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d5796c7b5a04ccbac5e0cb6068d6cfbe | First a point of clarification, so you did have the $13 million of insurance recoveries reflected in the fourth quarter results, did you call out, I guess, the EPS benefit from that that's in the reported results, I mean, at back of the envelope it seems like it could be $0.40 a share or more? And then if you could just remind me what were the expectations for insurance recoveries in the fourth quarter? | Thanks, David. So we have two particular one timers in the fourth quarter. One was the insurance recovery, the $13 million number that we mentioned was on a pre-tax basis. So you are right that EPS is around $0.40. And we also had an impact, a negative impact on the tax rate because of the cash repatriation project that we did for the INVISTA acquisition. So that had a roughly $0.12 EPS impact. So you have the net of the two call it $0.28 or roughly $0.28 EPS help in the quarter. | intermediate | [
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8283eb74b90c5cd604d6e497053f3117 | For our Surfactants business, I mean, there were periods of shortage, I would say and maybe some panic buying at times during 2020. And I'm just wondering, is this the kind of market where your customers are extending or expanding their purchase commitments to you over the course of 2021 or are they looking at -- or alternatively, are they kind of looking at the vaccination deployment and the progress there and they're saying, well the situation might change dramatically three to six months on? And I was just wondering from the purchase orders and the customer behavior, how would you characterize the demand for your core array of Surfactants in 2021? | I think demand for our core surfactant products we believe is fundamentally going to be up. In terms of purchasing behavior by our customers, it's really -- it is customer dependent. There are many customers that want to ensure that they have long-term products available and we have worked with those customers and have contracted with customers and in some cases back that up with raw material contracts that we've made to ensure that those customers who will be supplied product not only in 2021, but as we go forward. There are other customers that are choose to buy more on the spot basis. So as we look at our business going forward, we believe that there are -- that we have significant commitments from customers, not only in the bio side area, but also for 1,4-dioxane surfactants that are used in the personal wash categories where customers have made firm commitments to us as we go forward. | direct | [
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dca51e1bb7633304621f824f032dc61a | And as you said, the INVISTA purchase is kind of, in some respects, I consider it kind of a step out for your company. You mentioned, it's the biggest in your 89 years. But just a couple of things, but I'm just kind of scratching my head saying, this is not in your Surfactants business at least principally this is going to be for your Polymers business and maybe I'm just wondering if you could comment on how important you consider it to have a second strong leg as opposed to currently where your revenues are dominated more by one segment.
And then secondly, the seller coke is certainly a very frequent buyer of assets themselves, not -- I don't recall them selling too many things that they had purchased, but maybe just a comment on how the transaction came about? In other words, how does it fit into your strategic priorities and were you looking at that business for a while or did they come to you? I mean, just some thoughts about how the transaction or unusual transaction scale from your side, an unusual transaction maybe a little bit just from being a seller on the other side. Just anything you could add color-wise and how the transaction came to be would be helpful. | Yeah. So what I would say is the acquisition is -- fits very well with our strategy. Fundamentally, we believe in energy conservation. We believe in that insulation is the lowest cost way to reduce energy. We believe that aromatic polyester polyol enables the most effective insulation product on the marketplace. So that's -- those are the fundamental beliefs that we have and we believe that the market is growing today and then we believe it will continue to grow in the future. And this acquisition provides capital efficient way for us to supply future market growth. If we look at the next required investments at our historic sites, they would have been fairly expensive. So we have an opportunity to buy some business. They also have some different technology and they get a slightly different market position than we have. So we think there are some benefits for us in that regard.
So we have an opportunity to enhance our product portfolio both from a product perspective and from a customer perspective. And then we also have an opportunity to supply and debottleneck their sites as we go forward in a cost effective manner to support our customers and their growth in the marketplace over a period of time. Relative to the acquisition process we identified and initially approach coke a number of years ago and we're able to work with them and come up with the transaction that met their needs and met our needs as well. So we are happy and pleased to work with them. They were a good entity to work with and done a nice job growing the business over the last couple of years and again we're pleased to have it in our portfolio. | intermediate | [
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903917d2370a16dfc233ae63271b067f | Can you just elaborate on that one request in the city day information request for VASO. Do you believe the FDA has had time to work through it at this stage. So if there were additional questions, I would have come back to you. And then maybe just secondly, with two significant product launches coming in VASO and PEMFEXY. Can you just talk about your ability to get product into the channel, especially if there's a period of limited competition? And this is asked in sort of a bit of a macro backdrop, just given some of the larger supply chain challenges, I guess, we're carrying across the board. | The information request was normal course and what's expected and when you get down to the end of an ANDA, that's part of the reason that we're hopeful here that we're going to get this approval here pretty soon on or before the PDUFA date. It's just normal questions you get is they're tidying things up. The information request was pretty minor. It was just clarifications. three of the four questions were clarifications. And the fourth one, they wanted another data point from us that we went into the lab. It took a couple of days to run in and we gave it to them. So that was back. I think we mentioned September 20, we responded. We had to get it to them in four weeks. We took three weeks.
And based on the discussions that we've continued to have, we are still -- the expectation internally, as you can see from the inventory build and the sales force meeting is that we're going to receive this approval on or before that December 15 date until you have it, you never know, obviously, but we're moving forward based on everything we know internally that we'll get this approval here soon, and we're ready to go. And for your second question is, obviously, this is so important to the company and to our shareholders to launch these two products. We've done everything that we could for quite a while now to be prepared for the launches and not run a foul of any supply issues. So as we sit here today, we're very confident that we have enough material, right product, vials, stoppers, corrugated, everything that we need to be able to ship the quantities that we've been talking about very effectively.
And what I keep reminding people, Brandon, as well, is we're not a generic drug company. We don't sell solely through distributors. We have 40 reps calling personally on people that need to make the purchasing decisions, either for the most part, the hospital pharmacist for vasopressin and for community oncology for PEMFEXY. These are people we call on every day. And we believe, I believe, especially our national sales meeting was very exciting. We have great relationship with these people. And I think we're going to do extremely well commercially. I'm very proud of the sales team. They're very well prepared between supply and capability. I think we're just going to do great. We're in the middle of building inventory. And I assume nothing goes wrong there. We're building quite a bit. We'll have enough for these launches. And we're expecting this doubling of revenue and more than doubling of earnings by the time we get through next year because of all of this. | direct | [
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10aa480f4f9f5dee7a96d321ecc35d68 | Just looking at the commercial landscape. What's your sense for how crowded the market eventually will be over time? Just thinking beyond the initial 180 days. That's number one. And then number two is Endo, just yesterday announced the contract with Premier. So with that in mind, can you just talk about what you think you can do to sort of maximize your share given what Endo is doing with contracting and also to the extent that they have a ready-to-use formulation that they bring to market. | Well, some of the questions a little bit harder. The long-term value of the market isn't perfectly clear for us. As you know, Endo has settlements, and we don't know what those settlements allow for acceleration clauses. I think they're -- it's mid a eur 23 when people come in, but we're not sure where they get accelerated to. And we don't know if there's a distinction. I mean you would hope that there's a distinction between people that get approved and people that don't get approved. As it's turned out, it's just a very difficult product. These peptides, these generic peptides are difficult. As I look back and eventually, when people see the FDA request to us, I feel confident that Eagle as a company did what they needed to do all the way along. And this, as we've said so many times, the delays have been due to new types of tests that the agencies required us to do.
And so over time, people will be coming into the market, obviously, when they come in is at exactly known. But what we do know, if you look at the landscape, nobody has a tentative approval yet. It's just a very difficult, and I would add a very expensive product to develop. And so we'll just have to see what happens on the long-term value. We're hopeful that it's a limited market for quite some time, and we have pretty significant value beyond the six months. In terms of contracting, you would expect the innovator to try to contract. That's built into our models and into our statements. It's also normal course of action. We would never have expected anything different, but we are very confident in the relationships with our customers and the feedback that we've had in our ability to sell product and to meet the share that we would expect.
And our view is we'll probably do better than the normal hospital analog for a generic to come into the market, primarily because of the strength of our 40 sales reps calling on hospital pharmacy all these years. So doesn't phase us, nothing unexpected, and we've accounted for all that. And the RTU, I don't know what to say that the RTU. We also don't believe that if they launch it, it's going to have impact on our on our sales and our numbers. We've taken into account. We've spoken to our customers about the RTU. We're just very confident to meet the revenue and profit numbers that we've articulated, and we're just excited and anxious can't wait to get the approval and get going. | intermediate | [
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2597f64b2a68a74a29c527b496136d6f | Can you talk about how much manufacturing capacity you believe is out there for vasopressin like compound when we start to look at other entrants? And how much of a royalty you'll be paying out to your manufacturing and kind of how much of a burden will be going out to manufacturing so we can kind of figure out that net? And then maybe we could talk about just weakness in BELRAPZO during the quarter if there was anything that explains it? Is it just market erosion or anything else out there to call that | The manufacturing and development of VASO has been -- it's a more challenging product because it's a peptide. So I would say that I can't comment on what other people have and their ability to manufacture and what the individual capabilities are of these companies. There's not a tremendous number of people that can do this kind of work, but there's contract organizations that can do it. We think it will be a limited year or two based on the fact that it's so hard to get the product approved. I mean, if you just -- what we've said before is we're now over just about $15 million in the cost to develop vasopressin.
There's a lot of work that needed to be done. And we think that other than people getting supply from the innovator, that the cost to develop these products is expensive. So the real question is, if you're fourth or fifth in the market, are you going to spend the type of money that we spend to get to the market, knowing that we were first to file. And so I think it's probably the approval cost that are going to make it difficult for people to readily come in. Impossible to tell exactly how many people. But I think this will be a relatively stable market for probably a year or more, not just the six months, but we'll have to find out. So that's the first question about the manufacturing. And Brian, what have we said publicly about our payments to our suppliers on both products?
It's not a share. It's normal margin that what we have with the rest of our product, right. So the -- we do have some payments to our partners, Tim, but the margins that we get on it are about the normal margin that we have with the rest -- other than the royalty income, obviously, that we get from BENDEKA. So the margins are going to be pretty high on these two products, even after the payment. So I mean, very high relative to the industry, obviously. And keep in mind, what helps all that is that we're bringing these products and, quite frankly, future products like Landiolol into the market, into the company, without much additional infrastructure cost.
And that's why when we say we'll have the doubling of the revenue, we're going to have more than a doubling of the profitability because we're bringing in all these extra products, I would say, PEMFEXY, vasopressin, Landiolol, and we can probably add another product or two to the company with having minimal infrastructure expense. And so I think over time, if we're able to transact the plan that we have, you're going to see a tremendous amount of leverage on the bottom line, which is going to be just this great growth spurt for the company. And we have all the wherewithal in the world to go out and acquire additional assets with the way we've managed our cash and our balance sheet. So we're just very excited about getting this approval and driving top line and bottom line for several years. Just very excited about it. I think the other question you brought up, Tim was BELRAPZO.
And the BELRAPZO decline, Brian, is just quarterly. We expect Q4 to be a rather strong quarter for the company, push the new products away from that conversation for a second. Obviously, VASO and PEMFEXY are going to really drive these quarters going forward. But if you just look at our base business with BENDEKA and BELRAPZO and RYANODEX, we have slated a strong revenue quarter for those products in Q4, Q3 was just the way the chips fell with the products and the timing, but nothing to do with the core strength of the three products relative to the history that we've had with them. And then don't forget that Q4 was brought down considerably by the expense that we had. Q3 was brought down considerably because of the expense that we had with vasopressin in getting ready for the launch and having the trial. Right. | intermediate | [
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2b71081ed1724ae618c8b1a722c00469 | Joe, my question for you or Jeff, you guys continue to run really nice, what I'd call diverse -- regionally diversified program. Can you talk -- and I think around the same question, but I just noticed you continue to do so well with that.
Could you talk, one, is -- maybe when you talk about -- a lot of people ask about cadence. I'm asking a little bit more about sort of regionally if you guys are going to continue with this kind of plan. And when you look at Delaware versus Midland, what kind of expectations are you -- are they really similar these days? | Yes. Generally speaking, the cadence is going to stay pretty much what it is. So this wonderful luxury of having the opportunity to work in multiple basins really paid off in 2020 when we were able to shift from some of the longer cycle time projects, more expensive on a per-well basis than the Delaware and shift over to the Eagle Ford and the Midland Basin. And you see a pretty equivalent spread of capital in 2021 with that.
So we would anticipate that being the strength going forward. One of the nice things with the Delaware, of course, is that it's a less mature asset. And so since we have the ability to put in different types of programs or learnings or geomechanical algorithms where we try to look at not just what the rock contains, but how it breaks and opens, it contributes. While we're learning that with a couple of well pads, we can then rotate over and have some expenditures and some progress in the more mature areas like Midland and then the Eagle Ford.
And then we can come back into the Delaware and make improvements over what we did in a relatively short time without having to have that consistent capital program where potentially you're overcapitalizing being a little less efficient than you would be. So that's kind of a general statement about why we've been able to continue to make progress in all the operational areas. | direct | [
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e027d25fb4cc33e7177b8668ba1ba582 | Again, CAPEX continues to come in a trend a little bit lower. I guess my thought would be around flexibility of the plan is the -- as you continue to beat on debt, is that going to sort of -- I guess, my question, is that sort of the sticking point? And if prices go higher, you'll still kind of keep the CAPEX as is? I'm just wondering, again, I guess, my question is really production more of an output? Or how do you think about sort of that overall strategy these days? | Yes. And I think you got it there in terms of sticking to the plan. As you recall in our last earnings release and presentation, we laid out a three-year plan, sort of gave you a sense of how things will roll out over the next three years given the visibility we see in the program, and we intend to stay with those types of reinvestment rates in that 65 to 75% range. As you said, there is production -- small production growth as an output of that, but it really is about being disciplined around the CAPEX reinvestment for '21.
We're locked in on this program. What we laid out over the next couple of years, there's some slight increases in capital. But for a large part, this is sticking to our guns on those reinvestment rates and really driving some outsized free cash flow over the next couple years. | direct | [
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3c2875dd74776553cb0db9402d48152a | Maybe for you or Joe, on the A&D side, clearly nice progress following recent asset sales over the past couple quarters.
