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The Challenges Ahead For Britain"s New Prime Minister

The Challenges Ahead For Britain's New Prime Minister Authored by Alasdair Macleod via GoldMoney.com, Britain’s next Prime Minister must address two overriding problems: London is at the centre of an evolving financial and currency crisis brought forward by a change in interest rate trends; and the reality of emerging Asian superpowers must be accommodated instead of attacked. This article starts by examining the economic challenges the next Prime Minister faces domestically. Are the two candidates equipped with a strategy to improve the nation’s economic prospects, and why can we expect them to succeed where others have failed? It is unlikely that either candidate is aware that there has been a fundamental shift in the direction of interest rates, the consequences of which are undermining debt mountains everywhere. The problem is particularly acute for the euro system. As well as for other major currencies, London operates as the clearing centre for transactions between the Eurozone’s commercial banks. If the euro system fails, London’s survival as a financial centre could be jeopardised. The other major challenge is geopolitical. Being tied into America’s five-eyes intelligence network, coupled with policies to remove fossil fuels as sources of energy Britain is condemned to falling behind the Asian superpowers, and sacrificing trading relationships with which her true interests must surely lie. And then there were two… The selection process for a new Conservative Prime Minister has whittled it down to two — Rishi Sunak and Liz Truss. The former is a wealthy meritocrat, former Goldman Sachs employee and hedge fund manager, the latter a self-made woman. Sunak was Chancellor (finance minister). Among several other high-office roles, Truss has been First Secretary to the Treasury. Both, in theory at least, should understand government finances. Both studied PPE at Oxford, so are certain to have been immersed in the Keynesian version of economics, which also informs Treasury thinking. Despite their common Treasury experience and being on that same page, Sunak’s and Truss’s pitches on economic affairs have been very different. Sunak aims to maintain a balanced budget, reducing taxes afterwards as economic growth increases tax revenues. This is Treasury orthodoxy. Truss is claiming she will cut taxes more immediately in an emergency budget to stimulate growth. She is emulating the Thatcher/Reagan supply-side playbook. The politics are straightforward. The electorate is comprised of about 160,000 paid up Conservative Party members, mostly leaning towards less government, free markets, and lower taxes. As a subset of over 40,000,000 voters nationwide, they may be reasonably representative of a silent majority in the middle classes which believe in conservative societal values. The one issue that matters above all for Conservative Party members is taxes. Given their different stances on tax, Truss has emerged as the early favourite. Furthermore, to the disadvantage of Sunak very few Chancellors make it to Prime Minister for a reason: like Sunak, they nearly always push the Treasury line on maintaining balanced budgets over the cycle, which means that they are for ever trying to pluck the goose for more tax with the minimum of hissing. Don’t expect geese to willingly vote for yet more exfoliation. The issue of less government in the total economy is not properly addressed by either candidate or is restricted to vague promises to do something about unnecessary bureaucracy. In arguing for free markets, Truss is stronger in this respect than Sunak who appears to be more captured by the permanent establishment. With the exception of Treasury ministers, all politicians in office are naturally inclined to seek increased departmental budgets, which is a problem for all tax cutters. But to understand the practical difficulties of reducing government spending, we must make a distinction between departmental expenditure limits and annually managed expenditure. The former is budgeted for by the Treasury in its allocation of financial resources. The latter can be regarded as including additional costs arising from public demand for departmental services. This explains why total departmental expenditure for fiscal 2020-21 was £566.2bn, representing about half of total government spending of £1,112bn.  With government spending split 50/50 overall on departmental expenditure limits and public demands for services, both issues must be addressed when reducing costs meaningfully. Failing to do so means only departmental expenditure limits are tackled, resulting in less resources to deliver mandated public services. That would be seen by the opposition and the public to be a government failing. Therefore, it is not sufficient to merely say to ministers that they must cut departmental expenditure, but laws and regulations must also be changed to reduce public service obligations as well. That takes time. Imagine tackling this problem with respect to the National Health Service. The NHS takes 34% of total departmental expenditure limits, yet it clearly fails to efficiently provide the public with the services required of it. Health ministers always argue that it needs more financial resources. This is followed by education (13% of total departmental expenditure). What do you do: sack teachers? And Scotland at 8% is another no-go area, where cuts would likely encourage the nationalist movement. And that is followed to a similar extent by defence spending at a time of a proxy war against Russia… One could go on about other ministry spending and the costly provision of their services, but it should be apparent that any realistic cuts in public services are likely to be minor and overwhelmed by rising and unbudgeted departmental input costs which are indirectly the consequence of the Bank of England’s monetary policies. It is therefore hardly surprising that neither Sunak nor Truss is seriously engaged with the subject of reducing state spending, merely fluffing around the topic. But total state spending is going to be an overriding problem for the future PM. Figure 1 shows the long-term trend of total managed expenditure relative to GDP, admittedly exacerbated by covid. Since then, there has been a recovery in GDP to £2,239bn in the four quarters to Q1 2022, and covid related disbursements have materially declined, so that in the last fiscal year, total government spending is estimated to have dropped to 46.5% of GDP from the high point of 51.9%. However, rising interest rates globally are set to drive the UK economy into recession. Even if the recession is mild, while GDP falls this will increase public spending on day-to-day public services back up to over 50% of GDP. The philosophical problem for the new PM can be summed up thus: with half the economy being unproductive and the productive economy shouldering the burden, how can economic resources be restored to producers in a deteriorating economic outlook? Inflation is not going away Orthodox neo-Keynesians in the government and its (supposedly) independent Office for Budget Responsibility do not recognise that the root of the inflation problem is the debasement of currency and credit. Furthermore, by thinking it is a short-term supply chain problem, or a temporary energy price spike due to sanctions against Russia, the OBR, in common with the Bank of England takes the view that consumer price rises will return to the targeted 2% level. Only, it might take a little longer than originally thought. Figure 2 shows the OBR’s latest forecasts (in March) for inflation (panel 1) and real GDP (panel 2). Note how the October forecast failed to reflect an annual CPI rising to more than 4%. In March that was raised to 8%, which is already outdated. Price inflation rising to over 10% is on the cards, and it should be noted that the retail price index, abandoned by government because of the cost of using it for indexation, already shows annual consumer inflation to be rising at 11.8%. The OBR’s response to these unwelcome developments is simply to push out an expected return to the 2% inflation target a little more into the future. Similarly, it expects the trajectory of GDP growth will be maintained, having just slipped a little. On this evidence, the OBR’s advice to a future prime minister and his chancellor will be badly flawed. Instead of going down the macroeconomic approach of modelling the economy, instead we need to apply sound, unbiased economic and monetary theories.  We know that the Bank of England’s monetary policies have debased the currency, reflected inevitably in a falling purchasing power for the pound. That is what drives the increase in the general level of prices. The primary cause is not, as government and central bank officials have stated, supply chain disruptions and the consequences of the war in Ukraine. That has only made things worse, in the sense that higher energy and commodity prices along with supply bottlenecks have encouraged the average citizen to adjust the ratio of personal liquidity to purchases of goods and services, bringing forward purchases and driving prices even higher. The debasement of fiat currencies everywhere is encouraging their users to dump them in what appears to be a slowly evolving crack-up boom encouraged by a background of product shortages. The common view that consumer price inflation is a temporary phenomenon is little more than wishful thinking, as is the latest argument developing, that rising interest rates will deflate economic demand. The official line is that lower demand will lead to lower prices. Realistically, less demand is the product of less supply, so it does not lead to lower prices. And here we must turn to the second panel in Figure 2, of the OBR’s modelling of real GDP. With the annual increase in the RPI already at 11.8% and that of the CPI at 9.1%, a bank rate of 1.25% fails to recognise the changed environment. Interest rates, bond yields and therefore the cost of government funding are all set to rise substantially. The consequences for financial assets will be to drive their market values lower. And unprofitable businesses relying on finance for their existence risk being wiped out, either because they will lose hope of ever being economic, or bank credit will be withdrawn from them. All empirical evidence is that currency debasement accompanies the destitution of an economy. Therefore, it is a mistake to think that a slump in business activity will neutralise the inflation problem. To deal with the inflation problem, the new prime minister will have to resist intervening and let all failing businesses go to the wall. But whoever becomes PM, there is no mandate to simply let events take their course. Instead, the burden of sustaining a failing economy will certainly lead to a soaring fiscal deficit — financed, of course, by yet more monetary debasement. Without quantitative easing, the appetite of commercial banks for financing the fiscal deficit at a time of rising bond yields is uncertain. It is a different environment from a long-term trend of declining interest rates, underwriting bond prices. A trend of rising interest rates is likely to lead to funding dislocations, as we saw in the 1970s. Furthermore, commercial banks have more urgent problems to deal with, which is our next topic. Banks will be in self-preservation mode GDP is no more than a measure of currency and credit in qualifying transactions. Growth in nominal GDP is a direct consequence of an increase in currency and bank credit, particularly the latter. An old rule of thumb was credit was larger than currency in the ratio of perhaps ten to one. The evolution of banking, the war on cash, and the advent of debit cards have changed that, and since covid, the ratio has increased to 37:1. This means that changes in nominal GDP are almost entirely dependent on the supply of bank credit for the production of goods and services. The availability of customer deposits to draw down for spending reflect the commercial banking network’s willingness to maintain the asset side of their balance sheets, comprised of lending and financial investment. Customer deposits, which are a bank’s liabilities, will contract if bank lending, recorded as a bank’s assets, contract. This is already evident in the slowing down of broad measures of money supply growth. Given that bank balance sheets are highly leveraged, and that the economic outlook is deteriorating, bank lending is almost certainly beginning to contract. This vital point appears to be completely absent in the OBR’s modelling of the economic outlook. By the usual metrics, commercial banks are extremely over-leveraged after thirteen years of the current bank credit cycle, in other words since the Lehman failure. Table 1 below summarises the position of the three British G-SIBs (designated global systemically important banks). They can be regarded as a banking proxy for exposure to global systemic risks. Important points to note are that balance sheet leverage, the relationship of assets to total equity, are as much as double multiples of between eight and twelve times at the top of a normal bank credit cycle. Balance sheet equity includes accumulated undistributed profits as well as the common equity entitled to them.[i] All three banks’ common shares trade at substantial discounts to their book value.  Their share prices tell us that markets have assessed that there is a high level of systemic risk in these banks’ shares. It would be extraordinary if the directors of these banks are blind to this message. Before covid when economic dangers were less apparent, it would have been understandable though not necessarily excusable for them to use this leverage to maximise profits, particularly since all banks were following similar lending policies.  Covid came, and all banks had no option but to extend loan facilities to businesses affected, for fear of triggering substantial loan losses on a scale to take down the banks themselves. Furthermore, the government put in loan guarantee schemes. Post-covid, bankers face the withdrawal of government loan guarantees, rising interest rates and the consequences for their risk exposure to higher interest rates, as well as declining values for mark-to-market financial assets — the latter affecting both bank investments and collateral against loans. Clearly, the cycle of bank credit is on the turn and will contract. The dynamics behind this phase of the cycle indicate that to take leverage back down to more conservative levels the contraction will have to be severe. But an excessive restriction of credit both causes and produces a run for cash notes and gold. And thus, without intervention banks and businesses all collapse in a universal crash.  With very little of GDP recorded in pound notes and coin, as a statistic it is driven overwhelmingly by the quantity of bank credit outstanding. In a credit contraction the GDP statistic will collapse — unless the Bank of England takes upon itself the replacement of credit in a massive economic support programme.  The consequences are sure to undermine government finances badly. Sunak’s hope that a balanced budget can be maintained, let alone permit him to oversee tax cuts when government finances permit, becomes a fairy tale when tax revenues slump and spending commitments increase. So, too, is Truss’s belief that immediate tax cuts will benefit economic growth and restore tax revenues. The reality of office is likely to decree fiscal policies very different being those being touted by both candidates. The impending collapse of the euro system I wrote recently for Goldmoney about the inevitable crisis developing in the euro system, here. Since that article was published, the European Central Bank has raised its deposit rate to zero and instituted a rescue package for the highly indebted PIGS in its awkwardly named Transmission Protection Instrument. In plain language, the ECB will continue to buy PIGS government debt to ensure their yields do not rise much further relative to benchmark German bunds. It is increasingly clear that the euro system is in deep trouble, caught out by the surge in consumer price inflation. Rising interest rates, which have only just started, will undermine Eurozone commercial bank balance sheets because they obtain much of their liquidity by borrowing through the repo market.[ii] TARGET2 imbalances threaten to collapse the system from within as the interest rate environment changes. The ECB and its shareholding network of national central banks all face escalating losses on their bonds, which earlier this month I calculated to be in the region of €750bn, nearly seven times the combined euro system balance sheet equity. Not only does the whole euro system require to be refinanced, but this is at a time when the Eurozone’s G-SIBs are even more highly leveraged than the three British ones. Table 2 updates the one in my article referred to above. With the average Eurozone G-SIB asset to equity ratios of over 20 times, the euro’s G-SIBs are one of the two most highly leveraged networks in global banking, the other being Japan’s. The common factor is negative interest rates imposed by their central banks. The consequence has been to squeeze credit margins to the extent that the only way in which banks can sustain profit levels is to increase operational gearing. Furthermore, an average balance sheet leverage of over 20 times does not properly identify systemic risks. Bank problems come from extremes, and we can see that at 27 times, Group Credit Agricole should concern us most in this list. And we don’t see all the other Eurozone banks trading internationally that don’t make the G-SIB list, some of which are likely to be similarly exposed. The problem for Britain is twofold. Including its banks, Britain’s financial system is more exposed to Eurozone risks than any other, and a Euro system failure would be a catastrophe for it. Furthermore, Eurozone banks and fund managers use UK clearing houses for commercial euro settlements. Counterparty failures will contaminate systemically all participants, not only dealing in euros but all the other major currencies settled in London as well. The damage is sure to extend to forex and credit markets, including all OTC derivatives which are an integral part of bank clearing facilities. At the last turn of the bank lending cycle, it was the securitisation of liar loans in the US which led to what is commonly referred to as the Great Financial Crisis. This is a term I have rarely used, preferring to call it the Lehman Crisis because I knew, along with many others, that the non-resolution of the excesses at the time would store up for an even greater crisis in the future. We can now begin see how it will be manifested. And this time, it looks like being centred on London as a financial centre rather than New York. We must hope that a collapse of the euro system will not happen, but there is mounting evidence that it will indeed occur. The falling row of dominoes is pointing at London, and it could even happen before the Conservative Party membership have voted for either Truss or Sunak in early-September. Dealing with a banking crisis fall out On the advice of the Bank for International Settlements, following the Lehman crisis the G20 member states agreed to make bail-ins mandatory, replacing bailouts. This was a politically motivated move, fuelled by the emotive belief that bailing out banks are at the taxpayers’ expense. In fact, bank bailouts are financed by central banks, both directly and indirectly. The only taxpayer involvement is marginally through their aggregated savings in pension funds and insurance companies. But these funds have been over-compensated with extra cash through quantitative easing. The audit trail leads to the expansion of currency and credit every time, and not to taxes as the phrase “taxpayer liabilities” implies. All the G20 nations have passed legislation enabling bail-in procedures. In the Bank of England’s case, it retains discretion to what extent bail-in as opposed to other rescue methods might be used. As to specifics for the other G20 members it is unclear to what extent they have retained this flexibility and understand bail-in ramifications. And it could be an additional confusion likely to complicate a global banking rescue, compared with the previously accepted bail-out procedures. In theory, a bail-in reallocates a bank’s liabilities from deposits and loans into shareholders’ capital — excepting, perhaps, smaller depositors covered by deposit guarantee schemes. But even that is at the authorities’ discretion.  The objective can only make sense for single bank, as opposed to systemic failures. But if it were to be applied to an individual banking failure in the current unstable situation, it would almost certainly undermine other banks, as bank loans and other non-equity interests would be generally liquidated, and deposits flee to banks deemed to be safer as panic sets in. The risk is that bail-in procedures could set off a system-wide failure, particularly of the banks rated by the market with substantial discounts to book value — including all the UK’s G-SIBs (see Table 1 above). Even assuming the Bank’s bail-in procedures are ruled out in dealing with a systemic banking crisis, to keep banks operating will require a massive expansion of credit from the Bank of England. In effect, the central bank will end up taking on the entire banking system’s obligations. With London at the centre of a global banking crisis, all other major central banks whose banking and currency networks are exposed to it must be prepared to take on all their commercial banking obligations as well. Britain’s place in the world must be secured The problems attendant on currencies afflict all the majors, with the UK at the centre of the storm because of its pre-eminent role in international markets. There is no evidence that the leadership at the Bank of England is equipped to understand and deal with an increasingly inevitable economic and monetary crisis which will take sterling down. Nor has there been any attempt by the Treasury to rebuild the nation’s depleted gold reserves to protect the currency, which is a gross dereliction of public duty. But we must now turn our attention to geopolitical matters, where there is currently no pragmatism in Britain’s foreign policies. Since President Trump’s aggressive stance against the challenge to America from Chinese technology, the UK as America’s most important partner in the five-eyes intelligence sharing agreement has sided very firmly with America against both Chinese and Russian interests. The recent history of the five-eyes partnership is one of political blindness — ironic given its title. Wars against terrorism, more correctly US intelligence operations which destabilise Muslim nations before the military go in to sort the mess out have been a staple since the overthrow of Saddam Hussein. A series of wars in the Middle East and Afghanistan have yielded America and her NATO allies only pyrrhic victories at best, created business for the US armaments industry, and resulted in floods of refugees attempting to enter Europe. Meanwhile, these actions have only served to cement the partnership between Russia, China, and all the Asian members of the Shanghai Cooperation Organisation amounting to over 40% of the world population. They have a common mission to escape from the dollar’s hegemony. America’s abandonment of Afghanistan was pivotal. As America’s closest intelligence partner, Britain following Brexit is no longer a direct influence in Europe’s domestic politics. Together, these factors have surely encouraged Putin to adopt more aggressive tactics with the objective of undermining the NATO partnership, always seen as the principal threat to Russia’s borders. This is the true objective behind his proxy war against Ukraine. Supported by Britain, the US response has been to fuel the Ukrainian proxy war by supplying military hardware. But the biggest mistake made by the NATO partnership has been to impose sanctions on Russian trade. The consequences for energy and other vital commodity prices do not bear unnecessary repetition. The knock-on effects for global food prices and the shortages emerging ahead of the winter months are still evolving. Sanctions have become NATO’s suicide note — it is beginning to look like a modern version of Custer’s last stand.  It is surely to the private horror of Western strategists that the sense behind Putin’s strategy is emerging: it is to further the economic consolidation of Asia with the unfettered advantages of fossil fuels traded at significant discounts to world prices. At their own behest, America and its NATO allies are shut out of it entirely. Global fears of climate change and the war against fossil fuels are essentially a Western concept, not shared by the great Asian powers and the Middle East. The hysteria over fossil fuel consumption has led European nations to eliminate their own production in favour of renewables. Consequently, to make up energy shortfalls they have become dependent on imported oil and gas from Russia. And that is what will split Europe away from US hegemony. Unrestricted energy supply is crucial for positive economic outcomes. The result of US-led sanctions is that energy starvation faces all her allies, including Britain and the members of the European Union. As an oil-producing nation herself, America is less affected, her allies suffering the brunt of sanctions against Russian energy supplies.  By committing to policies to lessen climate change without fossil fuel sources of energy, the economic prospects for Europe and the UK are of economic decline.  Only last weekend agreements have been signed between Russia, Iran, and Turkey, with Iran due to become a full member of the Shanghai Cooperation Organisation later this year. Other than Turkey’s wider economic interest, it is essentially about oil. In addition to these developments, Russia’s Foreign Secretary Sergei Lavrov went on to address the Arab League in Cairo. It is clear that Russia is building its relationship with oil producers in the Middle East as well, whose members are faced with declining Western markets and growing Asian demand. Therefore, British policy tied into US hegemony with a self-imposed starvation of energy is untenable. It is worse than being on the losing side. It guarantees economic decline relative to the emerging Asian powers. A future Prime Minister needs to pursue a more pragmatic course than the bellicose stance against Russia and China, currently espoused by Liz Truss. As Britain’s current Foreign Secretary, she is briefed by the UK’s intelligence services, which are closely aligned with their American colleagues. There is groupthink going on, which must be overcome. The interest rate trend and the looming threat of the mother of all financial crises on London’s doorstep requires a leadership strong enough to take on the civil service, always complacent, and guide the wider electorate through some troubling times. Following the financial and currency crisis, mindsets must be radically changed, steered away from perpetual socialisation of economic resources back towards free markets. Which of these two candidates for the premiership see us through? Probably neither, though being less a child of the establishment Liz Truss might offer a slim chance. The task is not impossible. Currencies have completely collapsed before, and nations survived. Instead of being restricted to one or a group of nations, the looming crisis threatens to take out what we used to call the advanced economies in their entirety, so it will be a bigger deal. Fortunately for Britain, her citizens are less likely to riot than their continental cousins. But as a warm-up for the main event, our new leader will have to navigate through growing discontent brought on by rising prices, labour strikes and all the other forms of economic pestilence which bought Margaret Thatcher to power. Tyler Durden Mon, 08/01/2022 - 05:00.....»»

Category: personnelSource: nytAug 1st, 2022

Homebuyers are flexing their renewed power by backing out of deals

In a major reversal from pandemic trends, homebuyers are done waiving inspections, and canceled deals are higher than the start of the crisis. An American neighborhood.Getty Images Data shows that 14.9% of homes that went under contract in June fell through due to buyer apprehension. Deals in the real estate market are now dropping at the fastest pace since 2020. And it's because homebuyers are finally taking their purchasing power back. Homebuyers are taking their purchasing power back — and that means sellers no longer rule the roost.As the Federal Reserve's attempts to cool inflation boost interest rates, it's led to a slowdown in the real estate market that has shifted purchasing dynamics.Across the country, 14.9% of homes that went under contract in June fell through due to buyer apprehension, real estate brokerage Redfin said in its home sales report. With the exception of March and April 2020 — a time when the coronavirus pandemic nearly brought the housing market to its knees — June's reading was the highest percentage on record. Since 2020, American home buyers have competed for the nation's limited amount of housing inventory. The intense buyer competition has worsened an imbalance of supply and demand so severe, it's made bidding wars a common fixture of homebuying. But as affordability puts a lid on demand, buyers are beginning to regain power — and that means  they are no longer at the mercy of the nation's home sellers."The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals," Taylor Marr, the deputy chief economist at Redfin, said in a statement. "Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process."As buyers are given more flexibility to negotiate, deals in the housing market are now falling at the fastest pace since 2020. But while some deals are dropping off due to appraisal contingencies, a general lack of affordability is also to blame. Data from the National Association of Realtors shows that housing affordability has plummeted by 29% over the last year – marking the steepest annual decline on record. The downturn is attributed to rapid mortgage rate and home price growth that has significantly quelled affordability. That's because buyers of a median-priced home are now facing monthly mortgage payments that are more than $400 higher than they were in 2021."Rising mortgage rates are also forcing some buyers to cancel home purchases," Marr said. "If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan."Historically low mortgage rates may have enticed millions of Americans to purchase homes over the last two years, but pandemic-era mortgage deals are over. As borrowing costs rise, it's simultaneously priced out many would-be buyers, while giving others more freedom in the homebuying process. Whatever side of the coin you are on, one thing is clear —  the grip that sellers had on the U.S. real estate market is finally loosening.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJul 13th, 2022

Cognizant (CTSH) Inks Deal With Zurich Insurance Subsidiary

Cognizant Technology Solutions (CTSH) has been selected as a strategic technology provider for Zurich Beteiligungs-AG to help in its digital transformation. Cognizant Technology Solutions CTSH recently announced that the company has been selected as a strategic technology provider for Zurich Beteiligungs-AG, the German subsidiary of Zurich Insurance Group ZURVY, to help in its digital transformation.Zurich Group Germany is one of the leading insurers in Germany with a wide range of property and life insurance products. The company’s multi-year contract with Cognizant will help it provide more digital services to clients and partners.Cognizant will aid Zurich to extend its AI, data, software engineering and cloud capabilities in the general insurance domain by establishing a joint DevOps team.The establishment of the DevOps team in Zurich’s general insurance domain will aid in reducing total cost of ownership, speed up the time to market new digital services and products, and accelerate its digital transformation.Clients, globally, are transitioning to digital operating models to increase profitability. Cognizant is well-poised to benefit from such new trends in the market amid the fourth industrial revolution.The recent multi-year deal with Zurich is another notable addition to Cognizant’s plans to grow market share in the insurance industry globally, with the company also expanding its presence in the Indian insurance market with its recent multi-year deal with National Insurance Company Ltd.Cognizant Technology Solutions Corporation Price and Consensus Cognizant Technology Solutions Corporation price-consensus-chart | Cognizant Technology Solutions Corporation QuoteCognizant Investing in AI To Grow Digital BusinessCognizant is experiencing significant growth in its digital business operations, which is outgrowing the BPO market, thus reflecting momentum in AI, AR, automation, blockchain, IoT, quantum computing and as-a-service solutions.This was reflected in the first quarter of 2022 results, with digital business growing 20% and representing 50% of Cognizant’s revenues.However, Cognizant shares have been negatively impacted by the current macro-economic situation and geopolitical tensions. Various factors like global inflation, interest rate hike by the U.S. Federal Reserve and the Russia-Ukraine war have negatively impacted the outlook regarding Cognizant.Cognizant is also facing significant threat in the AI industry and the cloud space from companies like International Business Machines IBM and Accenture ACN.IBM is poised to benefit from strong demand for hybrid cloud and AI, which will drive its top-line growth. IBM has recently expanded its collaboration with the U.S. federal government to address current problems like cybersecurity and supply chain sustainability via its data fabric solutions and IBM Watson.Accenture is improving its market share in the industry with its recent acquisition of digital engineering and operational technology from Trancom ITS. This, in turn, will help Accenture provide customers with cloud-based logistics systems and merge warehouse operations with IoT and sensor technology.Shares of Cognizant, which currently carries a Zacks Rank #4 (Sell), have lost 23.9% year to date compared with the Zacks Business-Sofware Services industry’s decline of 32.7%.You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.Amid tough competition and rising volatility in the tech industry, Cognizant is looking to address changing dynamics in the insurance industry to counter competitors in the AI space.Pandemics and wars can no longer be addressed as black swan events as these occur every few decades. Their impacts on people and economy need to be considered as a common incidence and this changes operational dynamics for insurance companies.Insurance companies need to reduce processing time and shift operations to the cloud supported by AI and automation to reduce manual efforts and provide more personalized experience for clients.Cognizant’s recent investments in developing its digital business model will help the company address the changing dynamics and contribute to top-line growth. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time. This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock and 4 Runners Up >>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 Accenture PLC (ACN): Free Stock Analysis Report International Business Machines Corporation (IBM): Free Stock Analysis Report Cognizant Technology Solutions Corporation (CTSH): Free Stock Analysis Report Zurich Insurance Group Ltd. (ZURVY): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksJul 10th, 2022

Will Health Revenue Growth Buoy Jabil (JBL) Q3 Earnings?

Jabil (JBL) is expected to have recorded year-over-year higher revenues, driven by solid demand in key end markets, diligent execution of operational plans and skillful management of supply chain dynamics. Jabil Inc. JBL is scheduled to report third-quarter fiscal 2022 (ended May 30, 2022) results on Jun 16, before the opening bell. In the last reported quarter, the company delivered an earnings surprise of 15.1%. It pulled off a trailing four-quarter earnings surprise of 13.5%, on average.The St. Petersburg, FL-based company is expected to have recorded year-over-year higher revenues, driven by solid demand in key end markets, diligent execution of operational plans and skillful management of supply chain dynamics.Factors at PlayDuring the quarter, Jabil unveiled a new transceiver to expand its coherent product family. It significantly minimizes power consumption with the most recent digital signal processing and optical engine technologies. The coherent transceiver is compatible with both host systems developed for current 100G/200G modules. It offers a highly compact form factor, low-power operations and unprecedented performance that can be aligned into both pluggable and on-board form factors. The company also launched PK 5000, an eco-friendly, powder-based additive material engineered to deliver improved strength, chemical resistance and resilience compared to general-purpose available nylon materials. Such innovative products are likely to have aided its quarterly performance.The company formed Jabil Payment Solutions business unit to accelerate the delivery of leading-edge payment and point-of-sale platforms. It is uniquely positioned to meet solid demand for cashless, contactless transactions with highly secure and scalable payment acceptance solutions and services. This is likely to have aided top-line growth in the quarter.In third-quarter fiscal 2022, Jabil introduced the Qfinity autoinjector platform, a simple, reusable and modular solution for subcutaneous drug self-administration. This sustainable and reusable product is available at a lower cost than other alternatives in the market. It inked a contract with SaltMED, a medical device company focused on innovative medical aesthetic technology, to become its leading manufacturer and supplier of products. In addition, Jabil entered into a manufacturing collaboration to use the world-class manufacturing capabilities of Cardo Systems to keep pace with ever-increasing production volumes. The use of Jabil’s supply chain expertise and dedicated Workcell model will aid Cardo in mitigating risks, driving lower costs and ensuring on-time deliveries. These are likely to have generated incremental revenues for Jabil in the quarter.For the to-be-reported quarter, management expects total revenues to be between $7.9 billion and $8.5 billion. The Zacks Consensus Estimate for revenues is pegged at $8,206 million, which indicates growth from the year-ago quarter’s reported figure of $7,215 million. The consensus estimate for earnings is pegged at $1.62. It reported adjusted earnings of $1.30 per share.Earnings WhispersOur proven model does not predict an earnings beat for Jabil for the fiscal third quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%, with both pegged at $1.62. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.Jabil, Inc. Price and EPS Surprise Jabil, Inc. price-eps-surprise | Jabil, Inc. QuoteZacks Rank: Jabil has a Zacks Rank #3.Stocks to ConsiderHere are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:The Kroger Co. KR is set to release quarterly numbers on Jun 16. It has an Earnings ESP of +0.12% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.The Earnings ESP for Commercial Metals Company CMC is +10.00% and it carries a Zacks Rank of 1. The company is set to report quarterly numbers on Jun 16.The Earnings ESP for Delta Air Lines, Inc. DAL is +10.99% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 13.Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar. Just Released: Zacks Top 10 Stocks for 2022 In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022? From inception in 2012 through 2021, the Zacks Top 10 Stocks portfolios gained an impressive +1,001.2% versus the S&P 500’s +348.7%. Now our Director of Research has combed through 4,000 companies covered by the Zacks Rank and has handpicked the best 10 tickers to buy and hold. Don’t miss your chance to get in…because the sooner you do, the more upside you stand to grab.See Stocks Now >>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 Delta Air Lines, Inc. (DAL): Free Stock Analysis Report The Kroger Co. (KR): Free Stock Analysis Report Jabil, Inc. (JBL): Free Stock Analysis Report Commercial Metals Company (CMC): Free Stock Analysis Report To read this article on Zacks.com click here......»»

