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In this article, we discuss the 13 best big data stocks to buy now. If you want to skip our detailed analysis of the Big Data industry, you can go directly to the 5 Best Big Data Stocks To Buy Now.

Big Data analytics refers to the specialized techniques and technologies used to extract insights and information from large, diverse data sets. According to Fortune Business Insights, the size of the global Big Data analytics industry is set to expand at a compound annual growth rate (CAGR) of 13.5% from 2022 to reach a size of $745.15 billion by the end of this decade. The size of the industry stood at $271.83 billion in 2022. The healthy growth rate reflects the untapped market potential of the Big Data analytics industry. Meanwhile, according to a study conducted by McKinsey Global Institute, Big Data has the potential to contribute an additional $3 trillion in value annually to the global economy due to its application in seven industries. Such significant numbers establish the importance of the industry and the players operating in it, such as Alphabet Inc. (NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA). In addition to the best big data stocks for the long term, investors looking to gain exposure to the Big Data theme can also choose to invest in a Big Data ETF like the Global X Artificial Intelligence & Technology ETF (NASDAQ:AIQ) and ProShares Big Data Refiners ETF (NYSEARCA:DAT).

Big Data has made tremendous progress in the fields of cybersecurity, finance, healthcare, manufacturing, and retail. Research conducted at MIT has concluded that organizations adopting a data-driven decision-making model are expected to experience a 5% to 6% improvement in productivity and output compared to their competitors. Consequently, 92.2% of companies are increasing their investments in the field of Big Data. Key benefits of Big Data analytics include identifying business trends, determining root causes of problems, optimizing marketing campaigns, real-time fraud detection, and offering personalized recommendations. Experts believe that there will be an increasing demand for data analysts, scientists, and other related professionals as the world is witnessing an ever-increasing influx of data with every passing day. By 2025, the world is expected to have 150 billion gigabytes available for exploration and understanding. This figure reflects a 33 times increase in the volume of data and information available for analysis since 2013 when it stood at 4.4 billion gigabytes. According to Armonk, New York-based technology giant International Business Machines Corporation (NYSE:IBM), the US economy suffers an annual loss of $3.1 trillion due to poor data quality.

Currently, some of the primary sources of Big Data include social media posts, digital transactions, sensor data, weblogs, internet searches, and mobile applications. The global proliferation of Internet of Things (IoT) devices is anticipated to have a significant impact in the field of Big Data as well. Experts predict that there will be 20 billion IoT devices by the end of this decade that will generate and collect massive amounts of data in various forms like telemetry data, audio, video, and more. Big Data is considered the fuel that powers artificial intelligence (AI) and machine learning applications. AI techniques leverage large datasets to “train” algorithms and models to perform tasks like image recognition, natural language processing, and prediction. Additionally, common machine learning methods like deep learning neural networks require substantial volumes of training data to identify meaningful patterns and relationships. As organizations and researchers accumulate larger datasets, the performance of AI systems improves. This reflects the idea that the growth in Big Data analytics will provide impetus to artificial intelligence and machine learning applications as well. A report issued by Fortune Business Insights on the prospects of the AI industry revealed that the industry is set to expand at a CAGR of 21.6% to reach a size of $2.03 trillion by 2030 as opposed to $428 billion in 2022.  You can also check out the 20 Best-Funded AI Startups in 2023 here.

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Our Methodology

We have shortlisted the 13 best Big Data stocks using Insider Monkey’s database of 910 hedge funds. The companies selected have substantial exposure to the Big Data industry through various business operations. The Big Data analytics stocks have been listed in ascending order of the number of hedge funds holding a stake in them as of Q2 2023.

Best Big Data Stocks To Buy Now

13. Splunk Inc. (NASDAQ:SPLK)

Number of Hedge Fund Holders: 50

Value of Hedge Fund Holdings: $1,507,300,100

Market Capitalization: $24.40 billion

Splunk Inc. (NASDAQ:SPLK) is a San Francisco, California-based software company. The company is a provider of Big Data analytics platform used by organizations to collect, index, store, and analyze large amounts of machine-generated data in real-time. Cisco Systems, Inc. (CSCO) announced on September 21 that it intends to acquire Splunk Inc. (NASDAQ:SPLK) for $28 billion to increase the company’s adoption of AI. The deal is expected to be closed by the end of Q3 2024.

12. International Business Machines Corporation (NYSE:IBM)

Number of Hedge Fund Holders: 51

Value of Hedge Fund Holdings: $813,934,580

Market Capitalization: $133.44 billion

International Business Machines Corporation (NYSE:IBM) provides a mature integrated environment to store, process, analyze, and apply AI or machine learning on Big Data across hybrid cloud environments. On September 20, Matthew Swanson at RBC Capital initiated coverage on International Business Machines Corporation (NYSE:IBM) stock with an Outperform rating and a target price of $188. The analyst was impressed with the depth of the software platform offered by International Business Machines Corporation (NYSE:IBM).

Here’s what Diamond Hill Capital said about International Business Machines Corporation (NYSE:IBM) in its Q4 2022 investor letter:

“New positions initiated in Q4 included shorts International Business Machines Corporation (NYSE:IBM), Acushnet Holdings (GOLF) and elf Beauty (ELF). Since diversified information technology company IBM’s 2019 acquisition of Red Hat, the company has aggressively pursued a hybrid cloud strategy. Though IBM and its new management team have made solid progress on this pivot, we believe the company still meaningfully lags the cloud hyperscalers and other cloud-native companies. Management has also laid out aggressive long-term targets for revenue growth and free cash flow, both of which we believe the company will struggle to achieve as it faces intense competition in its hybrid cloud business and structural headwinds in the company’s legacy businesses.”

11. Accenture plc (NYSE:ACN)

Number of Hedge Fund Holders: 56

Value of Hedge Fund Holdings: $2,124,533,700

Market Capitalization: $200.12 billion

Accenture plc (NYSE:ACN) offers a range of consulting and technology services for Big Data strategy, implementation, and analytics. This includes advising clients on Big Data strategy, architecture, data governance, and program management. Accenture plc (NYSE:ACN) claims that 92% of Big Data users are satisfied with the business outcomes of their initiatives, and 94% of the users believe that the implementation of Big Data initiatives fulfills their requirements.

Here’s what ClearBridge Investments said about Accenture plc (NYSE:ACN) in its Q2 2023 investor letter:

“While the ClearBridge Multi Cap Growth Strategy has limited mega cap exposure, which has been a recent headwind to relative performance, we own several companies that stand to benefit from the explosive growth in generative AI. These holdings play key roles in building out the necessary infrastructure and helping customers leverage capabilities enabled by this emerging technology

Accenture plc (NYSE:ACN), a business and IT services consultant, will be instrumental in helping enterprises reinvent and modernize their IT architecture for AI. The company recently announced a $3 billion investment, which includes doubling their data and AI workforce to 80,000 to address this growing opportunity.”

10. MongoDB, Inc. (NASDAQ:MDB)

Number of Hedge Fund Holders: 62

Value of Hedge Fund Holdings: $1,677,475,400

Market Capitalization as of September 25, 2023: $23.78 billion

MongoDB, Inc. (NASDAQ:MDB) is a New York-based company that offers a popular document-oriented NoSQL database that can handle large volumes of unstructured and semi-structured data. It uses a flexible JSON-like document model to store data, making it a good fit for Big Data from diverse sources. MongoDB, Inc. (NASDAQ:MDB) is one of the 20 stocks that the Citi Research team has recommended buying on the pullback with a long-term investment view.

9. Snowflake Inc. (NYSE:SNOW)

Number of Hedge Fund Holders: 65

Value of Hedge Fund Holdings: $5,390,003,700

Market Capitalization: $49.37 billion

Snowflake Inc. (NYSE:SNOW) is a Bozeman, Montana-based company that provides a fast, flexible cloud data platform known as the Snowflake Data Cloud to power modern Big Data warehousing and analytics initiatives. The company employs a unique architecture optimized for the cloud that separates storage, computing, and query processing for scalability and performance. According to the Forrester Consulting Total Economic Impact (TEI) study, customers using Snowflake’s Data Cloud have experienced an impressive return on investment (ROI) of 616% over three years.

Here’s what ClearBridge Investments said about Snowflake Inc. (NYSE:SNOW) in its Q2 2023 investor letter:

“While the ClearBridge Multi Cap Growth Strategy has limited mega cap exposure, which has been a recent headwind to relative performance, we own several companies that stand to benefit from the explosive growth in generative AI. These holdings play key roles in building out the necessary infrastructure and helping customers leverage capabilities enabled by this emerging technology.

Snowflake Inc. (NYSE:SNOW), a cloud-based data platform company, is positioned well to help enterprises better leverage their own data to get the most out of AI models. Though it is still early days in terms of adoption, Snowflake saw workloads for data science, machine learning, and AI use cases grow more than 90% year-over-year in its most recent quarter.”

8. VMware, Inc. (NYSE:VMW)

Number of Hedge Fund Holders: 70

Value of Hedge Fund Holdings: $9,018,082,300

Market Capitalization: $72 billion

VMware, Inc. (NYSE:VMW) has developed the VMware Big Data Extensions (BDE), which adds enterprise-grade features to open-source Big Data platforms. The company also provides Virtualized Big Data Management through its virtualization platform vSphere. VMware, Inc. (NYSE:VMW) is expected to be taken over by Broadcom Inc. (NASDAQ:AVGO) for $69 billion by October 30, 2023. Presently, the deal is under review by Chinese regulatory authorities.

7. Datadog, Inc. (NASDAQ:DDOG)

Number of Hedge Fund Holders: 78

Value of Hedge Fund Holdings: $2,421,193,800

Market Capitalization: $28.87 billion

Datadog, Inc. (NASDAQ:DDOG) is a New York-based monitoring and analytics platform for cloud applications that can analyze large volumes of monitoring data from various sources.

On August 18, Andrew Sherman at TD Cowen initiated coverage on Datadog, Inc. (NASDAQ:DDOG) with an Outperform rating and a target price of $120. The analyst highlighted that the entity has “very strong” net new customer additions and adoption of new offerings as well by existing customers.

Here’s what RiverPark Advisors said about Datadog, Inc. (NASDAQ:DDOG) in its Q1 2023 investor letter:

“Datadog, Inc. (NASDAQ:DDOG): DDOG was a top detractor in the quarter. The company reported strong 4Q results including 44% revenue growth and 30% earnings growth but gave cautious revenue guidance for 2023. Macroeconomic headwinds have caused clients to slow the transition of workloads to the cloud and instead to optimize current capacity. Despite this temporary slowdown, DDOG still expects revenue to grow nearly 25% in 2023.

As businesses have transitioned to cloud software infrastructure, much of which is in isolated data silos, it has become increasingly difficult for data engineers to monitor and analyze system performance. Datadog provides a SaaS software platform to monitor and analyze the system performance of software applications and IT infrastructure by giving users a single page view to observe their company’s technology stack. The company has quickly grown its revenue from $100 million in 2017 to $1.7 billion in 2022 and, we believe, should continue to grow revenue at more than 20% annually as it penetrates its $40 billion and fast-growing market. Less than 10% of software applications are currently monitored. The company’s dollar-based net retention rate has been 130%+ as existing customers continue to use an increasing number of products and the company continues to add new features. As of 4Q22, 81% of customers used 2+ products, while only 18% of customers used 6+ products (up from less than 1% two years ago). As an extremely capex light software business, DDOG already has significant free-cash-flow ($350m in 2022) and free-cash-flow margins (21% in 2022).”

6. Oracle Corporation (NYSE:ORCL)

Number of Hedge Fund Holders: 84

Value of Hedge Fund Holdings: $3,402,004,900

Market Capitalization: $296.72 billion

Oracle Corporation (NYSE:ORCL) has a comprehensive portfolio of products and cloud services for Big Data and analytics. This includes Oracle Big Data Cloud, Oracle Analytics Cloud, and Oracle Exadata Cloud. For data ingestion and processing, Oracle Corporation (NYSE:ORCL) offers support for Hadoop, Spark, Kafka, NoSQL databases, and other Big Data technologies. The company highlights successful collaborations with corporations like Deloitte and Exelon, showing how its Big Data platform assists analytics teams in analyzing data to derive valuable insights.

Here’s what Madison Investments said about Oracle Corporation (NYSE:ORCL) in its Q2 2023 investor letter:

“Oracle Corporation (NYSE:ORCL) reported a solid fiscal fourth quarter and provided guidance for the first quarter that continued to support solid growth for the company. Revenues grew 17% and were primarily driven by Cloud Services (up 29%) with Oracle’s cloud infrastructure (OCI) business growing 89% in the quarter. Oracle has messaged that this business has price-performance advantages as compared to the other infrastructure companies (Amazon, Microsoft, Google) and appears to be winning business as a result. On the earnings call, management made the case that OCI will play a significant role in the Generative AI workloads which bodes well for continued growth.”

In addition to Oracle Corporation (NYSE:ORCL), Alphabet Inc. (NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA) are also some of the best big data stocks to buy now.

In this article, we discuss the 5 best big data stocks to buy now. If you want to read a detailed analysis of the Big Data industry, you can go directly to the 13 Best Big Data Stocks To Buy Now.

5. Salesforce, Inc. (NYSE:CRM)

Number of Hedge Fund Holders: 122

Value of Hedge Fund Holdings: $7,185,739,500

Market Capitalization: $200.77 billion

Salesforce, Inc. (NYSE:CRM) generates large volumes of customer data across sales, marketing, service, commerce, and other workloads that can be leveraged for Big Data analytics. Salesforce Einstein Analytics provides data visualization capabilities to analyze a billion rows of data interactively. Furthermore, Customer 360 Audiences enables the creation of unified customer profiles from data across Salesforce apps. Salesforce, Inc. (NYSE:CRM) has also announced plans to hire 3,300 employees across different departments, anticipating a new wave of technology investment.

Here’s what Harding Loevner said about Salesforce, Inc. (NYSE:CRM) in its Q2 2023 investor letter:

“Salesforce, Inc. (NYSE:CRM), a company we’ve owned since 2019, recently added ChatGPT-like capabilities onto its existing Al module, Einstein, to support its internal sales efforts and customer-facing software. For example, Einstein GPT can help generate marketing emails tailored to specific clients by using Salesforce’s customer database and past email correspondence to learn the most effective approach for each client. Einstein GPT is also different from off-the-shelf LLMS in three important ways: It keeps personal identifiable information private and secure, compared with external tools that retain anything a user enters. It employs the latest data in Salesforce’s system, as opposed to the sometimes-stale public data that train generic models. And generative Al capabilities can be integrated with other Salesforce offerings; the company has already introduced Slack GPT and Tableau GPT, Al-equipped versions of its workplace collaboration and analytics tools.”

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In this article, we discuss 10 casino stocks that pay dividends. You can skip our detailed analysis of the casino industry and dividend stocks, and go directly to read 5 Casino stocks that Pay Dividends. 

Casino stocks are part of the broader leisure and hospitality industry and are influenced by various factors, including the performance of the overall economy, consumer discretionary spending, and regulatory changes in the gambling industry.

The casino industry suffered huge losses in 2020 in the face of the pandemic as the revenue of U.S. casinos dropped by a substantial 31.3%, falling to $30.0 billion. This was the lowest level of revenue seen since 2003, as reported by the American Gaming Association (AGA). However, the industry is showing signs of a strong recovery as people are returning to casinos for gambling. According to a report by AGA, Americans set a new record for gambling in 2022 through November. Casinos and mobile gaming apps in the US made an impressive $54.93 billion in revenue during the first 11 months of the year.

The pandemic’s challenges forced the casino and gaming industry to adjust to a new way of doing things. Many casinos accelerated their digital transformation efforts, including the adoption of online gambling platforms and the development of mobile apps for casino games and sports betting. This was in response to the increased demand for online gambling during lockdowns and social distancing measures. This adaptation has also spurred significant growth in the industry in the years following the pandemic. According to a report by Research and Markets, the global gambling market is expected to grow at a CAGR of 11.3% through 2027, reaching $765.89 billion. The report further indicated that the market will grow at a rapid pace because of the legalization of gambling, increasing social media, and the rise in the use of social media.

Also Read: 12 Most Profitable Casinos in the World

An increasing number of visitors to Macau has caused analysts to predict higher earnings for casinos, even though the overall Chinese market isn’t showing strong growth. In July, over 2.7 million visitors came to Macau, which is similar to the numbers before the pandemic, according to a report by Bloomberg. The report further referred to Morgan Stanley’s data and mentioned that the numbers for the latter part of September are showing a good recovery, and bookings for October are looking promising. They expect that during the Golden Week holiday period, the daily gross gaming revenue will reach 750 million patacas, which is equivalent to $93 million.

Casino stocks are becoming more popular among investors this year because they are expected to grow, and analysts have presented a positive outlook on the sector. Some of the best casino stocks such as MGM Resorts International (NYSE:MGM), Caesars Entertainment (NASDAQ:CZR), and Wynn Resorts, Limited (NASDAQ:WYNN) have delivered positive returns to shareholders this year so far. In this article, we will further discuss casino stocks that pay dividends to shareholders.

Our Methodology:

For this list, we scanned Insider Monkey’s database of Q2 2023 and selected companies that are involved in the casino and gambling industry. These companies own and operate casinos, resorts, and other gaming and entertainment facilities. From the resultant list, we picked casino stocks that pay dividends to shareholders and ranked them in ascending order of the number of hedge funds having stakes in them as of Q2 2023.

10. Canterbury Park Holding Corporation (NASDAQ:CPHC)

Number of Hedge Fund Holders: 1

Canterbury Park Holding Corporation (NASDAQ:CPHC) is a Minnesota-based company that operates in the entertainment and gaming industry. The company also operates a card room and casino gaming facility as part of its business operations. It is among the best casino stocks on our list.

In the second quarter of 2023, Canterbury Park Holding Corporation (NASDAQ:CPHC) reported revenue of over $16.3 million and its net income for the quarter came in at roughly $5.3 million. Its casino revenue stood at $10.3 million, up from $9.9 million in the same period last year.

Canterbury Park Holding Corporation (NASDAQ:CPHC) suspended its dividends in the face of the pandemic of 2020 and reinstated its payouts in January 2022. The company currently pays a quarterly dividend of $0.07 per share and has a dividend yield of 1.38%, as of September 27. MGM Resorts International (NYSE:MGM), Caesars Entertainment (NASDAQ:CZR), and Wynn Resorts, Limited (NASDAQ:WYNN) are some other casino stocks that investors can add to their portfolios.

At the end of Q2 2023, GAMCO Investors was the only stakeholder of Canterbury Park Holding Corporation (NASDAQ:CPHC), owning stakes worth over $8.8 million.

9. Bluegreen Vacations Holding Corporation (NYSE:BVH)

Number of Hedge Fund Holders: 11

Bluegreen Vacations Holding Corporation (NYSE:BVH) specializes in vacation ownership and resort management. Though the company does not have direct involvement in the casino industry, the company owns and operates a portfolio of vacation resorts located in various popular destinations across the US.

Bluegreen Vacations Holding Corporation (NYSE:BVH) started paying dividends in July 2022 and has raised its dividends once since then. The company currently pays a quarterly dividend of $0.20 per share and has a dividend yield of 2.23%, as of September 27. It is among the best casino stocks on our list. The stock delivered a 41.8% return to shareholders since the start of 2023.

In the second quarter of 2023, Bluegreen Vacations Holding Corporation (NYSE:BVH) posted revenue of $260.6 million, which showed a 10.6% growth from the prior year period. The company ended the quarter with over $178.7 million available in cash and cash equivalents.

As of the close of Q2 2023, 11 hedge funds in Insider Monkey’s database reported having stakes in Bluegreen Vacations Holding Corporation (NYSE:BVH), which remained unchanged from the previous quarter. The collective value of these stakes is over $27.2 million.

8. Four Corners Property Trust, Inc. (NYSE:FCPT)

Number of Hedge Fund Holders: 12

Four Corners Property Trust, Inc. (NYSE:FCPT) is an American real estate investment trust company that specializes in owning and leasing restaurant and retail properties. The company generated roughly $61 million in revenues in the second quarter of 2023, which saw a 9.5% hike from the same period last year. At the end of the quarter, it had over $11 million available in cash and cash equivalents.

Four Corners Property Trust, Inc. (NYSE:FCPT), one of the best casino stocks on our list, currently pays a quarterly dividend of $0.34 per share. The company has been raising its dividends consistently since 2016. The stock has a dividend yield of 6.15%, as of September 27.

At the end of Q2 2023, 12 hedge funds tracked by Insider Monkey reported owning stakes in Four Corners Property Trust, Inc. (NYSE:FCPT), up from 11 in the previous quarter. The consolidated value of these stakes is roughly $72 million.

7. Red Rock Resorts, Inc. (NASDAQ:RRR)

Number of Hedge Fund Holders: 18

Red Rock Resorts, Inc. (NASDAQ:RRR) is a Nevada-based holding company that is primarily engaged in the gaming and entertainment industry. The company owns and operates a portfolio of casinos and resorts, which includes both local and destination casinos in the Las Vegas area.

On September 13, Red Rock Resorts, Inc. (NASDAQ:RRR) declared a quarterly dividend of $0.25 per share, which was in line with its previous dividend. The company also has a history of paying special dividends to shareholders, which makes it one of the best casino stocks on our list. As of September 27, the stock has a dividend yield of 2.48%.

In the second quarter of 2023, Red Rock Resorts, Inc. (NASDAQ:RRR) posted revenue of $416 million, which fell slightly by 1.4% from the same period last year. The company ended the quarter with approximately $101 million available in cash and cash equivalents. It also returned $27.1 million to shareholders through dividends.

As of the close of Q2 2023, 18 hedge funds in Insider Monkey’s database held stakes in Red Rock Resorts, Inc. (NASDAQ:RRR), compared with 19 in the previous quarter. The overall value of these stakes is roughly $175 million. With over 4.7 million shares, Diamond Hill Capital was the company’s leading stakeholder in Q2.

6. Monarch Casino & Resort, Inc. (NASDAQ:MCRI)

Number of Hedge Fund Holders: 19

Monarch Casino & Resort, Inc. (NASDAQ:MCRI) is an American company in the gaming and hospitality industry, primarily focused on casino operations and resort development. The company operates casino properties that offer various gaming options to visitors.

In the second quarter of 2023, Monarch Casino & Resort, Inc. (NASDAQ:MCRI) reported revenue of $123.6 million, which showed a 7.3% growth from the prior year period. It had over $35 million available in cash and cash equivalents. Its casino revenue stands at $68.8 million, up from $63.8 million in the same period last year.

On August 30, Monarch Casino & Resort, Inc. (NASDAQ:MCRI) declared a quarterly dividend of $0.30 per share. The stock has a dividend yield of 1.92%, as of September 27. In the past 12 months, the stock delivered an 8.2% return to shareholders. In addition to MCRI, MGM Resorts International (NYSE:MGM), Caesars Entertainment (NASDAQ:CZR), and Wynn Resorts, Limited (NASDAQ:WYNN) are some other casino stocks to consider.

The number of hedge funds tracked by Insider Monkey owning stakes in Monarch Casino & Resort, Inc. (NASDAQ:MCRI) stood at 19, the same as in the previous quarter. The collective value of these stakes is over $53.6 million.

Click to continue reading and see 5 Casino Stocks that Pay Dividends. 

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Disclosure. None. 10 Casino Stocks that Pay Dividends is originally published on Insider Monkey.

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In this article, we discuss 5 casino stocks that pay dividends. If you want to read our detailed analysis of the casino industry and dividend stocks, go directly to read 10 Casino stocks that Pay Dividends. 

5. Gaming and Leisure Properties, Inc. (NASDAQ:GLPI)

Number of Hedge Fund Holders: 28

Gaming and Leisure Properties, Inc. (NASDAQ:GLPI) is a real estate investment trust company that primarily focuses on owning and leasing casino and gaming-related properties. On August 31, the company declared a 1.4% hike in its quarterly dividend to $0.73 per share. It has raised its dividends many times over the years, which places it as one of the best casino stocks with dividends. The stock has a dividend yield of 6.50%, as of September 27.

The number of hedge funds tracked by Insider Monkey owning stakes in Gaming and Leisure Properties, Inc. (NASDAQ:GLPI) grew to 28 in Q2 2023, from 26 in the previous quarter. The overall value of these stakes is over $317.7 million.

In this article, we discuss 10 sector and international ETFs to buy. If you want to skip our detailed discussion on the international stock market, head directly to Diversified Stock Portfolio: 5 Sector ETFs and International ETFs to Buy.

As per a PwC report from early 2023, the global economy is predicted to expand by 1.6% during the year. This growth is primarily due to China reopening its economy after a prolonged period of lockdowns, alongside robust anticipated growth in India and other emerging economies. In the case of the United States, following a strong performance in 2022, it is expected to escape a recession in 2023, with the firm forecasting a GDP growth rate of just 0.2% for the world’s largest economy. However, there are expectations of slight economic decline in the UK and some major European Union countries like Germany and Italy. After the world’s largest central banks increased interest rates multiple times in 2022 and global demand slowed down as a result, it is anticipated that inflation will decrease during 2023. This decrease in prices of goods is expected to contribute to lower inflation rates in economies all over the world.

Due to supply chain challenges and geopolitical tensions, many companies are diversifying their supply sources, as noted by Deloitte. This diversification is expected to persist, leading to more capital leaving China and increased investments in other regions like Southeast Asia, India, Central Europe, and Mexico. Dr. Ira Kalish, Chief Global Economist at Deloitte stated:

“Despite tightness in the labor market, wages have failed to keep pace with inflation in most advanced economies. The result has been weaker consumer spending. In 2023, as inflation recedes, it is likely that wage growth will ultimately exceed inflation. This will boost consumer spending.”

According to Deloitte, Japan’s economy is likely to stabilize. The Japanese yen received a boost as the Bank of Japan made some changes to its monetary policy. On the other hand, India is relatively safer from the energy shock since it imports inexpensive oil from Russia, and its trade as a percentage of GDP is lower than many other countries. This shields India from some of the adverse effects of a global economic slowdown. Although inflation in India has been relatively high, it has recently started to decline.

J.P. Morgan reported that the global economy picked up speed in the first half of 2023, reaching a growth rate of 2.8%. So far, the impact of monetary tightening has been balanced out by the diminishing supply disruptions caused by the COVID-19 pandemic and Russia’s Ukraine invasion. However, there is an expectation of more tightening measures in developed markets before the end of 2023 to control inflation. Unfortunately, additional tightening may have adverse effects on the private sector’s health. J.P. Morgan Research predicts that the U.S. could experience a mild recession towards the end of 2023 due to the Federal Reserve’s restrictive policies, which would lead to tighter credit conditions and gradual decline in growth. In Western Europe, high energy prices weighed down the economy during the fourth quarter of 2022, with some relief in the first quarter of 2023, although GDP growth remained slow. The economic outlook for the rest of the year is a growth rate of 1.5–2%.

On the other hand, Asia experienced robust growth in the first half of the year, with GDP gains averaging 5.2% above the region’s potential, which was largely attributed to China reopening its economy. China is expected to achieve a 5.5% GDP growth rate in 2023. Haibin Zhu, Chief China Economist at J.P. Morgan, said:

“However, recovery following its reopening has been uneven, activity has been volatile and sentiment has been soft. Data disappointments since April have intensified concerns about China’s ongoing recovery and the likelihood of additional stimulus in the near-term appears to be low.”

Despite challenges in different sectors and world regions, there are positive performing ETFs that provide investors with broad exposure to companies like Broadcom Inc. (NASDAQ:AVGO), Apple Inc. (NASDAQ:AAPL), and NVIDIA Corporation (NASDAQ:NVDA), hence diversifying their stock portfolios.

Our Methodology

We used an ETF screener and filtered out the best performing sector and international ETFs based on their 5-year performance. We selected 5 sector ETFs and 5 international ETFs to have a relatively inclusive list. We have also discussed the top holdings of the ETFs to offer better insight to potential investors. These ETFs have amassed significant gains in the past 5 years. The list is ranked in ascending order of the 5-year performance of these Sector ETFs and International ETFs as of September 26, 2023.

Photo by Adam Nowakowski on Unsplash

Diversified Stock Portfolio: Sector ETFs and International ETFs to Buy

10. Xtrackers MSCI Japan Hedged Equity ETF (NYSE:DBJP)

5-Year Performance as of September 26: 35.79%

The Xtrackers MSCI Japan Hedged Equity ETF (NYSE:DBJP) aims to match the performance of the MSCI Japan US Dollar Hedged Index. This ETF launched on September 1, 2007, and as of September 26, 2023, it holds assets under management worth 2.3 billion euros. Its expense ratio is 0.40%, and its portfolio follows a full replication strategy.