The water assets, I believe, are one of the key items on the menu of potential disposition options that you haven't transacted on yet. Is that still something you're potentially contemplating? Or what else is still embedded in this year's remaining divestiture target? | Yes. I'll take that. And, yes, the water is still something that's progressing. It's an opportunity that we're really looking to find the right partner and find the right fit, and that's a discussion that's really benefited as we provided more clarity on the -- not only the short term but the medium and long-term prospects for the business, strength of our asset portfolio over time.
It really helps those discussions with potential partners. They see the durability of this business and underwriting anticipated water streams off the business. That's ongoing. As we've talked about in our monetization targets that we put out, there's a lot of ways to be right, put it that way.
Right? The water is a component there, but there are other similar opportunities in line with this noncore Delaware divestiture across our footprint that we have in various stages of progress. So like I said, we're going to be methodical about this. We've gotten a lot of questions over the last couple quarters, and we're letting the market come to us. And I think it's developing quite nicely, getting to a point where not only can you sell assets, but you can sell them and make a credit accretive on a metric basis.
So more to come. Yes. Water is in the mix, but there are others that are in the queue. And I think we're encouraged to see the activity more broadly in the market. | direct | [
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0aae4ca14f6a696beeb98397d36bf723 | And then, Jeff, the e-frac test you laid out on Slide 9, clearly, some environmental and efficiency benefits there. How should we think about quantifying how that all translates into D&C costs perhaps coupled with the fluid-loading changes you noted on the prior slide. How does that all compare versus what you've achieved in 1Q or what's embedded in the full-year guidance? | Sure. The e-frac test was fantastic. Really -- the group really enjoys technical challenges and problem solving. And so from a -- it was beyond just a test.
It was a system of obstacles and opportunities that provided a lot of enjoyment, if that makes any sense. And so from a cost perspective, it's pretty neutral. Generally speaking, I think the groups that are moving to dual fuel fleets, which, of course, Callon has already done that, and e-frac fleets, there'll probably be -- there's potentially a premium on those relative to the historic diesel fleets. And that's just more in my opinion than anything.
So all that's baked into our capital program right now. I think that you see tremendous benefits both from reducing the emissions, the sound, noise, the opportunity to use field gas in addition to CNG and potentially even maybe plug into the grid at some point for that power supply. So from an overall D&C cost, when you couple that into what we've shown on reductions relative to the power grid. And that slide, of course, was, in particular, to the Midland Basin.
That's allowed us to continue to grind away and keep costs relatively flat, even though, obviously, the market is looking a little bit on the North side from a labor and sand and the -- we're not in $40 oil anymore. But overall, we've been -- I've been very, very happy with the cost from a to z on our operations. | intermediate | [
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b5b75e3dd7f452eb2c49fe72c01d696f | And on that power grid point, is that something where there's already existing infrastructure in place? Or as you evaluate that, would that require any upfront capital that you weigh against per well savings? | Yes. That's a great question, and it kind of depends on where you are. So some of our areas have better -- Callon has already committed to multiple substations in the past, which, of course, gives us a lot more flexibility than having to ring somebody's doorbell and coming over. So it really just depends.
Obviously, if you're in an area where you're going to be there for a while and you have infrastructure in place, that's the most optimal opportunity that you would have. But anywhere that you have a reasonable or substantial amount of activity, we'll be looking into that. | intermediate | [
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3e8ee94580ef1086605b3d1145450f76 | I just want to touch on a couple of items. First of all, your G&A expenses were a little bit -- it was sort of a step up in spending in that area. Was there a new initiative or something new that generated that increase? It was rather significant, but was some new programs implemented in the quarter? | Jon, no, it's -- basically, we've been talking all along about how we're ramping up our spending in both technology and in support of this in general above and beyond just the omni-channel initiatives and then we're also investing in talent, but there's nothing specific I think, as we see the sales start to increase as a percentage of sales. We expect that would stabilize. But as far as dollar values, we're obviously continuing to invest in the organization on future growth. And Jon, materiality, it may not be so much but you did ask the question about new initiatives and I'm not sure if it came through clearly that we have started with pharmacies in our club as well. And we're investing in additional services. | intermediate | [
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fff6a3c2eda5742959a66c65aee8c6f4 | Michael on the gross margin front, the pricing actions in Trinidad, I think in the 10-Q drove a 90 basis point improvement in your gross margins -- in the consolidated gross margins. As you go forward, do you think you'll still have that similar type of impact as a result of the pricing actions in Trinidad? | Well, I think we said that was primarily from Trinidad. But yes, I mean, at this point, we're -- nothing has really changed on the ground and we're maintaining that. I think I mentioned last quarter that the hope would be that eventually things stabilize and the US dollars start to flow again, and would not be something that we would want to continue for the long term. But at this point, there's nothing changed that would allow us to change that. | direct | [
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ff1aadd8b2b663ba19b59a0d3ef5b4e8 | And then Sherry, on the March sales, which I thought were very, very good. Easter was one week earlier this year than last year. Did that have any impact? Do you think that had any impact on the March sales this year? | Yes, I do. But there's also closures that go with the holidays as well. So it's difficult to evaluate exactly how that's going to shift in terms of April. But we are looking forward to April costs, just as we are lapping [Phonetic] against a very aggressive March of last year. We'll be lapping [Phonetic] against April where there were significant closures. And so timing is distorting things when it comes to comps. | intermediate | [
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b14bce75f4d2c9323cd7df49b56844d9 | And then lastly, Sherry you talked a little bit about supply chain issues. And I think that's going to be a recurring theme we hear from a lot of companies this quarter. Are you seeing any improvement, any easing of some of those issues, or is the sort of steady as you go so to speak? | Well, the shortage of containers from Asia is a global issue, and that is on-going. But what we have done is, we've become much stronger in our ability to source from alternative sources regionally, and we've done a really good job of being able to shorten the lead times and make sure that we are maintaining good in-stock of those categories that we think our members are most seeking at this time. So we are really vigilant about it. We're aware of the risk, whether the pandemic has surges that are unexpected, and we know there are externalities that we can't control. But internally, we've been finding ways to be able to mitigate that risk to be able to source from alternative resources or sources, and also increase our efficiencies using the Costa Rica regional distribution center. | direct | [
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0f3e8c5dcb45838fc1ba8ec8dcac27cf | A couple of questions on my side, the first one is related to the smaller format. It sounds like you are increasingly perhaps at the margin, being more optimistic around that format. Is there anything in particular that you could share in terms of returns, sales per square meter? Anything that can help us understand a little bit more the financial metrics of that format? | Okay, so I don't believe that we share our sales per square footage of our clubs. And although we've had some small formats that have now exceeded a year, the fact that we continue to want to build on that approach should be a strong indication about our confidence in our ability to have a profitable and positive return on those investments. The smaller format has application for us in the company in both metropolitan areas, because of the shortage of land and the expense, as well as more outlying areas where we can broaden our reach of team members, where land is far less expensive. And so the threshold for our internal metric, our internal benchmarking is easier to achieve. So we look at each one on a case by case basis. And we have internal standards in terms of what we'd like to see by way of a return and what we expect to see before we greenlight any one of those projects. So we believe a small format has good application for our company. But everything is looked at on a case by case basis. | intermediate | [
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469fa06f16b01480b88b41fa466f47e9 | And now that you have an online offering in all stores, including, I'm guessing the smaller format, does that mean that or is it too early to tell whether having that additional, extended catalog offering makes those smaller stores even more appealing, because now perhaps you don't need to have as much space for a lot of big ticket items? | That is clearly one of the opportunities that we have, by virtue of having built up our omni-channel capabilities to allow for strategic selection of what is carried on the shelves versus what is offered online in addition to the strategic implementation of domestic distribution centers and regional distribution centers that allow us to continue to evaluate the best way to post merchandise and to get merchandise into the hands of our members at the lowest possible price. So the smaller format supported by omni-channel and supported by the right distribution system is an opportunity for us to be able to satisfy the needs of the members with less real estate costs, which is basically one of our greatest areas of expense in terms of capital commitments. | direct | [
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2f89d5fa0e799383dc90d89047439e07 | And on that subject, how do you -- do you charge for the delivery? How much on average? Or, what's the strategy they're in? Are you outsourcing the delivery, like all the retailers in the region to third-party logistic companies that are in charge of the last mile and I guess perhaps -- as you learn about customer behavior, and obviously what other retailers charge for delivery, especially in places like Colombia, where there's more competition, do you foresee investments on the subsidy of those shipping fees at some point? | With regard to delivery, we are seeing an increase of delivery as a proportion of our Click and Go business, which offers the alternative of curbside pickup versus delivery. At this time, we do not charge separately for delivery. We do outsource significantly the delivery services that are directly charged and paid for by the member, by the third-party. But we have huge variability among our different markets in terms of consumer demand and expectation. So as you said, for example, in Colombia, that is a market that behaves in a manner that expects delivery, that uses delivery, that's willing to pay for delivery, and whatever the delivery charge is passed on directly to the member. We don't independently charge for delivery but we are also looking for ways to be able to see if we can provide delivery in a manner that's even more efficient than what's currently offered by third parties. But we're looking at that on a case-by-case, country-by-country basis depending on what we see the demand of the members are. | direct | [
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ab7f7c6b0ccbba773a7734556807fe6c | And just on the -- I guess on the P&L, last question. On the P&L, where would we see the expenses related to the shipping and delivery? | That will be on cost of goods sold, Rodrigo. We can offset through revenue for anything that we're passing on. But as Sherry said, we're passing on a 100%, we're not subsidizing any delivery right now. | direct | [
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7f3f922307097e098ab44ca52bdbaa4d | My first question is related to the user growth in coming years and the strategy and -- in terms of the product strategy, etc. At the same time, how can we maintain the user quality, for example, in fourth quarter we noticed there is a small decline in terms of DAU-MAU ratio and also the user time spent on a year-over-year basis. Thank you very much. | So user growth has always remained our top priority and I personally take a great priority in looking after the user growth strategy. So under the rapid trend of videolization, we believe every Internet user could potentially become a video user and this is creating a massive market opportunity for us.
So I believe that the user growth for all the content platform really depends on the quality of the content, which our platform has the highest quality content, the user will tend to turn to that platform. And for Bilibili, we have always practiced the philosophy that to leverage high quality content, to attract our users, and we are really focused on expanding our content offerings and content categories.
So the reason why that Bilibili can continuously produce high quality content is because we have [Indecipherable], our ever-growing sustainable content ecosystem, which naturally give birth to many high quality content.
So as we attract our users through our ever-growing high quality content, at the same time our highly engaged sticky [Phonetic] community help us to retain those users and providing them unique community experience.
And our commercial efforts is also organically combined and merged with our content ecosystem as well as our community. So in many ways, it does not affect our user experience. On the contrary, we think it's becoming part of our content offerings and community experience.
So looking at the past two years, we have experienced a very high quality and rapid user growth and you may even notice that our reach for before broader audiences is beyond the Generation Z. And according to the latest third-party report, about 86% of our users in 2020 are aged below 35. So Bilibili is becoming the primary choice for not only the Gen Z but also become a lot of users' choice that age below 35.
On top of our user numbers expanding, we think that we are expanding our influential power-up multiple content verticals. In the past, people might have the perception that Bilibili has all the content young generations like, such as anime, games, music and entertainment. And in 2020, you would notice that there are many verticals that emerging that have the mass market appeal to all the age groups, for example, Knowledge sector was one of the fast-growing sector in last year and Knowledge as itself is the high quality content for all age groups that's out there.
On top of our further ever-growing PUGV content ecosystem we've noticed in our OGV department, there has been a great synergy, for example, our traditional strong verticals, anime and documentary, continues to thrive and on the other hand, we have seen new emerging content categories such as our New Year's Gala, our films and TV productions is also welcoming more and more audiences.
So all the above, we can summarize our user growth can at least meet three criteria; one, as we will continue to penetrate the young generations, in the past it might be the Gen Z demographic, people born in between 1990 to 2009, we believe we can further enrich, expand to the age group that's born after 1985 or even 1980.
So the second point is on the quality of the content. We believe we can become a leading player in more and more content verticals and gaining more mindshare of those verticals in the market.
So for example, in the past people may have the perception the best anime and the best game content is on Bilibili. Going forward, we hope to establish more mindshare and a high ground on more and more verticals, for example, in Knowledge and in many more. And we believe there will be more high quality content and various content verticals will be in margin on Bilibili, gaining more market share.
So by achieving the first two points, we are confident we can continue to take a leading role in terms of the pace of the content and leading the young generation's preferences over content and over our artistic preferences. We'll continue to maintain a highly engaged and friendly community environment at the same time increase our commercialization capability.
So in the past, we had done a lot of work setting up our user growth and we have done a lot of [Indecipherable] work and we are very prudent when it comes to setting up plans and strategies. And in the past, we have set two user growth, ones is back in 2018. Back then, we set a user target of 150 -- to achieve 150 million in 2020. Then we updated that user goal back in 2019, which is to refresh the user target to achieving 220 million by 2021.
So in the past, the goal that we announced, we believe we have very good track record in delivering those goals. As for the 220 million by 2021, we are quite confident to achieve that goal in advance. And standing where we are today in early 2021, we are setting up a new three-year user target, which we believe we can achieve 400 million MAUs by end of 2023.
As we move forward, we believe that the Internet companies' competition over user is only getting more and more fierce. Despite challenging environment, we remain confident about our goals. We will further enhance our advantage in our content ecosystem as well as our engaging community. We are quite confident to achieve that user guidance.
So as for the DAU to MAU ratio, I would like to emphasize that in the fourth quarter our main mobile app, the DAU to MAU ratio actually slightly improved quarter-over-quarter. And we have made the judgment back in the third quarter that as our user has experienced fast growth, the DAU to MAU ratio might fluctuate. Over the long-term, it shouldn't have large [Technical Issues]. As for the time spent, for this quarter, our time spent per DAU was 75 minutes and compared to the same period last year only a slight decrease, which we believe it's a normal case.
So when we look at the time spend per DAU in January this year, it actually improved to above 18 minutes. So, this is also in check with our overall judgment on the time spent and DAU to MAU.
So Carly would like to supplement one point. One is that as Mr. Chen mentioned, our growth model is driven by our content ecosystem as well as our community and you would also say that we made all the right moves in expanding Bilibili brand name in 2020. As we look forward to 2021, we'll continue to build on or further expand our branding perception and branding awareness through multiple marketing events.