Category: topSource: zacksJun 10th, 2022

Saga Partners 1Q22 Commentary: Carvana And Redfin

Saga Partners commentary for the first quarter ended March 31, 2022. During the first quarter of 2022, the Saga Portfolio (“the Portfolio”) declined 42.4% net of fees. This compares to the overall decrease for the S&P 500 Index, including dividends, of 4.6%. The cumulative return since inception on January 1, 2017, for the Saga Portfolio […] Saga Partners commentary for the first quarter ended March 31, 2022. During the first quarter of 2022, the Saga Portfolio (“the Portfolio”) declined 42.4% net of fees. This compares to the overall decrease for the S&P 500 Index, including dividends, of 4.6%. The cumulative return since inception on January 1, 2017, for the Saga Portfolio is 112.0% net of fees compared to the S&P 500 Index of 122.7%. The annualized return since inception for the Saga Portfolio is 15.4% net of fees compared to the S&P 500’s 16.5%. Please check your individual statement as specific account returns may vary depending on timing of any contributions throughout the period. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q1 2022 hedge fund letters, conferences and more Interpretation of Results I was not originally planning to write a quarterly update since switching to semi-annual updates a few years ago but given the current drawdown in the Saga Portfolio I thought our investors would appreciate an update on my thoughts surrounding the Portfolio and the current market environment in general. The Portfolio’s drawdown over the last several months has been hard not to notice even for those who follow best practices of only infrequently checking their account balance. Outperformance vs. the S&P 500 since inception has flipped to underperformance on a mark-to-market basis and the stock prices of our companies have continued to decline into the second quarter. In past letters I have spent a lot of time discussing the Saga Portfolio’s psychological approach to investing to help prepare for the inevitable chaos that will occur while investing in the public markets from time-to-time. It’s impossible to know why the market does what it does at any point in time. I would argue that the last two years could be considered pretty chaotic, both on the upside speculation and now what appears to be on the downside fear and panic. I will attempt to give my perspective on how events played out within the Saga Portfolio with an analogy. Let’s say that in 2019 we owned a fantastic home that was valued at $500,000. We loved it. It was in a great neighborhood with good schools for our kids. We liked and trusted our neighbors; in fact, we gave them a spare key in case of emergencies. It was the perfect home for us to live in for many years to come. Based on the neighborhood becoming increasingly attractive over time, it was likely that our home may be valued around $2 million in ~10 years from now. This is strong appreciation (15% IRR) compared to the average home, but this specific home and neighborhood had particularly strong long-term fundamental tailwinds that made this a reasonable expectation. Then in 2020 a global pandemic hit causing a huge disorientation in the housing market. For whatever reasons, the appraised value of our home almost immediately doubled to $1 million. Nothing materially changed about what we thought our home would be worth in 10 years, but now from the higher market value, the home would only appreciate at a lower 7% IRR assuming it would still be worth $2 million in 10 years. What were our options under these new circumstances? We could move and try to buy a new home that provided a higher expected return. However, the homes in the other neighborhoods that we really knew and liked also doubled in price, so they did not really provide any greater value. Also, the risk and hassle of moving for what may potentially only be modestly better home appreciation did not make sense. We could buy a home in a less desirable neighborhood where prices looked relatively cheaper, but we would not want to live long-term. Even if we decided to live there for many years, the long-term fundamental dynamics of the crummy neighborhood were weak to declining and it was uncertain if the property would appreciate at all despite its lower valuation. We could sell our home for $1 million and rent a place to live for the interim period while holding cash and waiting for the market to potentially correct. However, we did not know if, when, or to what extent the market would correct and the thought of renting a place temporarily for our family was unappealing. For the Saga family, we decided to stay invested in the home that we knew, loved, and still believed had similar, if not stronger prospects following the COVID-induced surge in demand in our neighborhood. Now, for whatever reason, the market views our neighborhood very poorly and the appraised value of our home declined to $250,000, below any previous appraisals. It seems odd because it is the exact same home and the fundamentals of the neighborhood are much stronger than several years ago, suggesting that the expected $2 million value in the future is even more probable than before. It is a very peculiar situation, but the market can do anything at any moment. Fortunately, the lower appraisal value does not impact how much we still love our home, neighborhood, schools, or what the expected future value will be. In fact, we prefer a lower value because our property taxes will be lower! One thing is for certain, we would never sell our home for $250,000 simply because the appraised value has declined from prior appraisals. We would also never dream of selling in fear that the downward price momentum continues and then hopefully attempt to buy it back one day for $200,000. We can simply sit tight for as long as we want while the neighborhood around us continues to improve fundamentally over time, fully expecting the value of our home to eventually go up with it. It just so happens humans are highly complex beings and do not always react in what an economist may consider a rational way. Our emotions are highly contagious. When someone smiles at you, the natural reaction is to smile back. When someone else is sad, you feel empathy. These are generally great innate characteristics for helping to build the strong relationships with friends and family that are so important throughout life. But it also means that when other people are scared, it also makes you feel scared. And when more and more people get scared, that fear can cascade exponentially and turn into panic, which can cause people to do some crazy things, especially when it comes to making long-term decisions. As fear spreads, all attention shifts from thinking about what can happen over the next 5-10+ years to the immediate future of what will happen over the next day or even hour. Of course, during times of panic, “this time is always different.” It may very well be the case, but the world can only end once. Historically speaking, things have tended to work out pretty well over time on average. I am by no means immune to these contagious feelings. My way of coping with how I am innately wired is by accepting this fact and then trying to know what I can and cannot control. A core part of my investing philosophy is that I do not know what the market will do next, and I never will. Inevitably the market or a specific stock will crash, as it does from time-to-time. This “not timing the market” philosophy or treating our public investments from the perspective of a private owner may feel like a liability during a drawdown, but it is this same philosophy of staying invested in companies we believe to have very promising futures which positions us perfectly for the inevitable recovery. Eventually, emotions and the business environment will normalize, and the storm will pass. It could be next quarter, year, or even in several years, but we will be perfectly positioned for the recovery, at which point the stock price lows will likely be long gone. The whole investing process improves if one can really take the long-term view. However, it is not natural for people to think long-term particularly when it comes to owning pieces of publicly traded companies. It is far more natural to want to act by jumping in and out of stocks in an attempt to outsmart others who are trying to outsmart you. When the market price of your ownership in a business is available and fluctuating wildly every single day, it is hard to ignore and not be influenced by it. While one can get lucky through speculation, the big money is made by investing, by owning great businesses and letting them compound owner’s capital over many years. As the market has evolved over the last few decades, there appears to be an ever-increasing percent of “investors” who are effectively short-term renters, turning over the companies in their portfolios so quickly that they never really know the business that lies below the surface of the stock. While more of Wall Street is increasingly focused on the next quarter, a potentially looming recession, the Fed’s next interest rate move, or trying to time the market’s rotation from one industry into another, we are trying to think about what our companies’ results will be in the year 2027, or better yet 2032 and beyond. The most significant advantage of investing in the public market is the ability to take advantage of it when an opportunity presents itself or to ignore the market when there is nothing to do. The key to success is never giving up this advantage. You must be able to play out your hand and not be forced to sell your assets at fire sale prices. Significant portfolio declines are a good reminder of the importance of only investing money that you will not need for many years. This prevents one from being in a position where it is necessary to liquidate when adverse psychology has created unusually low valuations. However, we do not want to simply turn a blind eye to stock price declines of 50% or more and dig our heals into the ground believing the market is just being irrational. When the world is screaming at you that it believes your part ownership in these companies is worth significantly less than the market believed not too long ago, we attempt to understand if we are missing something by continually evaluating the long-term outlooks of our companies using all the relevant information that we have today from a first principles basis. Portfolio Update Instead of frequently checking a stock’s price to determine whether the company is making progress, I prefer looking to the longer-term trends of the business results. There will be stronger and weaker quarters and years since business success rarely moves up and to the right in a perfectly straight line. As a company faces headwinds or tailwinds from time-to-time, the stock price may fluctuate wildly in any given year, however the underlying competitive dynamics and business models that drive value will typically change little. Regarding our companies as a whole, first quarter results reflected a general softness in certain end markets, including the used car, real estate, and advertising markets. However, the Saga Portfolio’s companies, on average, provide a superior customer value proposition difficult for competitors to match. Most of them have a cost advantage compared to competitors; therefore, the worse it gets for the economy, the better it gets for our companies’ respective competitive positions over the long-term. For example, first quarter industry-wide used car volumes declined 15% year-over-year while Carvana’s retail units increased 14%. Existing home sales decreased 5% during the quarter while Redfin’s real estate transactions increased 1%. Digital advertising is expected to grow 8-14% in 2022 while the Trade Desk grew Q1’22 revenues 43% and is expected to grow them more than 30% for the full year 2022. While industry-wide TV volumes remain below 2019 pre-COVID levels, Roku gained smart TV market share sequentially during the quarter, continuing to be the number one TV operating system in the U.S. and number one TV platform by hours streamed in North America. Weaker industry conditions will inevitably impact our companies’ results; however, our companies should continue to take market share and come out on the other side of any potential economic downturn stronger than when they went in. For the portfolio update, I wanted to provide a more in-depth update on Carvana and Redfin which have both experienced particularly large share price declines and have recent developments that are worth reviewing. Carvana I first wrote about Carvana Co (NYSE:CVNA) in this 2019 write-up. I initially explained Carvana’s business, superior value proposition compared to the traditional dealership model, attractive unit economics, and how they were uniquely positioned to win the large market opportunity. Since then, Carvana has by far exceeded even my most optimistic initial expectations. While the company did benefit following COVID in the sense that customers’ willingness to buy and sell cars through an online car dealer accelerated, the operating environment over the last two years has been very challenging. Carvana executed exceedingly well considering the shifting customer demand in what is a logistically intensive operation and what has been a tight inventory environment due to supply chain issues restricting new vehicle production. Sales, gross profits, and retail units sold have grown at a remarkable 104%, 151%, and 87% CAGR over the last five years, respectively. Source: Company filings Shares have come under pressure following their first quarter results, which reflected larger than expected losses. The quarter was negatively impacted by a combination of COVID-related logistical issues in their network that started towards the end of the fourth quarter as Omicron cases spread. Employee call off rates related to Omicron reached an unprecedented 30% that led to higher costs and supply chain bottlenecks. As less inventory was available due to these problems, it led to less selection and longer delivery times, lowering customer conversion rates. Additionally, interest rates increased at a historically fast rate during the first quarter which negatively impacted financing gross profits. Carvana originates loans for customers and then sells them to investors at a later date. If interest rates move materially between loan origination and ultimately selling those loans, it can impact the margin Carvana earns on underwriting those loans. Industry-wide used car volumes were also down 15% year-over-year during the first quarter. While Carvana continues to grow and take market share, its retail unit volume growth was slower than initially anticipated, up only 14% year-over-year. Carvana has been in hyper growth mode since inception and based on the operational and logistical requirements of the business, typically plans, builds, and hires for expected capacity 6-12 months into the future. This has historically served Carvana well given its exceptionally strong growth, but when the company plans and hires for higher capacity than what occurs, it can lead to lower retail gross profits and operating costs per unit sold. When combined with lower financing gross profits in the quarter from rising interest rates, losses were greater than expected. In February, Carvana announced a $2.2 billion acquisition of ADESA (including an additional $1 billion plan to build out the reconditioning sites) which had been in the works for some time. ADESA is a strategic acquisition to help accelerate Carvana’s footprint expansion across the country, growing its capacity from 1.0 million units at the end of Q1’22 to 3.2 million units once complete over the next several years. It is unfortunate the acquisition timing followed a difficult quarter that had greater than expected losses, combined with a generally tighter capital market environment. Carvana ended up raising $3.25 billion in debt ($2.2 billion for the acquisition and $1 billion for the buildout) at a higher than initially expected 10.25% interest rate. Given these higher financing costs and first quarter losses, they issued an additional $1.25 billion in new equity at $80 per share, increasing diluted shares outstanding by ~9%. Despite the short-term speedbumps surrounding logistical issues, softer industry-wide demand, and a higher cost of capital to acquire ADESA, Carvana’s long-term outlook not only remains intact but looks even more promising than before. To better understand why this is the case and where Carvana is in its lifecycle, it helps to provide a little background on the history of retail. While e-commerce is a more recent phenomena that developed from the rise of the internet in the 1990s, the retail industry has undergone several transformations throughout history. In retailing, profitability is determined by two factors: the margins earned on inventory and the frequency with which they can turn inventory. Each successive retail transformation had a similar economic pattern. The newer model had greater operating leverage (higher fixed costs, lower variable costs). This resulted in greater economies of scale (lower cost per unit) and therefore greater efficiency (higher asset turnover) with size that enabled them to charge lower prices (lower gross margins) than the preceding model and still provide an attractive return on capital. The average successful department store earned gross margins of ~40% and turned inventory about 3x per year, providing ~120% annual return on the capital invested in inventory. The average successful big box retailer earned ~20% gross margins and turned its inventory 5x per year. Amazon retail earns ~10% gross margins (including fulfillment costs in COGS) and turns inventory at a present rate of 12x times annually. The debate that surrounds any subscale retailer, particularly in e-commerce, is whether they have enough capital/runway to build out the required infrastructure and then scale business volume to spread fixed costs over enough units. Before reaching scale, analysts may point to an online business’ lower price points (“how can they charge such low prices?!”), higher operating costs per unit (“they lose so much money per item!”), and ongoing losses and capital investments (“they spend billions of dollars and still have not made any money!”) as evidence that the model does not make economic sense. Who can blame them since the history books are filled with companies that never reached scale? However, if the retailer does build the infrastructure and there is sufficient demand to spread fixed costs over enough volume, the significant capital investment and high operating leverage creates high barriers to entry. If we look to Amazon as the dominant e-commerce company today, once the infrastructure is built and reaches scale, there is little marginal cost to serve any prospective customer with an internet connection located within its delivery footprint. For this reason, I have always been hesitant to invest in any e-commerce company that Amazon may be able to compete with directly, which is any mid-sized product that fits in an easily shippable box. As it relates to used car retailing, the infrastructure required to ship and recondition cars is unique, and once built, the economies of scale make it nearly impossible for potential competitors to replicate. Carvana is in the very early stages of building out its infrastructure. There is clearly demand for its attractive customer value proposition. It has demonstrated an ability to scale fixed costs in earlier cohorts as utilization of capacity increases, providing attractive unit economics at scale. Newer market cohorts are tracking at a similar, if not faster market penetration rate as earlier cohorts. Carvana is still investing heavily in building out a nationwide hub-and-spoke transportation network and reconditioning facilities. In 2021 alone, Carvana grew its balance sheet by $4 billion as it invested in its infrastructure while also reaching EBITDA breakeven for the first time. The Amazon story is a prime example (pun intended) of a new and better business model (more attractive unit economics) that delivered a superior value proposition and propelled the company ahead of its competition, similar to the underlying dynamics occurring in the used car industry today. Amazon invested heavily in both tangible and intangible growth assets that depressed earnings and cash flow in its earlier years (and still today) while growing its earning power and the long-term value of the business. The question is, does Carvana have enough capital/liquidity to build out its infrastructure and scale business volume to then generate attractive profits and cash flow? Following Carvana’s track record of scaling operating costs and reaching EBITDA breakeven in 2021, the market was no longer concerned about its liquidity position or the sustainability of its business model. However, the recent quarterly loss combined with taking on $3 billion in debt to buildout the 56 ADESA locations across the country raises the question of whether Carvana has enough liquidity to reach scale. Carvana’s current stock price clearly reflects the market discounting the probability that Carvana will face liquidity issues and therefore have to raise further capital at unfavorable terms. However, I think if you look a little deeper, Carvana has clearly demonstrated highly attractive unit economics. It has several levers to pull to protect it from any liquidity concerns if needed. The $2.6 billion in cash (as well as $2 billion in additional available liquidity in unpledged real estate and other assets) it has following the ADESA acquisition, is more than enough to sustain a potentially prolonged decline in used car demand. The most probable scenario over the next several quarters is that Carvana will address its supply chain and logistical issues that were largely due to Omicron. As the logistical network normalizes, more of Carvana’s inventory will be available to purchase on their website with shorter delivery times, which will increase customer conversion rates. This will lead to selling more retail units, providing higher inventory turnover and lower shipping costs, and therefore gross profit per unit will recover from the first quarter lows. Other gross profit per unit (which primarily includes financing) will also normalize in a less volatile interest rate environment. Combined total gross profit per unit should then approach normalized levels by the end of the year/beginning of 2023 (~$4,000+ per unit). Like all forms of leverage, operating leverage works both ways. For companies with higher operating leverage, when sales increase, profits will increase at a faster rate. However, if sales decrease, profits will decrease at a faster rate. While Carvana has high operating leverage in the short-term, they do have the ability adjust costs in the intermediate term to better match demand. When demand suddenly shifts from plan, it will have a substantial impact on current profits. First quarter losses were abnormally high because demand was lower than expected. Although, one should not extrapolate those losses far into the future because Carvana has the ability to better adjust and match its costs structure to a lower demand environment if needed. As management better matches costs with expected demand, operating costs as a whole will remain relatively flat if not decline throughout the year as management has already taken steps to lower expenses. As volumes continue to grow at the more moderate pace reflected in the first quarter and SG&A remains flat to slightly declining, costs per unit will decline with Carvana reaching positive EBITDA per unit by the second half of 2023 in this scenario. Source: Company filing, Saga Partners Source: Company filing, Saga Partners With the additional $3.2 billion in debt, Carvana will have a total interest expense of ~$600 million per year, assuming no paydown of existing revolving facilities or net interest income on cash balances. Management plans on spending $1 billion in capex to build out the ADESA locations. They are budgeting for ~$40 million in priority and elective capex per quarter going forward suggesting the build out will take ~6 years. Total capex including maintenance is expected to be $50 million a quarter. Carvana would reach positive free cash flow (measured as EBITDA less interest expense less total Capex) by 2025. Note this assumes the used car market remains depressed throughout 2022 and then Carvana’s retail unit growth increases to 25% a year for the remainder of the forecast and no benefit in lower SG&A or increased gross profit per unit from the additional ADESA locations was assumed. Stock based compensation was included in the SG&A below so actual free cash flow would be higher than the chart indicates. Source: Company filings, Saga Partners Note: Free cash flow is calculated as EBITDA less interest expense less capex After the close of the ADESA acquisition, Carvana has $2.6 billion in cash (plus $2 billion in additional liquidity from unpledged assets if needed). Assuming the above scenario, Carvana has plenty of cash to endure EBITDA losses over the next year and a half, interest payments, and capex needs. Source: Company filings, Saga Partners The above scenario does not consider the increasing capacity that Carvana will have as it continues to build out the ADESA locations. After building out all the locations, Carvana will be within one hundred miles of 80% of the U.S. population. This unlocks same-day and next-day delivery to more customers, leading to higher customer conversion rates, higher inventory turn, lower risk of delivery delays, and lower shipping costs, which all contribute to stronger unit economics. Customer proximity is key. Due to lower transport costs, faster turnaround times on acquired vehicles, and higher conversion from faster delivery speeds, a car picked up or delivered within two hundred miles of a recondition center generates $750 more profit than an average sale. It is possible that industry-wide used car demand remains depressed or even worsens for an extended period. If this were the case, management has the ability to further optimize for efficiency by lowering operating costs to better match demand. This is what management did following the COVID demand shock in March 2020. The company effectively halted corporate hiring and tied operational employee hours to current demand as opposed to future demand. During the months of May and June 2020, SG&A (ex. advertising expense and D&A) per unit was $2,600, far lower than the $3,440 reported in 2020 or $3,654 in 2021. Carvana has also historically operated between 50-60% capacity utilization, indicating further room to scale volumes across its existing infrastructure without the need for materially greater SG&A expenses. Advertising expense in older cohorts reached ~$500 per unit, compared to the $1,126 reported for all of 2021, while older cohorts still grew at 30%+ rates. If needed, Carvana could improve upon the $2,600 SG&A plus $500 advertising expense ($3,100 in total) per unit at its current scale and be far below gross profit per unit even if used car demand remains depressed for an extended period of time. When management optimizes for efficiency as opposed to growth, it has the ability to significantly lower costs per unit. Carvana has highly attractive unit economics and I fully expect management will take the needed measures to right size operating costs with demand. They recently made the difficult decision to layoff ~2,500 employees, primarily in operations, to better balance capacity with the demand environment. If we assume it takes six years to fully build out the additional ADESA reconditioning locations, Carvana will have a total capacity of 3.2 million units in 2028. If Carvana is running at 90% utilization it could sell 2.9 million retail units (or ~7% of the total used car market). If average used car prices decline from current levels and then follow its more normal longer-term price appreciation trends, the average 2028 Carvana used car price would be ~$23,000 and would have a contribution profit of ~$2,000 per unit at scale. This would provide nearly $5.6 billion in EBITDA. After considering expected interest expense, maintenance capex, and taxes, it would provide over $4 billion in net income. If Carvana realizes this outcome in six years, the company looks highly attractive (perhaps unreasonably attractive) compared to its current $7 billion market cap or $10 billion enterprise value (excluding asset-based debt). Redfin I recently wrote about Redfin Corp (NASDAQ:RDFN) in this December 2021 write-up. I explained how Redfin has increased the productivity of real estate agents by integrating its website with its full-time salaried agents and then funneling the demand aggregated on its website to agents. Redfin agents do not have to spend time prospecting for business but can rather spend all their time servicing clients throughout the process of buying and selling a home. Since Redfin agents are three times more productive than a traditional agent, Redfin is a low-cost provider, i.e., it costs Redfin less to close a transaction than a traditional brokerage at scale. It is a similar concept as the higher operating leverage of e-commerce relative to brick & mortar retailers. Redfin has higher operating leverage compared to the traditional real estate brokerage. Real estate agents are typically contractors for a brokerage. They are largely left alone to run their own business. Agents have to prospect for clients, market/advertise listings, do showings, and service clients throughout each step of the real estate transaction. Everything an agent does is largely a variable cost because few of their tasks are automated. Redfin, on the other hand, turned prospecting for demand, marketing/advertising listings, and investments in technology to help agents and customers throughout the transaction into more of a fixed cost. These costs are scalable and become a smaller cost per transaction as total transaction volumes grow across the company. Because Redfin is a low-cost provider, it has a relative advantage over traditional brokerages. No other real estate brokerage has lowered or attempted to lower the costs of transacting real estate in a similar way. This cost advantage provides Redfin with options about how to share these savings on each transaction. Redfin has primarily shared the cost savings with customers by charging lower commission rates than traditional brokerages. By offering a similar, if not superior, service to customers compared to other brokerages yet charging lower fees, it naturally attracts further demand which then provides Redfin with the ability to scale fixed costs per transaction even more, further widening their cost advantage to other brokerages. So far, the majority of those cost savings are shared with home sellers as opposed to homebuyers. Sellers are more price sensitive than homebuyers because the buyer’s commission is already baked into the seller’s contract and therefore buyers have not directly paid commissions to agents historically. Also, growing share of home listings is an important component of controlling the real estate transaction. The seller’s listing agent is the one who controls the property, decides who sees the house, and manages the offers and negotiations. Therefore, managing more listings enables Redfin to have more control over the transaction and further streamline/reduce inefficiencies for the benefit of both potential buyers and sellers. Redfin also spends some of their cost savings by reinvesting them back into the company by hiring software engineers to build better technology to continue to lower the cost of the transaction. This may include building tools for agents to service clients better, improving the web portal and user interfaces, on-demand tours for buyers to see homes first, automation to give homeowners an immediate RedfinNow offer, etc. Redfin also invests in building other business segments like mortgage, title forward, and iBuying which provide a more comprehensive real estate offering for customers which attracts further demand. So far, the lower costs per transaction have not been shared with shareholders in the form of dividends or share repurchases, and for good reason. In theory, Redfin could charge industry standard prices and increase revenue immediately by 30-40% which would drop straight to the bottom-line assuming demand would remain stable. However, giving customers most of the savings through lower commissions has obviously been one of the drivers for attracting demand and growing transaction volume, particularly for home sellers. The greater the number of transactions, the lower the fixed costs per transaction, which further increases Redfin’s cost advantage compared to traditional brokerages, which provides Redfin with even more money per transaction to share with either customers, employees, and eventually shareholders. With just over 1% market share, Redfin should be reinvesting in growing share which will increase the value of the business and inevitably benefit long-term owners of the company. Redfin’s stock price has experienced an especially large decline this year. I typically prefer to not attempt to place an explanation or narrative on short-term stock price movements, but I will do it anyways given the substantial drop. There are primarily two factors contributing to the market’s negative view of the company: first, the market currently dislikes anything connected to the real estate industry and second, the market currently has little patience for any company that reports net losses regardless of the underlying economics of the business. Real estate is currently a hated part of the market, and potentially for good reason. It is a cyclical industry, and the economy is potentially either entering or already in a recession. Interest rates are expected to continue to rise, negatively impacting home affordability, while an imbalance in the housing supply persists with historically low inventory available helping fuel an unsustainable rise in housing prices. From a macro industry-wide perspective, the real estate market will ebb and flow with the economy over time, but demand to buy, sell, and finance homes will always exist. I do not have the ability to determine how aggregate demand for buying or selling a home will change from year-to-year, but I do know that people have to live somewhere and if Redfin is able to help them find, buy or rent, and finance where they live better than alternative service providers, then the company will gain share and grow in value overtime. Redfin has also reported abnormally high losses of $91 million in the first quarter for which the current market has little appetite. It feeds the argument that Redfin does not have a sustainable business model. While losses can be a sign of unsustainable economics, that is not the case for Redfin. There are several factors that are all negatively hitting the income statement at the same time, and all should improve materially over the next year or two. Higher first quarter losses largely reflect: Agent Productivity: First quarter brokerage sales increased 7% year-over-year, but lead agent count increased 20%, which meant agents were less productive, leading to real estate gross profits declining $17 million from the prior year. Lower productivity was a result of a steeper ramp in agent hiring towards the end of the year against lower seasonal transaction volumes. It typically takes about six months for new agents to get trained and start closing transactions and then contributing to gross profits. Any accelerated hiring, particularly during a softer macro environment, will be a headwind while Redfin is paying upfront costs before any revenue is being generated. Further, closing transactions has been difficult particularly for buyers, which is where most new agents start. The housing market has been unbalanced where there is not enough inventory. A home for sale will typically receive many competing offers which makes it difficult for a buyer to win the deal. Since Redfin agents are mostly paid on commission (~20% salary plus the remainder being commission), it has been more difficult for new agents to earn a sufficient income in the current real estate environment. In response, Redfin started paying $1,500 retention bonuses for new agents who could guide customers to the point of bidding on a home, regardless of whether those bids win. While the bonus may impact gross profits in the near-term before a customer closes a transaction, it will not impact gross margins in the long-term when a transaction eventually takes place. Going forward, agent hiring will return to more normal rates and the larger number of new hires from recent quarters will ramp up which will improve productivity and gross profits. RentPath: Redfin bought RentPath out of bankruptcy for $608 million in April 2021, primarily to incorporate its rentals on its website which helps Redfin.com show up higher on Internet real estate searches. Prior to the acquisition, RentPath had no leadership direction for several years and declining sales and operating losses. RentPath had new management start in August 2021 and was integrated into Redfin.com in March. It finally started to see operational improvement with sales increasing in February and March year-over-year for the first time since 2019 despite a significant decrease in marketing expenses. While RentPath had $17 million in losses during the first quarter and is expected to have $22 million in losses in the second quarter, operations will improve going forward. Management made it clear that RentPath will be a contributor to net profits in its own right and not just a driver of site traffic and demand to Redfin’s brokerage business. Mortgage: A recent major development was the acquisition of Bay Equity for $135 million in April. Redfin was historically building out its mortgage business from scratch but after struggling to scale the operation decided to buy Bay Equity. Redfin was spending $13 million per a year on investing in its legacy mortgage business but going forward, mortgage will now be a net contributor to profits with Bay expected to provide $4 million in profit in the second quarter. The greater implication of having a scaled mortgage underwriter that is integrated with the real estate broker is that they can work together to streamline and expedite the transaction closing which has become an increasingly important value proposition for customers. Looking just a little further into the future, having a scaled and integrated mortgage underwriter can provide Redfin with the capability of providing buyers with the equivalent of an all-cash offer to sellers. Prospective homebuyers who offer all-cash offers to sellers are four times as likely to win the bid and sellers will often accept a lower price from an all-cash buyer vs. one requiring a mortgage. A common problem that many homeowners face is that when they are looking to move, it is difficult to get approved for a second mortgage while holding the current one. Much of their equity is locked in their current home. Frequently, a homebuyer wins an offer on a new home and then is in mad dash to sell their existing home in order to get the financing to work. It is not ideal to attempt to sell your home as fast as possible because it decreases the chance of getting the best price possible. A solution that Redfin could offer as a customer’s agent and underwriter is provide bridge financing between when a customer buys their new home and is then trying to sell their existing home and is therefore paying on two mortgages. Redfin would be able to make a reasonable appraisal for what a customer’s existing home will sell for (essentially what Redfin already does with iBuying) and underwriting the incremental credit exposure they are willing to provide the buyer. The buyer would then have “Redfin Cash” which would work like a cash offer. If this service helps buyers win a bid four times more often, it would even further differentiate Redfin’s value proposition and attract further demand. At least in the near-term, the mortgage segment will go from being a loss center to a contributor to net profits as well as further improving Redfin’s customer value proposition. Restructuring and transaction costs: Redfin had $6 million in restructuring expenses related to severance with RentPath and the mortgage business as well as closing the Bay Equity acquisition. $4 million in restructuring expenses are expected in the second quarter but these expenses will go away in future quarters. The combination of the above factors provided the headline $91 million net loss for the first quarter. Larger than normal losses between $60-$72 million are still expected in the second quarter. However, going forward losses are expected to continue to improve materially. While Redfin is not done investing in improving its service offerings, it should benefit from the significant investments it has already made over the last 16 years. Redfin has been building and supporting a nationwide business that only operated in parts of the country and had to incur large upfront costs. Going forward, it will benefit from the operating leverage baked into its cost structure with gross profits expected to grow twice as fast as overhead operating expenses. Redfin is expected to be cash flow breakeven in 2022 and provide net profits starting in 2024. Redfin has built a great direct to consumer acquisition tool that is unmatched by any real estate broker. It has spent the costs to acquire the customer and has now built out the different services to provide customers any of the real estate services that they may need, whether that is one or a combination of brokerage services, mortgage underwriting, title forward, iBuying, or rental search. Being able to monetize each customer that it has already acquired by offering them any of these services provides Redfin with a better return on customer acquisition costs that no other competitor is able to do to the same extent. Additionally, these real estate services work better when they are integrated under the same company. One does not have to dig very deep to see how attractive Redfin’s shares are currently priced. Shares are now selling around all-time historic lows since its IPO in August 2017. The prior all-time lows were reached during the COVID crash which was a time the world was facing an unknown pandemic that would shut down the economy and potentially put us through a great depression. At its current $1.2 billion market cap, Redfin is selling for 3x expected 2022 real estate gross profits, or 4x its current $1.7 billion enterprise value (excluding asset-based debt). Both are far below the historic average of 15x (which excludes peak multiples reached towards the end of 2020 and early 2021), or the previous all-time low of 6x reached in the depths of March 2020. If we assume Redfin can raise brokerage commissions by 30%, in line with traditional brokerage commission rates, and it does not lose business, Redfin would be able to provide ~20% operating margins. If we take a more conservative view and say Redfin can earn 10% net margins on its 2022 expected real estate revenues of $990 million, it would provide $99 million in net profits, providing a current 12x price-to-earnings ratio. This is for a company that has a long track record of being able to grow 20%+ a year on average, consistently gains market share each quarter, and has barely monetized its significant upfront investments and fixed costs with a long runway to continue to scale. This also does not place any value on its mortgage or iBuying segments which are now contributors to gross profits. There may be macro risks as well as other concerns today, however Redfin’s business and relative competitive advantage have never been stronger. The net losses reported are not representative of Redfin’s true underlying earning power. Redfin has untapped pricing power, an increasingly attractive customer value proposition, and a growing competitive advantage compared to alternative brokerages, which will help Redfin to continue to grow and take market share in what is a very large market. Conclusion Of course, the future can look scary, as it often does when headlines jump from one risk to the other. Despite what may be happening in the macro environment, our companies on average are stronger than they have ever been and are now selling for what we believe are the most attractive prices we have seen relative to their intrinsic value. I have no idea what shares will do in the near-term and I never will. Stock prices can swing wildly for many reasons, and sometimes seemingly for no reason at all. They can diverge, sometimes significantly from their true underlying value. I have no idea when sentiment will shift from optimism to pessimism and then back to optimism. This is what keeps us invested in both good times and in bad. The current selloff can continue further, but assuming our companies continue to execute over the coming years by winning market share and earning attractive returns on their investment spending, the market’s sentiment surrounding our portfolio companies will eventually reflect their underlying fundamentals. I will continue to look towards the longer-term operating results of our companies and not to the movements in their stock price as feedback to whether our initial investment thesis is playing out as expected. While the market can ignore or misjudge business success for a certain period, it eventually has to realize it. During times of greater volatility and periods of large drawdowns, I am reminded of how truly important the quality of our investor base is. It is completely natural to react in certain ways to rising or declining stock prices. It takes a very special investor base to look past near-term volatility and to trust us to make very important decision on their behalf as we continually try to increase the value of the Saga Portfolio over the long-term. As always, I am available to catch up or discuss any questions you may have. Sincerely, Joe Frankenfield Saga Partners Updated on May 16, 2022, 4:44 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkMay 17th, 2022

China Liberal Education Holdings Limited Reports Financial Results for Fiscal Year 2021

BEIJING, April 14, 2022 /PRNewswire/ -- China Liberal Education Holdings Limited (NASDAQ:CLEU) ("China Liberal," the "Company," or "we"), a China-based company that provides smart campus solutions and other educational services, today announced its financial results for the fiscal year ended December 31, 2021. Ms. Ngai Ngai Lam, Chairperson and CEO of China Liberal, commented, "In fiscal year 2021, the COVID-19 pandemic and related travel restrictions negatively impacted our operations and business expansion. Particularly, many Chinese universities and colleges held off on their 'smart campus' project plans due to the uncertainties associated with the COVID-19 pandemic. As a result, our revenue decreased by 22.2% year-over-year to $3.91 million from $5.02 million last fiscal year. We strive to drive our business forward despite these short-term challenges and remain optimistic on our business outlook for 2022 and beyond. We have taken actions to strengthen our market position and keep our financials resilient by acquiring Wanwang Investment Limited, which we believe will allow us to enhance our services and products and improve the quality of our programs." Ms. Ngai Ngai Lam continued, "We keep optimizing our growth strategies as market dynamics change and continue monitoring our customers' preferences while focusing investments on our core growth initiatives with the clearest path to profitability. Growing demand for school-enterprise integrated education solutions continues to accelerate the growth of our integrated enterprises and vocational education (tailored job readiness training services). In addition, the acquisition of Wanwang Investment Limited allows us to become an operator of an independent three-year college and a four-year college in China with a total student enrollment of over 4,200, facilitating our strategic transformation and laying a solid new business foundation. I am proud of the team for what we have accomplished together and I am looking forward to building on our momentum." Fiscal Year 2021 Financial Highlights For the Year Ended December 31, ($ millions, except per share data) 2021 2020 %Change Revenue 3.91 5.02 -22.2% Gross profit 2.76 2.87 -3.7% Gross margin 70.6% 57.1% 13.5% Income(loss) from operations -1.17 1.44 NM Net income(loss) -1.25 1.21 NM Basic and diluted earnings(loss) per share -0.12 0.21 NM Note: NM refers to "Not Meaningful" Revenue decreased by 22.2% year-over-year to $3.91 million for fiscal year 2021 from $5.02 million for fiscal year 2020. Gross profit decreased by 3.7% year-over-year to $2.76 million for fiscal year 2021 from $2.87 million for fiscal year 2020. Gross margin increased to 70.6% for fiscal year 2021 from 57.1% for fiscal year 2020. Loss from operations was $1.17 million for fiscal year 2021, compared to income from operations of $1.44 million for fiscal year 2020. Net loss was $1.25 million for fiscal year 2021, compared to net income of $1.21 million for fiscal year 2020. Basic and diluted loss per share were $0.12 for fiscal year 2021, compared to basic and diluted earnings per share of $0.21 for fiscal year 2020.   Fiscal Year 2021 Financial Results Revenue Revenue decreased by 22.2% year-over-year to $3.91 million for fiscal year 2021 from $5.02 million for fiscal year 2020. The decrease in revenue was mainly attributable to decreased revenue from our technological consulting services for smart campus solutions in fiscal year 2021 as compared to fiscal year 2020, which was mainly caused by a decrease in the average contractual value of smart campus related projects by 70.5% as high value contracts with Fuzhou Melbourne Polytechnic ("FMP") were mainly completed in 2020. For the Year Ended December 31, ($ millions) 2021 2020 Revenue Revenue Cost ofRevenue GrossMargin (Loss) Revenue Cost of Revenue GrossMargin Sino-foreign jointly managed academicprograms 2.68 0.36 86.4% 2.77 0.59 78.6% Technological consulting services forsmart campus solutions 1.06 0.62 41.9% 1.99 1.40 29.7% Overseas study consulting services 0.04 0.05 -43.0% 0.13 0.09 33.8% Tailored job readiness training services 0.14 0.12 15.0% 0.08 0.06 15.0% Textbook and course material sales - - - 0.05 0.01 80.9% Total 3.91 1.15 70.6% 5.02 2.15 57.1% Revenue from Sino-foreign jointly managed academic programs decreased by $0.09 million, or 3.5%, to $2.68 million for fiscal year 2021, from $2.77 million for fiscal year 2020. This decrease was primarily attributed to a decrease in the number of students by 243, or 9.8%, from 2,731 students for the year ended December 31, 2020, to 2,488 students for the year ended December 31, 2021, which resulted in a decrease of $254,042 in revenue. The decrease was partially offset by an increase in average tuition fees collected from $1,015 per student in 2020 to $1,076 per student in 2021, which resulted in an increase of $157,510 in revenue. The increase in average tuition fee was mainly caused by an appreciation of Renminbi ("RMB") against U.S. dollars while the average tuition fee per student in RMB decreased from RMB6,993 ($1,015) in 2020 to RMB6,931 ($1,076) in 2021. Revenue from providing smart campus related technological consulting services and technical support services for other entities decreased by $0.93 million, or 46.9%, to $1.06 million for fiscal year 2021, from $1.99 million for fiscal year 2020. The decrease in revenue was mainly attributable to a decrease in the average project size from $143,000 per project in 2020 to $58,859 per project in 2021 as compared to 2020. In 2020, we executed three relatively large technological consulting service projects, including the hardware and software installation and digital classrooms for FMP's experiment-based simulation center for its hotel management major with contract price of RMB5 million ($0.7 million), the digital classrooms for Beijing Institute of Graphic Communications with contract price of approximately RMB1.3 million ($0.2 million) and technical support services provided to a third party enterprise, Wuhan Wangjie Hengtong Information Technology Co., Ltd., with contract price of RMB4.2 million ($612,239). However, in 2021, the 18 projects we worked on were of smaller size and scope and accordingly, the service fees we charged to customers were also smaller. The overall decrease in our revenue from technological consulting services for smart campus solutions reflected the above combined reasons. Revenue from overseas study consulting services decreased by $0.09 million, or 75.1%, to $0.04 million for fiscal year 2021, from $0.13 million for fiscal year 2020. During the years ended December 31, 2021 and 2020, under our service contracts with Beijing Foreign Studies University, we assisted 27 students and 11 students for Russian language training, and 27 students and 22 students for German language training, respectively. We recognized $36,174 in revenue when our performance obligations under the service contracts were satisfied during the fiscal year 2021. The decrease in revenue from overseas study consulting services was mainly attributed to the cancellation of visa applications to Russia and Germany by the students, which is mainly due to the international travel restrictions caused by the COVID-19 pandemic. Revenue from tailored job readiness training services increased by $0.06 million, or 80.3%, to $0.14 million for fiscal year 2021, from $0.08 million for fiscal year 2020. The increase was mainly attributable to an increase in the number of students who received tailored job readiness training services from 147 in 2020 to 443 in 2021. Revenue from textbooks and course material sales decreased by $0.05 million, or 100%, to nil for fiscal year 2021, from $0.05 million for fiscal year 2020. The decrease was mainly attributed to a delay in our publisher's payment cycle due to small publication volume of our textbooks and course materials. Cost of Revenue Cost of revenue decreased by $1.01 million, or 46.7%, to $1.15 million for fiscal year 2021, from $2.16 million for fiscal year 2020, primarily due to the reduced average size and scope of the 18 technological consulting service projects we worked on in 2021 compared to projects in 2020, and accordingly costs associated with hardware and components installation in technology consulting services for smart campus related projects decreased in 2021. In addition, our cost associated with Sino-foreign jointly managed academic programs decreased by $0.2 million, or 38.6%, in 2021 as compared to 2020, which was mainly attributable to a decrease in salary, welfare and insurance costs of foreigner teachers in Sino-foreign jointly managed academic programs. Due to travel bans or restrictions caused by the COVID-19 pandemic, some foreign teachers were unable to enter China and we engaged more Chinese teachers to provide teaching services to students in 2021. Gross Profit Gross profit decreased by $0.11 million, or 3.7%, to $2.76 million for fiscal year 2021, from $2.87 million for fiscal year 2020, while gross profit margin increased by 13.5%, to 70.6% for fiscal year 2021 from 57.1% for fiscal year 2020. The decrease in gross profit was primarily due to a decrease in gross profit contribution from smart campus related technological consulting services, which mainly resulted from the decrease in average project size and average gross profit per project in fiscal year 2021 compared to fiscal year 2020, as we executed more projects with software customization rather than hardware installation in fiscal year 2021. Also, gross profit contribution from overseas study consulting services decreased by 135.6% in fiscal year 2021 compared to fiscal year 2020 due to higher student recruitment costs in 2021. Additionally, gross profit contribution from textbook and course material sales decreased by 100% due to the decrease in publication volume. Operating Expenses Selling expenses decreased by $76,897, or 166.5%, to $152,759 for fiscal year 2021, from $229,656 for fiscal year 2020. The decrease in selling expenses was primarily attributable to a decrease in depreciation of $18,236 and a decrease in rental expenses by $16,018 when we relocated to a smaller office space due to streamlining of operations, a decrease in salary and employee welfare benefit expenses paid to sales and marketing personnel by $14,893, resulting from cutting down our sales and marketing force, and a decrease in office and other miscellaneous expenses. General and administrative expenses increased by $2.58 million, or 214.9%, to $3.78 million for fiscal year 2021, from $1.20 million for fiscal year 2020, primarily due to an increase in share-based compensation to employees of $2.3 million, an increase in professional service fees of $72,229, an increase in audit fee of $67,300, an increase in investor relation expenses of $61,376, and an increase in director and officer insurance expenses of $34,127. Interest Income Interest income decreased by $7,062, or 7.0%, to $94,195 for fiscal year 2021, from $101,257 for fiscal year 2020. In connection with the technological consulting services for smart campus projects, we recognized financing component resulted from a timing difference between when control was transferred and when we collected cash consideration from the customer. For the years ended December 31, 2021 and 2020, we recognized $87,589 and $94,271 in interest income in connection with the aforementioned financing component, respectively. In addition, we reported interest income of $6,606 and $6,986 from bank deposit balance in the years ended December 31, 2021 and 2020, respectively. These factors led to decreased interest income in fiscal year 2021, as compared to fiscal year 2020. Other Income (Expense), Net Other income was $126,648 for fiscal year 2021, as compared to other expense of $26,035 for fiscal year 2020. The increase in other income was primarily due to provision of other training services in fiscal year 2021. Provision for Income Taxes Provision for income taxes was $300,034 for fiscal year 2021, decreased from $303,246 for fiscal year 2020 due to lower taxable income. Net Income (Loss) Net loss was $1.25 million for fiscal year 2021, compared to net income of $1.21 million for fiscal year 2020. Basic and diluted loss per share were $0.12 for fiscal year 2021, compared to basic and diluted earnings per share of $0.21 for fiscal year 2020. Financial Condition As of December 31, 2021, the Company had cash of $32.68 million, compared to $5.01 million as of December 31, 2020. Net cash used in operating activities was $1.41 million for fiscal year 2021, compared to net cash provided by operating activities of $0.64 million for fiscal year 2020. Net cash used in investing activities was $7,543 for fiscal year 2021, compared to $1,396,125 for fiscal year 2020. Net cash provided by financing activities was $29.06 million for fiscal year 2021, compared to $3.97 million for fiscal year 2020. Impact of the COVID-19 on Performance and Financial Indicators Our results of operations and financial conditions in 2021 were affected by the COVID-19 pandemic and may continue to be affected by COVID-19 pandemic in 2022 and potentially beyond. COVID-19 has impact on China's study abroad consulting and training services industry and the business operations of our Company. The extent to which COVID-19 impacts our results of operations in the future will depend on the future developments of the pandemic, including new information concerning the global severity of and actions taken to contain the pandemic, which are highly uncertain and unpredictable. In addition, our results of operations could be adversely affected to the extent that the pandemic harms the Chinese and global economy in general. We face risks related to natural disasters, extreme weather conditions, health epidemics including the COVID-19, and other catastrophic incidents, which could significantly disrupt our operations. The pandemic and related travel restrictions have affected and may continue to adversely affect our business and results of operations, including the demand for our services and the ability of partner schools to pay back accounts receivable on a timely basis. We will pay close attention to the future development of COVID-19 pandemic and perform further assessment of its impact and take relevant measures to minimize the impact. Uncertainties associated with COVID-19 pandemic may cause the Company's revenue and cash flows to underperform in the next 12 months. About China Liberal Education Holdings Limited China Liberal, headquartered in Beijing, is an educational service provider in China. It provides a wide range of services, including those under sino-foreign jointly managed academic programs; overseas study consulting services; technological consulting services for Chinese universities to improve their campus information and data management system and to optimize their teaching, operating and management environment, creating a "smart campus"; and tailored job readiness training to graduating students. For more information, please visit the Company's website at ir.chinaliberal.com. Forward-Looking Statements This document contains forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on the Company's expectations and projections about future events, which the Company derives from the information currently available to the Company. Such forward-looking statements relate to future events or our future performance, including: our financial performance and projections; our growth in revenue and earnings; and our business prospects and opportunities. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as "may," "should," "expects," "anticipates," "contemplates," "estimates," "believes," "plans," "projected," "predicts," "potential," or "hopes" or the negative of these or similar terms. In evaluating these forward-looking statements, you should consider various factors, including: our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; and the competitive environment of our business. These and other factors may cause our actual results to differ materially from any forward-looking statement. Forward-looking statements are only predictions. The forward-looking events discussed in this press release and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review risk factors that may affect its future results in the Company's registration statement and in its other filings with the U.S. Securities and Exchange Commission. Investor Relations Contact China Liberal Education Holdings LimitedEmail: ir@chinaliberal.com Ascent Investor Relations LLC Ms. Tina XiaoEmail: ...Full story available on Benzinga.com.....»»

