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7014eb0d4a749e3bf0df5ac822202196
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And last question is about the engine that needed to be fixed and the warranty related to that. Can you just kind of briefly talk about the issues with that? And are all the costs on fixing it and warranty in the -- staying in the first half? Or is any of that going to bleed into the second half?
|
In fact, for the National VI engines, we have been selling them last year -- beginning of last year and quite a bit this year. So those problems that came out we have fixed most of them already by now. However, going into next six months, we believe there will still be some, but it will not be as much as in the first half of this year or even last year.
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direct
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[
"direct",
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A
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1aaad135c4e7363eaf91af6c09ab7f7b
|
Hi, management. Thanks for taking my question. I have a question regarding the current sales trend, seeing that we have already shifted into the N VI in China since July. So just wondering how's the sales trend looking right now, how's the presales looking? Any comments on that will be helpful.
|
Yeah. Now, this is relating to the vehicle sales. Now before 1st January -- sorry, 1st July this year, that's the -- what we call the sales of vehicle -- National V engines has been pretty strong, very strong. In fact, it started toward the end of last year and slowed down into the first half of this year. So from that point of view, we believe that there's quite a lot of National V inventory in the distribution. It takes a little while for it to be fully digested. I think it takes a couple -- two to three months to digest those in the distribution. So we expect the National VI engines for this -- second half of this year to be somewhat affected. So we expect a slowdown there compared to the first half.
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intermediate
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[
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B
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3d5ee1753ca6aacb07d3299b49eac248
|
Okay. I see. And I guess on your product mix, you did mention that in the first half, we saw a very strong pickup in off-road. Do we expect this product mix to remain generally the same in second half? How should we think about it?
|
Yeah, I think it will be too far away. In fact, we still continue to expect the power generation market to grow strongly in China. There's been a bit of power shortage especially in Southern China this year. So there's been quite a bit of disruption for a lot of companies. So that one, we think will continue to grow and to be strong. For the others, like the agriculture engines and industrial engines, industrial engine, I think will probably be flat for us. But agriculture, I think it should slow down after a strong growth in the first half.
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direct
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A
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21d705fb82aee697aa6c7f609b0a0a14
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Okay. Got it. And I guess you mentioned that there were some one-off items or expenses in the first half. Can you give us a rough indication of how large was it? How big was the impact to the bottom line?
|
Hi. It's Loo Choon Sen. So I believe you are referring to the rectification costs for the R&D expense, right? Yeah, so that was for the one engine model, right, that we have been incurring, the cost to rectify. That mostly, that has been done, right, but still have some remaining to be fixed, right? So that was the -- that one particular engine model, right, that brought us to have this quite a bit of cost in H1.
Well, those are mostly [Indecipherable] I'll add on to Mr. Loo. We still expect some for the second half and maybe a little bit more into next year. So it's a lot of it has already been fixed.
|
intermediate
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[
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B
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49920da6d48dd1689f171d3d0ead7373
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Okay. Any indication of how large this one-off expense is or probably -- because it's included in the SG&A, right? Maybe some forward-looking trends of how this SG&A expense as a percentage of revenue would trend into the second half.
|
It would be very much more. Again, it's hard to give you a good answer because I think, it depends a lot on whether or not the user experienced the problem and come back to us for rectification. Those that came back, we have rectified them.
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fully_evasive
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C
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f84aec23bd914db7feeef5e2359a6201
|
maybe you could talk about how you guys think about free cash flow generation and its application to either paying down debt and the exploration opportunities at Rainy River/New Afton.
|
Yeah. Let's start with the exploration. I can tell you that we're absolutely excited and ready to go. I think at this stage, it's a matter of a permit completion.
We do acknowledge and understand that in BC, there has been some prior to giving to permitting operating operations and others. I think it's a matter of time. But we have an excellent project ready to go, a program ready to go at New Afton and as soon as we receive the permit, we'll be significantly engaged in completing this drilling and unlock the value. In drilling this exploration you have to drill to figure it out, but we're very excited with the quality of the target in New Afton.
At Rainy River, we're also ready to go in the Northeast exploration program, but as well, we are waiting for some permitting there, which most likely will be in this year. I wouldn't term our free cash flow. I mean, this is the opportunity here. Rainy River is well-positioned.
We know our cost will be way lower in 2021. We're fully exposed to gold price. We continue to focus on executing a self-funded approach at the New Afton while we'll be benefiting and unlocking the free cash flow. I can pass it to Rob.
If you had any extra comment there?
Yeah. I think with existing cash we are going to look to reduce our debt in the near term. And then, as we generate free cash, we'll continue to look at debt reduction along with other opportunities. But for here now, I think we're looking at the near-term debt reduction and then moving forward, we'll let the market dictate how we approach our balance sheet.
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direct
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A
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011adfe34a81d387d3e542e6bd85ca55
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Do you have a target for how much debt you would like to pay down?
|
Yeah. We're looking to take down about $200 million in the near term and that would come from our existing liquidity and leave us with a very strong liquidity balance after that.
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direct
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[
"direct",
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A
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c50abc8234299a842fe69c27b2f9a70b
|
In the recent bond deal, you said that you would be looking to take out, redeem $200 million of 2025 notes later in the year presumably when you've got proceeds from the Blackwater sale. Is that still your intention to redeem $200 million of that issue? And apologies, if someone has asked this already.
|
No worries. Yes, that's still our intention and we'll take a measured approach. But, yes, the $200 million is definitely our target.
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direct
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[
"direct",
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A
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9f69a88aa184a65ae6bd5589371d1196
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And the timing is still this year?
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Yes, I would expect to happen this year. Yes, near-term.
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direct
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[
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A
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fe7cce8e2158cee2bfda69c35fce939d
|
Last quarter, you'd mentioned you thought 4,200 individuals with either temporary or extended licenses wouldn't pursue a permanent license. And that dropped to 2,400 this quarter. Did those all drop off in the quarter? Is that the differential? Or is there a change in that estimate at all?
|
No, that's -- it's just part of the process that we started. It's on the slope, kind of the glide path that we talked about last quarter. It is dependent when they drop out based on how quickly states react. Whether they're continuing -- a small number of states are continuing to issue a very small number of temporary new licenses, almost negligible. But there are a number of states that had -- just have an open end on the deadline of their extended renewals, and that's the vast majority of kind of what is hanging out there the longest, but it is happening at the slope that we anticipated. This is just more of that process we described last quarter.
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direct
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[
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A
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626527c43112491c43a0fcbad30aa832
|
And then looking at the ISP margins, they continue to be really good at 28.4%. I think it's the highest first quarter result in 10 years. Could you speak to your outlook there? I mean is that just leveraging technology, higher asset base? I know that the other operating expenses have held flat for while now. I think they were flat in 2020. They're again flat in the first quarter. So could you maybe speak to your outlook there? And are investments being held off in that other -- operating expenses that's driving that or what maybe driving that?
|
Yes. I think we have seen some operating expense change a little differently in the ISP segment as -- it's driven by our investments and our technology improvements, other costs that we experienced in maturing that business and growing it because, as you point out, it's growing at a very healthy rate. And so you -- we are seeing a little bit of that concentrated there.
Yes. And one thing to think about, and it's normalized out for this year, but over the last several years, I've mentioned that we renegotiated several of our contracts with our business partners, people who help us with record keeping and the like, all of which resulted in lower operating expenses, which we saw pretty significant reductions over the last several years. We've also hit, obviously, certain breakpoints with the size of our assets under management, which has also reduced some of the cost to operate. So that could be what you're seeing. I wouldn't say from the standpoint of our philosophy toward making investments in that business that anything has changed.
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direct
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A
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574b039b2f1037fbbc8d175ce9d59d78
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I came in a little bit late, but did you give any color on or early thoughts about Q2 term life sales?
|
Yes, we did. We talked about the fact that as we discussed in the previous quarter's discussion, that we do expect to see second quarter and full year sales are going to start to decline some. And so we think the full year is probably at a 5% lower than the elevated levels of 2020. So we start to see some evidence of that by the end of the second quarter and then it will kind of continue through the last half of the year.
Yes. But an interesting thing that you also commented on, just if he missed the language, was that we do feel like where we're going to land is above where we were pre-COVID. So I think that's...
About 9%, 10% above pre-COVID levels.
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direct
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A
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45c2372f0f8235eae88b379ed735ecf1
|
How about -- Alison, did you give any color on the operating expenses for the full year? I think you said $113 million anticipated in 2Q. I guess the ETQ acquisition aside, how do we think about expenses for the full year?
|
Yes. I gave some estimates last quarter. Those numbers have not changed. We came in just slightly below expectation in the first quarter, but absolutely believe it to be timing. So overall, the full year color that I provided last quarter remains unchanged. And with regard to e-TeleQuote again, obviously, some costs will be operated out that are associated with the deal itself. But we haven't layered in anything either on the revenue or expense side with regard to that transaction at this time.
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direct
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A
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8b3358433faf9c9c8fceda039ab00630
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Okay. And then are you gearing up for -- the sales force, are you prepping them for the e-TeleQuote? When we think about this year, given the July close, I know fourth quarter is obviously a strong period for that business. How engaged is your sales force going to be this year based on whatever groundwork you might be doing now?
|
Right. Well, we're certainly aware, Mark, of the uniqueness of the enrollment period that happens at the end of the year. And so our game plan is to get our pilot out operating around the time of the transaction closing. The distribution agreement operates a little separately from the rest of the transaction, and that's delivery. And assuming that we have good success, that our process can be as simple as we'd like for it to be, we do want to be in a position where we can take advantage of the annual enrollment period. But we are being realistic about how much -- there's not much time to get ready. And we want to make sure that anything we do in a new business line doesn't negatively impact the success that we're having in our current business lines.
So we're going to try to moderate that expectation just a little bit based on those two considerations. But we are trying to get to a certain point where we can assess how successful we might be during an annual enrollment period. And then as we look forward into future years, when we have some maturity in the business, we'll be better at projecting once we have that first year's experience. So we're aware of it and preparing for it, but we're also realistic in our expectations of how much we can get done with the time we have.
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intermediate
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[
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B
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5c2d8fd1a9902c91621e11b29acabaee
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I want to start with a question about the Gallant, and just wanted to get a sense operationally, what happened in the fourth quarter, and from a cost perspective, do you expect any of that cost that impacted the fourth quarter to linger into the first half of 2019?
|
There was an issue with the electrical equipment board, which meant that we had to deviate from the planned route and had some additional costs. And those costs are covered in the fourth quarter and we don't expect any additional costs to come in 2019 relating to that matter.
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direct
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[
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A
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9a7a1e933e55eee24539781afdc53bc2
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Wanted to also ask about the potential for the AGL contract, and how do you think about the assets, the assets to deploy onto that business? Is it the call number 10, or do we have one of the other FSRU that's currently in trading mode that might be able to be shifted there? How do you think about the asset deployed for that potential business?
|
Yeah, so the decision for which asset to use, there is still to be decided upon, but there will be one of the existing assets. And we hope that a final investment decision and these basic contracts are still subject to CPs and we hope them to be lifted during the year with the start-up 10 of the projects in 2021. So, the parent will the responsible use of one of the existing units for that project, but it remains to be decided, which one.
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intermediate
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[
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B
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aa6d0b2a8f13c4e14fedeb7cb58e6bbc
|
As you look at supply demand of FSRUs build over the course of the next couple of years, do you have sort of the target date, when you'd like to have the assets are current -- currently trading as carriers, transitioned back into sort of full FSRU deployment. I'm trying to get a sense of maybe, how you think about this a couple of years out, if you still think that you'll need to have vessels trading, as opposed to actually operating in and sort of true FSRU employment?
|
Yeah. So, that again that question goes in relation to the sponsor. And if we look at the fleet of the sponsor, you have Giant, Esperanza, Gannet and FSRU#10, which then are potential dropdown candidates. And Giant, Esperanza, and Gannet, they are on medium term contracts, expiring in 2020-21 and that means that they go off their current interim contract in a timely manner to be able to start off on the FSRU project that we currently are bidding on. Because the FSRU projects that we currently are bidding on, they have a start-up in the 2020-21 period, which is when the units of this sponsor go off their interim contracts. And the plan is then for them to, you know, go from the interim medium term contracts and on to long-term FSRU contracts, and then we dropdown to -- offered for dropdown to the MLP.