Toyota Motor Corporation (NYSE:TM) is the largest holding of the Xtrackers MSCI Japan Hedged Equity ETF (NYSE:DBJP). Toyota Motor Corporation (NYSE:TM) creates, builds, and markets a range of vehicles such as passenger cars, minivans, commercial vehicles, and the associated parts and accessories. The company functions through Automotive, Financial Services, and All Other segments.

According to Insider Monkey’s second quarter database, 13 hedge funds were bullish on Toyota Motor Corporation (NYSE:TM), up from 7 funds in the previous quarter. Ken Griffin’s Citadel Investment Group held a significant position in the company, with 106,398 shares worth $17.1 million.

In addition to Broadcom Inc. (NASDAQ:AVGO), Apple Inc. (NASDAQ:AAPL), and NVIDIA Corporation (NASDAQ:NVDA), Toyota Motor Corporation (NYSE:TM) is one of the best stocks to buy for investors looking to diversify their stock portfolios.

Here is what Baron Fund has to say about Toyota Motor Corporation (NYSE:TM) in its Q1 2022 investor letter:

“Toyota’s (NYSE:TM) “kaizen” manufacturing philosophy is based on improving manufacturing by using “just in time” processes to eliminate waste and reduce inventory carrying costs. Clearly the company does not contemplate disruptive change that will dramatically lower costs and improve quality.”

9. SPDR NYSE Technology ETF (NYSE:XNTK)

5-Year Performance as of September 26: 41.42%

The SPDR NYSE Technology ETF (NYSE:XNTK) aims to mirror the performance of the NYSE Technology Index. This index is made up of 35 prominent U.S.-listed technology companies. The ETF was introduced on September 25, 2000, and as of September 26, 2023, it manages assets worth $524.34 million. The expense ratio for this fund is 0.35%. The SPDR NYSE Technology ETF (NYSE:XNTK) assists investors in diversifying their stock portfolios.

Meta Platforms, Inc. (NASDAQ:META) is the top holding of the SPDR NYSE Technology ETF (NYSE:XNTK). Meta Platforms, Inc. (NASDAQ:META) is in the business of creating products that allow people worldwide to connect and share with their loved ones using devices like smartphones, computers, virtual reality headsets, and wearables. The company has two main divisions – the Family of Apps and Reality Labs. 

According to Insider Monkey’s second quarter database, 225 hedge funds were bullish on Meta Platforms, Inc. (NASDAQ:META), compared to the last quarter when 220 funds had invested in the stock. Chase Coleman and Feroz Dewan’s Tiger Global Management held a significant position in the company, with approximately 8.6 million shares valued at $2.46 billion.

RiverPark Large Growth Fund made the following comment about Meta Platforms, Inc. (NASDAQ:META) in its Q2 2023 investor letter:

“Meta Platforms, Inc. (NASDAQ:META): META shares, continuing their rebound, were the top contributors for the second quarter. The company reported 1Q23 results, beating revenue expectations and lowering guidance for operating expenses and capital expenditures, while increasing revenue expectations.

META owns multiple social media platforms, each with more than one billion users, has an 80% gross margin, and generated $20 billion of FCF in 2022. Both its Facebook and its Instagram franchises have more than 2 billion Daily Active Users and generate the bulk of the company’s revenue. Recently, the company’s short form video offering, Reels, has gained mass user engagement and growing advertiser adoption, which we believe will return the company to strong revenue and free cash flow growth. After its advance, META shares trade at 19x Wall Street’s consensus estimates for 2024 EPS, estimates that we think could prove to be too low.”

8. SPDR S&P Capital Markets ETF (NYSE:KCE)

5-Year Performance as of September 26: 54.07%

The SPDR S&P Capital Markets ETF (NYSE:KCE) is one of the best ETFs to diversify investors’ stock portfolios. It seeks to replicate the performance of the S&P Capital Markets Select Industry Index, accounting for returns before fees and expenses. This ETF provides exposure to the capital markets sector within the S&P TMI, which includes different sub-industries such as Asset Management & Custody Banks, Diversified Capital Markets, Financial Exchanges & Data, and Investment Banking & Brokerage. It was launched on November 8, 2005, and as of September 26, 2023, the fund holds assets valued at $310.52 million, with a portfolio comprising 64 stocks. The expense ratio for SPDR S&P Capital Markets ETF (NYSE:KCE) is 0.35%.

Coinbase Global, Inc. (NASDAQ:COIN) is the largest holding of the SPDR S&P Capital Markets ETF (NYSE:KCE). Coinbase Global, Inc. (NASDAQ:COIN) plays a vital role in the world of digital finance in the United States and around the world. They provide the go-to financial platform for individuals engaging in the crypto economy. Additionally, they enable developers with the tools and services necessary to develop applications based on cryptocurrencies, facilitating secure acceptance of digital assets as payment.

According to Insider Monkey’s second quarter database, 27 hedge funds were bullish on Coinbase Global, Inc. (NASDAQ:COIN), compared to 28 funds in the preceding quarter. Cathie Wood’s ARK Investment Management is the largest position holder in the company, with 12.12 million shares valued at $867.32 million.

Here is what Miller Value Partners Opportunity Trust Fund has to say about Coinbase Global, Inc. (NASDAQ:COIN) in its Q2 2022 investor letter:

“Coinbase Global Inc. Ordinary Shares (NASDAQ:COIN) fell during the quarter as the crypto markets continued to suffer. While the company reported disappointing results, it committed to capping EBITDA losses at $500M even in the event of “a prolonged market downturn”. COIN’s ample liquidity ($6b in cash on hand) should enable them to survive a prolonged “crypto winter” and invest to strengthen the business in the downturn. While the crypto market is early in its adoption, Coinbase is focused on building the platform for crypto not only supporting trading, and cold storage, but moving into NFTs, staking, and crypto derivatives. We see tremendous upside potential for COIN over the next decade if they are able to successfully execute on their platform strategy.”

7. iShares MSCI Denmark ETF (BATS:EDEN)

5-Year Performance as of September 26: 54.91%

The iShares MSCI Denmark ETF (BATS:EDEN) seeks to replicate the performance of the MSCI Denmark IMI 25/50 Index. This ETF provides investors with exposure to a range of companies in Denmark, offering a way to invest in Danish stocks. It was launched on January 25, 2012, and by September 26, 2023, the ETF held a portfolio consisting of 48 stocks. Its total assets amount to $230.4 million as of September 26, 2023, with an expense ratio of 0.53%.

Genmab A/S (NASDAQ:GMAB) is one of the top holdings of the iShares MSCI Denmark ETF (BATS:EDEN). Genmab A/S (NASDAQ:GMAB), based in Copenhagen, specializes in developing antibody-based treatments for a number of diseases, with a primary focus on cancer. According to Insider Monkey’s second quarter database, 11 hedge funds were bullish on Genmab A/S (NASDAQ:GMAB), up from 9 funds in the last quarter. Ken Griffin’s Citadel Investment Group is the largest stakeholder of the company, with 273,134 shares worth $10.4 million.

Like Broadcom Inc. (NASDAQ:AVGO), Apple Inc. (NASDAQ:AAPL), and NVIDIA Corporation (NASDAQ:NVDA), Genmab A/S (NASDAQ:GMAB) is one of the best international stocks to buy for investors looking to broaden their stock portfolios.

Artisan Partners made the following comment about Genmab A/S (NASDAQ:GMAB) in its Q4 2022 investor letter:

“Genmab A/S (NASDAQ:GMAB) is a developer of monoclonal antibody products for the treatment of life-threatening and debilitating diseases. Growth remains strong (+35% YoY in the most recent quarter) for Darzalex, the company’s leading therapy for multiple myeloma, and we continue to find Genmab’s new product pipeline as attractive. However, we trimmed the position based on valuation to support more compelling opportunities within biotech.”

6. First Trust Water ETF (NYSE:FIW)

5-Year Performance as of September 26: 61.94%

The First Trust Water ETF (NYSE:FIW) is designed to match the performance of the ISE Clean Edge Water Index. It aids investors in diversifying their stock portfolios. This ETF started on May 8, 2007, and as of September 26, 2023, it manages assets worth $1.32 billion, with a portfolio that includes 36 stocks. The expense ratio for this ETF is 0.53%.

Advanced Drainage Systems, Inc. (NYSE:WMS) is one of the largest holdings of the First Trust Water ETF (NYSE:FIW). Advanced Drainage Systems, Inc. (NYSE:WMS) is in the business of creating, manufacturing, and promoting thermoplastic corrugated pipes and other water management products. They provide drainage solutions mainly for the construction and agriculture sectors, serving customers in the United States, Canada, Mexico, and across the globe. The company functions through Pipe, International, Infiltrator, and Allied Products & Other segments.

According to Insider Monkey’s second quarter database, 30 hedge funds were bullish on Advanced Drainage Systems, Inc. (NYSE:WMS). This number increased from the previous quarter when 21 funds had invested in the stock.

Artisan Partners made the following comment about Advanced Drainage Systems, Inc. (NYSE:WMS) in its Q4 2022 investor letter:

“Advanced Drainage Systems, Inc. (NYSE:WMS) is a leading manufacturer of high performance thermoplastic corrugated pipe and related products serving the non-residential construction, residential construction, agriculture and infrastructure markets throughout North America. Shares declined after a disappointing earnings release as end markets softened faster than anticipated, especially its residential business where rising interest rates have cooled construction activity. We continue to believe the company is well-positioned to capitalize on the long-term shift in the pipe industry away from concrete and toward plastic materials, which are typically greener and more durable, but we reduced our position until these cyclical pressures wane.”

Click to continue reading and see Diversified Stock Portfolio: 5 Sector ETFs and International ETFs to Buy. 

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Disclosure: None. Diversified Stock Portfolio: 10 Sector ETFs and International ETFs to Buy is originally published on Insider Monkey.

In this article, we discuss 5 best sector and international ETFs to buy. If you want to read our detailed discussion on the different markets, head over to Diversified Stock Portfolio: 10 Sector ETFs and International ETFs to Buy.

5. Invesco Building & Construction ETF (NYSE:PKB)

5-Year Performance as of September 26: 67.48%

The Invesco Building & Construction ETF (NYSE:PKB) is one of the best ETFs to diversify investors’ stock portfolios. It is based on the Dynamic Building & Construction Intellidex Index. Invesco Building & Construction ETF (NYSE:PKB) normally invests at least 90% of its total assets in the securities that make up the index. This ETF was introduced on October 26, 2005. As of September 26, 2023, it features an expense ratio of 0.57% and holds a portfolio of 31 stocks.

Lennox International Inc. (NYSE:LII) is one of the largest holdings of the Invesco Building & Construction ETF (NYSE:PKB). Lennox International Inc. (NYSE:LII) is involved in creating, producing, and selling a variety of products for the heating, ventilation, air conditioning, and refrigeration markets. Their operations span across the United States, Canada, and worldwide. Lennox International Inc. (NYSE:LII)’s business is divided into three segments – Residential Heating & Cooling, Commercial Heating & Cooling, and Refrigeration.

According to Insider Monkey’s second quarter database, 31 hedge funds were bullish on Lennox International Inc. (NYSE:LII), same as the previous quarter. Dmitry Balyasny’s Balyasny Asset Management is the largest stakeholder of the company, with 533,892 shares worth $174.1 million.

The London Company Mid Cap Strategy made the following comment about Lennox International Inc. (NYSE:LII) in its second quarter 2023 investor letter:

“Lennox International Inc. (NYSE:LII) – LII outperformed during 02. While residential HVAC volume turned negative, current trends are consistent with expectations. Additionally, the new CEO is executing well against stated objectives, specifically, on restoring profitability of the Commercial segment. We are also supportive of management’s decision to sell the international business, which we viewed as a subscale distraction. We see LII as a high quality business in a good industry with opportunities to improve, and we are pleased to see the company effectively attacking opportunities for improvement.”

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In this article, we will discuss the 15 best U.S. stocks to buy now under $10. If you want to explore similar stocks, you can also take a look at 5 Best U.S. Stocks to Buy Now Under $10.

The U.S. has always been a financial and economic hub, home to some of the biggest companies in various sectors. In the list of the 100 most valuable companies in the world, 61 companies are from the U.S. The dominance is further affirmed by the fact that the country accounts for nine of the top ten most valuable companies.

U.S. companies have always dominated technological innovations, going by the billions of dollars spent on research and development over the years. Spending on R&D increased by $51 billion in 2021 to $791 billion, affirming America’s leading status on spending on innovation and groundbreaking solutions.

The culture of innovation and entrepreneurship is also robust and has given rise to startups that have gone on to become multi-billion empires. OpenAI is one such startup that is spearheading the artificial intelligence race, attracting billions of dollars in investments.

Apple Inc. (NASDAQ:AAPL), the most valuable company in the world with a market cap of about $2.7 trillion, has affirmed the U.S. dominance in the development of smartphones, laptops and other solutions. Amazon is another company that affirms U.S. dominance in commerce as Microsoft Corporation (NASDAQ:MSFT) continues to call the shots on software development.

Alphabet Inc. (NASDAQ:GOOG) runs a monopoly on internet search and advertising while Meta Platforms dominate social networking, and NVIDIA Corporation (NASDAQ:NVDA) spearheads the artificial intelligence revolution with some of the most powerful chips.

Source:unsplash

The U.S. Federal Reserve’s refraining from hiking interest rates at its September meeting might have boosted the investment landscape for small-cap stocks.

The pause was much needed as it averts the risk of the U.S. economy plunging into recession. With the prospect of the Fed cutting interest rates next year, sentiments in the equity markets are on an upward trajectory. Stocks trading below $10 a share remain well positioned to benefit from the Fed going slow on interest rate hikes. Interest rate cuts should lower borrowing costs, making it easy for these companies to access cheap capital through loans and other investments to finance their growth plans. For long-term investors, now could be the best time to take a closer look at stocks trading at highly discounted levels, especially those trading below $10 a share, as underlying fundamentals improve.

Our Methodology

We looked at the stock holdings of 910 hedge funds in our database and selected 15 US stocks trading under $10 with the highest number of hedge fund investors. That way, these are the best US stocks to buy now under $10 according to smart money investors.

15. Compass, Inc. (NYSE:COMP)

Share Price as of September 22: $3.37

 

Number of Hedge Fund Holders: 26

Compass, Inc. (NYSE:COMP) is a company from the U.S. that offers software and technology solutions for the travel industry worldwide. It operates the largest global distribution system for air bookings in North America. As of September 22, 2023, the stock price of Compass, Inc. (NYSE:COMP) was $3.37 per share, which was a 1.26% increase from the previous close of $3.18 per share. The stock had a 52-week range of $1.84 to $5.16 per share.

By the end of this year’s second quarter, 26 hedge funds out of the 910 tracked by Insider Monkey had bought the firm’s shares. Compass, Inc. (NYSE:COMP)’s largest hedge fund investor among these is Richard Mashaal’s Rima Senvest Management through its $52.44 million stake.

Compass, Inc. (NYSE:COMP) has a ‘Moderate Buy’ rating from 4 buys, 4 holds and 0 sells. The average target price is $4.53, ranging from $3.50 to $6.00.

14. Altice USA, Inc. (NYSE:ATUS) 

Share Price as of September 21: $3.38

 

Number of Hedge Fund Holders: 26

Altice USA, Inc. (NYSE:ATUS), a company that provides broadband communications and video services, has a ‘Hold’ rating from nine analysts who follow the stock.

During Q2 2023, 26 out of the 910 hedge funds part of Insider Monkey’s database had held a stake in Altice USA, Inc. (NYSE:ATUS). Out of these, the firm’s biggest investor is Cliff Asness’ AQR Capital Management since it owns 17.14 million shares that are worth $50.40 million.

13. Applied Digital Corporation (NASDAQ:APLD) 

Share Price as of September 22: $5.20

 

Number of Hedge Fund Holders: 26

Applied Digital Corporation (NASDAQ:APLD) is a digital infrastructure provider with a ‘Strong Buy’ rating from 6 buys and 0 holds or sells.

According to Insider Monkey’s second-quarter database, 26 hedge funds were bullish on Applied Digital Corporation (NASDAQ:APLD), compared to 11 funds in the preceding quarter.

12. T.G. Therapeutics, Inc. (NASDAQ:TGTX) 

Share Price as of September 22: $9.25

 

Number of Hedge Fund Holders: 26

T.G. Therapeutics, Inc. (NASDAQ:TGTX) is a company that creates and sells new therapies for diseases of B-cells, such as cancers and autoimmune conditions. It has two approved products: BRIUMVI, a monoclonal antibody for relapsing forms of multiple sclerosis, and UKONIQ, a kinase inhibitor for certain types of lymphoma and leukemia. It also has several other drug candidates in clinical trials or preclinical development.

Insider Monkey surveyed 910 hedge funds to look at their Q2 2023 portfolios and found out that 26 had held T.G. Therapeutics, Inc. (NASDAQ:TGTX)’s shares. T.G. Therapeutics, Inc. (NASDAQ:TGTX)’s largest hedge fund investor in our database is Abhishek Trehan’s Darwin Global Management with a $230.48 million stake.

13. Brookdale Senior Living Inc. (NYSE:BKD) 

Share Price as of September 22: $4.30

 

Number of Hedge Fund Holders: 27

Brookdale Senior Living Inc. (NYSE:BKD) is a company that provides senior living services in the U.S. It has three segments: Independent Living, Assisted Living and Memory Care, and Continuing Care Retirement Communities (CCRCs).

The company has a ‘Hold’ rating from three analysts, with one buy, one hold, and one sell. The average price target is $5.98, which means a 38.11% increase from the current price of $4.30 as of September 22, 2023. The price target range is $3.95 to $7.

According to Insider Monkey’s second-quarter database, 27 hedge funds were bullish on Brookdale Senior Living Inc. (NYSE:BKD), compared to 30 funds in the prior quarter.

12. Yext, Inc. (NYSE:YEXT) 

Share Price as of September 22: $6.17

 

Number of Hedge Fund Holders: 27

Yext, Inc. (NYSE:YEXT) is a company that helps businesses provide accurate and consistent answers to consumers’ queries across various platforms and devices. It operates in North America and other countries around the world.

Yext Inc. is rated ‘Hold’ by analysts, with no buys or sells and 3 holds. Its stock price could go up from $6.17 to $11, a 78.28% increase.

According to Insider Monkey’s second-quarter database, 27 hedge funds were long Yext, Inc. (NYSE:YEXT), compared to 28 funds in the prior quarter. Mitchell Green’s Lead Edge Capital is the largest stakeholder of the company, with 11.47 million shares worth $129.77 million.

9. Harmonic Inc. (NASDAQ:HLIT) 

Share Price as of September 22: $9.57

 

Number of Hedge Fund Holders: 27

Harmonic Inc. (NASDAQ:HLIT) is a company that specializes in video delivery solutions for various applications, such as broadcast, cable, satellite, internet, and mobile. On August 10, Raymond James analyst Simon Leopold upgraded Harmonic Inc. (NASDAQ:HLIT) from ‘Outperform’ to ‘Strong Buy’ and boosted the price target from $15 to $16.

At the end of Q2 2023, 27 hedge funds were long Harmonic Inc. (NASDAQ:HLIT). This is compared to 25 hedge funds in the previous quarter. As of June 30, Trigran Investments is the top stockholder in the company and has a position worth $112.53 million.

8. Acelyrin, Inc. (NASDAQ:SLRN)

Share Price as of September 22: $9.95

 

Number of Hedge Fund Holders: 27

Acelyrin, Inc. (NASDAQ:SLRN) is a biopharmaceutical company from the U.S. that creates and sells innovative medicines for various diseases. Its lead drug candidate is izokibep, a monoclonal antibody for the treatment of hidradenitis suppurativa, a chronic inflammatory skin condition. As of June 2023, 27 out of the 910 hedge funds surveyed by Insider Monkey were the firm’s investors.

Morgan Stanley’s Vikram Purohit lowered Acelyrin, Inc. (NASDAQ:SLRN) from ‘Overweight’ to ‘Equalweight’ and cut its price target from $39 to $19 on September 13. He said the company failed to meet the main goal of its trial due to high dropout rate and strong placebo effect. He said he was uncertain about the company’s prospects and would re-evaluate later in 2023.

7. Sabre Corporation (NASDAQ:SABR) 

Share Price as of September 22: $4.48

 

Number of Hedge Fund Holders: 28

Sabre Corporation (NASDAQ:SABR) is a travel software and technology company. It has a ‘Hold’ rating from four analysts, with no buy and one sell. The average price target is $4.63, which is a 3.35% increase from the current price of $4.48 as of September 22, 2023. The price target range is $4 to $5.50.

It is one of the best U.S. stocks under $10 to invest in now. It makes the cut at seventh on our list of 15 top stocks.

28 out of the 910 hedge funds part of Insider Monkey’s Q2 2023 database had bought Sabre Corporation (NASDAQ:SABR)’s shares. Terry Smith’s Fundsmith LLP is the biggest investor among these due to its $72.44 million stake.

6. Sutro Biopharma, Inc. (NASDAQ:STRO) 

Share Price as of September 21: $3.55

 

Number of Hedge Fund Holders: 28

Sutro Biopharma, Inc. (NASDAQ:STRO), a company that develops novel therapies for cancer and autoimmune diseases, has a ‘Strong Buy’ rating from five analysts who cover the stock. None of the analysts have a hold or sell rating on the stock. The average price target for Sutro Biopharma Inc. is $17.60.

According to Insider Monkey’s second-quarter database, 28 hedge funds were bullish on Sutro Biopharma, Inc. (NASDAQ:STRO), up from 22 in the prior quarter. Aaron Cowen’s Suvretta Capital Management is the leading stakeholder of the company, with 5.88 million shares worth $27.36 million.

 

Click to continue reading and see 5 Best U.S. Stocks to Buy Now Under $10.

 

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Disclosure: None. 15 Best U.S. Stocks to Buy Now Under $10 is originally published on Insider Monkey.

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In this article, we will discuss the 5 best U.S. stocks to buy now under $10. If you want to explore similar stocks, you can also take a look at 15 Best U.S. Stocks to Buy Now Under $10.

5. Gray Television, Inc. (NYSE:GTN) 

Share Price as of September 22: $7.26
Number of Hedge Fund Holders: 28

Gray Television, Inc. (NYSE:GTN) is a company that operates television stations and digital platforms in the U.S. It owns or has affiliations with over 200 stations across 94 markets. It also produces original content and provides advertising services.

As of June 2023, 28 of the 910 hedge funds profiled by Insider Monkey had invested in the company. Gray Television, Inc. (NYSE:GTN)’s largest hedge fund investor in our database is Ken Griffin’s Citadel Investment Group with $11.42 million investment.

Here is what Miller Value Partners said about Gray Television, Inc. (NYSE:GTN) in its second quarter 2023 investor letter:

“During the quarter, we initiated positions in Western Alliance (WAL) and Gray Television, Inc. (NYSE:GTN). Gray Television is the second largest broadcast company in the U.S., located across the country in 113 markets, reaching 36% of U.S. households. The company appears attractively positioned, with 70% of its markets with the #1-ranked local T.V. stations and another 20% with the second-ranked station. Gray has a good distribution profile, growing its retransmission revenue in the mid-single digits over the past five years. Given their strong local stations, the company leads the industry in political revenue during election cycles. The stock price is down more than 60% from its 52-week high as the marketplace has been concerned about limited political revenue this year along with ongoing fears of a pullback in advertising spending from economic weakness. However, we see the potential for earnings and free cash flow to dramatically improve next year as political advertising reaccelerates and retransmission contracts are expected to renew at favorable rates. In addition, Gray recently spent $200M to develop Assembly, a state-of-the-art Film & T.V. studio, with 20 sound stages on 43 owned acres in Atlanta. NBC Universal signed a 15-year lease to manage the studio for Gray and will begin filming new T.V. series and movies in the back half of this year. There are low expectations in Gray’s stock price from the Assembly asset, as no analysts are currently including any future economics in their business projections. We agree with management’s outlook of meaningful free cash flow generation from the Assembly asset upon maturity.

In addition to lifting the long-term free cash flow power of the company, it should also materially reduce the cyclicality in non-election years. While the company has a higher debt load from prior station acquisitions, there are limited maturities over the next couple of years. We see strong free cash flow generation over the next five years (potentially >$2.5B) that could allow the company to rapidly delever over time. With greater than 50% forward earnings and free cash flow yield, Gray’s long-term upside potential is multiples of the current share price.”

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This article will look at the 40 best selling items on eBay in 2023. If you wish to skip our detailed analysis of the most popular e-commerce platforms, you can go to the 10 Best Selling Items on eBay in 2023.

The online shopping experience is deemed to be one of the most profitable innovations of this century. Conventional brick-and-mortar businesses are not enough to target a global market. In fact, companies must engage in producing and selling products that fit global standards in a competitive market environment. Check out some of the most profitable products to sell online.

According to a report by Research and Markets, the global e-commerce market was valued at $16.6 trillion in 2022. The global e-commerce market is expected to grow to a valuation of $70.9 trillion by 2028, at a compound annual growth rate (CAGR) of 27.38%. 

eBay: At a Glance

eBay Inc. (NASDAQ:EBAY) is a leading online marketplace in the United States. On July 26, the company reported earnings for the fiscal second quarter of 2023. The company reported earnings per share of $1.03 and outperformed EPS estimates by $0.04. The company’s revenue for the quarter amounted to $2.54 billion, up 4.87%, and ahead of revenue estimates by $34.61 million. The Chief Executive Officer of eBay, Jamie Lannone, stated:

“In Q2, we exceeded expectations on all key metrics while investing in sustainable growth. Three years ago, I set our ambition of becoming the best global marketplace to buy and sell through a tech-led reimagination. Now, we’re raising the bar for innovation and have evolved our vision – to reinvent the future of e-commerce for enthusiasts, only at eBay. This work is already producing compelling results, and we are confident the sharper focus will deliver long-term returns to our shareholders.”

During this quarter the company invested heavily in key strategic initiatives. On September 7, eBay Inc. (NASDAQ:EBAY) launched a “Magical” listing tool backed by AI. This magical listing tool incorporates AI to aid sellers in their research process. For instance, if a seller provides input regarding the title of a list or product category, the AI tool would then present the seller with an option to fill in the details using generative AI. As of September 26, almost 30% of sellers in the United States have used the tool, and among them, 95% opted for AI-generated descriptions. Additionally, the company also launched an image-based magical listing tool for sellers. This tool allows sellers to upload an image on the eBay app and the generative AI tool will fill in the details for the image. This tool saves considerable time for sellers wanting to create comprehensive lists.

eBay Inc. (NASDAQ:EBAY) is a leading marketplace popular among sellers and buyers. The company also inculcates an extensive seller platform, eBay Terapeak. This platform allows sellers to view best-selling products in different categories, and also access reports and insights for their products and product categories.

Alibaba and Amazon; What Do They Have In Store for The Future? 

The success of eBay Inc. (NASDAQ:EBAY) does not come without strong competition from Amazon.com, Inc. (NASDAQ:AMZN) and Alibaba Group Holding Limited (NYSE:BABA).

Amazon.com, Inc. (NASDAQ:AMZN) offers a range of services to different market segments, including an online marketplace, a streaming device, and extensive cloud services. Like, eBay Inc. (NASDAQ:EBAY), Amazon.com, Inc. (NASDAQ:AMZN) also inculcates technology and artificial intelligence to equip their sellers with the ease of doing business. On September 13, Amazon.com, Inc. (NASDAQ:AMZN) launched a generative AI tool that allows sellers to write product descriptions within no time. Sellers can come up with product titles, descriptions, and listing details simply by entering a short description of the product.

However, what sets apart Amazon.com, Inc. (NASDAQ:AMZN) from other marketplaces is that the company does not limit the use of technology on its online platform. On September 9, the company announced the launch of a walkout technology in Amazon stores. This allows customers to simply pick up items and walk out of the store by scanning their credit or debit card at the exit. You can also check out some of the most searched products on Amazon. 

Alibaba Group Holding Limited (NYSE:BABA) is a multinational technology company based in China. The company is among the largest online marketplaces in the world. On September 18, Reuters reported that Alibaba Group Holding Limited (NYSE:BABA) plans to invest $2 billion in Turkey via Trendyol, a leading e-commerce company in Turkey. Earlier this year the company also shared its plans to expand to Europe. On June 15 Reuters shed light on the expansion plans of the company to Europe. The President of the company, J. Michael Evans stated:

“What we will focus more for the future is to build local businesses, so you will see something called TMall which we have in China become TMall in Europe, which means we will serve local brands and local customers in local markets. We have started with a pilot project in Spain which we will expand across Europe.”

Such indicates that Alibaba Group Holding Limited (NYSE:BABA) understands the importance of expanding to international markets that account for a large potential customer base. Alibaba Group Holding Limited (NYSE:BABA) has made important strategic decisions in the past, and it seems like it will continue to expand to become a market leader. 