Category: earningsSource: benzingaApr 14th, 2022

Hooker Furnishings Reports Sales & Earnings for 2022 Fiscal Year

MARTINSVILLE, Va., April 13, 2022 (GLOBE NEWSWIRE) -- Hooker Furnishings Corporation (NASDAQ-GS: HOFT) today reported consolidated net sales of $593.6 million for its 2022 fiscal year ended January 30, 2022, a $53.5 million, or 9.9%, increase compared to a year ago. The revenue gain was driven by sales increases of over 20% in both the Hooker Branded and Domestic Upholstery segments compared to the prior year, partially offset by a 1.2% sales decrease in the Home Meridian segment ("HMI"). Consolidated net income for the fiscal year was $11.7 million, or $0.97 per diluted share, as compared to a net loss of $10.4 million or ($0.88) per diluted share in the prior year period. Consolidated operating income for the current year was $14.8 million compared to a $14.4 million operating loss in the prior year period. The prior year operating loss was driven by a $44.3 million ($33.7 million net of tax) non-cash intangible assets impairment charge. "We successfully mitigated a multitude of macroeconomic challenges for much of the year on the Hooker legacy side of the business and for the first half at Home Meridian. We were able to grow sales, remain profitable and undertake transformative strategic initiatives for the long-term expansion of the business," said Jeremy Hoff, chief executive officer. "Particularly during the first half of the year, when all segments achieved double-digit sales increases, we were able to better meet historical levels of demand with the right products and inventory readiness," he added. "HMI was more quickly and severely impacted by rising freight costs, reduced vessel space and the Covid-related factory shutdowns which began in August," Hoff concluded. Macroeconomic challenges the Company faced in fiscal 2022 included soaring ocean freight costs and shipping bottlenecks throughout the year, material and component parts inflation, and staffing and foam shortages. "Over the course of the last 18 months, transportation costs have roughly tripled, substantially increasing our cost of imported goods sold," Hoff said. "We were able to mitigate many of these dynamics until late summer, when the unexpected COVID-related shutdown of our Asian factories began and continued through most of the rest of the fiscal year," Hoff said. "While incoming orders and backlogs remained historically high, this loss of production capacity substantially reduced our supply of imported products, which impacted Home Meridian immediately and even began to cause out of stock issues and low inventory receipts at Hooker Branded in the 4th quarter, despite that segment's US warehousing model," he said. As a result, the Company reported a 13.2% consolidated sales decrease in the fourth quarter that began on November 1, 2021 and ended January 30, 2022. Fourth quarter consolidated sales were $134.8 million, with the decline driven by a 23.7%, or $18.9 million, revenue decrease at HMI and an 11.8%, or $5.8 million, sales decline at Hooker Branded. These lower sales were slightly offset by a $3.2 million or 13.5%, increase in Domestic Upholstery sales during the fourth quarter. Over the last few months, our Asian suppliers have begun to ramp up production again and are "currently operating at around 85% to 90% capacity and improving weekly," Hoff said, adding that "While we anticipate that production of imported goods will reach 100% capacity sometime during the first quarter of fiscal 2023, as we forecasted last quarter, we won't feel the full impact of higher production until the second quarter." Also in the 2022 fourth quarter, the Company reported a consolidated operating loss of $5.3 million, compared to $10.5 million of operating income in the prior year period. Net loss for the fourth quarter of fiscal 2022 was $4.0 million, or ($0.33) per diluted share, as compared to a net income of $8.5 million, or $0.71 per diluted share, in the fourth quarter of fiscal 2021. Driven by a $12.0 million operating loss at HMI, contributing factors in the Company's fourth quarter consolidated net loss included inventory unavailability due to the Asian factory shutdowns, high freight costs, a decline in ecommerce and hospitality furniture sales and the Company's planned exit from unprofitable businesses and channels. "Chargebacks from the Clubs channel that we are exiting and one-time order cancellation costs as we wind down our ready-to-assemble (RTA) furniture business at HMI had a combined cost of over $5 million," Hoff said. Segment Reporting: Hooker Branded For the 2022 fiscal year, net sales increased by $38.3 million, or 23.5%, at Hooker Branded, compared to the prior fiscal year. The revenue gains are attributed to a stronger product portfolio, effective supply chain and logistics management and robust consumer demand. "Hooker Branded managed well through some turbulent economic conditions, achieving double-digit sales gains and increased profitability for the year, despite losing sales momentum in the fourth quarter when inventory outages caused by the Asian factory shutdowns caught up with us," Hoff said. By the end of fiscal 2022, the majority of shipments in the Hooker Branded segment carried price increases implemented in July 2021 to mitigate higher ocean freight and product costs we had experienced to that point. However, sales volume declined in the fourth quarter due to reduced inventory availability, resulting in lower operating income compared to the fiscal 2021 fourth quarter. Incoming orders increased by 24.2% compared to the prior year period when business dramatically rebounded from the initial Covid crisis. Backlog remained historically high and nearly doubled as compared to the prior year end when backlog was already at a high level, with part of that increase being due to lower shipments in the fourth quarter. Segment Reporting: Home Meridian The Home Meridian segment's net sales decreased by 1.2% compared to the prior year period due to decreased unit volume as the result of COVID-related factory shutdowns in Vietnam and Malaysia, which led to lower shipments. For the fiscal 2022 fourth quarter, the HMI segment's sales decreased by $18.9 million or 23.7% as compared to the prior year fourth quarter. Sales increases in the first and second quarters of fiscal 2022 at HMI were offset by the sales volume loss during the second half of the year. Driven by higher freight costs, exit costs from the RTA furniture category, and significant chargebacks from the Clubs distribution channel, HMI reported a $21.3 million operating loss for the year. Higher freight costs adversely impacted gross margin by approximately 530 bps in fiscal 2022 and were the primary driver of increased product costs. Current and expected future freight costs, which will have an adverse effect on potential profit margins caused us to rethink our entry into the RTA furniture category. Consequently, HMI exited the RTA furniture category and incurred one-time order cancellation costs of $2.6 million in fiscal 2022. In addition, due to continued poor profitability and excess chargebacks of $2.9 million, HMI made the decision to exit the Clubs channel and incurred one-time order cancellation costs of $900,000. Although these actions adversely affected our earnings and partially resulted in an operating loss, "We believe these actions allow us to focus on more profitable businesses and stable channels to drive long-term growth," Hoff said. "We're now positioning our working capital and resources on solid businesses like Pulaski, Samuel Lawrence, ACH and PRI with a goal to be in stock in our new 800,000-square-foot Georgia warehouse to service growing channels such as brick and mortar retailers, the interior design trade and ecommerce, while still growing our major partners," Hoff said. Segment Reporting: Domestic Upholstery The Domestic Upholstery segment's net sales increased by $18.6 million, or 22.2%, in fiscal 2022 due to double-digit sales increases at all three divisions of the segment. For the fiscal 2022 fourth quarter, Domestic Upholstery net sales increased by $3.2 million or 13.5%. Domestic Upholstery achieved a year-over-year sales increase during every quarter of the 2022 fiscal year. However, gross margin decreased as compared to the prior year and pre-pandemic levels as this segment faced manufacturing constraints which adversely impacted profitability, including foam shortages early in the year, higher raw material and freight costs, and labor shortages and inefficiencies. The segment reported operating income of $4.3 million, or a 4.2% operating margin, as compared to a $12.4 million operating loss in the prior year, which was attributable to $16.4 million non-cash intangible assets impairment charge. Incoming orders increased by 38%, and this segment finished the year with an order backlog 122% higher than the prior year, when backlog levels were already at a historical high. Our manufacturing capacity is increasing weekly, which will help us address this higher backlog. Segment Reporting: All Other All Other net sales increased by $197,000 or 1.7% as compared to the prior fiscal year, due principally to a sales increase at Lifestyle Brands, a business started in fiscal 2019 targeted at the interior design channel. Although this business is still small, net sales to the growing interior designer channel increased nearly 80% compared to the prior fiscal year. For the fiscal 2022 fourth quarter, All Other net sales increased by $1 million or 46.1% as H Contract net sales increased by 44.2%, which offset the sales decreases in the first three quarters. H Contract's incoming orders increased by 27% in fiscal 2022 and finished the year with backlog 126% higher than prior year end. Cash, Debt and Inventory "While inventories are still not at optimum levels due to service demand and backlogs, we have significant inventory in transit and expect our inventory levels to improve incrementally during the first quarter of fiscal 2023 and dramatically in the second quarter," Hoff said. Cash and cash equivalents stood at $69.4 million at fiscal 2022 year-end, an increase of $3.5 million compared to the balance at the fiscal 2021 year-end due primarily to collection of accounts receivable. During fiscal 2022, the Company used a portion of the $19.2 million generated from operations and $372,000 in life insurance proceeds to pay $8.8 million in cash dividends to our shareholders, and $6.7 million in capital expenditures, primarily on our newly opened Georgia distribution center and enhancements of other facilities and systems. Outlook "Incoming orders and backlogs continue to be strong in most divisions," said Hoff. "We are concerned about ongoing global logistics constraints and economic headwinds affecting the consumer that could impact short-term demand, such as inflation, high gas prices and the war in Ukraine. As we mentioned earlier, we expect production capacity of our Asian suppliers to improve significantly, reaching 100% capacity at some point during the first quarter, although the full financial impact of this improvement in inventory readiness won't be felt until the second quarter. We remain optimistic that long-term trends will continue to benefit us, such as demand for housing, the renewed and sustainable focus on home interiors and exteriors, and the Millennial generation entering their prime earning and household formation years. We were also very encouraged by the recently concluded Spring High Point market. Attendance was up significantly compared to both the Fall 2021 and June 2021 markets, more in line with pre-pandemic levels. New products were very well received with major placements across all brands, including new placements of Home Meridian's licensed products.  While we have worked through a broad spectrum of challenges during the past year, our team has continued to focus on multiple strategic growth initiatives, many of which we expect will positively impact us in the next 6 to 12 months," Hoff said. "One such initiative is the integration of Sunset West, a leading manufacturer of outdoor furniture, which we acquired on February 1st of this year. The acquisition immediately positioned Hooker in the growing outdoor furniture segment of the industry with one of the most respected brands in the category and gives Sunset West access to our East Coast distribution system, our High Point showroom and retail and interior design customer base. We were pleased with the strong reception Sunset West received at its recent High Point market debut. As we integrate Sunset West and move past the current headwinds, we expect faster growth from Sunset West than our existing businesses as it is able to leverage the full capabilities of our organization," Hoff concluded. Conference Call Details Hooker Furnishings will present its fiscal 2022 fourth quarter and year-end financial results via teleconference and live internet web cast on Wednesday morning, April 13, 2022 at 9:00 AM Eastern Time. The dial-in number for domestic callers is 877.665.2466 and the number for international callers is 678.894.3031. The conference ID number is 5331177. The call will be simultaneously web cast and archived for replay on the Company's web site at www.hookerfurnishings.com in the Investor Relations section. Hooker Furnishings Corporation, in its 98th year of business, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture and fabric-upholstered furniture for the residential, hospitality and contract markets. The Company also domestically manufactures premium residential custom leather and custom fabric-upholstered furniture. It is ranked among the nation's largest publicly traded furniture sources, based on 2020 shipments to U.S. retailers, according to a 2021 survey by a leading trade publication. Major casegoods product categories include home entertainment, home office, accent, dining, and bedroom furniture in the upper-medium price points sold under the Hooker Furniture brand. Hooker's residential upholstered seating product lines include Bradington-Young, a specialist in upscale motion and stationary leather furniture, Sam Moore Furniture, a specialist in upscale occasional chairs, settees, sofas and sectional seating with an emphasis on cover-to-frame customization, Hooker Upholstery, imported upholstered furniture targeted at the upper-medium price-range and Shenandoah Furniture, an upscale upholstered furniture company specializing in private label sectionals, modulars, sofas, chairs, ottomans, benches, beds and dining chairs in the upper-medium price points for lifestyle specialty retailers. The H Contract product line supplies upholstered seating and casegoods to upscale senior living facilities. The Home Meridian division addresses more moderate price points and channels of distribution not currently served by other Hooker Furnishings divisions or brands. Home Meridian's brands include Accentrics Home, home furnishings centered around an eclectic mix of unique pieces and materials that offer a fresh take on home fashion, Pulaski Furniture, casegoods covering the complete design spectrum in a wide range of bedroom, dining room, accent and display cabinets at medium price points, Samuel Lawrence Furniture, value-conscious offerings in bedroom, dining room, home office and youth furnishings, Prime Resources, value-conscious imported leather upholstered furniture, and Samuel Lawrence Hospitality, a designer and supplier of hotel furnishings. The Sunset West division is a designer and manufacturer of comfortable, stylish and high-quality outdoor furniture. Hooker Furnishings Corporation's corporate offices and upholstery manufacturing facilities are located in Virginia and North Carolina, with showrooms in High Point, N.C., Las Vegas, N.V. and Ho Chi Minh City, Vietnam. The company operates distribution centers in North Carolina, Virginia, Georgia, California, China and Vietnam. Please visit our websites hookerfurnishings.com, hookerfurniture.com, bradington-young.com, sammoore.com, hcontractfurniture.com, homemeridian.com, pulaskifurniture.com, accentricshome.com, slh-co.com and sunsetwestusa.com. Certain statements made in this release, other than those based on historical facts, may be forward-looking statements. Forward-looking statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking terminology such as "believes," "expects," "projects," "intends," "plans," "may," "will," "should," "would," "could" or "anticipates," or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Those risks and uncertainties include but are not limited to: (1) disruptions involving our vendors or the transportation and handling industries, particularly those affecting imported products from Vietnam, China, and Malaysia, including customs issues, labor stoppages, strikes or slowdowns and the availability and cost of shipping containers and cargo ships; (2) the effect and consequences of the coronavirus (COVID-19) pandemic or future pandemics on a wide range of matters including but not limited to U.S. and local economies; our business operations and continuity; the health and productivity of our employees; and the impact on our global supply chain, inflation, the retail environment and our customer base; (3) general economic or business conditions, both domestically and internationally, and instability in the financial and credit markets, including their potential impact on our (i) sales and operating costs and access to financing or (ii) customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses; (4) adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products by foreign governments or the U.S. government, such as the prior U.S. administration's imposition of a 25% tariff on certain goods imported into the United States from China including almost all furniture and furniture components manufactured in China, which is still in effect, with the potential for additional or increased tariffs in the future; (5) risks associated with our reliance on offshore sourcing and the cost of imported goods, including fluctuation in the prices of purchased finished goods, ocean freight costs, including the price and availability of shipping containers, vessels and domestic trucking, and warehousing costs and the risk that a disruption in our offshore suppliers could adversely affect our ability to timely fill customer orders; (6) risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices and availability of key raw materials, as well as changes in transportation, warehousing and domestic labor costs, availability of skilled labor, and environmental compliance and remediation costs; (7) the risks related to the recent Sunset West acquisition including integration costs, maintaining Sunset West's existing customer relationships, the loss of key employees from Sunset West, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies across the business which could adversely affect our internal control or information systems and the costs of bringing them into compliance and failure to realize benefits anticipated from the acquisition; (8) changes in U.S. and foreign government regulations and in the political, social and economic climates of the countries from which we source our products; (9) difficulties in forecasting demand for our imported products; (10) risks associated with product defects, including higher than expected costs associated with product quality and safety, and regulatory compliance costs related to the sale of consumer products and costs related to defective or non-compliant products, including product liability claims and costs to recall defective products and the adverse effects of negative media coverage; (11) disruptions and damage (including those due to weather) affecting our Virginia, Georgia, North Carolina or California warehouses, our Virginia or North Carolina administrative facilities, our North Carolina and Las Vegas showrooms or our representative offices or warehouses in Vietnam and China; (12) risks associated with our newly leased warehouse space in Georgia, including risks associated with our move to and occupation of the facility, including information systems, access to warehouse labor and the inability to realize anticipated cost savings; (13) the risks specifically related to the concentrations of a material part of our sales and accounts receivable in only a few customers, including the loss of several large customers through business consolidations, failures or other reasons, or the loss of significant sales programs with major customers; (14) our inability to collect amounts owed to us or significant delays in collecting such amounts; (15) the interruption, inadequacy, security breaches or integration failure of our information systems or information technology infrastructure, related service providers or the internet or other related issues including unauthorized disclosures of confidential information or inadequate levels of cyber-insurance or risks not covered by cyber- insurance; (16) the direct and indirect costs and time spent by our associates associated with the implementation of our Enterprise Resource Planning system ("ERP"), including costs resulting from unanticipated disruptions to our business; (17) achieving and managing growth and change, and the risks associated with new business lines, acquisitions, including the selection of suitable acquisition targets, restructurings, strategic alliances and international operations; (18) the impairment of our long-lived assets, which can result in reduced earnings and net worth; (19) capital requirements and costs; (20) risks associated with distribution through third-party retailers, such as non-binding dealership arrangements; (21) the cost and difficulty of marketing and selling our products in foreign markets; (22) changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials; (23) the cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers' income available for discretionary purchases, and the availability and terms of consumer credit; (24) price competition in the furniture industry; (25) competition from non-traditional outlets, such as internet and catalog retailers; (26) changes in consumer preferences, including increased demand for lower-quality, lower-priced furniture and (27) other risks and uncertainties described under Part I, Item 1A. "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2021. Any forward-looking statement that we make speaks only as of the date of that statement, and we undertake no obligation, except as required by law, to update any forward-looking statements whether as a result of new information, future events or otherwise and you should not expect us to do so.   Table I HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)                       For the     Thirteen Weeks Ended   Fifty-Two Weeks Ended     Jan 30,   Jan 31,   Jan 30,   Jan 31,       2022       2021       2022       2021                     Net sales   $ 134,805     $ 155,259     $ 593,612     $ 540,081                     Cost of sales     118,409       121,648       491,910       427,333                     Gross profit     16,396       33,611       101,702       112,748                     Selling and administrative expenses     21,132       22,490       84,475       80,410   Goodwill impairment charges     -       -       -       39,568   Trade name impairment charges     -       -       -       4,750   Intangible asset amortization     596       596       2,384       2,384                     Operating (loss)/income     (5,332 )     10,525       14,843       (14,364 )                   Other income, net     213       229       373       336   Interest expense, net     29       107       110       540                     (Loss)/income before income taxes     (5,148 )     10,647       15,106    .....»»

Category: earningsSource: benzingaApr 13th, 2022

Power Solutions International Announces Fourth Quarter and Full Year 2021 Financial Results

WOOD DALE, Ill., March 31, 2022 (GLOBE NEWSWIRE) -- Power Solutions International, Inc. (the "Company" or "PSI") (OTC:PSIX), a leader in the design, engineering and manufacture of emission-certified engines and power systems, announced fourth quarter and full year 2021 financial results. Fourth Quarter 2021 Results Sales for the fourth quarter of 2021 were $127.0 million, an increase of $22.0 million, or 21%, versus the comparable period last year. The improvement in sales is comprised of increases of approximately $8.3 million, $7.9 million, and $5.8 million in the transportation, industrial and power systems (formerly energy) end markets, respectively. Higher transportation end market sales were primarily driven by increased sales in the medium duty truck market due to the continued sell down and exhaustion of certain 6.0L engines that were previously prepaid by a customer under a long-term supply agreement, coupled with higher sales in the school bus market. The increased sales within the industrial end market primarily reflect increased demand for products used in the material handling/forklift markets. Higher power systems end market (formerly known as the energy end market) sales were driven by increased demand for the Company's power generation products, especially for demand response products. Gross profit decreased by $9.1 million, or 49%, in the fourth quarter of 2021 compared to the same period last year. Gross margin in the fourth quarter of 2021 was 7.6% versus 17.9% last year, primarily due to higher warranty costs, higher freight costs, material cost increases, and higher tariff costs, partly mitigated by the impact of higher sales, among other items. For the fourth quarter of 2021, warranty costs were $8.0 million, an increase of $6.7 million compared to warranty costs of $1.3 million last year, due largely to higher charges for adjustments to preexisting warranties and lower recognized recoveries during the fourth quarter of 2021. A majority of the warranty costs are attributable to products sold within the transportation end market. Operating expenses decreased by $5.0 million, or 25%, versus the comparable period in 2020, due to lower selling, general and administrative ("SG&A") costs of $3.3 million partly attributable to lower legal costs related to the Company's indemnification obligations of former officers and employees driven largely by the conclusion of the United States Attorney's Office for the Northern District of Illinois' ("USAO") trial involving former officers and employees during September 2021. Also, the Company experienced lower wages and benefits expense in the fourth quarter of 2021 versus the prior year due largely to reduced incentive compensation incurred in the fourth quarter of 2021. Lower SG&A expenses in the fourth quarter of 2021 were partly mitigated by higher severance costs during the fourth quarter of 2021 driven by rightsizing activities. Lastly, lower operating expenses included reduced research, development and engineering expenses of $1.6 million, or 25%, from last year primarily as a result of lower project activity, coupled with lower wages and benefits driven by reduced headcount.  Net loss in the fourth quarter of 2021 was $7.6 million, or a loss of $0.33 per share, versus a net loss of $3.1 million, or $0.13 per share for the comparable prior year period. Adjusted net loss was $5.7 million, or Adjusted loss per share of $0.25, versus Adjusted net income of $1.1 million, or Adjusted earnings per share of $0.05 for the fourth quarter of 2020. Adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") was a loss of $1.9 million compared to Adjusted EBITDA of $4.7 million in the fourth quarter last year. See "Non-GAAP Financial Measures" below for the Company's definition of total Adjusted net income (loss), Adjusted earnings (loss) per share, EBITDA and Adjusted EBITDA and the financial tables that accompany this release for reconciliations of these measures to their closest comparable GAAP measures. Debt and Liquidity The Company's total debt was approximately $181 million at December 31, 2021, while cash and cash equivalents were approximately $6 million. This compares to total debt of approximately $156 million and cash and cash equivalents of approximately $5 million at September 30, 2021. Included in the Company's total debt at December 31, 2021 were borrowings of $130 million under the Uncommitted Revolving Credit Agreement with Standard Chartered Bank (the "Credit Agreement"), and borrowings of $25 million and $25 million under the Second and Third Shareholder's Loan Agreements with Weichai America Corp. ("Weichai"), its majority stockholder, respectively. The Credit Agreement included financial covenants which were effective for the Company during the three months ended December 31, 2021, including an interest coverage ratio and a minimum EBITDA threshold, as further defined in the Credit Agreement. For the three months ended December 31, 2021, the Company did not meet these covenants. On March 25, 2022, in connection with the extension of the Credit Agreement, the Company entered into a waiver with Standard Chartered, which waived the financial covenant defaults for the quarter ended December 31, 2021. No additional fee was incurred with this waiver.    On March 25, 2022, PSI entered into an amended $130.0 million Credit Agreement (the "Second Amended and Restated Credit Agreement") with Standard Chartered Bank, which among other items, extends the maturity date of loans outstanding under the Company's previous Credit Agreement to the earlier of March 24, 2023 or the demand of Standard Chartered.   In connection with the Second Amended and Restated Credit Agreement, on March 25, 2022, the Company also amended two of its three separate shareholder's loan agreements with its majority stockholder, Weichai America Corp. ("Weichai"), to among other things, extend the maturities thereof. Additional details are available in the Company's Form 8-K filed on March 28, 2022. Outlook for 2022 The Company expects its sales in 2022 to increase by at least 3% versus 2021 levels, a result of expectations for strong growth in the industrial and power systems end markets, partly mitigated by a reduction in sales in the transportation end market. Gross profit as a percentage of sales is targeted to improve by at least 5 percentage points in 2022, a function of lower warranty expense, pricing actions, improved cost recovery and cost savings initiatives. Notwithstanding this outlook, which is being driven in part by expectations for an improvement in supply chain dynamics, including timelier availability of parts, and a continuation of favorable economic conditions within the United States and across the Company's various markets, the Company cautions that significant uncertainty remains as a result of supply chain challenges, inflationary costs, commodity volatility, and the COVID-19 pandemic, among other factors. Management Comments Lance Arnett, chief executive officer, commented, "Increased demand from our customers across all end markets contributed to strong sales growth in the fourth quarter despite continued supply chain challenges that impacted our ability to timely meet certain orders.  Higher material and shipping costs, among other factors, have also continued to impact our profitability despite higher sales.  We're not pleased with our financial results and we continue to take action to drive improvements." Arnett added, "To this end, we've taken significant actions to implement an improved supply chain and operations planning process to drive lower inventory, improve productivity and better our on-time delivery to customers.  Also, during 2021 we took several steps to improve our cost structure through rightsizing initiatives, which when coupled with attrition contributed to the elimination of approximately 100 positions, or 12.5% of our total headcount.  We also continue to review our facilities footprint in light of anticipated growth and efficiency gains. To date, this review resulted in the exit and sublease of a materials and warehousing facility which is expected to generate savings of approximately $0.9 million in 2022." Arnett continued, "As we enter 2022, we believe that demand from our customers remains favorable.  We're also optimistic that the steps we've taken to improve our operations and profitability will yield improved financial results during the year." About Power Solutions International, Inc. Power Solutions International, Inc. (PSI) is a leader in the design, engineering and manufacture of a broad range of advanced, emission-certified engines and power systems. PSI provides integrated turnkey solutions to leading global original equipment manufacturers and end-user customers within the power systems, industrial and transportation end markets. The Company's unique in-house design, prototyping, engineering and testing capabilities allow PSI to customize clean, high-performance engines using a fuel agnostic strategy to run on a wide variety of fuels, including natural gas, propane, gasoline, diesel and biofuels. PSI develops and delivers complete power systems that are used worldwide in stationary and mobile power generation applications supporting standby, prime, demand response, microgrid, and co-generation power (CHP) applications; and industrial applications that include forklifts, agricultural and turf, arbor care, industrial sweepers, aerial lifts, irrigation pumps, ground support, and construction equipment. In addition, PSI develops and delivers powertrains purpose-built for medium-duty trucks and buses including school and transit buses, work trucks, terminal tractors, and various other vocational vehicles. For more information on PSI, visit www.psiengines.com.  Cautionary Note Regarding Forward-Looking Statements This press release contains forward-looking statements regarding the current expectations of the Company about its prospects and opportunities. These forward-looking statements are entitled to the safe-harbor provisions of Section 21E of the Securities Exchange Act of 1934. The Company has tried to identify these forward-looking statements by using words such as "anticipate," "believe," "budgeted," "contemplate," "estimate," "expect," "forecast," "guidance," "may," "outlook," "plan," "projection," "should," "target," "will," "would," or similar expressions, but these words are not the exclusive means for identifying such statements. These statements are subject to a number of risks, uncertainties, and assumptions that may cause actual results, performance or achievements to be materially different from those expressed in, or implied by, such statements. The Company cautions that the risks, uncertainties and other factors that could cause its actual results to differ materially from those expressed in, or implied by, the forward-looking statements, include, without limitation: the impact of the ongoing COVID-19 pandemic could have on the Company's business and financial results; the Company's ability to continue as a going concern; the Company's ability to raise additional capital when needed and its liquidity; uncertainties around the Company's ability to meet funding conditions under its financing arrangements and access to capital thereunder; the potential acceleration of the maturity at any time of the loans under the Company's uncommitted senior secured revolving credit facility through the exercise by Standard Chartered Bank of its demand right; the timing of completion of steps to address, and the inability to address and remedy, material weaknesses; the identification of additional material weaknesses or significant deficiencies; risks related to complying with the terms and conditions of the settlements with the Securities and Exchange Commission (the "SEC") and the United States Attorney's Office for the Northern District of Illinois (the "USAO"); variances in non-recurring expenses; risks relating to the substantial costs and diversion of personnel's attention and resources deployed to address the internal control matters; the Company's obligations to indemnify past and present directors and officers and certain current and former employees with respect to the investigations conducted by the SEC and the criminal division of the USAO, which will be funded by the Company with its existing cash resources due to the exhaustion of its historical primary directors' and officers' insurance coverage; the ability of the Company to accurately forecast sales, and the extent to which sales result in recorded revenues; changes in customer demand for the Company's products; volatility in oil and gas prices; the impact of U.S. tariffs on imports from China on the Company's supply chain; impact on the global economy of the war in Ukraine; disruptions to the Company's supply chain; the impact of increasing warranty costs and the Company's ability to mitigate such costs; any delays and challenges in recruiting key employees consistent with the Company's plans; any negative impacts from delisting of the Company's common stock par value $0.001 from the NASDAQ Stock Market and any delays and challenges in obtaining a re-listing on a stock exchange; and the risks and uncertainties described in reports filed by the Company with the SEC, including without limitation its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and the Company's subsequent filings with the SEC. The Company's forward-looking statements are presented as of the date hereof. Except as required by law, the Company expressly disclaims any intention or obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Contact: Power Solutions International, Inc.Philip KranzDirector of Investor Relations(630) 509-6470Philip.Kranz@psiengines.com    Results of operations for the three and twelve months ended December 31, 2021 compared with the three and twelve months ended December 31, 2020 (UNAUDITED):   (in thousands, except per share amounts)   For the Three Months Ended December 31,           For the Year Ended December 31,               2021       2020     Change   % Change     2021       2020     Change   % Change Net sales   $ 126,976     $ 105,036     $ 21,940     21 %   $ 456,255     $ 417,639     $ 38,616     9 % Cost of sales     117,311       86,248       31,063     36 %     414,984       359,191       55,793     16 % Gross profit     9,665       18,788       (9,123 )   (49 )%     41,271       58,448       (17,177 )   (29 )% Gross margin %     7.6 %     17.9 %     (10.3 )%           9.0 %     14.0 %     (5.0 )%       Operating expenses:                                     Research, development and engineering expenses     4,663       6,254       (1,591 )   (25 )%     22,435       25,375       (2,940 )   (12 )% Research, development and engineering expenses as a % of sales     3.7 %     6.0 %     (2.3 )%           4.9 %     6.1 %   (1.2)%     Selling, general and administrative expenses     10,013       13,310       (3,297 )   (25 )%     57,871       51,744       6,127     12 % Selling, general and administrative expenses as a % of sales     7.9 %     12.7 %   (4.8)%           12.7 %     12.4 %     0.3 %     Amortization of intangible assets     634       763       (129 )   (17 )%     2,535       3,053       (518 )   (17 )% Total operating expenses     15,310       20,327       (5,017 )   (25 )%     82,841       80,172       2,669     3 % Operating (loss) income     (5,645 )     (1,539 )     (4,106 )   NM       (41,570 )     (21,724 )     (19,846 )   91 % Other expense, net:                                 Interest expense     2,054       1,503       551     37 %     7,307       5,714       1,593     28 % Loss on debt extinguishment and modifications     —       —       —     — %     —       497       (497 )   (100 )% Other income, net     —       (38 )     38     (100 )%     1       (1,240 )     1,241     (100 )% Total other expense (income)     2,054       1,465       589     40 %     7,308       4,971       2,337     47 % Loss before income taxes     (7,699 )     (3,004 )     (4,695 )   156 %     (48,878 )     (26,695 )     (22,183 )   83 % Income tax (benefit) expense     (125 )     59       (184 )   NM       (406 )     (3,713 )     3,307     (89 )% Net loss   $ (7,574 )   $ (3,063 )   $ (4,511 )   147 %   $ (48,472 )   $ (22,982 )   $ (25,490 )   111 %                                   (Loss) earnings per common share:                                 Basic   $ (0.33 )   $ (0.13 )   $ (0.20 )   154 %   $ (2.12 )   $ (1.00 )   $.....»»

Category: earningsSource: benzingaMar 31st, 2022

The Evolution Of Credit & The Growing Fiat Money Crisis

The Evolution Of Credit & The Growing Fiat Money Crisis Authored by Alasdair Macleod via GoldMoney.com, After fifty-one years from the end of the Bretton Woods Agreement, the system of fiat currencies appears to be moving towards a crisis point for the US dollar as the international currency. The battle over global energy, commodity, and grain supplies is the continuation of an intensifying financial war between the dollar and the renminbi and rouble. It is becoming clear that the scale of an emerging industrial revolution in Asia is in stark contrast with Western decline, a population ratio of 87 to 13. The dollar’s role as the sole reserve currency is not suited for this reality. Commentators speculate that the current system’s failings require a global reset. They think in terms of it being organised by governments, when the governments’ global currency system is failing. Beholden to Keynesian macroeconomics, the common understanding of money and credit is lacking as well. This article puts money, currency, and credit, and their relationships in context. It points out that the credit in an economy is far greater than officially recorded by money supply figures and it explains how relatively small amounts of gold coin can stabilise an entire credit system. It is the only lasting solution to the growing fiat money crisis, and it is within the power of at least some central banks to implement gold coin standards by mobilising their reserves. Evolution or revolution? There are big changes afoot in the world’s financial and currency system. Fiat currencies have been completely detached from gold for fifty-one years from the ending of the Bretton Woods Agreement and since then they have been loosely tied to the King Rat of currencies, the dollar. Measured by money, which is and always has been only gold, King Rat has lost over 98% of its relative purchasing power in that time. From the Nixon Shock, when the Bretton Woods agreement was suspended temporarily, US Government debt has increased from $413 bn to about $30 trillion — that’s a multiple of 73 times. And given the US Government’s mandated and other commitments, it shows no signs of stabilising. This extraordinary debasement has so far been relatively orderly because the rest of the world has accepted the dollar’s hegemonic status. Triffin’s dilemma has allowed the US to run economically destructive policies without undermining the currency catastrophically. Naturally, that has led to the US Government’s complacent belief that not only will the dollar endure, but it can continue to be used for America’s own strategic benefits. But the emergence of rival superpowers in Asia has begun to challenge this status, and the consequence has been a financial cold war, a geopolitical jostling for position, particularly between the dollar and China’s renminbi, which has increased its influence in global financial affairs since the Lehman crisis in 2008. Wars are only understood by the public when they are physical in form. The financial and credit machinations between currency-issuing power blocs passes it by. But as with all wars, there ends up a winner and a loser. And since the global commodity powerhouse that is Russia got involved in recent weeks, America has continued its policy of using its currency status to penalise the Russians as if it was punishing a minor state for questioning its hegemonic status. The consequence is the financial cold war has become very hot and is now a commodity battle as well. Bringing commodities into the conflict is ripe with unintended consequences. Depending how the Russians respond to US-led sanctions, which they have yet to do, matters could escalate. In the West we have comforted ourselves with the belief that the Russian economy is on its uppers and Putin will have to either quickly yield to sanctions pressures, or face ejection by his own people in a coup. But that is a one-sided view. Even if it has a grain of truth, it ignores the consequences of Putin’s military failures on the ground in Ukraine so far, and his likely desperation to hit back with the one non-nuclear weapon at his disposal: Russia’s commodity exports. He may take the view that the West is damaging itself and little or no further action is required. And surely, the fact that China has stockpiled most of the world’s grain resources gives Russia added power as a marginal supplier. Putin can afford to not restrict food and fertiliser exports, blaming on American policy the starvation that will almost certainly be suffered by all non-combatant nations. He could cripple the West’s technology industries by banning or restricting exports of rare metals which are of little concern to headline writers in the popular press. He might exploit the one big loophole left in the sanctions regime by supplying China with whatever raw materials and energy it needs at discounted prices. And China could compound the problem for the West by restricting its exports of strategic commodities claiming they are needed for its own manufacturing requirements. While everyone focuses on what is seen, it is what is not seen that is ignored. Commodities are the visible manifestation of a trade war, while payments for them are not. Yet it is the flow of credit on the payment side where the battle for hegemonic status is fought. The Americans and their epigones in Europe have tried to shut down payments for Russian trade through the supposedly independent SWIFT system. And even the Bank for International Settlements, which by dealing with both Nazi Germany and the Allies retained its neutrality in the Second World War, is siding with the West today. But step back for a moment to look at how broadly based the West’s position is in a global context, because that will be a factor in whether the dollar’s hegemony will survive this conflict. We see America, the EU, Japan, the UK, Canada, Australia, and New Zealand on one side. In population terms that’s roughly 335, 447, 120, 65, 38, 26 and 5 million people respectively, totalling 1,036 million, only 13% of the world population. This point was made meaningfully by the Saudis who now want to talk with Putin rather than Biden. As long ago as 2014, this writer was informed by a director of a major Swiss refinery that Arab customers were sending LBMA 400-ounce bars for recasting into Chinese four-nine one kilo bars. The real money saw this coming at least eight years ago. Even if the US’s external policies do not end up undermining the dollar’s global status, it is becoming clear that the King Rat of currencies is under an existential threat. And the Fed, which is responsible for domestic monetary policies, in conjunction with the Biden administration is undermining it from the inside as well by trying to manage a failing US economy by accelerating its debasement. A betting man would therefore be unlikely to put money on a favourable dollar outcome. Whether the dollar suffers a crisis or merely an accelerated decline, just as Nixon changed the world’s monetary order in 1971 it will change again. That the current situation is unsatisfactory is widely recognised by multiple commentators, even in America, calling for a financial and currency reset. And it is assumpted that the US Government and its central bank should come up with a plan. There are two major problems with the notion that somehow the deck chair attendant can save the ship from sinking by rearranging the sun loungers. The first error is insisting that money is the preserve of only the state and is not to be decided by those who use it. It was the underlying fallacy of Georg Knapp’s State Theory of Money published in 1905. That ended with Germany printing money to arm itself in the hope that it would win: it didn’t and Germany ended up destroying its papiermark. The second error is that almost no one understands money itself, as evidenced by the whole financial establishment, from the governments down to junior fund managers, thinking that their currencies are money. Commentators calling for a reset are themselves in the dark. Events will deal with the fallacies behind the State Theory of Money and whether it will turn out to be an evolution or revolution. But at least we can have a stab at explaining what money is for a modern audience, so that the requirements and conditions of a new currency system to succeed can be better understood. What is money for? The pre-Keynesian classical economic explanation of money’s role was set out in Say’s Law, otherwise known as the law of markets. Jean-Baptiste Say was a French economist, who in his Treatise on Political Economy published in 1803 wrote that, “A product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value.” And “Each of us can only purchase the productions of others with his own productions — and so the value we can buy is equal to the value we can produce. The more men can produce the more they will purchase.” Money or credit is the post-barter link between production and consumption facilitating the exchange between the two. What to produce and what is needed in exchange is a matter for those involved in individual transactions. And the medium of exchange used is a decision for each of the parties. They will tend to use a medium which is convenient and widely accepted by others. Say’s Law was incorrectly redefined and trashed by Keynes to “…that the aggregate demand price of output as a whole is equal to the aggregate supply price for all volumes of output is equivalent to the proposition that there is no obstacle to full employment.” This has subsequently been shortened to “supply creates its own demand”. Keynes’s elision of the truth was leading to (or was it to justify?) his erroneous invention of mathematical macroeconomics. It is simply untrue. All Say was pointing out is we divide our labour as the most efficient means of production for driving improvements in the human condition. That cannot be argued with, even by blinkered Keynesians. Money, or more correctly credit has two roles in this division of labour. The first is as the medium for investment in production, because things must be made before they can be sold and there are expenses in the form of presale payments that must be made. And the second is to act as the commonly accepted intermediary between the sale of products to their buyers. Instead of opining that supply creates its own demand, if we say instead that people make things so they can buy the products and services they don’t make for themselves, it is so obviously true that Keynes and his self-serving theories don’t have a leg to stand on. And importantly, full employment has nothing to do with it. The money involved is always credit. Even the act of lending gold coins to an entrepreneur to make something is credit because it is to be repaid. If gold coins are the payment medium between production and consumption, they are the temporary storage of production before it is spent. In this very narrow sense, they represent the credit of production which will be spent. The principal quality of gold, which when it is at rest is undeniably money, is that it has no counterparty risk and is to be parted with last. The point is that money in circulation is a subsection of wider credit and is the very narrowest of definitions of circulating media. But even under a gold standard, it is hardly ever used in transactions and rarely circulates. This is partly due to a Gresham’s Law effect, where it is only exchanged for inferior forms of credit as a last resort, and partly because it is less convenient than transferring banknotes or making book entries across bank ledgers. By far the most common forms of circulating media are credit in the form of banknotes issued by a central bank, and transferable credit owed by banks to depositors. But in our estimate of a practical replacement of the current fiat currency-based system, we must also acknowledge that credit is far broader than that recorded as circulating by means of the banking system. We are increasingly aware of the term, “shadow banks” most of which are pass-through channels of credit rather than credit creators. But doubtless, there is expanded credit in circulation originating from shadow banks, the equivalent of officially recorded bank credit, which is not captured in the money supply statistics. But there are also wider forms of credit in any economy. Defining credit To further our understanding of credit, we must define the fundamental concept of credit: Credit is anything which is of no direct use, but which is taken in exchange for something else, in the belief or confidence that we have the right to exchange it away again. It is the right to a future payment, not necessarily in money or currency. It is not the transfer of something, but it is a right to a future payment. Consequently, the most common form of credit is an agreement between two parties which has nothing to do with bank credit per se. Bank credit is merely the most obvious and recorded subset of the entire quantity of credit in an economy. And the whole world of derivatives, futures, forwards, and options, are also credit for an action in time, additional to bank credit. Global M3 money supply is said to be $40 trillion equivalent, about 3% of investments, derivatives, and cryptocurrencies, all of which are forms of credit: rights and promises to future payments in credit or currency. And this is in addition to private credit agreements between individuals and other individuals, and between businesses and individuals, which are extremely common. The commonly stated position among sound money advocates of the Austrian school is that bank credit should be replaced by custodial deposit-taking banks and separate arrangers of finance. But given the broad definition of credit in the real world, eliminating bank credit appears untenable when individuals are free to offer multiple amounts of credit and the vast bulk of credit creation is outside the banking system. Consider the case of a bookie accepting wagers for a horse race. Ahead of the event, he takes on obligations many times the capital in his business, in return for which he is paid in banknotes or drawings on bank credit by his betting customers. When the race is over, he keeps the losers’ stakes and is liable for payments to holders of the winning bets. He has debts to the winners which are only extinguished when the winners collect. While there are differences in procedures and of the risks involved, in principal there is little difference between a bookie’s business and that of a commercial bank; they are both dealers in credit. Arguably, the bookie has the sounder business model. The restriction imposed on an individual providing credit to others is his potential liability if it is called upon. The unfairness in the current system is not that bank credit is permitted, but that is permitted with limited liability. Surely, the solution is to ensure that all providers of credit are responsible for the risks involved. Licenced banks and their shareholders should face unlimited liability. It is even conceivable that listed capital in an overleveraged bank might trade at negative values if shareholders face a risk of unlimited calls on their wealth. That should promote responsibility in bank lending. It will not eliminate the cycle of bank credit expansion and contraction, but it will certainly lessen its disruptive impact. Variations in the purchasing power of a medium of exchange A proper consideration of credit, the all-embracing term for mediums of exchange to include future promises, shows that government statistics for money supply are a diminishingly small part of overall credit in an economy. We must take this fact into account when considering changes in the official quantity of money on the purchasing power of units of the medium of exchange (that is credit in the form of circulating banknotes and commercial bank credit — M1, M2, M3 etc.). A downturn in economic activity must be considered in the broader sense. If, for example, I say to my neighbour that if he arranges it, I will cover half the cost of fencing the boundary between our properties, I have offered him credit upon which he can proceed to contract a fencing supplier and installer. However, if in the interim my circumstances have changed and I cannot deliver on my promise, the credit agreement with my neighbour is withdrawn and the fence might not be installed. A father might promise his son an allowance while he attends university. That is a credit agreement with periodic drawdowns lasting the course. Later, the father might promise help in buying a property for his son to live in. These are promises, whose values are particular and precarious. And they will be valid only so long as they can be afforded. If there is a general change in economic conditions for the worse, it is almost certainly driven more by the withdrawal of unrecorded credit agreements between individuals and small businesses such as corner shops, and not directly due to bank credit contraction. An appreciation of these facts and of changes in human behaviour which cannot be recorded statistically explains much about the lack of correlation between measures of credit (i.e., broad money supply) and prices. The equation of exchange (MV=PQ) does not even capture a decent fraction of the relationship between the quantity of credit in an economy and prices. Our understanding of the wider credit scene goes some way to resolving a mystery that has bedevilled monetary economists ever since David Ricardo first proposed the relationship over two centuries ago. In theory, an increase in the quantity of measurable credit (that is currency in the banking system) leads to a proportionate increase in prices. Even allowing for statistical legerdemain, that is patently not true, as Figure 1 illustrates. Figure 1 shows that over the last sixty years, the broadest measure of US dollar money supply has increased by nearly seventy times, while prices have increased about nine. The equation of exchange explains it by persuading us that each unit of currency circulates less so that the increase in the money quantity somehow leads to less of an effect on prices. This interpretation is consistent with Keynes’s denial of Say’s Law. The Law tells us that we all make profits and/or earn salaries, which in the time-space of a year means we can only spend and save once. That is an unvarying velocity of unity. Instead, the mathematical economists have introduced a variable, V, which simply balances an equation which should not exist. That is not to say that credit expansion does not affect the purchasing power of a currency. Logic corroborates it. But an understanding of the true extent of credit in an economy confirms that the sum of currency and recorded bank credit is just a small part of the story – only one eighth as indicated by the divergence between M3 and consumer prices — all else being equal. It brings us to the other driving force in the credit/price relationship, which is the public acceptability of the currency. Ludwig von Mises, the Austrian economist, who lived through the Austrian inflation in the post-WW1 years and whose advice the Austrian government was reluctant to accept, observed that variations in public confidence in the currency can have a profound effect on its purchasing power. Famously, Mises described a crack-up boom as evidence that the public had finally abandoned all faith in the government’s currency and disposed of all of it in return for goods, needed or not. It leads to the sensible conclusion that irrespective of changes in the circulating quantity, the purchasing power is fully dependent on the public’s faith in the currency. Destroy that, and the currency becomes valueless as a medium of exchange. If confidence is maintained, it follows that the price effects of a currency debasement may be minimised. This brings us to gold coin. If the state backs its currency with sufficient gold which the public is free to obtain on demand from the issuer of the currency, then the currency takes on the characteristics of gold as money. We should not need to justify this established and ancient role for gold, or silver for that matter, to the current generations of Keynesians brainwashed into thinking it’s just old hat. Though they rarely admit it, central bankers fully committed to their fiat currencies still retain gold reserves in the knowledge that they are no one’s liability; that is to say, true money while their currencies are simply credit. Given what we now know about the extent of credit beyond the banking system and the role of public confidence in the currency when it is a credible gold substitute, we can see why a moderate expansion of the currency need not undermine its purchasing power proportionately. While the cycle of bank credit expansion and contraction leads to the boom-and-bust conditions described by Von Mises and Hayek in their Austrian business cycle theory, the effects on prices under a gold standard do not appear to have been enough to destabilise a currency’s purchasing power. Figure 2 illustrates the point. Admittedly there are several factors at work. While the increase in the quantity of currency in circulation was generally restricted by the gold coin standard, the bank credit cycle of expansion and contraction led to periodic bank failures. Then as now, the quantity of bank credit relative to bank notes was eight or ten times, and so long as the note-issuing bank remained at arm’s length from the tribulations of commercial bank credit the overall price effects were contained. Britain abandoned the gold standard in 1914, and just as the abandonment of the silver standard in the 1790s led to an increase in the general price level, a dramatic increase occurred during the First World War. This was due to deficit spending by the state driving up material costs at a time when imported factors of supply were limited by the destruction of merchant shipping. The end of the war restored the supply/demand balance and saw a reduction in military spending. Prices fell and then stabilised. A gold bullion standard at the pre-war rate of exchange was re-established in 1925, only to be abandoned in 1931. The Second World War and subsequent lack of any anchor to the currency led to an inexorable rise in prices before America abandoned the Bretton Woods Agreement in 1971. And since then, the sterling price of gold has risen even further from £14.58 when the Agreement ceased to £1,470 today. Measured in true money the currency has lost over 99% of its purchasing power over the last fifty-one years. Both logic and the empirical evidence point to the same conclusion: price stability can only be achieved under a working gold coin standard, whereby ordinary people can, should they so wish, exchange banknotes for coin on demand. Despite making up most of the circulating medium, fluctuations in bank credit then have less of an effect on prices, for the reasons stated above. Can cryptocurrencies replace gold? The reason gold is relatively stable in purchasing power terms is that through history, above ground stocks have expanded at similar rates to population growth. A very gradual increase in gold’s purchasing power comes from manufacturing, technological, and competitive production factors. In other words, the price stability clearly demonstrated in Figure 2 above between 1820—1914 is evolutionary. Whether cryptocurrencies or central bank digital currencies might have a stabilising role for prices in future is highly contentious. We can readily dismiss yet another version of state-issued currencies as being a worse form of credit than failing fiat currencies. The aim behind them is communistic, to enable the state to allocate credit resources wherever and to whomsoever its political class may desire. It is with the intention of reducing the vagaries of human action on the state’s intended outcome. Just as every replacement currency for failing fiat in the past has failed, if CBDCs are introduced they will fail as well. It is unnecessary to comment further. Cryptocurrencies, particularly bitcoin, are seen by a small minority of enthusiasts as the money of the future, being outside the state’s printing presses. But as observed above, in reality, sound money is augmented by fluctuating quantities of credit in far larger quantities. So long as sound money provides price stability, circulating credit inherits those characteristics. Bitcoin, the leading claimant to being future money, lacks both world-wide acceptance and the flexibility required for long-term stability and therefore economic calculation. Imagine an entrepreneur planning to invest in production, a project which from the drawing-board to final sales takes several years. His nineteenth century forebears had a reasonable idea of final prices, so could calculate costs, sales values, and therefore the interest cost of the capital deployed over the whole project to leave him with a profit. No such certainty exists with bitcoin because final prices cannot be assumed. Furthermore, central banks do not have bitcoin as part of their reserves, and by embarking on plans for their own CBDCs have signalled that they will not have anything to do with it. But in most cases central banks or their government treasury ministries possess gold bullion, which as a last resort they can deploy to stabilise a failing currency. While there will undoubtedly be future benefits from their underlying technologies, it is impossible to see how cryptocurrencies can have a practical role in backing wider credit. Conclusion The evolution of fiat dollars which dates from the abandonment of the Bretton Woods Agreement is coming to an inevitable conclusion: fiat currencies come and go and only gold goes on forever. Whoever wins the financial battle now raging with increasing intensity over commodity prices, the US dollar as the King Rat of fiat currencies is losing its assumed superiority over the renminbi, and possibly the rouble if the Russians can stabilise it. The old-world population backing the dollar is heavily outnumbered by the newly industrialising Eurasia as well as its commodity and raw material suppliers in Africa and South America. Not mentioned in this article is the Federal Reserve Board’s commitment to sacrifice the dollar to support financial values — that ground has been well covered in earlier Goldmoney articles. But it is a repetition of John Law’s policies in 1720 France, now underway to stop the global financial bubble from imploding. And just as the Mississippi Company continued after 1720 when the French livre collapsed entirely that year, we see the same dynamics in play for the entire fiat currency system today. John Law’s policies of credit stimulation for the French economy were remarkably like those of modern Keynesians. This time, the expansion of money supply on a global basis has been on an unprecedented scale, encouraged by the subdued effect on prices measured by government-compiled consumer price indices. Undoubtedly, much of the lack of price inflation is down to statistical method, but from Figure 1 we have seen that over the last sixty years the quantity of currency and credit captured by US dollar M3 has grown about seven and a half times more rapidly than prices. We have concluded that this disparity is partly due to not all credit in the economy being captured in the monetary statistics. Understanding the relationship between money which is only physical gold coin, currency which is bank notes and credit which includes bank credit, shadow bank credit, derivatives, and personal guarantees, is vital to understanding what is required to replace the fiat-currency system. It also explains why a relatively small base of exchangeable gold coin in relation to the overall credit in an economy is sufficient to guarantee price stability. Tyler Durden Sat, 03/19/2022 - 18:30.....»»