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intermediate
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[
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B
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9007f8766cd0a2f105fb136584388dc2
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In terms of the timing there, last question, just on distribution and coverage ratio for 2019. Can you give us a sense of the coverage ratio has been rising here, what you think the appropriate one is, and how do you think about in the context of distribution increases?
|
I think what we normally have done is to consider a distribution increases in connection with dropdowns, and I don't think we should deviate from that. That's the next point in time, when we will consider changing distributions. We reached 125 times this quarter, that's a high number. It might not be the same level next quarter. But if you see the, the history, we have been above 1.15 now for five consecutive quarters and that's what were you normally would expect to see us going forward.
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direct
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[
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A
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caa7b3800156639aed0c295985b8062f
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Just to start things off, could you talk a bit about the of boil-off claim for the JV, is it better, and then that's isolated to the 2018 results? Or could there potentially be a cash payment that comes due in 2019 to settle the claim?
|
So, the boil-off claim, it's the joint venture companies that is subject to that. But the joint venture companies and the partnership, they have been indemnified by the sponsor. So, it's the risk carries at the sponsor level, not the MLP level. We have made a provision there and if that should come to a payout under the boil-off claim, the partnership is indemnified from its sponsor relating to that.
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intermediate
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[
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B
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8fff3f90456406ae869311da2a03069e
|
We do have some debt maturities coming due in 2020, even though you've kind of picked up your distribution coverage to that 1.2 times level. You also have some drydocking that's probably going to impact that coverage in 2019. So, if you look to 2020, as kind of the earliest point, where distribution hike could have in, how should we -- how are you guys think about prioritizing distribution growth in 2020 versus the getting that the upcoming maturity refinanced?
|
I think if you look at the debt we have, that's amortizing, it always is. So, -- and it's amortizing relative with the pace of between 12 years and 18 years normally. When we refinanced Gallant in Greece, we were able to releverage because that you have had reached down to a relatively low -- low to value on the existing debt. So, I think we will -- when we come to refinancing, we hope to be able to maintain the regular distribution, I believe we will and we will always pursue a prudent distribution policy.
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intermediate
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[
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B
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55078f95a85fa8ba46a2be60111cc6c2
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How do you think about facilitating an additional dropdown from the parent level, versus acquiring some of the unknown interest in the assets that are actually in your fleet?
|
So, I think, when it comes to acquire, the making acquires from the parent is, were expect to be done in connection with the sponsor securing long-term contract and going on contract on long-term FSRU contract.
When it comes to acquiring, increasing the ownership in the existing assets, I think, that something we have considered. But I think we have to solve the boil-off issue, before we can reconsider that again. So, that was put on hold in connection with the boil-off and will be on hold until that has been resolved.
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direct
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A
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e1c7af88325656805d1f0f07acfabc86
|
I'd just like to follow up on the AGL project. Is there any kind of view on what duration maybe pricing would be, and then, what is the potential for that, whatever FSRU is selected for that to be dropped down?
|
Yeah. So, the AGL is, we expect that there will be CPs were lifted during the year and with the start-up in 2020-21, the contract is expected to generate around US$30 million in EBITDA. And it's a long-term contract that will fit well into the partnerships portfolio. So, I think once, you know, CPs has been lifted and we are closer to commercial start-up that's when there will be a dialog between the sponsor and the Partnership for the dropdown of that. But I do expect that to be maybe the next dropdown candidate, but it's certainly a relevant one.
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intermediate
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[
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B
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e9c9f41eb283cae2364c03fcb035cf20
|
I believe you guys are looking at another Australia project. Do you have any updates on that, or how close is the FID?
|
That's right. So, we have also been -- the sponsor has been selected preferred supplier for another the AIE project in Australia. So, that project is also subject to CPs, they are pursuing environmental permits, and they also pursuing commercial offtake agreements. So, that's a project that is material -- is progressing in parallel with AGL. But it's too early to say anything about the likely outcome of that process, and when potentially that could be a final award for that project. But it is one of the two more realistic or relevant projects in Australia, from our point of view.
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intermediate
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[
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B
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0eb19de82f4c59035c03758a8c92e14e
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I'm just wondering, if you could give a little bit of color, as the current market rates, obviously we see LNG carrier rates come down in the past couple of months. But how is that affect maybe in near term FSRU rates and then longer term charter rates?
|
I think, yes, in the carrier market, the rates have come down recently, but still compared to last year, they are up on average. So, '18 compared to '19 -- '17. And I think the positive development in the, the carrier market has led traditional ship owners to focus more on that segment and less on the FSRU segment.
So, I think the biggest benefit from the sponsors perspective and also from the Partnership's perspective relating to the improvement in the carrier market is, is that it will, it has led to less, less competition, and I think that's a positive note on the FSRU rate going forward as such.
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intermediate
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B
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8df0c95a414cb67f6dea36d3ff5af7b3
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You know this is, as we look at the developments in the FSRU market, it clearly looks like there is some potential opportunities out there over the next couple of years. Just as we think about that, like how should we be thinking about these, this pickup in potential FSRU demand in 2021, is that really just these customers need to set these units in place, or as the market as a whole, had to adjust their pricing to entice some of these potential projects?
|
Well, I think we have seen a drop in FSRU rates compared to some years back yes, we have, compared to the first FSRU contracts, we were awarded four, five, six years ago. And so I think, and that's, that probably have led to the projects we're looking at now. It's been a catalyst for them to get moving and developing that project further.
So, they are benefiting from a rate reduction we have seen over few years now. But I think we believe we have reached the bottom of the curve and that we hope to see a positive development in FSRU rates going forward. I think the fact that there is more activity on the FSRU segment now is, is more driven by the fact that they need to move forward now in order to be ready for the supply to take onboard, the supply of LNG, when it's coming in 2021.
So, I think that's the main reason for the increased activity is that, they see that LNG is coming and they need to move forward the project in order to be able to meet that time, when the LNG is coming.
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direct
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[
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A
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1975929159f0305572528d4a59005ba9
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So, it almost sounds like the fourth or fifth FSRU contract will -- most likely have a better return than the first one signed. Is that fair?
|
Well, I hope to, we do hope to, we think that we have reached the bottom, yes. And that you should expect to see a positive development hopefully in FSRU rates going forward, to compared to what it is today, yes.
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intermediate
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B
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5a685de6b4d663038187b25e817ccab4
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Hey, this is Neil on for Tejas. So I just want to start on commercial sales. You previously mentioned that sales in SKU commercial, given the shareholder cycles versus academic customers. Is that still trending accordingly? And have you seen any lengthening of sales cycles from biopharma customers with all the noise around funding concerns?
|
Yes. This is Omead Ostadan. So far, yes, the sales are more heavily weighted toward commercial versus academic. And as we had mentioned to you previously, we expect that to continue for some period of time to a large extent because commercial entities typically go through a different set of funding cycles and are much more able to make decisions on a short-term basis.
So yes, more heavily weighted toward commercial versus academic, and I would expect that to continue at least through the balance of this year, if not leading into next year. And we are not seeing anything that is outside of what we had expected in terms of the buying cycle with biopharma. Again, keep in mind, the numbers are small. We are still early in broad commercial release, but we're not seeing anything with respect specifically to biopharma that is outside of what we had expected coming into the year.
So hopefully, that answers your question.
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direct
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A
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0c6775bcdd2e8927efdc8896dab449ff
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Thank you. And as a follow-up to that, on the demand funnel, is that still trending 50-50 between academic and biopharma customers?
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More or less, yes. Yes, exactly.
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A
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401e1b23ac0f982c48c9894fc017836d
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Got it. And then one more from me. So on the product road map, you previously mentioned initiatives, such as increasing throughput, increasing content and reducing sample volume requirements. Any progress you can share on these fronts or when we might expect to hear some updates on that end?
|
Neil, thanks so much. So I think I'll be able to -- this is Omid Farokhzad. I'll be able to give you more details on the next product, I would say, toward the second half of the year. As I had highlighted before, customers' needs or customers' asks were in the areas of increasing content while decreasing the required sample volume and then increasing throughput.
And by the way, keep in mind, that the throughput increases will come at the level of a detector, not so much at the level of the Proteograph. And so those asks are, in fact, areas of R&D investment for us. And you can imagine that the subsequent products and then the products that follow it reflect basically those needs of the customers. We've guided to have at least one new product coming up, and you can expect a new product in the second half of the year.
That product will address some of the requirements for the customers and then the subsequent products, the additional needs that the customers are going to be addressed.
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intermediate
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B
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065fa1d8ffd43bdb697a548f32d14891
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Hi. This is Nisarg on for Derek. So to start on cash, where do you expect to end 2022 from a cash balance perspective?
|
Sure, Nisarg. This is David Horn. And so as you saw in the release, we ended March 31 with $472 million in cash. And as you note, we feel really good about where we are with respect to a cash position.
I would point to the metric we track is free cash flow, which is operating cash flow plus capex. And this quarter, we've earned about $20 million. And so we feel pretty good about where we are. We are going to be -- continue to be prudent with our outlays and always mindful of earning an attractive rate of return on any capital we are deploying.
So we feel good about where the balance is and where we are for the rest of the year. But we're not giving guidance on where we're going to end cash balance, but I think you can look at the first quarter and feel that we've got plenty of cash for many years to come.
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fully_evasive
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C
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6085d5d4e3182d643a0abc1a8bcf8b7f
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Great, thank you. That makes sense. On opex, can you talk a little bit more about like the pacing for this year? How can we think about the back half of the year? As you guys have been saying, the revenues are expected to kind of increase there. And also a little bit of color on -- in terms of instruments versus consumable kits looking toward the rest of 2022 would be helpful too.
|
Yes. So in terms of the investment, we have said -- we reiterated our guidance of $14 million to $16 million. As we've also said, we expect the majority of that revenue to be in the back half of the year. And so we will continue to invest to obviously realize that additional revenue in the back half of the year.
We are continuing to build the commercial organization. So I think we ended the year end with a commercial organization of approximately 30 people, and we will continue to expand that over the course of the year. So again, continued investment in some critical areas across the organization. So I think you will continue to see spend continue to increase along with revenue, although, again, we are being very mindful of that.
And I think you'll see us be prudent about that. So really being thoughtful about how we increase that spend over the course of the year. And then in terms of the instrument versus consumable I think was your second question. We do -- as we've said, we feel that over the course of the year, it probably will end up being around close to 50-50.
It may be a little bit more skewed toward instruments. But again, I think the thing to keep in mind is that we -- most of the limited release customers that we placed at the end of last year won't really -- it takes people probably kind of nine to nine-ish months approximately to really start to ramp. And so we really won't see the benefits of the consumable pull-through again toward -- until the back half of the year. But again, hopefully, that's helpful color for you.
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Hi, good afternoon. This is Kyle on for Dan. Thanks for taking my question. So I'll lump these two together here and then hop back in the queue.
So I just wanted to ask about your sort of go-to-market strategy with heavy mass spec users. Can you sort of walk through your commercialization strategy in terms of who are you targeting first? And what pushback, if any, are you getting from customers as you try to engage with them? And on that note, on the publication side, how should we think about the timing of some of these publications. And are there any, in particular, that people are really looking for to drive adoption? Thank you.
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This is Omid Farokhzad. Let me break that up into two questions really, and I'll tackle the second part of it first and then the first part of it second. So you may have seen that we recently published a paper in the Proceedings of the National Academy of Sciences. And this actually followed the previous publication from Seer in Nature Communications.
You can expect another paper toward the second half of the year. This would be in another top-tier journal. And by that, I mean journal with very high impact factor, which is the way quality of journals are typically measured. There may be another paper that also comes on top of that in the second half of the year, but if not, kind of beginning of the next.
