Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.

Markets finished negative for the week, as the optimism from Fed Chair Powell’s remarks at the Brookings Institute regarding slower rate hikes retreated. Producer Price Index (PPI) for October surprised to the upside as it grew 7.4% year-over-year which was lower than the previous month’s 8.1% year-over-year, but missed economists estimates of 7.2%. University of Michigan’s Consumer Sentiment report was more positive, rising 4% above last month to 59.1 in December, beating economists’ estimates of 57.0 and recovering most November’s losses with improvements from all components from the index.

Next week, investors will be heavily focused on November’s Consumer Price Index (CPI), which measures consumer inflation, coming out on Tuesday, as well as the Fed’s rate decision on Thursday. The Federal Reserve is expected to increase rates by 50 basis points, the first rate hike under 75 bps since May, but higher than expected inflation could impact the Fed’s longer term plans for target rates. Other important economic data reporting next week include NFIB Small Business Optimism Index, average hourly earnings, and retail sales data. 

Looking overseas, investors are optimistic about China’s reopening as Covid Zero restrictions are expected to loosen over the coming months.

Weekly Returns

S&P — -3.37% 

Nasdaq — -3.99%

Dow — -2.77%

Thank you Blue Room Analyst NICK PEART

Leading up to the FY2023 Q3 earnings call, the company had been reviewing all categories of expenses and said it was adjusting its spending accordingly. They brought on a new Chief Customer Officer who has experience scaling and began work during the third quarter. They stabilized employee attrition and were focused on continuing the turnaround in the sales organization. 

DocuSign’s earnings results exceeded almost all expectations, with total revenues of $645 million and adjusted diluted EPS of $0.57 versus consensus estimates of $627 million and $0.44, respectively. The company released Fourth Quarter guidance, which exceeded street estimates, and raised its Fiscal Year 2023 guidance, which also exceeded expectations. The stock reacted favorably, jumping 11% in after-hours trading following the earnings release and conference call. The following are key takeaways and highlights from the latest earnings results:

• The better-than-expected results are a reflection of stabilization across the business; newly-appointed CEO Allan Thygesen stated “I believe we’re just at the beginning of revolutionizing how businesses initiate, negotiate, and manage agreements, and we will lead that as we did for e-Signature”

• “Our focus going forward: we are committed to broadening the category. That starts with a more clearly defined roadmap that leverages our core eSignature strength and our ambition of delivering easier, smarter, trusted agreements. We see opportunities beyond the replacement of paper signatures to deliver innovative new experiences and integrate more deeply with partner applications”

• The strength in billings growth was partially driven by early renewals, particularly renewals from Q4

• The workforce reductions (7,522 employees versus 8,061 in the previous quarter), coupled with more disciplined spending and cost containment throughout the company, drove strong Q3 non-GAAP operating margin of 23% from 22% last year

• Based on what they’re seeing across the business and broader macro environment, they are expecting a slower start to the fiscal year 2024, with total revenue growth in the high single-digits

• “Broadening the category” means “redefining what an agreement looks like”; increasing personalization, integrating with third-party applications (e.g., Office 365)

• Some of the early renewals were driven by customers at capacity who were looking to expand or increase their usage with add-on products

Although there is competition at the low-end with generic eSignature, DocuSign offers more than that, including cost savings and greater efficiencies with customers’ internal workflows

United States Producer Price Index YoY and MoM

PPI is a family of data that gauges the costs of production. There are three areas of PPI classification that use the same pool of data from the BLS: industry, commodity and commodity-based final and intermediate demand (FD-ID).

Finished Goods YoY~ Finished goods are goods that have completed the manufacturing process but have not yet been sold or distributed to the end user. 

Final Demand ~ PPI for final demand measures the average change in prices received by domestic producers of goods, services and construction sold for personal consumption, capital, investment, government and export.

Key Metrics and Business Highlights

• Customers with ACV equal to or greater than $100,000 were 770, up from 720 as of October 31, 2021.

• Dollar-based retention rate was 109%, compared to 110% as of October 31, 2021.

• Our ARR was $350.7 million compared to $295.0 million as of October 31, 2021, representing ARR growth of 19%, which growth rate is consistent with the prior year comparison.

• Customer usage of Zuora solutions grew, with $21.5 billion in transaction volume through Zuora’s billing platform during our third quarter, an increase of 15% year-over-year and 17% on a constant currency basis.

• Completed the acquisition of Zephr, a leading subscription experience platform used by global digital publishing and media companies.

• Recognized for the third time as a Leader by the IDC MarketScape: Worldwide Enterprise-Focused Subscription and Usage Management Applications.

• New customer logos and go-lives included Michelin, Enercare, Canon and Suzuki Motor Corporation.

Committed to a workforce reduction plan, impacting 11% of our workforce, to improve operational efficiencies and operating costs and better align our workforce with current business needs, priorities, and near term growth expectations, in light of current macroeconomic uncertainties. We expect to recognize a total of approximately $9.5 million in charges associated with this reduction plan, with $3.7 million recognized in the third quarter of fiscal 2023 and substantially all of the remainder to be recognized in the fourth quarter of fiscal 2023.