So we've done our user perception study on our brand awareness back in 2019 and 2020, and the number was -- they are over 30% in 2019 and the brand awareness perception rate was improved to over 60% in 2020. We hope with number of our branding initiatives and marketing event, we hope to increase that perception rate above 90% in 2021.
Okay. And one more thing is that on the branding initiatives, we are going to launch several campaigns in co-operation with the company events and a big content launch to increase our brand perception and brand awareness. At the same time, we'll also work with other leading Internet players to increase our perceptions along with active user acquisition and channel acquisitions. | intermediate | [
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c07b20dd88ea7a24dbd40ef681e3c290 | So my first question is about the advertising business, which has been accelerating almost four quarter in a row in the past several quarters. Can you guys elaborate a bit more on the growth driver behind this rapid growing advertising business? Also can you talk about the advertising revenue growth outlook for2021?
A follow-up question on this advertising monetization is that we noticed you guys have recently launched a number of KOL economy monetization models such as the [Indecipherable]. Can you talk through your latest thinking on the KOL economy monetization on Bilibili? And also can you talk about the feedback from both advertisers as well as content creators on the introduction of [Indecipherable]? | So first of all, that we have over near half of active users, that is China's young generation and Bilibili is the platform that has the most concentrated young generation users as we believe as the Gen Z become the mainstream of the society, they have more saying and more spending power across various industry verticals and the next decade will be the new consumer branding upgrade for the China's overall consumption industry as Bilibili's user has the most influence and most spending power within this vertical, Bilibili is becoming the must-invest advertising platform.
In 2020, as we experienced fast and high quality user growth, our influence over brand advertising is also increasing. Over the years, we have continuously improved our commercial middle platform capabilities and our advertising revenue has experienced accelerated growth for seven consecutive quarters. In the fourth quarter, our advertising revenue reached RMB120 million and up 149% year-over-year, and for the full year, our advertising revenue also grew by 126% year-over-year.
So for 2021, we do not intend to increase our ad load and we are going to maintain the ad load around 5%. From our perspective, we are still at the Phase II, building our infrastructure and our advertising business still have a huge potential to grow.
So first of all, we'll continue to enhance our middle platform capability, serving the commercialization progress. As our advertising product improves and our algorithm improves, our overall advertising efficiency will also improve. And the efficiency is not only -- reflect on the increase of our advertising revenue, it also reflects on other business, for example, our jointly operated games improvement also depends on the improvement of our advertising efficiency. So that goes with our live broadcasting membership and e-commerce.
So on top of our news feeds, we tend to enhance our commercialization capability across multiple business lines and across multiple platforms. For example, the business line includes live broadcasting, comic and our audio drama platform. And as for the multi-screen, that goes to our mobile device, our -- on iPad, on PC and our smart televisions, to help the brand to connect even further in multiple ways with the young generations.
So the third point would be to increase our integrated marketing efficiency and standardize more of the procedures among this overall integrated marketing campaign. In 2020, we have significantly improved the ad efficiencies on single users and in 2021 we are going to elevate that on a single industry basis to better serve our industry verticals.
And last but not least, I will add some point on our Sparkle advertising platform. This platform was launched in Q3 last year. It is a match-making platform between content creator and various advertisers. So this -- [Indecipherable] of the platform is a natural development of our advertisers' needs and our content creators needs, as more content creators need commercialization, empowerment and our content, our advertisers also need efficient ways to influence users' decision-making. So the [Indecipherable] of the platform is to connect both parties' needs, at the same time to ensure a smooth, efficient transaction between two parties. And in 2021, we'll spend more efforts in improving this platform, bringing more opportunity for both parties.
So in summary, we are quite confident of our advertising revenue growth. We believe we can still maintain a high growth rate that's above the overall growth rate of the company. | intermediate | [
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fd0f3fcdb4987e0e083bbf8397b68407 | Yeah, thanks. Good afternoon. Congratulations on continued strong progress with the new business wins. I wanted to start on the revenue guidance. You're maintaining $115 million, $117 million target for the year. But when we look at what you've generated year to date, this implies a sequential decline in the fourth quarter. So I think, that's despite what were some annual shutdowns that took place in Q3. So maybe if you could just give us a little bit of color on why revenue should be down in the fourth quarter. | Yeah, thanks, Sean. It's Nick speaking. I mean, it's just very simply timing of batches with our clients. Again, as you kind of highlighted, the general trend is a continuing, growing backlog of $140 million. But I think, we've talked to this on a number of occasions, the timing doesn't always quite perfectly work out on each quarter end, and so you just see a little fluctuation in that. So that's really it. We're, obviously, already utilizing the new space that we've got created. Obviously, at $120 million capacity and $140 million backlog, we desperately needed that additional space or would have needed that additional space. Fortunately, that's online now. And I do understand that there's a general feeling that, obviously, if you've got $140 million of backlog, you've got the extra capacity, why isn't it flowing through straight away. And it's just a timing issue really as we see the quarter. Obviously, if there's any opportunity to pull anything forward into there, then we'll be taking advantage of that to the extent that we can. But that's how we see it. And clearly, we see that continued growth that you see in the backlog. | direct | [
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cc5d97cc5f8ba0a7b327a1af5e3547b5 | OK. Thanks. And then, maybe on your last point there, the $140 million backlog, Myford now being open, so you have the available capacity. Can you just give us a little bit more detail on, I don't know, the fluidity or the fungibility of that backlog? How quick can you maybe pull some of the stuff forward and get the new Myford space ramped to a full kind of $12.5 million quarterly revenue run rate? I guess, can you put any kind of bookends around timing for that? Is that one quarter? Is that a couple of quarters or longer? | Yeah, I mean, we've always said typically that we expect to recognize the backlog in a period of approximately 12 months. And this one remains pretty much the same, I think it's fair to say. So in that extent, I'm doing the math in my head quickly, but if you've got extra $20 million over, there's an extra $5 million already in that backlog, arguably, going into that additional suite. Clearly, to completely fill it, we'd be up $170 million, if that was immediate. And at this stage, we're not guiding to next year. That will be at the next quarter when we'll guide forward. But I think, we've alluded to it, the trajectory of the business remains strong. The growth that remains in backlog is kind of indicative of the growth of the business. And so, we hope to see that flowing through into that suite as we go through next year. And then, First World problems would be if that was full. And even in that case, we do have the Myford South which, it seems incredible to be saying it now, will be on stream in less than a year. So hopefully, that's ideally timed as well. | intermediate | [
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8953c86f3a0b573a438972d5317d673c | Hey, good afternoon. At the risk of asking a question that Nick, you said you wouldn't answer, I know you're not guiding yet to 2023. But as we think about FY '23, maybe the question would be this, how should we think about the long-term growth outlook for Avid and then maybe whether or not some of the COVID revenues in '22 could prove to be a tough comp? If you could maybe kind of walk through those two pieces. | Yeah, I mean, I think, we've kind of articulated the growth. I mean, clearly, if we've got $140 million in the backlog and we expect to recognize most of that in the next 12 months, then I guess, that puts a bottom end on the expected growth that we're going to go forward with. But we've also seen the market growing pretty well, and we expect to beat that. I think, we said that as well. Again, I don't want to get into the position of having to give guidance earlier than we should do, and we're not in a position to be prepared to do that right now. But obviously, as I say, $140 million would be the low end of anything. That's what we've already got in the backlog, unless something drastic was to happen. And hopefully, we'll see more than that going forward. And then, obviously, as you go forward, we've put additional capacity in Myford South as well coming on stream next year. So I think, I've also made the comment that we're not putting that capacity in because we don't expect to utilize it, maybe not always on the first day that it opens as we probably almost did this time but, certainly, in the not-too-distant future. So we're certainly envisaging being able to fill that downstream suite that we've just put in, in a reasonable period of time such that we then need to go into the new suite into Myford South. And then, ultimately, you've got your viral vectors to come on top of that. But again, that's under construction as well at the moment. | intermediate | [
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e61ba2a0c4709439738b618b54219f27 | Got it. That last point leads to my next question. Just the viral vector process development lab, I think, comes online, I think, you said 1Q fiscal '23. Can you just talk about how important that viral vector process development lab is for the business development efforts kind of ahead of the manufacturing suites coming online? | Yeah, I mean, so first and foremost, the development and process development should be online. We think it will be toward the end of the quarter, Quarter 1, so probably July, somewhere around that. The reality of it is, I mean, obviously, we're engaging in conversations. And I'll let Matt speak to that. But we're, obviously, engaging with clients. And we can, obviously, show them the sort of facilities that we have. I mean, we could tour people around our existing facilities. The two won't look a lot different. So I think, people will have a pretty good idea of what's going to be built and the quality of that infrastructure. But ultimately, at the end of the day, people need the actual facility to be there to do business with us. And I think, that will enhance the meaningful discussions a whole stage further and start to get us toward a position, hopefully, where we can start to bring business in, in terms of real business and real activities. Matt, I don't know whether you want to say anything about the BD efforts that are ongoing out there and what you've done in the team.
Yeah, sure. So just to add upon that, we did add a dedicated viral vector business development person this year. She had started in January with us. So we're already seeing a lot of interest from potential clients. We've attended a couple of shows. They're starting to get a few more that are face to face now. So each one that we go to, there's more and more activity. So there's a lot of interest in our value proposition. And I think, it's progressing nicely, as good as I could hope at this stage with things, right? So I think, we're in a good place. And as Nick has previously stated, as we get closer to opening of the facility, I think things are going to firm up nicely. | direct | [
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1a5d855a4740ba07b114b2d262526935 | Good afternoon, and congratulations on the strong quarter. Maybe a couple of questions for me. First off, on the gross margin, I think you talked about some of the incremental cost that you faced in the third quarter. Revenues came in much better than I think many of us had anticipated. What's the delta? What causes the shift from quarter to quarter in the gross margins? Is that purely a mix of bigger batches versus smaller batches versus the services? Maybe what creates that delta? | Matt, thanks. This is Dan. You essentially just answered your own question. Yes, it's absolutely also the mix and the scale, the duration, the process. It's kind of all of the above. As I've said in the past, gross margin of 30%, roughly, plus or minus, is highly dependent on the mix. So I think, that's kind of what we've seen in the last three, four quarters. | direct | [
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241fb58c64072c7943c35aea4347d42a | Got it. And then, given some of the headlines here recently, and I know others have talked about it, are you seeing any inflation in your business? Is it primarily in wages? Or are you seeing it maybe in some of the inputs as well? Maybe help us out there. | So Nick speaking again here. I mean, I think, certainly, in wage increases, we see inflation in terms of what it requires to get ahold of staff and new staff as we're growing. And we're certainly hiring a good number of people these days. In terms of the inputs into the process, a lot of the inputs for us are passed through. So the vast majority of the sort of raw material component is a pass-through to the clients. So while we do see these things coming through, they're not as big an impact on our profitability in terms of the fact that it's passed through ultimately to the end and planned. | direct | [
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42a1542e48b36b05e77b064df06abb3c | Hi, Nick, on the commercial profile, on the profile of the contracts, are you starting to average longer duration? Meaning, are there more moving into Phase 3? I mean, are you like, on average, Phase 2 now? Or where is that maturity of the pipeline with the backlog increase, etc.? | Yeah, really good question, Paul. I don't actually know what the average is. I've never actually done that one. It's an interesting concept. I might have a look at that one. But we do monitor, obviously, the sort of pipeline. I think, as I've alluded to, one of the nice things about the businesses is that we established a funnel over the last couple of years for sure that as we see projects now in preclinical Phase 1, Phase 2, Phase 3 in commercial, obviously. What we're now sort of experiencing is a broadening of that funnel. And that's what we're trying to do. And I think, we've been quite pleased that kind of I think the message of our commercial pedigree is getting out there, and we are seeing some later-phase projects coming in, and we're seeing projects maturing to fit those phases. Ultimately, the Holy Grail is when clients actually jump across, and we saw that last year as well. But yes, we're pretty pleased with the development in terms of the maturity of the pipeline, but we'd always take more late phase in commercial products because those are always really good for sort of predictability and reproducibility in terms of revenue streams. | intermediate | [
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701effffc62e16635fcac9c1642ca2ae | OK. And then, with your experience in the industry, what type of EBITDA margin that you and Dan think Avid could operate when it's more at the mature stage of the business? | Sure. Definitely at the heart of what we're aiming at here, Paul. I think, I've said in the past, looking at the capacity going from $120 million to $170 million and ultimately getting to $270 million on the mammalian side and then adding in an additional approximately $80 million for the viral vector, looking at both of those different offerings, they're pretty close in the overall margin profile, some similarities, some differences. All in all, you can see that we've been running at low to high 20s in the last four or five quarters as far as a percentage of EBITDA. I would imagine as we reach a full capacity, that number would be starting with a three, low, mid-30s. | direct | [
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18a1660a55dc6c007856e345fb942893 | I wanted to start with the sales retention comments, right? So, you're talking about demand orders implying a 90% retention rate in July. But can you give us some color on how that retention rate evolved during the course of the month? Maybe talk about when you think inventory levels will be sort of normalized right for you to capture all of that demand. And if there's any specific call-outs between Custom Closets trends versus other product categories during the month of July? | Hi, Steve, how are you? Let me take that and Melissa, I'm sure you're going to want to add a few points here. But first off, as it relates to the fiscal July call-out/we did of 90% retention, I think it's important to remember that, last year in Q2, our comps were up 5.4%. And actually, July was the strongest month of Q2. So we were up against an 8.3% in Q2 -- or in fiscal July. So we're not up against a low benchmark in July, so I wanted to make sure that was known. And in terms of any specific call-outs, we have seen really across the store, again, same comments as what you heard us say in our remarks in terms of Elfa continues to sell well. And then also we're seeing strength across our core storage and organization products. We're in the midst of our Customer Favorites store and that sort of highlights key storage organization departments across the business.