We have, by the way, put these papers in print in bio archives, so you're welcome to read them. But those papers are now under peer review. On top of that, we've now had over 40 different presentations at conferences, posters, abstracts and then most recently talks coming up as well, not just from Seer but also from Seer's customers. You can expect the slope of those presentations to increase as the installed base and the number of customers increases.
So for example, if I just look at what is happening just in the first five months of the year relative to, let's say, the first five months of the year last year, there's a dramatic increase in the number of presentation that's happening from Seer and the Seer customers. And we're seeing progressively the tilt being that these presentations are coming from the Seer customers as they get experience with the instrument. So now let's go back to your -- the first part of your question, which is the go-to-the-market strategy. How do we present the solution to the mass spec users? And by the way, not just the mass spec users, if you look at our customer base, there are a number of customers that are genomic customers with literally very little experience, if at all, with a mass spec who adopted the Proteograph Product Suite and then later either implemented a mass spec or get the mass spec down to their core facility.
But what I want to do is I want to turn it to Omead Ostadan to give you kind of a deeper picture of what that commercial strategy looks like and how that has played out over the course of the last 12-plus months through the three phases of our commercialization strategy.
Thanks, Omid. So just building on what Omid Farokhzad said. If you recall, our strategy was and continues to be to start with the collaboration phase, which we commenced in late 2020, have that lead into a limited release phase, which span essentially the entirety of 2021. And that was very much focused on selecting what we call lighthouse customers among a set of key markets/applications, some of which are deeply embedded in, I would say, traditional proteomics, others of which are actually turning much more toward genomics and multiomics. And we really wanted to spend a broad spectrum where people were looking to and were capable of doing large-scale proteomics and/or multiomic studies where we believe the unique power of the Proteograph can help them advance their understanding the biology in a far more accelerated way.
And then we're building on that by starting into our broad commercial release, which commenced at the onset of this year. And so systematically, we're essentially trying to build one phase on top of the other. And so far, I think we've been very pleased with both the progress of each of those phases and, most importantly, the experience of the customers with the technology once it's in their hands and they're generating data. In terms of pushback, quite frankly, I'm not qualifying anything as a pushback.
But as you would expect with any technology, there are areas where customers would like to see some enhancements and improvements, most of which Omid already covered as he was describing some of the technology improvements that you can expect coming in the back end of this year and obviously moving forward. So far, I would say, in a nutshell, very pleased with the acceptance of the technology across the three phases of our commercialization. So hopefully, that answered your question.
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Julie, just wondering, is there any change to how you'll operate the company going forward, specifically on the strategy. I'm wondering if you could talk about the desire to increase retention in light of the losses you just experienced in '21. Just based on the outlook you provided for 2022, it looks like you're also expecting your premium retention to tick up again in 2022. But I guess, maybe just wondering why you think that's the right move here just given the losses that you experienced in 2021. And if you are considering going back to more of a fronting type model?
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So, David, we don't expect to change our strategy at this point. I mean, obviously, we're all -- any time -- it's time for a contract renewal. We'll see what our options are and look for whatever makes the most financial sense at the time and that we think is a good move. Right now, we don't have any plans to change anything. We feel like these are good programs. When we saw the large losses, we did a lot of due diligence digging into the numbers, reviewing underwriting guidelines, looking at the policies that generated these large claims, and really worked with our partners and our underwriters to make sure that there wasn't something underlying that was causing an issue. And we don't believe that there is. These are some of our most profitable programs that we've had for the last five, 10 years. And sometimes -- I mean, this is insurance. Sometimes you have a bad year, and we feel like that was our bad year, and we're looking forward to this year being a better year.
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Got it. And maybe just on those three programs. Are those all workers' comp programs? Could you talk about how big they are from a premium standpoint? And maybe just talk -- maybe you could just give a little bit more elaboration on why you don't think this is a fundamental issue?
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Dave, this is Andy O'Brien, I'll take a crack at that. These three programs are significant. They are significant programs. They represent a significant amount of our net premium. As Julie mentioned, we did do a deep dive into each of these programs to see if there was any underlying change in the environment, the claims environment, the rate levels and how people were underwriting and the program's willingness to look at any changes in underwriting that might be indicated. And we came to the conclusion in all of these situations -- in all three of these situations that they were essentially good programs, and that, as Julie mentioned, sometimes in the volatility of insurance business, you get hit, and we feel we did get hit a bit this year. The increase in net earned premium in 2022 is really reflective of actions that we took in raising retentions in 2021. Over the course of the last six to nine months since we've been looking at new programs, we have been taking or retaining significantly less participations in those programs compared to what you're seeing in the overall numbers now. And that's something that we plan to be doing as new programs come on throughout the year.
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Got it. OK. And then maybe just one last one, just on the losses. I mean, the environment right now is obviously improving from a claims reporting standpoint. But I don't think things are totally back to normal on that front. When I look at some of your peers, specifically, workers' comp reported claims, they're still well below 2019 levels. So what makes you think or what gives you the confidence that the provisions you've set for the 2021 large losses are sufficient? What makes you think there won't be any additional surprises from additional late reported claims.
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Well, these were not late reported claims, Dave. I think it's probably important to clarify that. We haven't had any surprises with adverse development or claims developing beyond what we originally anticipated. One of the reasons we are comfortable with where these programs are headed is the fact that we -- each of these three programs enjoyed favorable loss development on their previous years' underwriting. And when you're looking at a program that has historically provided -- has historically produced positive results and then has continued to do so in terms of prior years' development, that's a sign to us that losses in the current year are not indicative of an overall problem. We take comfort in the fact that our experience, as we alluded to earlier, for the first two months of this year has been very good. And in fact, two of these three programs enjoyed their most favorable reported loss development since we've been working with them during 2022. So we hope we're back on track. As respect to large losses, we define a large loss as a loss over $250,000. At this time last year, we had 11 of them. So far this year, we've only had three. So that's another encouraging sign.
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Got it. And yes, just to clarify on my question, I was just wondering about adverse development on 2021 accident year in 2022, 2023, just as those claims -- it's obviously workers' comp is an occurrence line. So I'm just wondering if we saw in 2020 and 2021, just there's more of a lag in terms of when the accident or when something actually occurs and when it's actually reported and if that is potentially something that you guys are worried about. But it sounds like you took the provision you think is necessary.
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Yes. And of course, we're -- I guess, we are in the worrying business. So we worry about everything. But I guess, in looking at just the 2021 year, for example, for one of our -- for our California book of business, for the two months, January and February, the 2021 losses developed at half the rate that they developed for the 2020 and 2019 years. So again, a very favorable sign recognizing that it's just two months, but everything is looking pretty nice after two months.
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I was hoping that you could talk about your gross premium guidance for next year, just to feel that a bit. Is -- clearly, 4% is much lower than what you've done historically. Is that just a function of the California workers' comp book not growing as much as it's done? And I suppose that you are growing other programs, but it seems like the inertia from California is just overwhelming. And any thoughts on how that growth might evolve beyond '22?
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We are projecting a slower rate of growth in 2022 compared to 2021. A large part of that, Pablo, is just that we grew so much in 2021. We don't have the financial capacity to grow at 31% per year. That's much higher than what we expected to grow last year. And so we began in the fourth quarter to make sure that we were moderating our growth so that we could -- so that we didn't get over our skis. Long term, we are still anticipating -- we still have as our goal that we want to be a $1 billion company by 2025, and we think we're on track to achieve that.
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And by financial capacity, are you looking at like a premiums to surplus ratio? Because you're well below one at this point, right? Or is there anything else you're considering?
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So we look at a variety of different factors. We don't look so much as net written premium to surplus, although we do pay attention to that, but we pay attention to our risk-based capital scores. We pay attention to the AM Best, the CAR scores. And so we really look at those two issues or those two elements more to assess our leverage ratios and our growth potential than we do our net written premium to surplus ratio.
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OK. And then on the expense ratio, I was wondering if you can help me just bridge what you did in '21 and your guidance for '22. So '21 was 27.5%, so it's 32% to 33% next -- this year. What component is that -- what component of that change is coming from the lower negative commissions versus, I guess, other expenses going up as a percentage?
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Pablo, it's Nick. If you remember, the expense ratio is low this year versus last year because of some true-ups we had in 2020. So comparatively, it just looks lower than last year. But going from 2021 to 2022, there's a couple of factors. One, we're going to have -- as we mentioned in the actual press release, we're expecting retention to continue to creep up in 2022 from where it is right now in 2021 mostly due to contracts that are already in place and already have been renewed at retention rates in 2021 that will carry over into 2022. As you know, we can't really adjust retentions until contracts come up for renewals. So there's a little lead time there before you can actually effectively change that contract by contract. So that's one of the reasons. In addition, we're also, with the expected increase in retention, that will result in less ceding commission. And as you also know, ceding commission offsets our direct commissions in our G&A line item. So we're expecting less offset in next year due to that retention as well. And we're also planning to invest -- continue to invest in the company in 2022, which will increase the dollars of G&A over this year as well, but not -- but for sure, in proportion to our top line as we have been doing for the last couple of years.
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OK. And those two components, I'll just it, the negative commission, right, as a percentage of net earned premiums and other expenses as a percentage of net earned premiums. Is there a way to break that out just bridging 27.5 to 32?
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We wouldn't get that granular in breaking that out at this point. We're just putting the guidance out there to ensure that some of the things that we're talking about with respect to retention is understood. Prior year 2021 quarter to quarter, before we were able to -- before we decided to put out guidance in 2021, we constantly had an uphill battle with models that are out there versus what we truly felt we were going to achieve internally. That's why we are putting out the guidance right out of the gate this year for 2022. In addition, as you remember, Pablo, when we put out starting last year, that supplemental table of G&A components, we did that so that The Street and the public can see the dynamics of the components of G&A. And as you can see in the release we put out for fourth quarter, you can see the G&A operating expense component of the total G&A expense is still sitting between that 7.5 to 8% percentage of our gross written premium. So we're not spending any more proportionately than our growth allows us to. And we've been saying that every quarter and showing that every quarter for at least the last five quarters. So I don't know if that answers your question, but I just wanted to make sure that was understood.
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Yes. Thank you very much. And then last one for me. I guess, if you just sort of take a step back, right? So there's pressure on workers' comp and growing other lines, it seems like you -- well, you're going to run expense ratio in the low 30s in '22. You did give an indication for the loss ratio in the first quarter, so call it, low 60s. So moving forward, is it -- Trean look like a 90% combined ratio book? Is that sort of a decent parameter to think about going forward for Trean?
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Pablo, I think we'd like to respectfully not take a stab at that yet. We have a really good idea, we think about where we're going to be with an expense ratio. And so we are providing guidance for that. If we say it's a 90% business, then we've kind of provided guidance for a loss ratio. And we still want to do that at this time. We don't rule out the fact that we might provide more guidance in the future about the loss ratio. But at this point, we'd like to just stick with the numbers that we have shared.
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Yes, hi, good evening everybody can I start with the operating margin? I know you had a very strong margin in the third quarter. But I was wondering if you could help me understand why the operating margin was down 210 basis points sequentially. What changed in the fourth quarter on the expense line that wasn't there in the third quarter?
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Yes. So Doug, this is Jim. I don't know if you remember, on the Q3 call, we mentioned that we were going to begin more heavily investing in supply chain and technology, and that really was the reason behind that -- those investments are really the reason why the margins, the operating margins declined in Q4. So we tried to highlight that in the call last time. So that is generally the reason behind it.
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Okay. And are these the same sort of investments you expect to carry into this year?
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Some of them are. Additionally, the supply chain and the technology investments will continue. We're also -- the decision to sunset the Medifast Direct channel, that will also have somewhat of an impact on operating income percentage because, as you can imagine, the direct channel doesn't have commissions with it. Even though it's a smaller subset of our business, the sunsetting will have a margin impact. Not from a gross margin basis but an operating income basis.
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Okay. Got it. And then when you talk about the discrete $0.12 tax item, I take that to mean that there's no real structural change in your expected tax rate going forward. It was more or less a non-repeatable kind of event.