Category: dealsSource: nytMar 19th, 2022

Bulls & Bears Collide In Crypto-Land: Hot-Hands Versus HODLers

Bulls & Bears Collide In Crypto-Land: Hot-Hands Versus HODLers Bears are on the hunt for Bitcoin HODLers profits, whilst supply dynamics approach a new equilibrium, and derivative markets remain heated... Amid the "fear and panic" in the crypto markets, as Bitcoin drops 50% from all-time-highs, Glassnode.com's 'Permabull Nino'  details the current uncertainty that overhangs the Bitcoin market, and the psychology of its participants attempting to regain their footing in the following areas: HODLer profits sitting at key historical levels, and the overall observable investor response Zoomed out supply dynamics and spending behavior among short-term and long-term holders, and what it indicates about investor sentiment in the medium to long term Derivative activity, and what it can imply about shorter term expectations towards Bitcoin price action HODLers Profits Under Siege The Bitcoin price is currently trading down ~50% from the ATH set in November 2021. As the drawdown worsens, an increasingly significant volume of BTC supply has fallen into an unrealized loss. Approximately 5.7 million BTC are now underwater (~30% of circulating supply). As the bears apply pressure to the in-profit cohort of holders, Bitcoin bulls are defending a historically significant level of the Percent of Supply in Profit metric. This magnitude of 'top heavy supply' was defended in two instances in the last few years: May 2020 - July 2020, the quiet recovery period following the extreme move downwards from Covid-related panic. May 2021 - July 2021, the choppy and accumulative period following a historical deleveraging event. The reaction from this level will likely provide insight into the medium term direction of the Bitcoin market. Further weakness may motivate these underwater sellers to finally capitulate, whereas a strong bullish impulse may offer much needed psychological relief, and put more coins back into an unrealized profit. Live Chart We can establish an appreciation of market-wide psychology by observing who is parting ways with their coins, and why and when these spends are taking place. The Percent of Transfer Volume in Profit chart displays the proportion of coins spent on-chain that were last moved at lower prices, as a gauge for macro fear and greed. Percent of Transfer Volume in Profit > 65% signals that a large amount of coins are being spent in profit. This historically occurs during bullish impulses, as holders take advantage of market strength. Percent of Transfer Volume in Profit < 40% signals that on-chain volumes are dominated by coins acquired at higher prices. This historically occurs in market downtrends and especially capitulation events. The sell-off this week saw less than 40% of spent volume in profit, reaching levels that historically coincide with capitulation events. Past instances at this level have preceded a bullish reversal, and a period of general risk-on behaviour. Live Chart The low levels of profitable coin spends is also evident in the Realized Profit chart, which shows the profitability of BTC moved, on a USD basis. In-profit holders are displaying a notable unwillingness to spend coins, with consistent Realized Profit values below $1 Billion/day. In the face of tumultuous and unconvincing price action, this signals that this cohort of holders are patiently waiting for higher prices to spend their respective supply. Climbing realized profits, especially above the $1 Billion level and accompanied by positive price performance, signals demand absorption of coins, and is a metric to watch in the coming weeks. Live Chart Meanwhile, Realized Losses remain elevated and trending higher, as underwater holders spend coins that were acquired near the market top through October and November. On average, daily Realized Loss values are ~$750 Million/day, behavior that is comparable to the May - July 2021 capitulation lows. The consistency of large loss realization events is indicative of uneasiness within the market, however also reflects an estimate of demand inflows to absorb these spent coins. Sustained periods of large realized loss does put the onus on the bulls to prove sufficient demand support. A macro decline in realized loss values would be a more encouraging signal for the bulls, as it provides an early indication of sell-side exhaustion. Live Chart The stalemate at play between price action, Realized Profits, and Realized Losses is visible in the 28-day Market Realized Gradient (MRG), which compares the momentum in Market Cap (speculative value) versus the Realized Cap (real capital inflows). Positive values signal that a bull trend is in tact, and upwards momentum in spot markets is growing. Negative values signal that a bear trend is in play, and momentum favors the bears. Large values signal that Bitcoin is possibly overbought (positive) or oversold (negative), as market valuation deviates from more fundamental capital inflows or outflows, respectively. The MRG trend and values indicate that current market pricing is nearing a point of equilibrium with capital inflows, with a month's long bullish divergence developing. A firm break above zero would signal a bullish reversal is in play, whilst a break down would suggest momentum is accelerating to the downside. Live Workbench Chart Cohorts and Psychology We can also analyse the psychology and spending behaviour of both Short-Term Holders (STH) and Long-Term Holders (LTH) by looking at changes in their respective Realized Caps and supply dynamics. The following metric is calculated as the difference between the daily change of LTH and STH realized caps. Interpretation is as follows: Negative Values (red) signal that the STH Realized Cap is increasing more on a daily basis than the LTH Realized Cap. This occurs during bull runs when long term holders distribute supply into new holders. Positive Values (green) signal that the LTH Realized Cap is increasing more on a daily basis than the STH Realized Cap, which occurs during bearish accumulation markets as STH activity decreases, and unspent coins mature into the LTH cohort. Values currently sit near zero with a general trend to the upside, indicative of a softening of distribution by LTHs, the market reaching a new equilibrium, and a potential reversal into accumulation. Note however, that the process of establishing similar market equilibrium and possible macro bottoms has historically taken several months to resolve. Live Workbench Chart The modest distribution of coins from LTHs to STHs is reflected in the Total Supply Held metric, as the net volume of coins held by the STH cohort has increased in recent months. The supply held by this cohort sits at ~3 Million BTC, a relative historical low, and a level that signifies a transition into a HODLer dominated market. This has been in effect since the May 2021 deleveraging event. Low STH supply levels are typical of bearish trends, as old coins remain dormant, and younger coins are slowly accumulated by high conviction buyers. Live Chart Next we turn to the Realized Cap HODL Waves, which reflects the breakdown of the Realized Cap by coin age, and cost basis. The chart below has been filtered for coins younger than 3 months to further highlight the forces at play within the shorter term holder cohort. Generally speaking, lower values in this metric speak to a bearish trend where old coins are dormant, and young coins are gradually accumulated and taken off market. At present, around 40% of the Realized Cap is held in coins under 3mths old, owned by buyers entering near the market top, or during the present correction. The 1-3m band is expanding and a constructive view would see these coins continue to mature into the 3m+ band, creating a net decline in young coins. A more bearish observation would be if older coins start being spent, causing these bands to swell, and signifying an additional influx of liquid supply that must be absorbed. Live Chart Derivatives Fireworks on the Horizon Amidst downwards pressure in Bitcoin holder profitability but yet favorable medium to long term supply dynamics, futures markets remain a powder keg for short term volatility with Perpetual Futures Open Interest at ~250k BTC - a historically elevated level. Since April 2021, this has paired with large pivots in price action as the risk for a short or long squeeze increases, resolved in market wide deleveraging events. Live Chart Alongside high open interest, funding rates this week moved into negative territory, indicating that shorts were increasingly hungry for leverage. As perpetual swap markets were pushed below spot prices, it does add further bias towards a potential oversupply of short positions in close proximity to the current price. Live Chart In addition to large outstanding open interest, and negative funding rates, trading volume continues to drip lower, currently around $30B per day. This is coincident with levels in December 2020, and reflects a marked reduction from the 2021 bull market highs, hitting well above $70B/day. Should a deleveraging event occur, thinner trading volumes may accentuate the impact. Live Chart As Open Interest continues charging for a big move, funding rates drop, and futures volumes contract, Crypto-Margined Open Interest continues its march downwards versus Cash-Margined Open Interest. With only 40% of Open Interest sitting in Crypto-Margined products and in a convincing downtrend since May 2021, Cash-Margined Futures data becomes increasingly higher signal and worthy of more market participants' attention. Note that this trend is primarily driven by a relative reduction in crypto-margin on Binance, Bybit, Huobi and OKEx exchanges. Live Chart In summary, there is evidence that the market is reaching some form of price and momentum equilibrium, within what is a broader bearish market structure. Bitcoin bears certainly have the upper hand, however modest bullish divergences are appearing across a number of on-chain metrics and indicators. Coupled with elevated future open interest, and a bias that appears to be a short heavy market, a risk of a deleveraging to the upside remains on the table. Tyler Durden Sat, 01/22/2022 - 16:30.....»»

Category: worldSource: nytJan 22nd, 2022

4 Retail Stocks That Will Continue to Shine in 2022

LOVE, ETD, WSM and TPX are 4 growth stocks within the home furnishings industry that are worth buying today. To talk about retail stocks in general doesn’t make a whole lot of sense because there’s just so many categories in there. And whether it’s the department stores, or the convenience stores, or the ones selling electronic goods like computer hardware, or apparel, or shoes, or home furnishings or auto – there’s just so much to choose from – each one has its own dynamics, including demand, supply, operational challenges (or strengths), logistics, pricing, etc.So perhaps it makes much more sense to pick a single category and see what’s going on in there. And that’s what I’m attempting to do here. For the purpose, I’ve picked the Retail - Home Furnishings industry, which is in the top 11% of Zacks-classified industries. Clearly, Zacks analysis shows that there are positive factors driving the entire industry that are beneficial for all the players. All we have to do is pick some buy-ranked stocks from here and we’re set.But first let’s dig into the positive factors driving the industry. And why do I think that the strength will continue in 2022.Home furnishings are almost always dependent on three major factors: employment, economic growth and the condition of the housing market. And it isn’t hard to see why.When people are gainfully employed, they tend to spend more on themselves (which includes their homes). That’s because for most people, their biggest asset is their home. Plus, it’s only when you have savings and ongoing income that you think about setting up home at all.  Second, it’s only the steadily employed folks that tend to look for better accommodation, whether new or existing. And in both cases, they generally do up that new accommodation to their satisfaction. The current situation is that it’s mainly the lower wage employees that suffered from the pandemic and they too were stimulus-driven. On the other hand, the need to stay home for work, school and everything else meant that people needed to do some work on their homes. So employment is indeed an important factor.And you don’t have optimum employment levels without economic growth. Post pandemic economic growth has been phenomenal, and not just because of pent-up demand for things that couldn’t be done during the pandemic. The economy was actually on pretty solid footing when the pandemic hit and it suddenly screeched to a halt. When things opened up, they just kept opening up. Even with subsequent mutations of the virus, people are generally less concerned because of vaccine availability and efficacy and because we’re getting into the endemic stage. The Conference Board forecasts that U.S. Real GDP growth will be 5.5% this year, after a good fourth quarter. The IMF expects U.S. real GDP growth of 6.0%, including the impact of supply chain disruptions. For 2022, the IMF expects 5.2% growth. Both rates are at least double the growth rates in the preceding five years (except 2020 when real GDP dropped).And finally, the most obvious point is the housing market. When more houses exchange hands, whether they are old or new, people will spend money doing them up. The housing market has been dogged by supply chain concerns same as almost every other market. But things are expected to improve next year, as the inventory situation improves with more constructions completed despite raw material cost inflation and labor shortage. Additionally, more home owners are listing their properties today than they were in the beginning of the year and this should normalize in 2022. With more inventory available, prices will automatically come down and people who had postponed their purchases because of the price situation will re-enter the market.So let’s jump to the stocks.Lovesac LOVEThe Lovesac Company retails offers alternative furniture, sectionals, bean bags, bean bag chairs as well as other accessories such as blankets, footsacs and throw pillows.In the year ending Jan 2022, Lovesac is expected to grow revenue and earnings by 48.9% and 40.6%, respectively. The following year, it is expected to grow 27.3% and 42.0%, respectively. In the last seven days, estimates for 2022 and 2023 are up 39 cents (40.6%) and  70 cents (57.9%), respectively.Loavesac shares carry a Zacks Rank #1 (Strong Buy) and have a Growth Score of A.Ethan Allen Interiors Inc. ETDEthan Allen is a leading interior design company and manufacturer and retailer of quality home furnishings. It offers free interior design services to customers and sells a full range of furniture products and decorative accessories through ethanallen.com and a network of the Design Centers in the United States and abroad.In the year ending Jun 2022, analysts expect Ethan Allen to grow its revenue by 9.8% and earnings by 30.8%. In 2023, both numbers are currently expected to decline slightly. Needless to say, if the estimate revisions trend is good, it’s an indication that there will ultimately be growth and not a decline. The estimate revisions trend is positive, with the 2022 earnings estimate up 43 cents (16.1%) and the 2023 estimate up 20 cents (7.1%) in the last 60 days.Ethan Allen shares carry a Zacks Rank #2 (Buy) and have a Growth Score of A.Williams-Sonoma WSMWilliams-Sonomais a multi-channel specialty retailer of premium quality home products.In the year ending Jan 2022, analysts expect Williams-Sonoma to grow its revenue by 22.2% and earnings by 57.2%. In 2023, revenue is currently expected to increase slightly while earnings decline. But the estimate revisions trend will say how 2023 will actually shape up to be. And the estimate revisions trend is decidedly positive, with the 2022 earnings estimate up 64 cents (4.7%) and the 2023 estimate up 91 cents (7.0%) in the last 30 days.Williams-Sonoma shares carry a Zacks Rank #2 (Buy) and have a Growth Score of A.Tempur Sealy International TPXTempur Sealy is known as a developer, manufacturer and marketer of bedding products like mattresses, adjustable bases, pillows and other sleep and relaxation products primarily in North America but also internationally.In 2021, Tempur Sealy’s revenue is expected to grow 36.7% while its earnings grow 71.2%. This is expected to be followed by 11.7% revenue growth and 17.1% earnings growth in the following year. The 2021 estimate is up 4 cents and the 2022 estimate is up 18 cents in the last 60 days.Tempur Sealy shares carry a Zacks Rank #2 (Buy) and have a Growth Score of A.3-Month Price PerformanceImage Source: Zacks Investment Research 5 Stocks Set to Double Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%. Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>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 Tempur Sealy International, Inc. (TPX): Free Stock Analysis Report WilliamsSonoma, Inc. (WSM): Free Stock Analysis Report The Lovesac Company (LOVE): Free Stock Analysis Report Ethan Allen Interiors Inc. (ETD): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksDec 15th, 2021

Casedemic: The Hideous Scandal Of The Irredeemably Flawed PCR Test

Casedemic: The Hideous Scandal Of The Irredeemably Flawed PCR Test Authored by Ian McNulty via The Brownstone Institute, Investigating the cause of a disease is like investigating the cause of a crime. Just as the detection of a suspect’s DNA at a crime scene doesn’t prove they committed the crime, so the detection of the DNA of a virus in a patient doesn’t prove it caused the disease. Consider the case of Epstein-Barr Virus (EBV) for example. It can cause serious diseases like arthritis, multiple sclerosis and cancer. A Japanese study in 2003 found that 43% of patients suffering from Chronic Active Epstein-Barr Virus (CAEBV) died within 5 months to 12 years of infection. Yet EBV is one of the most common viruses in humans and has been detected in 95% of the adult population. Most of those infected are either asymptomatic or show symptoms of glandular fever, which can have similar symptoms to ‘long Covid.’ If an advertising agency attempted to create demand for an EBV treatment with daily TV and radio ads representing positive EBV tests as ‘EBV Cases’ and deaths within 28 days as ‘EBV Deaths,’ they’d be prosecuted for fraud by false representation so quickly their feet wouldn’t touch the ground. How Viruses Are Detected Before the invention of PCR, the gold standard for detecting viruses was to grow them in a culture of living cells and count damaged cells using a microscope. The disadvantage of cell cultures is they need highly skilled technicians and can take weeks to complete. The advantage is they only count living viruses that multiply and damage cells. Dead virus fragments that do neither are automatically discounted. The invention of PCR in 1983 was a game changer. Instead of waiting for viruses to grow naturally, PCR rapidly multiplies tiny amounts of viral DNA exponentially in a series of heating and cooling cycles that can be automated and completed in less than an hour. PCR revolutionised molecular biology but its most notable application was in genetic fingerprinting, where its ability to magnify even the smallest traces of DNA became a major weapon in the fight against crime. But, like a powerful magnifying glass or zoom lens, if it’s powerful enough to find a needle in a haystack it’s powerful enough to make mountains out of molehills. Even the inventor of PCR, Kary Mullis, who won the Nobel Prize in Chemistry in 1993, vehemently opposed using PCR to diagnose diseases: “PCR is a process that’s used to make a whole lot of something out of something. It allows you to take a very miniscule amount of anything and make it measurable and then talk about it like it’s important.“ PCR has certainly allowed public health authorities and the media around the world to talk about a new variant of Coronavirus like it’s important, but how important is it really? The Dose Makes The Poison Anything can be deadly in high enough doses, even oxygen and water. Since the time of Paracelsus in the 16th century, science has known there are no such things as poisons, only poisonous concentrations: “All things are poison, and nothing is without poison; the dosage alone makes the poison.” (Paracelsus, dritte defensio, 1538.) This basic principle is expressed in the adage “dosis sola facit venenum“ – the dose alone makes the poison – and is the basis for all Public Health Standards which specify Maximum Permissible Doses (MPDs) for all known health hazards, from chemicals and radiation to bacteria, viruses and even noise. Public Health Standards, Science and Law Toxicology and Law are both highly specialised subjects with their own highly specialised language. Depending on the jurisdiction, Maximum Permissible Doses (MPDs) are also known as Health Based Exposure Limits (HBELs), Maximum Exposure Levels (MELs) and Permissible Exposure Limits (PELs). But, no matter how complicated and confusing the language, the basic principles are simple. If the dose alone makes the poison then it’s the dose that’s the biggest concern, not the poison. And if Public Health Standards in a liberal democracy are regulated by the rule of law then the law needs to be simple enough for a jury of reasonably intelligent lay people to understand. Although the harm caused by any toxin increases with the dose, the level of harm depends not only on the toxin, but the susceptibility of the individual and the way the toxin is delivered. Maximum Permissible Doses have to strike a balance between the benefit of increasing safety and the cost of doing it. There are many Political, Economic and Social factors to consider besides the Technology (PEST). Take the case of noise for example. The smallest whisper may be irritating and harmful to some people, while the loudest music may be nourishing and healthy for others. If the Maximum Permissible Dose was set at a level to protect the most sensitive from any risk of harm, life would be impossible for everyone else. Maximum Permissible Doses have to balance the costs and benefits of restricting exposure to the level of No Observable Effect (NOEL) at one end of the scale, and the level that would kill 50% of the population at the other (LD50). Bacteria and viruses are different from other toxins, but the principle is the same. Because they multiply and increase their dose with time, maximum permissible doses need to be based on the minimum dose likely to start an infection known as the Minimum Infective Dose (MID). Take the case of listeria monocytogenes for example. It’s the bacteria that causes listeriosis, a serious disease that can result in meningitis, sepsis and encephalitis. The case fatality rate is around 20%, making it ten times more deadly than Covid-19. Yet listeria is widespread in the environment and can be detected in raw meat and vegetables as well as many ready-to-eat foods, including cooked meat and seafood, dairy products, pre-prepared sandwiches and salads.  The minimum dose in food likely to cause an outbreak of listeriosis is around 1,000 live bacteria per gram. Allowing a suitable margin of safety, EU and US food standards set the maximum permissible dose of listeria in ready-to-eat products at 10% of the minimum infective dose , or 100 live bacteria per gram. If Maximum Permissible Doses were based solely on the detection of a bacteria or virus rather than the dose, the food industry would cease to exist. Protection of the Vulnerable The general rule of thumb for setting maximum permissible doses used to be 10% of the MID for bacteria and viruses, and 10% of the LD50 for other toxins, but this has come under increasing criticism in recent years: first with radiation, then Environmental Tobacco Smoke (ETS), then smoke in general, then viruses. The idea that there is no safe dose of some toxins began to surface in the 1950s, when radioactive fallout from atom bomb tests and radiation from medical X-rays were linked with the the dramatic post-war rise in cancers and birth defects. Although this was rejected by the science at the time, it wasn’t entirely unfounded. There are many reasons why radiation may be different from other pollutants. Chemicals like carbon, oxygen, hydrogen and nitrogen are recycled naturally by the environment, but there is no such thing as a Radiation Cycle. Radioactivity only disappears gradually with time, no matter how many times it’s recycled. Some radioactive substances remain dangerous for periods longer than human history. All life forms are powered by chemical processes, none by nuclear energy. The last natural nuclear reactor on earth burned out more than 1.5 billion years ago. The nearest one now is isolated from life on earth by 93 million miles of vacuum.  As evidence mounted to show there was no safe dose of radiation, maximum permissible doses were lowered drastically, but limited doses were still allowed. If public health standards were based purely on the detection of radiation rather than the dose, the Nuclear Industry would cease to exist. The susceptibility of any individual to any health risk depends on many factors. Most people can eat sesame seeds and survive bee stings without calling an ambulance, for others they can be fatal. In the US bees and wasps kill an average of more than 60 people each year, and food allergies cause an average of 30,000 hospitalisations and 150 deaths. If public health standards were based solely on the detection of a toxin rather than the dose, all bees would be exterminated and all food production closed down. Food allergies set the legal precedent. Where minuscule traces of something might be harmful for some people, the law demands that products carry a clear warning to allow the vulnerable to protect their own health. It doesn’t demand everyone else pay the price, no matter what the cost, by lowering maximum permissible doses to the point of no observable effect. Minimum Infectious Doses (MIDs) have already been established for many of the major respiratory and enteric viruses including strains of coronavirus. Even though SARS-CoV-2 is a new variant of coronavirus, the MID has already been estimated at around 100 particles. Whilst further work is needed, nevertheless it could serve as a working standard to measure Covid-19 infections against. Are PCR Numbers Scientific? As the philosopher of science, Karl Popper, observed: “non-reproducible single occurrences are of no significance to science.” To be reproducible, the results of one test should compare within a small margin of error with the results of other tests. To make this possible all measuring instruments are calibrated against international standards. If they aren’t, their measurements may appear to be significant, but they have no significance in science. PCR tests magnify the number of target DNA particles in a swab exponentially until they become visible. Like a powerful zoom lens, the greater the magnification needed to see something, the smaller it actually is. The magnification in PCR is measured by the number of cycles needed to make the DNA visible. Known as the Cycle Threshold (Ct) or Quantification Cycle (Cq) number, the higher the number of cycles the lower the amount of DNA in the sample. To convert Cq numbers into doses they have to be calibrated against the Cq numbers of standard doses. If they aren’t they can easily be blown out of proportion and appear more significant than they actually are. Take an advertisement for a car for example. With the right light, the right angle and the right magnification, a scale model can look like the real thing. We can only gauge the true size of things if we have something to measure them against. Just like a coin standing next to a toy car proves it’s not a real one, and a shoe next to a molehill shows it’s not a mountain, the Cq of a standard dose next to the Cq of a sample shows how big the dose really is. So it’s alarming to discover that there are no international standards for PCR tests and even more alarming to discover that results can vary up to a million fold, not just from country to country, but from test to test. Even though this is well-documented in the scientific literature it appears that the media, public health authorities and government regulators either haven’t noticed or don’t care: “It should be noted that currently there is no standard measure of viral load in clinical samples.” “An evaluation of eight clinically relevant viral targets in 23 different laboratories resulted in Cq ranges of more than 20, indicative of an apparently million-fold difference in viral load in the same sample.” “The evident lack of certified standards or even validated controls to allow for a correlation between RT-qPCR data and clinical meaning requires urgent attention from national standards and metrology organisations, preferably as a world-wide coordinated effort.” “Certainly the label “gold standard” is ill-advised, as not only are there numerous different assays, protocols, reagents, instruments and result analysis methods in use, but there are currently no certified quantification standards, RNA extraction and inhibition controls, or standardised reporting procedures.” Even the CDC itself admits PCR test results aren’t reproducible: “Because the nucleic acid target (the pathogen of interest), platform and format differ, Ct values from different RT-PCR tests cannot be compared.” For this reason PCR tests are licenced under emergency regulations for the detection of the type or ‘quality’ of a virus, not for the dose or ‘quantity’ of it. “As of August 5, 2021, all diagnostic RT-PCR tests that had received a US Food and Drug Administration (FDA) Emergency Use Authorization (EUA) for SARS-CoV-2 testing were qualitative tests.” “The Ct value is interpreted as positive or negative but cannot be used to determine how much virus is present in an individual patient specimen.” Just because we can detect the ‘genetic fingerprint’ of a virus doesn’t prove it’s the cause of a disease: “Detection of viral RNA may not indicate the presence of infectious virus or that 2019-nCoV is the causative agent for clinical symptoms.” So, while there’s little doubt that using PCR to identify the genetic fingerprint of a Covid-19 virus is the gold standard in molecular science, there’s equally no doubt that using it as the gold standard to quantify Covid-19 ‘cases’ and ‘deaths’ is “ill-advised.” The idea that PCR may have been used to make a mountain out of a molehill by blowing a relatively ordinary disease outbreak out of all proportion is so shocking it’s literally unthinkable. But it wouldn’t be the first time it has happened. The Epidemic That Wasn’t In spring 2006 staff at the Dartmouth-Hitchcock Medical Center in New Hampshire began showing symptoms of respiratory infection with high fever and nonstop coughing that left them gasping for breath and lasted for weeks. Using the latest PCR techniques, Dartmouth-Hitchcock’s laboratories found 142 cases of pertussis or whooping cough, which causes pneumonia in vulnerable adults and can be deadly for infants. Medical procedures were cancelled, hospital beds were taken out of commission. Nearly 1,000 health care workers were furloughed, 1,445 were treated with antibiotics and 4,524 were vaccinated against whooping cough. Eight months later, when the state health department had completed the standard culture tests, not one single case of whooping cough could be confirmed. It seems Dartmouth-Hitchcock had suffered an outbreak of ordinary respiratory diseases no more serious than the common cold! The following January the New York Times ran the story under the headline “Faith in Quick Test Leads to Epidemic That Wasn’t.” “Pseudo-epidemics happen all the time,” said Dr. Trish Perl, past president of the Society of Epidemiologists of America. “It’s a problem; we know it’s a problem. My guess is that what happened at Dartmouth is going to become more common.” “PCR tests are quick and extremely sensitive, but their very sensitivity makes false positives likely” reported the New York Times, “and when hundreds or thousands of people are tested, as occurred at Dartmouth, false positives can make it seem like there is an epidemic.” “To say the episode was disruptive was an understatement,” said Dr. Elizabeth Talbot, deputy epidemiologist for the New Hampshire Department of Health, “I had a feeling at the time that this gave us a shadow of a hint of what it might be like during a pandemic flu epidemic.” Dr. Cathy A. Petti, an infectious disease specialist at the University of Utah, said the story had one clear lesson. “The big message is that every lab is vulnerable to having false positives. No single test result is absolute and that is even more important with a test result based on PCR.” The Swine Flu Panic of 2009 In the spring of 2009 a 5-year old boy living near an intensive pig farm in Mexico went down with an unknown disease that caused a high fever, sore throat and whole body ache. Several weeks later a lab in Canada tested a nasal swab from the boy and discovered a variant of the flu virus similar to the H1N1 Avian flu virus which they labelled H1N1/09, soon to be known as ‘Swine Flu.’ On 28 April 2009 a biotech company in Colorado announced they had developed the MChip, a version of the FluChip, which enabled PCR tests to distinguish the Swine Flu H1N1/09 virus from other flu types. “Since the FluChip assay can be conducted within a single day,” said InDevR’s leading developer and CEO, Prof Kathy Rowlen, “it could be employed in State Public Health Laboratories to greatly enhance influenza surveillance and our ability to track the virus.” Up until this point the top of the World Health Organisation (WHO) Pandemic Preparedness homepage had carried the statement: “An influenza pandemic occurs when a new influenza virus appears against which the human population has no immunity, resulting in several simultaneous epidemics worldwide with enormous numbers of deaths and illness.” Less than a week after the MChip announcement, the WHO removed the phrase “enormous numbers of deaths and illness,” to require only that “a new influenza virus appears against which the human population has no immunity” before a flu outbreak to be called a ‘pandemic.’ No sooner had the laboratories started PCR testing with MChip than they were finding H1N1/09 everywhere. By the beginning of June almost three-quarters of all influenza cases tested positive for Swine Flu. Mainstream news reported the rise in cases on a daily basis, comparing it with the H1N1 Avian Flu pandemic in 1918 which killed more than 50 million people. What they neglected to mention is that, although they have similar names, Avian Flu H1N1 is very different and much more deadly than Swine Flu H1N1/09 . Even though there had been less than 500 deaths up to this point compared to more than 20,000 deaths in a severe flu epidemic people flocked to health centres demanding to be tested, producing even more positive ‘cases,’  In mid-May senior representatives of all the major pharmaceutical companies met with WHO Director-General, Margaret Chan, and UN Secretary General, Ban Ki Moon, to discuss delivery of swine flu vaccines. Many contracts had already been signed. Germany had a contract with GlaxoSmithKline (GSK) to buy 50 million doses at a cost of half a billion Euros which came into effect automatically the moment a pandemic was declared. The UK bought 132 million doses – two for every person in the country. On 11 June 2009 WHO Director-General Margaret Chan, announced: “On the basis of expert assessments of the evidence, the scientific criteria for an influenza pandemic have been met. The world is now at the start of the 2009 influenza pandemic.” On 16 July the Guardian reported that swine flu was spreading fast across much of the UK with 55,000 new cases the previous week in England alone. The UK’s Chief Medical Officer, Professor Sir Liam Donaldson, warned that in the worst case scenario 30% of the population could be infected and 65,000 killed. On 20 July a study in The Lancet co-authored by WHO and UK government adviser, Neil Ferguson, recommended closing schools and churches to slow the epidemic, limit stress on the NHS and “give more time for vaccine production.” On the same day WHO Director-General, Margaret Chan announced that “vaccine makers could produce 4.9 billion pandemic flu shots per year in the best-case scenario.” Four days later an official Obama administration spokesman warned that “as many as several hundred thousand could die if a vaccine campaign and other measures aren’t successful.” The warnings had the desired effect. That week UK consultation rates for influenza-like illnesses (ILIs) were at their highest since the last severe flu epidemic in 1999/2000, even though death rates were at a 15-year low. On 29 September 2009 the Pandemrix vaccine from GlaxoSmithKline (GSK) was rushed through European Medicines Agency approval, swiftly followed by Baxter’s Celvapan the following week. On 19 November the WHO announced that 65 million doses of vaccine had been administered worldwide. As the year drew to a close it became increasingly obvious that swine flu was not all it was made out to be. The previous winter (2008/2009) the Office for National Statistics (ONS) had reported 36,700 excess deaths in England and Wales, the highest since the last severe flu outbreak of 1999/2000. Even though the winter of 2009 had been the coldest for 30 years, excess deaths were 30% lower than the previous winter. Whatever swine flu was, it wasn’t as deadly as other flu variants. On 26 January the following year, Wolfgang Wodarg, a German doctor and member of parliament, told the European Council in Strasbourg that the major global pharmaceutical corporations had organised a “campaign of panic” to sell vaccines, putting pressure on the WHO to declare what he called a “false pandemic” in “one of the greatest medicine scandals of the century.” “Millions of people worldwide were vaccinated for no good reason,” said Wodarg, boosting pharmaceutical company profits by more than $18 billion. Annual sales of Tamiflu alone had jumped 435 percent, to €2.2 billion. By April 2010, it was apparent that most of the vaccines were not needed. The US government had bought 229 million doses of which only 91 million doses were used. Of the surplus, some of it was stored in bulk, some of it was sent to developing countries and 71 million doses were destroyed. On 12 March 2010 SPIEGEL International published what it called “Reconstruction of a Mass Hysteria” that ended with a question: “These organizations have gambled away precious confidence. When the next pandemic arrives, who will believe their assessments?” But it didn’t take long to find an answer. In December the Independent published a story with the headline “Swine flu, the killer virus that actually saved lives.” The latest ONS report on excess winter deaths had shown that instead of the extra 65,000 swine flu deaths predicted by the UK’s Chief Medical Officer, Professor Sir Liam Donaldson, deaths in the winter of 2009 were actually 30% lower than the previous year. Instead of the low death rate proving that swine flu had been a fake pandemic, confidence in the organisations that had “gambled away precious confidence” was quickly restored by portraying swine flu as something that “actually saved lives” by driving out the common flu. PCR and Law Portraying something as something it isn’t is deception. Doing it for profit is fraud. Doing it by first gaining the trust of the victims is a confidence trick or a con.  In England, Wales and Northern Ireland fraud is covered by the Fraud Act 2006 and is divided into three classes – ‘fraud by false representation,’ ‘fraud by failing to disclose information’ and ‘fraud by abuse of position.’ A representation is false if the person making it knows it may be untrue or misleading. If they do it for amusement, it’s a trick or a hoax. If they do it to make a gain, or expose others to a risk of loss, it’s ‘fraud by false representation.’ If someone has a duty to disclose information and they don’t do it, it might be negligence or simple incompetence. If they do it to make a gain, or expose others to a risk of loss, it’s ‘fraud by failing to disclose information.’ If they occupy a position where they are expected not to act against the interests of others, and do it to make a gain or expose others to a risk of loss, it’s ‘fraud by abuse of position.’ In Dartmouth Hitchcock’s case there’s no doubt that using PCR to identify a common respiratory infection as whooping cough was ‘false representation,’ but it was an honest mistake, made with the best of intentions. If any gain was intended it was to protect others from risk of loss, not to expose them to it. There was no failure to disclose information and nobody abused their position. In the case of swine flu things aren’t so clear. By 2009 there were already plenty of warnings from Dartmouth Hitchcock and many other similar incidents that using PCR to detect the genetic fingerprint of a bacteria or virus may be misleading. Worse still, the potential of PCR to magnify things out of all proportion creates opportunities for all those who would gain by making mountains out of molehills and global pandemics out of relatively ordinary seasonal epidemics. The average journalist, lawyer, member of parliament or member of the public may be forgiven for not knowing about the dangers of PCR, but public health experts had no excuse. It may be argued that their job is to protect the public by erring on the side of caution. It may equally be argued that the massive amounts of money spent by global pharmaceutical corporations on marketing, public relations and lobbying creates enormous conflicts of interest, increasing the potential for suppression of information and abuse of position across all professions, from politics and journalism to education and public health. The defence is full disclosure of all information, particularly on the potential of PCR to identify the wrong culprit in an infection and blow it out of all proportion. The fact this was never done is suspicious. If there were any prosecutions for fraud they weren’t widely publicised, and if there were any questions raised or lessons to be learned about the role of PCR in creating the 2009 Swine Flu panic they were quickly forgotten. The First Rough Draft of History The first rough attempt to represent things in the outside world is journalism. But no representation can be 100% true. ‘Representation’ is literally a re-presentation of something that symbolises or ‘stands in for’ something else. Nothing can fully capture every aspect of a thing except the thing itself. So judging whether a representation is true or false depends on your point of view. It’s a matter of opinion, open to debate in other words. In a free and functioning democracy the first line of defence against false representation is a free and independent press. Where one news organisation may represent something as one thing, a competing organisation may represent it as something completely different. Competing representations are tried in the court of public opinion and evolve by a process of survival of the fittest. Whilst this may be true in theory, in practice it isn’t. Advertising proves people choose the most attractive representations, not the truest. News organisations are funded by financiers who put their own interests first, not the public’s. Whether the intention is to deliberately defraud the public or simply to sell newspapers by creating controversy, the potential for false representations is enormous. Trial By Media Despite the CDC’s own admission that PCR tests “may not indicate the presence of infectious virus,” its use to do exactly that in the case of Covid was accepted without question. Worse still, the measures taken against calling PCR into question have become progressively more draconian and underhanded since the very beginning. The mould was set with the announcement of the first UK death on Saturday 29 February 2020. Every newspaper in Britain carried the same front page story: “EMERGENCY laws to tackle coronavirus are being rushed in after the outbreak claimed its first British life yesterday,” screamed The Daily Mail. The first British victim contracted the virus on the Diamond Princess cruise ship in Japan, not Britain, but it didn’t matter. With less than 20 cases in the UK and one ‘British’ death in Japan, the media had already decided it justified rushing in emergency laws. How did they know how dangerous it was? How were they able to predict the future? Had they forgotten the lessons of the 2009 Swine Flu panic? After almost 2 weeks of newspaper, TV and radio fearmongering, Prime Minister Boris Johnson made it official at the Downing Street press conference on Thursday 12 March 2020 when he said: “We’ve all got to be clear. This is the worst public health crisis for a generation. Some people compare it to seasonal flu, alas that is not right. Owing to the lack of immunity this disease is more dangerous and it’s going to spread further.” None of that statement stood up to scrutiny, but none of the hand-picked journalists in the room had the right knowledge to ask the right questions. After 20 minutes blinding the press and public with science, Johnson opened the floor to questions. The first question, from the BBC’s Laura Kuenssberg, set the mould by accepting the Prime Minister’s statement without question:  “This is, as you say, the worst public health crisis for a generation.” Any journalist who remembered the 2009 Swine Flu panic, might have asked how the PM knew, after just 10 deaths, that it was the worst public health crisis in a generation? He didn’t say it may be or could be but definitely ‘is.’ Did he have a crystal ball? Or was he following the same Imperial College modelling that had predicted 136,000 deaths from mad cow disease in 2002, 200 million deaths from bird flu in 2005 and 65,000 deaths from swine flu in 2009, all of which had proved completely wrong? As the BBC’s chief political correspondent Kuenssberg wouldn’t be expected to know any more about science, medicine, or PCR than any other member of the general public. So why did the BBC send their chief political correspondent to a press conference on public health and not their chief science or health correspondent? And why did the PM choose her to ask the first question? But the BBC wasn’t alone. Six other correspondents from leading news outlets asked questions that day; all were chief political correspondents, none were science or health correspondents. So none of the journalists allowed to ask questions had the necessary knowledge to subject the PM and his Chief Scientific and Medical Officers to any degree of real scrutiny  With the rise in the number of coronavirus ‘cases’ and ‘deaths’ reported on a daily basis and the Prime Minister’s solemn warning that “many more families, are going to lose loved ones before their time” filling the headlines the following morning, questioning what the numbers actually meant became more and more impossible. If the press and the public had forgotten the 2009 Swine flu panic, and those who helped calm it down had dropped their guard, those whose intention was to make a gain had learned their lesson. Subject the Corona Crisis of 2020 to close scrutiny and it begins to look more like a carefully orchestrated advertising campaign for vaccine manufacturers than a genuine pandemic. But that scrutiny has been made impossible for all kinds of reasons. ‘Follow the money’ was once the epitome of investigative journalism, popularised in the movie of the Watergate scandal, ‘All The President’s Men’ which followed the money all the way to the top. Now following the money is called ‘Conspiracy Theory’ and is a sackable offence in journalism, if not yet in other professions. The idea that there may be real conspiracies to make false representations with the intention of making a gain or exposing others to a risk of loss has now been driven so far beyond the pale it’s literally unthinkable.  If PCR has been tried by media in the court of public opinion, the case for the prosecution was demonised and dismissed at the outset and prohibited by emergency legislation soon after. The Last Best Hope The last line of defence against false representation in both science and the media is the law. It’s no coincidence that Science and Law use similar methods and similar language. The foundations of the Scientific Method were laid by the Head of the Judiciary, the Lord Chancellor of England Sir Francis Bacon, in the Novum Organum, published exactly 400 years ago last year. Both are based on ‘laws,’ both rely on hard physical evidence or ‘facts,’ both explain the facts in terms of ‘theories,’ both test conflicting facts and theories in ‘trials’ and both reach verdicts through juries of peers. In science the peers are selected by the editorial boards of scientific publications. In law they’re selected by judges. In both law and science trials revolve around ‘empirical’ evidence or ‘facts’ – hard physical evidence that can be verified through the act of experiencing with our five senses of sight, sound, touch, smell and taste. But facts by themselves are not enough. They only ‘make sense’ when they are selected and organised into some kind of theory, narrative or story through which they can be interpreted and explained. But there’s more than one way to skin a cat, more than one way to interpret the facts and more than one side to every story. To reach a verdict on which one is true, theories have to be weighed against each other rationally to judge the ratios of how closely each interpretation fits the facts. Trial By Law The ability of PCR to detect the genetic fingerprint of a virus is proven beyond reasonable doubt, but its ability to give a true representation of either the cause, severity or prevalence of a disease hasn’t. To say the jury is still out would be an understatement. The jury has yet to be convened and the case yet to be heard. Testing coronavirus particles in a swab is no different to testing apples in a bag. A bag of billiard balls rinsed in apple juice would test positive for apple DNA. Finding apple DNA in a bag doesn’t prove it contains real apples. If the dose makes the poison then it’s the quantity we need to test for, not just its genetic fingerprint. Grocers test the amount of apples in bags by weighing them on scales calibrated against standard weights. If the scales are properly calibrated the bag should weigh the same on any other set of scales. If it doesn’t, local trading standards officers test the grocer’s scales against standard weights and measures. If the scales fail the test the grocer can be prohibited from trading. If it turns out the grocer deliberately left the scales uncalibrated to make a gain they can be prosecuted for ‘false representation’ under section 2 of the Fraud Act 2006. Testing the quantity of viral DNA in a swab, not the quantity of live viruses, is like counting billiard balls rinsed in apple juice as real apples. Worse still, in the absence of standards to calibrate PCR tests against results, tests can show a “million-fold difference in viral load in the same sample.” If a grocer’s scales showed a million-fold difference in the load of apples in the same bag they’d be closed down in an instant. If it can be shown that the grocer knew the weight displayed on the scales may have been untrue or misleading, and they did it to make a gain or expose customers to a loss, it would be an open-and-shut case, done and dusted in minutes. If the law applies to the measurement of the quantity of apples in bags, why not to the measurement of coronavirus in clinical swabs? By the CDC’s own admission, in its instructions for use of PCR tests: Detection of viral RNA may not indicate the presence of infectious virus or that 2019-nCoV is the causative agent for clinical symptoms. From that statement alone it’s clear that PCR tests may give a false representation that is untrue or misleading. If those using PCR tests to represent the number of Covid cases and deaths know it may be misleading and do it to ‘make a gain,’ either monetary or just to advance their own careers, it’s ‘fraud by false representation.’ If they have a duty to disclose information and they don’t do it it’s ‘fraud by failing to disclose information.’ And if they occupy positions where they’re expected not to act against the interests of the public but do it anyway it’s ‘fraud by abuse of position.’ If the law won’t prosecute those in authority for fraud, how else can they be discouraged from doing it? As Dr. Trish Perl said after the Dartmouth Hitchcock incident, “Pseudo-epidemics happen all the time. It’s a problem; we know it’s a problem. My guess is that what happened at Dartmouth is going to become more common.”The potential of PCR to cause problems will only get worse until its validity to diagnose the cause and measure the prevalence of a disease is tested in law. The last word on PCR belongs to its inventor, Kary Mullis: “The measurement for this is not exact at all. It’s not as good as our measurement for things like apples.” Tyler Durden Mon, 12/06/2021 - 23:40.....»»