Customer Favorites sale, we're in the middle of that right. Yeah, the key core storage and organization, the obvious one is the kitchen, the closet, the office storage continue to perform well. | intermediate | [
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74d59dda2f9dde48d29ad0f1aec0ec20 | And then as a follow-up, right, so you talked about the rent deferrals. I think it was less than half what you paid in the second half remainder in 2021. But I guess how does that impact the P&L here for -- in cash flow right for the back half or was this just a second quarter impact as we think about the cash flow outlook? | Yeah. Steve, we did defer about $12 million in rent payments in Q1. And each case is different, but approximately $5 million of that $12 million will be repaid. We'll from a cash flow perspective come out in the second half of the fiscal year more heavily weighted to Q4, which is when we generate a lot of our cash. And then that remaining amount of approximately $7 million will go into fiscal 2021 or beyond, but is more heavily weighted to the first half of fiscal 2021. So from a P&L perspective there's no impact, because we've taken the full hit of rent, regardless of whether paid in cash or not on the P&L. From an EBITDA perspective, it will cause some shifts of those amounts and also for cash flow like you said. However, with our reductions, we've done to capex and the way we're managing the cost in the business, we still feel very good about where we sit from a liquidity perspective, from a cash flow perspective. And you heard me say we still expect to be able to generate free cash flow as we proceed through the fiscal year. | direct | [
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521dca661e89cbe5c99330b406b80263 | And then one last quick one. On the reduction in payroll, maybe just give an update and sorry, if I missed it in the prepared remarks just where we are and where -- when you anticipate sort of a normalization in underlying payroll costs. | Yeah. I'll start. Melissa may want to add as well. As the stores are reopened, we have ramped up as you can imagine store operations and have returned our employees to work, but we're remaining very disciplined about our costs and we're managing those to the lower sales trends that we're achieving. So the goal here is to strive to keep the percentage of spend that we do of sales consistent with what we've historically spent even if it's a declining sales trend. One thing to note is in Q1, we did have hazard pay in our distribution centers. That was in effect for the entire quarter, but we discontinued that by the start of fiscal Q2. That was a call-out of about $900,000 that did hit in Q1 that will not hit unless, of course, there's a resurgence. Everything always has that asterisk, but is not anticipated to hit for the remainder of the year. We also right now, Steve, are in a situation where we issued some temporary pay cuts. We are slowly reversing those and expect those to be reversed out as we move through the rest of the calendar year, but basically planning to manage payroll quite tight still and try to manage it as close to sales trends as we possibly can. | intermediate | [
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7d1e5e37e4ef6b43e48a9785d9848c9b | My question is centered around inventory. You gave some great detail there. I just wondered going into the second half, how you're thinking about being positioned from an inventory standpoint. And are you seeing as a result of the pandemic continued or any kind of disruption in terms of factory capacity when it comes to your products? | Yeah. Let me -- hi, Kate, I'll start on that. And the short answer is, we are leaner in inventory right now than we would like to be on certain items, because as we noted, we ended the quarter with inventory down 9.4% and started the pandemic quite conservatively in terms of the order flows we have coming in not knowing what we would sell and where and quickly reacted and have pushed to build inventory where needed in key SKUs. But we are chasing in a few categories. And like every retailer, we've got 700 vendors, I believe approximately in all merchandise categories. Some are better than others, some have had COVID issues. So we're really just very much on top of that. Our merchants are doing a fantastic job working with supply chain and bringing product in as quickly as they possibly can.
And we've made some good improvements. I mean, we have with that which is great. So the high sales volume categories is what we're chasing, but we've just been on it doggone it. And of late, I've been really pleased with what we've been receiving, and so it should really help.
Kate, one other thing is, we did always expect inventory to decline this fiscal year year-over-year, because last year opening up the second distribution center, we were building inventory for two facilities. And now we're sort of rightsizing that so that we have the adequate levels at both facilities because Dallas continued to support the entire chain, while we were receiving product in Aberdeen. So some of the working capital generation from inventory was always envisioned for this fiscal year, just not quite to the degree that we saw in Q1. | direct | [
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eb98516ad6318de63389e98847a30939 | And then my second question was just with regards to the competitive landscape, especially going into the second half. It does sound like just in general, retail was maybe a little less promotional than usual just in order to figure out demand from only one channel, etc. So as things open up here and stores open, how do you see the competitive landscape evolving, especially when it comes to promotions and discounting? | Well, we're executing our fiscal 2020 marketing plan, which is going to be highly focused on digital spend for obvious reasons. And it will be somewhat of a reduced spend from fiscal '19. So we're proceeding with that. And obviously we along with others in the home sector have benefited from so many customers being at home. And our mission -- our vision is to help them accomplish their projects and make the most of their home. And so that has certainly been occurring and particularly, with our virtual in-home that we've been doing that has been really well-received and we're going to be rolling that out to all stores as well. So I'm cautiously optimistic about the year. I think the competitive landscape has not really changed that much for us at all and we're just going to continue to focus on what we do best and focus on our differentiators and just be very prudent and cautious and agile and nimble and flexible in running the business.
And Melissa, I want to just add real quick. Kate, on the margin side of that because from a promotional perspective, our margin degradation we saw at TCS in Q1, 75% of that degradation was because of the surge we saw in online going from about 12% of total sales last year to 47% this year. So the balance was due to promotional activities and we definitely did see during at least the first quarter initial part of the pandemic customers opting more into the promotions that we were offering up to them, but as Melissa said, really our goal on these promotions is just to stay relevant to our customers. And I think what also might be helpful for you to know is we did talk about how margin is expected to abate as we see a different share of online versus brick-and-mortar and certainly have seen that as we've moved into Q2. So just as a note, while it's still early in Q2 and I know we're not sharing outlook, I can share that year-over-year our decline in gross margin trend has significantly improved since the beginning of the quarter.
So for the month of July.
Right. Fiscal Q2 to-date [Phonetic].
Right.
And the preservation of the sales went from 72% to 90%, so. | intermediate | [
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280680ffb4dc0e0dde7793e07249e7e0 | So I just wanted to understand the first quarter performance a little better. Last time you spoke in May I think you mentioned you were retaining 76% of sales and eventually, you ended up with around 72%. So could you elaborate on that a little bit? Did you see a slowdown in demand, given probably some customers pantry-loaded on some home items or was it more your supply chain issues like what drove the slowdown in 1Q? | Yeah. I think, the biggest explanation Tami is as we proceeded into the quarter, we were up against steeper Custom Closets sales from last year. We'd had a very, very successful Elfa free installation promotion in calendar May and June. And with our stores closed essentially until June 8th I think, is the day we sort of reopened unlocked the doors it's much more challenging. We tried very hard virtually and other ways Melissa spoke of but it's more challenging to sell Custom Closets in a closed store environment. So with an impaired -- I call it impaired model of operations for our stores, it made it harder to lap those Custom Closets sales even though our incremental volume was growing every single week and we were seeing larger sales. I can tell you Tami we did -- we exceeded our expectations for the quarter in terms of sales and in terms of really all through the P&L. So we're pleased. We knew that would be a tough bar to lap. | direct | [
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9effc7ccf5587faf2aeae174621dcef1 | So just a follow-up on that. So basically you saw incremental improvement in store performance. But given Custom Closets was up against steep compares and it's a higher -- much higher ticket item, that's why you, sort of, saw a slowdown in May and June. Is that the right way to look at it? | That's correct.
Yeah. That's right. That's why the percentage to last year didn't improve albeit the dollar volumes escalated. So we were doing more per week. It was just up against a bigger bar. So the percentage challenge was there. | direct | [
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1663dea399f1124e91d2ea357616f6c2 | And then you mentioned July was the strongest month of the quarter last year. Was it -- I'm sorry if I missed it, but was it due to some specific campaign that you decided not to run this year or it was just overall a strong month. | We just had strong business.
Yeah.
Yeah. Nothing specific to call out. | intermediate | [
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6bf55b1ade4d61183e75afd9d6f3abf0 | And if I may ask one last question. The Elfa segment gross margin was very impressive. It leveraged a lot. Do you expect that to continue as you look to the rest of the year? And then also you mentioned, customer mix being a tailwind for Elfa in the quarter. Could you elaborate on that a little bit as well? | Sure. I'll start with the customer mix. With The Container Store having sales down 28%, we pulled back quite a bit on our purchases particularly at the beginning of the pandemic. And the inter-company margin that Elfa records in their segment is lower for TCS than it is for their third-party sales that they do. So having mix -- it was both in that mix, but also what they had is customer-wise in Sweden they had their -- some of their customers that are simply more profitable were the ones that were doing better business which is good to see. So they also from a supply chain perspective and efficiency perspective continued to do well. So to your first part of your question, we have planned their margin up this year. They did exceed our expectations in Q1. I would expect it not to continue quite at that rate, but we do expect them to see good gross margin trends this year. | direct | [
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6e4ccbacece84af55fd3225f4933c7a2 | First, on the product revenues, a little bit light. It sounds like that's a timing situation. And you kind of helped us a little bit as far as the guidance for the year first half versus the second half. Is that almost entirely related to those three products in the market already, and it's just waiting for those secondary orders to come in? Or are there some other items that work that are delaying the reorders? | Yeah. Thanks, Matt. The decline that we're showing in the guidance range for product sales versus the actuals for last year, that difference is less than the headwind associated with the inventory builds for those three recently launched, or about to be approved drugs with Kyorin and Urovant and Allergan. So outside of those three, there's some modest growth in the rest of the product portfolio. And I gave you some commentary about Stevia. Stevia is not quite yet at a point where its growth will be a significant contributor to year-on-year growth. It may happen toward the end of the year, but prudent forecasting says it's likely to take the rest of this year for Tate & Lyle to successfully get the adoption at the larger brands and ultimately build their need for our enzymes. So that hasn't been as much of a contributor in the short-term as we would have hoped for, but as the commentary I also added, we expect that to start to take off as we get into 2021 and later. | direct | [
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cd0a257bedd9da0842ed5749ea7ff614 | And then I guess you gave us a lot of new information today. But regarding the lysosomal storage disorder opportunity, should we be expecting -- is there going to be some type of an upfront licensing fee that would hit here in the -- it sounds like almost first quarter, maybe second quarter. And how should we be thinking about the magnitude of that? | Yeah. We're not going to comment on the magnitude at this point. All the commentary was clear that we expect this deal to close very soon. And the structure that you outline is a reasonable expectation, some measure of upfront milestones and R&D program fees that would probably accrue to Codexis. And that will have an impact on our 2020 revenues, and we've built that into our guidance. Just one comment to add to that also, Matt. I think depending on the structure of the deal, various terms in the agreement, that can also impact how revenues are recognized and when, especially under 606. So just keep that in mind also. | intermediate | [
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6645169d76ca1b56fa05d8cab900cc1f | And then maybe one last one, then I'll hop back into queue. You commented on some new industrial sectors. And I realize you might not want to give specifics, but could you at least help us out with size of those markets, or any additional color that kind of helps formulate at least a little bit of an idea of what you're talking about there? Thank you. | Yeah. Most of the commentary focused on, of course, outside of pharma manufacturing, focused on food and life sciences. And those were building market for enzymes, and we believe those are great targets and can be material product sales areas for the company. Outside of those three sectors, we're talking to many customers. We have good prospects. They were all relatively early. So far, they haven't generated material revenues in 2019 and before. But we expect that to continue to move in the direction. If you go back a couple years, we didn't talk about life sciences. We just talked about MDX, molecular diagnostics. If you go back three years, we didn't even talk about molecular diagnostics. If you go back four years, we didn't even talk about food. So that's how we layer it out, is we kind of bring these stories forward as we actually land a partnership that brings material R&D funding in the company. And whatever permissions we can get from those partners, we love to share with our investor base. Certainly, we'll be able to talk about the industrial sector as we bring in material revenues. Hopefully that was helpful. | intermediate | [
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01da15359f3405d04fb11509ad232350 | Can you provide an update on how the situation with Coronavirus is impacting your business today, if at all? I believe you have one CMO in Switzerland, and another in Italy. Have there been any material disruptions? And then, can you also provide an update on important and overall Asia exposure? Are there any revenue headwinds in the guidance for that? | Yeah. Like everyone in the world, we're watching very closely the developments of the Coronavirus. Its impacts on Codexis have been nil to date, thankfully. We haven't had any issues associated with our supply chain partners to date. We have very limited potential exposure to the Asia markets. More it's our customers impacts that could affect us, but we don't see those unfolding at this point either. Ross, anything you would add? No. I think John covered all the details there. I think, based on the activities we've seen from all of our customers so far, no changes. But clearly, we're keeping our pulse on the situation. And Ryan, you asked about Porton. We're keeping close to our partner. Of course, that's a relatively stand-alone partnership. We've set them up with screening capabilities, and they've been screening our protein catalysts against their process CMO opportunities in pharma. They took an extended shutdown. I understand that they're back up. I'm sure that this is a pretty important development for them to be watching. But we don't have -- we see revenues with Porton in 2020, not much being built into our guidance, but potential for upside if they're able to advance some of their projects to more material stages that might require additional enzyme manufacturing from us or might require some enzyme evolution services to be provided to them for improving some enzymes. But those are largely billed as upsides, and they wouldn't be particularly large. They'd just be great signs of progress between Porton and Codexis in that partnership. | direct | [
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a1a84eaaf83d36fac16a1ec0f75889d8 | And impressive progress on the therapeutics pipeline assets. Just to make sure I understand, is the ramp in opex in 2020 entirely driven by increased spending on existing assets as these assets progress? Or are you also building up further your discovery capabilities to add even more shots on goal with new pipeline assets over the next couple years? | The vast majority is associated with third-party spending for GMP manufacturing, process development, toxicology, regulatory alignment, stuff like that. That's by far the largest category. But we are adding some headcount modestly to that area. We did a significant buildup of headcount in that area over the last 18 months. But as we get a new project like we shared with Nestle in the January announcement, the extension of the strategic collaboration agreement led to a new program coming into our pipeline. That would lead to just a modest additional R&D headcount. | direct | [