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That is correct. We're -- it's a onetime charge. And at this point, we're currently not anticipating any additional tax reserves going into 2021.
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Okay. That's helpful. And then stepping back here, your top line numbers have been very impressive. Your coach growth has been very impressive. And obviously, not sustainable at these rates, but still it feels like the business is very strong. And I was wondering, with these kind of growth rates, have you taken a look at perhaps changing your capital allocation strategy and maybe take on some leverage and accelerate your stock buyback here?
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Yes. On the capital allocation front, we're first prioritizing organic growth with first looking at capex spend. And we're not -- at least as of right now, we're not anticipating any acquisitions in 2021. So with that, the decisions to pay dividends or share repurchases. Those discussions are held at the Board level. So that's really pretty much all I can really say about that.
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Hi team. Congrats on the quarter. I just wanted to start, first, Jim, just hanging on to the last question from Doug. Do you have a capex guide for the year?
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We're not really providing that guidance. All I can really tell you that there are going to be additional investments in technology and in supply chain. So that's also going to be in capital spend, and it's also going to be in operating income, so we don't hit the P&L. So there will be additional projects that will happen in 2021 that will hit capex.
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Okay. And then I was wondering if you could talk a little bit more about your progress on the manufacturing front. There's been a very limited amount of SKUs out of stock last time I checked this morning, which points to improved capacity, considering the momentum of the business in early 2021. What is your manufacturing capacity today in terms of annual sales? And then how should we think about that ramping through the year? Should we expect you to hit that capacity to be able to support $2 billion in sales by the end of 2021 or earlier than that?
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Yes. So this is Dan. We started adding the capacity in the fourth quarter, actually a little bit earlier in the form of increased number of co-manufacturing partners, and that's continued on through -- what is continuing on through the first quarter. It's not exactly a linear line. So we'll -- by the end of the year, we will achieve that $2 billion. But right now, as we discussed in the last quarterly earnings call, our focus is taking the opportunity to now consolidate all of our volume to the OPTAVIA brand. That means discontinuing the Medifast brands and using a lot of our capacity to focus on OPTAVIA. But what we're providing right now is that inside about moving toward the $2 billion, but we have adequate capacity to supply our fuelings throughout the year.
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Got it. Okay. And perhaps you can talk a little bit about the international business. How is that progressing relative to your expectations? And you mentioned in your initial remarks the opportunity to look at other large markets throughout the world. I was wondering if you can give a little more details where that could be, something like Canada or something like Europe.
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Yes. Yes, absolutely. So as you know, we expanded a little over a year ago into Hong Kong and Singapore. We characterize those as gateway markets into the Asia Pacific regions. We have continued to add both infrastructure and the ability to deliver the same kind of quality experience that we have in the United States. As we said, we've established a distribution center in Hong Kong as well as call centers in the Philippines and Colombia, Philippines specifically, providing Chinese support for Hong Kong and Singapore. We've continued to build in Asia Pacific in a way that's reflective of what we expect, meaning that we're seeing the growth. We don't report on the actual volume and load until it becomes material, which would be fine as 10% of our overall revenue. In terms of the second part of your question, it was -- we believe and we tested before launching in Asia Pacific, the concept in Europe, in South America, and we believe that there is opportunity for us in those markets for the long term. So we see this as a continued opportunity to add to our overall addressable market. But that's as far as -- that's as much detail as we're giving right now in terms of what our further expansion efforts are.
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I kind of just wanted to jump back to the first question on operating margins. Can you discuss, I guess, with all the changes that are happening in 2021 investments in the sunsetting of Medifast brand? How you feel about that 15% operating margin target on the $1 billion revenue target?
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Yes. So since we're not providing guidance, that's a little bit challenging to just give you our feeling on that. So I would say that just a couple of things to keep in mind. Some of the items you should consider as you're developing your model, things like the in-person convention that we budgeted for, if safety permits. That's probably a 70 basis point investment. The Medifast Direct in sunsetting the classic brand, again, that's probably an additional 70 basis point impact to our operating income margins. And then investments in technology and supply chain that actually will hit the P&L, I would say that's probably close to 100 basis point investment. So hopefully, that helps you directionally.
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It does. And then as you begin to think about promotional plans for the year and kind of what you did in April and May of last year, can you give us a peek to anything that might look similar this year?
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Sure. At this point, what we've seen, and as Jim indicated earlier in his remarks, is that the trends that we saw in the fourth quarter have continued roughly at the same or better as we move to the first quarter. With that in mind, we're still evaluating. We haven't made a final decision on what the promotional structure will look like. So that's -- we know that we have the ability to promote and that the response, as you saw in 2020, was very positive. We were also very focused on developing the natural business cadence that allow us to sell our products within the structure that we've already put together.
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Yes, hi, everybody. I've actually got three questions, if I may. First one, Sarah, you gave an assumption about the -- you talked about COVID and the impact through '21. When are you thinking Travel starts to come back in terms of spending? And are you seeing any sign of that yet? Second one, kind of general question. Can you talk about the difference between your Retail Media product and Amazon? I think a lot of people still don't really understand what it is that you're doing and maybe Amazon is a good benchmark to start with. And then the third one, in terms of CTV, I'm assuming it's very small in the mix of revenues today. Do you think that is a product that you'll be using for -- more for retargeting or more for upper-funnel products?
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Sarah Glickman -- Chief Financial Officer
Yes. Hello, Sarah. Yes, so Travel, we're seeing that we're about to 75% to 80% down year on year still. We have, I would say, a more aggressive assumption throughout the year and, obviously, all of us at home to start taking some trips soon. So we're still seeing it's pretty muted and challenging, but we're ready for when it comes back.
Megan Clarken -- Chief Executive Officer
Great. Let me take the second one. And thank you for asking it, Sarah. It's important to, I think, lay out the differences between the two. Let's see, we've been clear of ambition of ours to become the Amazon Advertising of the open internet. So let me use that as a framework to explain. The e-commerce landscape, as you know, is massive. And it's predicted to grow at about nearly $7 trillion by 2023. So it's certainly got room for both of us there. It's an extremely healthy place for us to be setting our sights and specifically with the assets that we've got. We focus on the open internet. And remember, Amazon is very focused on Amazon platform; and secondly, to get their advertising out to the open internet. And the open internet takes up about 38% of that total gross merchandise value that I talked about before. So inside of that $6.8 trillion or $7 trillion, 38% of that is actually the total of the open internet, and that's the area that we play. We have huge e-commerce scale. So when it comes to being able to stand up against an Amazon Advertising in that space, we process about $900 billion a year in online sales, which is bigger than Amazon. It's not apples-to-apples comparison, but it's a bigger load than what Amazon processes. So we have the scale to be able to stand up there. Now, the big differentiator for us, I think, is around the open internet -- our open internet focus and what we're doing around our first-party network, which Todd talked through before, which gives us a clear advantage. In Amazon's case, they know who their consumer is if they're a registered Amazon user and they're logged in. But once they get out of that domain and once they get to what we call off-site, they're no longer on their platform, they have to try and find a way to connect their own registered user to the same person off their domain, and the way to do that is just third-party data. When third-party cookies go away, they have to find a way to be able to connect those dots, and that's why we think we have a massive advantage is because of where we sit in terms of what we do for the open internet today and the massive amount of data that we have and the first-party strategy that we're going after. We use our first-party network to join the dots across the users on the open internet. And also, we use the UAP and other ways to identify and join the pieces. And I think as Todd said so eloquently before, the future of media on the open internet is about first-party data and not third. So they have a challenge in front of them. So look, I think I've said a lot. But in summary, we do believe that the goal of being Amazon Advertising of the open internet is ours. We do have access to 38% of that $6.8 trillion pie in that regard. We have a strong process in power, and we have that first-party data access. So we're highly differentiated. And hopefully, that helps with the question.
Let me jump really quickly to CTV. We see CTV as a channel. So it's another channel in the same way as desktops and mobile. It's a channel that carries video, sound, and motion. It doesn't carry a lot of advertising right now. And our focus being e-commerce, it certainly doesn't carry a lot of e-commerce advertising now or addressable advertising. So while it's out there, it's something that we are certainly leaning into and making sure that we're in the right place at the right time if this should progress. Our focus is on e-commerce. That's where our business is going. And any channel that carries e-commerce advertising is what we're most focused on first. I hope that helped.
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Good morning. Thanks for taking the question. I also have three, and I'll try to be quick here. I guess just first maybe for Megan or Todd. If we think about the Retail Media business, is there any way to help us think about how it stands right now, maybe kind of SSP revenue versus DSP revenue, self-serve versus full-serve or managed serve? And again, when we think about the self-serve, unit economics of that product, is there any reason that they're dissimilar to what we'd see from other publicly traded types of DSPs and SSPs?
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Yeah, I can take this one. So I mean, I think, first of all, the emergence of that business and kind of the change in the profile of retailers from being just a place to buy things as opposed to a place to discover and learn. In fact, a media outlet means that we are doing much more in terms of being an SSP, if you will, to those partners. At the same time, we are servicing many of them with our DSP offering -- with our demand offering. And what we're seeing is that fuller basket is being driven -- is driving, pardon me, a lot more interest and demand from those parties. So the fact that we can bring customers in and we can provide monetization at the same time is something that signals, I think, a very important difference in our marketplace. And so as you've heard me talk about before, we are adding quite a bit to the native media monetization products of Retail Media, and we've got a very healthy pipeline there. We're also looking at ways for our partners to monetize their data through audiences and first-party audience information that goes with that. So I would just say we're not traditional as an SSP. We're actually doing things that are much deeper retailer stack than providing an advertising or media solution, and we're very data-focused. So those two are coming together in a powerful way. In terms of access control surfaces, we have had self-service capabilities on both sides of our business. You can expect, as we go forward, that those things will come together, that those control surfaces will merge because, in many ways, that's where the market is going and what is needed. So this kind of somewhat artificial separation between supply and demand is harder to keep clean when you have the changing forces in the market that I described. So Retail Media is going to be 100% self-service soon, just to be more specific, in terms of its deployment. We are pushing hard to get many more of the customers that are coming on. You heard Sarah say that we cleared 900 new accounts just in this last period, and you can't do that without being pretty decent at self-service, right? So those two are big investments, and they are going to be merging over time. Hopefully, that helps.
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483818bc178c9ee00e173dee4c0d48bc
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Obviously, Google touted their FLoC solution for cohort advertising recently and talked about the effectiveness there. Curious if that, in any way, changes how you think your core kind of retargeting business will look on the other side of those Chrome changes. If you can talk to how important or not important perhaps that is? And then just final question, maybe for Megan. When you think about the two sides of the business, the Retail Media business, if you look at some of the valuations out there around ad tech that have certainly rerated recently and then kind of the core retargeting business, when you think about valuation and where you sit right now, I guess how do you think about Criteo as a potential M&A target? How do you fend off M&A? I guess, just how are you thinking about that in the broader landscape?
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Todd Parsons -- Chief Product Officer
Let me take the FLoC one. Yeah. I'm sorry about that, Megan. So the FLoC thing, I'll just be quick on this one. We've been working with Google since the beginning of what I call the bird proposals. And now, we're at a place where, as I mentioned before, we're all about empiricism and testing. So the 95% number that came out a couple of weeks ago, that's pretty impressive, but it's not testing that we've done and it's not external to Google. So we're all very hungry to continue to invest in our partnership and see how FLoC plays out, how cohort advertising plays out as we implement it. And as I mentioned during the prepared remarks, we are very invested in that. At the same time, you asked about retargeting. We are just incredibly focused in terms of preserving that opportunity for the company by bridging first-party data between all of our stakeholders. And we're going to continue to, in parallel with what we're doing with Google on FLoC, invest very, very heavily there. And then finally, I mentioned non-cookie solutions and, of course, getting contextual to market as fast as we have in a different way, something that is unique and very commerce focused is the first of a good lineup there. So we've got the non-cookie solutions, we've got the preservation of cookie of retargeting solutions, and then we've got the FLoC solutions, I'd say our customers are well covered.