These marketplaces and eBay Inc. (NASDAQ:EBAY) have tremendously altered the shopping experience for people. Every year these companies happen to invest resources to make the online shopping experience better for customers. While there is still a long way to go, these online platforms are still among customer favorites. With that, let’s take a look at the 40 best selling items on eBay in 2023. 

Our Methodology

Sourcing the best selling items on eBay in 2023 was a challenging task. To curate the list of the 40 best selling items on eBay, we looked through different market agency reports to gauge the trending and most popular categories on eBay. The eBay homepage also provided us with a few names for the popular categories. We then tallied the categories to shortlist the common names between all our sources. eBay’s own site was given the highest priority.

Moving forward, we consulted the deals section on eBay which contains offers on some of the trending products. We then looked for the most sold products for each of our categories on eBay’s seller platforms, eBay Terapeak, to come up with a list of the 80 best selling and trending items on eBay. Of them, 40 with the highest number of sales since their listing were included in the final list. The list is in ascending order of the aforementioned metric.

Since there is no official source for the best selling items on eBay, there is a possibility that some of the major products may have been missed. Therefore, this list may not be perfect but a reasonable approximation of the best selling items and categories on eBay in 2023.

40 Best Selling Items on eBay in 2023

40. CAT Phone S62 Rugged Waterproof Smartphone

Sales Volume on eBay as of September 26, 2023: 680

Smartphones and electronic devices are ranked among the most popular items sold on eBay. The product has posted total sales of 680.

eBay Inc. (NASDAQ:EBAY), Amazon.com, Inc. (NASDAQ:AMZN), and Alibaba Group Holding Limited (NYSE:BABA) operate some of the leading online marketplaces in the world. 

39. LG V50 ThinQ 5G Smartphone

Sales Volume on eBay as of September 26, 2023: 693

Across all our sources, electronic devices were considered to be a popular category. The total items sold of this product as of September 26, are 693.

38. Pokemon 151 Ultra Premium Collection Box

Sales Volume on eBay as of September 26, 2023: 693

The Pokemon 151 ultra-premium collection box posted 18 sales in the past 24 hours and has a total sales volume of 693.

37. Pokemon Sword & Shield Lost Origin Booster Box

Sales Volume on eBay as of September 26, 2023: 697

The Pokemon sword & shield lost origin booster box posted 6 sales in the past 24 hours and has a total sales volume of 697.

36. Apple iPhone 11

Sales Volume on eBay as of September 26, 2023: 993

Based on our methodology, the Apple iPhone 11 is one of the best selling items on eBay. Apple products and electronics were among the most popular categories on eBay.

35. Pokemon TCG Sword

Sales Volume on eBay as of September 26, 2023: 1,004

Based on our methodology, the Pokemon TCG sword is one of the best selling items on eBay. The total sales volume of this product is 1,004

34. Dell Inspiron 7620 16″

Sales Volume on eBay as of September 26, 2023: 1,312

Dell products were among the most popular items sold on eBay. The Dell Inspiron 7620 16″ has a total sales volume of 1,312 and posted 27 sales in the last 24 hours.

33. Nike Mens Jogger Athletic Sweatpants

Sales Volume on eBay as of September 26, 2023: 1,350

Across all our sources, men’s active sportswear was considered to be a popular category. The total items sold of this product as of September 26, are 1,350.

32. OBD2 Scanner Car Diagnostic Tool

Sales Volume on eBay as of September 26, 2023: 1,375

The OBD2 scanner car diagnostic tool posted total sales of 1,375. The tool is an all-system scanner.

31. iRobot Roomba s9 Vacuum Cleaning Robot

Sales Volume on eBay as of September 26, 2023: 1,580

Based on our methodology, the iRobot Roomba s9 vacuum cleaning robot is one of the best selling items on eBay with total sales of 1,580 as of September 26. The product made 5 sales in the past 24 hours.

30. PS5 Sony PlayStation 5 Console Disc Version

Sales Volume on eBay as of September 26, 2023: 1,637

Gaming consoles and gaming products were among the most popular items sold on eBay. The PS5 Sony PlayStation 5 console disc version posted 5 sales in the past 24 hours and has a total sales volume of 1,637.

29. KT Tape Precut Elastic Sports Roll

Sales Volume on eBay as of September 26, 2023: 1,733

The KT tape precut elastic sports roll was among the best selling items on eBay. The total sales volume of this product as of September 26, is 1,733.

28. Garmin Fenix 6 GPS Smartwatch

Sales Volume on eBay as of September 26, 2023: 1,921

Smartwatches were among the most popular items sold on eBay. The Garmin Fenix 6 GPS smartwatch posted total sales of 1,921

27. Apple Watch Series 8

Sales Volume on eBay as of September 26, 2023: 2,017

Apple products were among the most popular items sold on eBay. The Apple Watch Series 8 posted 7 sales in the past 24 hours and has a total sales volume of 2,017.

26. Tape Roll Lace Wig

Sales Volume on eBay as of September 26, 2023: 2,029

Hair care was also a popular category across all our sources. The tape roll lace wig 8 posted total sales of 2,029.

25. Apple iPhone 12 Pro Max

Sales Volume on eBay as of September 26, 2023: 2,396

The Apple iPhone 12 Pro Max was among the best selling items on eBay. The total sales volume of this product as of September 26, is 2,396.

24. Auto Darkening Welding Helmet

Sales Volume on eBay as of September 26, 2023: 2,315

The auto-darkening welding helmet was among the best selling items on eBay. The total sales volume of this product as of September 26 is 2,315.

23. USB-C to USB-A Charging & Data Cable

Sales Volume on eBay as of September 26, 2023: 2,417

The USB-C to USB-A charging & data cable were among the best selling items on eBay. The total sales volume of this product as of September 26 is 2,417.

22. Apple iPhone 13 Pro Max

Sales Volume on eBay as of September 26, 2023: 2,583

The Apple iPhone 13 Pro Max was among the best selling items on eBay. The total sales volume of this product as of September 26 is 2,583.

21. Dell Inspiron 14 5425

Sales Volume on eBay as of September 26, 2023: 2,624

The Dell Inspiron 14 5425 was among the best selling items on eBay. The total items sold of this product as of September 26 is 2,624.

20. Fast Charger USB cable for Apple iPhone

Sales Volume on eBay as of September 26, 2023: 2,642

The fast charger sync USB cable for Apple iPhone was among the best selling items on eBay. The total items sold of this product as of September 26 is 2,642.

19. Nike Men’s Sweatpants Athletic

Sales Volume on eBay as of September 26, 2023: 2,880

Men’s active sportswear was among the most popular items sold on eBay. The jogger has posted total sales of 2,880.

18. Spenco RX Standard Comfort Shoe Insoles

Sales Volume on eBay as of September 26, 2023: 3,282

The Spenco RX standard comfort shoe insoles were among the most popular items on eBay. The insoles have posted total sales of 3,282.

17. Bedside Table Lamp Industrial Metal

Sales Volume on eBay as of September 26, 2023: 4,099

Based on our methodology, the bedside table lamp made with industrial metal is one of the best selling items on eBay with total sales of 4,099, as of September 26.

16. Nike Men’s Active Sportswear

Sales Volume on eBay as of September 26, 2023: 4,668

Men’s active sportswear was among the most popular items sold on eBay. The product posted 7 watches in the past 24 hours and has a total sales volume of 4,668.

15. Gynecomastia Compression Tank Top

Sales Volume on eBay as of September 26, 2023: 4,684

Men’s daily wear and gym wear ranked among the most popular items sold on eBay. The product has posted total sales of 4,684.

14. FlexibleTable Desk Reading Lamp

Sales Volume on eBay as of September 26, 2023: 4,838

Across all our sources, table lamps were considered to be a popular category. The total sales volume of this product as of September 26, was 4,838.

13. Chrome Bedside Touch Table Lamp

Sales Volume on eBay as of September 26, 2023: 5,145

The chrome bedside touch table lamp posted 4 sales in the past 24 hours and has a total sales volume of 5,145.

12. ONYX® USB For Apple iPhone Long Charger

Sales Volume on eBay as of September 26, 2023: 5,148

The iPhone charger posted 94 sales in the past 24 hours and has a total sales volume of 5,148. Chargers and electronic items ranked well across all our sources.

11. 2021 Apple iPad 9th Gen

Sales Volume on eBay as of September 26, 2023: 5,542

Based on our methodology, the 2021 Apple iPad 9th Gen is one of the best selling items on eBay. 13 items of this product were sold in the past 24 hours. Apple products and electronics were among the most popular categories on eBay.

eBay Inc. (NASDAQ:EBAY), Amazon.com, Inc. (NASDAQ:AMZN), and Alibaba Group Holding Limited (NYSE:BABA) provide a 360-degree online selling experience with new and improved features to sellers. 

Click to continue reading and see 10 Best Selling Items on eBay in 2023.

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• 20 Most Searched Products on Amazon
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• 20 Most Profitable Products to Sell Online in 2023

Disclosure. None. 40 Best Selling Items on eBay in 2023 is originally published on Insider Monkey.

]]> Thu, 28 Sep 2023 15:56:47 +0200 https://api.follow.it/track-rss-story-click/v3/zjPTUnu5s41Che-DmOnXq6gHTd9OkkKt https://api.follow.it/track-rss-story-click/v3/zjPTUnu5s41Che-DmOnXq96jHbRcHw3s

This article looks at the 20 best selling items on eBay in 2023. If you wish to read our detailed analysis of the most popular e-commerce platforms, you may go to the 40 Best Selling Items on eBay in 2023. 

10. Genuine Leather Belts

Sales Volume on eBay as of September 26, 2023: 5,936

Based on our methodology, genuine leather belts are one of the best selling items on eBay. 7 items of this product were sold in the past 24 hours.

]]> Thu, 28 Sep 2023 15:55:45 +0200 https://api.follow.it/track-rss-story-click/v3/zjPTUnu5s41Che-DmOnXq96jHbRcHw3s https://api.follow.it/track-rss-story-click/v3/zjPTUnu5s41SDxFeWDIohSxhxzpi7FpJ

The Duckhorn Portfolio, Inc. (NYSE:NAPA) Q4 2023 Earnings Call Transcript September 27, 2023

The Duckhorn Portfolio, Inc. beats earnings expectations. Reported EPS is $0.15, expectations were $0.13.

Operator: Good afternoon and thank you for attending today’s Duckhorn Portfolio Q4 and Full Year 2023 Earnings Conference Call. My name is Sierra [ph] and I’ll be your moderator for today. [Operator Instructions] I would now like to pass the conference over to our host, Sean Sullivan. Please proceed.

Sean Sullivan: Good afternoon and welcome to The Duckhorn Portfolio’s fourth quarter and fiscal year 2023 earnings conference call. Joining me on today’s call is Jennifer Fall Jung, our Chief Financial Officer. Following my opening remarks, Jennifer will walk us through our quarterly results and the details of our fiscal year 2024 financial guidance that we are issuing today. I will then conclude with some closing remarks before we take questions. By now, everyone should have access to the earnings release for the fiscal quarter and fiscal year ended July 31, 2023, that was distributed at approximately 4:05 PM Eastern Time. The press release and an accompanying presentation are accessible on the company’s website at ir.duckhorn.com.

A winemaker examining a glass of red wine from a barrel in a cellar. Editorial photo for a financial news article. 8k. –ar 16:9

And shortly after the conclusion of today’s call, a webcast will be archived for the next 30 days. Before we begin, I would like to remind you that today’s discussion contains forward-looking statements based on the environment as we currently see it and as such, includes risks and uncertainties. If you refer to Duckhorn’s earnings release, as well as the company’s most recent SEC filings, you will see a discussion of factors that could cause the company’s actual results to differ materially from these forward-looking statements. Please remember, the company undertakes no obligation to update or revise these forward-looking statements in the future. We will make a number of references to non-GAAP financial measures. We believe that these measures provide investors with useful perspective on the underlying growth trends of the business and have included in our earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures.

In addition, please note that all retail scanner data cited on today’s call is sourced from Circana which was formerly known as IRI. And we’ll refer to dollar consumption for the 12-week period ended July 30, 2023 and growth versus the same period in the prior year in U.S. tax [ph] channels, unless otherwise noted. Before we discuss our financial performance and outlook, I would like to share an update about our company’s leadership team. As you may have seen in a press release issued a few moments ago, we have announced that Alex Ryan retires as our President, Chief Executive Officer and Chairman, to focus on family and personal matters. We wish Alex well and thank him for his 35 years of leadership and service at The Duckhorn Portfolio. In light of Alex’s retirement, I’m also pleased to announce that our Board of Directors voted to appoint Deirdre Mahlan to act as our Interim President, Chief Executive Officer and Chairwoman.

Deirdre is an excellent choice to lead our Company through this transition, given her close work with the company and management over the past nearly three years and her extensive expertise in the alcohol beverage industry. Deirdre spent nearly 20 years in leadership positions at Diageo. From 2010 to 2015, she served as Chief Financial Officer of Diageo PLC. She also served as Chief Executive Officer of Diageo North America between 2015 and 2020. Since early 2021, she has been a key collaborator with the company’s veteran leadership team that continues to boast more than 60 years of collective experience at Duckhorn. My colleagues joined me in excitement about Deirdre accepting this most important leadership role in our company. Stepping back, the success of The Duckhorn Portfolio has always been the result of our philosophy, the collaborative efforts of our amazing team and our unwavering commitment to producing the highest quality wines.

At its core, The Duckhorn Portfolio is made up of more than 500 passionate employees. Our team, our values and our commitment to excellence have always been and always will be the foundation of our success. We look forward to you getting to know Deirdre very soon as she settles into her new role at the company. Moving now to our financial results, I’d like to start by saying how pleased we are with our fourth quarter and full year performance. Net sales grew 28% in the fourth quarter, resulting in full year sales growth of 8%, complemented by full year adjusted EBITDA growth of 13%. Our strategies to drive profitable sales growth through leveraging our brand strength, evolving our portfolio, expanding our wholesale network and growing our DTC channel continues to pay off.

Before Jennifer discusses additional details about our performance, I will share some observations on the industry, including recent trends in retail wine sales. Stepping back with a broad view, we are pleased to see signs that the total U.S. wine industry seems to be turning the corner. The $25 and up subsegment turned positive in the 12-week period ended July 30, 2023; and the luxury wine segment, wines at $15 and above, grew at 5.4% in the same 12-week period. We continue to outpace the broader luxury segment on a full-year basis. The Duckhorn Portfolio grew 9.1% versus just 1.6% for the luxury segment during the same period, as measured by Circana. We are encouraged by wine trends showing signs of a rebound and remain confident in our ability to continue to outperform the luxury wine segment and take care in this coming fiscal year.

Now, I would like to note a few highlights from the fourth quarter. First, on the topline, we performed in line with our expectations, with net sales increasing 28% over the prior year. We planned fourth quarter growth to be the most robust of the year, given the cadence dip in our Kosta Browne Appellation offering and expected strong wholesale growth; and we achieved this. Wholesale net sales increased 20%, with performance strongest earlier in the quarter. Direct-to-consumer net sales increased 75%, driven by the shift of the Kosta Browne Appellation offering from the third quarter last year to the fourth quarter this year. Second, our volume grew by 10.6% which reflects an acceleration over the third quarter. Consistent with typical seasonality patterns, shipment growth in the quarter modestly outpaced depletion growth but depletion growth and shipment growth were in line with our expectations for the full fiscal year.

And importantly, at the end of the fourth quarter, wholesale channel inventories were consistent with our expectations. Third, our portfolio remained a category growth leader within the $15 and up luxury segment, where we continue to take care. And finally, we posted an improved adjusted EBITDA margin of 34.2% versus 28.6% in the prior year. The fourth quarter benefited from the shift of the Kosta Browne Appellation offering and robust gross margin expansion, resulting from opportunistically lean trade spend. Let me take a moment to update you on another aspect of our growth strategy, growing the number of accounts in which our luxury wines are sold. As part of our annual assessment of our total addressable market for the wholesale channel, we calculate the number of accounts in which our luxury wines are sold and set a target for its future growth.

We are pleased to see the number of accounts sold grow from 59,000 as of June 30, 2022, to 65,000 as of June 30, 2023, reflecting greater than 10% growth in the number of accounts. There remains significant white space. We are targeting that the number of accounts at which our wines are sold to grow at a CAGR of 7% to 8% over the next 4 years. I would like to share a brief update on the production winery we acquired in June in Sonoma County. As we have noted before, our strategy with respect to the acquisition of production assets is to optimize the balance between in-house production and the use of custom crush partners in a manner that enhances the quality of our wines, increases diversification and optionality and reflects an efficient use of capital.

Production wineries of this scale are rarely available in California. And this acquisition reduces our reliance on third-party custom processing, storage and bottling and takes a longer-term view with respect to future capacity requirements to meet our long-term growth plans. By optimizing our production processes and affording us greater visibility into our cost of goods in future years, we view this acquisition as an investment in our future growth, our winery brand and our financial performance. With that, I’ll now hand over the call to Jennifer to take us through our Q4 performance and preliminary fiscal 2024 guidance.

Jennifer Fall Jung: Thank you, Sean; and good afternoon, everyone. Beginning with our topline, net sales were $100.1 million, an increase of 28.3% compared to prior year and consistent with our expectations. The growth was driven by both strong price mix and volume growth, supported meaningfully by the shift in the Kosta Browne Appellation series offering into the fourth quarter of this year. We have a long-term pricing strategy for our luxury wines and our planned price increases during the past fiscal year were well received by both retailers and consumers alike. We continue to take care at all price points within the portfolio. Our D2C channel was a major driver of our consolidated net sales growth, benefiting from the previously discussed shift in cadence of the Kosta Browne Appellation series offering.

As a reminder, this movement is simply a cadence shift that was a headwind in the third quarter and a tailwind in the fourth quarter. Wholesale shipment growth outpaced depletion growth in the fourth quarter but the shipment growth and depletion growth were imbalanced for the full fiscal year. On a net sales basis, the wholesale channel posted strong double-digit growth driven by off-premise demand from national accounts. From a sub-channel perspective, off-premise was a key growth driver in the quarter, outperforming the growth of our on-premise sub-channel and showing strength in depletion, accounts sold and number of labels per account. Despite lapping a tough prior year comparison that had benefited from the continued on-premise reopening, we still grew our on-premise account base this quarter.

As we have noted on prior earnings calls, our exclusive focus as a producer of luxury wines means that we emphasize placement of our wines on wine lists in fine dining restaurants and other on-premise locations. To expand briefly, on the net sales performance by sub-channel in the fourth quarter, the wholesale to distributor sub-channel continues its growth trajectory this quarter, increasing an impressive 23.9% over the prior year, driven by a combination of case volume growth and favorable brand mix led by our Duckhorn Vineyard and Decoy winery brands, with continued expansion of Decoy Limited in the channel. The California direct-to-trade sub-channel was up 7.3% compared to the prior year on healthy volumes and pricing. We are pleased to see this growth in California which is already our strongest state.

The direct-to-consumer channel increased 75% when compared to the prior year. This increase was largely anticipated given the cadence shift of our Kosta Browne offering. Excluding the impact of the timing shift, B2C net sales would have increased solidly in the quarter. Our strategy to drive our direct-to-consumer business through customer engagement in our tasting room is proven out as our per-person spend is higher than pre-pandemic levels. Fourth quarter gross profit was $55.3 million, an increase of $16 million or 40.6% compared to prior year. This represents a 55.2% gross margins, up approximately 480 basis points year-over-year, improving due to the shift in the timing of the Kosta Browne Appellation series offering and in our wholesale channel as a result of successful planned price increases and lower discounting.

Total selling, general and administrative expenses were $30.4 million, an increase of $2.7 million or 9.8%. The increase was primarily attributed to higher compensation costs as we continue to invest in our workforce and deliver on our long-term growth strategy. Net income was $17.8 million or $0.15 per diluted share. Adjusted net income was $16.7 million or $0.15 per diluted share which nearly doubled from our fourth quarter of last year. The increase in adjusted net income was driven by higher net sales and higher gross margin percent compared to the prior year, partially offset by higher operating expenses, interest and income taxes. Adjusted EBITDA was $34.2 million, an increase of $11.9 million or 53.5% year-over-year growth. Adjusted EBITDA margin improved 560 basis points versus the prior year.

The increase was driven by higher net sales and improved gross margin primarily as a result of pricing optimization, partially offset by higher operating expenses. Overall, our fourth quarter was a solid end to a strong year at The Duckhorn Portfolio. At the end of the quarter, we had cash of $6.4 million and total debt of $233.8 million. As a result, our leverage ratio declined to 1.6 times net debt. Let’s turn now to our initial outlook for full year fiscal 2024. While we are mindful that ongoing macro uncertainty can impact customer discretionary spending, we believe we are well-positioned to continue outperforming the overall wine industry and taking share in luxury wine due to our superior brand strength and scaled, highly diversified business model.

We expect to realize volume-driven topline growth of mid-to-high single-digits. Net sales contribution will be balanced across our sub-channels and brands with a profitability growth consistent with the topline. Adjusted SG&A will increase in total dollars but decrease as a percentage of net sales, as we continue to make disciplined investments to execute against our considerable distribution of white space opportunity which underpins our long-term strategy. For fiscal year 2024, we expect net sales in the range of $420 million to $430 million which represents growth of 4% to 7%. Adjusted EBITDA in the range of $150 million to $155 million which represents growth of 4% to 7%. Adjusted EPS in the range of $0.67 to $0.69 per diluted share. This includes approximately $0.02 per diluted share of pressure due to the Geyserville facility acquisition in late fiscal year 2023.

Capital expenditures of approximately 8% to 10% of net sales. Interest expense in the range of $14 million to $16 million. And an effective tax rate of 25% to 27% of free tax income on a U.S. GAAP basis. Due to the seasonality of our business and the variance in prior year comparatives, we thought we would provide some additional color on Q1 and the first-half dynamics. While the first half of the year is expected to be proportionally in line with last year, growth will be specifically within Q2, with Q1 to show some downward pressure as we lap some shipment timing in the first half of the prior year. For Q1, we are looking for a high-to-mid single-digit decline given last year’s steep wholesale increase. As a reminder, the prior year Q1 benefited from shipment timing favorability, part of which was pulled forward from Q2 into Q1 as distributors stocked up to avoid logistical challenges or to secure inventory before price increases.

I want to reiterate, as we have discussed in the past, that quarter-to-quarter volatility in shipment volume is common, given the relative size of our wholesale channel business and the timing movements across quarters are not meaningful indicators of the underlying health of the business. In terms of seasonality, we expect first-half and second-half proportionality that is generally in line with our historic trends. We also note that the second-half includes some refinements to shipment cadence between Q3 and Q4 for our Kosta Browne offering as we continue to strive for the optimal customer experience in bringing these exceptional wines directly to our customers. These movements in shipment timing will bring net sales out of Q4 and into Q3 relative to prior year.

For fiscal year 2024, we anticipate downward pressure on gross margin of up to 50 basis points as we restore pricing to more normalized levels. On a full-year basis, our growth outlook is in line with our long-term growth algorithm and we remain prudently optimistic despite some potential industry and macroeconomic pressure. In conclusion, we are pleased with our fourth quarter and full-year 2023 results. We continue to outperform and take share within the luxury wine segment. And I believe we remain in an advantageous position within our industry as we look forward to a strong fiscal year ahead. I will now hand it back over to Sean for closing remarks.

Sean Sullivan: Thank you, Jennifer. We are very pleased with our strong financial results and our consistent outperformance of the luxury wine segment. While the impacts of the short-term macroeconomic environment are challenging to predict, we are confident that The Duckhorn Portfolio will continue to deliver in the long-term against our growth strategy with results that demonstrate the strength of our brands and the resiliency of our customers. We remain committed individually and as a team to delivering sustainable, profitable growth and will always strive to create value over the long-term for our stockholders. With that, Jennifer and I are available to take your questions. And we would appreciate a focus on questions about our business strategy, financial performance and guidance for the new fiscal year.

My statements earlier in the call and also the press release issued earlier this afternoon include all of the information we have to share today with respect to the CEO transition.

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Q&A Session

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Operator: We will now begin a question-and-answer session. [Operator Instructions] Our first question today comes from Christian Junquera with Bank of America.

Christian Junquera: You have Christian on for Pete. Before we ask our question, I just want to say it was a pleasure working with Alex and we wish him the best. First, what needs to…

Jennifer Fall Jung: We do too.

Christian Junquera: Sorry, go ahead.

Sean Sullivan: I said we do too.

Christian Junquera: So first question and then I have a quick follow-up. What needs to transpire for you guys to hit the high end of your sales and EBITDA outlook?

Jennifer Fall Jung: This is Jen. Nice to meet you. As we talked about a little bit in our performance in FY 2023, part of our longer term goal in terms of gaining market share really comes from really our accounts growth that we see in both on and off premise, as well as continuing to attract new customers into our portfolio. So we will continue with that strategy. It has been working. And we definitely see a path for that for our upper end of our guidance. We are just keeping in mind that there are macroeconomic and industry headwinds out there but we feel really good about our topline guidance that we’ve put forth.

Christian Junquera: Okay. Perfect. And then one follow-up. I believe you touched on this towards the end of your remarks but just the cadence of seasonal revenue for fiscal ‘23 changed, because of the timing of Kosta Browne shipments. Now, is it fair to assume that sales seasonality for fiscal ‘24 for the first and second half should look closer to what it was in fiscal ‘23, right? Are we thinking about that correctly?

Jennifer Fall Jung: Yes, directionally. We say proportionately we feel on a half basis which I think is where you were starting, you should see the same cadence on a half basis, just keeping in mind that we feel really great about the Kosta Browne offering and how it performed in Q4, obviously driving a lot of growth. But we do think moving it back into Q3 will be more optimal for our customers. So you just have to think about that as you’re looking at the quarters.

Sean Sullivan: And, Christian, we have an investor deck that was just filed a few minutes ago as well. If you take a look at that, it’s got a really helpful schematic that will put a finer point on that for you with respect to the Kosta Browne offering.

Christian Junquera: Perfect. I’ll pass it along.

Operator: Our next question comes from Lauren Lieberman with Barclays.

Lauren Lieberman: First, just want to touch on the off-premise versus on-premise trends. I know you’d mentioned that off-premise was outperforming. But what sort of assumptions underpin the ‘24 guidance in that regard? And then also within the on-premise, just curious what you’re seeing in terms of consumer trade-down, how you feel about your availability on wine lists of having some of your lower or more moderately priced offerings available in key accounts at this point, or if that’s something that is building as an opportunity to have more installation.

Jennifer Fall Jung: This is Jen. Great to meet you. Yes, how we saw performance, as we mentioned in our speech this year, was a lot of the growth did come from off-premise which we felt really good about; solid growth. Both on-premise and off-premise had account growth in the quarter and on the year. So we are seeing favorable results in each channel. What you saw in on-premise is that based on FY ‘22, there’s just a bigger hurdle, so the comps were a little bit tougher. So although it did grow and we feel great with the performance, we were just comping a reopening in 2022 of on-premise. As we look forward, part of our growth trajectory is to expect that both on- and off-premise will continue to grow from an account perspective and that’s where our new sales team is focused, as well as the rest of the leadership team.

And we will continue to get more of our wines into both the on-premise and off-premise category, knowing that there are some puts and takes with label mixes as we move through a year.

Sean Sullivan: And with respect to trade-down, I would note relative stability, frankly, across the price points in the portfolio. The luxury wine category experienced a softening of demand and then some increases in its overall performance but we’re focused on our performance relative to that which has continued to be quite strong as we take share. I would point out also our account growth which I think, the first of the three key vectors to wholesale growth, going from 59,000 to 64,000 as of June 30, 2023 and a projection that we take out at a CAGR of 7% to 8% over the next 4 years for growth, that’s comprised primarily more so of off-premise than on but that is, I think, the underlying element of wholesale that also should be kept in mind.

Lauren Lieberman: Okay. Great. And then also I just wanted to ask about promotions. I know your goal has been to keep making progress on kind of tempering promotions. Just any kind of color you could frame kind of the work that’s been done over fiscal ‘23 and kind of how much room is left going forward on that promotional depth and frequency conversation?

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Paychex, Inc. (NASDAQ:PAYX) Q1 2024 Earnings Call Transcript September 27, 2023

Paychex, Inc. beats earnings expectations. Reported EPS is $1.16, expectations were $1.12.

Operator: Good day, everyone, and welcome to today’s Paychex First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to John Gibson.