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63ec18623caa21798a3bb6e4e143d7b2 | You mentioned nearly 3 million in back-end revenues from Code Evolver licensees in 2019. Do you expect that to grow in 2020 and beyond? Thank you. | I think it'll be about that level, if not a little bit lower, Ryan. I think from there, it's set up to grow, but we've got a lot of visibility to 2020. And I agree with Ross's comments. We're not likely to generate quite as much in 2020. But the programs that are advancing within Merck and GSK's pipeline are exciting. The program where we generated the milestone last year with GSK is advancing as best we know. And that program could lead to a significant stream of additional larger milestones over the coming three to five years if GSK continues to advance that. So that sets up for growth in that just one program quite well. And then, I think this is a really good question there, and we probably should have detailed it in our prepared remarks, but we'll cover it here. One of the items that came out of the back end from the Merck deal was the development of this multi-enzyme cascade for their fast-track HIV drug. The active ingredient is called Islatravir. We shared a press release on that late last year. It was an amazing article about the development of that process in Science Magazine. And that's become a benchmark of how to best apply protein catalysis for the world to now study. But in the short run, Merck is really moving forward with that program, and we are set up to be the supplier of enzymes. Again, there's a multi-enzyme cascade here, and that could be very nice material clinical orders for Codexis in 2020 and carrying into 2021. | direct | [
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1677176d84167533769799243ee95e8c | Following up on the Roche deal in December, curious how your conversations are going with others in this space. Wondering if this deal could serve as a potential catalyst to secure other similar deals within the molecular diagnostic space. And then, any color you can provide on discussions you're having with clients on additional biomarker activity. | Sure. Great question, and absolutely. The deal we made with Roche, one of the very top leaders in next-gen sequencing, for them to acquire a license to access our DNA ligase was a watershed deal for us. I referenced a team of Codexis employees at the AGBT conference just this week. They just returned, some of them. And there was a lot of interest from players at that key conference. And of course, we're now pointing most of our efforts in the sequencing space to promote our second product, the DNA polymerase. So the publicity and the ability to attract a great partner like Roche for the first product is certainly creating some wind in our sales for the second product, and we're quite excited about that in 2020 and beyond. Sure. Broadly, biomarker, the development, last year we started a really exciting program with a currently unnamed partner. It generated over $1 million of R&D revenues last year. I referenced it but didn't spend much time on it in the prepared remarks. That program is advancing well. And broadly speaking, those are new novel enzymes that are being designed to enable potentially a range of different biomarkers to be assessed and in circulation. And I can't say much more. The partnership is going well. We're hopeful that that partnership continues to advance as we start 2020, and it is currently continuing in motion, and that it reaches a milestone point where we could say more about what Codexis and that partner are doing. Thanks for the good question. | intermediate | [
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331371f6862fc2ce9059b0b4fb98c6c7 | If we just look at the product gross margins, 51% in 2018, 47% last year, and then midpoint of the 2020 guidance implies another slight decline year over year, can you help us better understand what's driving that decline? Is it simply mix, or is there anything additional to call out there? Thanks. | Right. And I think John actually addressed some of this in his prepared remarks and some of the Q&A already. But that's really driven by mix. We expect Merck, Sitagliptin product which is a lower-margin product, will likely be a bigger portion of the mix in 2020 than it was in 2019. And that's the primary driver of that anticipated decline in gross margin. | direct | [
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b47f676ac37a4e359b08db13fa23a521 | So my first question is on the revenue guidance. So based on the total revenue guidance you provided, as well as the very conservative product revenues, based on my calculations, you expect the R&D and licensing revenues to increase between 31 and 46% next year. So could you provide a little bit more color on which specific areas do you expect the majority of this increase to come from? | I'll start, and John can maybe add some additional color. But given our expectations of moving our pipeline forward in the novel biotherapeutics segment, I think a lot of the growth in the R&D revenue will come from that area. But at the same time, we have a lot of activity, a lot of projects in performance enzymes, and we should also see good growth in performance enzyme R&D revenue. But on a percentage basis, it likely will be faster in novel biotherapeutics. | direct | [
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909e13a3e4a7392d89b79cf77b2b258e | And for the 65012 program, you mentioned that the company expects to disclose more details around mid-2020. So what can we expect from that disclosure? | Yeah, it's a promise. We just disclosed it has passed an investment gate decision, and so we have nominated it now as a development candidate. And therefore, we're prepared to invest the relatively sizable amount of expense to do the IND-enabling work to carry it into clinical trials next year. So with that, we don't want to stay silent on what it is, so give us a little bit of time. We'll share with you what the disease is. We'll share with you what's going on, are there solutions for patients in that disease or not yet. We'll share some insight into prevalence data. We'll share some data that we generated that helped to make the justifications decision, in other words the preclinical research data that drove our confidence that we're going to generate the return on at least the IND-enabling investment and hopefully clinical investments down the road. So yes, that kind of paints the high-level overview that we'll make sure we provide on CDX-6512 for the inborn error of amino acid metabolism disorder some time mid-year. | direct | [
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007b393de232070cd00ec4b77316303c | My final question is on the 6114 program. With the first study nearing completion and Nestle preparing to set up a larger study to come in the next couple months, do you have any insight into whether we'll see any data disclosures on the program in the near-term? | I don't have that clarity from our partner. And as you know, the partner is running that. They have provided information about the study designs on clinicaltrials.gov, so both of these trials are now posted there. And so, it's up to them. Of course, if they go from one gate to the next, the data from the prior gate was sufficient to make that jump to spend more money and develop more clinical data. So that's always good. But yes, we will encourage Nestle to provide that data. We'll share the impact that that kind of data, especially in scientific forums, can generate for them and for us. But it's hard for us to promise it, especially when we have no control over it. | intermediate | [
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c92bb5941fa004b5d8264d71055e444f | Real quick, a lot of my questions were answered, but I wanted to touch on capex. What was it for the quarter and for the year? And then, looking out to 2020, how should we think about capacity and potentials for expansion there and capex spend in 2020? Thanks. | Sure, Joe. Let's see, capex for the entire year was about $4 million, just under 4 million. And it was just under $0.5 million in Q4. And in the upcoming year, we are doing an expansion of our pilot plant. So our capex is likely to be at least several million dollars higher than it was here in 2019. | direct | [
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76feeb5b5d7a2c8934a8432091258373 | And what does that equate to as far as capacity, the expansion of that pilot plant? Is it 25, 30% increase? | Maybe I'll cover that. The pilot plant is mostly used to do process development for ultimately much larger-scale manufacturing of enzymes, Joe. So it's a core asset to develop the processes, because Code Evolver generates protein molecules in extremely small, high-throughput scale. And ultimately, when they look good in high throughput, the next step, if our products or the partnered products look good, is to build a robust large-scale process to fit with the manufacturing needs of the ultimate market. And so, the pilot plant here in Brentwood City, California which is what Ross referred to, is crucial for that development of the new processes for new products. And so, it will enable us to do more new process development, and it's going to enable higher automation which are significant benefits for development. There's some percent that -- it's a minority -- percentage of use of that pilot plant to actually manufacture very small-volume enzymes for commercial purposes, but that's pretty minor. Because as you know, the vast majority of our product sales are enzymes, of course, and they're manufactured in third-party CMO partnerships. One of the other analysts referred to our two primary ones, one in Austria and one in Italy. And their capacity to produce enzymes is very significantly above our current capacity to pull our current needs to pull from that capacity. So we don't see product manufacturing limitations anywhere on the near future to be a key factor for the growth of our revenues, products or otherwise. More it's just development cycles as we try to describe, especially on the performance enzymes slide. Hopefully that's helpful color. | intermediate | [
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05d82588c37ac146b7e913e97eb12205 | I want to ask -- I want to start on the RFG business. Margins a little bit lighter than expected. You called out some of the factors. A lot of which sounded transitory, some of which sounded like they might linger for the balance of this fiscal year. Could you help kind of -- if we try to bridge that margin back to what I think is a more normal margin in the mid to high single-digits, kind of the magnitude of the pieces of freight, labor, fruit yield, sounds like fruit yield should get better now that you're end of the summer and you're in a domestic supply. Labor and freight though maybe lingered, maybe just help us think about the cadence of what that margin could look like? And in particular, relative to your guidance for the third quarter? That would be helpful. | Sure. So I think, let's start with, we are just starting to have the conversations with our customers for pricing actions. So that's under way. The results at this point are unclear and mixed. Some of our retailers fully expected it and we can get them implemented relatively quickly, some of the larger ones though, it may take a little more time. So it is transitory when that part repairs itself. But specifically, if you look at labor that's probably where it's a little low, call between $4.5 million and $5 million of negative impact this quarter. Again we've raised rates for our people. We've also put incentive bonuses in there for staying a certain amount of time. In fact we're doing everything we can to get people to come in. So, right now our overtime rates are high. Frankly we're running about 20% less people than we would like to have and so that's a difficult environment nationwide.
On the material side which includes freight because most of our stuff comes in, freight included in the commodity cost, that's about $4 million to $4.5 million worth of additional costs for the quarter. And then I think as we look at just going on the pure commodity cost where I can identify that separately from freight, we're probably talking somewhere between $0.5 million to $1 million. So if I were to sort of bridge to it, I think your model would look like it's almost all in the RFG side of things.
And as well as that Kevin is of indicating we're moving to kind of inflationary side of things to attract new labor in a very tight market, but we don't -- probably the bigger issue that drives this is just bringing labor in and so we're really looking at that September time period for pretty much schools to be back in session fully, child care to be back into place and then people beginning to being centered to come back kind of into work as unemployment benefits begin to recede and so that would be the point where there would be a bit transitionary from this period into the next as we get the new labor group. I think some of those inflationary costs are probably going to linger because once they're in place, they stay from that point of view. | intermediate | [
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469264a2a3f4ab6c67693c3a705166bd | On the avocado pricing kind of post Cinco de Mayo prices have been bouncing around a little bit, could you just talk a little bit about kind of what you're seeing in supply and demand. I know you noted that we're kind of on the tail end of a large Mexico crop, but how does supply look? It sounds like demand is still quite good. Just kind of a lay of the lands there would be helpful for us I think here. | Yes, I think what, and we probably talked about this before is that, certainly on the avocado demand side it's continuing to be strong and in that general upward trend, but much like we've talked about throughout the pandemic is that there's just not, doesn't seem to be a lot of appetite for those holiday lift kind of concepts that there were historically used to meaning, moving into Cinco de Mayo or Memorial Day or things like that are generally in this environment a little bit flatter than they have historically been. And so we don't get that traditional lift. And yes, currently we're in that place where the Mexico supply chain, the Mexican market is very strong and California is coming into play as well, kind of in that, for us is a little bit of a later start, but in that kind of April period both were in place and so certainly supply was up against demand in that environment. | direct | [
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549e066cab474b5e46fed16e3746e9be | On Project Uno, what was the genesis of that? Help us think about where you think today at least as far as you're aware, what's the greatest areas of opportunity are for you to address? And you said more detail on that later this year. Maybe just to the extent, if you can walk us through kind of the critical path of work that's going to be done, so we can get a frame or reference for kind of the timeline we should expect to hear more details on it? | Right, so, I think the conversation kind of continues on. It's the concept of the three business units that Calavo exists in and this company of one kind of thought process that I'm implementing. So we've done quite a few things on the structural side to begin to move in that direction. But now I've kind of been here just a bit over a year and seen all the business units operating. I think it's a really good time to bring in a third-party with another set of eyes that has the industry experience overlooking, product sets, the dynamics of concept of our Foods division and our Renaissance divisions working together, and then it complements very well, the timing that we're sitting in right now, which is this concept of constrained labor and is there kind of a paradigm shift in the concept of how much labor is available versus the labor intensity in the products that we make and what is the best product set for us to be able to evolve to. And so I think as we come into this, we're -- as we mentioned, we're just in the early stages. We've got several companies that we want to look at to begin to talk to about working with us. We'll probably start that up probably by the end of the next -- of the third quarter and then as Kevin mentioned in his discussion is that we would expect that maybe we will have benefits moving into the New Year. | intermediate | [
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745c69daaae5ab262604e6e5afcc6534 | So I only figured RFG for a second, when you go back like two years ago in the second quarter, have you -- I think it was maybe 100 -- I forget the number $140 million of revenue and we're at $96 million. Could you sort of break that down, like how much of that was either retail business lost. I got -- we got the co-packer piece, but versus -- and I know a lot of its foodservice, but can you break that down a little more, I'd love to know how retail has been impacted here? | Yes, I think we're talking about is the Midwest co-pack operation was a very central strong player kind of in the Renaissance Group and so that was in play in that time period. And what we're indicating now is that, in the absence of that player, the existing facilities that are Renaissance are beginning to grow out of the pandemic and are beginning to access more business and finding success in the market places where they operate. On the Renaissance...
Much like we are talking about. Right, we've talked about this a little bit, the evolving kind of pandemic is that as it came into play in retail, a lot of our deli type business which was oriented on grab and go was certainly impacted, meaning sandwiches, salads and wraps as people were working remotely they weren't passing through the grocery stores, kind of during lunch time to grab a sandwich or something like that. So that was definitely impacted early on and then the Renaissance team continues to evolve and begin to work on items that would support people working remotely, eating at home and so convenient value added, vegetable on trays, things like that that would support people that are just trying to cook at home and find good healthy food. So they kind of evolved and addressed that and now we're kind of coming back out of the pandemic and so the product sets are a bit stronger, grab and go is kind of coming back to a degree, and so there is beginning to be a lift in that environment.
