug development. At present, ARCA is evaluating options for development of its assets, including partnering and other strategic options. For more information, please visit www.arcabio.com or follow the Company on LinkedIn. Safe Harbor StatementThis press release contains "forward-looking statements" for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding potential future development plans for Gencaro and rNAPc2, if any, and the Company's review of strategic options. Such statements are based on management's current expectations and involve risks and uncertainties. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors, including, without limitation, the risks and uncertainties associated with: ARCA's financial resources and whether they will be sufficient to meet its business objectives and operational requirements; ARCA's ability to raise sufficient capital on acceptable terms, or at all; the Company's ability to continue development of Gencaro or rNAPc2 or to otherwise continue operations in the future; the Company's ability to complete a strategic transaction; results of earlier clinical trials may not be confirmed in future clinical trials; the protection and market exclusivity provided by ARCA's intellectual property; risks related to the drug discovery and the regulatory approval processes; and the impact of competitive products and technological changes. These and other factors are identified and described in more detail in ARCA's filings with the Securities and Exchange Commission, including, without limitation, in ARCA's Annual Report on Form 10-K for the year ended December 31, 2022, and subsequent filings. ARCA disclaims any intent or obligation to update these forward-looking statements. All forward-looking statements in this press release are current only as of the date hereof and, except as required by applicable law, ARCA undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements are qualified in their entirety by this cautionary statement. Investor & Media Contact:Jeff Dekker720.940.2122ir@arcabio.com.....»»