Megan Clarken -- Chief Executive Officer
Yes, Matt, let me take the last one in terms of how we feel about M&A. We're, as you can hopefully tell, just laser-focused on our strategy and executing against our strategy. And certainly, my job has been to come in and to run a transformation across the business to return to sustainable growth, and that's what I'm focused on. Clearly, we're going in the right direction here. We feel good about where we're at, and we'll continue to execute across that thoughtfully and to plan and deliver what we say we're going to deliver. If you think about M&A in terms of what we look for to help us execute against our plan, we have, I think Sarah said, an active pipeline around opportunities that drive product synergies for us or tech synergies for us that enable us to perhaps speed things up, deliver things quicker and to build things that maybe we don't have the expertise to do. And so as I said before, we run an active pipeline to look for those opportunities every day. And we're very thoughtful in our approach, and we make sure that if we were to move forward with something, it would be something that delivered against our strategy and provided shareholder value.
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B
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4426303f7201c8bd265b1a145344be21
|
Great. Thanks for taking the questions. I guess there are two. I just wanted to ask on net new clients. You reached the highest level since, I think, 3Q of '17. Can you just talk about some of the drivers of those client net adds? And then would you characterize them as more kind of resurrected clients or totally new to the Criteo platform? And then second, just on the $60 million privacy impact in 2021 and then the $6 million in 1Q, is that all related to Apple and IDFA? Or can you help us break that out across other items as well?
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Sarah Glickman -- Chief Financial Officer
Yeah, yeah. Yeah, absolutely. Yeah, I mean, most of these are new clients. So we see, especially with the open internet, a lot of new players coming in, and they need our services. So most of it's on the new sales side. And of course, we're continuing to focus on existing customers as well. And I think I said in the remarks, about 70% of them are for retargeting. So some are moving up the pipeline to targeting as well. So super excited about that metric. I think the second question you asked was on the privacy. And in terms of privacy, I can't actually -- I'm sorry, I think it's about two-thirds on the browsers and about one-third would be on the explicit concerns. So that's the way I would look at it.
And sorry, just one last thing. We continue to hone in on that assumption. So that is lower than we were anticipating a few months back, and we'll continue to update on that quarter after quarter. But that's our latest view on the restrictions and the identity.
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You mentioned that you're watching for specifics as it relates to iOS. I'm just curious what those specifics are. Sort of what Apple's laid out, what's was not yet clear, what is clear, and sort of how that plays into UID2.0? They've clearly made it clear that hashed emails cannot be used as an end-around to IDFA, so just curious what's clear, not clear, specific to that as well.
|
Yeah. Sure. So there's not anything, I think, new that we would report that you don't already know. We still, on an overall basis, really believe that providing consumers more control over their data is a good thing for the ecosystem. And what we're worried about here is how it impacts smaller businesses, our app-building partners, and so on and so forth. And we're very focused, instead of kind of avoidance and prediction, helping our clients get ready to adapt to the change. And there are a couple of things there. One is making sure that we're able to use our first-party data, like you mentioned, to find users in other addressable areas. Because of the vastness of our network, we see many, many, many users in many places. So the unfortunate thing is it will be harder for apps to monetize those users that we might otherwise place in advertisement. We're rolling out our SDK much more broadly with publishers. That will help us in the app environment. And we have some work going to map web properties context, which generally is richer than app context to that environment, so at least we can get some dollars flowing, the upper funnel, maybe mid-funnel dollars flowing into those app environments where we care about publishers' success. So I think that's probably a good summation. We're already on that track and, obviously, waiting for things to flow through and for us to observe consumer behavior on opt-in. But we're prepared for it, and we're doing the three things I just mentioned.
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B
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cadd37e4db331d993c33f5f5b4d73f34
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You noted the end of the CARES Act and the stimulus that went to individuals ended at the end of July. I don't know how real-time your data might be. But can you talk about maybe the trends that you've seen most recently, the most recent trends that you can talk about in terms of year-over-year decline in volumes?
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Yes. So in the month of June, we saw a little bit of a pickup relative to April and May, but nothing material. But it did firm. The main looks to be the low watermark in our results, and that appears to be the case as we look to kind of early indications on how July has performed, which we're still closing the books on just getting through this quarter. July has picked up a little bit from June, but again, as we've stated, I think that the year on year and quarter 3 will be similar, a little bit better than quarter 2 but more similar than divergent from quarter 2. We do expect a strong fourth quarter.
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Got it. Got it. And then can you talk about some of the dynamics you noted as regards to the pharma business? I understand fewer prescriptions filled but the improved client program management comment and just some of the dynamics within that and whether or not some of those are going to be longer-lasting than just the pandemic.
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Yes. So I think we obviously saw a little bit of a downturn in the number of patients that are going to the doctor that are going to be accessing new therapy. So as people are laid off, as the job market is more uncertain, people are not going to be spending as much money in the healthcare area as far as going to the doctor, getting on newer high-cost drugs. Patients that are already on therapy most likely already have a prescription that's available for the next 12 months. Doctors are a little more lean in as far as calling in a refill without having to have the patient show back up in the doctor's office if they know they can't afford it. So I think as the recovery continues, we'll continue to see an acquisition of new patients, which will result in higher claim volumes on our products.
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intermediate
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d461b88fae3d97f220320a781508f340
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OK. OK. That's helpful. But in terms of the program management, that doesn't indicate any increased shift of the business -- of the underlying business model in pharma.
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An increasing shift in the business itself resulting from this, like does it change our position and our product set? Can you just clarify your question maybe a little better?
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C
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The program, and I think you said you added several. I'm just curious how some of those programs are coming in, relatively large or relatively smaller, and what type of fees they're generating.
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So we have 11 pharma programs today, and three of those 11, including one new one that was added in the second quarter, three that were added in the first quarter; and if you recall, we ended last year after two programs expiring, we ended with eight last year. So we're sitting with 11 now. Three of those 11 are in the non-buy and bill space, and Matt can speak to kind of size and what's in the pipeline perhaps. Yes. So on the co-pay side, the transactional volumes are low on the co-pay side. And when you're talking -- I believe you had a question around the program management fee. So that tends to be a smaller amount on the buy and bill side as far as what the revenue percentage is and the transactional fees are what make up the difference. In the smaller co-pay or pharmacy-based products, it tends to be flipped where the management fees make up a majority of the revenue, and then the transactional pieces are a smaller portion of that. And as far as the pipeline is concerned, we're very confident with the pipeline that we have right now moving into the latter part of this year and moving into next year as we've had a substantial amount of opportunities put in our hands, and we think we're going to be able to pull those through in the next year.
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Thanks for taking my questions. You mentioned a little of the COVID impact on pharma. But was the pipeline for the pharma segment impacted or any contracts delayed or deferred indefinitely?
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Not indefinitely. We did have clients that -- one of the two clients that we communicated with you on from the first quarter that, while we had some start-up fees, we actually only recently began funding into that client. So they seem to have taken a pause and got some temperature before they rolled that program out. Many of those programs require that the manufacturers and the representatives on behalf of manufacturers can get out to the physicians and educate and onboard physicians as part of that so that those physicians are actually offering their biologics and their medications for the conditions of those patients. And when you can't travel, that made them take a pause and slow down. But nothing has suspended any clients, and as Matt indicated, the pipeline is very strong. The RFPs have continued to come in. And, yes, correct. Preemptive, as well as RFPs. Combination. Then the slowdown in RFPs.
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fb2a8c08c8eca205d198377f1d4cf335
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Got it. Can you elaborate a little more on the revenue conversion rates but in the individual segments, how they trended on a like-for-like basis or what the major impacts were on those individually?
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Sure. So the revenue conversion rate on the plasma side was actually stronger than the first quarter. The revenue conversion rate on the pharma side, while it was better than the first quarter, typically, it picks up markedly in the second and third quarter as loads start to come down, but you still have projected money left on card rates, kind of settlement income that you expect when those programs are to expire. And the cost of sales on those as well as the revenue conversion rate on those, since loads are descending, tends to -- just to the way ASC 606 works, tends to increase your revenue conversion rate in subsequent quarters until you get back to the first quarter. In this particular case, what we saw is with loads descending and also customers using up those remaining balances and the program management of those funds being tighter, we had to bring down our projected left on card forecast. And therefore, just due to revenue recognition, that resulted in lower conversion rates.
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fe0c796f566069c1ac789fdf6e1f32ac
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Got it. And my last question's on expense management. Can you talk about your expense management in the quarter specifically and maybe for Q3, as you're kind of coping with lower top line?
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Yes. Good question, Austin. So we did take some solid measures to reduce some expenses that were not essential, to limit all travel unless it was revenue producing and to suspend hiring unless it was going to be contributing to critical infrastructure or to top-line growth. We also established a new banking agreement, which gave us some favorable pricing, and these were all levers that we identified essentially going into the forecasting -- budgeting process for the year and kind of executed those during the second quarter. And that allowed us, as you can see, to kind of moderate that, what had been a growth rate in that area. That said, we do continue to invest in people and in capabilities to make sure we can execute on all of the pipeline and business products that we're implementing. So I do think we'll see a little bit of a pickup in the third and fourth quarter on the total OPEX, but we are being very cautious with our spend right now.
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7541cbf2fa70482c86e57b694a863f5e
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Yes. Thank you, and thank you for taking my questions. First of all, as you mentioned, there have been some recent changes in the competitive landscape, obviously, Wirecard's going through with saga. If you can talk about how many centers could potentially be coming up for bid during the balance of 2020 and then into 2021 such that you'd have an opportunity to go after those.
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So I'm going to start, and I think Mark Newcomer wants to comment on this. I'm going to basically say that, look, Wirecard North America is a solid organization. They continue to do a great job of retaining clients. We are competing with them on the plasma business, and we have had some success in building our entire plasma business at their expense. That said, it's hard work, and the numbers that we quoted, which Mark can speak to, many of those are takeaways. But there isn't a clear road map on how other businesses from any competitor might be in our future. So we're going to continue to work hard, do what we do well as a processor in a very nimble and capable company, but nothing clear on the road map. But Mark, you're probably much more suited to answer that. Yes. I mean, obviously, we're actually talking with many companies right now. The number of centers ranges from smaller to larger, though we remain in talks. And that's about all I can comment at this point in time. But we look at it as a positive opportunity for us.
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19e5dfc3aeff5bcee9b7acb92548ae76
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And just from a housekeeping perspective, what was the total count on centers at the end of the quarter? And what would you estimate your market share is at, at the end of the quarter? And I'll get back in the queue.
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Give me just one moment. I'll get back on track here. So there. We currently have 290 plasma centers, 11 pharma programs. And for other programs for 307, that's essentially up seven from the prior quarter, and that represents -- I think it's roughly 38%, right in that ballpark.
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9cffd98170f237c309084187d875e512
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Hi. Thanks for taking my questions. Can you explain what these hundred and four centers are in support of a client's business continuity plan? What does that mean?
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What that means is that we can't tell you that those 104 centers are going to go live. It's really up to the client and what they make -- and what decision they make in the end. They were nervous in respect to what's going on in the world and what's going on with one of their service providers and, therefore, asked us to provide a continuity plan and which we did. Yes. And I think it's important to point out that all of those centers have received card products and can go live immediately the day they make that decision. The technology, the card product, the terms and conditions, all of the packaging is in each site.
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c1ce2fc41a47b2aa87f0a28fcf5fa6bb
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OK. But those 104, they don't have anything to do with 49 centers that needed to go live.
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They do not. That's correct.
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80c7a41b146f88009ce5425d4092ed50
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Great. That last answer was helpful. So no revenue related to those 104. On the 49 that have been won and are going onboarded, I think that's about a 15%, 16%, 17% year-over-year increase. So in order for the third quarter to have plasma perform the same in the third quarter -- the second quarter with those new units, you'd have to expect donation volumes to be down more, which doesn't seem to foot with some of the things as we're opening up. So is there something else about those new centers in terms of how they might ramp up that might be slower or maybe they're more back-end loaded where you just don't have the benefit of any of them in the third quarter?