Consumer sentiment rose 4% above November to 59.1 in December, recovering most of the losses from November but remaining low from a historical perspective. 

All components of the index lifted, with one-year business conditions surging 14% and long-term business conditions increasing a more modest 6%. 

Gains in the sentiment index were seen across multiple demographic groups, with particularly large increases for higher-income families and those with larger stock holdings, supported by recent rises in the financial markets. Sentiment for Democrats and Independents rose 12% and 7%, respectively, while for Republicans it fell 6%. 

Throughout the survey, concerns over high prices — which remain high relative to just prior to this current inflationary episode — have eased modestly.

CAMBRIDGE, Mass., Dec. 6, 2022 – Editas Medicine, Inc. (Nasdaq: EDIT), a clinical stage genome editing company, today announced positive, initial clinical data from the first two patients with sickle cell disease (SCD) treated with EDIT-301 in the Phase 1/2 RUBY trial. EDIT-301 is under development for the treatment of severe sickle cell disease. The clinical data includes safety data from the first two patients and efficacy data from the first patient treated.

Both treated patients demonstrated successful neutrophil and platelet engraftment. Patient 1 achieved neutrophil engraftment at 23 days after EDIT-301 infusion and platelet engraftment at 19 days after EDIT-301 infusion. Patient 2 achieved neutrophil engraftment 29 days after EDIT-301 infusion and platelet engraftment 37 days after EDIT-301 infusion. Additionally, neither patient has experienced any vaso-occlusive events since treatment with EDIT-301, at five and 1.5 months follow up, respectively.

At five months post-treatment, the first patient treated with EDIT-301 has a total hemoglobin of 16.4 g/dL, a fetal hemoglobin (or HbF) of 45.4%, and a mean corpuscular HbF of 13.8 pg/red blood cell, exceeding the 10.0 pg/red blood cell threshold to suppress red blood cell sickling. Additionally, HbF increase in the first patient was highly pancellular, with F cells steadily increasing to reach greater than 95% of red blood cells.

EDIT-301 was well-tolerated in the two patients and demonstrated a safety profile consistent with myeloablative conditioning with busulfan and autologous hematopoietic stem cell transplant. No serious adverse events occurred, and no adverse events reported were related to treatment with EDIT-301.

Notes going into Q4 earnings:

As a company highly dependent on consumers’ willingness and ability to make big-ticket discretionary purchases, we believe that Thor could see a significant slowdown in sales activity in a recesionary environment. Consumer credit debt nearing a decade-high and personal savings at a near decade-low are potential harbingers of a slowdown in consumer purchasing power as we look forward to Q3. Ahead of their earnings release on Wednesday, all eyes were on inventory numbers and unit sales, as well as management’s future guidance. Coming off nearly two years of record sales growth, provided in large part due to a major increase in economic stimulus, alongside a deteriorating macroeconomic backdrop, we believe Thor’s bloated inventories will have to reconcile a significant drop in demand during an economic recession, as consumers pull away from large discretionary purchases that are heavily reliant on financing. This poses significant risks to the company’s margins, as promotional activity will likely tick up in response to building inventory. As a final headwind, continually rising interest rates further eat away at both consumer and dealer appetite for making large discretionary purchases and taking on additional inventory, which leaves Thor further exposed to downstream demand destruction.

In contrast to the month of October, semiconductor equities rebounded nearly 18% in November. Partially catalyzed by encouraging implications on the path of the Fed Funds rate, the SOXX ETF experienced its first double-digit up month since July 2022. Only one equity from the entire ETF component group had negative performance over the month (Entegris Inc., down -4.0%). In tandem with equity markets broadly, semiconductor stocks got a significant boost about a third-of-the-way through the month from a lower-than-anticipated CPI print. That paved the way for investors to price in a more relaxed Federal Funds rate trajectory.

Past, Present, and Future

Since the Lincoln administration signed our national bank charter No. 24 in 1863, we’ve drawn on our financial strength to serve customers. This has been especially evident in times of need, such as during the COVID-19 pandemic. Our response by the end of 2020 included a $20 million premium pay program for our employees, relief assistance and 108,000 Small Business Administration Paycheck Protection Program (PPP) loans for our customers, and $30 million in expedited charitable contributions for our communities. As a result, we’re proud to have been named the most essential bank amid the pandemic in a ranking by The Harris Poll.

We also recognize that this past year has fundamentally changed banking by accelerating the shift to digital products and services. We’re positioned well for this future, having launched new tools — like the U.S. Bank Smart Assistant — to complement our 26-state branch footprint.

Thursday
December 8, 2022
12 PM

BLUE ROOM
GLOBAL MEETING
NUMBER 102

__________ __________

Dear Blue Room,

Hope everyone is having a great week!

Agenda

I. Blue Room Business Updates
a. Vietnam Update
b. Internship Program Update
c. Year End Reviews

II. Blue Room Impact Updates
a. Housing / House One, & Madelon Updates
b. Commodities -- Dinner last night
c. Art
d. Food

Happy Birthday Nina!