John Gibson: Thank you, Shelby. Thank you, everyone, for joining us for our discussion of the Paychex first quarter fiscal year ’24 earnings release. Joining me today is Efrain Rivera, our Chief Financial Officer; and Bob Schrader, Vice President of Finance and Investor Relations. This morning before the market opened, we released our financial results for the first quarter. You can access our earnings release on our Investor Relations website. Our Form 10-Q will be filed with the SEC within the next day. The teleconference is being broadcast online and will be archived and available on our website for approximately 90 days. I will start the call with an update on the business highlights for the first quarter. I’ll then turn it over to Efrain and Bob for a financial update, and then, we’ll open it up for your questions.

Andrey_Popov/shutterstock.com

But before getting into the discussion of our earnings results, I want to take a brief moment here to make a few brief comments to acknowledge Efrain Rivera, who announced his intention to retire as CFO effective October 12, 2023; though he will remain as a Senior Advisor at least through the end of the calendar year. Efrain has been a valuable member of this senior leadership team at Paychex for the past 12 years. He has provided strong financial stewardship, but more importantly, great strategic leadership as well. During his time with Paychex, the company has transformed into a technology-enabled services company and we significantly expanded our HR Solutions and capabilities. Efrain has been a key strategic advisor and a catalyst for this transformation.

Efrain, I think you know how truly I appreciate your intellectual wisdom, your integrity, the guidance you’ve given me personally over my decade here and to the company. And we are all in great gratitude for what you’ve done for each one of us personally and for the company. Our customers, our employees and our shareholders are better off because you were here. So, thank you. Joining us today is Bob Schrader, who will succeed Efrain as CFO. Bob joined Paychex back in 2014 and is taking on progressive leadership roles over the past nine years, including over the last year and a half since I was named President and subsequent CEO of being co-lead of many of our strategic review efforts and strategic initiatives. Bob’s promotion is a part of a strategic succession plan to bring in an innovative leader who will continue to guide the company going forward.

I want to congratulate Bob and, Bob, I look forward to continuing to work with you as I have in the last 10 years, I mean, as we continue to — continue our track record of delivering strong financial results and continuing to position Paychex as a leader and innovator and a company that you can count on for predictable and sustainable results. Now, moving on to the first quarter results, speaking of predictability and sustainability. We have begun the fiscal year ’24 with solid growth of 7% in total revenue and 11% in adjusted diluted earnings per share. We’ve seen operating margin expansion approximately 60 basis points year-over-year, while still investing in our business to drive future growth. Our first quarter reflected solid execution by our sales, service and all of our teams across Paychex.

The demand for our HR technology and advisory solutions continued, resulting in strong quarter new sales, revenue growth, we saw positive trends in client, revenue and HR outsourcing worksite employee retention during the quarter, and we continue to focus our resources on acquiring and retaining high-value clients. We are starting to see improvements in some of our key PEO and insurance metrics during the quarter, with good results across sales activity, insurance attachment and retention. We will know more after our open enrollment season is completed, which primarily runs from October through January, but at this time, we believe that the actions we have taken in response to the headwinds we faced in 2023 are beginning to gain traction. Employment levels within our client base have remained stable.

Small businesses, which are central to the U.S. economy, continue to show the resiliency. Our Small Business Employment Watch has shown that small businesses continue to add workers at sustained, but modest rates, also the trend in wages is showing some cooling in wage growth consistent with overall inflation. Our data indicate a continued stable macro-environment for small and mid-sized businesses. We continue to monitor our leading indicators and are prepared to take appropriate actions to navigate any changes. But again, at this time, we don’t see any material change to the macro-environment. Small businesses have faced challenges getting access to capital and managing cash flows in this environment. This has continued to drive demand for our full-service Employee Retention Tax Credit Service.

I know there’s been some recent news of the IRS pause in ERTC processing in order for them to perform increased audits. This is not expected to have an impact on our ability to provide the service, though it may take longer for our clients to receive their funds. We continue to communicate this opportunity to existing clients and prospects and we continue to file amended returns with the IRS on their behalf. We anticipate that ERTC revenue will be a slight tailwind for the first half of the fiscal year and then turn to a headwind in the back half as the program ends. We are seeing greater adoption of HR software as businesses look to digitize their HR efforts to support the complexities of managing today’s workforce in a more efficient manner.

We also continue to see strong demand for our HR advisory solutions as businesses deal with the continued challenges of being an employer in today’s challenging employment world. Paychex is uniquely positioned to offer a continuum of HR products, technology and services from do-it-yourself payroll all the way to full-service PEO HR outsourcing. All of these products deliver a strong return on investment for our clients. For the 13th year in a row, we were named the leading retirement record-keeper by number of plans by PLANSPONSOR Magazine. Our leadership position in retirement makes us an excellent resource for small businesses and we continue to educate and execute on this opportunity. There have — there has certainly been a lot of excitement about AI and related technology and advancement around the monetization of large datasets.

At Paychex, as we’ve talked on prior calls, this isn’t anything new or it’s not a fact. We have been using artificial intelligence to transform our business for over a decade. We have over 200 AI models that are actively working on our business today, designed to provide valuable insights, fueled by our vast data assets. Our award-winning Retention Insights tool uses AI-based predictive analytics to provide HR leaders with early insights into potential employee retention issues. Our Flex Intelligence Engine is an embedded AI chat capability within our Flex platform that allows the customer to get quick answers to over 900 of the most common questions and access over 1,200 instructional resources. Companies like Paychex with large amounts of data will clearly be the winner with AI, and we will continue to harness the power of AI and leverage our extensive data to drive internal efficiencies and provide actionable insights and solutions to our clients.

This quarter, we continued to be recognized for our innovation, service and the positive impact we are having on our customers, our industry and the world. For the third time, Paychex has been recognized by TrustRadius with a 2023 Tech Cares Award for the company’s Corporate Social Responsibility programs and our community impact. We also received an award from Selling Power for our commitment to fostering a diverse and inclusive workforce, and from Forbes as one of the Best Employers for Women in 2023. On the product and service side, NelsonHall, once again, identified Paychex as the leader in its 2023 Next Generation HCM Technology Market Report. We also earned at silver Brandon Hall Group 2023 HR Excellence Award for breadth and depth of training that we provide our HR advisors to keep them up to speed on the ever-changing complexities of the employer-employee relationship.

Paychex was also named the 2023 Constellation Research on their ShortList for best payroll for North American small and mid-sized businesses. The depth and breadth of our product suite provide American businesses the freedom to succeed with the technology and advice that they desperately need to remain competitive in a very complicated world. I want to thank our over 16,000 global employees who consistently deliver for our clients and our shareholders. It’s because of them that we are off to such a good start this fiscal year. I’ll now turn it over to Bob Schrader to give you a brief update on our financial results for the first quarter. Bob?

Bob Schrader: Yeah, thanks, John, and good morning. It’s good to be here with you this morning, and I certainly look forward to working with each of you as we move forward. I’d like to remind everyone that today’s commentary will contain forward-looking statements; obviously, those involve risk. And we will refer to some non-GAAP measures. I’ll refer you to our customary disclosures in our press release and our investor presentation that will be posted later today. I’ll start providing a summary of our first quarter results and I’m going to turn it over to Efrain, he’ll give an update on our financial position and updated guidance for the year. Total revenue for the quarter increased 7% to $1.3 billion. Management Solutions revenue increased 6% to $956 million, primarily driven by higher clients and client employees, product penetration, price realization and HR ancillary services.

We continue to see increased attachment and demand for our HR Solutions, retirement, and time and attendance solutions. PEO and Insurance Solutions revenue increased 5% to $298 million, driven primarily by higher revenue per client and higher average worksite employees. As John mentioned, we definitely saw some positive momentum in the PEO in the first quarter as it relates to both sales activity in medical plan participation and attachment, those were obviously headwinds last year, and we are definitely seeing some positive signs as we move through the first quarter here. Interest on funds held for clients increased 83% to $33 million, primarily due to higher average interest rates. Total expenses increased 5% to $750 million. Expense growth was largely attributable to higher compensation costs, PEO direct insurance costs and investments that we’ve made into the business.

Operating income increased 8% to $536 million, with an operating margin of 41.7%, that’s a 60 basis point improvement versus the prior-year period. And diluted earnings per share increased 10% to $1.16 per share, and adjusted diluted earnings per share increased 11% for the quarter to $1.14 per share. I’ll now turn it over to Efrain to take you through our financial position and our updated guidance for the year.

Efrain Rivera: Thanks, Bob, and good morning to everyone on the call. Before I start, just wanted to say thank you, John, for the generous words. It’s been an absolute professional privilege and honor to have been with Paychex during all this time. As you all know, we maintain a strong financial position with high quality cash and earnings. Our balance for cash, restricted cash, and total corporate investments with more than $1.7 billion. Total borrowings were approximately $812 million as of August 21, 2023. Cash flows from operations were $656 million for the first quarter, was driven by net income and changes in working capital. There was some influence of timing there. It wasn’t quite as strong as the percentages would indicate, but nonetheless, it was a very solid quarter.

As you know, our earnings quality, which many — some of you have pointed out, is among the best candidly in the entirety of the S&P 500. In the first quarter, we acquired a small company that purchases outstanding accounts receivable of their customers under non-recourse arrangements. This acquisition is a good strategic fit with another business that we have called Paychex Advance, and that business purchases accounts receivable for temporary staffing clients. This acquisition will provide an opportunity for our small business clients to manage working capital challenges. As John alluded to earlier, we’ve seen over the last several years that access to financing is very important for small and medium-sized businesses. We think this plays well into our — in our portfolio of businesses that we have.

I’m very excited to have it. The acquisition, at this stage, is not anticipated to have a material impact on our financial results this year. We paid a total of $322 million in dividends during the first quarter. Our 12-month rolling return on equity was a stellar, superb, amazing 47%. Now, let me turn to guidance for the fiscal year ending May 31, 2024. I’m going to give you color on not only the full year, the first half and the second half, and we typically do that at this stage. As you noted, we have raised guidance for interest on funds held for clients and for adjusted EPS, but I want to go through a little bit of color as we go through to give you a sense of what our thinking is. Our current outlook is as follows: You saw that Management Solutions still expected to grow in the range of 5% to 6%.

PEO and Insurance Solutions expected to grow in the range of 6% to 9%. Interest on funds held for clients now, as I have mentioned, expected to be in the range of $140 million to $150 million, raised from our previous guide of $135 million to $145 million. And before I get the question, are we anticipated a range — are we anticipating a range of additional increases, no, we are poised looking at what the Fed is doing just like everyone else is, but this is our best estimate of, at least some additional activity by the Fed, but not — likely not contemplating all of it to the extent that the Fed does something now. We’ll have a conversation later in the year. Maybe the Fed will decide that they actually do want to pause, but at this point, that’s where we anticipate being.

Total revenue is expected to grow in the range of 6% to 7%, but now we think this is likely towards the high end of the range. So, operating income margin is expected to be in the range of 41% to 42%. Other income net is expected to be income in the range of $30 million to $35 million. The effective income tax expected to be in the range of $24 million to $25 million. Adjusted diluted earnings per share is expected to grow in the range of 9% to 11%, and this is raised from our previous guide of 9% to 10%. This full year outlook assumes current macroeconomic conditions, which has some uncertainty surrounding future interest rate changes and their impact on the economy. And I would just say, it’s been almost — I would say, at least six quarters where we keep saying, “Hey, we don’t know what’s going to happen in the back half of the year and it could change our outlook.” I think John summarized it very well.

At this point, things look pretty stable. So, we are feeling directionally more and more confident in the back half. Projecting the second half of the year, we anticipate total revenue growth of approximately 7% and operating margin in the range of 42% to 43%. I heard some comments after — first — when we released guidance that we have a ramp in the back half of the year. I wouldn’t describe our current guidance as a significant ramp in the back half of the year. Obviously, there are differences in the back half of the year that we’ll navigate through and talk to you, but the difference between first half and second half is not dramatic. Of course, all of these comments are subject to our current assumptions, which are subject to change. We will update you again on the second quarter call.

So, let me just repeat a couple of things to make sure. First half 2024 total revenue growth in the range of 6% to 7%, operating margin in the range of 40% to 41%. And then, in the second half at this point, we anticipate total revenue growth to be approximately 7%, operating margin in the range of 42% to 43%. I refer you to our investor slides on the website for additional information. Before handing things back over to John, I would just like to say that, I appreciate the relationship I’ve built with each of you during my time here at Paychex. We’ve had a long time together and it’s time to hand the reins over to someone else who I think we’ll do an even better job than I have. One of the things that strikes me during that entire time, and many of you have been here for the entire ride, I got a call and someone — or I got note and someone said, “Efrain you’re making me old, because I’ve retired two CFOs at Paychex.” So, I think that’s unfortunately true.

We are all getting a little bit older. But one of the things that always strikes me is that we are covered by the best group of analysts in the business. I’d say that even though I have disagreed with some of you over the years and I still think you have us rated too low, but be that as it may, I can’t argue with some of the things that you write. And in a separate note, I just want to say this, I’ve worked with Bob Schrader for many years, both here and prior to Paychex. I know that I’m leaving you in very capable hands. And I’m sure that Bob will do an even better job than the one that I do. And with that, let me turn it back to John.

John Gibson: Well, thank you, Efrain. Before I open the call for questions, probably two things. One, we have a lot of people here and the last time Efrain did a great job of providing rules on questions, particularly on compound questions and multiple follow-ups. So, we could just follow the Efrain rule in honor of Efrain’s retirement. I know he would greatly appreciate it, and maybe we can create a new tradition here. But no, feel free to answering your questions. But I would like to also add, make everyone aware, there’s many ways you can learn more about Paychex, and really the amazing success stories and the impact that we are having on the world. We’ve recently launched a series of reports that you can find on our Investor page both our annual report, our ESG report and a new client impact report, and very shortly, you’ll be seeing a new Investor Relations 101 Presentation that will be launched on the website prior to our Annual Meeting in the coming weeks.

And again, I think these documents provide a lot more color and really a lot more insights of just how significant, how broad our products are, how big an impact we are having on our customers, how big an impact we are having on our employees, how and why Paychex is known as one of the most admired, most ethical and most innovative companies in the world, and I encourage you to check that out. So, with that advertisement of our Investor website, Shelby, you can now turn it over for questions.

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Q&A Session

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Operator: [Operator Instructions] And we’ll take our first question from Ramsey El-Assal with Barclays. Your line is open.

Ramsey El-Assal: Hi. Thank you for taking my question, and congratulations to you, Efrain.

Efrain Rivera: Thank you.

Ramsey El-Assal: We will miss hearing your voice on these calls certainly. I was wondering if you could comment on the interest from corporate investments was relatively high in the first quarter, and it doesn’t necessarily feel like that’s going to flow through for — to the full year guide in terms of maybe recurring each quarter. So, maybe if you could talk about that contribution to other income and just how you might see it trending the rest of the year?

Efrain Rivera: Yeah. So, Ramsey, there’s a couple of things that go into that line beyond just — so for everyone who isn’t focusing on that line that much. So that’s a combination of our interest expense, our interest income from corporate portfolios primarily, and also some gains and losses on investments that we have in small investment fund that we have. Those things can swing a bit during the year and are subject to whatever we think the balance is going to be on corporate funds during the year. We made an acquisition, so we expect that. During the year, our average corporate balances will be lower. So that will generate lower interest income. And then, the other part of that, Ramsey, is gains and losses on that other investments as the mark-to-market can change from quarter-to-quarter.

So, there could be a little bit of lumpiness in that number, but it might be a little bit different. I would say one other thing just by way of color on that line. We ended up with a fairly high cash balance that was influenced by timing. I think, I called that out,, or if I didn’t, let me call it out now. It just really had to do with the day on which we closed the quarter so our cash balances were higher. They are likely to be a bit lower — not a bit lower, but lower as we progress through the year. So, you might see that number change a bit.

Ramsey El-Assal: Okay. Fantastic. And a quick follow-up. If you could talk about SECURE Act 2.0? How you see that evolving? And how you see that potentially — presumably benefiting the business over time?

John Gibson: Yeah, look, SECURE Act 2.0, I think is a great action and great step that the government has taken is encouraging and helping small and mid-sized businesses, provide for the retirement of their employees. We are certainly out there educating the market on the opportunity. It really provides an opportunity for them to add a 401(k) plan or get a tax credit back for the implementation fees or the set-up fees of the plan. And then allows them to actually do a match for their employees and get that back into a tax credit as well. So, we are very happy our 401(k) business has continued — has very, very strong growth, that has continued. The thing I continue to remind people, we have some experience in this in other state mandates and what we realized is that there’s a lot of education that has to go on to get the market educated about the cost of a 401(k) plan, the benefits of a 401(k) plan.

And certainly, we are out actively in the market, educating the market, educating our strategic partners on that, and we believe that the SECURE Act 2.0 is going to allow us to continue to sustain the double-digit growth rates that we’ve seen in the retirement business over the last several years.

Ramsey El-Assal: Fantastic. Thank you very much.

Operator: And we’ll take our next question from Andrew Nicholas with William Blair. Your line is open.

Daniel Maxwell: Hey, good morning, guys. This is Daniel Maxwell on for Andrew today. To start off, I was hoping you could dig in a little on any changes to the dynamic between ASO and PEO, and whether over the past couple of months, you’ve seen any preferences shift on that. You called it out the last couple of quarters, and I was wondering, if anything changed.

John Gibson: Yeah. So, I would say this, we continue to see strong demand for our HR outsourcing solutions across the board. And I would say that the balance is probably more back to prior to ’23, where we saw a little shift to ASO. We’ve seen more of what — more traditional balance of ASO to the PEO. As we mentioned on our last call, we’ve made some changes I think to our product portfolio in the PEO that I think is balanced that out a little bit. The other thing that I would point to that we mentioned on the prior call is that when we over-index with ASO in the prior year, we always look at that as a great opportunity for us to go back to those customers and then upgrade them or selective them into our PEOs product. And we started doing that.

We actually — that’s a good example of AI, where we are actually using AI tools to be able to go into the ASO base and find clients that we believe there’s going to be a valuable value proposition to be in the PEO relationship for multitude of different reasons, and that program actually has shown results in the first quarter. It’s early in the process, but I would tell you that our transition of ASO to PEO customers, the number of customers that we transitioned this first quarter versus last first quarter was nearly 2x the number of clients. So, exactly what we thought could happen, which was we over-indexed when ASO in the prior fiscal year. We continue to sell outside to new logos and that was also double-digit strong in PEO in the first quarter.

So, we have both benefits. We had strong outside the base growth in PEO in the first quarter, and we had good migration or upgrades ASO to PEO, which was a good start to the first quarter. We still got three quarters to go and we are in the middle of our open enrollment, which is critical there. But good early signs. We had good signs in the PEO in the fourth quarter, and we’ve talked about that on the last call, and that just accelerated in the first quarter. So, now we just got to see if that can continue into the core selling season.

Daniel Maxwell: Great. Good to hear. And then for my follow-up, any detail you can give on the increase to the direct insurance costs from workers’ comp? Any color or any reminder of your exposure to any volatility in that area?

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S&W Seed Company (NASDAQ:SANW) Q4 2023 Earnings Call Transcript September 27, 2023

S&W Seed Company beats earnings expectations. Reported EPS is $0.13, expectations were $-0.09.

Operator: Hello, and welcome to the S&W Seed Company Fourth Quarter and Fiscal Year 2023 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Robert Blum: All right. Thank you, and thank you all for joining us today to discuss S&W Seed Company’s fourth quarter and fiscal year 2023 financial results for the period ended June 30, 2023. With us on the call representing the company today are Mark Herrmann, the company’s Chief Executive Officer; and Vanessa Baughman, the company’s Interim Chief Financial Officer. At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. Before we begin with prepared remarks, please note that statements made by the management team of S&W Seed Company during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

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Forward-looking statements describe future expectations, plans, results or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in the company’s 10-K for the fiscal year ended June 30, 2023, and other filings subsequently made by the company with the Securities and Exchange Commission.

In addition, to supplement S&W’s financial results reported in accordance with U.S. Generally Accepted Accounting Principles or GAAP, S&W will be discussing adjusted EBITDA on this call. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measure and are not prepared under any comprehensive set of accounting rules or principles. A description of adjusted EBITDA and reconciliations of historical adjusted EBITDA to net loss are included at the end of S&W’s earnings release issued earlier today, which has been posted on the Investor Relations page of S&W’s website. An audio recording and webcast replay for today’s conference call will also be available online on the company’s Investor Relations page.

With that said, let me turn the call over to Mark Herrmann, Chief Executive Officer for S&W Seed Company. Mark?

Mark Herrmann: Thank you, Robert, and good morning to all of you. As this is my first investor call as CEO, let me start by saying how excited I am to be leading this company. I believe S&W has a tremendous set of assets in terms of both our people and our products that provide innovative solutions to the challenges farmers face. Our talented development team has led to the innovation of some of the industry’s most impressive sorghum technologies, and we have a variety of advanced novel crops and cropping systems, which contribute to animal forage, renewable fuels, and cover crops, which also provide unique benefits to farmers. Our sales team has created strong customer connections with a desire to help farmers reduce their risk and increase productivity.

In the short time I’ve been CEO, I have become highly – it has become highly evident to me that this team has demonstrated a commitment to be best-in-class seed company across all functions. I look forward to leveraging my 35-year career experience in the seed industry to help guide this focus of seed company best practices going forward. My experience has been centered around working closely with farmers to understand their unique production needs and positioning value, building strong seed and trait brands, and facing industry operational challenges and delivering efficiencies while achieving operational excellence I have also led the licensing of germplasm and traits independent seed brands to enable farmers to purchase their seed from representatives of brands they have come to know and trust.

Having an open technology platform inclusive of licensing for breakthrough traits and germplasm has proven to deliver the fastest penetration of valuable traits, benefiting farmers in the industry. I see tremendous synergies between where S&W is heading and my broader experience and my passions. In terms of the agenda for today’s call, we’ll start with a quick look back at the accomplishments in fiscal 2023. I’ll spend most of my time today discussing our strategies to drive growth and efficiencies in the company. Vanessa Baughman will then provide a detailed analysis of both our fiscal 2023 results and our go-forward outlook and expectations. Now looking back to fiscal 2023, the company successfully executed a number of our strategic initiatives laid out at the beginning of last year to position S&W for success going forward.

These included the commercial scale launch of our high-value Double Team sorghum solutions, which saw sales increase to $6.5 million in fiscal 2023 compared to $2.4 million in fiscal 2022. This puts our first technology product on an estimated 6% of the total U.S. grain sorghum acres. The expansion of our gross margins through improvement of our obsolescence cost and increased sales of our high-margin Double Team products – overall gross margins went from 8.9% in fiscal 2022 to 19.8% in fiscal 2023, more than doubling our gross profit margin. We also saw a significant reduction in operating expenses as the company looked to better align its cost structure with our key areas of focus. Overall, operating expenses decreased by nearly $7 million in fiscal 2023, or about a 17% improvement even with the growth in our revenues.

And finally, we executed a partnership with Shell to develop and produce sustainable biofuel feedstocks. This partnership strengthened our balance sheet through a $7 million upfront payment to S&W, an additional $6 million that is scheduled to be paid to us in February 2024 and the assumption of a $6.9 million in debt tied to one of the facilities for a combined $20 million. The resulting factor of all these accomplishments was a $14.3 million improvement in adjusted EBITDA, growth in revenue and an improved balance sheet that should allow us to execute our strategic plans going forward. Further, there was the announcement in May of this year that we are evaluating potential avenues to unlock what we believe is unrecognized value in our international operations, which, as a reminder, are headquartered within our Australia subsidiary.

Our state upfront that we don’t have any specific updates to share with you on this process. However, as managers, Vanessa and I are fully focused on operating that segment of our business to its fullest potential going forward. So that is a look back, good progress made, which I believe we can build upon significantly going forward. Since taking over as CEO about 2.5 months ago, I have worked to define our business strategies with financial targets that will deliver – be delivered based on operational effectiveness and optimizing our two key areas of focus: our sorghum technology solutions in its pipeline and forage products. Let me start with sorghum. First off, I think it’s critical for everyone to understand just how special and unique, I believe, the Double Team sorghum solution truly is.

Launched on commercial scale in 2022, Double Team controls grassy weeds in sorghum that rob water, nutrients and ultimately, yield from the crop. Prior to 2022, due to the lack of effective weed control options in sorghum, farmers continue to bear higher risk for yield and crop loss due to weed pressure. Other crops offered options for weed control that ultimately led farmers to those crops, which, in many cases, are less suited for higher temperatures and more restricted water conditions that sorghum is uniquely adapted to. This has been a contributing factor to the historical declines in U.S. sorghum acres from around 10 million acres to around 6.5 million acres currently. In contrast, corn, soybean and cotton growers have all benefited from research investments in advanced tools for wheat control technologies.

With its limited launch in 2021 and broader commercial launch in calendar year 2022, Double Team grain sorghum now accounts for what we estimate is approximately 6% of all grain sorghum acres in the U.S. We believe this will grow to more than 10% this next year. This is a tremendous achievement and highlights the value and demand for innovation in this critical crop. This increase in penetration and adoption of Double Team and sorghum is similar to historical penetration trends and technology launches of many of the large-acre crops such as corn, soybeans and cotton. Double Team for grain sorghum is just the first leg of our planned sorghum technology portfolio stool for fiscal year 2024, as I’m happy to introduce two additional sorghum trait platforms from our R&D pipeline.

First, we are introducing our Double Team forage sorghum solution in 2024. We expect that we will see the same rapid adoption for forage sorghum as we saw for grain sorghum. Early demand has been strong, and we expect it to sell out in its introductory year and continue on a penetration curve similar to what we have already seen with Double Team grain sorghum. Secondly, we expect to commence a pilot launch of our prussic acid-free trait for sorghum, what we previously called dhurrin-free, with a few thousand acres being planted this year. As a background, dhurrin is a precursor to prussic acid, which is highly toxic to room in animals that feed on fresh sorghum forage. This, in essence, is what I would define as a quality trait that has great value for risk reduction, enabling safe livestock raising of forage sorghum acres.

With the pilot launch this upcoming year, we plan on commercially launching our prussic acid-free trait in 2025. It will be initially introduced as a solo trait, and then shortly thereafter expected to be provided as a stack trait with Double Team. Let me pause there for a second. What do I mean by a stack trait? And why is it important? As some of you may know, the biotech seed industry was built on developing new traits that address specific issues from weed control, pest control management above and below ground, quality and others. The industry has addressed each of these specific issues by providing valuable seed options to farmers through stack trait offerings in a single seed. For farmers, there’s an incremental value being created by each new trait that protects yield, decreases crop risk, increases crop quality and value and saves time to ultimately improve acre productivity.

As such, seed companies can deliver increased value to farmers versus forcing them to choose between valuable individual traits. Through the research investment and productivity, we can increase the value of the seed while production costs typically remain about the same. The result is a margin and profit improvement per bag of seeds sold. That’s why we believe trait-related R&D is so important, and the investments S&W has made over the years are beginning to pay off. On top of our Double Team weed control system and now prussic acid-free quality trait, we are also on plan to develop a second-generation post grass herbicide trait which we plan to launch in 2025. Further, we are in discovery stage for an insect tolerant to resistant traits and broad-spectrum herbicide trait as well.

We are clearly becoming the key technology provider in this critical, nutrient-packed crop. As the fifth largest cereal crop globally, it can be used as a substitute for many grains in the market today. We are excited about sorghum because it is a crop that is uniquely equipped to handle higher temperatures and drier climates better than many other crops. But as I mentioned, it hasn’t benefited from the historic research investments to successfully launch tools to support step change to improve the crop’s productivity. As farmers increasingly recognize the risk reduction with new tools to control grasses and increase crop raising safety technologies, I believe we will see continued share growth in the current sorghum acres as well as an increase in sorghum acres planted on dry land and limited water availability acres moving back to sorghum due to its improved adaptability to these conditions.

From a sales and marketing perspective, we plan to continue to drive sales through our S&W-owned Sorghum Partners brand and aligned with independent seed companies with current market-leading brands in key grain and forage sorghum markets to maximize market penetration through licensing S&W germplasm and/or traits so even where S&W does not have market presence, we will be working with brands that have presence to deliver our technologies to their customers to optimize availability to farmers and adoption. This will not only be in the United States, but internationally as well. Today, there are approximately 8.7 million acres of sorghum being grown in four key countries, where we have been developing relationships with seed companies with strong germplasm pools and established farmer relationships in Mexico, Argentina, Brazil and Australia.

Our strategy here will be to out-license our germplasm and/or traits with well-established brands in each key sorghum market to reach the global sorghum market and accelerate adoption. Look for more on this to come. Operationally, we have developed an operational plan for this upcoming year that is intended to challenge all aspects of our organization to improve upon last year, whether it be in production, sales, marketing, or fulfillment to deliver on the promise that our sorghum technology portfolio provides to farmers. I believe we have worked through many of the bottlenecks that were presented to the company last year in achieving our original goals. As you likely saw in our press release, it is my expectation that revenue from Double Team sorghum solutions is expected to be $11.5 million to $14 million in sales, representing an increase of 77% to 115% compared to fiscal 2023.