Category: blogSource: zerohedgeDec 7th, 2021

Transcript: John Doerr

   The transcript from this week’s, MiB: John Doerr, Kleiner Perkins, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This… Read More The post Transcript: John Doerr appeared first on The Big Picture.    The transcript from this week’s, MiB: John Doerr, Kleiner Perkins, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have, yes, an extra special guest, John Doerr of the famed venture capital firm Kleiner Perkins is here to discuss all things venture capital and climate related. He has a new book out that’s really quite interesting. We talk about everything from crypto to Tesla to beyond me, to all of the opportunities that exist in order to help moderate and reduce carbon in the atmosphere and the potential climate crisis that awaits us if we don’t change our ways. So, Doerr is a venture capitalist. He invests money in order to generate a return. These aren’t just finger-wagging-be-green-for-green sake. He describes their venture fund which they put nearly a billion dollars into it 10 years ago and now, it’s worth over three billion. That’s how successful the returns have been. He describes the climate crisis as a multitrillion dollar opportunity. Yes, we need to do something in order to make sure we leave our children and grandchildren a habitable Earth. At the same time, there is a massive opportunity in everything from food to electrical grid, to transportation, on and on and on. It really is quite fascinating somebody like him sees the world from both perspectives, from the, hey, we want to make sure we have a habitable place to live but he can’t take off his VC hat and he sees just massive opportunities to do well by doing good. Really, a fascinating conversation. With no further ado, my interview with Kleiner Perkins’ John Doerr. ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. RITHOLTZ: My extra special guest this week is John Doerr. He is the famed venture capitalists known for his work at Kleiner Perkins Caufield & Byers. The venture capital firm operates 32 funds. They’ve made more than 675 investments, including such early-stage funding for companies like Google, Twitter, Amazon and too many others to list. Doerr still holds a substantial stake in his initial investment in Google. His most recent book is “Speed & Scale: An Action Plan for Solving our Climate Crisis Now.” John Doerr, welcome to Bloomberg. JOHN DOERR, CHAIRMAN, KLEINER PERKINS: It’s thrilled to be here with you, Barry. Thank you. RITHOLTZ: And I’m thrilled to talk to you. Let’s go back to the early parts of your career before we start to get current. You originally joined Intel because you couldn’t land a gig as a venture capitalist. Tell us a little bit about that. DOERR: I came to Silicon Valley with no job, no place to live and incidentally, no girlfriend. The lady I’ve been dating decided I was too persistent and dumped me. So, I — my real goal was to win my way back into her heart and to join with some friends to start a company. I wanted to start a company and I heard that venture capital had something to do with that. So, I cold called all the venture capitalists and some of them returned my call in the mid-70s and they looked at my experience and uniformly included that I should go get a real job. That was their advice. I remember Dick Gramley (ph) said, we just backed a small new chip company called Intel, why don’t you interview for a job there, and I did. And lo and behold, unbeknownst to me, my former girlfriend, Ann Howland, now Ann Howland Doerr, has gotten a job at Intel. I got a job there and when I arrived that first summer day, I was surprised to see her there and she was not happy to see me. So, it took the rest of the summer to put our relationship back together again. But I love Intel, it was a dynamic place. They just invented the microprocessor and I’ve seriously considered abandoning my graduate education in business as it turns out to just stay at Intel. But I returned there after graduating and worked for, I guess, four or five years helping democratize computing as to get microprocessors used in everything from traffic lights to defibrillators, to nuclear resonance magnetic imaging systems, and it was all because I wanted to be part of new rapidly growing companies. RITHOLTZ: How did you work your way from Intel to venture investing? How did you find your way to Kleiner Perkins? DOERR: I got a phone call one day from a friend who said, hey, John, I just finished interviewing for job at a venture capital firm, Kleiner Perkins Caufield & Byers. It sounded to me like a law firm. I really didn’t know them. But he said, you should go interview there because what they want to add to their team is someone younger professional with a strong technical background, a good network in Silicon Valley, and a passion for startups. I think you and they would make a great fit. So, I didn’t — they ran an ad actually in the “Wall Street Journal” for this position which I didn’t see. But I called up, I interviewed and got a job there as an entry level professional, a gofer, I did everything. I carried people’s bags. I read business plans. But there was one important condition that I had and that is I made them promise that they would back me with my friends in starting a company. I went to work there because, honestly, I wasn’t interested in venture capital. I wanted to be an early ’80s entrepreneur. And they had — they agreed to that and pointed out that they had backed other young partners at Kleiner in writing business plans. Bob Swanson had written a business plan for Genentech that led to the whole biotech industry and Jimmy Treybig had done the same thing with Tandem Computers. My current partner, Brook Byers as the young partner at Kleiner wrote the business plan for hybrid tech. So, Eugene Kleiner and Tom Perkins were unusual and I’d even say mythic or epic figures in that they had technical backgrounds. They started their own companies and they felt that was part of what their venture capital firm ought to do. RITHOLTZ: So, here’s the key question, how come you never left Kleiner Perkins? Why didn’t you launch your own startup? DOERR: Well, I did. They backed me in doing it. The first was one called Silicon Compilers. I became the full-time CEO and founder of that with a Cal Tech professor, Carver Mead. RITHOLTZ: Sure. DOERR: Then as I worked with companies like Compaq, Sun Microsystems, they were growing really rapidly, I realized I was not at all qualified to advise these entrepreneurs. So, I took another 18-month leave of absence from Kleiner to run the desktop division of Sun and almost left Kleiner permanently to do that. But Ann and I wanted to start a family and she said, you know, you’re doing this Sun thing and keeping involved in Kleiner, it’s just not going to work, we have to make some choices here. And so, I left my operating role at Sun. But never gave up an interest in starting new companies and did that again at a later time with a company called @Home. You may remember that they … RITHOLTZ: Sure. DOERR: … standardized and commercialized the cable modem to access the Internet. Before the @Home venture, access to the Internet was really very slow and cable modem swept the United States and our company was key in making that happen. RITHOLTZ: So, I like this quote from you, “If you can’t invent the future, the next best thing is to fund it.” And so, I guess that helps to explain your move from Sun over back to Kleiner Perkins. DOERR: Exactly. It was Alan Kay, the Chief Scientist at Apple, who said the best way to predict the future is to invent it and while I’ve made some inventions, they’re modest, my better fortune has been to find amazing entrepreneurs, identify them and then help fund and accelerate their success. RITHOLTZ: Quite interesting. Amazon, Netscape, Applied Materials, Citrix, Intuit, Genentech, EA Sports, Compaq, Slack, Uber, Square, Spotify, Robinhood, that is just an amazing, amazing list of startups that you guys were fairly early investors in. Any of them stand out as uniquely memorable to you? DOERR: Well, two of the standouts got to be Amazon and Google, now, Alphabet, because, what are they, they’re two of the four or five most valuable companies in the world and I think both of them have profoundly changed the way that we live, communicate, educate, inform, conduct commerce, see the world. They both — what they both have in common is exceptional founders and really strong management teams who have a sense of urgency and a focus on either large new markets or large existing markets that deserved and have benefited from disruption. So, I remember when I was first offered a position at Kleiner Perkins, I told them that I thought it was kind of unfair that they would pay me to do the job. I would pay them for the privilege of working with these amazing entrepreneurs and founders. RITHOLTZ: So, when you’re thinking about putting money into the Amazon in the mid ’90s or Google in the late ’90s, at any point in that process, are you thinking, sure, these can become $2 trillion companies soon? DOERR: Well, I had no really good idea how big they could be. So, I put the question to Jeff Bezos and his response was, well, John, I don’t know but we’re going to get big fast. At that time, I kicked up something of a firestorm by proclaiming that the Internet had been under hyped and it might be the largest legal creation of wealth in our lifetimes. But I was more clear and explicit with Larry Page when I met with him and Sergey and I asked Larry, how big Google would get. I’ll never forget this, Barry. He responded to me without missing a beat, 10 billion, and I said, just to test myself, I said, surely, you mean market capitalization, don’t you, and he said, no, John, I mean revenues. We’re just beginning in the field of search and you cannot imagine how much better it’s going to get over time. And sure enough, he was, he was more than right. RITHOLTZ: To say the very least. So, let’s talk a bit about Google. You are known for introducing to both Larry and Sergey your concept of, OKRs, objectives and key results. What was the impact of that on Google? How did they respond to your suggestion on come up with objectives and come up with ways to measure your progress? DOERR: So, for everyone in your audience, objectives and key results or OKRs is a goalsetting system that Andy Grove invented at Intel and that’s because in the semiconductor industry, I’m a refugee from the semiconductor industry, you got to get tens of thousands of people to get lines that are a millionth of a meter, one micron wide, exactly right or nothing works, the chips fail. So, you need exceptional discipline, attention to detail, focus and execution. And so, Andy came up with the system. I was so enamored of it. When I left Intel, I took it everywhere I went from nonprofits to startups to large companies. The Gates Foundation in the nearly days, for example, how — they were — I mean, they were a very large nonprofit startup and an important one for the planet. So, I took Andy Grove’s system to Larry and Sergey, the founders of Google, in the very early days and I went through it with them and at the end of it asked them, so, guys, what you think, would you use this in growing Google, and Larry was — had no comment whatsoever. But Sergey, he was more like brilliant. I’d like to tell you, Barry, that he said, we love this, we’re going to adopt it wholeheartedly. Well, the truth of the matter is what he said was, we don’t have any better way to manage this Google company. So, we’ll give it a try, which I took as a ringing endorsement because what’s happened since then to this day, every Googler, every quarter, writes down her objectives and key results and publishes them for the entire company to see and interestingly, they never leaked. So, there’s 140,000 Googlers who are doing this four times a year. They’re graded. But at the end of each quarter, they’re swept aside because they’re not used for bonuses or promotions. They serve a higher purpose and that’s a collective social contract to get everybody focused and aligned and committed in tracking their progress to stretch for almost impossible to achieve goals. And I’m telling you this story because the same system that Andy Grove invented has now spread pretty broadly through the technology and other sectors of the economy and it’s at the heart of this plan that we have called speed and scale to deal with climate crisis. RITHOLTZ: Quite interesting. I want to stick with some of the early investments that you made and ask a really broad general question, how likely is it that a company you made in early stage investment in ends up looking like the company you thought you were investing in, meaning, how often do companies iterate or pivot into something totally different from what you thought you were getting involved with? DOERR: Well, I was going to say not often if it’s totally different. But if it’s meaningfully different, that happens all the time. And that’s why in the venture capital work that we do, it’s so important to back — to find fund and build a relationship with the right people because the people and the quality of the team is going to affect how they pivot, how they adapt their business plan to changing markets, changing technologies, changing opportunities. RITHOLTZ: Very interesting. So, you mentioned Amazon and Google as just uniquely memorable startups. What about some memorable ones that you thought would work out that didn’t or I know VCs love to talk about look how silly we are, we had an opportunity to invest in X and we passed and now X is fabulously successful, what stands out in that space? DOERR: Well, the standout in that space is the bad decision we made to invest in Fisker instead of in Tesla and at that time, they had similar strategies, which was to enter the electric vehicle market with high-end luxury, pretty expensive car and then to drive the cost of that vehicle down over time. Both companies were struggling to raise money. One of them had experienced executive from the automobile industry, fundamentally a designer by the name of Henrik Fisker as its founder and CEO. The other had Elon Musk who had no automobile industry experience but was determined to reinvent every part of the automotive car doing it more as a machine to run software than a collection of subsystems procured from the automobile industry. We made the wrong call and the rest is history. RITHOLTZ: That Fisker, that first Fisker car was just a gorgeous design and at that time, Tesla was taking old Lotus convertibles and filling them with laptop batteries. Between the two, it’s pretty easy to see how the Fisker opportunity really looked more intriguing than Tesla did way back when. How typical is that for the world of venture? DOERR: It happens all the time. RITHOLTZ: All the time. DOERR: That’s what makes the job of finding funding and accelerating the success of entrepreneurs hard. RITHOLTZ: To say the very least. So, there was just a new report that came out. It said, renewable energy in the U.S. has quadrupled over the past decade. So, we’re all good, right? There’s nothing else to worry about with the climate? DOERR: I wish that was true. I came to this project, this passion back in 2006 when Al Gore’s movie, you remember “An Inconvenient Truth” appeared. RITHOLTZ: Sure. DOERR: And I took my family and friends to see it and we came back for a dinner conversation and went around the table to see what people thought. When it came turn for my 16-year-old daughter Mary Doerr, she said, I’m scared and I’m angry. She said, dad, your generation created this problem, you better fix it. And, Barry, I was speechless, I had no idea what to say. So, I set out with partners at Kleiner Perkins to understand the extent of the climate crisis, even hired Al Gore as a partner and over time, over three funds, invested a third up to a half of the funds, total about $1 billion in some 70 climate ventures, most of which failed and, in fact, it’s hard, it’s very hard to grow a climate tech or green tech venture. It’s pretty lonely in the early days of doing that. And we almost lost all of our investments but we stood by these entrepreneurs and they produced companies like Beyond Meat or Enphase or the NEST smart thermostats and today are worth some $3 billion. But that was then, this is now. I think what’s important about now is we need way greater ambition and speed to avert catastrophic, irreversible climate crisis. I mean, the evidence is all around us. We’ve got devastating hurricanes and floods and wildfires and 10 million climate refugees. The IPCC says that if we don’t reduce our carbon emissions by 2030 by 55 percent, we will see global warming overshoot by more than 2°C, nearly 4°F. And the Paris accords, which were agreed to in 2015, if we were achieving them, it would still cause us to land at around 2°C. The bad news is we’re not close to achieving any of those goals. So, the latest report from the UN said this is a code red problem and I also see all problems as opportunities. Barry, I think this is going to be the greatest opportunity, human opportunity, social opportunity, economic opportunity for the 21st century. RITHOLTZ: So, let’s talk a little bit about that opportunity. You talked in the book about cutting emissions in half by 2030 and net zero by 2050 and you referenced six main areas of attack, transportation, the electrical grid, food, protecting nature, cleaning up industry, and then removing carbon from the atmosphere. Let’s talk a little bit about each of those because they’re all quite fascinating. We were talking about Tesla, how quickly do we think that we’re going to be past internal combustion engines with a fully electrified transportation network? DOERR: Well, that’s a great question and we can — I want to put this in context. Every year, we dump 59 gigatons of carbon, greenhouse gas emissions in the atmosphere as if it’s some kind of free and open sewer. And so, the book and the research behind it has built a plan in electrifying transportation and the other five for which each of the objectives has three to five key results. These are Andy Grove Intel style, very measurable specific steps in transportation. It says that electric vehicles will achieve parity, price performance parity with combustion engines in the U.S. by 2024. It says one of two new personal vehicles purchased worldwide are electric vehicles by 2030. So, what I’m trying to say is this is a global plan. RITHOLTZ: Right. DOERR: We’ve seen some nations of the world, some states like California say they’re going to ban the sale of internal combustion vehicles. And there’s also key results for buses, for trucks, for miles driven, for airplanes and maritime and this whole plan is available for free. You can download it at the website speedandscale.com. So, it’s pragmatic, it’s ambitious, it’s almost unachievable. It’s a total of 55 key results for the world, numeric time bound, and we’ve got to get after them all at once. We can’t take turns. We’re not going to achieve all of these, Barry. It’s — but if we fall short on one, we can make ground faster in others. Now, I don’t want to intimidate people by how big — how tall an order this is. The book also includes 35 stories from entrepreneurs and policymakers and leaders and innovators, leaders of indigenous tribes that describe in their own words their struggle, their successes, their journey to change the world. One of my favorites is of a cross-country team who got together to petition their school district to go to cleaner busses. They were sick and tired of running behind diesel buses with polluted air and it shows that something that I deeply believe and that is we’re fast running out of time. And so, yes, we need individuals to take individual action to eat less meat, use photovoltaic solar and buy an electric vehicle if you can afford it. But I’ve really written this book for the leader inside of everyone, their inner leader, and that’s their ability to influence others to act as a group like this cross-country team of runners in Maryland who got their school district to adopt electric buses. What the book shows is that we can get this job done but, as I said, we’re fast running out of time. RITHOLTZ: So, let’s talk a little bit about — by the way, the bus discussions in the book are quite fascinating not just because China leapt out to a big lead and have been very aggressively replacing diesel buses with electric buses but you helped fund an entrepreneur in the U.S. that’s gone around and has done a great job getting cities to purchase electric buses. The transportation grid is clearly an issue but as you point out, that’s only six gigatons. A bigger issue is the grid, the electric grid, which produces 21 gigatons of emissions. Tell us about what we need to do to decarbonize the electrical grid. DOERR: 100%, you’re right. If we move to electric vehicles but we still use coal to generate electricity, we won’t have reduced emissions. And the biggest opportunity is to decarbonize the grid and that’s to take today’s 24 gigatons of emissions mostly from goal, also natural gas to generate electricity. Take that 24 down to three gigatons. So, the first key result, the biggest of them, is to get 50 percent of our electricity from zero emission sources globally by 2025 and get it down to 38 percent — get a 90 percent by 2035. That would save us 16.5 gigatons. Simply put, we need to move to renewable sources like wind and solar and invest in longer-term durable storage so that we have reliable energy when the wind isn’t blowing and the sun isn’t shining. RITHOLTZ: So, let’s talk about that battery technology a little bit. We’ve seen a series of incremental improvements over time but nothing has been like an order of magnitude improvement. Will we be able to get there soon enough? Do we need a Manhattan project for batteries or are all those incremental improvements compounding and we’ll get there eventually? DOERR: Much of the improvement that is needed in all of these technologies is lowering their costs. And so, batteries today are still too expensive for electric vehicles in India and in China. They’re barely affordable in the U.S. marketplace. RITHOLTZ: Right. DOERR: And so, the book tells the story of QuantumScape, I’ll disclose, a public company that I’ve invested in and served on the board of, an entrepreneur by the name of Jagdeep Singh and he is going for a quantum improvement in batteries to more than double their energy density. The energy density of a battery is how much energy you’ll get out of it for a pound of weight of a battery and it’s especially important in electric vehicles because the most expensive part of the vehicle is the battery and it’s the heaviest part and you got use energy to move the weight around. So, if you double the energy density of a battery, you can get a three or four times systems improvement in the vehicle itself. I’m not expecting, I don’t think anyone is forecasting an order of magnitude improvement. We’ve seen considerable lowering costs of batteries over time. But the QuantumScape innovation, which is an all solid-state battery, would be a genuine breakthrough. RITHOLTZ: Let’s talk a little bit about food, another key source of emissions. How can we become more efficient in growing the food affecting the menu of what we eat and reducing enough food waste to make a difference? DOERR: There’s three big things t to do about food. The first is to reduce the meat and dairies in our diet and I’m not saying cut them out entirely but to replace some of that with delicious, healthy plant-based proteins. And the book tells a story of Beyond Meat and the crusade of its founder. He struggled and mortgaged his house to lead the revolution in plant-based protein. It turns out that there’s a billion cows on the planet. The book tells you their story as well. If they were a nation, it would be the third largest country in terms of the emissions. The second big thing to do about food is to reduce food waste. Globally, 30 percent of the food that we produce is wasted and taking some straightforward measures we think that can be reduced. Our goal is to reduce it to 10 percent of the food that we produce, particularly when you consider the population will grow to 10 billion by the end of the century. Finally, we got to get more efficient with how we grow food and we can, for example, apply fertilizer much more precisely with new technologies. All in all, the food sector is a way for us to reduce nine gigatons of emissions to two gigatons by 2050 or a net gain of seven out of the 59 gigatons that we got to drive to zero. RITHOLTZ: So, we’ve spent a lot of time talking about beef and agriculture generally. But let’s talk about commercial fishing, what’s the impact of our fishing practices on the health of the oceans and its ability to absorb carbon and reflect heat? DOERR: Well, over fishing together with over drilling and over development have released huge amounts of carbon from the ocean floor and life and if we prevented the destruction of mangroves and other ocean life, we could prevent a gigaton of emissions from entering the atmosphere every year. Our plan calls to eliminate deep sea bottom trawling, which is an especially destructive practice. Bottom trawling releases one and a half gigatons of CO2 equivalent emissions. It also calls for increasing the protection of oceans to 30 percent by 2030 and 50 percent by 2050. I want to call out, this is an area of climate ambition that Walmart is staking out an important and powerful leadership position. Not only that they said they’re going to have their supply chain be carbon neutral by 2040 but they are going to preserve, protect millions of acres of land and ocean water in the effort to become the first scale regenerative company. RITHOLTZ: Really, really interesting. So, very often, the average person listening to a conversation like this thinks, well, what can I do, I’m just one person. What’s the balance of responsibility between individuals on one side and government and institutions on the other? DOERR: We need all the forces in our economy, in our society to come together and work on this. We need innovators. We need entrepreneurs. We need policymakers. We need investors. We need to hear more from impassioned youth. In 2018, Greta Thunberg was a single high school student skipping school on Fridays. A year later, in 2019, in December, she organized a million-person march in a hundred cities around the world and specifically, she made the climate crisis atop two voting issue in the nations in Europe. Barry, it is not a top voting issue in the U.S. It is not a top issue in China or even in India. So, we have work to do and that’s one of our accelerants, the ways we get all this done faster and that’s to turn movements into specific actions. We really need individuals to lead others in powerful ways. That’s, for example, employees, pushing your employers to make net-zero commitment or shareholders and investors demanding changes in the board rooms. It turns out that changing the lightbulbs and eating less meat is important but we’ve got to go further. We’ve got to change our laws or even our lawmakers in order to avert this climate crisis. RITHOLTZ: Quite fascinating. I want to talk about some of the things you’ve said in the book that apply everywhere but are especially applicable to the climate crisis. Let’s start with, quote, “It seems every dozen years we witness magical ever-exponentially larger waves of innovation.” So, let’s start first with climate, how and where are those waves of innovation coming that’ll help ameliorate the climate crisis? DOERR: Well, the innovations are happening on many fronts, the material sciences, electrochemistry, biology. The opportunity that the climate transition to a clean energy the economy represents is the largest of our lifetime. It’s a bigger mobilization than even the effort of the allies to defeat the Nazi Axis in World War II. You’ll remember then, we shut down for four years all manufacturing of automobiles and appliances and instead, created 268,000 fighter aircrafts, 20,000 battleships. It was a monumental effort dealing with an existential threat. And that same level of innovation and ambition is required to win in this climate campaign. Other areas of breakthroughs or innovations, I’m even becoming a believer that we’ll see nuclear fusion. That’s the kind of clean energy that comes from the sun, practical within a decade. Concrete and steel that’s carbon free, long duration storage, the opportunities to reimagine and reinvent how we create, share, transmit and use energy in every facet of our lives is as big an opportunity as we’ll see in our lifetime. RITHOLTZ: So, let’s stay focused on that opportunity for a minute. This isn’t a charity or a foundation that’s doing this for free. When we look around, there are actual venture investments that you’ve been making successfully. So, you past on Tesla but somebody put money into Tesla. Wind turbines, solar, Beyond Meat is now public company. You are an early investor into that. You’re looking at this as more than just, hey, we have to do this in order to make sure that we don’t have a runaway greenhouse effect and Earth turns into Venus and becomes uninhabitable. But there are also very legitimate economic opportunities here also. Expound on those a little bit. DOERR: Well, there’s no better example than Tesla which had gone from a struggling company reliant on loans, thank you, United States taxpayers, to the sought most valuable company in the world. And by some measures, Elon Musk is the most — is the richest individual in the world. He took on huge risks and he delivered for his customers and shareholders, his country and his planet. And the best of the work that Elon has done is inspire, perhaps, through fear but certainly by example the rest of the automobile industry to accelerate their shift to clean and electric vehicles. So, this is, how I like to say, the mother of all markets. It’s a monster market. Batteries alone, the batteries to move from internal combustion vehicles to electric vehicles, are estimated to be $400 billion per year, Barry, for 20 years. We are going to — we must recreate all the infrastructure that we use to power out planet. RITHOLTZ: Let’s talk about something we haven’t gotten to when we were talking about those larger waves of innovation. Lots of folks are excited about blockchain and crypto and Web 3.0. But when we look at things like Bitcoin, it’s a big energy hog, how do we reconcile all the wealth that’s being created there with its massive electricity consumption? DOERR: Its electricity consumption is sustainable and so, we’re going to have to move to clean Bitcoin, green Bitcoin and we’ll get there by regulation, if not, by other market forces I would predict. Today, I believe that Bitcoin uses as much energy as the entire nation of Sweden. So, Bitcoin, I believe, is here to stay but it — we can’t fuel it through dirty electricity. RITHOLTZ: You mentioned concrete earlier and I also read in the book that you want to end single-use plastics. What does the world of material science promised us for replacing things in those spaces? How do you replace concrete? How do you replace single-use plastic? DOERR: Concrete is probably the hardest problem of all because in the production of the concrete, you almost must create carbon emissions. We can reduce the energy use to make concrete. There are some concrete innovations that absorb the CO2 into the material. But that’s an area where we need more innovation. What was your second area? RITHOLTZ: Single-use plastics. DOERR: Single-use plastics. The plan calls for the banning and really the replacement of single-use plastics. The banning of single-use plastics and in general to replace plastics with compostable materials that can be recycled and I am confident that with investment and entrepreneurial work, we can get that done. RITHOLTZ: So, we haven’t really talked about pulling carbon out of the atmosphere. I get the sense from some people that they’re expecting some technological magic bullet that’s going to solve climate change. Tell us about how we can remove carbon from the atmosphere and is there a magic bullet coming. DOERR: The speed and scale plan calls for us to remove 10 gigatons of carbon dioxide per year. I emphasize remove. This will be gigatons of CO2 emissions that we were not able to eliminate, we were not able to cut, we were not able to slash. They’ll be some uses of aviation fuel as an example or other stubborn carbon. Two approaches to this, one of which is to innovate around nature-based ways of removing CO2. For example, growing greater kelp forest in the oceans. But the other that has captured a lot of attention is called direct air capture or that’s engineered removal of carbon. Think of them as kind of mechanical trees and this technology works today but only at small scale. It sucks the CO2 out of the air. It requires a lot of electricity in order to do that. And so, it’s very expensive today, some $600 per ton. If we’ve got to remove five gigatons per year at $600 per ton, that’s $3 trillion a year and it’s hard to see how that’s affordable. So, entrepreneurs are hard at work to lower those costs and I hope they do. RITHOLTZ: So, there’s a quote I like from another venture capitalist who said venture capital properly deployed can solve the biggest problems, filling the void left by shrinking scientific ambitions of governments, foundations and international organizations. What are your thoughts on that approach? How crucial is venture capital to our future and can it replace these other entities? DOERR: Venture capital is crucial and it’s stepping up to the challenge. There will be an estimated $30 billion invested venture capital in climate technologies this year. Our plan calls for 50 billion this year. But venture capital is not going to get this job done on its own. We need government-funded research and development to grow in the U.S. alone to 40 billion a year. Other countries have got to triple their funding. We need project financing. We need philanthropic investing. Jeff Bezos’ commitment of $10 billion to the Bezos Earth Fund is the largest philanthropic commitment to climate crisis that we’ve ever witnessed or enjoyed. There’s really four accelerators that will get this job done. One of them is investing. Another is innovation, the work of entrepreneurs. But I think the hardest are going to be to turn our movements into actions so we get the politics and the policy correct because it’s going to take a massive, collective, coordinated effort to achieve our ultimate OKR and that’s to take 59 gigatons of emissions to net zero by 2050. RITHOLTZ: That’s an ambitious target and if we miss that target, what are the ramifications? DOERR: We’ll leave our kids and our grandkids an uninhabitable planet. We’ll see the Arctic sea ice surely melts away. We’ll have — estimates are up to a billion climate refugees. There’s 10 million of them already. Hundreds of millions of people will starve. It’s unthinkable. And so, we must get this done. RITHOLTZ: So, let me turn this back to what’s going on in the world of venture now. When the early decades of you work at Kleiner Perkins was into a very friendly IPO market, how much does timing matter broadly, meaning, hey, if there’s an exit available, if there’s a big IPO market that makes it more likely people are going to invest in these companies and have a successful exit. Tell us a little bit about timing. DOERR: Well, investors, myself included, will stop at nothing to copy success. So, the timing of today’s markets for climate technologies whether it’s Tesla or Rivian or better batteries or Beyond Meat, it’s good and I would say in the long run, it’s going to continue to be good because the size of the markets and the need, the economic need, the opportunity, and the planetary pressures. RITHOLTZ: So, if a younger venture capitalist or a newfound venture fund came to you and ask for advice, what would you tell them about this opportunity? DOERR: There’s so many different venture firms and strategies. I would say to them that this is the greatest opportunity with 21st century that they should be strategic about their contribution. Is it to work with early-stage entrepreneurs and removing technical risks or at the other extreme, is it to be smart and sharp about project financing? But the overall costs of the transition from a dirty fossil economy to a clean new energy economy is $4 trillion per year, per year. That sounds like a big number until you compare it with the cost of dirty energy, the social cost, the disruption, the premature deaths. One in five deaths are premature due to carbon pollution. Those come in at about $10 billion per year. So, it’s literally cheaper to save the Earth than it is to ruin it. RITHOLTZ: And there’s just seems to be endless amounts of cash pouring into the venture capital sector. Arguably, it’s never been higher. What are your thoughts on this? Does it worry you? What’s the driver of all this money sloshing around? DOERR: Some people say that we’re experiencing a bubble, a bubble in fintech or Bitcoin or climate technologies. I see it very differently. I think it’s a boom and historically, whether it was the advent of transcontinental railroads or the automobiles, we saw booms which led to full employment, overinvestment, rapid innovation. And, no, not all those car companies survive. But I think the same will be true of the other fields of innovation. I think one of the things that gives me great hope is the power of human ingenuity. We got ourselves into these specs and, Barry, I’m betting, we’re going to figure our way out. RITHOLTZ: So, what do you say to people who sort of posture Silicon Valley’s best days are behind it? Do you have a response to any of those folks? DOERR: I think they’re wrong. I think provided we deal with this existential threat, the climate crisis, and that is not guaranteed, but provided we do that and we get a 50% reduction in the next decade, I think we’re on track for a wonderful, prosperous, healthy planet. RITHOLTZ: Can I tell you and I should have mentioned this earlier but I read a ton of books for the show and I found the book really quite fascinating and it’s pretty obvious to me that an engineer was behind this. There’s just a lot of great slides and charts and graphs and it’s not just all texts. Parts of it are narrative and parts of it are historical and it reminds me of a well-made slide deck. So, nice job on the book. DOERR: Well, thanks for sharing that. I want to send you a bound version of the book if you’ll email me your physical mailing address. There’s one other thing — other story I might tell you about the book. RITHOLTZ: Sure. DOERR: I was talking the other day with a reader, a mom who told me that every night, she takes two or three pages of the book and she reads them together with her daughter and then they talk about together what that means for the world her daughter is going to inherit, and I thought, wow, that’s the use of the book I never imagined and one that I’m honestly proud of. RITHOLTZ: How — it looks like this was the work of a lot of different people. How did you end up researching and writing this? DOERR: We talked to hundred different leaders in the field, policymakers, researchers, modelers, activists and from those, selected some 35 stories. We ended up with a thousand different data points that we needed to verify and collected those into 500 end notes, which are in the book. And I did it with an amazing small team of three or four on research and writing stuf. I’m an engineer as you know and so I’m not so good with words and I had the benefit of a writing team that helped make this much more readable. RITHOLTZ: Well, it shows, you can see the book is a fast read. I sat down with a bunch of stickies and highlighter and found myself just plowing through chapter after chapter. It was a relatively quick read and very easy to put down and then pick back up again. Each chapter is very distinct and you’ve really laid out a plan to prevent climate catastrophe from taking place. So, thank you for that. DOERR: One thing I want to make sure your audience know is this, they can get a free infographic, it’s a single poster-sized piece of paper that has on both sides of it all the objectives, all the key results, all the measures. And it’s reassuring for people who are fearful that there is a plan and that if we do these things, we can find a way to a habitable planet. That’s what we’ve got to do. RITHOLTZ: So, I know I only have you for a limited amount of time. Let me jump to my favorite questions that I ask all of my guests starting with tell us what you’ve been streaming these days, give us your favorite Netflix or Amazon Prime or whatever podcast you’re listening to. DOERR: So, I haven’t had time for streaming on Netflix. I’ve been doing research, reading books and papers on the climate crisis itself. But getting this word out, I’ve listened to a — I’ve started listening to a couple of new podcast, John Heilemann’s Hell & High Water … RITHOLTZ: Sure. DOERR: … and Tim Ferriss Show, both of which, I think, have a distinctive imprint from their hosts (ph). RITHOLTZ: Tell us about your mentors who helped to shape your career. DOERR: So, the biggest influence on my life was my dad Lou Doerr, an engineer, entrepreneur and hero and I’ve been blessed by a number of mentors, perhaps most notable of them, Andy Grove, and what I learned from him at Intel prompted me to write a first book called “Measure What Matters” and that tells stories of a dozen different organizations using OKRs, which is what then I applied to the climate crisis. I would tell you Al Gore is a hero of mine. He’s wonderfully resolute man who’s impassioned, effective and funny. He and I talked regularly about the climate crisis. RITHOLTZ: Tell us about some of your favorite books, what are your all-time favorites and what are you reading right now. DOERR: So, my current reading, no surprise, is largely around the climate crisis. I love Elizabeth Colbert’s “Under a White Sky” which described climate futures. And two other books are “How to Avoid a Climate Disaster” by Bill Gates, very accessible book, and a profile — a new profile of Winston Churchill called “The splendid and the Vile.” RITHOLTZ: Two good recommendations. What sort of advice would you give to a recent college grad who wanted to pursue a career in venture investing? DOERR: I would say to her gain experience as an entrepreneur. I’d repeat the advice that I was given early in my career which was go get a real job in a real growing tech company and sharpen your skills in the real hard world of business economics and then take that experience to help other entrepreneurs succeed. RITHOLTZ: And our final question, what do you know about the world of venture investing today that you wish you knew 40 years ago? DOERR: I wish I knew 40 years ago how important the team is, the leadership of the team, the recruiting of the team, the growing of the team because in the end, it’s more than large market, it’s more than compelling technologies. It’s teams who know how to execute well. RITHOLTZ: Really, really fascinating stuff. Thanks, John, for being so generous with your time. We have been speaking with John Doerr. He is a partner at famed venture firm Kleiner Perkins and the author of the new book, “Speed and Scale: An Action Plan for Solving our Climate Crisis Now.” If you enjoy this conversation, be sure and check out all of our previous discussions. You can find those wherever you find your favorite podcast, iTunes, Spotify, Acast, wherever. We love your comments, feedback and suggestions. Write to us at mibpodcast@bloomberg.net. Sign up for my daily reads @ritholtz.com. Follow me on Twitter, @Ritholtz. I would be remiss if I do not thank our crack staff that helps with these conversations together each week, Michael Batnick is my head of research, Atika Valbrun is our project manager, Paris Wald is our producer, I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.   ~~~   The post Transcript: John Doerr appeared first on The Big Picture......»»