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Yes. More the latter. Also, just to clarify, Mark, how many of those were blood centers? Eleven. Eleven are blood. Those blood have the equivalent roughly of about two centers. So the plasma generate more load volume and more revenue. And then you hit it on the head there. We will be a little bit more backloaded but should be by the first of October, all 49 centers should be onloaded. Onboarded, that's the schedule. That's the schedule. So there's a specific rollout of exactly when the centers go live by week, essentially, but most of that's backloaded.
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My questions start with Samsung. I'm wondering if you can give us an update on where we are with that rollout and how you see that playing out over the next 12 months. It sounds like we got quite a bit of momentum that started late last calendar year. I'm wondering if the pandemic environment has slowed that at all? And if not, how far penetrated we could get as we look out into 12 months?
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Yes. Sure. Thanks, Mike. Yes.
Regarding Samsung, we continue to be really pleased with the progress that we're making. And I think as some investors have heard me say before, if you look at time zero when we launch a new partner, whether that was Verizon or AT&T or Cricket or Tracfone or Samsung, and you kind of plot out each quarter, you just see nice momentum and nice continued growth. And Samsung is no exception to that and following a similar trend. We've been really pleased.
In the current quarter and in the quarter before, we just continue to see more and more devices being on the platform. Right now, we're well north of 10 million devices on Samsung and ramping right now. So we're pleased with that. We've got a lot of opportunities before we hit our head on the ceiling, given they move more than 200 million devices globally.
So even if their growth were to slow down a little bit, we're still in a pretty good place right now. I'd give a specific shout out to our progress in Brazil and Latin America. We continue to show some really nice progress in that market, which is strategic for them. So they've been a great partner.
We're ramping really nice and couldn't be more pleased.
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e1a01d883455130d043ac1958c27a4a4
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And then as we look at the real upside, as I see it anyway, with the Mobile Posse acquisition being in cross-selling, I'm wondering if you could update us a little bit on how that process is going, both with your ability to sell Mobile Posse's, I guess, NewsHub into your existing clients, particularly in the big U.S. clients and then, of course, trying to get your app install products into the Mobile Posse large client.
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Yes. So continue to be really excited about that. That was a major strategic rationale for the transaction. And I think everything that we're thinking that we could do in terms of our products onto their distribution and their products onto our distribution is intact.
I'd say, stay tuned for kind of further updates on that. But we continue to be pretty optimistic and bullish that, that strategic rationale is holding true as we're now a couple of months in.
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1b844b991b65ee09a6149a3d6e324a41
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First, Bill, could you kind of indulge us, so there's obviously a lot of moving parts of the economy. If you go back to sort of March and then look at the cadence to April and then now with May closed, I know you over-indexed to sectors of the economy that are kind of strong. Could you maybe just talk about the cadence of your core apps business or what it used to be versus Mobile Posse's content business? And I'm just kind of curious about the strength in verticals in your core business versus maybe some that are weaker and how those have kind of changed over this three-month period? And then with engagement on the news side of Mobile Posse, how has kind of engagement sort of ebbed and flowed and then kind of programmatic? How has that ebbed and flowed and kind of where do we stand right now?
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Yes. Thanks, Darren. If I was going to say one word that would characterize our cadence, it would be accelerating. We're continuing to see nice progress right now across all aspects of the business.
We kind of break down some of the details. What I'd say is that we saw May has been better than April. And April was better than March. And we see that spenders that have been spending on the platform continue to want to spend more and spend more at higher rates because of the ROI that they're seeing.
And that's the categories I referenced in my remarks. Those are streaming audio, streaming video, gaming, social media, and the like. On the content business side, I would say, I've been pleased with the results accelerating there as well. And the content business has less exposure than perhaps other ad-tech companies to some of the damaged categories, macro-categories, the automobiles and travel and cruise ships and all those kinds of things.
They don't have the same level of exposure that others do. So, therefore, their business is not as impacted as much. But given that there are recurring revenues and they're somewhat insulated from new device sales, you don't see necessarily the impact that I think others would have. So we've been very pleased with the results.
And we think there's a lot of juice left in the squeeze in terms of just performance and the things we can control with new platforms that are being put in place in the business, new advertising relationships are being put in place and the like. So we're pretty optimistic about the future for that business.
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1aa08b597bc6253312935222c23b2faf
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On the SingleTap side, I know you struck those partnerships with AppsFlyer and brands and the like maybe a couple of quarters now. I'm just kind of curious if you can take the pulse of where those relationships stand and if they're actually bearing any material fruit at this point?
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Yes. So I'm pleased to report that SingleTap has been something we've been really excited about for a long time. And as long as the conversion rates, and it was a better end-user experience, it was better for the advertiser, it was better for the operator OEM partner, we're going to stick with it. And as you're well aware, we have a number of last-mile issues with SingleTap that we couldn't get the conversion rates we saw to scale.
And we're now in a place where we're starting to see some really nice progress. And we're seeing it through some of the things that you just mentioned, as well as other relationships that we have right now, and we've made some material progress on some of these last-mile operational issues, and I want to give a shout out to the team that's just really stuck with it and just ground through some things that are now starting to generate some more positive results for our SingleTap business. So we'll talk more about some of the specifics when we get on our next earnings call. But just suffice to say, I'm much more pleased and optimistic about where we're at in that business than where we were historically.
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2950c87e866e8d848502f4107801c9f3
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You mentioned seeing attractive conversion rates in your press release. Wondering can you define what exactly that conversion is measuring and what level that rate is currently at? And maybe how that compares to how it's done historically?
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Yes. Sure, Austin. So when we talk about conversion rates, we talk about the percentage of customers that are opening and engaging with applications. And the conversion rates can really vary all over the map depending on what kind of application it is.
So specific game versus social media application versus Uber versus whatever. They're all going to have different conversion rates. And rather kind of break down each individual vertical here on this call, what I would say is that on an aggregate level, we're seeing improved conversion rates. And it makes sense, right, is that here we are in a pandemic.
People are on their phones more. They're wanting to discover and explore new content. We have that. It's relevant and tailored for them.
And so, therefore, they're going to experiment with other types of content that may be relevant for them. So as a result of that, if we're getting paid, for example, arbitrarily $1 cost per install, which means that we get paid, I say, $0.30 if 30% of people open it. Well, now 50% of the people open it, we get paid $0.50. And so that's obviously a material improvement in the results.
So we're starting to see those kinds of dynamics at play right now, which gives us a lot of encouragement and excitement because, for the advertiser, it's all about ROI and having visibility to that spend. They want to know how much Bill Stone or Austin or Barrett is consuming that content. And with our platform, they can do exactly that unlike other platforms, where it may be a little bit more difficult to track that ROI or in other kinds of offline media things like outdoor, television, and the like. So it really gives us an advantage in terms of the media dollars that are out there to compete for.
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In that example, does that mean you get paid on a performance basis? Or does that just sort of talk about implied pricing?
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Yes. No. I think we always get paid on performance. Because of that view-through, whether we back that performance metric out to an upfront fee for every app or we back that performance out to an open app or we back that performance out to revenue sharing on the app, we get paid on performance.
There's a lot of different ways to cut, slice and dice it, but the bottom line is you're getting paid on how much ROI you're generating for your media partner, and we can do it in multiple ways. And the message here on today's call is we're seeing increases on that across the board.
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2042bced5304e2cf9396b13fc607bc2e
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Can you talk about some of the underlying metrics that inform your guidance? I'm particularly curious about what kind of U.S. device trends you're seeing and maybe compared to what your partners have themselves reported?
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Yes. Well, a couple of things. I would point out in Bill's prepared remarks, he talked about double-digit growth kind of for the two months we're seeing in the current quarter. So we have visibility to two months in the quarter.
Those are going well. We've seen device volumes recover. By region, they're happening at a different pace. But as you heard Bill talk about earlier, kind of the trends we're seeing is March kind of a low point with respect to device volumes primarily in the U.S.
and then a rebounding and a step-up April and May. But those combined with the demand we're seeing on the platform showing through in the RPD metric are what has informed our guidance for June quarter.
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The first question, just wanted to kind of dive in on the advertiser demand front. Just kind of curious if you could bifurcate advertiser demand between kind of new customers or new advertisers added versus increased spend from existing customers?
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Yes. So I'd say it's a mix of both. Especially in our international business, we're seeing a lot of new advertisers spending more. And then our existing business, I would characterize it as we're seeing our existing advertisers -- I'm sorry, U.S.
business, we're seeing our existing advertisers that are spending more. So it's a balance of both. And some of those where success begets success and momentum. And so we're pretty excited about what we're seeing there both in terms of net new advertisers, as well as our existing ones wanting to spend more.
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And then just on the margin front, fully appreciating that Mobile Posse has a positive margin contribution. But are there any other levers to gross margin improvements? And then you did call out increased synergies. I believe the prior target was about $1 million. Maybe just kind of quantify the incremental synergies you guys expect from Mobile Posse.
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Yes. So I'll just start with the synergies. I'll reiterate that the strategic value here with the Mobile Posse acquisition and the content business was revenue synergies and the value that brought. But there are some corporate overlap and cost synergies in kind of the $1 million-ish range.
And those, as I mentioned, are tracking nicely, and we'd expect that to help expand our EBITDA margins.
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I think you called out Telefonica going live in both Europe and Latin America in the current quarter. Maybe just kind of speak to the trajectory or the pace at which you expect that business to turn on, whether it's slow in trial phase for a couple of quarters or if that can turn on fairly quickly just given the magnitude and the size of the user base that exists at Telefonica.
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Yes. So I guess I'd characterize it would most likely follow what we've seen with other partners. And so as I mentioned earlier in Mike's question, we see Verizon, AT&T, Cricket, Samsung launch, you see a nice kind of steady and slow build quarter over quarter from time zero to quarter one, quarter two, quarter three, and so on. And I would envision Telefonica to follow a similar trajectory as our other partners have.
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Could you talk or could you clarify a little bit the tax benefit you got this quarter, where that came from?
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Yeah. So I'll take that one, Jon. Yes. We recorded a gain.
It's a tax benefit related to the acquisition and tied to the purchase accounting, it's a non-cash adjustment that we made as part of closing the Mobile Posse acquisition.
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OK. And then I was wondering if I think back when you were telling us about the initial purchase of Mobile Posse, I think we've indicated that the gross margins on the Mobile Posse business were higher than the historical gross margins for the Ignite business. I mean, if we were modeling this out, could you give us a little -- are we expecting a couple of hundred-basis-point improvement or more than that?
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Yes. So, Jon, when you have a chance to see the K, you'll see we've included a pro forma, and the margins are close to 50% for that business. So that's disclosed. So we'll see, call it, two to three points of margin expansion just by adding that business to Digital Turbine.
And then it will be the pace at which those two businesses grow that will drive the mix over time.
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Something that stood out to me was the strength in your new devices added, especially with some of the larger telephone companies in the U.S. talking about 30% declines on new adds. So I was trying to understand a little maybe how that breaks out between the U.S. market potential declines versus growth internationally?
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Yes. Sure. So as I mentioned earlier in my remarks, there's still a penetration story that's out there. So given the fact that we're only on 60% of the Android phones here in the U.S.
and 10%, 15-ish percent in the global market, even if devices slow down, we're going to see growth. And so clearly, we saw a lot of growth internationally. But even here in the U.S., I think the growth is somewhat slowed. And we expect in the back end of this year for some of that to pick up as a result of 5G deployments, stores opening up and the like as we get into the future quarters.
But even in the current environment, the fact that we added 150 million devices for the fiscal year and that compares with 100 million in the prior fiscal year, that's pretty good growth in a market where the macro situation is showing slowing. So we expect to continue to show net new device ramps as a result of all of our new partners and even potentially some growth here in the U.S. as well.
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And my other question was, and I don't know if maybe you said this, but how much did Mobile Posse contribute during the quarter for the one month?
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Yes. They were just under $5 million in revenue.
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The first one on the digital entertainment. Regarding your guidance, I believe you are not including any of those new games that you mentioned in the pipeline that potentially you can publish in later the year. So I just want to clarify on that. And then, related to that as well, besides India, which country do you think we'll also see some declining trend?