With 70% of this margins on Double Team, this is expected to be a big contributor to our bottom line improvement. When we break this all down, we see fiscal 2024 as being strong for our sorghum operations with the expectation for significant growth going forward. We are in a leadership position today with our trait portfolio. And with the impressive pipeline I just touched on, we plan to maintain leadership of this important crop for many years to come. Transitioning, let me quickly touch on our international operations and our partnership with Shell before turning it over to Vanessa for a review of the financials. As I mentioned at the beginning, there are no updates I can share with you on the process we are going through to look to unlock value within our international operations.

We will certainly provide an update if and when something may transpire. In the meantime, we are looking to implement many of the same strategies internationally as we are in the U.S. to drive growth and efficiencies in this segment. We are looking to optimize our production capabilities to drive down the cost of goods sold while developing a sales and marketing approach that highlights the benefit of our forage solutions around the world. While total results are expected to be slightly higher, we do look for growth in our alfalfa and forage resumed business in the years to come. As had been the case in our international operations for a few years, there are various factors that are largely outside of our control, namely, the geopolitical risk in certain jurisdictions we sell into.

That said, we are looking to mitigate those risks, especially when we think about our guidance for the year. We are placing minimal dependence on the riskiest markets for us to achieve our stated guidance going forward. We certainly hope there could be an upside if certain markets materialize, but are providing what we believe to be a conservative view into this segment. As mentioned, Vanessa will touch on our guidance in detail momentarily. Vision Bioenergy Oilseeds LLC is the partnership between S&W Seed and Shell for the purpose of developing novel plant genetics for oilseed cover crops as a feedstock, for biofuels, green diesel and SAF, sustainable aviation fuel. VBO intends to develop Cambelina, where oil and meal can be extracted for future processing biofuels, animal feed and other bioproducts.

On the biofuels front, there’s not a lot that we can expand on here, except to say the partnership remains on track from what was communicated during the last conference call. The entity VBO is expected to carry out initial grain production later this calendar year and more than 7,000 acres of Cambelina planted. To this point, the partnership has met or exceeded all cropping acre thresholds originally laid out. As has been discussed in the past, Shell is expected to buy all the grain that VBO produces through an offtake agreement that is in place. Vanessa will remind everyone of its impact to the income statement going forward, but I am certainly pleased with the progress being made, and believe this represents a tremendous long-term opportunity for S&W and its shareholders.

As I mentioned on the onset, we are striving to become a best-in-class company. Every organizational decision we make is expected to be data-driven to ensure it will have a positive impact on our customers and our shareholders going forward. We are instilling increased engagement with the finance team and financial analysis with all decisions that impact cost, margin and cash management. As such, we have implemented a new series of operational initiatives to drive business towards customer satisfaction and profitability in the near term, including improved life cycle management to reduce obsolescence costs and cash management, rationalization of certain low-margin product lines and effective seed treatment strategy, a seed manufacturing cost reduction plan through improved efficiencies that align with best-in-class standards.

Cost controls in the seed industry are key and often the difference between being profitable and not. It is my goal to have best-in-class cost of goods and operating costs going forward. We also made the decision to suspend our continued investment in the stevia germplasm development program. As we evaluate changes in the sweetener space, options between lead for fermentation processes driven largely by cost. Until we have a food or ingredient partner or commitment or we can entertain a buyer option for a proprietary germplasm and program. As you will see from our guidance, we are guiding revenue for fiscal 2024 to be between $76 million and $82 million, representing an expected increase of 3% to 12% compared to fiscal 2023 revenue of $73.5 million.

Again, we have tried to take a conservative view into our international operations and believe the pathway to achieving our stated objectives in the U.S. are achievable. Importantly, on gross margin front, based on the strategies we’ve discussed and expect a continued growth from our Double Team, we see consolidated gross margins moving from 20% in 2023 to between 24% and 26% in fiscal 2024. Further, we expect operating expenses to remain flat despite growth in revenues. The result is an approximate $2 million to $5.5 million anticipated improvement in our adjusted EBITDA compared to fiscal 2023. We know there is still work to be done, but feel good about the strategies being implemented to drive continuous growth and improvement across the organization.

Let me now turn it over to Vanessa to review the financials in detail. I will then provide a few final words, and then we can address your questions. Vanessa?

Vanessa Baughman: Thank you, Mark. Good morning to everyone on the call today. As this is a year-end conference call, I’m going to focus most of my comments on the results for the fiscal year. A breakout of fourth quarter results is included in the press release, and I would be happy to answer specific questions on the fourth quarter numbers where needed. Starting with revenue. Total revenue for fiscal 2023 was $73.5 million compared to total revenue for fiscal ’22 of $71.4 million. The $2.1 million increase in revenue was primarily due to the $4 million increase in Double Team sorghum sales in the U.S. domestic market; a $4 million increase in nondormant alfalfa sales in the Middle East and North Africa; and a $3.8 million increase in nondormant alfalfa and grain sorghum sales in Latin America.

This was then offset by a $4.3 million decrease in the Australian domestic pasture sale due to flooding and key planting regions that lowered sales expectations in the first half of fiscal 2023; a $3 million decrease in revenue in the Asia region due to logistical delays in international shipping and COVID-related impacts in China during the prior year that affected distributor demand; a $1.7 million decrease in U.S. domestic alfalfa revenue due to a decline in demand; and finally, a $1 million decrease in non-Double Team sorghum revenue. As Mark mentioned, as we look to fiscal 2024, we are expecting revenue of $76 million to $82 million, representing an expected increase of $2.5 million to $8.5 million compared to fiscal 2023 revenue of $73.5 million.

Breaking this down further, we are anticipating Double Team to be between $11.5 million to $14 million, an increase of 77% to 115% compared to fiscal 2023. There will be some offset to non-Double Team-related sorghum sales as we transition customers to our higher-valued products. As such, overall sorghum-related revenue is expected to be between $22 million and $23 million in total compared to $18.5 million in fiscal 2023. On the international side, we are expecting revenue to be between $45 million to $50 million compared to $43.6 million in fiscal 2023. And finally, on the U.S. forage operation, we see revenue of about $9 million compared to $10.8 million last year. Now turning to margins. GAAP gross margins for fiscal 2023 were 19.8% compared to GAAP gross margins of 8.9% in fiscal 2022.

The strong improvement of GAAP gross margin was primarily driven by the increased sales of a higher-margin Double Team sorghum solution in North America, in addition to the favorability of noncash inventory write-down due to improved inventory life cycle management. Inventory write-downs, or what we’ve referred to as LCM expenses, during 2023 were $2.8 million compared to $6.4 million in fiscal 2022, where we experienced a higher level of certain lots that had deteriorated in quality and germination rates. As Mark mentioned, seed life cycle management will continue to be a focus area for us, as we have reduced our product offerings going into 2024 to customers through seed treatment rationalization. Looking to fiscal 2024, we see continued improvement with gross margins.

Inclusive of any LCM charges, margins are expected to be between 24% and 26% compared to the 19.8% we saw in fiscal 2023. Again, the biggest driver here is expected to be the growth in our high-margin Double Team products. Now we will transition to operating expenses. GAAP operating expenses for fiscal 2023 were $32.5 million compared to $39.2 million in fiscal 2022. The decrease is a result of the company’s focus on aligning its cost structure to support its key centers of value, as Mark mentioned at the onset. Breaking it down further, there was a $2.5 million decrease in research and development expenses, a $2 million decrease in selling, general and administrative expenses and a $1.5 million decrease from a goodwill impairment charge recognized in fiscal 2022 and a $0.7 million decrease in depreciation and amortization.

This level of $32.5 million, which is inclusive of depreciation and amortization, is a level we feel we can maintain in fiscal 2024, even though we see revenue growing. We are intent on driving efficiencies across the entire enterprise. Betsy Horton mentioned this in the past, but I think it bears reminding that with the creation of the Trigall and VBO partnership, we would be playing an administrative role for both new ventures, handling things such as finance, accounting, HR and IT under a service level agreement established this year. In our financial statements, these items are presented as services revenue and an offsetting cost in SG&A, which we believe enhances the visibility into our operating expense reduction initiatives. During fiscal 2023, we had approximately $800,000 of service revenue pertaining to our partnership and an offsetting cost of SG&A of the same $800,000.

As we look to fiscal 2024, we expect about $0.6 million in revenue to come from the partnership, which was a similar offset to the cost of SG&A. Now to EBITDA. Adjusted EBITDA for fiscal 2023 was a negative $9.3 million compared to adjusted EBITDA of negative $23.6 million for fiscal 2022, an improvement of $14.3 million. A full reconciliation is available in the press release. As we look to fiscal 2024, our guidance is a negative adjusted EBITDA of $7.5 million to negative $4 million. This would represent an improvement of approximately $2 million to $5.5 million compared to fiscal 2023. The biggest anticipated driver here would be the gross profit leverage from Double Team, grain and forage sorghum sales. Finally, on the net income line. GAAP net income for fiscal 2023 was $14.4 million, or $0.34 per basic and diluted share compared to GAAP net loss of $36.4 million, or a negative $0.93 per basic and diluted share for fiscal 2022.

We experienced a gain on the sale of the business interest of $38.2 million related to the establishment of a partnership with Shell and VBO. One final note. As Mark mentioned earlier, we are scheduled to receive a $6 million payment from Shell in February of 2024. Despite our negative adjusted EBITDA expectation, which translates rather closely to our cash utilization, the payment from Shell is expected to cover any operating cash needs this year. Beyond fiscal 2024, if we’re able to continue the growth in our sorghum technology portfolio and achieve the benefits of the stability and cost containment initiatives across the remaining parts of the organization, it is our thought that we will be in a positive cash flow position in the near future.

Again, I am happy to follow up with any of the details we went through if you should have additional questions. With that, let me turn it back over to Mark.

Mark Herrmann: Thank you, Vanessa. In summary, I hope you take away from this call that we are laser-focused on operating this business with best-in-class practices from top to bottom. We have a significant growth opportunity ahead of us, not only from our Double Team sorghum technology solutions, but our broader sorghum technology portfolio. Unique opportunities to be the sole technology leader in the crop doesn’t come along very often. But when they do, they tend to see rapid adoption and value creation for both customers and shareholders. I simply couldn’t be more enthusiastic to be leading this company at this exciting time. Thank you for your continued support of S&W Seeds, and I look forward to taking your questions. Operator?

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Q&A Session

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Operator: Thank you. [Operator Instructions] Today’s first question comes from Ben Klieve with Lake Street Capital Market. Please go ahead.

Benjamin Klieve: All right. Thanks for taking my questions. A few from me this morning. First of all, on Double Team, I’m wondering if you can talk about kind of expectations versus reality in ’23 from this product, $6.5 million – is a great year-over-year clip, but relative to the kind of $12 million target that was laid out a few quarters ago certainly felt short. So, I’m wondering, if you can talk about what went right, what went poorly with Double Team this year, and then how the realities of ’23 give you confidence in your expectations for 2024?

Mark Herrmann: Hi, Ben. Thank you very much for joining this morning, but also for the question. I think it’s an excellent place to discuss, because I don’t see it at all as a step back or a concern around Double Team itself. As we look at the launch of Double Team in 2021, it was on very small volumes with, I believe, 23 different distribution points and or customers. And as we looked at the growth going from ’21 to ’22, it grew to $2.4 million. And then this last year, to your point, Double Team grew from $2.4 million to $6.5 million. I mean, it’s a tremendous growth curve as far as demand. And what we’ve seen from the 23 distribution points that trialed, and sold a very small amount in 2021 is their success rate and positive experience, right, with a solid growth curve from every one of those 23 distribution points except for one that actually changed their distribution makeup, which was no longer part of S&W under the same name.

So as far as growers utilizing and trialing it, and then expanding their use, I mean it was just a tremendous success. I do believe potentially there was a little bit of over-exuberance, looking for farmers to make a significant growth or significant introductory experience without that opportunity to do a trial, experience it on their farm, and then grow from there. But as I look at other traits that, I’ve been involved with in the launches. If I look at Double Team, and the growth curve that it’s had from introduction, to what we’re expecting this coming year of Double Team being on more than 10% of the U.S. sorghum acres. It’s definitely demonstrating a positive impact in the market, and I really have very little to no concern about the performance of the product itself.

Being on 6% of the U.S. acres this year, and we’re pretty well through the application of first stack over those acres for grass control. And the number of service calls that – we’ve received, I’d say are very limited versus what I would have expected for a new technology in the market. But feedback from the field and others has been very, very positive on performance.

Benjamin Klieve: Great. That’s a helpful color. Thanks, Mark. And – in your prepared comments, Mark you touched on the kind of – movement of legacy non-Double Team sorghum farmers to Double Team variety. Can you guys talk about on a high level what your expectation is for sorghum that does not have either Double Team or the profit free trade introduced over the next few years? Is that a business that you just think, is going to – just kind of naturally go away, or do you think there’s going to be some material level of revenue from non-technology sorghum for the foreseeable future?

Mark Herrmann: Yes, that’s a great question Ben. And I do think it’s part of the lifecycle management that both Vanessa and I talk to as well. Because I do believe, as we look at Double Team and its continued growth on overall sorghum acres. I do believe it will obviously be replacing, one of its growth factors are replacing current sorghum acres that really have a traditional germplasm in place, right, which we also have our entire sorghum business started out as that – at 2021 introduction. Now that product or product line is much lower margin, but I do anticipate that it will shrink. I believe our share within those non-Double Team acres will, and should remain the same, if not increasing our share amongst those acres, because of a stronger brand position, and distribution with farmers due to the Double Team trade.

But I do anticipate non-Double Team acres in sorghum to be a smaller portion of the sorghum market. And I believe as Vanessa went through our guidance going forward. She did touch on, we do expect a small decrease in non-Double Team, non-prussic acid grain and forage sorghum as these products show superior performance going forward. The positive to us is on the DT sorghum position. It puts the product margin in the above 60% to 70% margin. In the conventional sorghum market, we’re looking at margins closer to that 20% to 25%, right? So it’s a great impact for us, as it’s moving the product line up to higher value. But we need to be very smart about, how we manage the non-Double Team market to ensure we don’t build supplies based on historical experiences in a market that is likely to be a decreasing size market, right?

So I think the key thing you call out there, is we need to maintain our margin on that non-DT market in our presence, but recognize it needs to be with tighter excess inventories, planning on a shrinking market.

Benjamin Klieve: Got it. Got it. Very helpful. Last one from me and then I’ll get back in queue. You talked about exiting some kind of lower margin, forage crops and seed treatment applications. I’m wondering if you can talk about the level of revenue contribution from these exited business – exited businesses in ’23. And what, if any, revenue contributions from these businesses that you’re leaving, is included in your ’24 guidance?

Mark Herrmann: Yes, that’s a great question as well. And I would say as a general practice, a healthy company, we’ll look at everything that’s lower than our overall average margin and really question, look, are there things that either one, we can address within our own system that’s driving costs that can improve its margin position? Or two, is it diluting the overall business and diluting focus to product lines. That maybe resources could be moved from those, applied to other areas where clearly the growth in the product line, would deliver more results to the company and the shareholders, right? So, I would say this is a standard practice, that I’ve really been involved with most of my careers. So, I don’t think the focus itself is highly unusual, but we will be evaluating all these product lines.

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Micron Technology, Inc. (NASDAQ:MU) Q4 2023 Earnings Call Transcript September 27, 2023

Micron Technology, Inc. beats earnings expectations. Reported EPS is $1.07, expectations were $-1.19.

Operator: Thank you for standing. Welcome to Micron’s Fourth Quarter 2023 Financial Call. [Operator Instructions] As a reminder, today’s program is being recorded. And now, I’d like to introduce your host for today’s program, Samir Patodia, Investor Relations. Please go ahead, sir.

Samir Patodia: Thank you, and welcome to Micron Technology’s fiscal fourth quarter 2023 financial conference call. On the call with me today are Sanjay Mehrotra, our President and CEO, and Mark Murphy, our CFO. Today’s call is being webcast from our Investor Relations site at investors.micron.com, including audio and slides. In addition, the press release detailing our quarterly results has been posted on the website, along with the prepared remarks for this call. Today’s discussion of financial results is presented on a non-GAAP financial basis unless otherwise specified. A reconciliation of non-GAAP to GAAP financial measures can be found on our website. We encourage you to visit our website at micron.com throughout the quarter for the most current information on the company, including information on financial conferences that we may be attending.

A close-up view of a computer motherboard with integrated semiconductor chips. Editorial photo for a financial news article. 8k. –ar 16:9

You can follow us on X at MicronTech. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. We refer you to the documents we file with the SEC, including our most recent Form 10-K and 10-Q, for a discussion of risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of the forward-looking statements to conform these statements to actual results.

I’ll now turn the call over to Sanjay.

Sanjay Mehrotra: Thank you, Samir. Good afternoon, everyone. In fiscal Q4, Micron delivered revenue and gross margin above the midpoint of our guidance, with EPS above the high end of the range. These results reflect our strong execution, and we are well-positioned to drive significant improvements in our financial performance. We believe pricing has now bottomed. Ongoing demand growth, customer inventory normalization, and industry-wide supply reductions have set the stage for increased revenue, along with improved pricing and profitability throughout fiscal 2024. We continue to expect record industry TAM in calendar 2025 with more normalized levels of profitability. Fiscal 2023 was a challenging year for the memory and storage industry as the revenue TAM reached a multiyear low, resulting in a significant impact to financial performance.

Despite this difficult backdrop, the Micron team stayed focused on our strategy, executed well and accomplished several important milestones. We achieved record annual automotive revenue, record NAND QLC bit shipments for the full fiscal year, and reached record levels in calendar Q2 for revenue share in data center and client SSDs. We were the first in our industry to introduce 1-beta DDR5 and LP5X DRAM products and the first to ship HBM3E samples with industry-leading performance and power efficiency. We were also the first to introduce 232-layer NAND SSD products in data center, client and consumer markets. These accomplishments were underpinned by our leadership technology and continued strong progress in manufacturing execution. We achieved world-class mature yields in record time on our industry-leading 1-beta DRAM and 232-layer NAND technologies.

In addition, Micron took several prudent and timely actions to reduce our CapEx and supply in order to address the market imbalances through the course of fiscal 2023. Our industry-leading technology roadmap continues to progress well. As we have mentioned before, the vast majority of our bits are on leading-edge nodes 1-alpha and 1-beta in DRAM and 176-layer and 232-layer in NAND. We continue to make good progress on 1-gamma DRAM development using EUV and are on track for production in calendar 2025. Development of our next-generation NAND node is also well on track. Now turning to our end markets. Customers continued to reduce their excess inventory for memory and storage in fiscal Q4. Most customer inventories for memory and storage in the PC and smartphone markets are now at normal levels, consistent with our prior forecasts.

Inventory levels are normal across most customers in the automotive market as well. Data center customer inventory is also improving and will likely normalize in early calendar 2024. Consequently, we see demand continuing to strengthen, which has led to an inflection in pricing. Some customers have made strategic purchases in DRAM and NAND to take advantage of unsustainably low pricing as the market begins its recovery. In data center, traditional server demand remains lackluster while demand for AI servers has been strong. Data center infrastructure operators have shifted budgets from traditional servers to higher-priced AI servers. Total server unit shipments are expected to decline in calendar 2023, the first year-over-year decline since 2016.

We expect total server unit growth will resume in calendar 2024 to help fulfill ever-increasing workload demand. We also expect content growth in both AI and traditional servers. Compared to traditional servers, AI training servers contain significantly higher DRAM and NAND content with greater technology complexity, robust product value and higher profitability. We believe our data center revenue has bottomed, and we expect growth in fiscal Q1 and increasing momentum through fiscal years ’24 and ’25 in our data center business. Micron has a strengthening portfolio of solutions optimized for bandwidth, capacity and power. These include HBM3E, DDR5 and associated high-capacity modules, LPDRAM, and data center SSDs. This portfolio of industry-leading products positions us well to capture the opportunities presented by data-centric computing architectures and AI.

The introduction of our HBM3E product offering has been met with strong customer interest and enthusiasm. Our HBM3E provides superior bandwidth, power and capacity for generative AI workloads. We developed this industry-leading design using our 1-beta technology, advanced TSV, and other innovations that enable a differentiated packaging solution. We have been working closely with our customers throughout the development process and are becoming a closely integrated partner in their AI roadmaps. Micron HBM3E is currently in qualification for NVIDIA compute products, which will drive HBM3E-powered AI solutions. We expect to begin the production ramp of HBM3E in early calendar 2024 and to achieve meaningful revenues in fiscal 2024. Micron also has a strong position in the industry transition to D5.

We expect Micron D5 volume to cross over D4 in early calendar 2024, ahead of the industry. We expanded our high-capacity D5 DRAM module portfolio with a monolithic die-based 128 gigabyte module, and we have started shipping samples to customers to help support their AI application needs. We expect revenue from this product in Q2 of calendar 2024. Last month, we announced the introduction of 128 gigabyte and 256 gigabyte CXL 2.0 memory expansion modules. By leveraging a unique dual-channel memory architecture, we are able to deliver higher module capacity and increased bandwidth. We have shipped samples to several customers and key partners. In data center SSDs, Micron’s entire portfolio utilizes 176-layer or 232-layer NAND in production, a testament to our product and technology leadership.

We are well-positioned to serve the growing demand for fast storage as data-intensive AI applications proliferate. We saw strong demand for our data center NVMe SSDs across our AI-focused, industry-leading 30-terabyte product, as well as for our mainstream products. Micron ended the second calendar quarter with record high revenue share in data center SSDs, based on independent industry assessments. We expect to build on this momentum in fiscal 2024. In PCs, we continue to forecast calendar 2023 PC unit volume to decline by a low double-digit percentage year-over-year and then grow by a low to mid-single-digit percentage in calendar 2024. AI-enabled PCs will drive content growth and an improved refresh cycle over the next two years. In fiscal Q4, we saw strong sequential bit shipment growth at PC OEMs driven by demand for LPDRAM in thin client notebooks.

We expect to begin revenue shipments of our industry-leading 1-beta-based client D5 in fiscal Q1 to PC OEMs. According to third-party analysts, in calendar Q2, we reached record revenue share in client SSDs for PC OEMs as customers adopted our industry-leading solutions. Our 232-layer NVMe client SSD is now qualified at large OEMs and shipping in volume production. Our SSD QLC bit shipment mix reached a new record for the second consecutive quarter, with growth in both client and consumer markets. We continue to expand our footprint in the high-end consumer SSD space with the launch of three new products that extend our reach into professional content creators and enthusiast PC gamers. In mobile, we expect calendar 2023 smartphone unit volume to be down by a mid-single-digit percentage year-over-year and then grow by a mid-single-digit percentage in calendar 2024.

Elasticity, along with a mix shift toward premium phones with greater capacity, is contributing to memory content growth. About a third of smartphones sold today have at least 8 gigabyte of DRAM and 256 gigabyte of NAND, up more than 7 percentage points versus smartphone units a year ago. Similar to our view on PCs, AI-enabled mobile phones could drive content growth and a stronger refresh cycle over time. Longer term, we see generative AI applications executing on handsets. These applications will continue to drive new requirements for higher capacity, lower power and increased performance in memory and storage. Last, I’ll cover the auto and industrial end markets, which contribute to more stable revenue and profitability. Fiscal 2023 marked another record revenue year for our automotive business.

Micron continues to lead in automotive market share and quality. Long term, we expect memory and storage content per vehicle to increase in both ADAS and in-cabin applications. In addition, fast-growing EVs typically contain higher memory and storage content. Our automotive design win trajectory remains strong. The industrial market showed signs of recovery in fiscal Q4. Inventory levels for memory and storage are stabilizing at distribution partners and at the majority of our customers. We expect the volume recovery that we observed in the second half of fiscal 2023 to continue into 2024. We see strong growth prospects in this market over time, as industrial customers continue to adopt and implement the IoT, AI and machine learning solutions.

As previously discussed, the CAC or Cybersecurity Administration of China decision earlier this year has impacted our business, particularly in the domestic data center and networking markets in China. We remain committed to serving our customers in China for those areas of their business not impacted by the CAC decision. While there is near-term impact to our demand due to these challenges in China, we remain focused on maintaining Micron’s global market share. Our team’s grit and Micron’s deep relationships with our customers, underpinned by our technology leadership, increasing product momentum, excellent product quality, and extensive manufacturing and supply chain capabilities position us well toward these goals. Now, turning to our market outlook, starting with demand.

We expect calendar 2023 DRAM bit demand to grow in the mid-single-digit percentage range. In NAND, our expectations for demand growth this calendar year have increased from high-single digits to high teens percentage. These are below the expected long-term bit demand growth CAGRs of mid-teens in DRAM and low-20s percentage range in NAND. While calendar 2023 DRAM demand has been in line with expectations, NAND growth expectations have increased due to stronger than expected demand in certain parts of the consumer market and a trend of greater elasticity in per unit content. While macroeconomic factors remain a risk, we expect robust year-over-year bit demand growth in calendar 2024 for both DRAM and NAND, driven by improving end-market demand, normalized customer inventory levels, content growth across products, and ongoing growth in AI.

Calendar 2024 bit demand growth is expected to exceed the long-term CAGR for DRAM and to be near the long-term CAGR for NAND. Turning to supply. Significant supply and CapEx reductions across the industry have helped to stabilize the market and are enabling the recovery that is now underway. We see both DRAM and NAND year-over-year supply growth in calendar 2023 to be negative for the industry. We expect Micron’s year-on-year bit supply growth to be meaningfully negative for DRAM. We also expect to produce fewer NAND bits in calendar 2023 than in calendar 2022. In calendar 2024, we expect industry DRAM and NAND supply growth to be below industry demand growth and meaningfully so for DRAM. We believe calendar 2024 is positioned to be a year of recovery in the memory and storage industry.

A sustained period of supply growth less than demand growth will strengthen the pace of recovery. HBM production will be a headwind to industry bit supply growth. Across the industry, the HBM3E die is roughly twice the size of equivalent-capacity D5. The HBM product includes a logic interface die and has a substantially more complex packaging stack that impacts yields. As a result, HBM3 and 3E demand will absorb an outsized portion of industry wafer supply. The ramp of HBM3 and 3E production will reduce overall DRAM bit supply growth industry-wide with particular supply impact on non-HBM products as more capacity is diverted to addressing HBM opportunities. Micron is experiencing a similar impact of our planned HBM3E ramp on our bit supply capability.

Micron’s bit supply growth in fiscal 2024 is planned to be well below demand growth for both DRAM and NAND, and we expect to decrease our days of inventory in fiscal 2024. We continue to execute to our strategy of maintaining global bit shipment market share for DRAM and NAND while sustaining tight supply and CapEx management discipline. Micron’s fiscal 2024 CapEx is projected to be up slightly compared to fiscal 2023 levels. WFE CapEx will be down again year-over-year in fiscal 2024. We remain focused on carefully managing overall supply growth. In last quarter’s earnings call, we communicated that total wafer start reductions in both DRAM and NAND are approaching 30% versus peak 2022 levels. Amid an intense focus on capital efficiency over the last few quarters, we have redeployed a portion of the underutilized equipment to support production ramp of leading-edge nodes in both DRAM and NAND.

Given the higher process step count of these leading-edge nodes, transitioning this equipment results in a significant and structural reduction to our overall wafer capacity in both DRAM and NAND. Due to this structural reduction in capacity, our DRAM and NAND wafer starts will remain significantly below 2022 levels for the foreseeable future. Our industry supply projections assume a similar structural reduction in wafer capacity industrywide. Lead times to increase this wafer capacity will be long and will depend on improving demand, pricing and financial performance. We expect underutilization to continue in our legacy nodes well into calendar 2024. We see our demand at leading-edge nodes exceeding our supply in fiscal and calendar 2024, particularly in the second half of the year.

Construction CapEx will be elevated to support our plans to build leading-edge memory fabs in Idaho and New York, for which we filed CHIPS applications in August. As we have highlighted before, the requested level of CHIPS grants for our Idaho and New York projects are essential to the viability and global competitiveness of each of these projects. Our CapEx plans assume that a certain level of CHIPS grant funds will be made available to us in fiscal year 2024. Assembly and Test CapEx is projected to double year-over-year in fiscal 2024, predominantly driven by investments to support HBM3E production. Our planned fiscal 2024 CapEx investments in HBM capacity have substantially increased versus our prior plan in response to strong customer demand for our industry-leading product.