Category: blogSource: TheBigPictureDec 6th, 2021

Wave Life Sciences Reports Third Quarter 2021 Financial Results and Provides Business Update

Strengthened balance sheet with approximately $52 million; focusing additional investment in RNA editing programs led by hepatic editing Optimized AIMers for AATD program demonstrate potent, highly specific RNA editing and restoration of functional AAT protein substantially above therapeutic threshold; potential for best-in-class, potent and durable RNA editing in vivo in multiple preclinical models and tissues Dosing ongoing in three clinical programs (WVE-004, WVE-003, WVE-N531); data being generated through 2022 to enable decision-making Wave to host investor conference call and webcast at 8:30 a.m. ET today CAMBRIDGE, Mass., Nov. 10, 2021 (GLOBE NEWSWIRE) -- Wave Life Sciences Ltd. (NASDAQ:WVE), a clinical-stage genetic medicines company committed to delivering life-changing treatments for people battling devastating diseases, today announced financial results for the third quarter ended September 30, 2021 and provided a business update. "In the third quarter, we achieved several important milestones including providing a comprehensive update on our potentially best-in-class ADAR editing capability and the initiation of dosing in three clinical trials evaluating our next-generation stereopure PN-modified oligonucleotides," said Paul Bolno, MD, MBA, President and Chief Executive Officer of Wave Life Sciences. "RNA editing is a novel therapeutic modality that greatly expands our landscape of addressable genetically defined diseases. We are leading the way in this new field and quickly working toward announcing our first ADAR editing development candidate for our alpha-1 antitrypsin deficiency program next year. With this program, we are on a path to generate proof of principle that we can harness human biological machinery to edit RNA for the treatment of genetic diseases of the liver, CNS, and beyond." "Our robust and diversified pipeline is driven by our PRISM platform, which enables a unique ability to design and optimize oligonucleotides with novel, stereopure backbone modifications, including PN chemistry. We expect data being generated from our three ongoing clinical trials will enable us to make decisions on next steps for the programs next year. Finally, we recently strengthened our balance sheet via our at-the-market facility and funds received from Takeda under the terms of the amendment, leaving us well-capitalized to deliver on our portfolio, including advancing our first ADAR editing program toward the clinic and expanding our AIMer pipeline to include additional indications." ADAR editing capability recent events and upcoming milestones Leading RNA editing capability using AIMers to harness endogenous ADAR enzymes Wave's RNA editing capability leverages widely expressed endogenous ADAR enzymes to achieve highly specific A-to-I (G) RNA editing using stereopure oligonucleotides, called "AIMers," with and without GalNAc conjugation, to edit RNA in the liver, central nervous system (CNS), and other tissues. In September 2021, during its Analyst and Investor Research Webcast, Wave presented new preclinical data that demonstrated potent and durable editing of UGP2 mRNA out to at least four months post-dose in multiple regions of mouse CNS. Wave is applying ADAR editing to multiple therapeutic targets in the CNS, including restoring functional MECP2 protein for the treatment of Rett Syndrome. Wave also presented preclinical data demonstrating up to 50% editing of UGP2 mRNA in the posterior of the eye of mice at one-month post-single intravitreal injection and ACTB RNA editing in non-human primates (NHPs) using systemic administration, including in the kidneys, liver, lungs, and heart, as well as editing of ACTB in multiple immune cell types in vitro. Wave expects to share additional ADAR editing data using AIMers in scientific publications and presentations in 2022. Alpha-1 antitrypsin deficiency (AATD) program with ADAR editing: Wave's AATD program, its first therapeutic ADAR editing program, uses stereopure oligonucleotides to correct the single base mutation in mRNA coded by the SERPINA1 Z allele. Restoring circulating levels of healthy alpha-1 antitrypsin (M-AAT) protein and reducing aggregation in the liver of mutant protein (Z-AAT) with RNA editing could potentially address both the lung and liver manifestations of the disease simultaneously. In September 2021, during its Analyst and Investor Research Webcast, Wave shared new in vivo data demonstrating durable restoration of M-AAT protein in the liver of transgenic mice with human SERPINA1 and human ADAR following initial doses of a GalNAc-conjugated SERPINA1 AIMer. Using PRISM chemistry optimization, Wave AIMers can achieve highly specific editing of up to 50% of SERPINA1 mRNA in vivo and restore AAT protein in serum to a level four-fold higher than phosphate-buffered saline (PBS) control (or more than 15 micromolar). Ongoing and planned preclinical studies are assessing durability, dose response, pharmacokinetics, and pharmacodynamics. Wave also plans to assess reduction of Z-AAT aggregates in the liver and changes in liver pathology in its transgenic mouse model, with data expected in 2022. Wave expects to announce its AATD AIMer development candidate in 2022. Clinical silencing and exon skipping programs and upcoming milestones WVE-004 for C9orf72-associated amyotrophic lateral sclerosis (C9-ALS) and frontotemporal dementia (C9-FTD): WVE-004 is an investigational stereopure antisense oligonucleotide designed to selectively target transcript variants containing a hexanucleotide repeat expansion (G4C2) associated with the C9orf72 gene, which is one of the most common genetic causes of the sporadic and inherited forms of ALS and FTD. WVE-004 uses Wave's novel PN backbone chemistry modifications (PN chemistry). In July 2021, Wave announced the initiation of dosing in the Phase 1b/2a FOCUS-C9 clinical trial, which is adaptive, with an independent committee to guide dose level and dosing frequency. WVE-003 targeting SNP3 for Huntington's disease (HD): WVE-003, Wave's first HD candidate to use PN chemistry and leverage transgenic models to assess target engagement in vivo, is designed to selectively target the mutant allele of the huntingtin (mHTT) gene, while leaving the wild-type (healthy) HTT (wtHTT) protein relatively intact. Wave's approach to HD is guided by the recognition that people with HD have less wtHTT protein compared to unaffected individuals and a growing body of scientific evidence suggests that preserving as much of this essential protein as possible, when in the setting of stress from toxic mHTT protein, may be important for favorable clinical outcomes. In September 2021, Wave announced the initiation of dosing in the Phase 1b/2a SELECT-HD clinical trial of WVE-003 in patients with early manifest HD. The SELECT-HD trial is adaptive, with an independent committee to guide dose level and dosing frequency. WVE-N531 for Duchenne muscular dystrophy (DMD) amenable to exon 53 skipping: WVE-N531 is Wave's first stereopure splicing candidate and first systemically administered candidate to incorporate PN chemistry. In September 2021, Wave announced the initiation of dosing in an open-label clinical trial of WVE-N531 dosed intravenously bi-weekly in patients with DMD amenable to exon 53 skipping. Dose level and dosing frequency will be guided by tolerability and plasma PK, with possible cohort expansion driven by an assessment of drug distribution in muscle and biomarkers, including dystrophin. Upcoming clinical milestones: Wave expects to generate clinical data through 2022 from WVE-004, WVE-003, and WVE-N531 to provide insight into the clinical effects of PN chemistry and enable decision-making regarding next steps for each program. Corporate developments In October 2021, Wave issued and sold an aggregate block of approximately $30 million in ordinary shares through its at-the-market (ATM) equity program, based on interest received from new and existing shareholders following its Analyst and Investor Research Webcast in September 2021. Wave intends to use the additional capital to accelerate its RNA editing capability, led by its AATD program. In October 2021, Wave announced an amendment to its ongoing collaboration with Takeda, which streamlined the collaboration and allows Wave to advance or partner early-stage CNS programs, including those using ADAR editing. Wave received $22.5 million from Takeda under the terms of the amendment. The amendment did not impact the late-stage component of the collaboration, including Takeda's option to co-develop and co-commercialize WVE-004 and WVE-003. Should Takeda opt in on any of these programs, Wave would receive an opt-in payment, global costs and potential profits would be shared 50:50, and Wave would be eligible to receive development and commercial milestone payments. Third quarter 2021 financial results and financial guidance Wave reported a net loss of $6.2 million in the third quarter of 2021 as compared to $33.1 million in the same period in 2020. Revenue earned during the three months ended September 30, 2021 was $36.4 million, as compared to $3.4 million for the three months ended September 30, 2020. The increase in revenue year-over-year is primarily driven by the $22.5 million paid as part of the amendment to Wave's collaboration agreement with Takeda, which was recognized as revenue in the three months ended September 30, 2021, as well as the recognition of the remaining revenue related to Category 2 research support payments previously paid by Takeda. Research and development expenses were $31.1 million in the third quarter of 2021 as compared to $28.3 million in the same period in 2020. The increase in research and development expenses in the third quarter was primarily due to increased external expenses related to preclinical programs and compensation-related expenses, partially offset by decreased external expenses related to our discontinued programs. General and administrative expenses were $12.9 million in the third quarter of 2021 as compared to $9.6 million in the same period in 2020. The increase in general and administrative expenses in the third quarter of 2021 was driven by increases in compensation-related and other external general and administrative expenses. As of September 30, 2021, Wave had $123.9 million in cash and cash equivalents as compared to $184.5 million as of December 31, 2020. The decrease in cash and cash equivalents was mainly due to Wave's year-to-date net loss of $87.5 million, partially offset by the receipt of $21.2 million in proceeds under Wave's ATM equity program through September 30, 2021. Subsequently, in October 2021 Wave received an additional $52.1 million in cash, including $22.5 million from Takeda under the terms of the amendment to Wave's collaboration agreement with Takeda, and $29.6 million in proceeds under its ATM equity program from a block sale of ordinary shares based on interest received from new and existing shareholders following its Analyst and Investor Research Webcast in September 2021. Wave expects that its existing cash and cash equivalents will enable the company to fund its operating and capital expenditure requirements into the second quarter of 2023. Investor Conference Call and WebcastWave management will host an investor conference call today at 8:30 a.m. ET to discuss the company's third quarter and 2021 financial results and provide a business update. The conference call may be accessed by dialing (866) 220-8068 (domestic) or (470) 495-9153 (international) and entering conference ID: 6995569. The live webcast may be accessed from the Investor Relations section of the Wave Life Sciences corporate website at ir.wavelifesciences.com. Following the webcast, a replay will be available on the website. About PRISM™PRISM is Wave Life Sciences' proprietary discovery and drug development platform that enables genetically defined diseases to be targeted with stereopure oligonucleotides across multiple therapeutic modalities, including silencing, splicing and editing. PRISM combines the company's unique ability to construct stereopure oligonucleotides with a deep understanding of how the interplay among oligonucleotide sequence, chemistry and backbone stereochemistry impacts key pharmacological properties. By exploring these interactions through iterative analysis of in vitro and in vivo outcomes and machine learning-driven predictive modeling, the company continues to define design principles that are deployed across programs to rapidly develop and manufacture clinical candidates that meet pre-defined product profiles. About Wave Life SciencesWave Life Sciences (NASDAQ:WVE) is a clinical-stage genetic medicines company committed to delivering life-changing treatments for people battling devastating diseases. Wave aspires to develop best-in-class medicines across multiple therapeutic modalities using PRISM, the company's proprietary discovery and drug development platform that enables the precise design, optimization, and production of stereopure oligonucleotides. Driven by a resolute sense of urgency, the Wave team is targeting a broad range of genetically defined diseases so that patients and families may realize a brighter future. To find out more, please visit www.wavelifesciences.com and follow Wave on Twitter @WaveLifeSci. Forward-Looking StatementsThis press release contains forward-looking statements concerning our goals, beliefs, expectations, strategies, objectives and plans, and other statements that are not necessarily based on historical facts, including statements regarding the following, among others: the anticipated initiation, site activation, patient recruitment, patient enrollment, dosing, generation of data for decision-making and completion of our adaptive clinical trials, and the announcement of such events; the protocol, design and endpoints of our ongoing and planned clinical trials; the future performance and results of our programs in clinical trials; future preclinical activities and programs; regulatory submissions; the progress and potential benefits of our collaborations with partners; the potential of our in vitro and in vivo preclinical data to predict the behavior of our compounds in humans; our identification and expected timing of future product candidates and their therapeutic potential; the anticipated therapeutic benefits of our potential therapies compared to others; our ability to design compounds using multiple modalities and the anticipated benefits of that model; the potential benefits of PRISM, including our novel PN backbone chemistry modifications, and our stereopure oligonucleotides compared with stereorandom oligonucleotides; the potential benefits of our novel ADAR-mediated RNA editing platform capabilities, including our AIMers, compared to others; the benefit of nucleic acid therapeutics generally; the strength of our intellectual property; our assumptions based on our balance sheet and the anticipated duration of our cash runway; our intended uses of capital; and our expectations regarding the impact of the COVID-19 pandemic on our business. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including the following: our ability to finance our drug discovery and development efforts and to raise additional capital when needed; the ability of our preclinical programs to produce data sufficient to support our clinical trial applications and the timing thereof; our ability to maintain the company infrastructure and personnel needed to achieve our goals; the clinical results of our programs, which may not support further development of product candidates; actions of regulatory agencies, which may affect the initiation, timing and progress of clinical trials, including their receptiveness to our adaptive trial designs; our effectiveness in managing future clinical trials and regulatory interactions; the effectiveness of PRISM, including our novel PN backbone chemistry modifications; the effectiveness of our novel ADAR-mediated RNA editing platform capability and our AIMers; the continued development and acceptance of oligonucleotides as a class of medicines; our ability to demonstrate the therapeutic benefits of our candidates in clinical trials, including our ability to develop candidates across multiple therapeutic modalities; our dependence on third parties, including contract research organizations, contract manufacturing organizations, collaborators and partners; our ability to manufacture or contract with third parties to manufacture drug material to support our programs and growth; our ability to obtain, maintain and protect our intellectual property; our ability to enforce our patents against infringers and defend our patent portfolio against challenges from third parties; competition from others developing therapies for similar indications; the severity and duration of the COVID-19 pandemic and its negative impact on the conduct of, and the timing of enrollment, completion and reporting with respect to our clinical trials; and any other impacts on our business as a result of or related to the COVID-19 pandemic, as well as the information under the caption "Risk Factors" contained in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) and in other filings we make with the SEC from time to time. We undertake no obligation to update the information contained in this press release to reflect subsequently occurring events or circumstances. WAVE LIFE SCIENCES LTD.UNAUDITED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)     September 30, 2021     December 31, 2020   Assets                 Current assets:                 Cash and cash equivalents   $ 123,896     $ 184,497   Accounts receivable     22,500       30,000   Prepaid expenses     7,627       10,434   Other current assets     3,964       5,111   Total current assets     157,987       230,042   Long-term assets:              .....»»

Category: earningsSource: benzingaNov 10th, 2021

Archrock Reports Third Quarter 2021 Results

HOUSTON, Nov. 01, 2021 (GLOBE NEWSWIRE) -- Archrock, Inc. (NYSE:AROC) ("Archrock") today reported results for the third quarter of 2021. Third Quarter 2021 Financial Results Revenue for the third quarter of 2021 was $195.2 million compared to $205.6 million in the third quarter of 2020. Net income for the third quarter of 2021 was $9.3 million compared to $18.3 million in the third quarter of 2020. Adjusted EBITDA (a non-GAAP measure defined below) for the third quarter of 2021 was $92.4 million compared to $112.6 million in the third quarter of 2020. Previously declared quarterly dividend of $0.145 per common share for the third quarter of 2021 resulted in dividend coverage of 2.2x. Net cash provided by operating activities for the third quarter of 2021 was $82.1 million. Including $70.8 million in proceeds from the sale of non-core assets, free cash flow after dividend (a non-GAAP measure defined below) was $98.3 million. Leverage ratio was 4.3x compared to 4.0x as of September 30, 2020. Expect to achieve 2021 Adjusted EBITDA above the midpoint of our $340 million to $355 million guidance range. Archrock's third quarter 2021 net income of $9.3 million included a pre-tax non-cash long-lived and other asset impairment of $5.1 million and pre-tax depreciation expense from the write-off of compression and other assets damaged in Hurricane Ida of $2.0 million. Archrock's third quarter 2020 net income of $18.3 million included a pre-tax non-cash long-lived asset impairment of $10.7 million and pre-tax restructuring costs related to severance benefits and property disposals totaling $2.9 million. In addition, Archrock recorded a net benefit from tax audit settlements of $10.9 million during the third quarter of 2020. Adjusted EBITDA for the third quarter of 2021 of $92.4 million included $15.4 million in net gains related to the sale of compression and other assets. Adjusted EBITDA for the third quarter of 2020 of $112.6 million included $9.1 million in net gains primarily related to the sale of the turbocharger business included within our aftermarket services segment. Management Commentary and Outlook "The positive trends we saw in the second quarter accelerated in the third, bolstering our confidence that the industry is in the front end of a recovery. During the third quarter, we grew our operating horsepower after adjusting for non-core asset sales, drove improved contract compression bookings for the second consecutive quarter and delivered aftermarket services revenue growth," said Brad Childers, Archrock's President and Chief Executive Officer. "In addition, our contract operations gross margin percentage remains within guidance expectations and above prior cycle lows, even in the face of sharp cost inflation. In response to higher costs, we began taking necessary action to implement price increases during the fourth quarter and expect these to be broad-based next year." "The recent change in energy supply and demand fundamentals and resulting breakout in commodity prices highlight the need for higher industry activity levels and reinforce our expectation for natural gas demand growth as the global energy mix transitions to lower carbon fuels over time, all positive news for our compression business. Although our customers will finalize their budgets early next year, our initial discussions with customers indicate that bookings momentum, and therefore our participation in the upcycle, will continue building into 2022. "We've taken significant measures over the past several years to reposition our fleet for a more efficient and sustainable future. Our installed base of large, digitized and standardized compression horsepower is deployed in stable midstream applications in critical U.S. basins. We expect the steady and modest growth in demand for natural gas compression forecasted ahead will require higher growth capital in 2022 for lower-emitting and electric motor drive horsepower. As we selectively invest in high profit, large midstream compression units required to meet the needs of our customers, we will remain steadfast in our commitment to both maintaining a solid balance sheet and returning capital to shareholders," concluded Childers. Contract Operations For the third quarter of 2021, contract operations segment revenue totaled $158.9 million compared to $175.2 million in the third quarter of 2020. Gross margin was $97.6 million, compared to $114.8 million in the third quarter of 2020. This reflected a gross margin percentage of 61%, compared to 66% in the prior year quarter. Total operating horsepower at the end of the third quarter of 2021 was 3.2 million, compared to 3.5 million at the end of the prior year quarter, and reflected the sale of 146,000 active horsepower as part of our ongoing fleet high-grading initiative. Utilization at the end of the third quarter of 2021 was 82%, compared to 83% at the end of the third quarter of 2020. Aftermarket Services For the third quarter of 2021, aftermarket services segment revenue totaled $36.3 million, up from $30.4 million in the third quarter of 2020, driven by higher parts sales and service activity. Gross margin of $5.6 million was up from $4.7 million in the third quarter of 2020. Gross margin percentage was 15% in the third quarter of both 2021 and 2020. Balance Sheet Long-term debt was $1.5 billion at September 30, 2021, reflecting net debt repayment of $96.5 million during the third quarter of 2021. Our leverage ratio was 4.3x, compared to 4.0x as of September 30, 2020. Our available liquidity totaled $517.5 million as of September 30, 2021. Quarterly Dividend Our Board of Directors recently declared a quarterly dividend of $0.145 per share of common stock, or $0.58 per share on an annualized basis, resulting in dividend coverage in the third quarter of 2021 of 2.2x. The dividend will be paid on November 16, 2021 to stockholders of record at the close of business on November 9, 2021. Summary Metrics(in thousands, except percentages, per share amounts and ratios)                           Three Months Ended       September 30,    June 30,    September 30,        2021   2021   2020   Net income   $ 9,304   $ 8,752   $ 18,332   Adjusted EBITDA   $ 92,351   $ 87,045   $ 112,634                         Contract operations revenue   $ 158,911   $ 163,865   $ 175,223   Contract operations gross margin   $ 97,631   $ 102,478   $ 114,779   Contract operations gross margin percentage     61 %   63 %   66 %                       Aftermarket services revenue   $ 36,255   $ 31,750   $ 30,408   Aftermarket services gross margin   $ 5,603   $ 4,260   $ 4,699   Aftermarket services gross margin percentage     15 %   13 %   15 %                       Selling, general, and administrative   $ 28,839   $ 26,077   $ 18,681                         Cash available for dividend   $ 50,128   $ 42,446   $ 77,246   Cash available for dividend coverage     2.2 x   1.9 x   3.5 x                       Free cash flow   $ 120,828   $ 31,678   $ 100,453   Free cash flow after dividend   $ 98,322   $ 9,347   $ 78,145                         Total available horsepower (at period end)     3,913     4,041     4,153   Total operating horsepower (at period end)     3,196     3,295     3,465   Horsepower utilization spot (at period end)     82 %   82 %   83 % Conference Call Details Archrock will host a conference call on Tuesday, November 2, 2021, to discuss third quarter 2021 financial results. The call will begin at 10:00 a.m. Eastern Time. To listen to the call via a live webcast, please visit Archrock's website at www.archrock.com. The call will also be available by dialing 1-833-989-2934 in the United States and Canada or 1-587-505-2692 for international calls. The access code is 1124236. A replay of the webcast will be available on Archrock's website for 90 days following the event. Adjusted EBITDA, a non-GAAP measure, is defined as net income (loss) excluding interest expense, income taxes, depreciation and amortization, long-lived and other asset impairment, goodwill impairment, restructuring charges, debt extinguishment loss, non-cash stock-based compensation expense, indemnification income (expense), net and other items. A reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, and a reconciliation of our full year 2021 Adjusted EBITDA guidance to net income (loss) appear below. Gross margin, a non-GAAP measure, is defined as revenue less cost of sales (excluding depreciation and amortization). Gross margin percentage is defined as gross margin divided by revenue. A reconciliation of gross margin to net income (loss), the most directly comparable GAAP measure, appears below. Cash available for dividend, a non-GAAP measure, is defined as net income (loss) excluding interest expense, income taxes, depreciation and amortization, long-lived and other asset impairment, goodwill impairment, restructuring charges, debt extinguishment loss, non-cash stock-based compensation expense, indemnification income (expense), net and other items, less maintenance capital expenditures, other capital expenditures, cash taxes and cash interest expense. Reconciliations of cash available for dividend to net income (loss) and net cash provided by operating activities, the most directly comparable GAAP measures, appear below. Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities plus net cash provided by (used in) investing activities. A reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable GAAP measure, appears below. Free cash flow after dividend, a non-GAAP measure, is defined as net cash provided by operating activities plus net cash provided by (used in) investing activities less dividends paid to stockholders. A reconciliation of free cash flow after dividend to net cash provided by operating activities, the most directly comparable GAAP measure, appears below. About Archrock Archrock is an energy infrastructure company with a pure-play focus on midstream natural gas compression. Archrock is the leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the U.S. and a leading supplier of aftermarket services to customers that own compression equipment in the U.S. Archrock is headquartered in Houston, Texas. For more information, please visit www.archrock.com. Forward-Looking Statements All statements in this release (and oral statements made regarding the subjects of this release) other than historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and factors that could cause actual results to differ materially from such statements, many of which are outside the control of Archrock, Inc. Forward-looking information includes, but is not limited to statements regarding: the effects of the COVID-19 pandemic on our business, operations, customers and financial conditions; guidance or estimates related to Archrock's results of operations or of financial condition; fundamentals of Archrock's industry, including the attractiveness of returns and valuation, stability of cash flows, demand dynamics and overall outlook, and Archrock's ability to realize the benefits thereof; Archrock's expectations regarding future economic and market conditions and trends; Archrock's operational and financial strategies, including planned growth, coverage and leverage reduction strategies, Archrock's ability to successfully effect those strategies and the expected results therefrom; Archrock's financial and operational outlook; demand and growth opportunities for Archrock's services; structural and process improvement initiatives, the expected timing thereof, Archrock's ability to successfully effect those initiatives and the expected results therefrom; the operational and financial synergies provided by Archrock's size; and statements regarding Archrock's dividend policy. While Archrock believes that the assumptions concerning future events are reasonable, it cautions that there are inherent difficulties in predicting certain important factors that could impact the future performance or results of its business. The factors that could cause results to differ materially from those indicated by such forward-looking statements include, but are not limited to: changes in customer, employee or supplier relationships; local, regional and national economic and financial market conditions and the impact they may have on Archrock and its customers; changes in tax laws; conditions in the oil and gas industry, including a sustained decrease in the level of supply or demand for oil or natural gas or a sustained decrease in the price of oil or natural gas; changes in economic conditions in key operating markets; impacts of world events, including the COVID-19 pandemic; the financial condition of Archrock's customers; the failure of any customer to perform its contractual obligations; changes in safety, health, environmental and other regulations; and the effectiveness of Archrock's control environment, including the identification of control deficiencies. These forward-looking statements are also affected by the risk factors, forward-looking statements and challenges and uncertainties described in Archrock's Annual Report on Form 10-K for the year ended December 31, 2020, Archrock's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021, and those set forth from time to time in Archrock's filings with the Securities and Exchange Commission, which are available at www.archrock.com. Except as required by law, Archrock expressly disclaims any intention or obligation to revise or update any forward-looking statements whether as a result of new information, future events or otherwise. SOURCE: Archrock, Inc. For information, contact: Megan RepineVP of Investor Relations281-836-8360investor.relations@archrock.com ARCHROCK, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)                         Three Months Ended     September 30,    June 30,    September 30,         2021       2021      2020 Revenue:                   Contract operations   $ 158,911     $ 163,865     $ 175,223   Aftermarket services     36,255       31,750       30,408   Total revenue     195,166       195,615       205,631   Cost of sales (excluding depreciation and amortization):                      Contract operations     61,280       61,387       60,444   Aftermarket services     30,652       27,490       25,709   Total cost of sales (excluding depreciation and amortization)     91,932       88,877       86,153   Selling, general and administrative     28,839       26,077       18,681   Depreciation and amortization     45,280       44,193       47,279   Long-lived and other asset impairment     5,121       2,960       10,727   Restructuring charges     313       743       2,900   Interest expense     25,508       25,958       25,221   Gain on sale of assets, net     (15,393 )     (3,124 )     (9,146 ) Other (income) expense, net     337       (82 )     (324 ) Income before income taxes     13,229       10,013       24,140   Provision for income taxes     3,925       1,261       5,808  .....»»

Category: earningsSource: benzingaNov 1st, 2021

Treasury Market Becoming Increasingly Distorted By Record Bearish Sentiment (And Shorting)

Treasury Market Becoming Increasingly Distorted By Record Bearish Sentiment (And Shorting) The latest BofA Fund Manager Survey showed something not entirely unexpected: the net (self-reported) investor allocation to bonds hit -80, which according to BofA CIO was "the most pessimistic outlook for bonds in the history" of the survey. At the same time, real money positioning is leaning very bearish, with most other surveys also showing portfolio managers are considerably underweight duration and CFTC data corroborating their reduction to rate exposures While we traditionally take the Fund Manager Survey which a giant boulder of salt as respondents tend to say what they think they should say, not what they are actually doing, in this case we would be willing to give them the benefit of the doubt for one simple reason: as Bloomberg shows, Treasuries are on pace to post their worst total return on record, and with inflation set to keep rising for the foreseeable future there is little hope of reprieve. In light of this gloomy context, it is no surprise that Treasury yields are rising rapidly - on both the short and long-end - behind inflation worries and repositioning for a faster pace of Fed tightening. Furthermore, as Deutsche Bank notes, there is strong interest to be short front-end rates, which has led to distortion in the overnight and Treasury futures markets. Below we do a deeper dive into the Treasury dynamics to see just what is really going on. As DB's Steven Zeng writes, over the last month, markets have upped the probability of Fed liftoff from 70% of a single hike in 2022 to two full rate increases. This is captured by the short-term rate expectations component of the Fed ACM model and it translates into a  higher risk-neutral 10yr rate under that framework. This is important because it contrasts the recent yield increase with the experience of earlier this year, with the recent episode supported by higher short-rate expectations and less dependent on the unexplained term premium, which could quickly collapse behind myriad factors as witnessed during this summer. On the other hand, the Fed provides a much stronger anchor for market expectations of its policy rate path, and hawkish Fedspeaks act as a magnet to bring short-rate expectations toward its projections simply through the passage of time. As the DB scatterplot below shows, there is a robust relationship between short-rate expectations and long-term Treasury yields. If markets fully price to the projected Fed path (DB economists recently revised their call for the policy rate to reach 1.90% by the end of 2024), it would imply the 1y1y OIS rate moving into a 1.3-1.5% range and 10yr yields to be dragged higher with it over the next 12-14 months. That said, as DB's Zeng warns, "the dash to be short the front-end has led to notable market distortions." Leveraged short positions taken in the TU contract have taken its implied repo rate to deeply negative levels. In cash markets, investors who want to be short are finding there aren’t enough securities to go around. The on-the-run 2yr notes (CT2) are trading deeply special in repo markets, and the specialness is expected to persist through the end of November. At the Fed’s securities lending operations, demand to borrow 2022-2024 maturities spiked since last week, and propositions for CT2 outstripped availability midweek with dealers paying a hefty premium to get ahold of the specified issue, although conditions have eased by Friday. At the same time, investor demand to get hold of cash securities to be short either outright or against futures has made specified collaterals more expensive, and the decline in those financing rates has trickled into the general collateral market. The overnight SOFR rate dropped fell to 0.03% this week, breaching the overnight RRP "floor" rate for the first time, sparking concerns about the upcoming Libor to SOFR transition. Still, despite these distortions, Zeng does not expect the Fed to need to hike IOER or the RRP rate to preempt a fall in the fed funds rate as the pressure appears to be contained in Treasury collateral markets for now and does not seem it would immediately trickle into the fed funds market, which has slightly weaker linkage to repo markets than say the linkage for repo and the bill market. The resilience of fed funds in the face of downward pressure on other money market rates in recent times may reflect the nature of relationship between participants in these markets. An example of this is that the lower distributions of the fed funds rate were unaffected by the drop in SOFR last week, which suggests that the GSE lenders have not substantially rotated cash out of repos and into the fed funds market, and the FBO borrowers are not able to get concession in form of lower rates. That said, there is a risk of repo specialness becoming more severe or persistent than expected. The SOMA add-on for 2yr notes in October and November are smaller than usual (5-6bn vs 7bn+), which contributes to pressure stemming from collateral scarcity. If fed funds begin falling in the coming weeks, the Fed could widen the IOER-RRP corridor (i.e. raise IOER but not the RRP rate) by 5bp before year end, but that probability seems low for now. Finally, looking at positioning, there are no surprises here: confirming the record bearish sentiment shown in the BofA chart above, portfolio manager surveys and return-based indicators continue to suggest that real money positioning is very underweight in duration. The latest CFTC data (as of 10/19) show that asset managers have reduced their DV01 exposure to Treasury futures by 21% since the September FOMC meeting. The cuts were made relatively evenly across sectors, but notably asset managers are now net short in 2yr (TU) and 10yr (TY) contracts, which is a rare occurrence. Still, crowded positions may be less of an issue than in early spring, when positioning was also very short which fed the subsequent rally when the bearish trades unraveled. As discussed earlier, investors’ bearish outlook this time are predicated on a faster pace of Fed tightening, which is a firmer ground for higher yields than simply expecting the term premium’s recovery. That said, even a modest cascade of deflationary news could wreak havoc on what is easily the most crowded trade on Wall Street right now. Tyler Durden Mon, 10/25/2021 - 11:29.....»»