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In terms of digital entertainment, our guidance does take into account of games that we believe might be launched this year. Of course, any new games in the initial launch stage probably will focus more on user growth and management penetration as opposed to immediately focus on monetization. So the contribution probably might come toward the later part of the year or later part of the stage of the development of the game. And in terms of the trends, I think the overall opening up post COVID is across all the markets. And therefore, we do start to see the weakening. I think it's industrywide as well. And we are still evaluating the data and the trends. At the same time, we are very much focused on the long-term success of the Free Fire IP, which we see it as a very important strategic asset to us. While, of course, it is contributing billions of dollars of cash every year, but most importantly, we want to build into a long-lasting IP and with hundreds of millions of active users fully engaged and socializing and playing different types of games at most and also incorporating more IP over time into this game and platform to go into more of an important franchise which we will use as also key to the future development of the virtual economy. So I think while there are some headwinds, our focus on the long term has not wavered and our view toward the game as a long-term play has not changed.
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With the decisions to exit trends, at what point would you also evaluate some of these cross-border tractions in Poland and Spain that you could maybe kind of prompt you to moving ahead with your next step of the penetration?
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Because of e-commerce, as they shared, we are focused on Southeast Asia and Taiwan as our core existing markets, which has continued to enjoy very strong growth despite the very strong comps versus last year during the height of COVID. And as you can see, we also have gained significant ground vis-a-vis our peers. In Indonesia, we grew more than -- about 88% year on year in the quarter. And also, in ASEAN + six countries, our growth rate is around 80%. So our growth rate is meaningfully, significantly, in fact, higher than our next peer, while we are already multiple times their size. So that is highly encouraging. And at the same time, we are looking at more and more markets turning profitable as we shared in terms of adjusted EBITDA before HQ costs allocation. So this will become -- the market will not only be a growth engine for us, but also potentially down the road contribute positive cash to fund our global growth. And another growth area that we focus on is Brazil. Not only we have reached top ranking in downloads and total time spent and second in MAU just two years after entering the market, we have also achieved more than 140 million of quarterly gross orders with $170 million revenue in the market. As we also shared for that kind of -- when we enter into the market, we focus first on user growth and then order growth and then market leadership and positive unit economics over time with scale. We have repeated that playbook seven times in seven highly distinct markets in Southeast Asia and Taiwan. And we are saying that we are already seeing strong user traction, strong order growth and success to market leadership and also improving -- fast-improving UE, unit economics, in that market while pointing to another potential market that could essentially double our total addressable market for e-commerce with a highly proven profitability. Now when you look at Southeast Asia and Taiwan, we're probably the first large e-commerce player to show profitability in this market, in this region. But in Lat Am, all the existing major players are quite profitable. So the profitability model for the market is highly proven. Therefore, we are very encouraged by the results of our e-commerce and its outlook into a global platform. In terms of the other markets that we shared before, these are highly nascent markets where we might test the waters in from time to time. So our asset from funds again shows while we are open minded, we're also very disciplined in our pilot exercise. So we'll remain disciplined and open-minded with all our markets. Again, the focus will be on the existing core Southeast Asia and Taiwan market and our new growth market in Brazil.
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If I could just ask about what is built into your game forecast for 2022 for bookings that you shared with us. And how does that potentially change if India was to come back on track as an earlier than expected date potentially.
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In terms of the game guidance, as we shared in the earnings that given the opening of our markets and the trends we're seeing and also some unexpected government action we are facing, we have taken into -- this into consideration. And therefore, we, at this point, believe our 2022 game bookings will probably be close to the level of 2020. That means we are getting back some of the gains we made during -- partially during the COVID. And also, with some additional discounts to reflect the situation in India, which is highly uncertain. Again, I think at this point, given the uncertainties we are facing, this is probably more art than science for us.
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And the second is if it is at all possible in the gaming business to talk about how quickly you can build up a portfolio of games and move in to be the stage of some of those games, that would be fantastic to understand how we can expect that trajectory to potentially proceed through the growth of 2022 quarter-by-quarter and then into 2023.
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In terms of the game portfolio, we are very focused on diversifying our game genres. As we shared before, we are looking into different genres such as sandbox, RPG and other more casual games to supplement our existing offerings. Now, I think these will still be early stage games. And also, given the size of Free Fire, which is the largest and highest growth in global games in history, it is probably hard to come up immediately with other games that can match the size of Free Fire. However, everything we're doing is to a, diversify our portfolio and capability; and b, at the same time, will prepare for the long run while we already have such a big platform of Free Fire that we can incorporate different types of game modes and IP into and leverage that platform to introduce more content and more types of games and more IP to our user base, which still remains probably one of the largest user bases in the world. So while we have some earnings headwinds on the game side, our focus is really on the long run to make sure that we stand ready to capture the next wave of major opportunities that might come. If you look at our track record, so far, it's been quite strong. We captured the mobile league, for example, on the PC side with the rise of League of Legends, and we are the exclusive publisher that took us to where we initially were at the time of IPO as a gatekeeper of Southeast Asia and Taiwan in terms of game publishing. And then, we also captured the next mobile wave with the publishing of Arena of Valor, development of Free Fire by ourselves, which expanded our TAM of Southeast Asia-focused market to a global platform. And then, we also captured the battle royale wave with the rise of Free Fire and that significantly enhanced our game side, the business side of the business and also the overall strength of the business. I think our track record speaks for itself. So what we are doing now is continue to get us ready and strengthen our capabilities to capture the next major wave that might come our way.
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And third, this is a general question on the e-commerce business, where we noticed how the momentum is very positive, both from the standpoint of rate on account of take rate progression, as well as a progression toward free cash flow and profitability. I wonder if you could just take a step back and give us a feel for how much further this business can be accelerated into 2022 versus where the guide is.
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In terms of the take rates, so we are -- as we shared before, we believe a high single, low double-digit rate is achievable in the longer run. We still believe that. And as you can see, we are progressing well toward that rate in most of the markets. We're already getting a high single-digit rate and we believe this will continue to rise, although we think a gradual and well-managed progression will be adapted for our business in the long run. And also, for the newer markets such as Brazil, as you can see, the prevailing rate in the market are more at 15% to 18% charged by some of the leading players. So it is a very high take rate market also. So we're not particularly worried about the e-commerce take rates. And in terms of profitability, as we shared, we believe Southeast Asia and Taiwan will achieve positive adjusted EBITDA before HQ costs allocation by this year. That means more and more markets will break even on that term over time this year and maybe going into next year. So that will give us also a strong footing in further growing our other new growth markets, as I shared before, where profitability has long been proven.
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First of all is, can management talk a little bit about your view on the 2022 GMV growth? And the second is, can the management help to sort of break down the rough mix of Asia and new markets in terms of EBITDA loss this quarter?
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Yes. So we don't give guidance on GMV, but we did give guidance on GAAP revenue for e-commerce. We believe that it reflects our view about the potential growth rate. And I also mentioned that in terms of the take rate increase, there will be -- while we will continue to increase take rate, the pace will be moderated and well measured. We don't also do the -- give the breakdown in terms of the EBITDA, but we have given the order number for fourth quarter on Brazil and also the EBITDA loss previous allocation per order in Brazil. So I think you can roughly do the math.
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Firstly, on e-commerce, your guidance to achieve positive adjusted EBITDA in your core markets, this would be driven by what key factors? Is it higher take rate or lower sales and marketing? And any color over there would be helpful. And if you can throw some light on the competitive landscape in core markets?
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In terms of our e-commerce cost of EBITDA in Southeast Asia and Taiwan, this is as a result of both the higher take rates and also cost efficiency as we scale. As we always mentioned, the platform, the marketplace model that we are pursuing enjoys a strong silo effect and the economy of scale as we continue to grow our business, the unit economics just keeps improving. And then, naturally, it comes to a breakeven point. And at the same time, as you can see, we have been rapidly ramping up the take rate, especially on the margin take rate in terms of transaction-based revenue, as well as advertisement. We are broadly charging more types of sellers and gradually raising the take rate each type of sellers might pay. And at the same time, more importantly, voluntary sellers are adopting more of our free shipping program, advertisement program and they're actually paying more as our business and their business stay on our platform to facilitate further growth of their business. So as the marketplace model, its profitability is actually quite proven. But it takes certain investment and time to get there. We believe we probably will be one of the first to get there as a major e-commerce player in this region, but we are very happy that at the same time, we're still growing at a very strong rate despite the tough comp against the COVID period and also extending our market leadership vis-a-vis all our peers.
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Secondly, your cash and cash equivalents went down by $1.6 billion quarter on quarter to $10.2 billion. Can you highlight what factors drove that decline? Is there any other investments?
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Yes, sure. About the cash position, we are trying to optimize the cash yield by investing into a shortened time deposit, some of which are over the period of three months, and by GAAP, is categorized as structured investments. And that amounts to a quite significant $800 million to $900 million. So if you add that back, actually, the cash position is over $10 billion. Yes. So this is just to say that the cash isn't gone. It's just paying to us some savings by us.
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Firstly, if you can talk about new game development, we know there's a lot of talent available in China now. Are you changing your hiring strategies to accelerate new game development?
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In terms of new game development, I think our strategy has been quite consistent. We have studios globally in the States and also in Singapore, Asia and Korea and other parts of Asia. So we are focused on income development. And at the same time, we have been investing globally into strong development teams and IT with partnership agreements tied to such investments that also augments our organic pipeline. And of course, there's the publishing side that we continue to work with, and we'll discuss partnerships with the global game developers to bring top IP to our region.
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And second question, I know it's a bit sensitive, but is there a process to get the ban revoked in India on Free Fire?
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And in terms of Free Fire in India, we're still working on it. Other than what's been publicly disclosed, we don't have much more to share at this point. Thank you.
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Thanks for the call, everyone. And I hope your families are well. My question is sort of on Argentina. More generally, what's your -- from a macro standpoint, what's your best guess as to what a normalization in Argentina might look like as we emerge from COVID over the next couple of months through the summer and into next year? And in terms of what that means for activity for your different assets?
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Thank you, Alvaro. I think -- I mean, what we have seen so far is since we open Alto Noa is itself were better that we expected. Traffic was reduced. So, if you measure the traffic was 66% reduction compared to the previous year for the same period of time. But sales were down only 14% compared to last year. And if we see the same-store sales it's 1% up. So that gave us some courage that there is people willing to buy in our shopping centers and all those that go through the Shopping center are less doing tourism and more fully dedicated to go and buy. So we expect that we're going to see that trend, and we hope that we're going to see that trend.
Regarding the opening our centers, as we mentioned, Mendoza and Salta are opened. We expect also -- yesterday was issued a new decree from the province of Santa Fe. So we are expecting to get permission very, very soon to open both our Santa Fe shopping center and Rosario shopping center. And we are working with all the other municipalities and cities to see -- to reopen our shopping centers with very strict protocols of health and measures of -- to avoid any kind of problem in our shopping centers.
Regarding the rest of the business, I mean, as we said, offices are not affected at all. Construction, we expect to do it sooner than we thought a few weeks ago. And regarding hotels, everything seems that they will reopen the borders by September. And as of today, that is the decree. But they might change that. Talking with the municipalities, I mean, some provinces are opening activities regarding tourism. We'll have on July, the -- for us, the winter break. And they are thinking that may allow hotels to do some things during holidays, not with international travelers, but yes, with local. So this is just comments from The Street, but we expect that we're going to see -- what happened in the world, the people was locked for a long period of time. So people want to get out, want to go back to the lives and they will go back to shopping, go back to work and that's what we have been seeing.
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I hear you on that last point. And then just one last question on, how should we think about -- and maybe this is more for Matias, how should we think about IRSA Commercial Properties, the listed entity, as a source of capital over the next couple of months? Is this an asset that maybe you want to buy more of at these levels? Is there -- and then maybe if you could also provide an update on the intercompany loan between Commercial Properties and IRSA, that would be helpful?