As far as the cut fruit and vegetable type business, we're seeing kind of a move right now back to the traditional lift that Renaissance is used to seeing kind of as we move into summer activities and that is more what I called normalized as we move into this season. Our issue right now is not so much the demand side, it's really as we've talked a little bit earlier, the constraints associated with labor. | intermediate | [
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228f5a311bf490e6f06b6d7c35b32cf9 | And then have you seen anything still on RFG, have you seen anything -- in the marketplace do you still of the view that the days of the open air salad bars are over at retail and it's going to be a pre-packaged type of delivery to the consumer? Or I mean any changes to your view there? What you're seeing in the marketplace today with your customers you think [Phonetic]? | Yes, I think we've heard in lately is that some of the salad bars are opening back up, but it's retailer by retailer. | intermediate | [
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e45b04c34f52b1eb92a860600031c5bc | Okay, so you don't see this -- you see it ever normalizing going back to where it was and is that a good thing for RFG or would you rather stay in sort of the current pre-packaged format, the Grab and Go format? | Yes, I mean, the one thing about Renaissance is historically it's been a solutions provider and so generally based on what the retailer is looking for Renaissance has the capacity and capability to respond to that. And so if, as we were in the pandemic, a lot of the deli's were shutting down and so we were moving to the pre-packaged broccoli salad, but as the deli's open back up, we move back into supplying broccoli salad kit that the deli prepares behind the glass. And so there is capability on each side and I think the initiative for Renaissance is that as it is opening up it's moving to respond to what the customer is looking for. | intermediate | [
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7adf629764357c8e9b0c7382a6e24949 | Okay. And then I guess just last question and it goes back to the pricing trying to get higher prices. On the Fresh side, particularly in the avocados. I mean, where is there opportunity? I mean can you price in foodservice? Is that harder or is it equally hard both on the retail side and foodservice? | Yes, I think as we've talked before on avocado pricing, we're moving inside of the market and working to maintain our margin inside of the cost price scenario and that serves both retail and foodservice virtually equally from that side of things. The big deal for us in the volume kind of scenario is that we are out, in the harvest we're taking all sizes and all grades. And so as we've talked kind of before inside of the pandemic, kind of in the absence of parts of foodservice it inhibits us in some fashion on the margin side, because we don't have outlets for all the different sizes and grades. And so when foodservice is fully in play, generally because a lot of that foodservice product is used and brought out in service, they can be like a number two grade, which allows us to have nice outlets all the time and it balances our portfolio and allows us to lift our margin inside of how we performed there. | direct | [
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6e5a4c9eb441b0ba7408d4ebb3a1828d | Did I hear correctly, you're still looking to identify the consultants that you're going to work with and as such, this isn't going to really start in full here for -- later this year? Or do you have somebody named and you've begun that process really kind of in depth already? | We've narrowed it down pretty quickly. They've not been engaged yet. So you're right, there is a start-up time still to come. | direct | [
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031dc3c068c7ba081d7a443e7befc10b | You talked about pretty considerable growth in the international business from both your Fresh and your Foods segment. You alluded to staffing investments there. I'm wondering if you could elaborate a bit on kind of how those investments that you made in staffing are going to really kind of drive that kind of a result here for quarters to come. If there is kind of one-time benefit that you saw in the quarter and maybe help us understand the scale of what that those international opportunities are within those segments? | Yes. So, we've hired a couple of guys that have some great experience. So the investment is in people and certainly we've also reached out to some of the relationships that we've historically had that have just supplied dormant the past many years. And so right now, International is about 3% of our total revenue as we put together our three-year plan, we can easily see that getting to about 10% of revenue given the investment and given the capacity that we've got. And that's why, as Jim mentioned the opening up of the [Indecipherable] facility is another great opportunity for us, because we've got capacity there and certainly at this point we have supply. So whether it's the Fresh or the Foods business, they're very complementary and the customers overlap. So we've gotten off to a nice start. I suspect it might be a bit bumpy or inconsistent in the next couple of quarters, because we are bringing in new relationships, new customers and oftentimes it's sort of fill the pipeline, which is probably happening this quarter and next quarter. | direct | [
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072afd1e85acd8d6302b2c9ed6f43ecd | Just to dive a little bit more into kind of the near-term avocado supply situation. Obviously we're coming through a more of the tail end of Mexico, but we have a pretty good US crop right now and are now getting to the time of the summer this June-July period where you start getting a lot of the Peruvian fruit coming in. It tends to be lower quality, it tends to be more -- it tends to drive pricing down a little bit. It's not as a good a fruit, is what we produced in Mexico and the United States. Can you give me some ideas of what we're looking at for maybe some of the US supplies as well as international supplies coming in the next quarter or so? | Let me start with this, so you're right. Peru is starting to come in, I think that crop size what we heard is probably 20-ish percent higher than last year. Now that they've got more mature trees. On the US side, this will be the down-ish year if you would. So every other year drops, we figure that's going be down somewhere between let's call it around 15%. I think it was somewhat negatively impacted by the heat and high wins we had in November and December. That probably push it from a 10% decline in inventory -- supply level to maybe 15% down. So you're right. I think the Peruvian fruit pushes prices down and margins down a little bit against the California food stays very localized to sort of the very west coast and the margins on that are always pretty good. | direct | [
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ef0484262c990ade9cdc6a5e3d5b7c5f | The outlook for margins can we get back into that 30% run rate by the time we get kind of through this fiscal year and how quickly is Foodservice covering [Phonetic] in Foods. I mean, that tends to be a pretty good size piece of that business. | Yeah. The Foods business historically has about a 50% foodservice component to it. So a pretty big. I think right now, the margins are a little low, because the prices have risen on the prices we're paying. And again, as we look out the next couple of years, 30% is a little aspirational, but I certainly think we can be back in the 27%, 28% range. Part of that is, of course, as we are billing the international markets, we need to -- we want to be very price competitive and so we're starting in ranges that are probably a little bit less than 30%. | intermediate | [
"direct",
"intermediate",
"fully_evasive"
] | B |
37bbece9cf2707b428548886d6147006 | Glenn, I was wondering if you can tell me about how your GreenLight agreement is going and how it might be energized by the recently announced stack agreement? | Hi, Jonathan. Hope you're well. So we generally don't make a lot of comments about the partnerships. In this case, I can. We've done have really good interactions with GreenLight. We've worked on their materials. We've produced some really stellar results in formulation. And I'm actually quite excited about the fact that they've been able to gain financing. So that this gives us an opportunity when we do get to the level of a transaction, we can do a meaningful transaction. We don't -- we will not do deals where there's not meaningful economics. So having GreenLight funded is really a very, very positive step in the relationship with them. So that's moving along and even looks better now that they're funded, right. | intermediate | [
"direct",
"intermediate",
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] | B |
987330bb9ca347607735576b8f80e563 | Also are you still confident in cannabis revenue in third quarter this year? | Yeah, Jonathan. So you get one chance and one chance only to launch a consumer brand, right? So we have really done a lot of formulation work with PLUS. And right now, I think we're at the point where we are in position to test these formulations and different put ups with consumers. And once we have a good handle on what that reaction is, assuming there's no tweaks we need to make, we'll be ready to move forward. | fully_evasive | [
"direct",
"intermediate",
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] | C |
0b397e59e853f07a2e432144634f984a | By activities by year-end '21 for vori and tac, do you mean patient dosing or some earlier activity? | Thanks, Glenn. And thanks, Jonathan for -- yes, Jonathan, for the question. So we are doing everything we can to push into scientific advice meetings and so that we can negotiate some of the endpoints and then get our regulatory filings in place. And unfortunately, we're going to be doing our best to actually dose patients by the end of the year, but some of that is dependent upon regulatory approvals and how various countries handle those regulatory approvals. It could be pushback based on -- but we will file for approval. And hopefully, we'll have everything in place and be dosing. The other thing with all of these trials, as you know, is that even if you have sites activated, regulatory approval, drug on site, you may not end up with the patient ready to enroll. So we're going to -- we'll be doing everything we can to make sure that everything is in place, and we hope that those patients come this year. Yeah. So Jonathan, it's in our headline, right? So we have some more -- we'll get the RAD data back from -- on vori. We'll publish the phase one data report on tac. And we intend to do everything we can and we intend to be moving forward with the phase two pivotal trials by the end of the year. | intermediate | [
"direct",
"intermediate",
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] | B |
2ffef4327c1abb51dc792cec4dfa9f92 | So I'd like to ask just regarding the timelines in tac and vori, it looks like we're on track to enter those pivotal studies in the second half. And if I recall, those were supposed to be relatively short positioning potentially for filings in the first half of '22. Are we still looking at that time frame? And then based on the enrollment you've seen in the phase one, how should we look at the time lines for data in those? | Yeah. So we believe that we'll have the interim analysis done in the first half, and the trials will probably now conclude in the second half of next year, Michael. | direct | [
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] | A |
b60f0bcb82aae4c3c7d89ea538a244aa | Then going forward, it looks like we're pretty quickly approaching tac and vori crossing that finish line. So I'd like to ask, in your view, what comes next? It seems like much of the pipeline is in the form of your platform collaborations. So is this more so how we should think about the future of TFF? Or do we expect to get some additional internal pipeline compounds that come on board? | Great question. And it speaks, I think, to our strategy. So you're right. First, you think about the fact that Kirk mentioned that we do have significant capital that will cover the trials that we have planned. And that Kurt's assumption here is also that that includes no, which is a really extreme assumption, no internal revenue -- no generation from our transaction. So we -- yes, we plan on identifying other internal portfolio opportunities. And if you look at our last transaction, it was a co-development with Augmenta, right? So in that transaction, we agreed to share the cost of the preclinical and clinical work through phase one and then look for a partner going forward. So I'm not saying definitively that we do more transactions like that. But it could be some of those. It could be something we would take on. But we are, as I said in the script, we are a drug development company, and we'll develop those, apply the technology to either internal assets or partner assets, and we'll keep churning. So this is, I think, the quintessential, short, mid and long-term value creation opportunity here. And if you listen to Chris, the partner programs are growing dramatically. We've increased the patent portfolio now to 58. I think the last time we reported 45. So this is just -- it's just really -- it's just accretive every day in terms of how many more opportunities. But yes, to answer your question surely, we will look to add to the internal portfolio, either with partner programs or programs that we would do by ourselves. | direct | [
"direct",
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] | A |
a5969cc02e58367fe25ea4e9777b53f6 | Sometime last summer, you were discussing a TFF formulation of remdesivir. We haven't heard much on that recently. But the reason I'm bringing it up is because Gilead recently stopped developing their own inhalable remdesivir due to deposition challenges. So what I'd like to ask is, were you able to get lung deposition with your remdesivir formulation? And as we thought of as a prime example of just how difficult dry powder inhaled formulation can be and the value of the TFF platform. | Yes. Yes. Thank you, Glenn. Yes. So we have shown in multiple rodent models, one of which was hamster, and that's the preferred infection model for COVID. We showed very good deposition in the lungs, and we modeled it in the two papers that are -- or the one paper I referenced in the script. So we believe we can do it. Gilead, to the best of our knowledge was testing a liquid form. And it does, it goes to show you that these inhaled drugs, they are difficult. The formulations are difficult. We spend every waking hour trying to figure these out, and we believe with the remdesivir, we nailed it. And up through animals at least. So great question and thank you. That is a great example of just how broad the application is here. And we actually think we -- it has to be tested, right? But we solved their problem, at least in terms of drug in getting to position. Is it an effective therapeutic? That only would remain to be seen here. But Bill, I think, solved the formulation problem. | direct | [
"direct",
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] | A |
48ada81f31e57a14457f41d820f3951c | Kind of going off the last question, nice to see the progress across the tac and vori programs and looking forward to see those trials start. But as you kind of think beyond that, it would be great if you could opine on any thoughts you had on the Philip Morris Vectura transaction that closed today? How do you think about kind of expanding the platform into that consumer space, including your discussion with PLUS products, etc.? | Yeah. So Mayank, I mean, obviously, we've watched the Philip Morris interest in in delivery companies. As I sit here today, we're certainly focusing on execution and moving our business forward. And certainly, we'll always be opportunistic. But more importantly, I think we're just going to -- our focus is on creating value for the shareholder. If that moves on to some other opportunistic activity, so be it. I think sum of the parts here right now are perhaps worth more than the whole. But that remains -- but I think that's getting closer. It's kind of catching up to it because some of the whole is starting to look pretty good. So we just -- we come to work every day thinking about moving the needle forward and closing more partnerships, etc. So I think that's the best way I can answer that question. | intermediate | [
"direct",
"intermediate",
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] | B |
5d2b29a1927e1ec4e3013d1676d97a23 | Do you have any deal sheets that you're reviewing right now that you can talk about? | The answer is yes. And I can't talk about them. I don't think you'd want me too because we will -- we're looking to create meaningful economics. And hopefully, these discussions will result in that. And when we have the deal signed, we'll report it. But we're at all levels with these partnerships that Chris described, in vitro, in vivo and term sheet. | fully_evasive | [
"direct",
"intermediate",
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] | C |
b49d2661ab1623f242f45bc19bfcceec | First off, Glenn, on tacrolimus, the clinical PK data release so far shows that the drug can reach blood levels needed for systemic immunosuppression. And I'm wondering if you have reason to believe that you can lower the dose for lung transplant patients to a level closer to what is used in the other transplants like heart, liver, and kidney. | Yeah. Thanks, Glenn, and thanks, Dan, for the question. So to date, as you mentioned, we have the clinical PK data that shows that we can reach that upper limit, the 14, 15 range with a low dose. We're getting about 80% bio availability. In our 26-week toxicology study, what we've demonstrated is that we can achieve about three-to-four-fold higher levels of the drug -- of tacrolimus in the lung tissue, compared to the blood. And so, what that gives us is the ability to -- when you dose from an oral perspective or from an oral route, you have to push the blood levels high enough to get enough into the long to prevent the rejection in the lung tissue itself. But because we have a higher blood level or a higher tissue level from the inhalation, we can reduce the blood level and still have that same or more in the lung tissue. And so, we think that essentially, this is like topically delivering it right to the site where it needs for the immunosuppression, and then we can reduce the systemic level down to levels that would be protective of the kidney. | direct | [
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] | A |
c21ed44e7d01bab217cbf81c1c51f7b1 | Switching gears, your augmented TFF lead has shown activity against the delta variant. And I'm wondering if you've tested against the new Delta Plus variant that Fauci has mentioned recently? | OK. Thank you. Again, a very good question. So the delta plus that has been mentioned, it has the full complement of mutations that are in the delta variant, but it's also picked up this K417 N mutation. And that K17 -- or K417N mutation was also in the beta variant that was first identified in South Africa last year. And we already have data showing that AUG-3387 works against the beta variant. So we have strong reason to believe that 3387 will work on the delta plus. And we're -- again, as each of these new variants emerge, it takes -- there's a lag time in being able to get all the reagents to perform that testing, but that is something that will be coming up. | direct | [
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] | A |
8124b9b4e625742ec861b76279ef70e0 | Glenn, can you talk a little bit more about your relationship with Catalent? | Yeah. Actually, I'm glad you picked up on that, Daniel. So we're very pleased that -- Catalent is obviously one of the leading in fact the leading CMO, especially in the area of biologic. So the fact that we have Catalent on board to help produce Augmenta, the map is a great signal because they now become a provider of manufacturing GMP materials and beyond that can help us satisfy the needs of our maturing discussions with partners, right? So there's an evolution here. We've never talked about manufacturing before, right? So we weren't kind of -- except for our internal pipeline, which was satisfied with the relationships we have with Corex and [inaudible]. But now, you're into this whole sort of biologics sterile product environment, right, which is really being -- the genesis of that is all of the partnerships that Chris described in those categories. So getting Catalent on board is really critical because we need to develop capacity and expertise to start producing products as these products get into animal testing and beyond, especially even in the sterile environment. So to me, in running this business holistically and looking at the life cycle and the evolution of the business, that's a great -- they're a great partner, and I think it's frankly to the investor, that should be signaling something. And it is. So I think that congratulate for bringing up on that. I generally don't like to be -- use a lot of hyperbole. But putting -- mentioning catalyst, I think it should -- is a signal to just where we are in the life cycle, especially on the biologic. | direct | [
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] | A |
fdb9118c6844f50bcd3f12c627464629 | I know your vaccine work would help relieve cold chain issues. And a company that has been working over in Africa on some vaccines is Dyadic. And I'm wondering if you've done anything in conjunction with them at all? | OK. Well, I had permission from their CEO to say this. So Mark Emalfarb, I want to congratulate Mark on his transaction with Sorrento, which again is good, I think, because it now gives Mark some capital to do something. So we have successfully formulated a vaccine candidate. And I think it's just now, we have the opportunity, I think, to really hopefully -- again I think hopefully and hypothetically, look at how, and if we can, move that project project. We don't comment on who all these MDAs are with. No. 1, a lot of companies don't want us to. In the case with Mark, because we are close with Mark, we feel comfortable disclosing that we have a relationship with them. | intermediate | [
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] | B |
ffbb925e4731b3d19519c6ba42423ef8 | First of all, I thought I heard you say out of the business deals that have been percolating for a while, did you say you actually put out finished term sheets that are under review right now? | We have -- we do have term sheets in place with some partners. And Richard, I just want to be really clear. It doesn't mean that we're going to get transactions done with these partners, but we are in the term sheet stage. And look, I wanted to say, and why wouldn't you do a deal? Well, maybe the economics won't be right, OK? And/or something happens in diligence. But yes, I want to put a big qualifier on that. So people don't single out, you said you're going to get a deal done in two weeks. We do have some term sheets, and we are -- and that's good. I'm saying we're happy with them either because we do have term sheets, OK? You can count on me and my team to get -- if there's a deal to be done, to get it done in a value-creating way. | direct | [
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] | A |
62220f0126879a50c294866d75b01263 | When do you expect -- or have you heard about orphan drug status for tacrolimus? | We actually have orphan drug status already for tacrolimus. That was, I guess, about a year ago or so that we actually received. Yes. | direct | [
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] | A |
6fcf785d8c53f26f303fcf461c4c6679 | Then I misspoke. I'm looking for vori then. Aren't you -- | Vori. Yes, we are in the process of applying for the orphan designation for voriconazole. | direct | [
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] | A |
a04bf1f653b4af450f51c037aa34b0d9 | And what's the time frame on that? | Yeah. I don't want to say specifically. Again, I don't want to give everybody a date because we're at the mercy of the regulatory authorities, right? So -- but it is something we're pursuing. | fully_evasive | [
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"intermediate",
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] | C |
d3046242c334a114ea88e048dbbd3e79 | And you also had the GLP results coming? Are those going to be showing up soon? | So we -- sorry, we do have GLP tox studies that have been completed and ongoing. And we also have good manufacturing -- we've been manufacturing to GMP for all of our clinical work to date. So we are fully GTP, GLP and GMP-compliant for all of our work. | intermediate | [
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] | B |
4ae5796552937595edb5820688c2ba57 | My first question is just around the North American construction markets and what you're seeing here. Could you perhaps provide some color as to how many months your order book length is now sitting at and how we should be triangulating the comment around customer destocking activity starting to ease and the expansion of backlog levels? Is that implication that we should be seeing shipments in the next couple of quarters trend higher? | Yeah, Emily. Our backlog extends well into 2023. And so we're sitting in an excellent condition and with a lot of confidence in terms of the comment I made around a really solid first quarter in fiscal 2023. Whenever there is a raw material price change, particularly a downward trend in raw materials, you will tend to see customers go through a bit of destocking.