Category: blogSource: zerohedgeOct 25th, 2021

Dow reports third quarter 2021 results

MIDLAND, Mich., Oct. 20, 2021 /PRNewswire/ -- Dow (NYSE:DOW): FINANCIAL HIGHLIGHTS GAAP earnings per share (EPS) was $2.23; Operating EPS¹ was $2.75, compared to $0.50 in the year-ago period. Operating EPS excludes certain items in the quarter, totaling $0.52 per share, primarily related to an early extinguishment of debt. Net sales were $14.8 billion, up 53% versus the year-ago period and 7% sequentially, with gains in all operating segments and regions. Local price increased 50% versus the year-ago period and 5% sequentially, reflecting gains in all operating segments, businesses and regions, driven by tight supply and demand dynamics across key value chains. Volume increased 2% versus the year-ago period, driven by gains in Packaging & Specialty Plastics and Performance Materials & Coatings. Sequentially, volume was also up 2%, reflecting ongoing economic recovery and continued underlying end-market demand strength, partly offset by supply and global logistics constraints. Equity earnings were $249 million, up $189 million from the year-ago period, primarily driven by margin expansion at Sadara and the Kuwait joint ventures. Equity earnings were down $29 million from the prior quarter as Sadara gains were more than offset primarily by a planned maintenance turnaround at a Kuwait joint venture. GAAP Net Income was $1.7 billion. Operating EBIT1 was $2.9 billion, up more than $2.1 billion from the year-ago period. Gains were posted across all operating segments and businesses, reflecting margin expansion and increased equity earnings. Sequentially, operating EBIT increased 2%, on gains in Industrial Intermediates & Infrastructure and Performance Materials and Coatings. Cash provided by operating activities – continuing operations was $2.7 billion, up $958 million year-over-year and an increase of $698 million compared to the prior quarter. Free cash flow1 was $2.3 billion. Gross debt was reduced by more than $1.1 billion in the quarter. Proactive liability management actions to tender existing notes have resulted in no substantive long-term debt maturities due until 2026 and reduced annual interest expense by more than $60 million. Returns to shareholders totaled $918 million in the quarter, comprised of $518 million in dividends and $400 million in share repurchases. SUMMARY FINANCIAL RESULTS Three Months Ended September 30 Three Months Ended June 30 In millions, except per share amounts 3Q21 3Q20 vs. SQLY [B / (W)] 2Q21 vs. PQ [B / (W)] Net Sales $14,837 $9,712 $5,125 $13,885 $952 GAAP Income, Net of Tax $1,706 $(1) $1,707 $1,932 $(226) Operating EBIT¹ $2,886 $761 $2,125 $2,828 $58 Operating EBIT Margin¹ 19.5% 7.8% 1,170 bps   20.4% (90) bps   Operating EBITDA¹ $3,611 $1,485 $2,126 $3,573 $38 GAAP Earnings Per Share $2.23 $(0.04) $2.27 $2.51 $(0.28) Operating Earnings Per Share¹ $2.75 $0.50 $2.25 $2.72 $0.03 Cash Provided by (Used for)Operating Activities – Cont. Ops $2,719 $1,761 $958 $2,021 $698 1. Op. Earnings Per Share, Op. EBIT, Op. EBIT Margin, Op. EBITDA, and Free Cash Flow are non-GAAP measures. See page 6 for further discussion.®TM Trademark of The Dow Chemical Company ("Dow") or an affiliated company of Dow   CEO QUOTE Jim Fitterling, chairman and chief executive officer, commented on the quarter: "The Dow team delivered another quarter of sequential and year-over-year top- and bottom-line growth. Despite higher energy costs and industry-wide value chain disruptions from hurricanes on the U.S. Gulf Coast, our proactive storm preparations enabled us to maintain the safety of our team and operations, and recover quickly. Coupled with our global footprint, feedstock flexibility and structural cost advantages, we continued to capture robust end-market demand and price momentum. As a result, we generated higher cash flow from operations and achieved sales growth across all segments and geographies. Additionally, earlier this month at our 2021 Investor Day we outlined a strategic plan to increase underlying EBITDA by more than $3 billion across the cycle through the implementation of a phased and disciplined approach to decarbonize our footprint and grow earnings. Our strategy enables us to capture demand growth for circular and low- to zero-carbon emissions products; progress our productivity actions; and continue to deliver our financial priorities." SEGMENT HIGHLIGHTS Packaging & Specialty Plastics Three Months Ended September 30 Three Months Ended June 30 In millions, except margin percentages 3Q21 3Q20 vs. SQLY [B / (W)] 2Q21 vs. PQ [B / (W)] Net Sales $7,736 $4,565 $3,171 $7,121 $615 Operating EBIT $1,954 $647 $1,307 $2,014 ($60) Operating EBIT Margin 25.3% 14.2% 1,110 bps   28.3% (300) bps   Equity Earnings $124 $71 $53 $130 ($6) Packaging & Specialty Plastics segment net sales were $7.7 billion, up 69% versus the year-ago period. Local price increased 63% year-over-year due to tight supply and demand dynamics, with gains in both businesses and across all regions. Volume increased 5% year-over-year, as gains in energy and olefins were partly offset by lower polyethylene volumes due to weather-related supply constraints. Currency increased net sales by 1%. On a sequential basis, the segment recorded a 9% net sales improvement, primarily driven by continued local price gains in the U.S. & Canada. Equity earnings for the segment were $124 million, up $53 million compared to the year-ago period due to higher integrated polyethylene margins at the principle joint ventures. On a sequential basis, equity earnings decreased by $6 million as earnings improvement at Sadara was more than offset by rising energy costs at the Kuwait and Thai joint ventures. Operating EBIT was $2 billion, compared to $647 million in the year-ago period, reflecting Op. EBIT margin improvement in the core business, which was up 1,110 basis points. Sequentially, Op. EBIT was down $60 million, and Op. EBIT margins declined by 300 basis points on higher raw material and energy costs. Packaging and Specialty Plastics business reported a net sales increase versus the year-ago period, led by local price gains in industrial & consumer packaging, and flexible food & beverage packaging applications. Volumes declined year-over-year due to lower polyethylene supply from planned maintenance turnarounds and weather-related outages. Compared to the prior quarter, the business delivered increased volume and price gains on strong demand in industrial & consumer packaging applications that were partly offset by additional weather-related outages. Hydrocarbons & Energy business reported a net sales increase compared to the year-ago period, driven primarily by higher local prices and volumes in olefins and aromatics. Sequentially, the business delivered sales gains due to local price increases, which were partly offset by lower volumes as a result of planned maintenance turnarounds and weather-related outages. Industrial Intermediates & Infrastructure Three Months Ended September 30 Three Months Ended June 30 In millions, except margin percentages 3Q21 3Q20 vs. SQLY [B / (W)] 2Q21 vs. PQ [B / (W)] Net Sales $4,481 $3,058 $1,423 $4,215 $266 Operating EBIT $713 $104 $609 $648 $65 Operating EBIT Margin 15.9% 3.4% 1,250 bps   15.4% 50 bps   Equity Earnings (Losses) $122 $(13) $135 $144 $(22) Industrial Intermediates & Infrastructure segment net sales were $4.5 billion, up 47% versus the year-ago period. Local price improved 49% year-over-year with gains in both businesses and in all regions on tight supply and demand dynamics. Currency increased net sales by 2%. Despite strong demand, volumes declined 4% year-over-year due to a planned transition of a low-margin coproducer contract, weather-related outages and third-party supply constraints. On a sequential basis, the segment recorded a net sales increase of 6%, driven by volume and price gains in both businesses due to strong demand and improved supply availability. Equity earnings for the segment were $122 million, an increase of $135 million compared to the year-ago period, driven by margin expansion at the Sadara and Kuwait joint ventures. On a sequential basis, equity earnings decreased by $22 million as the Kuwait joint ventures' margin improvement was more than offset by planned maintenance turnaround activity, as well as reduced margins at the Thai joint ventures. Operating EBIT was $713 million, an increase of $609 million compared to the year-ago period, primarily due to continued tight supply and demand dynamics in both businesses. Op. EBIT margins were up 1,250 basis points year-over-year. Sequentially, Op. EBIT was up $65 million, and Op. EBIT margins expanded by 50 basis points on volume and price gains in both businesses. Polyurethanes & Construction Chemicals business increased net sales compared to the year-ago period with price gains in all regions on tight supply and demand dynamics in key value chains. Volume declines year-over-year were primarily driven by a planned transition of a low-margin coproducer contract, weather-related outages and third-party supply constraints. Sequentially, the business delivered sales growth due to higher local price and volume increases from additional supply availability to meet resilient demand. Industrial Solutions business net sales increased from the year-ago period with local price gains in all regions. Volume increased year-over-year on strong demand, particularly in industrial manufacturing and energy applications. Net sales increased sequentially on volume growth primarily in coatings and industrial applications from increased supply as well as on local price gains in all regions. Performance Materials & Coatings Three Months Ended September 30 Three Months Ended June 30 In millions, except margin percentages 3Q21 3Q20 vs. SQLY [B / (W)] 2Q21 vs. PQ [B / (W)] Net Sales $2,526 $2,002 $524 $2,465 $61 Operating EBIT $284 $75 $209 $225 $59 Operating EBIT Margin 11.2% 3.7% 750 bps   9.1% 210 bps   Equity Earnings $3 $1 $2 - $3 Performance Materials & Coatings segment net sales were $2.5 billion, up 26% versus the year-ago period. Local price increased 23% year-over-year due to tight supply and demand dynamics, with gains in both businesses and in all regions. Volume increased 2% year-over-year as stronger demand for mobility, electronics, personal care and industrial applications was partly offset by supply constraints for acrylic monomers and architectural coatings. Currency increased net sales by 1% year-over-year. On a sequential basis, the segment recorded a 2% increase in sales with price gains in both businesses and in all regions. Volume declined 5% sequentially as continued consumer and industrial demand strength was more than offset by third-party supply and global logistics constraints. Operating EBIT was $284 million, compared to $75 million in the year-ago period, as Op. EBIT margins increased 750 basis points due to strong price momentum and robust demand recovery for silicones and industrial coatings offerings. Sequentially, Op. EBIT was up $59 million, expanding Op. EBIT margins by 210 basis points on price gains leading to margin expansion. Consumer Solutions business achieved higher net sales year-over-year with local price gains in all regions. Volume increased versus the year-ago period, led by stronger consumer demand for personal care, mobility, and electronics offerings. Sequentially, sales were down as price increases in all regions were more than offset by volume declines from planned maintenance and third-party supply and logistics constraints.   Coatings & Performance Monomers business achieved increased net sales year-over-year as higher raw material costs and tight supply and demand dynamics led to local price gains in all regions. Volumes were down versus the year-ago period as demand recovery for industrial coatings was more than offset by supply availability challenges due to weather-related outages and third-party supply and logistics constraints. Sequentially, the business delivered local price gains in all regions. Volume increased sequentially due to continued strong demand for acrylic monomers and architectural coatings and increased supply. OUTLOOK "We continue to see robust end-market demand that is expected to extend into 2022, coupled with near-term logistics constraints and low inventory levels across our value chains," said Fitterling. "Looking ahead, Dow is well-positioned to increase earnings, cash flow and returns as we decarbonize our footprint and achieve our 2030 and 2050 carbon emissions reduction targets. We will continue to build on our competitive advantage with growth from higher-margin, sustainability-driven, downstream solutions, and value-accretive investments to replace end-of-life assets with carbon-efficient and higher-ROIC production. Dow expects to deliver significant long-term value for shareholders as we continue to apply our balanced capital allocation approach to grow earnings while maintaining our strong operational and financial discipline." Conference Call Dow will host a live webcast of its third quarter earnings conference call with investors to discuss its results, business outlook and other matters today at 8:00 a.m. ET. The webcast and slide presentation that accompany the conference call will be posted on the events and presentations page of investors.dow.com. About Dow Dow combines global breadth, asset integration and scale, focused innovation and leading business positions to achieve profitable growth. The Company's ambition is to become the most innovative, customer centric, inclusive and sustainable materials science company, with a purpose to deliver a sustainable future for the world through our materials science expertise and collaboration with our partners. Dow's portfolio of plastics, industrial intermediates, coatings and silicones businesses delivers a broad range of differentiated science-based products and solutions for its customers in high-growth market segments, such as packaging, infrastructure, mobility and consumer care. Dow operates 106 manufacturing sites in 31 countries and employs approximately 35,700 people. Dow delivered sales of approximately $39 billion in 2020. References to Dow or the Company mean Dow Inc. and its subsidiaries. For more information, please visit www.dow.com or follow @DowNewsroom on Twitter. Cautionary Statement about Forward-Looking Statements Certain statements in this presentation are "forward-looking statements" within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "may," "opportunity," "outlook," "plan," "project," "seek," "should," "strategy," "target," "will," "will be," "will continue," "will likely result," "would" and similar expressions, and variations or negatives of these words or phrases. Forward-looking statements are based on current assumptions and expectations of future events that are subject to risks, uncertainties and other factors that are beyond Dow's control, which may cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements and speak only as of the date the statements were made. These factors include, but are not limited to: sales of Dow's products; Dow's expenses, future revenues and profitability; the continuing global and regional economic impacts of the coronavirus disease 2019 ("COVID-19") pandemic and other public health-related risks and events on Dow's business; capital requirements and need for and availability of financing; unexpected barriers in the development of technology, including with respect to Dow's contemplated capital and operating projects; Dow's ability to realize its commitment to carbon neutrality on the contemplated timeframe; size of the markets for Dow's products and services and ability to compete in such markets; failure to develop and market new products and optimally manage product life cycles; the rate and degree of market acceptance of Dow's products; significant litigation and environmental matters and related contingencies and unexpected expenses; the success of competing technologies that are or may become available; the ability to protect Dow's intellectual property in the United States and abroad; developments related to contemplated restructuring activities and proposed divestitures or acquisitions such as workforce reduction, manufacturing facility and/or asset closure and related exit and disposal activities, and the benefits and costs associated with each of the foregoing; fluctuations in energy and raw material prices; management of process safety and product stewardship; changes in relationships with Dow's significant customers and suppliers; changes in consumer preferences and demand; changes in laws and regulations, political conditions or industry development; global economic and capital markets conditions, such as inflation, market uncertainty, interest and currency exchange rates, and equity and commodity prices; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war; weather events and natural disasters; and disruptions in Dow's information technology networks and systems. Risks related to Dow's separation from DowDuPont Inc. include, but are not limited to: (i) Dow's inability to achieve some or all of the benefits that it expects to receive from the separation from DowDuPont Inc.; (ii) certain tax risks associated with the separation; (iii) the failure of Dow's pro forma financial information to be a reliable indicator of Dow's future results; (iv) non-compete restrictions under the separation agreement; (v) receipt of less favorable terms in the commercial agreements Dow entered into with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva"), including restrictions under intellectual property cross-license agreements, than Dow would have received from an unaffiliated third party; and (vi) Dow's obligation to indemnify DuPont and/or Corteva for certain liabilities. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section titled "Risk Factors" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. These are not the only risks and uncertainties that Dow faces. There may be other risks and uncertainties that Dow is unable to identify at this time or that Dow does not currently expect to have a material impact on its business. If any of those risks or uncertainties develops into an actual event, it could have a material adverse effect on Dow's business. Dow assumes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws. ®TM Trademark of The Dow Chemical Company ("Dow") or an affiliated company of Dow  Non-GAAP Financial Measures This earnings release includes information that does not conform to U.S. GAAP and are considered non-GAAP measures. Management uses these measures internally for planning, forecasting and evaluating the performance of the Company's segments, including allocating resources. Dow's management believes that these non-GAAP measures best reflect the ongoing performance of the Company during the periods presented and provide more relevant and meaningful information to investors as they provide insight with respect to ongoing operating results of the Company and a more useful comparison of year-over-year results. These non-GAAP measures supplement the Company's U.S. GAAP disclosures and should not be viewed as alternatives to U.S. GAAP measures of performance. Furthermore, such non-GAAP measures may not be consistent with similar measures provided or used by other companies. Non-GAAP measures included in this release are defined below. Reconciliations for these non-GAAP measures to U.S. GAAP are provided in the Selected Financial Information and Non-GAAP Measures section starting on page 11. Dow does not provide forward-looking U.S. GAAP financial measures or a reconciliation of forward-looking non-GAAP financial measures to the most comparable U.S. GAAP financial measures on a forward-looking basis because the Company is unable to predict with reasonable certainty the ultimate outcome of pending litigation, unusual gains and losses, foreign currency exchange gains or losses and potential future asset impairments, as well as discrete taxable events, without unreasonable effort. These items are uncertain, depend on various factors, and could have a material impact on U.S. GAAP results for the guidance period. Operating earnings per share is defined as "Earnings (loss) per common share - diluted" excluding the after-tax impact of significant items. Operating EBIT is defined as earnings (i.e., "Income (loss) before income taxes") before interest, excluding the impact of significant items. Operating EBIT margin is defined as Operating EBIT as a percentage of net sales. Operating EBITDA is defined as earnings (i.e., "Income (loss) before income taxes") before interest, depreciation and amortization, excluding the impact of significant items. Free cash flow is defined as "Cash provided by operating activities - continuing operations," less capital expenditures. Under this definition, free cash flow represents the cash generated by the Company from operations after investing in its asset base. Free cash flow, combined with cash balances and other sources of liquidity, represent the cash available to fund obligations and provide returns to shareholders. Free cash flow is an integral financial measure used in the Company's financial planning process. Cash flow conversion is defined as "Cash provided by operating activities - continuing operations," divided by Operating EBITDA. Management believes cash flow conversion is an important financial metric as it helps the Company determine how efficiently it is converting its earnings into cash flow.   Dow Inc. and Subsidiaries Consolidated Statements of Income In millions, except per share amounts (Unaudited) Three Months Ended Nine Months Ended Sep 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020 Net sales $ 14,837 $ 9,712 $ 40,604 $ 27,836 Cost of sales 11,611 8,371 32,413 24,211 Research and development expenses 210 193 632 554 Selling, general and administrative expenses 403 372 1,209 1,063 Amortization of intangibles 100 100 301 300 Restructuring and asset related charges - net — 617 22 719 Integration and separation costs — 63 — 174 Equity in earnings (losses) of nonconsolidated affiliates 249 60 751 (124) Sundry income (expense) - net (350) 182 (225) 154 Interest income 14 6 35 27 Interest expense and amortization of debt discount 178 202 561 617 Income before income taxes 2,248 42 6,027 255 Provision for income taxes 542 43 1,383 215 Net income (loss) 1,706 (1) 4,644 40 Net income attributable to noncontrolling interests 23 24 69 51 Net income (loss) available for Dow Inc. common stockholders $ 1,683 $ (25) $ 4,575 $ (11) — — Per common share data: Earnings (loss) per common share - basic $ 2.25 $ (0.04) $ 6.11 $ (0.02) Earnings (loss) per common share - diluted $ 2.23 $ (0.04) $ 6.06 $ (0.02) Weighted-average common shares outstanding - basic 744.5 740.5 745.4 740.0 Weighted-average common shares outstanding - diluted 750.0 740.5 750.9.....»»

Category: earningsSource: benzingaOct 21st, 2021

CP reports third-quarter revenue growth of 4 percent; maintains full-year adjusted diluted EPS guidance

CALGARY, AB, Oct. 20, 2021 /PRNewswire/ - Canadian Pacific Railway Limited (TSX:CP) (NYSE:CP) today announced third-quarter revenues of $1.94 billion, diluted earnings per share ("EPS") of $0.70, adjusted diluted EPS1 of $0.88, an operating ratio ("OR") of 60.2 percent and an adjusted OR1 of 59.4 percent. "The third quarter presented challenges across the supply chain, but the CP team's commitment to the foundations of precision scheduled railroading enabled us to respond quickly and effectively to changing environments," said Keith Creel, CP President and Chief Executive Officer. "We are committed to controlling what we can control, as CP continues to focus on providing service excellence to our customers and driving value for our shareholders." Third-quarter highlights Revenues increased by 4 percent to $1.94 billion, from $1.86 billion last year Reported diluted EPS of $0.70, a 20 percent decrease from $0.88 last year, and adjusted diluted EPS of $0.88, a 7 percent increase from $0.82 last year Reported OR, which includes Kansas City Southern ("KCS") acquisition-related costs, increased by 200 basis points to 60.2 percent from 58.2 percent Adjusted OR, which excludes the KCS acquisition-related costs, increased 120 basis points to 59.4 percent over last year's third-quarter OR of 58.2 percent Updated outlookCP now expects low single-digit volume growth in 2021, as measured in revenue ton-miles, compared to 2020. CP remains confident that it will deliver full-year double-digit adjusted diluted EPS growth2,3 in 2021. CP's revised guidance continues to assume other components of net periodic benefit recovery to increase by approximately $40 million versus 2020, an effective tax rate of approximately 24.6 percent and capital expenditure of $1.55 billion. "Despite global supply chain issues and a challenging Canadian grain crop, we remain confident in our ability to deliver full-year double-digit adjusted diluted EPS growth," said Creel. "The underlying demand environment remains strong, and our commitment to generate sustainable, profitable growth will not be distracted by elements outside our control." Additionally, CP will continue its work preparing to create the first single-line rail network linking the U.S., Mexico and Canada by combining with Kansas City Southern. "The transitory issues over the past year have only reinforced the need for enhanced competition and optionality for North American shippers," Creel said. "Our excitement about the opportunities ahead with the combined companies continues to grow." 1 These measures have no standardized meanings prescribed by accounting principles generally accepted in the United States of America ("GAAP") and, therefore, may not be comparable to similar measures presented by other companies. These measures are defined and reconciled in the Non-GAAP Measures supplementary schedule of this Earnings Release. 2 CP's expectation for full year double-digit adjusted diluted EPS growth in 2021 is relative to 2020's adjusted diluted EPS of $3.53. CP's reported diluted EPS was $3.59 in 2020. 3 Although CP has provided a forward-looking non-GAAP measure (adjusted diluted EPS), management is unable to reconcile, without unreasonable efforts, the forward-looking adjusted diluted EPS to the most comparable GAAP measure (diluted EPS), due to unknown variables and uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value. In recent years, CP has recognized acquisition-related costs (including legal, consulting and financing fees, and fair value gain or loss on foreign exchange (FX) forward contracts and interest rate hedges), the merger termination payment received, changes in income tax rates and a change to an uncertain tax item. These or other similar, large unforeseen transactions affect diluted EPS but may be excluded from CP's adjusted diluted EPS. Additionally, the U.S.-to-Canadian dollar FX rate is unpredictable and can have a significant impact on CP's reported results but may be excluded from CP's adjusted diluted EPS. In particular, CP excludes the FX impact of translating the Company's debt and lease liabilities from adjusted diluted EPS. For information regarding non-GAAP measures, including reconciliations to the most comparable GAAP measures, see the attached supplementary schedule Non-GAAP Measures. Conference call details CP will discuss its results with the financial community in a conference call beginning at 8 a.m. ET (6 a.m. MT) today. Conference call accessToronto participants dial in number: 1-416-764-8688  Operator assisted toll free dial in number: 1-888-390-0546   Callers should dial in 10 minutes prior to the call.  Webcast We encourage you to access the webcast and presentation material in the Investors section of CP's website at investor.cpr.ca. A replay of the third-quarter conference call will be available by phone through to Oct. 27, 2021 at 416-764-8677 or toll free 1-888-390-0541, password 549569. Note on forward-looking information This news release may contain certain forward-looking information and forward-looking statements (collectively, "forward-looking information") within the meaning of applicable securities laws. Forward-looking information includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words or headings such as "financial expectations", "key assumptions", "anticipate", "believe", "expect", "plan", "will", "outlook", "should" or similar words suggesting future outcomes. This news release contains forward-looking information relating, but not limited to statements concerning 2021 volume as measured in revenue ton-miles, adjusted diluted EPS growth, capital program investments, the U.S.-to-Canadian dollar exchange rate, annualized effective tax rate, other components of net periodic benefit recovery, cost control efforts, the success of our business, our operations, priorities and plans, anticipated financial and operational performance, business prospects and demand for our services and growth opportunities. The forward-looking information that may be in this news release is based on current expectations, estimates, projections and assumptions, having regard to CP's experience and its perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: changes in business strategies, North American and global economic growth; commodity demand growth; sustainable industrial and agricultural production; commodity prices and interest rates; foreign exchange rates (as specified herein); effective tax rates (as specified herein); performance of our assets and equipment; sufficiency of our budgeted capital expenditures in carrying out our business plan; geopolitical conditions, applicable laws, regulations and government policies; the availability and cost of labour, services and infrastructure; the satisfaction by third parties of their obligations to CP; and the anticipated impacts of the COVID-19 pandemic on CP businesses, operating results, cash flows and/or financial condition. Although CP believes the expectations, estimates, projections and assumptions reflected in the forward-looking information presented herein are reasonable as of the date hereof, there can be no assurance that they will prove to be correct. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty. Undue reliance should not be placed on forward-looking information as actual results may differ materially from those expressed or implied by forward-looking information. By its nature, CP's forward-looking information involves inherent risks and uncertainties that could cause actual results to differ materially from the forward looking information, including, but not limited to, the following factors: changes in business strategies and strategic opportunities; general Canadian, U.S., Mexican and global social, economic, political, credit and business conditions; risks associated with agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures, including competition from other rail carriers, trucking companies and maritime shippers in Canada, the U.S. and Mexico; North American and global economic growth; industry capacity; shifts in market demand; changes in commodity prices and commodity demand; uncertainty surrounding timing and volumes of commodities being shipped via CP; inflation; geopolitical instability; changes in laws, regulations and government policies, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; changes in fuel prices; disruption in fuel supplies; uncertainties of investigations, proceedings or other types of claims and litigation; compliance with environmental regulations; labour disputes; changes in labour costs and labour difficulties; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; sufficiency of budgeted capital expenditures in carrying out business plans; services and infrastructure; the satisfaction by third parties of their obligations; currency and interest rate fluctuations; exchange rates; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; trade restrictions or other changes to international trade arrangements; the effects of current and future multinational trade agreements on the level of trade among Canada, the U.S. and Mexico; climate change and the market and regulatory responses to climate change; anticipated in-service dates; success of hedging activities; operational performance and reliability; customer, shareholder, regulatory and other stakeholder approvals and support; regulatory and legislative decisions and actions; the adverse impact of any termination or revocation by the Mexican government of Kansas City Southern de México, S.A. de C.V.'s Concession; public opinion; various events that could disrupt operations, including severe weather, such as droughts, floods, avalanches and earthquakes, and cybersecurity attacks, as well as security threats and governmental response to them, and technological changes; acts of terrorism, war or other acts of violence or crime or risk of such activities; insurance coverage limitations; material adverse changes in economic and industry conditions, including the availability of short and long-term financing; the pandemic created by the outbreak of COVID-19 and its variants and resulting effects on economic conditions, the demand environment for logistics requirements and energy prices, restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions, and disruptions to global supply chains; the timing and completion of the pending KCS transaction, including receipt of regulatory and shareholder approvals and the satisfaction of other conditions precedent; interloper risk to the pending KCS transaction; the realization of anticipated benefits and synergies of the transaction and the timing thereof; the success of integration plans for KCS; the focus of management time and attention on the pending KCS transaction and other disruptions arising from the transaction; estimated future dividends; financial strength and flexibility; debt and equity market conditions, including the ability to access capital markets on favourable terms or at all; cost of debt and equity capital; potential changes in CP's share price which may negatively impact the value of consideration offered to KCS stockholders; and the ability of the management of the Company, its subsidiaries and affiliates to execute key priorities, including those in connection with the pending KCS transaction. The foregoing list of factors is not exhaustive. These and other factors are detailed from time to time in reports filed by CP with securities regulators in Canada and the United States. Reference should be made to "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements" in CP's annual and interim reports on Form 10-K and 10-Q. Any forward-looking information contained in this news release is made as of the date hereof. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, or the foregoing assumptions and risks affecting such forward-looking information, whether as a result of new information, future events or otherwise. About Canadian PacificCanadian Pacific is a transcontinental railway in Canada and the United States with direct links to major ports on the west and east coasts. CP provides North American customers a competitive rail service with access to key markets in every corner of the globe. CP is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit cpr.ca to see the rail advantages of CP. CP-IR FINANCIAL STATEMENTS INTERIM CONSOLIDATED STATEMENTS OF INCOME(unaudited) For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars, except share and per share data) 2021 2020 2021 2020 Revenues (Note 3) Freight $ 1,896 $ 1,821 $ 5,822 $ 5,573 Non-freight 46 42 133 125 Total revenues 1,942 1,863 5,955 5,698 Operating expenses Compensation and benefits 381 382 1,165 1,127 Fuel 199 140 623 483 Materials 51 53 164 162 Equipment rents 31 39 92 108 Depreciation and amortization 203 195 605 582 Purchased services and other (Note 9, 10) 303 275 932 853 Total operating expenses 1,168 1,084 3,581 3,315 Operating income 774 779 2,374 2,383 Less: Other expense (income) (Note 4, 10) 124 (36) 253 89 Merger termination fee (Note 10) — — (845) — Other components of net periodic benefit recovery (Note 14) (95) (86) (286) (257) Net interest expense 104 114 315 346 Income before income tax expense 641 787 2,937 2,205 Income tax expense (Note 5) 169 189 617 563 Net income $ 472 $ 598 $ 2,320 $ 1,642 Earnings per share (Note 1, 6) Basic earnings per share $ 0.71 $ 0.88 $ 3.48 $ 2.42 Diluted earnings per share $ 0.70 $ 0.88 $ 3.46 $ 2.41 Weighted-average number of shares (millions) (Note 1, 6) Basic 666.9 676.2 666.7 679.3 Diluted 669.8 679.0 669.8 681.8 Dividends declared per share (Note 1) $ 0.190 $ 0.190 $ 0.570 $ 0.522 See Notes to Interim Consolidated Financial Statements. INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(unaudited) For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Net income $ 472 $ 598 $ 2,320 $ 1,642 Net (loss) gain in foreign currency translation adjustments, net of hedging activities (17) 16 3 (18) Change in derivatives designated as cash flow hedges 141 3 69 6 Change in pension and post-retirement defined benefit plans 53 44 158 134 Other comprehensive income before income taxes 177 63 230 122 Income tax expense on above items (29) (29) (59) (16) Other comprehensive income (Note 7) 148 34 171 106 Comprehensive income $ 620 $ 632 $ 2,491 $ 1,748 See Notes to Interim Consolidated Financial Statements. INTERIM CONSOLIDATED BALANCE SHEETS AS AT(unaudited) September 30 December 31 (in millions of Canadian dollars) 2021 2020 Assets Current assets Cash and cash equivalents $ 210 $ 147 Restricted cash and cash equivalents 13 — Accounts receivable, net (Note 8) 811 825 Materials and supplies 227 208 Other current assets 190 141 1,451 1,321 Investments 205 199 Properties 21,007 20,422 Goodwill and intangible assets 372 366 Pension asset 1,232 894 Other assets 405 438 Payment to Kansas City Southern (Note 10) 1,773 — Total assets $ 26,445 $ 23,640 Liabilities and shareholders' equity Current liabilities Accounts payable and accrued liabilities $ 1,744 $ 1,467 Long-term debt maturing within one year (Note 11, 12) 1,932 1,186 3,676 2,653 Pension and other benefit liabilities 825 832 Other long-term liabilities 522 585 Long-term debt (Note 11, 12) 8,036 8,585 Deferred income taxes 3,918 3,666 Total liabilities 16,977 16,321 Shareholders' equity Share capital 2,008 1,983 Additional paid-in capital 68 55 Accumulated other comprehensive loss (Note 7) (2,643) (2,814) Retained earnings 10,035 8,095 9,468 7,319 Total liabilities and shareholders' equity $ 26,445 $ 23,640 See Contingencies (Note 16). See Notes to Interim Consolidated Financial Statements. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited) For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Operating activities Net income $ 472 $ 598 $ 2,320 $ 1,642 Reconciliation of net income to cash provided by operating activities: Depreciation and amortization 203 195 605 582 Deferred income tax expense (Note 5) 130 45 190 133 Pension recovery and funding (Note 14) (62) (65) (188) (192) Foreign exchange loss (gain) on debt and lease liabilities (Note 4) 46 (40) (39) 89 Other operating activities, net (14) 56 (50) 11 Change in non-cash working capital balances related to operations (227) (296) 246 (448) Cash provided by operating activities 548 493 3,084 1,817 Investing activities Additions to properties (372) (484) (1,111) (1,341) Investment in Central Maine & Québec Railway — — — 19 Payment to Kansas City Southern (Note 10) (1,773) — (1,773) — Proceeds from sale of properties and other assets 16 2 65 9 Other — (1) (1) — Cash used in investing activities (2,129) (483) (2,820) (1,313) Financing activities Dividends paid (127) (113) (380) (339) Issuance of CP Common Shares 4 3 20 32 Purchase of CP Common Shares (Note 13) — (400) — (945) Issuance of long-term debt, excluding commercial paper — — — 958 Repayment of long-term debt, excluding commercial paper (Note 11) (318) (49) (349) (74) Proceeds from term loan (Note 11) 633 — 633 — Net issuance (repayment) of commercial paper (Note 11) 713 459 (66) (114) Net increase in short-term borrowings — — — 5 Acquisition-related financing fees (Note 10) — — (45) — Other (3) — (7) 11 Cash provided by (used in) financing activities 902 (100) (194) (466) Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents 10 (4) 6 12 Cash position (Decrease) increase in cash, cash equivalents, and restricted cash (669) (94) 76 50 Cash, cash equivalents, and restricted cash at beginning of period 892 277 147 133 Cash, cash equivalents, and restricted cash at end of period $ 223 $ 183 $ 223 $ 183 Supplemental disclosures of cash flow information: Income taxes paid $ 129 $ 311 $ 401 $ 455 Interest paid $ 153 $ 163 $ 365 $ 383 See Notes to Interim Consolidated Financial Statements. INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) For the three months ended September 30 (in millions of Canadian dollars except per share data) Common Shares (in millions) Share capital Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total shareholders' equity Balance at July 1, 2021 666.8 $ 2,003 $ 63 $ (2,791) $ 9,690 $ 8,965 Net income — — — — 472 472 Other comprehensive income (Note 7) — — — 148 — 148 Dividends declared ($0.190 per share) — — — — (127) (127) Effect of stock-based compensation expense — — 6 — — 6 Shares issued under stock option plan 0.1 5 (1) — — 4 Balance at September 30, 2021 666.9 $ 2,008 $ 68 $ (2,643) $ 10,035 $ 9,468 Balance at July 1, 2020 677.6 $ 1,990 $ 53 $ (2,450) $ 7,872 $ 7,465 Net income — — — — 598 598 Other comprehensive income (Note 7) — — — 34 — 34 Dividends declared ($0.190 per share) (Note 1) — — — — (128) (128) Effect of stock-based compensation expense — — 4 — — 4 CP Common Shares repurchased (Note 13) (5.3) (15) — — (381) (396) Shares issued under stock option plan 0.2 3 (1) — — 2 Balance at September 30, 2020 672.5 $ 1,978 $ 56 $ (2,416) $ 7,961 $ 7,579 For the nine months ended September 30 (in millions of Canadian dollars except per share data) Common shares (in millions) Share capital Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total shareholders' equity Balance at January 1, 2021 666.3 $ 1,983 $ 55 $ (2,814) $ 8,095 $ 7,319 Net income — — — — 2,320 2,320 Other comprehensive income (Note 7) — — — 171 — 171 Dividends declared ($0.570 per share) (Note 1) — — — — (380) (380) Effect of stock-based compensation expense — — 18 — — 18 Shares issued under stock option plan 0.6 25 (5) — — 20 Balance at September 30, 2021 666.9 $ 2,008 $ 68 $ (2,643) $ 10,035 $ 9,468 Balance at January 1, 2020 685.0 $ 1,993 $ 48 $ (2,522) $ 7,549 $ 7,068 Net income — — — — 1,642 1,642 Other comprehensive income (Note 7) — — — 106 — 106 Dividends declared ($0.522 per share) (Note 1) — — — — (353) (353) Effect of stock-based compensation expense — — 13 — — 13 CP Common Shares repurchased (Note 13) (13.7) (39) — — (877) (916) Shares issued under stock option plan 1.2 24 (5) — — 19 Balance at September 30, 2020 672.5 $ 1,978 $ 56 $ (2,416) $ 7,961 $ 7,579 See Notes to Interim Consolidated Financial Statements. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021 (unaudited) 1    Basis of presentation These unaudited Interim Consolidated Financial Statements ("Interim Consolidated Financial Statements") of Canadian Pacific Railway Limited ("CPRL") and its subsidiaries (collectively, "CP", or "the Company"), expressed in Canadian dollars, reflect management's estimates and assumptions that are necessary for their fair presentation in conformity with generally accepted accounting principles in the United States of America ("GAAP"). They do not include all disclosures required under GAAP for annual financial statements and should be read in conjunction with the 2020 annual Consolidated Financial Statements and notes included in CP's 2020 Annual Report on Form 10-K. The accounting policies used are consistent with the accounting policies used in preparing the 2020 annual Consolidated Financial Statements. On April 21, 2021, the Company's shareholders approved a five-for-one share split of the Company's issued and outstanding Common Shares. On May 13, 2021, the Company's shareholders of record as of May 5, 2021 received four additional shares for every Common Share held. Ex-distribution trading in the Company's Common Shares on a split-adjusted basis commenced on May 14, 2021. Proportional adjustments were also made to outstanding awards under the Company's stock-based compensation plans in order to reflect the share split. All outstanding Common Shares, stock-based compensation awards, and per share amounts herein have been retrospectively adjusted to reflect the share split. CP's operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues. This seasonality could impact quarter-over-quarter comparisons. In management's opinion, the Interim Consolidated Financial Statements include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year. 2    Accounting changes Accounting pronouncements that became effective during the period covered by the Interim Consolidated Financial Statements did not have a material impact on the Company's Interim Consolidated Balance Sheets, Interim Consolidated Statements of Income, or Interim Consolidated Statements of Cash Flows. Likewise, accounting pronouncements issued, but not effective until after September 30, 2021, are not expected to have a material impact on the Company's Consolidated Balance Sheets, Consolidated Statements of Income, or Consolidated Statements of Cash Flows. Future changes Reference Rate Reform In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.  From the end of 2021, banks will no longer be required to report information that is used to determine the London Interbank Offered Rate ("LIBOR"), which is a benchmark interest rate commonly referenced in a variety of contractual agreements. As a result, LIBOR or other reference rates used globally could be discontinued. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. The guidance in the ASU was effective starting on March 12, 2020, and is available to be adopted on a prospective basis no later than December 31, 2022. The Company currently has a fully drawn U.S. $500 million non-revolving term credit facility referencing LIBOR that could be affected by the provisions of this ASU (See Note 11 - Debt). The Company also has a revolving credit facility that references LIBOR. The Company had no outstanding borrowings under the revolving credit facility as at September 30, 2021. The Company is evaluating the effects that the adoption of the ASU will have on its Consolidated Financial Statements and related disclosures, and whether it will elect to apply any of the optional expedients and exceptions provided in the ASU. 3    Revenues The following table disaggregates the Company's revenues from contracts with customers by major source: For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Freight Grain $ 352 $ 457 $ 1,244 $ 1,321 Coal 158 130 491 411 Potash 113 132 348 390 Fertilizers and sulphur 72 65 227 212 Forest products 89 85 259 244 Energy, chemicals and plastics 392 321 1,149 1,153 Metals, minerals and consumer products 196 152 535 474 Automotive 83 94 289 215 Intermodal 441 385 1,280 1,153 Total freight revenues 1,896 1,821 5,822 5,573 Non-freight excluding leasing revenues 25 27 75 80 Revenues from contracts with customers 1,921 1,848 5,897 5,653 Leasing revenues 21 15 58 45 Total revenues $ 1,942 $ 1,863 $ 5,955 $ 5,698 Contract liabilities        Contract liabilities represent payments received for performance obligations not yet satisfied and relate to deferred revenue, and are presented as components of "Accounts payable and accrued liabilities" and "Other long-term liabilities" on the Company's Interim Consolidated Balance Sheets. The following table summarizes the changes in contract liabilities: For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Opening balance $ 245 $ 79 $ 61 $ 146 Revenue recognized that was included in the contract liability balance at the beginning of the period (93) (25) (36) (95) Increase due to consideration received, net of revenue recognizedduring the period 4 5 131 8 Closing balance $ 156 $ 59 $ 156 $ 59 4    Other expense (income) For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Foreign exchange loss (gain) on debt and lease liabilities $ 46 $ (40) $ (39) $ 89 Other foreign exchange (gains) losses (7) 2 (9) (2) Acquisition-related costs (Note 10) 83 — 295 — Other 2 2 6 2 Other expense (income) $ 124 $ (36) $ 253 $ 89 5    Income taxes For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Current income tax expense $ 39 $ 144 $ 427 $ 430 Deferred income tax expense 130 45 190 133 Income tax expense $ 169 $ 189 $ 617 $ 563 The effective tax rates including discrete items for the three and nine months ended September 30, 2021 were 26.36% and 21.00%, respectively, compared to 23.97% and 25.52%, respectively for the same periods of 2020. For the three months ended September 30, 2021, the effective tax rate was 24.60%, excluding the discrete items of the Kansas City Southern ("KCS") acquisition-related costs of $98 million, and foreign exchange ("FX") loss of $46 million on debt and lease liabilities. For the three months ended September 30, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX gain of $40 million on debt and lease liabilities. For the nine months ended September 30, 2021, the effective tax rate was 24.60%, excluding the discrete items of the KCS acquisition-related costs of $442 million, the $845 million (U.S. $700 million) merger termination payment received in connection with KCS's termination of the Agreement and Plan of Merger (the "Original Merger Agreement"), and FX gain of $39 million on debt and lease liabilities. For the nine months ended September 30, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX loss of $89 million on debt and lease liabilities. 6    Earnings per share Basic earnings per share has been calculated using Net income for the period divided by the weighted-average number of shares outstanding during the period. The number of shares used in the earnings per share calculations are reconciled as follows: For the three months ended September 30 For the nine months ended September 30 (in millions) 2021 2020 2021 2020 Weighted-average basic shares outstanding 666.9 676.2 666.7 679.3 Dilutive effect of stock options 2.9 2.8 3.1 2.5 Weighted-average diluted shares outstanding 669.8 679.0 669.8 681.8 For the three and nine months ended September 30, 2021, there were 0.2 million and 0.1 million options, respectively, excluded from the computation of diluted earnings per share because their effects were not dilutive (three and nine months ended September 30, 2020 - nil and 0.6 million, respectively). 7    Changes in Accumulated other comprehensive loss ("AOCL") by component For the three months ended September 30 (in millions of Canadian dollars) Foreign currency net of hedging activities(1) Derivatives and.....»»