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Thank you, Alvaro. So when you see IRSA Commercial Properties, we have an amortization of one bond, the local bond that expire in September. So, we are working in order to refinance that. Probably, the plan A is to try to set up a syndicated loans with different banks here in Argentina. So, we are working on that with some products. Also, there is a chance that we could go to the capital market also like IRSA and Cresud did, but I will say that the plan A is to refinance. We want to preserve liquidity in this challenging context.
Something very positive in the current scenario, and really I am surprised that under the worst stress, we -- you have to think that our operations only close -- our shoppings only close four days per year, and we have this quarantine that is affecting completely the operation. The Company was able to maintain the liquidity. We have the revenues from our offices. So we are doing a tremendous effort in terms of costs. And fortunately, we were able to maintain the liquidity, so even with our shopping malls close. So this kind of -- this Company, and is very high -- EBITDA margin Company, so even with reducing revenues, we maintained the -- how to expand money. So the only thing now is the expenses -- the common expenses in the shopping that the collection more or less was OK. And with the revenues of the offices, we are in good shape.
So, regarding the credit line, the intercompany loan, that we created that credit line because of the context of Argentina and to have more flexibility in managing the liquidity of the Group. Although we have that credit line open, our intention is to refinance always in each of the vehicles. So, this is -- then a proof is what we did in IRSA last 10 days ago. So, we will keep working in each vehicle to refinance itself. But we have that credit line open, that give us more flexibility in this scenario.
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Okay. Good morning, everybody. Thank you for having. My question is about, if you are looking for a new devaluation of the peso in Argentina, the official change and how it could affect the -- this moment the Company?
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Thank you, Adrian. So you know that we have been suffering a huge devaluation last two years, right? There was a -- sorry, one second. So there was a huge devaluation from '18 to ARS68, and that mainly affect when you measure our EBITDA of the shopping centers in dollar terms. The typical situation is that you automatically reduce your EBITDA in dollar terms, but then recovered in the future through the inflation. In Argentina, always you have devaluation then you have an increase in inflation that in the next periods you recover some in dollar terms.
In the case of the value of the real estate, also there is an impact in the devaluation. When you see our -- what we did and our properties are valued at fair value in the financials. So, we already gave a significant impact in the shopping malls, very, very important in the previous year. At the current levels, I believe that is too conservative. We are valuing our malls at $2,000 per square meter. And if you know in Argentina $2,000 per square meter you won't buy any square meter of the quality of our assets.
So, I think a future devaluation may have some impact, but not a significant impact in the value of our properties. At the end of the day, that real estate in Argentina always was quote in dollars. Transactions are in dollars or according to the dollar quote. So, I think in this kind of scenarios, always real estate was a safe haven against the volatility. There is something that you may see and you will see is that, we can do some disposals of some assets. And there is demand of people that has pesos today in Argentina and want to dollarize, and we'll use real estate to dollarize.
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[Foreign Speech]
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Thank you, Francisco. I will answer you in English first. The first question is regarding occupancy and shopping centers, and the second part of the question is regarding how we calculate percentage of sales. So, in terms of occupancy, what we're showing today is the numbers as of March, right? So there was no impact, basically, just the 15 days that Matias and we all mentioned. Since that moment, we do expect some reduction in occupancy, but it's too early to know. We know that there will be some companies that they would like to reduce their footprint. We know that some companies will have to do it, some moms-and-pops shops will want to get out of business. But it's too early to predict what is going to be like that.
At the same time, what I can tell you is that, we always -- this is not the first crisis we lived. And every time we'll have this kind of situations, we have been working very close to our tenants and we were able to sustain occupancy of those stores that we think that they had a chance to survive. And with those people that make -- really make sense to sustain for a while. So, was -- will -- most probably we'll see that we will do some programs to help some companies and that's what we did in the past. But nevertheless, there will be some impact on occupation, as we are seeing all over the world, some reduction in occupation.
Regarding percentage of sales, we are planning and this is just a planning. We're planning to collect in the -- well, I mean -- this is what we are doing right now in Salta since we are already selling in the shopping in Salta, we're only collecting common charges and represented percentage of sales that we are seeing from each store. Basically, 7% for retail, traditional retail and then we have for electronics and home appliance as smaller number of percentage. But this is typically what we're trying to do and what we did for this month on Salta, but we are going to do also for Mendoza. And we haven't made any decision on Buenos Aires City. We're working how we are going to collection. But the concession is on the basic rent because we don't know what -- I mean, we didn't know what's going to happen and this is only for a short period of time. We are not looking for a long-term concessions. We're always thinking about short-term concessions in the first stage.
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Oh, thank you. Yes. Thank you, again, for hosting this call. And I hope everyone's families is well, given the situation in Argentina and across the world. I just have a specific question about liquidity over the last couple of weeks, it seems like the government has tightened access to dollar and then forcing companies to tap their dollar offshore liquidity. So my question is, how much cash IRSA has abroad? And what is the total liquidity as of today? And are you feeling comfortable with your liquidity and your plans to address the '21 maturity that you showed? It seems like there is a big wall of maturities due. So in the context of this restriction, I wonder how you can you manage this?
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Sam, thank you for your question. So, basically, today, the liquidity that we have at IRSA level is the money that we raised -- that we just raised it in the local market that are pesos. So our next obligation is the amortization of our 2020 notes that expire in July. So, according to the last rule of the Central Bank, we believe that we are in conditions to buy dollars with the Central Bank. So the -- that will be our intention.
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|
Okay. And again, can you remind me of the -- for the 2021? And then what your total liquidity is? So, is it just the ARS70 million that you raised or the ARS65 million plus cash, so you take care of the stub for the '20?
And then the second will be -- the second question is really about the 2021. You mentioned you try to do -- approach a syndicate. I just want to get a bit more color. Thank you.
|
Yeah. So, after the July payment, we have -- the next payment is in August and the following one is in November 2020. So, all our -- most of our debts expire in 2020. Although we have in the presentation as fiscal year '21 because start -- remember that our fiscal year starts in July. So, the next payment we are working in different options and we mentioned that we -- our shareholders meeting approved a capital increase. Also, we are working at IRSA Commercial Properties level with the syndicated loan or a potential new issuance in the local capital market. And also for IRSA we can do something else during the year. So, when you see the liquidity at IRSA level, the money that we have basically cover the July payment. And then we will keep working in the other alternatives.
We have some cash liquidity at IRSA Commercial Properties. So, of course, we will fulfill all the regulations with the Central Bank. Also, as an alternative, Sam, is potential sale of some of our existing properties. There is liquidity in the market. We know there are people that want to dollarize. You don't have many instrument in pesos term with positive interest rates. So we started to see demand for our properties, and you will see some new information in the next days about that.
|
intermediate
|
[
"direct",
"intermediate",
"fully_evasive"
] |
B
|
e93d343fe17ac9129c7bae1253382631
|
First of all, on the Pandora side, very strong monetization in the quarter. You continue to see subscriber -- or listeners erode. Are there plans -- or can you talk about efforts to either start growing that listener base or at least to stabilize it? And secondly, on the satellite radio side, very low SAC in the quarter. Does that have to do with the new agreements that you mentioned? Or is there something else going on there?
|
First, on the Pandora side, we're very pleased that we continue to have the largest free digital iOS platform in the U.S. We recognize that the losses in the listeners are not where we want to be, and we're extremely focused on that. We have a number of initiatives in place to deliver more and better content, more relevant recommendations and improving the Pandora digital experience in the apps. But what you pointed out is key for us going forward that our monetization has been really strong at Pandora, and we continue to deliver strong RPM. The team has built strong innovative ad products there. And look, we've got -- we launched an interesting partnership with T-Mobile. We've had a really good relationship with them over the years. And we have a very unique Pandora offering in place with T-Mobile, and we look forward to doing more collaborations with T-Mobile hopefully in the future and other big brands that we should be able to talk about soon. And then I guess on the SAC, your question was about SAC right, James, your second question? Is that right? Yes. So I think overall, from a SAC -- go ahead. I think two things. We continue to work with our OEM partners to strengthen our relationships. You saw our announcement this month with Jaguar Land Rover, yet another example of an OEM partner increasing penetration. We're launching standard across their models on model year '21 vehicles, and we've extended that agreement through 2026. So we continue to work with the OEMs, and those agreements as we renegotiate them, the terms across our subsidies, our trial structures and our revenue share may change, but we're constantly optimizing them in favor of building penetration, which is what's going to drive longer-term growth for us in the future. So the SAC expense in the quarter is partially a function of those new agreements with various automakers, but it's also really driven by what supply constraints we've seen with silicon. And this is really across the board, it's an industry phenomenon that I know you've seen widely reported, where automakers are continuing to manage the supply of silicon across their vehicle lines. And so we did see lower installs than we would have expected in the quarter. But luckily, consumer demand on the automotive side is very strong. And we had the biggest quarter we've ever had on trial starts, which bodes well for conversions in the future.
|
direct
|
[
"direct",
"intermediate",
"fully_evasive"
] |
A
|
22be1f74b44fa5fd2c8e36d45ebb1868
|
I was just wondering if you can give us an update on your podcast strategy. Obviously, a lot of headlines from Apple and Spotify recently about moving more toward subscription-based service. Just wanted to hear your views on if this is where the market is going and perhaps how SIRI is thinking about it longer term?
|
Our focus is on delivering the best experiences for content creators, and we can help them monetize more broadly because we have the best solutions in terms of adtech and our ad sales teams. You saw with our acquisitions last year of Stitcher and Simplecast that we added to these capabilities, and we believe we are really well positioned to broadly distribute content from podcast creators and audio publishers across platforms, whether it's our own platforms or off platform. And we believe, and that's what we see content creators are really looking for. Of course, the announcement this week from Apple and Spotify, we are really well positioned to offer subscription products. We have subscription products across our brands today, including at Stitcher, where some time we've had -- for some time, we've had a premium podcast subscription end market, which does provide capabilities for listeners to listen to podcasts ad-free, to get early windows and to see -- have premium exclusive content. So we can be nimble. If that's really where the market heads and consumers want to go, we certainly have the opportunities to monetize and help content creators monetize through subscription. I'm not optimistic that consumers are going to want to have a lot of micro audio subscriptions. But again, if that's the path that we see evolving, we have the opportunity to pursue that as well. Just one thing on that. So the biggest thing right now for podcast, I think, is having high-quality production and enough A level content in the podcast -- sorry, marketplace. So we offer the production skills, the curation skills to get into a subscription model on a moment's notice. We're obviously living it every day. But if you look at a podcast in January, Crime Junkie was in the top 10 of Stitcher, Pandora and SiriusXM on people listening to podcasts. If you talk to any podcast creator, they want awareness and marketing. And we'd like to get into a position where we're comfortable marketing and promoting podcasts, so the awareness is there at a volume level. And at that point decisions on subscriptions, micro subscriptions, that will be easy. We're about trying to figure out where the best fighting point is that as this evolves.
|
direct
|
[
"direct",
"intermediate",
"fully_evasive"
] |
A
|
94c01f52c7db825f2ae313cc01a093f3
|
And then perhaps if I can follow-up on just your comments around the silicon shortage. If indeed, the supply chain is constrained and OEMs are unable to kind of refill that inventory, would that be a positive? Should we think about that as an upside benefit to EBITDA as -- for the full year as SAC build -- the inventory build will not necessarily come through in the numbers? Just any color there would be great.
|
Certainly, if installs are lighter going forward or continue to be lighter going forward, then we would have lower SAC expense. For the business, we clearly are hopeful that the OEMs will be able to meet consumer demand. There's just been an incredible amount of demand on the consumer side for both new and used cars. And you saw SAAR at 16.8 per -- 16.8 million in the first quarter. And as we said, March was at 17.7 million. If that strength continues, the inventory levels are historically low at 39 days, and there's only so much inventory out there to support the consumer demand. But strong auto sales is good for our business, and we're hopeful, again, that the OEMs will be able to deliver to support that demand and that there will be strong used car inventories as well to support the demand because that's the best thing for our business on the top line.
|
intermediate
|
[
"direct",
"intermediate",
"fully_evasive"
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B
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