They don't want to be saddled with high-priced inventory. So they'll adjust their order rate temporarily and work through the inventory that they have on hand. And clearly, we know there have been any number of supply chain disruptions over the last three years, starting with the pandemic and global macro issues and the war in Ukraine, I think the supply chain issues, while they'll continue to persist to some degree, certainly, the initial shock is behind us, and I think that's another reason why customers were adjusting inventory levels. But based on what we're seeing here early in the quarter, that gives us confidence to say that, that destocking effort is behind us.
And so the market fundamentals are going to kick in. And so we would expect a really solid first quarter. You always have seasonality that approaches around the holidays and weather, but otherwise, we see a strong rebound in our shipments. | intermediate | [
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] | B |
5670243abe7bdfaadb3fa077aa3c955a | A follow-up question, if I may, just around the controllable costs. And I think you flagged some pressures along the freight alloying and energy cost side of the equation there. But perhaps if you could talk to a direction of travel for each of those three components, both in the U.S. and Europe, that would be helpful. | Sure. If we look, Emily at the U.S., I think the -- we had a combination in the energy market of an extremely hot summer as well as the global challenges with natural gas and other energy costs. And so if we look at our cost profile in the U.S. market, certainly, energy was the leading area of inflation.
But also as we cited increases in consumables and alloys and freight, I think where we're at today is really we can see our go-forward controllable costs being somewhat in line with what we experienced in the fourth quarter with relatively minor puts and takes in the components of the overall cost structure, but see that as being the environment in which we'll operate in 2023. In Europe, it is strictly a story of energy costs. And as we outlined and specifically, I think Barbara mentioned Slide 9 of the supplemental slides, we're fortunate to operate in Poland despite the overall inflationary environment in energy, in Europe, Poland is much more advantageous in relation to other countries given its domestic source for much of its energy needs. And so combining the low cost, lower cost of energy in Poland with the hedges that we have in place, which are at least a good portion of our hedges are of a long-term nature, position us well to really be competitively in a strong position in relation to competitors for a long time to come.
But in Europe, it is principally energy, the same alloy inflation that we're seeing, but it's relatively small in comparison to the energy. | direct | [
"direct",
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"fully_evasive"
] | A |
fb7fb792992850cc36e9f974a067610c | Two things I wanted to explore a bit more with you. If you could characterize more of the import pressure you talked about in both markets. I know in the U.S., definitely a 25% tariff still has a pretty big impact on many countries with section 232. And it seems that Turkey is pretty hobbled with Europe also hobbled from energy prices. So I'm just wondering if you could talk a little bit more about how much pressure you're seeing and if that's pervasive in both markets. Second question is you talked about housing in Europe, but I was wondering if you could talk a little bit about what you're seeing on the housing side in the U.S. | Yeah. Thank you, Timna. Yeah, I don't think we want to overemphasize import pressure and all that data is very public, as you know. But they're year on year, if you look at '21 versus '22.
There has been more foreign product available here in the U.S. market. And a good bit of that coming on the wire rod side. And there were a number of production issues that various competitors over this past year that made it necessary for some customers to avail themselves of those imports.
And so as you know, we've been around this industry for a long time. We just -- we deal with that on an ongoing basis. And as you point out, we're still in a really strong trade environment that deters the illegal and dumped sources of material coming from foreign and you rightly point out the struggles that are going on in Turkey, which is the primary offender as it relates to our products. So we monitor it all the time, and we respond accordingly.
But again, we think we're still going to enjoy a good trade environment. In terms of housing in the U.S., it's an interesting one because housing has been incredibly strong for a long period of time here. But now you have a rising interest rate environment and interest rates that folks haven't seen in quite a period of time. Unlike myself, where my first mortgage rate was close to 12%.
Anyway, I think we're seeing a shift potentially from single-family to multifamily and that is evident in some of the external data that we track. There is still the need for housing formation. And so if interest rates are a deterrent to single family, then you tend to see an increase in multifamily, which is actually a higher intensity of rebar and structural in the multifamily. So we certainly think that overall, that is not going to have a meaningful impact to our business, because as I pointed out, we still have the infrastructure that is not even really kicking in at this point. | intermediate | [
"direct",
"intermediate",
"fully_evasive"
] | B |
4073112a72d2cd9fa13a4773abde2b4a | OK, great. And if I could sneak in one more, just to ask about the European first quarter, if you're expecting to see that $15 million carbon credit that you've seen those last several years again? | We are, Timna. It's going to be -- the amount is yet to be determined and fully approved by the EU. That's expected to occur next week. But all indications are that the amount will be similar in zloty that we've received over the last couple of years.
Obviously, the translation back to dollars is reduced, but we do expect that the final approval of that program to take place next week. | direct | [
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] | A |
3f5931fca6b25c7f7c06f529ba75d963 | Another question, please, on the European market. In your prepared remarks, you commented on destocking early in Q4, but perhaps a reversal of the amortization of the destocking pressure late in the quarter. Can you provide a bit more color on the scale of that downward pressure. And I guess to the degree of confidence that might have come to an end, your optimism would perhaps stand out with some other channel checks in Europe that are still seeing additional destocking pressure looking into the fourth calendar quarter. I'll start there, please. | You're popping a lot, Alex. So I'm not sure I captured everything. But I'll start and Paul -- excuse me. He can continue if he -- or reask your question.
We think the destocking is behind us. Clearly, a lot depends upon just where does the economy in Europe go and everybody has their own view of that. I think we just try to emphasize that we have a strong position relative to other alternatives and we're very reliable. Our cost and operational flexibility is really a strategic advantage for us, but we think the destocking is largely behind us.
Yeah. And Seth, I would just note that I think there's a big dichotomy between the long product area and the flat-rolled space. I think in flat rolled, it's continuing to destock, but on the long steel side in which, as you know, that's where we play. It's a different market.
The underlying -- there is more strength and we certainly did see the volumes bounce back significantly as Barbara said. | intermediate | [
"direct",
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] | B |
6b7470d3481e93e9d1ddbecf8216e839 | And a second question, please, in Europe. Earlier in the year, your team spoke publicly about some interest in perhaps expanding your capacity within Europe, either organically or inorganically. Obviously, the macro condition has changed a great deal since. And I'd love to hear your thoughts on the attractiveness of investing in Europe in the current environment. | Yeah. Alex, thank you. We're always evaluating organic, inorganic, every opportunity to look at growth. And I would just say that we take a very long-term view on growth, and we also have a very disciplined process for evaluating any of those types of things.
And we never use peak of cycle kinds of market conditions in which to evaluate projects like that. And so there's nothing specific that we have to talk about that in this current moment, but we're always evaluating things with a very, very long-term view. | intermediate | [
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"intermediate",
"fully_evasive"
] | B |
81814a2186afdb87f683f7a09789af4e | The first question is just on fabrication pricing. Nice step-up this quarter. I know the backlog pricing continued to move up over the last several months as rebar prices escalated and a lot of that tends to lag as we know. So how many quarters do we have looking ahead where pricing could actually continue to move up or have we leveled out here? | Yeah. Phil, I'll start. Barbara can add. If we look at our current activity that Barbara alluded to, it is strong in the fourth quarter.
And really, we continue to see good levels on the downstream work. And as a result, really, the backlog is made up of what's in there and new stuff. So assuming the -- no significant degradation in the pricing of new work going in, we would expect over the next two quarters or so for the backlog pricing to continue to catch up with the current price levels. | direct | [
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] | A |
068b45d46ed06aae34e7a5ae0887c332 | OK, that's helpful. And I know you gave some color on capex for this year, $475 million or so at the midpoint. Is there anything baked in there for the new potential mill in the Northeast and whether it obe permitting or due diligence or is that going to be something that phases into the out years? | Yeah, Phil. There'll be a little -- there's a little bit in there. I don't know the hard number off the top of my head. But as you can appreciate, the first step is to go through the permitting process, which can have some long duration to it.