BLUE ROOM ANALYST TAKEAWAYS

3Q22 Actual Performance:

• Beat consensus ($1.857 billion vs. $1.814 billion expected)

• GAAP EPS beat ($2.00 vs. $1.98 expected)

• Gross margin missed (55.95% vs. 56.68% expected)

4Q22 Guidance:

• Revenue misses: $2.630 billion guided vs. $2.659 billion expected

• EPS misses (GAAP): $4.25 guided vs. $4.31 expected

FY22 Guidance: Although revenue at the mid-point was again revised upward, it was marginally above consensus estimates which seems not enough to satisfy investors in post-market. EPS also comes in lower than market:

• Revenue meets: $7.969 billion guided vs. $7.963 billion expected 

• EPS: $9.99 guided vs. $10.07 expected

Difference between BLUE ROOM 4Q22 estimates and guide is based on a 45.0% COGS vs. 41.0% to 42.0% COGS implied from company guidance. Company guidance assumes full pricing of inventory. We are less optimistic about inventory pricing than the company and general consensus. We believe that one of two things will occur:

1. Either lulu marks down now inventory to lower the DIOs figure or,

2. Lulu takes longer to sell through products during the deflationary period and faces margin pressure from inventory bought during high inflation. 

Both of these reasonably logical outcomes imply slower-than-expected revenue growth over the next few quarters and lower margin. 

Nothing regarding abnormal inventory markdowns was mentioned in the guidance outlook for next quarter, and in Q & A the company maintained that they will continue to be a “full-price” brand. 

— AS —

NATHANIEL RATELIFF & THE NIGHT SWEATS

GEAR UP TO

HEADLINE THEIR FIRST ARENA SHOW

IN DENVER, CO ON FRIDAY, DEC 16TH,

WE REPUBLISH THIS TRIBUTE FROM NEWSLETTER #17.

ON FEBRUARY 13TH NATHANIEL RATELIFF MAKES HIS SNL DEBUT

Chapter One

(of Three)

Growing up in rural Missouri, Nathaniel Rateliff got his early music education from his family, who performed in the church band in which Nathaniel played drums. Nathaniel’s father was killed in a car crash, which forced Nathaniel to drop out of seventh grade and end his formal education. He immediately took a job to help provide for his family, working at the local plastic factory and then Subway. One of Rateliff's full-time jobs was working as a janitor at what would have been his high school. Four years after his father’s accident, Nathaniel’s mother moved to Texas with her new husband. At that point, Nathaniel moved in with his best friend, Joseph Pope and his family(Joseph took Nathaniel as his date to the high school senior prom that Nathaniel should have been attending on his own). At 19, Nathaniel left Missouri for Colorado on a missionary trip as a way of getting out of his hometown. As Nathaniel recounts, he was actually the one to be converted by the Native Americans. Then, Rateliff moved to Denver, where he still resides twenty years later. In his early days in Denver, he worked night shifts at a bottle factory and then spent ten years working on the loading dock of a trucking company while testing out songs at open-mic nights.

An intense local buzz grew about Nathaniel and led to Nathaniel landing a record deal with Rounder Records. Rateliff’s 2010 solo album, ‘In Memory of Loss’, propelled him to the forefront of Denver’s music  scene, with The New York Times dubbing him “a local folk-pop hero”. From that point on Nathaniel would start his career as a hard working musician. He toured extensively in North America, the UK, and Europe to critical acclaim and small audiences, all the time with his guitar player, bass player and still best friend Joseph Pope by his side. Never returning from tour with enough money, Rateliff kept day jobs when back in Denver mainly getting his hands in the dirt as a landscaper. 

Reflecting on his mothers move to Texas Nathaniel remarked “My mom was just in her mid-30s. She didn’t know what the f*ck was going on either. I told her, ‘I don’t blame you. It’s not what cards you’re dealt, it’s how you play them.’ I think it was [science-fiction writer] Ursula Le Guin in The Earthsea Trilogy who says, ‘Never trust someone without a limp.’ Character isn’t defined by our strengths but by what we overcome,” says Rateliff.

( TUNE IN NEXT WEEK FOR )

Chapter Two

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IS LIVE

10% OF ALL BLUE ROOM REVENUES GO DIRECTLY TO FUND OUR NON PROFIT TOGETHERISM.
WE CAN ACCOMPLISH ANYTHING TOGETHER.

These materials do not purport to be all-inclusive or to contain all the information that a prospective investor may desire in considering an investment. These materials are intended merely for preliminary discussion only and may not be relied upon for making any investment decision. Any discussion or information contained in this presentation does not serve as a receipt of, or as a substitute for, personalized investment advice from Blueroom or your advisor. 

This publication does not constitute an offer to sell or a solicitation to buy any securities in any fund, market sector, strategy or any other product. Investing is speculative and involves substantial risks (including, the risk of loss of the investor’s entire investment). Past performance is not indicative of future results, and there can be no assurance that the future performance of any specific investment, investment strategy, or product will be profitable.

For more information about us and our general disclosures contact us directly.