Over the course of calendar 2024, we see accelerating AI-driven opportunities for memory and storage across multiple market segments from the data center to the edge. We are encouraged by the improving industry demand and supply fundamentals. We believe that the CapEx constraints created by the industry profitability environment, coupled with improved inventories, announced supply reductions and the impact of the HBM ramp on DRAM bit supply growth will create conditions that will increasingly tighten the supply-demand balance, particularly in the second half of our fiscal year. Our Micron team is executing well and they are taking prudent and proactive actions to navigate through the near-term environment and position the company to emerge stronger from the current downturn.

We look forward to a recovery in our business financials taking shape in fiscal 2024. I will now turn it over to Mark for our financial results and outlook.

Mark Murphy: Thanks, Sanjay, and good afternoon, everyone. In the fourth quarter of fiscal 2023, Micron delivered revenue and gross margin higher than the midpoint of the guidance range and EPS above the high end of the range. We are exiting the fiscal year with the business improving due to multiple factors including higher volumes, an inflection in the pricing environment, strong productivity and ongoing capital discipline. Total fiscal Q4 revenue was approximately $4 billion, up 7% sequentially and down 40% year-over-year. Fiscal 2023 total revenue was $15.5 billion, down 49% year-over-year. Fiscal Q4 DRAM revenue was $2.8 billion, representing 69% of total revenue. DRAM revenue increased 3% sequentially, with bit shipments increasing in the mid-teens percentage range and prices declining in the high-single-digit percentage range.

For the fiscal year, DRAM revenue declined 51% year-over-year to $11 billion, representing 71% of total revenue. Fiscal Q4 NAND revenue was $1.2 billion, representing around 30% of Micron’s total revenue. NAND revenue increased 19% sequentially, with bit shipments increasing over 40% driven by timing of shipments including strategic purchases and prices declining in the mid-teens percentage range. For the fiscal year, NAND revenue declined 46% year-over-year to $4.2 billion, representing 27% of total revenue. Now turning to revenue by business unit. Compute and Networking Business Unit revenue was $1.2 billion, down 14% sequentially. Data center revenue remained weak as customers continued to adjust inventories and as a result of the CAC decision.

In fiscal Q1, we expect sequential growth in data center. Revenue for the Mobile Business Unit was $1.2 billion, up 48% sequentially due to seasonal effects and timing of shipments. Embedded Business Unit revenue was $860 million, down 6% sequentially. Embedded Consumer revenue increased sequentially, helped by seasonality while automotive and industrial revenue declined modestly. Revenue for the Storage Business Unit was $739 million, up 18% sequentially and driven by increased shipments across most of the product portfolio. SBU bit shipments set records for fiscal Q4 and the fiscal year. The consolidated gross margin for fiscal Q4 was negative 9%, improving seven percentage points sequentially. Gross margin was impacted by lower pricing and underutilization costs, while the sell through of previously written-down inventory provided some uplift.

For the fiscal year, consolidated gross margin was negative 8%, down 54 percentage points year-over-year driven by price effects, inventory write-downs and the burden of underutilization. Approximately six percentage points of the reduction is from net inventory write-downs. Operating expenses in fiscal Q4 were $842 million, down $24 million sequentially due to ongoing expense-reduction initiatives and the timing of certain R&D program expenditures. For the fiscal year, operating expenses were $3.6 billion, down $209 million year-over-year driven by expense-reduction initiatives. On OpEx for the fourth quarter and year, we ended below the target we communicated starting with our September call a year ago. As market conditions improve, we will remain disciplined in all spending, including operating expenses, focusing R&D on the most critical programs and leveraging a competitive and more productive overhead structure.

We had an operating loss of roughly $1.2 billion in fiscal Q4, resulting in an operating margin of negative 30%, improved from negative 39% in the prior quarter. Fiscal 2023 operating loss was $4.8 billion, resulting in an operating margin of negative 31%. We recorded a tax benefit of $14 million in fiscal Q4, better than expectations and due primarily to lower than expected foreign taxes related to currency effects. For fiscal 2023, total taxes were $142 million. The non-GAAP loss per share in fiscal Q4 was $1.07, compared to a loss per share of $1.43 in the prior quarter and earnings per share of $1.45 in the year-ago quarter. Non-GAAP EPS was a loss per share of $4.45 for the fiscal year. Turning to cash flows and capital spending. Our operating cash flows were approximately $250 million in fiscal Q4.

For the fiscal year, we generated $1.6 billion of cash from operations representing 10% of revenue. Capital expenditures were $1 billion during the quarter and totaled $7 billion for the fiscal year. This was in line with recent guidance, and for the year, at the low end of the range of estimates we provided on our December 2022 earnings call. Free cash flow was negative $758 million in the quarter. Our fiscal Q4 ending inventory was $8.4 billion or 170 days. As mentioned last quarter, we are holding approximately $1 billion of strategic inventory stock associated with build ahead of products for cost optimization and risk mitigation. We see days of inventory improving into the first half of the fiscal year and, adjusting for this strategic stock, expect to have only a few weeks of above target inventories as we enter the second half of fiscal 2024.

Inventory levels and profitability will remain principal factors in our decisions around wafer starts and capacity planning. Continuing with the balance sheet, we maintained historically high levels of liquidity. At year-end, we held $10.5 billion of cash and investments and had $13 billion of liquidity when including our untapped credit facility. We ended the year with $13.3 billion in total debt, a weighted average maturity of 2030 on debt, and low net leverage. Now turning to our outlook for the fiscal first quarter. Demand is improving as customer inventory levels continue to normalize and secular growth drivers remain intact. We expect record DRAM bit shipments in fiscal Q1. For NAND, we expect fiscal Q1 bit shipments to decline somewhat from fiscal Q4 levels but remain relatively strong.

In China, the Cyberspace Administration of China decision continues to impact our revenue opportunity, and the associated headwind is reflected in our guidance. Fiscal Q1 gross margin is projected to improve sequentially on a greater mix of DRAM and more sell-through of written-down inventories. We expect approximately 60% of the remaining benefit from lower cost inventories to clear in fiscal Q1. Our gross margin guidance does not contemplate any additional inventory write-downs due to pricing. Period costs associated with underutilization will weigh on gross margins in the quarter, as first quarter period costs are projected to be similar to the prior quarter. Beyond fiscal Q1, we project gross margin improvement to continue as prices increase and period costs become less of a factor.

We expect the rate of price improvement in the second fiscal half to exceed the first half. We now forecast gross margins to be positive throughout the second half of fiscal 2024. As mentioned last quarter, we expect fiscal Q1 operating expenses to increase sequentially, driven by an increase in R&D and as temporary reductions to employee compensation come to an end. For the full fiscal year 2024, we expect operating expenses to be up by a low-single-digit percentage versus fiscal 2023. On taxes, we project a material sequential quarterly increase as we move from a credit in Q4 to a more normal expense. As discussed previously, though overall profitability remains low, a minimum level of taxes will occur based primarily on local jurisdiction profit.

As we are forecasting a consolidated pretax loss in fiscal 2024, these local factors will drive tax expense again this year. We estimate our full-year fiscal 2024 taxes to be under $200 million. A first quarter tax estimate of $80 million reflects our forecasted Q1 results in proportion to full-year projected tax expense. Changes in the distribution of profit within the year may result in changes in the tax expense recognized each quarter. We project our fiscal 2024 capital expenditures to increase slightly versus fiscal 2023 as we balance the long-term capacity needs of the business with ongoing capital discipline and near-term cash flow objectives. Consistent with our comments the last few quarters, we do see WFE CapEx decreasing from fiscal 2023 to fiscal 2024.

When factoring higher construction spend and expected grants in fiscal 2024, we forecast our CapEx to be more evenly distributed over fiscal 2024. A sequential increase in quarterly CapEx, together with improving but still challenging profitability levels in the near term, means free cash flow will remain significantly negative in the first half of the fiscal year. We forecast improved free cash flow in the back half of the fiscal year. We project our balance sheet to remain strong and net leverage ratio to peak in the second quarter of fiscal 2024. To support the long-term investment priorities of the business, we have ample liquidity and ready access to multiple sources of credit. We will continue to manage our business to maintain financial flexibility and in a manner consistent with our commitment to our investment-grade rating.

With all these factors in mind, our non-GAAP guidance for fiscal Q1 is as follows. We expect revenue to be $4.4 billion, plus or minus $200 million. Gross margin to be in the range of negative 4%, plus or minus 200 basis points. And operating expenses to be approximately $900 million, plus or minus $15 million. We expect tax expense of approximately $80 million. Based on a share count of approximately 1.1 billion shares, we expect EPS to be a loss of $1.07, plus or minus $0.07. In closing, we achieved many successes in fiscal 2023 despite facing a historic downturn. We sustained our technology, product and manufacturing leadership and achieved mature yields in record time on the industry’s most advanced nodes in DRAM and NAND. Micron’s leading product announcements position us well to address the growing performance requirements of data-centric computing.

In response to severe market conditions, we acted quickly and decisively to cut supply and capital spend, to reduce operating costs and improve productivity, and to maintain a solid and flexible balance sheet. As the business improves in fiscal 2024, we will leverage our strengths in technology, product and manufacturing while maintaining the productivity and capital discipline that we displayed in fiscal 2023. I will now turn it back over to Sanjay.

Sanjay Mehrotra: Thank you, Mark. The past four quarters tested the resilience and agility of our entire industry. While the recovery from this downturn has begun, Micron will exercise continued supply discipline to drive a return to sustained profitability. I am proud of our team’s response to adversity, sustaining our technology leadership, improving time to mature yield, and launching a suite of leading-edge products that represent one of the strongest portfolio expansions in Micron’s 45-year history. As our global investment announcements throughout the year clearly show, Micron remains keenly focused on building our business to meet future demand driven by the proliferation of AI from the data center to the edge. I have full confidence in our team, the position we have built for Micron, and our collective ability to capitalize on the opportunities ahead. Thank you for joining us today. We will now open up for questions.

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Q&A Session

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Operator: [Operator Instructions] And our first question for today comes from the line Tom O’Malley from Barclays. Your question, please.

Tom O’Malley: Hi guys, thanks for taking my question. I just want to understand the trajectory here on the NAND business. You guys in the quarter kind of took your demand profile from high-single-digits to high teens and you pointed out consumer in particular. What can you do to give us confidence that, that wasn’t a pull in from some of your large consumer customers, and that later this year there might be a little hole there, and just talk about the trajectory of where you see that business going, just given you said that bits are going to be down sequentially into November? Thank you.

Sanjay Mehrotra: So with respect to NAND, yes, I mean compared to what we have said before, we saw strong demand, particularly on the consumer, including some parts of the channel and the consumer part included likes of smartphones, PCs, et cetera, and again, as I pointed out, the channel as well. And keep in mind, with the pricing that has existed for NAND, elasticity has certainly kicked in. The content is continuing to increase in the devices. Today, flagship smartphones have minimum of 8 gigabyte DRAM and 128 gigabyte of NAND. So that’s the overall trend and same thing in PCs that the elasticity is driving, increasing average capacities. And overall certainly strategic vibe have influenced some of the NAND demand for the year as well.

And keep in mind that next year in 2024, we see that the demand growth will be pretty much close to the long-term CAGR for NAND. And the strat buyers – the strategic buyers that I mentioned, of course, they help improve the inventory position for NAND as well. So overall, of course, supply cuts have been made in NAND as well. And as we look ahead, we do see that the demand and supply fundamentals will continue to improve on the NAND side as well.

Tom O’Malley: Very helpful.

Sanjay Mehrotra: And the inflection in pricing as well has occurred and, you know, particularly in the second half of our fiscal year we would see that continued improvement in the pricing as well.

Tom O’Malley: Helpful. And then just as a follow-up, obviously you’re facing headwinds from the CAC band. Can you just talk about areas of the market where you guys are targeting to help make up some of those bits. Is it just conversations with customers in the consumer space or are you looking at content increases in the data center, just given the puts and takes of you know where you’re making up that a double-digit percentage hole and if you see kind of any change to that. Is it getting worse or is it getting better into February and May of this year? Thank you very much.

Sanjay Mehrotra: So as we have mentioned before, the CAC headwinds are primarily in the data center and networking markets for us in China. And the impact, the negative impact of revenue as a result of CAC decision is already baked in in our CQ4 results, and is also included in our FQ1 guidance here. And keep in minds that the CAC decision, I mean, continues to remain a risk for our business and the impact in our China demand is meaningful. However, Micron has made strong progress with respect to mitigating the effects as well with our global customers who are not impacted by the CAC decision. And we are mitigating that and effect of the mitigation also is reflected in our FQ4 results, as well as in FQ1 guidance. So the – FQ4 results and FQ1 guidance reflect the net effect of the loss of revenue in China as well as the success with some of the mitigation, and of course, we are working on mitigating the China revenue loss with increases in demand for us across our multiple end-markets, across all our global end-markets.

And remember that our goal remains to maintain our global share. While there may be some ebbs and flows in the near term, But you know our goal absolutely remains to maintain our global market share here in terms of bits.

Tom O’Malley: Thank you, Sanjay.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Toshiya Hari from Goldman Sachs. Your question, please.

Toshiya Hari: Hi guys, thank you for the question. I had a gross margin question for you, Mark. You’re guiding November quarter up five percentage points sequentially. I was hoping you could provide a bridge, if you will, on a sequential basis. You talked a little bit about you know period costs continuing to be a headwind. You gave a little bit of color for the benefit you’ll see from selling through written-down inventory. But, you know what are your thoughts on pricing. What are your thoughts on cost-downs? And if you can give you know directional guidance for FED and the puts and takes there, that would be helpful as well. Thank you.

Mark Murphy: Sure, Toshi. I am – so on the fourth to first quarter bridge, as you mentioned, we are forecasting roughly a 500 basis-point improvement. We did say over the last few quarters that this would be the profile of our improvement. I will say that it’s gotten incrementally better. And that we said before that our profile would be that we would be positive gross margin in the fourth quarter of fiscal ’24. We now believe will be positive gross margin through fiscal ’24 and so you’ll see this positive margin trend continuing. As it relates to the first quarter, we do get a small benefit roughly, you know, roughly a point of incremental low-cost inventory pass-through from what passes through in the first quarter, which will be around $600 million versus what we had pass-through in the fourth quarter, which is roughly $550 million.

We also will see a slight benefit in price indeed in the first quarter. As we’ve mentioned in the last several quarters, we first saw pockets of improvement. And then, we mention that prices bottoming. We are mentioning on this call that it has bottomed and we are seeing in the first quarter price improvement and we expect that in this transition period to be somewhat muted in the first half and then pick-up momentum and strengthen considerably in the second half. So that’s the, you know, general walk for the first quarter. I will, because there’s a lot of puts and takes, maybe just, it’s been a very difficult several quarters around both utilization write-downs. And fortunately, we’re on the other side of that which we can cover later in this call or the after call.

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Concentrix Corporation (NASDAQ:CNXC) Q3 2023 Earnings Call Transcript September 27, 2023

Concentrix Corporation misses on earnings expectations. Reported EPS is $2.71 EPS, expectations were $2.76.

Operator: Thank you for standing by and welcome to Concentrix Fiscal Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Vice President, Investor Relations, David Stein. Please go ahead.

David Stein: Thank you, Latif, and good evening. Welcome to the Concentrix Corporation Third Quarter Fiscal 2023 Earnings Call. As a result of the combination earlier this week, we now operate as one Concentrix Webhelp. This call is the property of Concentrix Webhelp and may not be recorded or rebroadcast without written permission. This call contains forward-looking statements that address our expected future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future events or developments.

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Please refer to today’s earnings release in our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and subsequent SEC filings. Also during the call, we will discuss non-GAAP financial measures, including free cash flow, non-GAAP operating income, adjusted EBITDA, non-GAAP EPS and adjusted constant currency revenue growth. A reconciliation of these non-GAAP measures is available in the news release and on the company Investor Relations website under Financials. With me on the call are Chris Caldwell, our President and Chief Executive Officer; and Andre Valentine, our Chief Financial Officer.

Chris will provide a summary of our operating performance and growth strategy, and Andre will cover our financial results and business outlook. Then we’ll open the call for your questions. Now I’ll turn the call over to Chris.

Chris Caldwell: Thank you, David. Hello, everyone, and thank you for joining us today for our third quarter earnings call. We are thrilled to have you with us as we discuss our performance in the third quarter and the exciting news that we have closed our transformative combination with Webhelp. We’re pleased that we executed to deliver revenue and profit growth with strong cash flow in the third quarter. We experienced continued stable demand for high-value and technology-infused services, achieved solid new business signings, and our continued focus on business mix drove margin expansion. We entered the fourth quarter with a strong pipeline of opportunities that we believe will continue to drive our growth into 2024. We reported revenue in the third quarter was $1.63 billion.

On an organic constant currency basis, revenue grew 1.7%. Our third quarter non-GAAP operating income increased to $231 million and adjusted EBITDA increased to $269 million, both growing by over 4% compared with last year. Solid execution yielded 10 basis point improvements in both our non-GAAP OI and adjusted EBITDA margins over last year. Our non-GAAP EPS was $2.71 per share compared with $2.95 per share last year, largely reflecting the impact of expected higher interest rates. Given our continued organic growth, strong free cash flow generation and the accretive Webhelp combination, we are pleased to raise the quarterly dividend by 10%. This increased quarterly dividend translates to $1.21 per share on an annualized basis. We continue to grow in each of our strategic verticals, which more than offset continued volume softness with a few select large clients as we discussed last quarter.

From a Catalyst perspective, we gained experience — we again experienced sequential quarterly revenue growth with our digital CX solutions. Our unique digital IT service capabilities with thousands of staff able to design, deploy and integrate technology-infused solutions at scale differentiates us significantly from our traditional CX peers. From a sales perspective, we continue to focus on our [indiscernible] one approach with our combined Catalyst and CX operations, design, build and run services. During the quarter, we saw steady demand across multiple geographies and verticals as clients continue to look for differentiated ways to service their customers while managing their cost structure. While clients are still signing smaller deals that ramp more slowly, we are pleased with the higher complexity work that we will be performing with these new wins.

We also see a strong pipeline of opportunities as a combined Concentrix Webhelp organization that we would not have been able to pursue prior to the combination. From an operating perspective, we are delivering exceptional service with record client attainment scores this quarter. Our focus remains on being the best partner for our clients’ relationships and winning more opportunities within each account. The more technology-infused services we provide to our clients the stickier our relationships become. Notably, we’ve accelerated our progress in the quarter deploying generative AI solutions, both internally and with select clients. From an internal productivity perspective, our AI and Alex-based recruiting platform now supports 8.6 million career site visits and processes 3.3 million applications already this year.

It has already allowed our team to scale more cost effectively and we see additional benefits as we continue the roll out across our enterprise. Our AI-based workforce management solution optimizes concurrent scheduling and peak management for now over 115,000 of our staff where we see better utilization and user experience for the team. This again will have additional benefits as we scale up to the rest of our workforce. Our most widely used proprietary AI smart assist product improves productivity through automation for over 190 team members now to easily access the tools and provide visibility to the information required to the performs of their jobs every day easier. From the ability for AI to enhance our client services, we use an AI-based quality automation platform to drive insights from 100% of our customer interactions were deployed.

Now across tens of thousands of seats, the platform has reviewed 129 million interactions to date, delivering 20% to 30% improvements in audit efficiency and insights into customers, clients that see high value. Our proprietary learning bot utilizes AI to simulate real-world customer scenarios for over 60,000 team members during training, establishing better speed to proficiency, reducing new higher average processing time and improving effectiveness by 5% to 10% in the ramp period. And our cognitive AI bots developed for client-specific implementation will handle over 900 million customer interactions by the end of this year, delivering significant value for our clients and a higher margin service for us. We are actively investing in additional generative AI solutions to further enhance workforce productivity and improve the quality of interactions with customers.

We are on track to deploy our AI tools across nearly 80% of our legacy operations business by year-end and start wide deployment of the tool within our new clients from our combination with Webhelp shortly. Turning to AI with our clients. We are also collaborating with some of the world’s largest companies to design, build and run generative AI in few solutions across the services value chain. Working with one of our large technology clients in the key project this quarter, we use generative AI to power 35% efficiency gains and deliver releases 30% faster than traditional methods in their software development life cycle. During the quarter, we also delivered a proof-of-concept for generative AI knowledge management that builds 3D modeling and augmented reality solutions for a global retail client that couldn’t cost effectively be done before.

Catalyst also launched its first deployment of our new generative AI-infused offering AnyPaaS that we have been developing for close to two years. For our first implementation, we seamlessly transitioned the entire CCaaS tech staff of a health care client in less than eight hours, enabling fully automated generative AI experiences for patients and advisers with our generative AI intelligence insights and reporting capabilities. Historically, this would have taken weeks to months to transition. This has resulted in substantial savings for our clients and a new revenue opportunity for our business. For another key client, we are now working exclusively to train and test a generative AI tool in advance of it becoming customer-facing. Using a combination of automation and humans and our unique knowledge of the customer base and domain knowledge, we are building hundreds of thousands of different subject matter conversations to train the AI across multiple categories with a plan to increase the scope to 1 million conversations in the next six months.

With all of these examples and with many more we have deployed and are working on, I hope it is evident that we see opportunity to grow revenue and be more efficient with AI and see this as a net benefit to our industry. Now let’s turn our attention to the Webhelp combination that sets the stage for a new chapter in our business offering evolution. This combination is a historic milestone in our industry. As a combined organization, Concentrix Webhelp possesses distinct strategic advantages that we believe increases our differentiation and will drive our success as a transformative force in the industry. This combination brings new expertise such as know your customer and anti-money laundering and payment services for our financial clients, IT services at scale in EMEA, deeper domain expertise in a number of our core verticals and helps create a robust footprint spanning 70-plus countries, enabling us to offer tailored solutions on a global scale.

We also gained over 1,000 new clients that we believe have the ability to spend on services and capabilities that Concentrix historically has offered. Our commitment to nurturing a supportive and inclusive workforce is further reinforced by the harmonious integration of our cultures, which are globally renowned for their excellence and workplace practices and commitment to ESG. We have a clear path to positive financial returns from the combination with Webhelp. We are well on track to achieve enhanced revenue growth, profitability and non-GAAP EPS accretion within the first year. We expect double-digit accretion in non-GAAP EPS in the second year, further underscoring the financial strength of the combination. In addition to these compelling benefits, our integration process is on schedule, and we are confident that we will achieve cost synergies of $120 million by the third year, including $75 million in the first year post-close with substantial progress made already.

Since the announcement, we have been able to spend more time with the Webhelp team, which has given us great confidence that this transaction is the right investment. We expect the integration work to be completed within 12 months, and I would like to welcome all of our new game changers to the Concentrix Webhelp team. I would also like to welcome our two new Board members, Olivier Duha, Webhelp Co-Founder and CEO, who becomes Vice Chair of our Board of Directors; and Nicolas Gheysens, a GBL Partner and Director. Finally, I would like to thank our exceptional staff for their commitment to execution, our clients for their trust, our talented Board of Directors for their support and mentorship and our investors for your continued support. We look forward to an exciting and prosperous year ahead.

And now I’ll turn the call over to Andre. Andre?

Andre Valentine: Well, thank you, Chris, and hello, everyone. We’re excited to have closed our combination with Webhelp earlier this week. Adding Webhelp’s talented global staff strengthens our value proposition and solidifies our position as a leading global CX solutions company. Before I provide additional details on the completion of the transaction, I’ll first review our third quarter results then I’ll conclude with guidance for the fourth quarter, including anticipated contributions from Webhelp. In the third quarter, revenue increased and non-GAAP profit improved, reflecting continued strong execution. Both our organic constant currency revenue growth rate and our non-GAAP operating income came in within our guidance ranges, with non-GAAP operating income exceeding the midpoint of our guidance.

Additionally, our strong cash flow generation reinforces our confidence in achieving our full year expectation of generating over $500 million in free cash flow, not including contributions from Webhelp. The 3.4% increase in reported revenue in the quarter included a 1.7 point positive year-over-year impact from the acquisition of ServiceSource in July 2022. There was no meaningful impact from currency fluctuations on reported revenue growth in the quarter. On an organic constant currency revenue basis, revenue grew 1.7%, reflecting a continuation of themes from the prior quarter. Strong growth in health care, banking, financial services and insurance, e-commerce and travel, offset by continued volume softness with a few large clients in the communications and consumer electronics industries.

Revenue increased in each of our four strategic verticals in the quarter, with growth from health care clients leading the way, up approximately 17% on both an as reported and organic constant currency basis. Revenue from retail, travel and e-commerce clients posted 8% growth as reported and 7% on a constant currency organic basis, including double-digit growth with travel clients. Revenue from banking, financial services and insurance clients grew by 5% on a reported basis and 6% on an organic constant currency basis. Revenue from technology and consumer electronics clients grew 6% as reported and about 1% on an organic constant currency basis. Revenue from communications clients decreased by 8% as reported and 9% on an organic constant currency basis.

Revenue from clients in our other vertical decreased 9% as reported and about 8% on an organic constant currency basis in the third quarter. Turning to profitability. Non-GAAP operating income was $231 million in the third quarter compared with $222 million last year. Our non-GAAP operating margin was 14.1%, up 10 basis points from 14% in the third quarter last year. Adjusted EBITDA was $269 million compared with $258 million in the third quarter of last year. Our adjusted EBITDA margin was 16.5%, up 10 basis points from 16.4% in the third quarter last year. Third quarter interest expense was $49 million, up $29 million from the prior year quarter. Included in the increase was approximately $14 million of interest costs related to the Webhelp combination.

This included a charge of approximately $11 million in fees associated with our bridge financing for the Webhelp transaction. It also includes approximately $3 million in interest expense on our senior notes that were issued on August 2nd, net of interest earnings on the invested proceeds. The remainder of the increase in interest expense was due to higher interest rates as expected. Other expense of approximately $6 million in the third quarter included a $2 million mark-to-market adjustment related to the purchase price currency hedge for the Webhelp transaction. The remainder of this line item in the P&L relates to foreign currency losses. The non-GAAP tax rate for the quarter was 26.3%. Non-GAAP net income in the third quarter was $141 million compared with $154 million last year.

The decrease primarily reflects higher interest expense and the change in other income expense, which more than offset the increase in non-GAAP operating income. Earnings per share were $2.71 on a non-GAAP basis compared to $2.95 in the third quarter of last year. GAAP operating results for the third quarter included $40 million of amortization of intangibles, $18 million of expenses related to acquisition-related and integration expenses and $11 million of share-based compensation expense. Turning to cash flow. Our third quarter cash flow from operations totaled $211 million and capital expenditures were $44 million. This resulted in record third quarter quarterly free cash flow of $167 million. We continue to expect free cash flow for the full year to exceed $500 million, excluding the cash flow contribution of Webhelp in the fourth quarter and transaction and integration costs.

During the quarter, we paid a quarterly dividend of $0.275 per share. As Chris mentioned, our Board has raised our quarterly dividend to $0.3025 per share to be paid during the fourth quarter. This increase to our quarterly dividend reflects our financial strength, our confidence in the future and our commitment to disciplined capital deployment. Share repurchases resumed in the quarter after our proxy statement filing related to the Webhelp transaction. We repurchased 320,000 shares of our stock for approximately $27 million in the third quarter. Repurchased in the third quarter were made at an average price of approximately $84 per share. At the end of the quarter, we had $312 million remaining on our share repurchase authorization. Moving to the balance sheet.

At the end of the third quarter, cash and cash equivalents were $2.11 billion and total debt outstanding was $3.97 billion. Net debt was $1.86 billion at the end of the third quarter, a decrease of $117 million from the end of the second quarter and a decrease of $218 million since the beginning of the year. At the end of the third quarter, the elevated cash level reflects funds on hand to complete the Webhelp transaction. The balance — the debt balance at the end of the quarter includes $2.15 billion of senior unsecured notes issued to partially fund the Webhelp transaction and $1.85 billion outstanding on our term loan. Our $1.04 billion revolving credit facility was undrawn at the end of the quarter, and there were no borrowings outstanding on our $500 million accounts receivable securitization facility.

At the end of the third quarter, net leverage was 1.7 times on a trailing four quarters pro forma basis. On Monday, we executed on the closing of the Webhelp combination. To complete the combination, we paid approximately $525 million to Webhelp shareholders, paid off Webhelp debt of approximately $1.9 billion, issued 14.9 million shares to Webhelp shareholders and incurred a EUR700 million two-year note payable to Webhelp shareholders bearing interest at 2%. After the closing, we had cash and cash equivalents totaling approximately $440 million and gross debt of approximately $5.3 billion. Net debt upon closing was $4.85 billion, which represents net leverage of approximately 3.2 times on a pro forma adjusted EBITDA basis. The primary components of our gross debt on the balance sheet post-closing were $2.15 billion in senior notes, $2.14 billion in term loan borrowings, approximately $750 million in notes payable to Webhelp shareholders and $215 million in borrowings outstanding under our accounts receivable securitization.