Category: earningsSource: benzingaOct 20th, 2021

CP reports third-quarter revenue growth of 4 percent; maintains full-year adjusted diluted EPS guidance

CALGARY, AB, Oct. 20, 2021 /CNW/ - Canadian Pacific Railway Limited (TSX:CP) (NYSE:CP) today announced third-quarter revenues of $1.94 billion, diluted earnings per share ("EPS") of $0.70, adjusted diluted EPS1 of $0.88, an operating ratio ("OR") of 60.2 percent and an adjusted OR1 of 59.4 percent. "The third quarter presented challenges across the supply chain, but the CP team's commitment to the foundations of precision scheduled railroading enabled us to respond quickly and effectively to changing environments," said Keith Creel, CP President and Chief Executive Officer. "We are committed to controlling what we can control, as CP continues to focus on providing service excellence to our customers and driving value for our shareholders." Third-quarter highlights Revenues increased by 4 percent to $1.94 billion, from $1.86 billion last year Reported diluted EPS of $0.70, a 20 percent decrease from $0.88 last year, and adjusted diluted EPS of $0.88, a 7 percent increase from $0.82 last year Reported OR, which includes Kansas City Southern ("KCS") acquisition-related costs, increased by 200 basis points to 60.2 percent from 58.2 percent Adjusted OR, which excludes the KCS acquisition-related costs, increased 120 basis points to 59.4 percent over last year's third-quarter OR of 58.2 percent Updated outlookCP now expects low single-digit volume growth in 2021, as measured in revenue ton-miles, compared to 2020. CP remains confident that it will deliver full-year double-digit adjusted diluted EPS growth2,3 in 2021. CP's revised guidance continues to assume other components of net periodic benefit recovery to increase by approximately $40 million versus 2020, an effective tax rate of approximately 24.6 percent and capital expenditure of $1.55 billion. "Despite global supply chain issues and a challenging Canadian grain crop, we remain confident in our ability to deliver full-year double-digit adjusted diluted EPS growth," said Creel. "The underlying demand environment remains strong, and our commitment to generate sustainable, profitable growth will not be distracted by elements outside our control." Additionally, CP will continue its work preparing to create the first single-line rail network linking the U.S., Mexico and Canada by combining with Kansas City Southern. "The transitory issues over the past year have only reinforced the need for enhanced competition and optionality for North American shippers," Creel said. "Our excitement about the opportunities ahead with the combined companies continues to grow." 1 These measures have no standardized meanings prescribed by accounting principles generally accepted in the United States of America ("GAAP") and, therefore, may not be comparable to similar measures presented by other companies. These measures are defined and reconciled in the Non-GAAP Measures supplementary schedule of this Earnings Release. 2 CP's expectation for full year double-digit adjusted diluted EPS growth in 2021 is relative to 2020's adjusted diluted EPS of $3.53. CP's reported diluted EPS was $3.59 in 2020. 3 Although CP has provided a forward-looking non-GAAP measure (adjusted diluted EPS), management is unable to reconcile, without unreasonable efforts, the forward-looking adjusted diluted EPS to the most comparable GAAP measure (diluted EPS), due to unknown variables and uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value. In recent years, CP has recognized acquisition-related costs (including legal, consulting and financing fees, and fair value gain or loss on foreign exchange (FX) forward contracts and interest rate hedges), the merger termination payment received, changes in income tax rates and a change to an uncertain tax item. These or other similar, large unforeseen transactions affect diluted EPS but may be excluded from CP's adjusted diluted EPS. Additionally, the U.S.-to-Canadian dollar FX rate is unpredictable and can have a significant impact on CP's reported results but may be excluded from CP's adjusted diluted EPS. In particular, CP excludes the FX impact of translating the Company's debt and lease liabilities from adjusted diluted EPS. For information regarding non-GAAP measures, including reconciliations to the most comparable GAAP measures, see the attached supplementary schedule Non-GAAP Measures. Conference call details CP will discuss its results with the financial community in a conference call beginning at 8 a.m. ET (6 a.m. MT) today. Conference call accessToronto participants dial in number: 1-416-764-8688  Operator assisted toll free dial in number: 1-888-390-0546   Callers should dial in 10 minutes prior to the call.  Webcast We encourage you to access the webcast and presentation material in the Investors section of CP's website at investor.cpr.ca. A replay of the third-quarter conference call will be available by phone through to Oct. 27, 2021 at 416-764-8677 or toll free 1-888-390-0541, password 549569. Note on forward-looking information This news release may contain certain forward-looking information and forward-looking statements (collectively, "forward-looking information") within the meaning of applicable securities laws. Forward-looking information includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words or headings such as "financial expectations", "key assumptions", "anticipate", "believe", "expect", "plan", "will", "outlook", "should" or similar words suggesting future outcomes. This news release contains forward-looking information relating, but not limited to statements concerning 2021 volume as measured in revenue ton-miles, adjusted diluted EPS growth, capital program investments, the U.S.-to-Canadian dollar exchange rate, annualized effective tax rate, other components of net periodic benefit recovery, cost control efforts, the success of our business, our operations, priorities and plans, anticipated financial and operational performance, business prospects and demand for our services and growth opportunities. The forward-looking information that may be in this news release is based on current expectations, estimates, projections and assumptions, having regard to CP's experience and its perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: changes in business strategies, North American and global economic growth; commodity demand growth; sustainable industrial and agricultural production; commodity prices and interest rates; foreign exchange rates (as specified herein); effective tax rates (as specified herein); performance of our assets and equipment; sufficiency of our budgeted capital expenditures in carrying out our business plan; geopolitical conditions, applicable laws, regulations and government policies; the availability and cost of labour, services and infrastructure; the satisfaction by third parties of their obligations to CP; and the anticipated impacts of the COVID-19 pandemic on CP businesses, operating results, cash flows and/or financial condition. Although CP believes the expectations, estimates, projections and assumptions reflected in the forward-looking information presented herein are reasonable as of the date hereof, there can be no assurance that they will prove to be correct. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty. Undue reliance should not be placed on forward-looking information as actual results may differ materially from those expressed or implied by forward-looking information. By its nature, CP's forward-looking information involves inherent risks and uncertainties that could cause actual results to differ materially from the forward looking information, including, but not limited to, the following factors: changes in business strategies and strategic opportunities; general Canadian, U.S., Mexican and global social, economic, political, credit and business conditions; risks associated with agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures, including competition from other rail carriers, trucking companies and maritime shippers in Canada, the U.S. and Mexico; North American and global economic growth; industry capacity; shifts in market demand; changes in commodity prices and commodity demand; uncertainty surrounding timing and volumes of commodities being shipped via CP; inflation; geopolitical instability; changes in laws, regulations and government policies, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; changes in fuel prices; disruption in fuel supplies; uncertainties of investigations, proceedings or other types of claims and litigation; compliance with environmental regulations; labour disputes; changes in labour costs and labour difficulties; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; sufficiency of budgeted capital expenditures in carrying out business plans; services and infrastructure; the satisfaction by third parties of their obligations; currency and interest rate fluctuations; exchange rates; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; trade restrictions or other changes to international trade arrangements; the effects of current and future multinational trade agreements on the level of trade among Canada, the U.S. and Mexico; climate change and the market and regulatory responses to climate change; anticipated in-service dates; success of hedging activities; operational performance and reliability; customer, shareholder, regulatory and other stakeholder approvals and support; regulatory and legislative decisions and actions; the adverse impact of any termination or revocation by the Mexican government of Kansas City Southern de México, S.A. de C.V.'s Concession; public opinion; various events that could disrupt operations, including severe weather, such as droughts, floods, avalanches and earthquakes, and cybersecurity attacks, as well as security threats and governmental response to them, and technological changes; acts of terrorism, war or other acts of violence or crime or risk of such activities; insurance coverage limitations; material adverse changes in economic and industry conditions, including the availability of short and long-term financing; the pandemic created by the outbreak of COVID-19 and its variants and resulting effects on economic conditions, the demand environment for logistics requirements and energy prices, restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions, and disruptions to global supply chains; the timing and completion of the pending KCS transaction, including receipt of regulatory and shareholder approvals and the satisfaction of other conditions precedent; interloper risk to the pending KCS transaction; the realization of anticipated benefits and synergies of the transaction and the timing thereof; the success of integration plans for KCS; the focus of management time and attention on the pending KCS transaction and other disruptions arising from the transaction; estimated future dividends; financial strength and flexibility; debt and equity market conditions, including the ability to access capital markets on favourable terms or at all; cost of debt and equity capital; potential changes in CP's share price which may negatively impact the value of consideration offered to KCS stockholders; and the ability of the management of the Company, its subsidiaries and affiliates to execute key priorities, including those in connection with the pending KCS transaction. The foregoing list of factors is not exhaustive. These and other factors are detailed from time to time in reports filed by CP with securities regulators in Canada and the United States. Reference should be made to "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements" in CP's annual and interim reports on Form 10-K and 10-Q. Any forward-looking information contained in this news release is made as of the date hereof. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, or the foregoing assumptions and risks affecting such forward-looking information, whether as a result of new information, future events or otherwise. About Canadian PacificCanadian Pacific is a transcontinental railway in Canada and the United States with direct links to major ports on the west and east coasts. CP provides North American customers a competitive rail service with access to key markets in every corner of the globe. CP is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit cpr.ca to see the rail advantages of CP. CP-IR FINANCIAL STATEMENTS INTERIM CONSOLIDATED STATEMENTS OF INCOME(unaudited) For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars, except share and per share data) 2021 2020 2021 2020 Revenues (Note 3) Freight $ 1,896 $ 1,821 $ 5,822 $ 5,573 Non-freight 46 42 133 125 Total revenues 1,942 1,863 5,955 5,698 Operating expenses Compensation and benefits 381 382 1,165 1,127 Fuel 199 140 623 483 Materials 51 53 164 162 Equipment rents 31 39 92 108 Depreciation and amortization 203 195 605 582 Purchased services and other (Note 9, 10) 303 275 932 853 Total operating expenses 1,168 1,084 3,581 3,315 Operating income 774 779 2,374 2,383 Less: Other expense (income) (Note 4, 10) 124 (36) 253 89 Merger termination fee (Note 10) — — (845) — Other components of net periodic benefit recovery (Note 14) (95) (86) (286) (257) Net interest expense 104 114 315 346 Income before income tax expense 641 787 2,937 2,205 Income tax expense (Note 5) 169 189 617 563 Net income $ 472 $ 598 $ 2,320 $ 1,642 Earnings per share (Note 1, 6) Basic earnings per share $ 0.71 $ 0.88 $ 3.48 $ 2.42 Diluted earnings per share $ 0.70 $ 0.88 $ 3.46 $ 2.41 Weighted-average number of shares (millions) (Note 1, 6) Basic 666.9 676.2 666.7 679.3 Diluted 669.8 679.0 669.8 681.8 Dividends declared per share (Note 1) $ 0.190 $ 0.190 $ 0.570 $ 0.522 See Notes to Interim Consolidated Financial Statements. INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(unaudited) For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Net income $ 472 $ 598 $ 2,320 $ 1,642 Net (loss) gain in foreign currency translation adjustments, net of hedging activities (17) 16 3 (18) Change in derivatives designated as cash flow hedges 141 3 69 6 Change in pension and post-retirement defined benefit plans 53 44 158 134 Other comprehensive income before income taxes 177 63 230 122 Income tax expense on above items (29) (29) (59) (16) Other comprehensive income (Note 7) 148 34 171 106 Comprehensive income $ 620 $ 632 $ 2,491 $ 1,748 See Notes to Interim Consolidated Financial Statements. INTERIM CONSOLIDATED BALANCE SHEETS AS AT(unaudited) September 30 December 31 (in millions of Canadian dollars) 2021 2020 Assets Current assets Cash and cash equivalents $ 210 $ 147 Restricted cash and cash equivalents 13 — Accounts receivable, net (Note 8) 811 825 Materials and supplies 227 208 Other current assets 190 141 1,451 1,321 Investments 205 199 Properties 21,007 20,422 Goodwill and intangible assets 372 366 Pension asset 1,232 894 Other assets 405 438 Payment to Kansas City Southern (Note 10) 1,773 — Total assets $ 26,445 $ 23,640 Liabilities and shareholders' equity Current liabilities Accounts payable and accrued liabilities $ 1,744 $ 1,467 Long-term debt maturing within one year (Note 11, 12) 1,932 1,186 3,676 2,653 Pension and other benefit liabilities 825 832 Other long-term liabilities 522 585 Long-term debt (Note 11, 12) 8,036 8,585 Deferred income taxes 3,918 3,666 Total liabilities 16,977 16,321 Shareholders' equity Share capital 2,008 1,983 Additional paid-in capital 68 55 Accumulated other comprehensive loss (Note 7) (2,643) (2,814) Retained earnings 10,035 8,095 9,468 7,319 Total liabilities and shareholders' equity $ 26,445 $ 23,640 See Contingencies (Note 16). See Notes to Interim Consolidated Financial Statements. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited) For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Operating activities Net income $ 472 $ 598 $ 2,320 $ 1,642 Reconciliation of net income to cash provided by operating activities: Depreciation and amortization 203 195 605 582 Deferred income tax expense (Note 5) 130 45 190 133 Pension recovery and funding (Note 14) (62) (65) (188) (192) Foreign exchange loss (gain) on debt and lease liabilities (Note 4) 46 (40) (39) 89 Other operating activities, net (14) 56 (50) 11 Change in non-cash working capital balances related to operations (227) (296) 246 (448) Cash provided by operating activities 548 493 3,084 1,817 Investing activities Additions to properties (372) (484) (1,111) (1,341) Investment in Central Maine & Québec Railway — — — 19 Payment to Kansas City Southern (Note 10) (1,773) — (1,773) — Proceeds from sale of properties and other assets 16 2 65 9 Other — (1) (1) — Cash used in investing activities (2,129) (483) (2,820) (1,313) Financing activities Dividends paid (127) (113) (380) (339) Issuance of CP Common Shares 4 3 20 32 Purchase of CP Common Shares (Note 13) — (400) — (945) Issuance of long-term debt, excluding commercial paper — — — 958 Repayment of long-term debt, excluding commercial paper (Note 11) (318) (49) (349) (74) Proceeds from term loan (Note 11) 633 — 633 — Net issuance (repayment) of commercial paper (Note 11) 713 459 (66) (114) Net increase in short-term borrowings — — — 5 Acquisition-related financing fees (Note 10) — — (45) — Other (3) — (7) 11 Cash provided by (used in) financing activities 902 (100) (194) (466) Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents 10 (4) 6 12 Cash position (Decrease) increase in cash, cash equivalents, and restricted cash (669) (94) 76 50 Cash, cash equivalents, and restricted cash at beginning of period 892 277 147 133 Cash, cash equivalents, and restricted cash at end of period $ 223 $ 183 $ 223 $ 183 Supplemental disclosures of cash flow information: Income taxes paid $ 129 $ 311 $ 401 $ 455 Interest paid $ 153 $ 163 $ 365 $ 383 See Notes to Interim Consolidated Financial Statements. INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) For the three months ended September 30 (in millions of Canadian dollars except per share data) Common Shares (in millions) Share capital Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total shareholders' equity Balance at July 1, 2021 666.8 $ 2,003 $ 63 $ (2,791) $ 9,690 $ 8,965 Net income — — — — 472 472 Other comprehensive income (Note 7) — — — 148 — 148 Dividends declared ($0.190 per share) — — — — (127) (127) Effect of stock-based compensation expense — — 6 — — 6 Shares issued under stock option plan 0.1 5 (1) — — 4 Balance at September 30, 2021 666.9 $ 2,008 $ 68 $ (2,643) $ 10,035 $ 9,468 Balance at July 1, 2020 677.6 $ 1,990 $ 53 $ (2,450) $ 7,872 $ 7,465 Net income — — — — 598 598 Other comprehensive income (Note 7) — — — 34 — 34 Dividends declared ($0.190 per share) (Note 1) — — — — (128) (128) Effect of stock-based compensation expense — — 4 — — 4 CP Common Shares repurchased (Note 13) (5.3) (15) — — (381) (396) Shares issued under stock option plan 0.2 3 (1) — — 2 Balance at September 30, 2020 672.5 $ 1,978 $ 56 $ (2,416) $ 7,961 $ 7,579 For the nine months ended September 30 (in millions of Canadian dollars except per share data) Common shares (in millions) Share capital Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total shareholders' equity Balance at January 1, 2021 666.3 $ 1,983 $ 55 $ (2,814) $ 8,095 $ 7,319 Net income — — — — 2,320 2,320 Other comprehensive income (Note 7) — — — 171 — 171 Dividends declared ($0.570 per share) (Note 1) — — — — (380) (380) Effect of stock-based compensation expense — — 18 — — 18 Shares issued under stock option plan 0.6 25 (5) — — 20 Balance at September 30, 2021 666.9 $ 2,008 $ 68 $ (2,643) $ 10,035 $ 9,468 Balance at January 1, 2020 685.0 $ 1,993 $ 48 $ (2,522) $ 7,549 $ 7,068 Net income — — — — 1,642 1,642 Other comprehensive income (Note 7) — — — 106 — 106 Dividends declared ($0.522 per share) (Note 1) — — — — (353) (353) Effect of stock-based compensation expense — — 13 — — 13 CP Common Shares repurchased (Note 13) (13.7) (39) — — (877) (916) Shares issued under stock option plan 1.2 24 (5) — — 19 Balance at September 30, 2020 672.5 $ 1,978 $ 56 $ (2,416) $ 7,961 $ 7,579 See Notes to Interim Consolidated Financial Statements. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021 (unaudited) 1    Basis of presentation These unaudited Interim Consolidated Financial Statements ("Interim Consolidated Financial Statements") of Canadian Pacific Railway Limited ("CPRL") and its subsidiaries (collectively, "CP", or "the Company"), expressed in Canadian dollars, reflect management's estimates and assumptions that are necessary for their fair presentation in conformity with generally accepted accounting principles in the United States of America ("GAAP"). They do not include all disclosures required under GAAP for annual financial statements and should be read in conjunction with the 2020 annual Consolidated Financial Statements and notes included in CP's 2020 Annual Report on Form 10-K. The accounting policies used are consistent with the accounting policies used in preparing the 2020 annual Consolidated Financial Statements. On April 21, 2021, the Company's shareholders approved a five-for-one share split of the Company's issued and outstanding Common Shares. On May 13, 2021, the Company's shareholders of record as of May 5, 2021 received four additional shares for every Common Share held. Ex-distribution trading in the Company's Common Shares on a split-adjusted basis commenced on May 14, 2021. Proportional adjustments were also made to outstanding awards under the Company's stock-based compensation plans in order to reflect the share split. All outstanding Common Shares, stock-based compensation awards, and per share amounts herein have been retrospectively adjusted to reflect the share split. CP's operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues. This seasonality could impact quarter-over-quarter comparisons. In management's opinion, the Interim Consolidated Financial Statements include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year. 2    Accounting changes Accounting pronouncements that became effective during the period covered by the Interim Consolidated Financial Statements did not have a material impact on the Company's Interim Consolidated Balance Sheets, Interim Consolidated Statements of Income, or Interim Consolidated Statements of Cash Flows. Likewise, accounting pronouncements issued, but not effective until after September 30, 2021, are not expected to have a material impact on the Company's Consolidated Balance Sheets, Consolidated Statements of Income, or Consolidated Statements of Cash Flows. Future changes Reference Rate Reform In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.  From the end of 2021, banks will no longer be required to report information that is used to determine the London Interbank Offered Rate ("LIBOR"), which is a benchmark interest rate commonly referenced in a variety of contractual agreements. As a result, LIBOR or other reference rates used globally could be discontinued. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. The guidance in the ASU was effective starting on March 12, 2020, and is available to be adopted on a prospective basis no later than December 31, 2022. The Company currently has a fully drawn U.S. $500 million non-revolving term credit facility referencing LIBOR that could be affected by the provisions of this ASU (See Note 11 - Debt). The Company also has a revolving credit facility that references LIBOR. The Company had no outstanding borrowings under the revolving credit facility as at September 30, 2021. The Company is evaluating the effects that the adoption of the ASU will have on its Consolidated Financial Statements and related disclosures, and whether it will elect to apply any of the optional expedients and exceptions provided in the ASU. 3    Revenues The following table disaggregates the Company's revenues from contracts with customers by major source: For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Freight Grain $ 352 $ 457 $ 1,244 $ 1,321 Coal 158 130 491 411 Potash 113 132 348 390 Fertilizers and sulphur 72 65 227 212 Forest products 89 85 259 244 Energy, chemicals and plastics 392 321 1,149 1,153 Metals, minerals and consumer products 196 152 535 474 Automotive 83 94 289 215 Intermodal 441 385 1,280 1,153 Total freight revenues 1,896 1,821 5,822 5,573 Non-freight excluding leasing revenues 25 27 75 80 Revenues from contracts with customers 1,921 1,848 5,897 5,653 Leasing revenues 21 15 58 45 Total revenues $ 1,942 $ 1,863 $ 5,955 $ 5,698 Contract liabilities        Contract liabilities represent payments received for performance obligations not yet satisfied and relate to deferred revenue, and are presented as components of "Accounts payable and accrued liabilities" and "Other long-term liabilities" on the Company's Interim Consolidated Balance Sheets. The following table summarizes the changes in contract liabilities: For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Opening balance $ 245 $ 79 $ 61 $ 146 Revenue recognized that was included in the contract liability balance at the beginning of the period (93) (25) (36) (95) Increase due to consideration received, net of revenue recognizedduring the period 4 5 131 8 Closing balance $ 156 $ 59 $ 156 $ 59 4    Other expense (income) For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Foreign exchange loss (gain) on debt and lease liabilities $ 46 $ (40) $ (39) $ 89 Other foreign exchange (gains) losses (7) 2 (9) (2) Acquisition-related costs (Note 10) 83 — 295 — Other 2 2 6 2 Other expense (income) $ 124 $ (36) $ 253 $ 89 5    Income taxes For the three months ended September 30 For the nine months ended September 30 (in millions of Canadian dollars) 2021 2020 2021 2020 Current income tax expense $ 39 $ 144 $ 427 $ 430 Deferred income tax expense 130 45 190 133 Income tax expense $ 169 $ 189 $ 617 $ 563 The effective tax rates including discrete items for the three and nine months ended September 30, 2021 were 26.36% and 21.00%, respectively, compared to 23.97% and 25.52%, respectively for the same periods of 2020. For the three months ended September 30, 2021, the effective tax rate was 24.60%, excluding the discrete items of the Kansas City Southern ("KCS") acquisition-related costs of $98 million, and foreign exchange ("FX") loss of $46 million on debt and lease liabilities. For the three months ended September 30, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX gain of $40 million on debt and lease liabilities. For the nine months ended September 30, 2021, the effective tax rate was 24.60%, excluding the discrete items of the KCS acquisition-related costs of $442 million, the $845 million (U.S. $700 million) merger termination payment received in connection with KCS's termination of the Agreement and Plan of Merger (the "Original Merger Agreement"), and FX gain of $39 million on debt and lease liabilities. For the nine months ended September 30, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX loss of $89 million on debt and lease liabilities. 6    Earnings per share Basic earnings per share has been calculated using Net income for the period divided by the weighted-average number of shares outstanding during the period. The number of shares used in the earnings per share calculations are reconciled as follows: For the three months ended September 30 For the nine months ended September 30 (in millions) 2021 2020 2021 2020 Weighted-average basic shares outstanding 666.9 676.2 666.7 679.3 Dilutive effect of stock options 2.9 2.8 3.1 2.5 Weighted-average diluted shares outstanding 669.8 679.0 669.8 681.8 For the three and nine months ended September 30, 2021, there were 0.2 million and 0.1 million options, respectively, excluded from the computation of diluted earnings per share because their effects were not dilutive (three and nine months ended September 30, 2020 - nil and 0.6 million, respectively). 7    Changes in Accumulated other comprehensive loss ("AOCL") by component For the three months ended September 30 (in millions of Canadian dollars) Foreign currency net of hedging activities(1) Derivatives andother(1).....»»

Category: earningsSource: benzingaOct 20th, 2021

Apis Flagship Fund 3Q21: “The Great SPAC-ulation”

Apis Flagship Fund commentary for the third quarter ended September 2021. Q3 2021 hedge fund letters, conferences and more Dear Partners, Our Flagship Fund was down 1.3% net in Q3 2021. During the past quarter, our longs detracted 4.5% (gross), while our shorts contributed 3.6% (gross). At the end of September, the Fund was approximately […] Apis Flagship Fund commentary for the third quarter ended September 2021. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Dear Partners, Our Flagship Fund was down 1.3% net in Q3 2021. During the past quarter, our longs detracted 4.5% (gross), while our shorts contributed 3.6% (gross). At the end of September, the Fund was approximately 51% net long with the portfolio 87% long and 36% short. Performance Overview (Gross Returns) Strong relative performance in September brought overall performance in-line with global indices for the quarter. Long performance was hindered by relative underperformance in smaller capitalization stocks and some underperformance in value relative to growth. Offsetting weakness on the long side, short performance was excellent, aided by the aforementioned small-cap trends and several highly speculative names that have begun to receive scrutiny. Asia was awash with robust performance in Japan, counteracting weakness in the rest of the region. Elsewhere, upside in North America was driven by strong short performance. Still, again this was more than offset in Europe where a couple stock-specific issues and weak markets generally hit our longs there. Shorts were positive across all sectors, especially Consumer names while longs struggled, particularly in the Consumer and Financial sectors. Three of the top 4 long contributors came from Asia with Hansol Chemical adding almost 1% in the quarter, in addition to some Japanese names – BayCurrent Consulting and West Holdings – adding about 75 bps each. BayCurrent has experienced 20%+ growth for several years, with recent years accelerating as companies spend on so-called DX or “digital transformation” projects. Supported in many cases by tax incentives, companies are investing in sorely needed I.T. and BayCurrent provides specialized consulting in this area. Detractors in the quarter include Kambi (noted in our August letter), where we took our medicine. Another name dragging on performance was Cornerstone Building, a U.S. name that has meaningful share in several building products. While sales are not the issue and pricing power is high, Q2 profits proved disappointing as cost inflation could not be passed along to consumers fast enough. Generally, over the last 30 years, we’ve seen price improvements in cyclical areas such as housing provide a boost to margins. However, today’s cost inflation seems more complex than previous cycles, and managers are struggling to raise prices fast enough to keep pace. Short alpha was excellent, with our average short declining more than 10% in the quarter and many stocks falling 30% or more. One fertile area for shorting (no surprise) has been the hundreds of special purpose acquisition companies (SPACs). History suggests most of these companies will do very poorly. Given the unprecedented size and scope of this cycle, we firmly believe this era too will be remarkably bad. We highlight below a few names where the disconnect between value and reality is exceptional. Portfolio Outlook And Positioning Over the quarter, we have reduced net in the Fund roughly 10%, gradually taking exposure down through the quarter. This reflects both what’s working (shorts more than longs) and a recognition that there are macro issues percolating that argue for more caution. Commodity/energy prices are booming (see discussion below), supply chains are a mess, unemployment versus job openings data is difficult to understand, political tensions and dysfunction continue to rise, along with debt/deficits – future economists and social scientists will have some fascinating work to do explaining this period in our history! One simple economic axiom we subscribe to is, “you can’t have inflation without wage inflation.” Previous cyclical upticks in pricing proved fleeting as wages weren’t growing, but this cycle looks different as wage inflation appears everywhere. Quantitative easing is hard to justify, given high inflation and low unemployment but the U.S. Federal Reserve has excused this by saying inflation is “transitory” (would you expect them to admit otherwise?). We’re growing more skeptical as the burden of proof is shifting and can’t help but feel a Jimmy Carter sense of déjà vu. Tapering may be a catalyst, but eventually a Paul Volker-type will be needed to sort this mess out. As always, we remain pragmatic and know to stay in our “stock-picking” lane. Inflation beneficiaries are incredibly cheap and will see some incremental investment while overall gross and net exposures remain on the more modest side of our long-term ranges. Commodity/Energy Supply Constraints and Price Inflation The current commodity spike started a decade ago after prices collapsed following a raging China-led bull market. Everything from copper to coal was in sudden oversupply after significant overinvestment in the early 2000’s. In the decade following 2010, investors sold off their holdings and turned towards far more interesting opportunities, particularly in technology whose index rose 4x while energy was flat. Companies in the commodity markets were starved of capital and, punished with falling stock prices, they shifted their focus to cash flow with religious fervor. Capital for exploration plummeted, exemplified by copper, where 223 discoveries were made between 1990 and 2015, but only one since 2015. Examples like this abound across all the major and minor commodities. But for a few episodes of intermittent shortages, general commodity supply was sufficient pre-2020, and no one noticed the fading reserves as the decade progressed. Then came COVID-19 and the subsequent economic stimulus and recovery. The limited maintenance investment that was made turned to virtually nothing as prices for commodities went from bad to- in the case of oil- negative in 2020. Piling on to this was an intense focus on decarbonization & ESG, which meant that commodities were essentially uninvestable for vast swaths of the investment community. For example, Norway’s $1.4 trillion sovereign wealth fund, ironically built on the back of oil riches from the North Sea, declared it would sell its stock holdings in traditional energy. It is one of just many that have made similar policy changes. At the company level, bankruptcies were already happening pre-COVID, but the negative oil price was the final straw for many more. Drilling activity went from bad to non-existent in the U.S. as companies tried to minimize their cash burn. Similar stories can be told in the coal, gas and metals markets, fertilizers, food crops, and so on. None of this was a particular shock as warnings of shortages have been made for years. Those who tried to warn were met with a shrug and directed to look at the market price for the said commodity, which inevitably was plumbing new lows. Then came the economic recovery in late 2020, and suddenly the commodities needed were no longer available. Today, we see record-high prices, in many cases above the levels reached during the height of China’s import binge a decade+ ago. The potential implications are very, very big. Critically, there are broad macro and geopolitical issues if this price spike sustains or worsens. Look no further than the level of inflation or E.U.-Russia relations. Speculative stocks with long-duration cash flows are already struggling as investors contemplate higher discount rates and slower growth. The critical question is: how long does this last? A few points are worth making – This is global. Consider a supposedly local market like electric power. Prices are spiking by hundreds of percent in China, Japan, Korea, the U.K., the U.S., etc. Coal and natural gas shortages are being reported in India, Brazil, Europe, China, and many other countries. Calls for government intervention abound and will likely further retard these markets. Iron ore from Australia and Brazil cannot meet Chinese demand – remember the mine dam collapse in Brazil; who would want one of these in their country? The global nature of this shortage is evidence that runs counter to the argument that this is simply the result of a governmental policy error. This is happening across all kinds of commodities – we don’t have a shortage in just one thing. The causes vary but range from the closure of nuclear & coal in Europe & Japan, the reckless embrace of renewables, to a new government in Chile that has discouraged copper investment, and near-total closure of access to debt and equity financing. With EV adoption the average home will need a 25-50% increase in electric power which will result in copper shortages (and plenty of other commodities) for the next decade. This breadth of shortage historically only happened during decade-long episodes of price volatility and reordering of investment leadership. This leads us to the final observation – the market is acting like this episode is temporary. Commodity price spikes and crashes happen all the time, and company valuations knowingly incorporate this by appearing cheap when prices are exuberant and expensive when commodity prices crash. This is the market’s way of looking past temporary swings to something more balanced in the future. What is potentially unique about this cycle is the degree to which the market is “looking past this” and the possibility that this lasts a while. On the first point, look no further than the free cash flow yields, which in energy, for example, start at 20% and go up from there. In most cases, this figure is simply based on prices that could be achieved using the futures curve (e.g., companies could lock this return in for years, right now). In coal, there are companies on 50-100% cash flow yields, where the market is indicating to us that this shortage will resolve in months. As for the duration, as always, it’s complicated. While things like shipping congestion, weather disruptions, post-COVID restocking of inventories, etc., are probably transitory, there are other more permanent factors. These include management’s focus on cash flow, ESG hurdles such as permitting, decarbonization, the loss of access to financing, and the transition to renewables. These long-term hurdles are not likely to change. In a recent conversation with a sell-side analyst, we heard story after story of trillion-dollar investment managers, former clients of this analyst, who have formally abandoned energy. With Tesla accounting for 1.7% of the S&P and the entire energy sector, including companies like Exxon and Chevron, at just 2.6%, it could take a while to normalize the imbalance. Investment Highlights - Imdex Limited (ASX:IMD) (Australia – $780mm market cap) One investment that plays upon the commodity price phenomena is IMDEX, which offers products for the mineral drilling value chain. We came across this company through our work on the actual contract drilling companies like Major Drilling and Boart Longyear, which we’ve been familiar with for years. IMDEX provides consumables, tools, and technology to these contract drilling companies, as well as directly to the large miners. It is a “picks and shovels” play on increased metals exploration & development spend, with its products present on 70% of mineral drilling projects globally. These include drilling fluids, drilling and rig alignment technologies, downhole sensors, geological data interpretation software, and in-field sampling and analysis tools. 80% of its revenue is related to exploration spend versus only 20% related to mining production. As we mentioned earlier, exploration spend for many commodities has plummeted in recent years and is just now starting to tick back up to make up for years of underinvestment, in addition to structural growth in certain EV-related metals like cobalt, copper, and lithium. In fact, a recent report from Morgan Stanley shows that mining capex is expected to grow by 26% this year, the strongest growth since 2012. This is bolstered by junior miner equity raisings that are tracking 50-100% above pre-COVID levels, per a Jefferies analysis. IMDEX is well placed not only to benefit from increased mining exploration spend, but it also has some company-specific factors that will drive growth beyond just the cyclical upswing in its end markets. Its revenue from tool rentals and software has increased as a percent of total revenues, which bodes well for margins. Tool rental and software revenue rose to 57% of the total in the fiscal year ended this June, up from 44% four years ago. In turn, gross margins have risen by over 400 basis points, and EBIT margins have increased by almost 700 basis points over the same period. There is still plenty of room to grow the software portion of the business, as only approximately 60% of the top 100 clients are using the cloud-connected platform currently. As more customers use the cloud platform, they will upgrade to rent cloud-connected tools, which provides a revenue (and margin) uplift to IMDEX. The company has also been complementing its organic research & development efforts with selective M&A to expand its offerings. For example, it recently acquired a geological data modeling and 3D visualization software provider. We believe the few analysts that cover IMDEX are underestimating its growth potential. Revenue growth is forecasted at approximately 20% this fiscal year, which looks conservative. The company already reported 41% revenue growth in the first quarter, and activity in specific geographies remains hindered by COVID-19 related restrictions. Growth is forecasted to slow to high single digits next year, which seems too low given the metals supply and demand dynamics noted earlier in our letter, as well as the fact that even after 20-25% growth in 2021, exploration spend will remain nearly 50% below the prior peak seen in 2012. The company has a strong, net cash balance sheet which will enable it to continue to invest in new product development and M&A. We think the current valuation is reasonable at roughly 20x our forecasted FY 6/22 EPS, which is in-line with many capital-intensive heavy mining equipment providers, despite IMDEX having roughly double the margins. If we look at where the stock traded around the prior peak in its end markets in 2011/2012, we see potential for 70-80% upside. "The Great SPAC-ulation" As noted earlier, we feature a sampling of SPACs currently held on the short side. This opportunity has presented itself after a spectacular bubble formed in 2020, as illustrated in the chart below: SPAC #1 This SPAC focuses on auto insurance charged by the mile. As consumers, we certainly see the virtue in this approach. The reality, however, is that the market for this insurance is quite narrow and, more concerning, this SPAC’s competitors are far better financed and distributed. That has been reflected in the significant losses (simply put, their premiums don’t cover their losses) and meaningful reduction in company-guided financial targets. After running from $10 to $20 in Q4 2020 and Q1 2021, the threat of endless losses and capital raises has brought the shares down to just $3. The euphoria that levitated these shares late last year is now replaced by the fear that this may not be an ongoing business. SPAC #2 This $3bn market cap company offers a platform that integrates with mobile games, allowing players to compete for real money. The way it works is that players deposit cash into an account and then bet against each other in the various games that are integrated with the platform. The company typically keeps 15-20% of the total bet, which it shares with game developers, while the winning player receives the rest. In theory, this is an attractive proposition for mobile game developers as it offers an alternative means of monetization beyond the traditional methods such as advertising and in-app purchases. However, a deeper look at the company’s financials reveals a business model with questionable unit economics. At a high level, the company effectively spends $1.15 (and growing) in marketing costs for every $1 it generates in revenue. Nearly half of these marketing costs are in the form of “engagement marketing” which is a fancy way of saying free bonus cash. Furthermore, the company recognizes a portion of this bonus cash as revenue when players eventually bet with it, in effect paying themselves. These expenses as a percentage of revenue have only continued to grow in the business’s brief history as a publicly traded company. While the current cash position should enable the company to keep the treadmill going for several years, we believe this is clearly an unsustainable business model. SPAC #3 This $1.7bn market cap company was originally attempting to build a subscription-based “transportation as a service” using a fleet of stripped-down electric vehicles. But the Founder and CEO quit four months after the SPAC deal closed, followed quickly by the entire management team (CFO, Head of Strategy, Chief Legal Officer, Head of Development, etc.). The SEC opened an investigation the following month and, if this wasn’t enough, the new CEO immediately pivoted strategies from a capital-light, outsourced manufacturing model to a capital-intensive one, bringing manufacturing in-house. They significantly ramped up the expected cash burn and pulled all guidance, which had just been issued a few months prior. There are more than enough red flags to assume this SPAC won’t survive long. SPAC #4 This $1.2bn market cap company is a manufacturer of “Smart Glass” which is an electrified window that can adjust tint to darken or lighten. The theory is that it can reduce building electricity costs (the company claims 10% savings), but the reality is that those savings require 10x the upfront investment. Despite $2bn sunk costs and 15 years of R&D, gross margins remain negative(!) 150%, and cash continues to bleed out at a $200-300 million/year clip, leaving them about 18 months of runway. The SPAC itself removed a problem for Softbank, which had been stuck for years, adding to its ownership in several “down rounds” where V.C. investors add capital at lower and lower valuations. If that’s not enough, the company has delayed filing financial reports and is in violation of exchange rules as the auditing committee investigates disputed warranty accruals. We think this company is unviable and will eventually be worthless. SPAC #5 This $3.4bn market cap company bills themselves as a next-generation Medicare Advantage insurer by leveraging their machine learning platform to improve care and reduce costs, driving profitability and what they have coined their “virtuous growth cycle.” The reality is that this growth comes at the literal cost of the Medical Care Ratio (MCR), the percent of revenue they payout for enrollee care, which ballooned to 107.5% and 111% in the first two quarters of 2021, respectively. Behind the tarnished façade of a company losing more money by virtue of their growth (maybe that’s what they meant?) is a backdrop of alleged related-party transactions to boost sales, failure to disclose a U.S. Department of Justice investigation into inappropriate marketing practices, and an algorithm that seems more geared to find upcoding opportunities (to get a larger payout from CMS per patient) than optimizing patient care. Instead of a business on the path to profitability with a noble ethos, we expect this company to continue to lose money at a rate of $500-$700mm a year well into the future, requiring additional raises and increasingly diluting value to shareholders. As always, we encourage your questions and comments, so please do not hesitate to call our team here at Apis or Will Dombrowski at +1.203.409.6301. Sincerely, Daniel Barker Portfolio Manager & Managing Member Eric Almeraz Director of Research & Managing Member Updated on Oct 19, 2021, 4:03 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 19th, 2021