And -- but we will do -- we will begin the engineering phase and other things. And so the bulk of it would probably come in the following fiscal year. | intermediate | [
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] | B |
d66a4ff7466fb029bb90ac867d05ec65 | OK. And then my last question is just on net working capital. Assuming that you have scrap stay around current levels plus or minus, and you've got let's just say, broader pricing downstream and rebar stay around current levels, what do you expect net working capital to be a use or a source in fiscal '23? | Yeah, Phil, if we hold all those things relatively constant to where they are today, we would really see working capital being relatively flat from where we are for the year. We'll have our seasonality throughout the year. But for the full year view, give -- if we assume things are going to be pretty consistent, the level of working capital will also be consistent. | direct | [
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] | A |
0afd8a182ca846f9382719666c609734 | On the M&A side, can you talk about the sources of the synergies that you're expecting to get out of the transaction? And any sort of time frame? And also if there are any sort of dis-synergies we should be looking for of sort of upfront investments and the like? And secondly, you mentioned the release on the B2B side part of the offsetting drag to managed services growth is declines in the voice business. How big is that business? And what sort of decline are we looking at there? | Sure. Thanks James. So on the M&A front, on the AT&T deal, I'm assuming that's what you were asking about. The synergies that we indicated is about a turn and it comes from a number of different areas. But one of the big ones is really the TSA agreements that we have with AT&T. As we roll off the TSA agreements and bring those services in-house, I think you'll see -- we'll definitely see some pretty good numbers there. As well, thereâs a lot of work that we are doing internally to strengthen our network. I think some of that we certainly defer with the combined networks. And as we also solve for some of these needs for AT&T there are synergies across by large group as well. The core network we can now use for the rest of the Caribbean etc. So we see this coming from many different range. And I think the one trend that we've indicated is a good number. And I feel really, really good about it. The second question on operations, on the voice side. Yes, this is a common thing across all cable industry right now. Certainly the telcos experienced this five years ago. This kind of peaked out on voice adds and we certainly see some of the erosion there. And you see it in primarily our bundling ratio. The bundling ratio continues to contract a little bit and it's mostly on the backs of voice disconnects; or more importantly as we bring in new customers, increasingly new customers are coming in without the voice product. But we've kind of modeled all of that in already and the incremental net adds that we see far outweigh the losses on voice. The broadband product is really a driver. | intermediate | [
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"intermediate",
"fully_evasive"
] | B |
7bc9bd4475b0b490e1c3026cff27e478 | One on Puerto Rico. I was hoping you could just give us a quick update on how you see the broader demographic situation. I've heard slightly different conflicting things in terms of population kind of growth and contraction. And maybe also how do you see the sort of broader demographics going forward. What is built into your assumptions? I'm assuming you're reasonably upbeat given the capital deployment in the country, but it'd be interesting to get some thoughts from people who've been on the ground. And then the second thing please was just an operational question on Panama. I mean you've talked a couple of times about stabilization in the market on the wireless side I guess we're talking. But if I look at the numbers they still seem to be under some pressure in terms of revenues and the subscriber count on wireless is ticking down still. So I just wondered how close are we to the bottom. And as a part of that what are your thoughts on consolidation? Is there any kind of update there? | Sure. Thanks Soomit. On Puerto Rico, I'd say we are really bullish on Puerto Rico. It's one of our best businesses and we have an amazing management team on the ground as well in Puerto Rico. And you can clearly see by our capital allocation -- and we are all in there and we feel really good about it. And I'll ask Naji to also include some comments on that while I answer the Panama question and then I'll pass it back to Naji to give a little bit more color on why we're bullish on the ground. On Panama -- and broadly in the mobile business what you're seeing is really an erosion and a lot of churn in the prepaid market. And really real price compression specifically in Panama on the prepaid market. We said it a number of times. It's a question not on whether that product is a good product or bad product but just too many competitors. And we haven't called the bottom yet on that but I think we're pretty close to it. You'll see 2020 the comp against some better numbers. And we think Panama consolidation would happen sooner rather than later. We have a new regulator appointed by the President. I think we'll -- we are hoping we'll come up with a much more friendly interpretation of the law that was passed and that could probably pave the way for the concept consolidation to actually happen. I'll pass it back to Naji. Naji do you want to give maybe some color on the ground as why we're really bullish on Puerto Rico? Thank you, Balan. Sure. I mean if we look at the -- where we stand today in Puerto Rico for the first nine months of the government fiscal year up to June, our numbers that we're seeing indicate clearly that migration is flat to slightly positive. We're not assuming that it's going to be a complete reversal of migration but we're not seeing the massive decrease that we have seen in the past specifically prior to the hurricane and of course after the hurricane. There is few other key indicators we look at. We're seeing an improvement in unemployment. Also there is a very clear path from the fiscal board in terms of renegotiating the island debt. There was a proposal on the table in front of the judge in New York. We believe it's going to be favorable. That will cut the debt significantly which in turn should cut the amount of debt service the government will have to be paying in 2020 and as such we believe they're going to be able to go back to the capital market in 2021. Having said all that, so our view is optimistic. We're not overly optimistic but we believe we have what it takes to operate in the environment. It has been the case for many years and we've been quite successful. I'm confident that we'll be able to continue on that trend. So again, we're carefully optimistic. But so far the key indicators are heading in the right direction. | direct | [
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877c660bb294d1d609ddd7192d4d427c | Curious if you could discuss the longer-term opportunities for margin expansion for the broad portfolio, as well as your key operating regions. | Thanks Michael. This is an area that we are actually quite excited about in our business. We see margin expansion at the operating free cash flow line through both opex improvements as well as capex improvements. And Chris have given you guidance this year and we're going to nail it. And come next year we'll give you a new set of guidance and we're going to nail that as well. And all that will show to us quite a few points of expansion both on the opex side and the capex side as well. So that's one we feel really good about in this business. And our operating leverage continues to improve. You'll see with all the net adds that we are bringing on to the network. At some point in the future, when weâve got enough net adds, we are going to bring in to pick up some pricing as well. So our strategy has been very consistent about if we are going to go for volume without destroying ARPU. So it's easy to get volume when you want to like just give everything away for free but we are going to get lots of volume maintaining ARPU. And then at some point in the future we'll start taking the operating increases. But we feel really good about the savings that we're going to see coming up. Maybe I'll ask Chris to give maybe a point as well on the margin expansion. Yes. I mean I think we had -- and just to reiterate for folks, a big part of our focus is around opex to revenue and our medium-term target is to run the collective business in the low 30s as a percentage of revenue versus we're upper 30s today. So that is a key focus area for us and I think that will underpin OCF or EBITDA growth going forward. And in addition, as we look at, let's call it the OCF less capex or OF/CF ratio. Our goal as a company is to be in the mid-20s as a percent of revenue. We finished in 2018 at 19%. So we have room to go on that and that means driving down capex as a percentage of revenue on a go-forward basis. | intermediate | [
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a074de8cad0cef6f64b589743b64b7f5 | First on Hurricane Dorian. When do you expect to return to a pre-hurricane run rate? What work needs to be done yet? And on the Seychelles sale what are the expected use of proceeds you're going to keep that on the balance sheet or potentially pay down some debt? | Well thanks, Kevin. On Hurricane Dorian, we think sometime next year we'll get back to pre-hurricane levels. There is two parts to the story. Of course, the Grand Bahamas island that we are focused completely rebuilding. We are already getting there. And a lot of our B2B customers are coming back our fixed network is being built. Mobile network is being set up. Then thereâs the other islands of Abaco where it's really a huge humanitarian disaster there. There's hardly any commercial activity and -- but that will come back. That may take a little bit longer but it wasn't one of our bigger revenue stream islands anyway. But we are focused on bringing some new technologies there that reduced our cost of construction so a lot more fixed wireless and so on. But we feel good about the Bahamas. I feel really good about my team as well and how we responded to that. On the Seychelles disposal, I'm going to ask Chris to make a comment on that. We're pretty excited about that disposal. And you can imagine where we would put that cash to work to. Go ahead. Okay. On the disposal proceeds we would intend not at this point to pay down debt. We'll use the -- the net proceeds as part of the cash we need to fund the AT&T purchase. | intermediate | [
"direct",
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80e9246e21150712a0a864ddd9f62a7a | Just for purposes of comparing the acquisition in Puerto Rico to other acquisitions in the region and also to adjust for IFRS 16. I was wondering if you could disclose operator leases for AT&T in Puerto Rico please, if you can tell us how much particularly tower leases, tower commitments in Puerto Rico? | Okay. Well we won't -- we can't disclose fully all the details there. But we are inheriting a network there. A lot of towers have already been leased, so there's still a small part of towers that's coming to us but most of them are already under existing agreements as AT&T does with multiple vendors and with all the names you would expect. It's not a one vendor there on the ground. Let me just add. I mean AT&T brings, itâs over 600 tower sites and the lion's share or -- I think it's over 95% of those towers have fiber direct to those tower sites which is great. And AT&T and the recovery invested significantly around resiliency. So the towers are state-of-the-art on Puerto Rico and USVI. Yes. Yes -- no they have been monetized or leased. | intermediate | [
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] | B |
5014b8dddc76cb6da7e9d763e692550d | Obviously Chile is undergoing a difficult political situation right now. I was wondering if it's -- you have noticed any changes in the competitive landscape in Chile perhaps a slowdown in terms of sales? And just overall what's your -- what's the sense of your team in Chile right now? | Sure. And I'll ask Guillermo to jump in here a bit as well. Here's how we feel about it. We love the country and our business there. And our timing focus is really on our employees, on our property, on our services and on our customers. And we want to make sure our services are all up and running and our customers are well taken care of. So we are continuing to doing truck rolls, repairs, installs. We continue to do that. On the political front detail, this is something that the government and the citizens of Chile will resolve eventually. And it will be okay. I'll ask Guillermo maybe on the ground to maybe give some color as well. Guillermo? Sure. Thank you, Balan, and thank you Andres for the question. As Balan said, we remain optimistic about the ability of the society to solve this. Beyond a somewhat complicated end of the month in October, from the logistical point of view mostly in terms of the markets and all that, we see the general situation turning slowly to normal in November. So we don't see at least -- and we may be a little bit soon into the consequence of that. We don't see effects -- material effects on sales on demand. Actually, as we have a convoluted week then while you saw the Monday after the complicated week was at sort of a spike in the contained demand of those weeks. So our business was not materially affected at all, not the service to the customers and not being distribution channels. All distribution channels are working normally and we remain confident in continue pushing our good results that we actually had in October despite the fact that we had a complicated last week of the month. Thank you Guillermo. And I can say we are committed in Chile and we will continue to invest in Chile. | direct | [
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7fdc6dc59ac0957e5d33c9d2eb97a24e | I was curious, as tragic as Dorian was, I mean if you had all sorts of trajectory a little bit it could have hit Nassau or Paradise Island. You alluded to using wireless drops and other elements to reduce your capital cost for newbuilds. But is there anything that gives you pause in terms of the cost of insurance and all that in that region if we do hit a hurricane cycle -- extend the hurricane cycle regardless of global warming? And I think you talked about the opportunity to address the less affluent demographic in Chile with lower homes passed and the cost. It seems like that's a decent opportunity as well. And then I guess I shouldn't ask if AT&T would have given you a really good price on Warner Bros, because I wouldn't -- you probably wouldnât answer that one. | Almost like five questions in there Matt. But let me try and see if I can get to your -- the questions that you want answered. And if I miss something please jump back. I'll ask Chris to think about the insurance question on Dorian. You asked a question in there on fixed wireless. You kind of dropped off a little bit then you broke up a bit on Paradise Island. We're not doing any fixed wireless in Paradise Island but we feel good about the fixed wireless solution there. And by fixed wireless what I mean is really LTE to customers because we have enough capacity. Do you actually do that against the density of population? Certainly in Abaco and Grand Bahamas as well. And but if you need more technical details, we'll be happy to provide and Vivek is right here as well and can answer some more questions on that. In Chile you're spot on. There is a huge amount of customer base that we previously have not targeted. But given how we've driven the cost structure of our construction down, Vivek and his team has done -- just done a really good job. We've been quite innovative on that front. And we find the cost to hold back down quite a bit that we are now targeting a lot of what we call the C and D markets that previously weâve kind of bypassed. And we think the opportunity there is really good. And you can clearly see from the last few weeks certainly in the region that of the population of the same aspirations and needs. And bringing fixed broadband to them is going to be a core mission for LLA. Maybe I'll pass back to Chris to talk about our insurance and the primary efforts that we take taken. Yes. Matt around insurance for the region particularly around let's call it wind and nat cat for the Caribbean. We continue to look at how we best optimize and ensure we're getting the highest value for cover. So one thing that we've done over the last year is we've gone forward with a parametric insurance program and that allows us to put a competitive process in place between the traditional indemnity market and the insurance fund market for the risk. It minimizes frictional costs and allows us to have a program that we can play between the two different markets. And thatâs basically, it's triggered off of a certain wind speed pays x amount of the defined value. So what that does is it allows us to ensure that to the extent we have a major disaster, we can have cash coming to the market a lot quicker than what traditionally has been sort of an 18- to 24 months process for the traditional indemnity market. So we continue to refine our program and continue to look at capacity for the region. And I think we are looking at how we continue to create the most robust risk management program for the money. And we do self-insure and we do take the first layer of risk on our books as well. So I think we feel comfortable about the places we operate and how we go about insurance and we'll continue to refine that as we look forward. | direct | [
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] | A |
5b391bc83b04b447563fad4e0fd509a5 | Can you give us a sense of the backlog of installations; you have in systems heading into 2021. And then secondly on every piece of your guidance makes a lot of sense but for this margin. You're coming off a quarter in which Infusion Systems was elevated, coming off the Infusion this is as elevated, next year consumables are going to be a higher mix of the volume and I'm assuming there should be some kind of margin benefit from moving the manufacturing from Rocky Mount to Austin. So what do my missing as far as the gross margin guidance being flat year-over-year? | I do the first one and Brian will do the second one right. On the system, I don't think we are in a place where we would quote a backlog number. So with that, I think we tried to say in the script that which is we have more competitive wins that we have an installed yet and we've ever had before. And I think a year ago, January, we said we thought we had gained a point from are pretty low place we were on LVP and I think result. We are in a better place in that, today competitively. So that's probably all I want to say, the backlog and let Brian comment on the margin.
Matt, your question on the margin. It's a good one and it relates actually back to your first question around Infusion Systems hardware and clog in and really what we're expecting for 2021 is margins to be a little bit negatively impacted as a result of a higher mix of Infusion Systems Hardware installations related to competitive captures. Those tend to be much lower margin initially at the time of the implementation and revenue recognition on the pumps, followed by improving margins from the dedicated disposables that follow afterwards. But there is a timing difference between an initial installation and subsequent dedicated disposables. | intermediate | [
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] | B |
f025b59364d89ca16b3e2edaa07fb8d3 | Can you talk through some of the new products that you'll be focusing your attention on it in 2021? | Sure. I mean I think we have a number of things getting on the filing docket in '21 as I said, that's why spend is going up, as you would expect, I mean, majority of dollars that we've been putting in over a three-year period been so since we had the full freedom to do so on the system side. And now means finishing the software products that we've been talking about and getting those out of kind of the end of our Phase and really into the market and then some different ideas on the hardware side that we've been working on. So as you usual we want to talk about those more will happen, but I think we've been pretty transparent and it's easy to figure out, historically our spend on the consumables related business is very much what ICU used to spend in the systems site [Phonetic] since through the acquisition. | intermediate | [
"direct",
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] | B |
ae4fd5d74ff49188df352fea24e07148 | So just to clarify, sorry, on the margin side in terms of margins for solutions, do you see increased volume as being able to help you out with that should we think about that is a positive, given now Austin [Phonetic] and the new distribution plan. | I think I would say it's been a bit of a wash their Pete. We can't obviously margins were higher for the company when we were selling more solutions two years ago, 2.5 years ago. The distribution center has added some efficiencies. But we've also extended a number of the contracts, et cetera and a lot of activity happening around that in late 2019 and through most of ' '20 and it gobbled some of that back up. So I think for us it's much safer to say solutions is what it is right now and it's not going to be driving a lot more incremental margin is not going to be getting worse. It's just going to exist. | direct | [
"direct",
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] | A |
75ee70b2dab9d8a226714b8ee23d0bf1 | Just a general question in terms of M&A, can you discuss just broadly what you're seeing in terms of from the sellers in this environment and they're willingness to engage given all the impacts of COVID. | I mean I think it's a balancing act depending on where you were, what part of the market you are playing in there. Certainly folks who have COVID make an impact on their business or have operations. There is a constructive dialog. Otherwise, I mean I think the market is challenging as everybody has seen on that front. So I'm not sure that I would say, COVID has made that M&A environment easier that's where are you're going. | intermediate | [
"direct",
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] | B |
9f0aa53678f40d9f629919b3ce488848 | Wanted to get back to the gross margin pump dynamic question and I appreciate there is a lot of moving parts here, but just I guess simply are you expecting to sell more pumps in '21 than you did in '20? | I think, Jason, it's not only the absolute number of pumps. It's what class of trade, are they going into right, whether it was maybe pandemic surge in some of the international markets versus some of the competitive situations. That's probably a bigger factor in the absolute number in terms of the absolute number, I think we're saying pumps could be down a little, which means we wouldn't sell as many pieces of hardware as we did last year that there is a out where that happens, if we can get all the installations on and win still some things we want to win and get in this year. | intermediate | [
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