Our revolving credit facility remained undrawn. The issuance of shares to Webhelp shareholders increased our outstanding share count to approximately 66.6 million shares. Regarding the $2.15 billion of senior notes, on the day the combination closed, we entered into cross-currency swap arrangements for a total notional amount of $500 million of the notes. The arrangements effectively convert $250 million each of the 2026 and 2028 notes in the synthetic euro-based debt at lower prevailing interest rates. In addition to aligning the currency of a portion of our interest payments to the organization’s euro-denominated cash flows, the swaps also reduced the weighted average interest rate of the $2.15 billion notes from approximately 6.70% to approximately 6.36%.

As we said when we announced the Webhelp transaction, the combination of our strong free cash flow generation and adjusted EBITDA growth gives us a clear path to reducing leverage, and we’re committed to reducing our net leverage to about two times adjusted EBITDA within two years after the transaction closed. Regarding our capital allocation priorities, our focus is on organic growth, the successful integration of Webhelp, realizing the planned synergies and repaying debt. We are committed to investment-grade principles. We will prioritize paying down debt and reducing our net leverage while continuing our dividend and disciplined share repurchases to offset the dilution of equity grants. Now I’ll turn my attention to the business outlook for the fourth quarter, including anticipated contributions from Webhelp.

The Webhelp contribution in the fourth quarter guidance includes forecasted financial performance for a period of slightly more than two months. For the fourth quarter, we now expect reported revenue to be in a range of $2.19 billion to $2.215 billion based on current exchange rates. Our fourth quarter expectations reflect approximately 2% to 3% of pro forma constant currency growth for the combined organization if the combination had occurred at the beginning of the fourth quarter of 2022. Excluding the effect of the Webhelp combination, our expected constant currency growth in the fourth quarter would be consistent with the prior guidance for the full year. Our profitability expectations for the fourth quarter include non-GAAP operating income in a range of $330 million to $340 million.

At the midpoint of our guidance, this equates to a non-GAAP operating income margin of approximately 15.2%, an increase of 10 basis points over the prior year. Excluding the effect of the Webhelp combination, our expected non-GAAP operating income in the fourth quarter will be consistent with the prior guidance for the full year 2023. We expect net interest expense in the fourth quarter to be approximately $72 million with an effective tax rate of 26% and a weighted average diluted share count of approximately 62 million shares. Note that the average diluted share count for the fourth quarter is less than the 66.6 million outstanding shares post-close as a result of the mid-quarter timing of the close. Accordingly, we expect non-GAAP EPS for the fourth quarter to be in a range of $3.03 per share to $3.15 per share.

This expectation for non-GAAP EPS assumes no impact from other income and expense due to the unpredictability of future foreign currency movements. We continue to expect the business to generate robust cash flows with free cash flow for the combined organization to be in the range of $200 million to $225 million excluding any transaction and integration costs in the fourth quarter. Our business outlook does not include transaction and integration costs associated with the Webhelp combination or any future acquisitions. Also not included in the guidance are impacts from future foreign currency fluctuations. We continue to expect the Webhelp operations to generate approximately $3 billion of revenue and approximately $500 million of adjusted EBITDA for the full year 2023, with the combined organization yielding nearly $9.6 billion in revenue and nearly $1.6 billion in combined EBITDA on a pro forma basis for the full fiscal year 2023.

We expect earnings per share accretion of mid to high single-digits in the first full year after close and double-digit appreciation — accretion in the second year. We also expect to realize $75 million in synergies in the first year after closing, growing to $120 million in synergies in year three. We plan to provide guidance for 2024 on our fourth quarter results call. In closing, the Webhelp combination has joined two leading CX providers into a global platform for growth and value creation, bringing clients from growing markets, further diversifying our marquee client list and significantly increasing our presence in Europe, Latin America and Africa. Our range and global reach of high-value services and additional capabilities have been expanded enhancing support for clients that both companies couldn’t adequately serve independently.

We have a strong track record of success integrating prior combinations, which will make the combination and integration more seamless. And we believe this highly complementary union creates a unique customer engagement offering that will keep our business resilient through business cycles. We’re excited about the combination with Webhelp. We look forward to the growth and value it will create in the future. At this point, Latif, please open the line for questions.

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Q&A Session

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Operator: [Operator Instructions] Our first question comes from the line of Ruplu Bhattacharya of Bank of America.

Ruplu Bhattacharya: Hi. Thanks for taking my questions. Andre, if you can — I was wondering if you can kind of simplify what the contribution is from Webhelp for fourth quarter revenues, operating margin and EBITDA? You gave a lot of details, but I’m not sure I got all of that. So can you please specify how much is the revenue contribution, operating income contribution? And what is the core business doing in the fourth quarter?

Andre Valentine: Yes. So happy to do that, Ruplu. So I’ll start with revenue. So from a revenue perspective, the legacy Concentrix operations pre-Webhelp are very much in line with the prior guidance. So the prior guidance for the full year, Ruplu, was to grow 2% to 3% for the full year. And so that will be the contribution from the Concentrix operations will be in line with that guidance. So that kind of covers that. Webhelp certainly accretive to the overall growth rate as we expected, and it will be here in the fourth quarter. So that’s that. From a margin perspective, really, if you go back to when we announced the transaction, the margin profiles of the two businesses were very, very close, both from an EBITDA perspective and a non-GAAP OI perspective.

And so included in the guidance, you can pretty much, at the midpoint, that 15.2% non-GAAP OI margin, you can pretty much apply that to both sides. Depreciation is a little bit — we’ve talked about this in the past for Webhelp a little bit higher as a percentage of revenue. So you might see 10, 20 basis points or so higher adjusted EBITDA margin coming from the Webhelp side, but again very complementary from a margin perspective in Q4. And then I expect significant margin improvement as synergies start to roll in, in earnest as we move into 2024.

Ruplu Bhattacharya: And again, just to clarify, I mean, based on what you just said, would that imply like about $500 million on the revenue contribution from Webhelp in fiscal 4Q? And then can you talk about the below-the-line items like below operating income? Can you remind us what the interest expense is going to be in the fourth quarter as well as are there any other expenses? I think you said there was also integration costs. What is the estimate for that for the fourth quarter?

Andre Valentine: Yes. So integration costs in a quarter are a little hard to give an exact estimate on. So overall, the integration costs what we said about those is they will be one for one matching the synergy number. So $120 million total in integration costs, somewhat front loaded with roughly $80 million or so in the first year, I believe, and $40 million in the second. So think of that, that $80 million, think of — will that equate to in two months, and you’re probably in line there. The other part of your question, I missed it, oh, the revenue contribution. I think you’re a little low at $500 million. The contribution from Webhelp is higher than that.

Ruplu Bhattacharya: Okay. And maybe for my last one, maybe I’ll ask one to Chris. So you talked about working on some AI — generative AI projects. So Chris, when we think about this, I mean, based on the experience you have now, clients want to understand the impact of generative AI. Do you think — I mean, in the past, you said like 10% to 15% of volumes can get impacted. I mean how has your thought changed if at all now that you’re doing more of these projects? And do you think that impact varies by end market use case? And how should we think about that? I mean, any way to quantify this at this point in the cycle? Thank you.

Chris Caldwell: Hi, Ruplu. So a couple of different points there. I think when we talk about 10% to 15% of transactions can be automated, that’s what we’re doing on a yearly basis, regardless of generative AI or RPA or anything else that’s coming along with it. And what we’ve talked about is that generative AI can probably increase that by a little bit, but not dramatically more than that from what we’re seeing as we deploy these practices. What’s offsetting that is the new revenue streams that we’re seeing by deploying these new technologies, both from design, implementation and running the new technologies and curating the content that goes along with it. And as we kind of talked in some of the prepared remarks, even net new areas that we’re deploying our own platforms where we’re getting net new revenue flows that are coming in for that.

So that clearly is what we’re focused on offsetting any revenue headwinds as well as taking more share within the clients. I think what we’re seeing right at the moment is that we are able to deploy generative AI faster than some of our clients can actually deploy it. And so we’re seeing the benefits in our operating cost structure and scalability that we called out a number that are starting to get to scale. And hopefully, we’ll see additional benefits from those as we get them to — across the entire enterprise, including the new Webhelp combination, which I think offsets any kind of cost mitigation that we might have from any impact from a revenue perspective that’s coming in from automation, if that makes sense.

Ruplu Bhattacharya: Thanks for all the details. Appreciate it.

Chris Caldwell: No problem. Thank you.

Operator: [Operator Instructions] Our next question comes from the line of Oliver Davies of Redburn Atlantic.

Oliver Davies: Yes. I guess a couple of questions. Just firstly, in terms of you kind of held the revenue growth guidance for the Concentrix legacy business. So can you just talk about what you’re seeing in terms of underlying volumes? And new client decision, I guess, it looks like health care kind of accelerated in the quarter as most of the other sectors were look pretty similar to the last quarter. And I guess following on from that you know a client is still looking to offshore where possible or has anything changed on that front?

Chris Caldwell: Hi, Oliver. So to answer your first question, what we’re seeing is kind of continued consumer, I’ll call it, budgeting for new consumer electronic devices, subscription spending, other things that are somewhat discretionary. So we continue to see those volumes depressed across some of our larger clients. But the volume is now becoming more steadily depressed if that makes sense. It’s more stable versus what we saw at the beginning of the year where it tends to fluctuate. We are seeing growth in the strategic verticals that we’ve called out, primarily because of net new wins and net new services we’re putting into those verticals, such as the health care vertical, banking, financial services. And even travel, we’re doing quite well at.

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Aytu BioPharma, Inc. (NASDAQ:AYTU) Q4 2023 Earnings Call Transcript September 27, 2023

Operator: Greetings. Welcome to the Aytu BioPharma Fiscal 2023 Q4 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Robert Blum, Investor Relations. Robert, you may begin.

Robert Blum: Thank you so much. Good afternoon, everyone, and as the operator indicated, thank you for joining us for Aytu BioPharma’s fiscal 2023 fourth quarter and full year financial results conference call for the period ended June 30th, 2023. Joining us on today’s call is Aytu’s CEO, Josh Disbrow, and the company’s Chief Financial Officer, Mark Oki. At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. I’d like to remind everyone that today’s call is being recorded. A replay of today’s call will be available by using the telephone numbers and conference ID provided in the earnings press release issued earlier today. Finally, I’d also like to call to your attention the customary safe harbor disclosure regarding forward-looking information.

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The conference call today will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations, and future potential operating results of Aytu BioPharma. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties, and other factors, including, but not limited to, the factors set forth in the company’s filings with the SEC. Aytu undertakes no obligation to update or revise any of these forward-looking statements.

With that said, I’d like to turn the event over to Josh Disbrow, Chief Executive Officer of Aytu BioPharma. Josh, please proceed.

Josh Disbrow: Thank you, Robert, and welcome, everyone. We’re excited to be speaking with you today following an exceptional year and the strongest quarter in Aytu BioPharma’s history. As you all can see from the financial results in the press release we issued after the market closed, we finished fiscal 2023 on a strong note, having achieved record annual revenues of $107.4 million, all-time high total prescriptions for our core Rx segment with over 560,000 prescriptions written for our promoted products last year, gross margins that increased to 62% for the year compared to 54% last year, positive adjusted EBITDA of $7.7 million during the fourth quarter, an improvement of $11.6 million from the year ago fourth quarter, which also translated into positive company-wide adjusted EBITDA for the full fiscal year ‘23 of $3.2 million.

And while our quarterly net income was slightly negative due to several impairments taken as part of the wind down of our Consumer Health segment, we set the stage for significant improvement in fiscal 2024. And by the way, without those impairments, net income for Q4 would have been $0.6 million. This dramatic transformation of our operating results is due to the strength of our Rx segment, which is comprised of our Rx product lines of Adzenys XR-ODT and Cotempla XR-ODT and our pediatric multivitamins along with our antihistamine Karbinal ER. Our ADHD products continue to experience tailwinds from the ongoing stimulant shortages while all of our prescription products are benefiting from strong field execution and internal operating and margin improvements.

This is all setting the stage for continued growth and improvement in fiscal 2024. I’ll touch on this more in a moment. The transformation of our results did not happen overnight and I’m pleased to see our operating plan coming to fruition. It was a deliberate strategic plan undertaken to indefinitely pivot away from clinical development and place the company on a financial pathway to sustainability, particularly in light of the current market environment. Step one in that plan was announced last October when we indefinitely suspended our pipeline programs to minimize the research and development expenses until such time that we can fund those efforts with internally generated cash flow or through a strategic partnership. This was a difficult decision, but one we knew was in the best long-term interest of the companies and its shareholders.

The second component of that plan was implemented in June of this year when we announced that we would focus our commercial efforts on our growing and profitable Rx segment while de-emphasizing our Consumer Health segment through either monetizing or discontinuing it. To put some perspective on this strategy, our Consumer Health segment had negative adjusted EBITDA during fiscal ‘23 of $3.6 million. Our clinical development program, which was really only operational for a quarter this year, had negative adjusted EBITDA of $2.6 million. So we’re looking at a negative adjusted EBITDA of $6.2 million across these two segments. In contrast, our Rx segment, which I’ll note supports all of our corporate overhead, had posted — had positive adjusted EBITDA of $9.4 million for the year.

Going forward, by exclusively focusing our business on the Rx segment, we’ve highlighted an operating company that’s growing, has positive EBITDA, and is poised to achieve ongoing and consistent profitability. As we look to fiscal 2024, as our Rx segment becomes the go-forward company, we will look to carefully wind down our Consumer Health segment by selling off its remaining inventory and minimizing its expenses. We expect there to be neutral to minimal impact to our adjusted EBITDA from this segment in fiscal 2024. The strategic focus on prescription products and the de-emphasis on the Consumer Health segment should result in fiscal year 2024 company-wide adjusted EBITDA improvement and barring any unforeseen impacts, closing in on company-wide profitability.

We do anticipate some residual fiscal 2024 write-downs associated with the exits of our Texas manufacturing facility and the Consumer Health segment, but these are non-cash GAAP actions that will not impact our adjusted EBITDA. Let’s take a moment to dive further into what is our core business going forward, our Rx segment. As mentioned at the beginning, we operate in the ADHD category with the Adzenys XR-ODT and Cotempla XR-ODT, the first and only FDA approved amphetamine and methylphenidate extended release orally disintegrating tablets for the treatment of ADHD, respectively. These novel branded medications utilize our proprietary micro-particle modified release drug delivery technology platform and each hold multiple orange book listed patents.

On the pediatric side, our portfolio includes our fluoride-based multivitamins available in various formulations for infants and children with fluoride deficiency. We also market Karbinal ER, an extended release carbinoxamine based antihistamine suspension, indicated to treat numerous allergic conditions for patients two years and older. These products serve well-established pediatric markets and offer distinct clinical features and patient benefits over the branded and generic competitive products and have strong intellectual property protection. Let’s go into ADHD first. Net revenue for ADHD products was up 30% for the quarter and up 9% for the fiscal year. The long-term trends we’ve talked about in the last few quarters persist, including overall growth in the ADHD market.

We continue to see an increase in new diagnoses of children and adults, as well as the ongoing impacts from the supply disruptions for generic Adderall XR and various methylphenidate products. These disruptions and shortages are continuing, with several stimulant products being discontinued altogether as of late. The news around these widespread stimulant shortages abounds, with articles and editorials being published almost daily at this point. We’ve done an exceptional job maximizing the growth opportunity presented by the ongoing ADHD market supply disruptions, while having no negative impact on our operations, i.e., we have maintained supply to meet our growing demand throughout these market events, and expect to continue to meet this ever-increasing demand.

We believe the competitive supply disruptions over the past number of quarters have enabled Adzenys to gain both market and mind share, propelling new prescribers and patients to find their way to Adzenys. To illustrate this, consider that from our fiscal ‘22 to our fiscal ‘23, new Adzenys [riders] (ph) for the year grew by 28%. When looking at new rider growth over two years, we have more than doubled Adzenys riders, with new riders representing 48% of our total riders. We’ve increased Cotempla riders by almost 70% over that same timeframe, with new writers representing almost 40% of total Cotempla riders. As a reminder, Adzenys is approved as bioequivalent to Adderall XR, so our brand is well positioned to continue to capture additional share as the extended release amphetamine shortage remains ongoing.

Also, we expect to hold onto this new share as ADHD prescriptions are sticky, as both clinicians and patients generally continue with drugs that work for them. The impact from the supply disruptions coupled with the continued strong execution of our commercial team and the leverage we are driving with our Aytu RxConnect platform drove prescriptions to record levels during the fourth fiscal quarter. All told, Adzenys and Cotempla scripts were up 15.3% for the fiscal year and up 37.5% for the fourth quarter compared to the same periods a year ago. And if we look at factory sales units year-to-date here so far in our fiscal ‘24, Adzenys shipments are up 42% over the same period last year. The momentum continues. We discussed this last quarter, but it bears reminding that in order for us to be responsive to market dynamics and to keep up with rising costs, we implemented a customary price increase for ADHD products effective April 1st.

This resulted in a one-time channel adjustment last quarter, which we indicated would even itself out this quarter with script growth and net revenues being more closely aligned, and it did. It’s worth reminding everyone that we do see impact for the payer changes and the resetting of the underlying patient insurance deductibles at the beginning of the calendar year, and these impact our patient savings offers and our overall gross to nets. We’ve seen improved margins since the March quarter and expect to see that improvement continue through the calendar year as deductibles are met and the numerous initiatives we’ve undertaken continue to gain traction, which they are indeed doing. Beyond the success we’re seeing from the sales side, we’re also implementing initiatives to improve profitability through the outsource manufacturing of both Adzenys and Cotempla.

As we’ve discussed, this change is expected to further improve gross margins of our ADHD products. So let me update you on this process. In July, we submitted the Cotempla Prior Approval Supplement or PAS to the FDA, which once approved, enables us to transfer the production of Cotempla to our third-party manufacturer. We expect a six-month review of the PAS submission, which should enable FDA approval by late calendar ‘23 or early calendar ‘24. As you may recall, we previously received FDA approval of the Adzenys site transfer PAS and have already begun shifting Adzenys production to the company’s contract manufacturer. So assuming we get the Cotempla approval, we expect to start realizing the margin improvements for the ADHD brands in calendar ‘24.

This has been a tremendous team effort to advance us to this point and I applaud the entire team’s hard work in advancing the site transfer of these important ADHD brands. Let’s transition to our pediatric portfolio now. Net revenue in our pediatric portfolio was up 18% for the quarter and up 58% for the fiscal year, remarkable growth that we’re very pleased with. The key drivers here are the ongoing commercial execution and increasing product awareness, as well as our continued Aytu RxConnect platform leverage. These improvements are providing tailwinds for the product’s prescription growth trajectory. Since we added the multivitamins to the RxConnect platform, we have increased prescriptions significantly. Scripts for our pediatric products grew almost 80% over two years.

Further, the number of multivitamin prescribers have grown over 250% from two years ago, which was prior to these products being added to the RxConnect platform previously developed at Neos. The number of Karbinal ER prescribers grew over 120% over that same time frame. RxConnect affords us leverage, and these numbers surely bear that out. We discussed this a bit last quarter that we are also launching a multivitamin line extension with the novel folic acid ingredient, Arcofolin. Arcofolin offers an improved profile over Metafolin as a body-ready L-methylfolate. Arcofolin’s low water content and low molecular weight of the counter ion yield higher levels of acetate folate than other forms of L-methylfolate currently available on the market.

It also has an improved purity profile, enhanced water solubility, and an excellent overall stability profile. The transition to Arcofolin also extends the brand’s IP protection and provides further differentiation from other products. We believe the addition of Arcofolin to the multivitamin product lines will enhance those products’ profile and we look forward to continued growth and adoption of our unique pediatric portfolio. We’ve seen some payer changes in the multivitamin category, specifically with the big payer, a single payer rather, but we believe we can and already have begun to offset this reimbursement downdraft through growth outside of this payer and through several novel approaches we’re taking to both deepen prescribing from current riders and broaden our prescriber base.

These efforts are well underway and we’re starting to get real traction. And I’ll remind you again that the ADHD portfolio continues its tremendous growth. So we’re excited about how the portfolio is performing when put all together. Overall, I’m pleased with the traction we’re achieving across our Rx segment. This elevated performance has been driven by strong execution from our sales organization, the leverage we continue to achieve through our RxConnect platform, and enhanced category tailwinds with both ADHD brands. With the wind down of our Consumer Health segment, our Rx segment is the core business going forward. And it’s what I would draw your attention to as you think about Aytu’s financial profile as we move into fiscal ‘24 and beyond, one that is growing net revenues at double-digit rates with strong prescription growth, expanding gross margins, achieving positive adjusted EBITDA, and closing in on net income.

In fact, income from operations for the fourth quarter for the Rx segment was $6.3 million, and adjusted EBITDA was $8.3 million, representing a 35% adjusted EBITDA margin for the quarter. And while we don’t necessarily expect that level of EBITDA every quarter going forward in the near term, we have great confidence in this growing segment and its prospects for consistent bottom-line strength. You’ll also need to keep in mind that as we wind down the Consumer Health segment, that may create some small drag on our quarterly EBITDA numbers. But once we’ve closed that business, the full strength of the Rx segment will be reflected in the company-wide P&L. We believe the prescription business is very attractive. And with the emphasis we’re applying exclusively to this segment going forward, we believe it should enhance shareholder value.

With that overview, let me turn it over to our CFO, Mark Oki, to add some additional color to the numbers. Mark?

Mark Oki: Thank you, Josh, and welcome to everyone joining us on this call. I’d like to expand upon Josh’s comments, starting with revenue. Net revenue for the fiscal 2023 fourth quarter was a company record $30.7 million, up from 12% compared to the fiscal 2022 fourth quarter of $27.4 million. Looking at the component parts, net revenue from Rx product sales in the fiscal 2023 fourth quarter was $23.3 million, compared to $18.7 million in the same quarter last year. The ADHD products generated 30% net revenue growth to $15.9 million in the fiscal 2023 fourth quarter against $12.2 million in fiscal 2022’s fourth quarter. This ADHD sales bump mirrored our quarterly ADHD written prescriptions, which were up 38% and driven by our execution and the continuing manufacturing and supply issues at large providers of ADHD products, a situation recently highlighted by the publicly — by the public letter jointly issued by both the FDA and DEA.

Besides the benefit of market shortages, patients are fulfilling their deductibles, and we’re executing on several gross-to-net improvement initiatives. As a result of our product gross, excuse me, as a result, our product gross-to-net returned to normal from the depressed third quarter levels. We’re seeing further improvement in the current September quarter on the ADHD brands based on positive payer changes that have affected gross to net adjustments. Outside of ADHD, the prescription pediatric portfolio experienced 18% growth in net revenue to $7.2 million in our fiscal 2023 fourth quarter compared to $6.1 million in 2022, our highest quarter in history. While the fourth quarter was an excellent quarter for the pediatric brands, those brands do have some seasonality and calendar fluctuations, so we’d expect the September quarter to come in lighter than the fourth quarter.

That said, we’re pleased with the performance of our pediatric portfolio. For the fourth quarter of 2023, net revenue from the Consumer Health segment was $7.4 million compared to $8.7 million in the same quarter last year, a decrease of 15%. As Josh noted, as part of our goal of improving corporate profitability, we are de-emphasizing the Consumer Health segment and are actively winding it down. Through this process of gradually selling through our inventories, we expect to wind down operations by the end of fiscal 2024. If during the process of winding down that business, a buyer comes forward, we will of course consider a sale of the entire business or parts of it. But irrespective of that, we expect to drive the cash use from that business down dramatically and by the end of the fiscal year, drive cash burn close to zero and close it out.

I’ll reemphasize what Josh noted. Consumer Health may create some minor drag on EBITDA for the next few quarters, which is why we point you to the Rx segment’s performance as outlined in our quarterly earnings releases to get good sense for what the company profile will look like going forward company-wide. We continue to have small amount of other prescription revenue both this year and last. This other pertains to discontinued Rx products during this year’s fourth quarter. It totaled $210,000 in revenue against last year’s fourth quarter of $365,000. Overall, these amounts continue to decrease to zero. Gross margins grew to 60% in the 2023 fourth quarter compared to 54% of net revenues in the year-ago quarter. Fourth quarter gross margins were impacted by a write-off of Consumer Health inventory of $2.1 million as part of our decision to wind down that business.

Without this adjustment, our gross margins would have been 67%. This move in the gross margin percentage was primarily driven by improved manufacturing efficiencies and higher volumes of ADHD product sales, product mix, more sales from our higher margin pediatric product lines, and reduced lower margin Consumer Health revenue, as well as the decision to discontinue low margin Rx products in fiscal 2022. Gross margin percentages can vary due to both seasonal and other factors. As I noted above, this fiscal fourth quarter corresponds to the calendar second quarter and reflects our moving away from being impacted by the first quarter’s high deductible period. Additionally, we continue to progress with the manufacturing outsourcing of our ADHD products.

As Josh mentioned, we have received the FDA approval of the Adzenys PAS and have begun the transfer of Adzenys manufacturing. We anticipate a constructive FDA response from the Cotempla PAS, which was submitted in July and should be reviewed and approved by the FDA by calendar year end or early calendar 2024. When both ADHD drugs have received their respective PAS approvals, we anticipate ramping up production at our contract manufacturer, coupled with the ramping down of production at our Texas facility. Obviously, during this time of ADHD medication shortages, our goal is to be cognizant of the ADHD patients who have prescriptions for our products and to be judicious in balancing this production transfer. Once accomplished, we expect that this outsourcing will improve our ADHD products’ gross margin profits.

Moving to operating expenses. In the fourth quarter of 2023, excluding the impairment expenses, changes in contingent consideration, and amortization of intangible assets, operating expenses were $14.6 million compared to $20.6 million in the period a year ago and reflect our continuing focus on cost reductions, including the indefinite suspension of our development pipeline. Research and development expenses were $465,000 in the fourth quarter of 2023 compared to $3.3 million in the 2022 fourth quarter. Net loss for the fourth quarter of 2023 was $2.5 million or $0.59 per share compared to $16.1 million or $8.95 per share for the same quarter last year. We generated a strong positive adjusted EBITDA for the fourth quarter of $7.7 million compared to a negative adjusted EBITDA of $3.9 million in last year’s fourth quarter.

Full reconciliation of net income to adjusted EBITDA can be found in the price release issued earlier today. Without the intangible asset impairment associated with the Consumer Health wind down, company-wide net income would have been $648,000. Turning from the fourth quarter to the full year. Net revenue increased 11% to $107.4 million compared to fiscal 2022. Net revenue from the Rx segment in fiscal 2023 was $73.8 million compared to $61.1 million for the fiscal 2022, an increase of 21%. The ADHD portfolio experienced a 9% increase in revenue to $46.9 million in fiscal 2023, while the pediatric portfolio net revenue increased 58% to $25.4 million. Net revenue from the Consumer Health segment was $33.6 million in fiscal 2023, a decrease of 5% compared to fiscal 2022.

Gross profit was $66.6 million or 62% of net revenue in fiscal 2023 compared to $52.3 million or 54% of net revenue. In fiscal 2022 — excuse me, fiscal 2022 reflects the strong performance of our Rx products. Operating expenses excluding impairment expenses, changes in contingent consideration, and amortization of intangible assets were $74.2 million in fiscal 2023 compared to $82.5 million in fiscal 2022. Research and development expenses were $4.1 million in fiscal 2023 compared to $12.7 million in fiscal 2022 as the company suspended activities on its pipeline assets to focus on its commercial operations. Net loss was $17.1 million or $5.11 per share compared to $108 million or $74.1 — $74.01 per share in fiscal 2022. Adjusted EBITDA was a positive $3.2 million in fiscal 2023 compared to a negative $21.5 million in fiscal 2022.

For fiscal 2023, when we add back the Consumer Health segment’s net loss of $9.8 million and the R&D pipeline’s net losses of $2.6 million, we see that $12.4 million of the $17.1 million consolidated net loss came from now non-core operations that we’ve either curtailed or are winding down. This view becomes even more striking when we do the same calculation to our fiscal 2023 adjusted EBITDA. Now our positive $3.2 million adjusted EBITDA includes negative adjusted EBITDA of $3.6 million and $2.6 million from the Consumer Health segment and pipeline spending respectively. Excluding these operations, our pro forma adjusted EBITDA is a positive $9.4 million. On June 13, we announced the closing of a $4 million public offering which was priced at the market.

This offering was led by Nantahala Capital Management and we welcome its representative Abi Jain to our Board. Our cash and cash equivalents holdings on June 30, 2023, were $23 million compared to $19.2 million on March 31, 2023. We believe that this additional capital provides us with the comfort and the wherewithal to aggressively proceed with our focus on corporate profitability. We are assisted in the strategy with the help of Avenue Venture Opportunities Fund, which has extended the interest-only period on our $15 million secured facility through the maturity date in January 2025. With our cash on hand available borrowing under our revolving line of credit and the extension of the Avenue capital note interest-only period, we are feeling quite comfortable with our cash position and believe we are adequately capitalized.

It is our attention to refinance the Avenue note prior to or upon its maturity. While our corporate philosophy is not to give forward guidance, we’re very excited about how Aytu is positioned for its fiscal 2024 year. We’re slimmed down and focused on our Rx products. We’re transitioning ADHD product from an underutilized facility to our outsourced and very efficient manufacturing partner. We’ve bolstered our balance sheet and taken on a new lead investor. As many of you are aware, we typically file our 10-K or 10-Q on the same date as our quarterly earnings release and conference call. We’re in the process of completing the audit with our new auditors, Grant Thornton, and expect to file the 10-K at the week of October 1st. We believe the financial results presented in today’s conference call and the earnings release are final and the remaining tests to be completed for the audit are administrative in nature.

With that, let me turn it back to Josh.

Josh Disbrow: Thank you, Mark. Let me just conclude where I started. We are dedicated to creating shareholder value, and with the exclusive focus going forward on our Rx segment, which is growing and profitable, we believe we can accomplish this objective. We’ve an improved balance sheet and a business poised to accelerate our path to generating both net income and positive cash flows as we execute. We understand the path here at Aytu has not been straight as it’s not often for most companies. But our focus and our objectives are clear, with a great opportunity going forward. We’ve positioned ourselves well to achieve our objectives and fiscal ‘24 is off to a solid start. I appreciate everyone’s participation on the call today and your commitment to the future of Aytu. I’ll now be happy to answer any questions. Operator?

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Q&A Session

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Operator: At this time, we will be conducting a question-and-answer session. [Operator Instructions] And your first question today is coming from Naz Rahman from Maxim Group. Naz, your line is live.

Naz Rahman: Hello, everyone. Congrats on the record quarter and the record year, and thanks for taking my questions. I have a few if you don’t mind. So obviously you had significant growth in your prescription business in both the ADHD and pediatric business. I guess, could you kind of provide us some detail, or some color on what initiatives you might add to accelerate growth further for both the ADHD business and the pediatric business in fiscal 24? That’s my first question.

Josh Disbrow: Yeah, sure. Thanks for joining, Naz. Thanks for the questions. We have quite a bit ongoing, some of which we share publicly, other which is somewhat confidential because it’s competitive in nature. That having been said, it’s a significant list of things that we’ve implemented on the commercial side. On the ADHD piece, of course, we expect to continue to realize the tailwinds afforded to us, obviously, through the shortages. We continue to hear daily, as I mentioned, about ongoing supply issues with the stimulants and more and more lately around methylphenidate almost as much as we had heard about the amphetamine. So that will certainly continue to play into our growth. We do not think it’s transient. It’s been going on for a year now and several manufacturers have actually dropped out of the market.

One large brand got — was genericized and it’s got many competitors, which is causing significant issues. And so we expect that to continue to play into our growth. We’re capitalizing on that in various ways, obviously through our field initiatives, with our sales force, through our pharmacy initiatives, through the network of pharmacies that we work with. We have several initiatives that are aimed more at the consumer and some of the things that we can do to highlight some of the issues and capitalize on some consumer pathways and get directly to patients and their parents. Those are well underway, and we’ve seen those bear very good fruit. We continue to obviously produce at a high level. We have no concerns about being able to continue to meet demand on the ADHD side, and so we’re excited about all the initiatives that we have underway.

On the pediatric side, not dissimilar from the ADHD, we’ve got a strong execution on the sales force side. We continue to look at our — to our pharmacy partners as a way to continue to drive demand. That’s been a tremendous boon for the pediatric product, particularly the multivitamins, as we’ve talked about, those initiatives will continue. We’ve got a very focused, efficient sales force on the pediatric side. We have a very small number of reps, but with these products and the categories they compete in, as well as the geographies in which we sell them, we believe we’re well positioned to continue to grow there. And we do have some patient-centric and parent-centric initiatives underway whereby we can market directly to those patients and their parents.

So we’ve — and we’ve implemented several things around social media and several non-personal promotional tactics as well. So it’s all coming together to really spell strong growth across the portfolio of ADHD as well as pediatrics and we’ll continue to keep the pedal down to keep the growth going.

Naz Rahman: All right, that was helpful. During your written remarks, you commented that there was a pair change regarding multivitamins with single pair. Could you comment a little more on what happened there and how does Aytu plan on contending with that change?

Josh Disbrow: Yeah, and this is, [part for] (ph) the course in branded pharmaceuticals today, Naz. So it’s nothing that we — it’s certainly not something we take lightly, but it’s not something that we look at as necessarily a huge market event. So one particular PBM has made a change around how they’re paying for the category of multivitamins and it’s not all of their plans. It’s sort of a select isolated number of plans and we have already demonstrated strong growth sort of from July when the change was made to August, a really nice sort of return to kind of levels close to where they had been. So we’re already seeing the initiatives that we put in place coming into play. There are several things that we are doing and already have put into place.

One of the things that’s important is when one door closes and other door opens, we’ve actually had positive payer changes. Some of the public payers have actually picked up coverage on our multivitamin brands and we are beginning to realize some of the benefits of that positive change. So, one negative, one positive to some degree, we think can more than cancel that out. That also enables us to expand geographically into an area where we hadn’t really been strongly promoting the products with several initiatives underway to enable some success through that new channel. So we also continue to look at some of the non-personal tactics that I spoke to earlier in the previous answer, some non-physician directed tactics whereby we’ve started to employ some telehealth tactics and starting to see some early fruit being born there.

So we’re very comfortable that the pediatric products will return to form and have good growth ahead of them.

Naz Rahman: Thanks, that was helpful. So obviously over the last year, you’ve been seeing a significant increase and you’re basically at a new level in terms of your prescription business, especially with the ADHD business. How has, I guess, conversations with payers sort of evolved due to, I guess, your new level or higher level of scripts? And how do you sort of see that impacting your gross-to-net — how do you see your gross-to-nets really playing out in fiscal ‘24?

Josh Disbrow: Yeah, I’ll answer the last one first, which is we’ve seen gross-to-net stabilize and actually improve here and certainly as the year has gone on, the blip that we saw in the March quarter notwithstanding, we’ve seen a real good stabilization and sort of solid growth, particularly across the two ADHD products. And I will point out the pediatric products gross-to-net are — have always been sort of healthy and they’re stable and no issues there. With respect to really how it plays out with payers, look, we’re always — we’re always going to take the opportunities to engage with payers when those opportunities present themselves and we have had payers engaged. That doesn’t suggest that we’re going to change our strategy entirely and go heavy into contracting necessarily.

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In this article, we will cover the 15 best marketing software for small businesses. To skip our detailed analysis of the best marketing softwares, you can go directly to 5 Best Marketing Software for Small Businesses.

Artificial Intelligence and automated marketing softwares might be your best friend if you want to start a new business. Targeting a global market is now easier than ever using AI-powered softwares and automated marketing tools. Check out some of the best digital marketing agencies and companies in the world. 

According to a report by Grand View Research, the global digital marketing software market was valued at $65.33 billion in 2022. The global digital marketing software market is expected to grow to a valuation of $264.15 billion by 2030 at a compound annual growth rate (CAGR) of 19.4%. The growth of mobile and social media advertising is a primary contributor to the growth of the digital marketing software industry. Primary segments in the market include cloud-based software, marketing software, and content software. Regionally, North America holds the largest market for digital marketing software providers, followed by Europe and the Asia Pacific.

Klaviyo: An Emerging Name in the Digital Marketing Industry

Conventional business setups require companies to set up office spaces, hire hundreds of employees, and establish expansive business facilities. Such sums up to hefty amounts of money which more often than not prevents aspiring entrepreneurs from starting a business. However, the existence of marketing softwares is an opportunity for small business owners to join the entrepreneurial circuit. Marketing softwares have gained immense traction, primarily because of their ease of use and the time-efficient options they offer. An emerging marketing software company is Klaviyo, Inc. (NYSE:KVYO). Klaviyo, Inc. (NYSE:KVYO) was introduced in 2012. The technology company primarily offers email and SMS marketing solutions on its marketing automation platform.

On September 21, Yahoo Finance reported on the success of the new technology company, Klaviyo, Inc. (NYSE:KVYO). The company has almost 130,000 businesses, including big names like Unilever and Skims, among its clients. The report shares the transcript of a recent video interview conducted with the CEO, Andrew Bialecki. According to the CEO, the company had figured out the recipe to success; personalization of the marketing experience for an individual customer. He further added that the lack of technology integration limited the length they could go to when they first came into business. Now, with the availability of AI tools, the CEO shared his future plans for the company and how they should help their client base. Bialecki said:

“Businesses want to deliver that because they know customers love personalization, and that’s what gets them to buy more. It’s just that the tech was missing. So that’s what we’ve been trying to build and what we’ve built. And a little bit of proof point, we’ve got everybody from entrepreneurs just starting out, small businesses, now moving up into the enterprise. So machine learning, artificial intelligence has been core to our strategy, for the last five, six, seven years. I think if you look at a lot of, we’ll take marketing as a space, you have to be a really talented marketer and you’re still experimenting to figure things out. Every customer I talk to says, Andrew, what ideas do you have that I may need to think about? Well, the good news is that you can use artificial intelligence to not only generate content but help come up with those ideas. In the future, we’re going to build software that is good at using itself.”

Prominent Names in the Marketing Software Industry

Salesforce, Inc. (NYSE:CRM) is a prominent provider of customer relationship management software. The company’s platform not only integrates internal teams with each other, but it also connects customers to the business. CRM platforms help businesses build long-term relationships with their key customers. On September 21, the company signed an agreement entailing the acquisition of the AI customer service startup, Airkit.ai.

Bill Patterson, EVP & General Manager of Customer 360 Applications at Salesforce, shed light on how the integration of AI would bring a more innovative outlook to the customer relationship experience. He stated:

“The future of customer engagement will be powered by a new set of AI-driven customer experiences. Adam and team have a strong understanding of the Customer 360 Platform and are some of the best technologists we have worked with in helping Salesforce customers connect with their customers in a whole new way. We are excited to bring the Airkit.ai team back to Salesforce where they have a strong track record of innovation and a focus on customer success.”

Alphabet Inc. (NASDAQ:GOOG) is a leading technology company in the United States. The technology company offers businesses a range of marketing software, including Google Analytics, Google Ads, and Google Adsense. All these softwares combined allow businesses to rank better on search engines and analyze their market performance regularly. On August 2, the company launched New Google Analytics 4 features. One of the most noteworthy features is the new privacy-centric analysis feature will allow businesses to understand user behavior across the web and app. Additional noteworthy features include the ability of businesses to access consented data to optimize campaign performance and web-to-app conversion management.

Integrating automated marketing tools is the need of the hour. In fact, globalization demands as such. While some softwares may be highly expensive for small businesses, the following is the list of the 15 best marketing software for small businesses. You can also check out some of the biggest software companies in the world by revenue.

Our Methodology

Our methodology for identifying the top 15 marketing software for small businesses employed a consensus-driven approach. We consulted unofficial reports from five marketing agency blog posts. We also looked through the likes of prominent names through competitor lists. This thorough process was a pivotal step in curating our initial pool consisting of 50 software names.

We determined the top 15 names through an assessment based on the user or customer count. User data was sourced from official company reports or websites of parent companies. For instances where the user data was unavailable, we consulted unofficial reports from reputable online sources. It is to be noted that the software that lacks official user or customer count data has been labeled as “estimated” within our analysis. The list is in ascending order of the aforementioned metric.

15 Best Marketing Software for Small Businesses

15. Omnisend

Number of Users as of September 27, 2023: 100,000 

Omnisend is a popular choice amongst small online retailers. The company started off as an email marketing tool in 2014, but now the company offers an omnichannel marketing automation platform. Some of the prominent features offered by the company include email marketing, SMS marketing, and web push notifications. The software allows companies to begin their journey with a free trial and also offers a free version of the platform. The standard version costs $16 a month, and the Pro version costs $59 a month.

Small business owners can enhance their marketing capabilities using software by some of the leading companies like Alphabet Inc. (NASDAQ:GOOG), Salesforce, Inc. (NYSE:CRM), and Klaviyo, Inc. (NYSE:KVYO).

14. SEMrush Premium

Number of Users as of September 27, 2023: 104,000 

Semrush Holdings, Inc. (NYSE:SEMR) is a SaaS platform based in the United States. Semrush Holdings, Inc. (NYSE:SEMR) offers an all-in-one tool suite that allows businesses to improve their visibility on search engines and discover market insights. Primary services offered by the platform include SEO, PPC, SMM, keyword research, PR, content marketing, marketing insights, campaign management, and marketing analysis. The free version of Semrush Holdings, Inc.’s (NYSE:SEMR) platform is only suited for occasional users of SEMrush. To avail all the services, businesses may purchase SEMrush Pro for $129.95 per month, SEMrush Guru for $249.95 a month, and SEMrush Business for $499.95 a month.

13. Klaviyo Marketing Automation Platform

Number of Users as of September 27, 2023: 130,000

Klaviyo, Inc. (NYSE:KVYO) is a technology firm based in the United States. The company offers a range of solutions in email and SMS marketing. The company automates SMS and email marketing to help businesses establish long-term relationships with customers. The free version of the platform allows companies to add up to 250 contacts, and for $20 a month, companies can add more than 250 contacts.

12. Buffer

Number of Users as of September 27, 2023: 140,000 

Buffer is an all-in-one social media tool kit specifically designed for small businesses. The software allows people to schedule and publish social media posts from anywhere using their browser extension or mobile application. Additionally, the software also tracks social media performance for businesses and develops comprehensive reports based on qualitative and quantitative measures. Buffer offers a 14-day trial to their paid plans, however, businesses can also use the free version, with limited features and usability. The “Essentials” version is for $6 a month, the “Team” version is offered for $12 a month, and the “Agency” version is offered for $120 a month.

11. Salesforce CRM

Number of Users as of September 27, 2023: 150,000

The CRM software by Salesforce, Inc. (NYSE:CRM) is a popular tool among small businesses. The comprehensive CRM tool allows companies to streamline their end-to-end processes on a single platform. Additionally, the CRM platform also enables businesses to establish strong relationships with their customers. The company also offers AI tools, sales tools, data cloud solutions, integration with Slack and Tableau, and lead generation tools.

10. Active Campaign

Number of Users as of September 27, 2023: 180,000

Active Campaign is a SaaS platform specifically designed for small to medium-sized businesses. The company offers solutions in email marketing, marketing and sales automation, and CRM functions. The company also has an elaborate e-commerce solution, allowing people to integrate the platform with most online stores. The pricing plans for the software range from $29 a month to $149. The company offers a customizable enterprise plan as well.

9. HubSpot Marketing and CRM

Number of Users as of September 27, 2023: 184,000

HubSpot, Inc. (NYSE:HUBS) is a marketing software company based in the United States. HubSpot, Inc. (NYSE:HUBS) provides inbound marketing solutions, software products for sales, and customer service solutions. The company has an elaborate CRM and marketing automation platform consisting of the marketing hub, the sales hub, the CMS hub, and the operations hub. The platform allows small businesses to connect and streamline all their business processes on one platform, while they prioritize customer service, content management, and marketing. The company offers a range of free tools, however, for a monthly price of $800 businesses can avail all the services under their professional plan. The professional plan by HubSpot, Inc. (NYSE:HUBS) includes automation, reporting, and campaign-building services. The enterprise plan charges $3,600 a month offering complete control and flexibility to a business.

8. Constant Contact

Number of Users as of September 27, 2023: 600,000

Constant Contact is a digital and email marketing platform, specifically designed for small businesses. The platform can be used to automate and personalize emails for every customer. The company also sends those emails to the right customer within an ideal timeframe. The company offers three different paid plans, with a 60-day free trial to test the software. The Lite plan costs $12 a month, the standard plan costs $35 a month, and the premium plan costs $80 a month.

7. Canva Pro

Number of Users as of September 27, 2023: 5 Million

Canva Pro is the paid version of the graphic design software company. Canva Pro unlocks multiple features for businesses. The Canva Pro account allows businesses to work together on the platform as a team. Moreover, Canva Pro users can access and unlock all the templates on the platform and are able to create posts, reels, or stories for all platforms in every size in one go. Lastly, Canva Pro users also gain access to the Canva AI tool, allowing users to generate images based on a short description. Canva Pro users pay a small price of $14.99 monthly for the paid platform.

6. Google Ads

Estimated Number of Users as of September 27, 2023: 7 Million 

Google Ads software is a popular choice amongst all kinds of businesses. The software is an online advertising platform by Alphabet Inc. (NASDAQ:GOOG). Using this software, businesses and advertisers bid on keywords to display their product listings, or adverts to web users on search engines like Google Search. The tool is free of cost. However, businesses must pay every time a user clicks on the advert.

Alphabet Inc. (NASDAQ:GOOG), Salesforce, Inc. (NYSE:CRM), and Klaviyo, Inc. (NYSE:KVYO) offer some of the leading and easy-to-use automated marketing software for small businesses.

Click here to continue reading and see 5 Best Marketing Software for Small Businesses.

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Disclosure: None. 15 Best Marketing Software for Small Businesses is originally published on Insider Monkey.

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In this article, we will cover the 5 best marketing software for small businesses. To read our detailed analysis of the best marketing software in the market, go directly and see the 15 Best Marketing Software for Small Businesses.

4. Mailchimp

Number of Users as of September 27, 2023: 13 Million

Mailchimp is a marketing automation and email marketing platform based in the United States. The email marketing platform by the company is particularly popular among small businesses. The email marketing tool allows businesses to create personalized email marketing campaigns. The free plan allows users to send 1,000 emails per month with a daily limit of 500.

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In this article, we will look at the 20 most popular business hashtags on Instagram. If you want to skip our in-depth analysis, head straight to the 5 Most Popular Business Hashtags on Instagram. 

Ever since Meta Platforms, Inc. (NASDAQ:META) acquired Instagram in 2012, the application has been gearing towards new heights.  Instagram, what was once known as a photo-sharing app has grown to become one of the most popular social media platforms among people of all ages. The app was officially launched in 2010, and in only one day of its launch, the application had reached 25,00 users. As of now, the company boasts over 5 billion downloads on Google Play Store. You can also check out countries with the most Instagram users in the world.

X vs Instagram Threads: The Rivalry Continues

Threads was released in July this year. The new application allows people to join public conversations and engage in sharing text updates. The model and the interface of the application are very similar to X, formerly known as Twitter. On August 22, the company announced the launch of the application with a new and improved web experience. The new feature allows people to access their feeds, post threads, and interact with other people through the web. Additionally, on September 7, the company announced that the Instagram Threads team had commenced keyword searches on threads in Australia and New Zealand. For now, the keyword search is focused on English and Spanish. However, the CEO, Mark Zuckerburg, shares his plans to launch the feature in other languages and countries soon.

Instagram continues to invest in improving the user experience of Threads. On July 6, Forbes reported that within a few hours of launch, Instagram Threads managed to garner over 30 million sign-ups and currently boasts over 50 million downloads on Google Play Store. On the other hand, Elon continues to impose restrictions like a DM and viewing limit, and the updates by Instagram may serve as a threat to X’s user base.

How are Businesses Using Instagram?

Instagram does not limit itself to providing entertainment to users. In fact, the application is at the forefront of digital marketing today. The globalized world of today demands companies to look through international borders, and Instagram provides these companies with the perfect opportunity to do so. The application allows businesses to create a business page for their small, medium-sized, or large businesses in any way they want. It also provides business owners with the opportunity to customize their business pages that suit their customer segment. Targeted ads coupled with customizable buttons allow the right users to land on the products they need. Moreover, the Meta Business Suite allows business owners and creators to schedule posts, analyze their customer demographics, and post on multiple Facebook and Instagram at the same time.

Instagram continues to invest in solutions making it easier for business owners and creators to reach out to potential customers. On May 1, the company reported on the new ways brands and creators can partner together to develop ads. The company also renamed its famous “Branded Content Ads” to “Partnership Ads.” The new permissions allow partners to boost any post they were tagged in. Previously, partners could only boost posts that carried the “Paid Partnership” label. However, with the permissions updated, creators and partners alike will be able to bring in more organic reach, simply through mentioning their partners in the post or tagging them.

Moreover, on September 19, Meta Platforms, Inc. (NASDAQ:META) announced the expansion of Meta verified to businesses on Instagram, Facebook, and WhatsApp.  The Meta Verified feature will allow businesses to be recognizable by customers across all three platforms. A bundled monthly subscription will give businesses access to a toolkit for all three platforms combined. This will not only include a verified badge, but it will also provide access to customer support for troubleshooting errors, and most importantly it will allow businesses to rank better and on the top of search results in the applications. Additionally, WhatsApp users will also gain access to a customizable WhatsApp page that can be accessed through the web.

On September 24, the Wall Street Journal reported that Meta Platforms, Inc. (NASDAQ:META) may launch a new AI chatbot on Instagram and Facebook for young users. The new AI chatbot will have distinct personalities and will be tailored to attract young users. These virtual buddies will help give company to these young users with different sorts of things including providing mental health aid, helping students, and giving inclusive and personalized chat experiences to all kinds of people. This will also establish new avenues for product marketing for businesses. The new AI chatbot will be able to promote relevant products and services based on the needs and preferences of users. 

Do Pinterest and YouTube Offer a Similar Selling Experience?

While Instagram allows businesses and creators to enjoy a variety of features, the success of the company does not come without competition from other social media platforms allowing creators to sell. While Facebook Marketplace and Instagram by Meta Platforms, Inc. (NASDAQ:META) provide a 360-degree experience to sellers and creators, other social commerce platforms that come close include exclusive selling options offered by Pinterest, Inc. (NYSE:PINS) and the ultimate buying and selling experience by Alphabet Inc’s (NASDAQ:GOOG) YouTube.

Pinterest, Inc. (NYSE:PINS) allows people to create an online store, set up a business account, and link the online store directly to their account. The user can then create buyable pins and upload them on Pinterest boards to market the items they are selling. On August 16, Amazon.com, Inc. (NASDAQ:AMZN) reported that Pinterest, Inc. (NYSE:PINS), BuzzFeed, and other apps will soon start to show Amazon-sponsored ads, showing relevant products to users.

Similarly, Alphabet Inc’s (NASDAQ:GOOG) YouTube is another platform providing a fruitful buying and selling experience to users. YouTube shopping allows users to promote their products on the platform and connect the app to their online shop. On June 21, Reuters reported that YouTube officially launched its first shopping channel in South Korea. The 90-day project will allow about 30 brands to share their shopping content on a live commerce platform. The company is still testing how to make the online shopping experience conducive for shoppers and sellers. Alphabet Inc’s (NASDAQ:GOOG) commitment to technology and innovation shows promising signs from the YouTube shopping experience. Especially with so many users of YouTube across the world, there is ample opportunity for sellers.

With large companies like Pinterest, Inc. (NYSE:PINS) and Alphabet Inc’s (NASDAQ:GOOG) YouTube, the future of social commerce seems to be very exciting yet uncertain for business owners and creators. With that, let’s take a look at the 20 most popular business hashtags on Instagram.

Constantin Stanciu/Shutterstock.com

Our Methodology 

For our article, the 20 most popular business hashtags on Instagram, we consulted digital marketing sites like HubSpot and e-commerce platforms like Shopify to gauge a basic understanding of the trending hashtags. However, for our title, we needed the most popular hashtags on Instagram relevant to business. To get a list of the most popular “business” hashtags on Instagram, we consulted the application itself. Using the application we shortlisted the top 50 hashtags relevant to “business.” To rank the top 20 hashtags, we used the post volume of each hashtag on Instagram. The top 20 hashtags with the highest post volume, as of September 26, 2023, on Instagram are listed below. The list is in ascending order of the aforementioned metric.

20 Most Popular Business Hashtags on Instagram

20. Businessminded

Post Volume on Instagram as of September 26, 2023: 2.4 Million

The hashtag #businessminded has a post volume of 2.4 million on Instagram. This hashtag entails ideas and tips to become a successful business owner along with recent business news.

Some of the most popular social commerce platforms include Instagram and the Facebook Marketplace by Meta Platforms, Inc. (NASDAQ:META),  Pinterest, Inc. (NYSE:PINS), and Alphabet Inc’s (NASDAQ:GOOG) YouTube.

19. Businesscards

Post Volume on Instagram as of September 26, 2023: 2.7 Million

One of the most popular hashtags on Instagram for business is #businesscards with a post volume of 2.7 million on Instagram. As the name suggests, this hashtag contains posts and reels from pages specializing in the production and selling of business cards.

18. Businessopportunity

Post Volume on Instagram as of September 26, 2023: 2.8 Million

The hashtag #businessopportunity has a post volume of 2.8 million on Instagram. This hashtag entails ideas and tips to become a successful business owner.

17. Businessmindset

Post Volume on Instagram as of September 26, 2023: 2.8 Million

One of the most popular hashtags on Instagram for business is #businessmindset with a post volume of 2.8 million on Instagram. As the name suggests, this hashtag contains reels and posts promoting a business mindset among viewers, with motivational ideas and quotes.

16. Businesstrip

Post Volume on Instagram as of September 26, 2023: 2.9 Million

The hashtag #businesstrip is used by people venturing on business trips. The hashtag has a post volume of 2.9 million on Instagram. Additionally, the hashtag also includes a small percentage of motivational posts.

15. Businessideas

Post Volume on Instagram as of September 26, 2023: 3 Million

The hashtag #businessideas has a post volume of 3 million on Instagram. This hashtag entails motivational and knowledge-based reels and posts relevant to business.

14. Businessquotes

Post Volume on Instagram as of September 26, 2023: 3 Million

One of the most popular hashtags on Instagram for business is #businessquotes with a post volume of 3 million on Instagram. As the name suggests, this hashtag contains quotes from famous businesspersons and motivational speakers.

13. Businesslife

Post Volume on Instagram as of September 26, 2023: 3.3 Million

The hashtag #businesslife has a post volume of 3.3 million on Instagram. This hashtag entails recent business news and updates from the web.

12. Businesswomen

Post Volume on Instagram as of September 26, 2023: 3.7 Million

#businesswomen is one of the most popular hashtags on Instagram celebrating women-led businesses and motivational quotes targeted at women. Supporting hashtags under these posts include #womenempowerment and #womanleaders.

11. Businessgrowth

Post Volume on Instagram as of September 26, 2023: 3.8 Million

One of the most popular hashtags on Instagram for business is #businessgrowth with a post volume of 3.8 million on Instagram. The hashtag entails posts related to motivational quotes and business tools to enhance business efficacy.

10. Businesscoach

Post Volume on Instagram as of September 26, 2023: 6.2 Million

The hashtag #businesscoach has a post volume of 6.2 million on Instagram. This hashtag entails reels and posts from specialized business coaches sharing their experiences and tips for running a successful business.

9. Businesstips

Post Volume on Instagram as of September 26, 2023: 6.4 Million

As the name suggests, the hashtag #businesstips entails posts that talk about tips and tricks to boost your business. With the advent of e-commerce, most posts discuss ways to enhance online selling and marketing.

8. Businessman

Post Volume on Instagram as of September 26, 2023: 9.7 Million

One of the most popular hashtags on Instagram for business is #businessman. The hashtag has a post volume of 9.7 million on Instagram and common posts with this hashtag include motivational quotes and business news.

7. Businesswoman

Post Volume on Instagram as of September 26, 2023: 16 Million

The hashtag “businesswoman” has a post volume of 16 million on Instagram and entails posts celebrating and promoting businesses by and for women.

6. Blackownedbusiness

Post Volume on Instagram as of September 26, 2023: 19.7 Million

The hashtag #blackownedbusiness targets a specific niche of posts on Instagram. These posts celebrate and boost businesses and posts by the black community. The hashtag has a post volume of 19.7 million.

Pinterest, Inc. (NYSE:PINS) and Alphabet Inc’s (NASDAQ:GOOG) YouTube show promising signs to be able to compete against Instagram and the Facebook Marketplace by Meta Platforms, Inc. (NASDAQ:META).

Click here to see the 5 Most Popular Business Hashtags on Instagram.

Suggested Articles:

• 25 Countries with Most Instagram Users in 2023
• 20 Countries With the Most YouTube Users in 2023
• Top 25 Countries with the Most Facebook Users

Disclosure: None. 20 Most Popular Business Hashtags on Instagram is originally published on Insider Monkey.

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