Earnings Reports (May 6th-10th)
Taking a Look at Earnings Results for Coherus BioSciences (CHRS) and CEO Step-Down at Boston Omaha (BOC).
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1. Coherus BioSciences (CHRS)
Last week, Coherus BioSciences (CHRS) unveiled their Q1 2024 earnings, presenting a robust overall performance. Despite the positive outcomes, the company refrained from providing specific guidance on their future This decision should not raise concerns, as the full market potential of products like Loqtorzi and Onbody has yet to be realized, complicating accurate future projections. The company is indeed poised for a resurgence though, hinted by the successful integration of Loqtorzi into national cancer center formularies and the promising launch of Udenyca Onbody, revitalizing the Udenyca franchise. However, bridging the gap to cash flow positivity remains a critical challenge. With a pro forma cash balance of $84.7M as of April, following a significant payment against its term loan, the company's financial strategy is under scrutiny.
Growth Trajectories and Financial Health
CHRS has predicted a return to cash flow positive operations by the first half of 2025, an ambitious target given the current cash burn rate. This strategic pivot hinges on the performance of key products like Udenyca Onbody and Loqtorzi. Despite the tight financial rope, management has remained relatively silent on specific strategies to enhance the cash position, putting us in a guessing game.
Q1 2024 Performance Analysis
Q1 2024 brought decent results for CHRS:
Udenyca franchise, particularly the Onbody and AI segments, continues to capture market share.
Loqtorzi and Cimerli contributed positively, with revenues generally in line with expectations, despite some operational inefficiencies.
Opex, particularly R&D and SG&A, exceeded forecasts due to non-recurring costs and increased professional services.
This discrepancy in expenses, primarily driven by the development costs for Loqtorzi and write-offs related to non-core assets, suggests a need for tighter cost management.
I would reference previous articles written on CHRS in my archive for a more detailed view of my unchanged conviction.
Strategic Options Moving Forward
The pathway to financial stability appears narrow, with limited options for raising additional cash without diluting shareholder value. The possibility of a debt offering to replace favorable terms on existing notes presents a calculated risk, while further royalty agreements could offer immediate relief at the cost of future profits. A partnership or significant licensing deal, particularly for underperforming assets like Yusimry, could inject much-needed capital and realign the asset portfolio.
Market Position and Competitive Dynamics
CHRS has made commendable strides in a fiercely competitive market. The Udenyca franchise, for instance, has demonstrated significant growth potential, nearly doubling its market share since the previous year. This is a testament to the company’s commercial strategy and its ability to adapt to market demands. However, the overall competitive landscape remains challenging, with major players adjusting strategies frequently.
My Take
This recent quarter was far from disappointing; in fact, CHRS is one of those companies that warrants your utmost patience. The path they are currently on appears highly promising, and it would be wise for investors to monitor this stock quietly, revisiting it towards year's end. Additionally, many investors, particularly those new to CHRS or those who have not dived deeply into the company, might mistakenly view it as a business in decline, influenced by the prospect of potential cash raises. However, this perspective fails to consider the bigger picture. With successful product ramp-ups, the need for additional financing could be moot. A broader examination of the market opportunities for their franchises suggests a far more optimistic outlook.
Another significant concern for investors to note involves competition from Amgen and the potential for Onbody to impede CHRS’s products. While Amgen retains the capability to challenge, as time progresses, such a move seems increasingly improbable. Despite these challenges, my confidence in CHRS remains unshaken. I've even strengthened my position further, details of which are available on Savvy Trader linked above. CHRS continues to be a compelling long-term investment opportunity.
2. Boston Omaha (BOC)
This past week, unexpectedly, the CEO duo that has led Boston Omaha (BOC) for nearly a decade, Alex Rozek, is stepping aside. Co-CEOs Alex Rozek and Adam Peterson, who inspired the company's name with Rozek residing in Boston and Peterson in Omaha, have steered the company together. On Friday, it was announced that Rozek would step down effective immediately to pursue other opportunities, leaving Peterson as the sole chairman and CEO.
Rozek expressed his thoughts: "After nearly a decade of consistent growth and significant enterprise building across multiple industries, I believe now is the right time to embark on my next venture. I plan to ensure a smooth transition by working closely with the management team and the board. I remain a steadfast supporter of Boston Omaha and its future endeavors."
Despite BOC's innovative approach to investing cash flows from its core operations into high-return opportunities, the stock has seen a significant decline, dropping nearly 65% over the last three years and underperforming the S&P 500.
Investors are generally wary of sudden changes, and Rozek’s departure is no exception. However, the separation appears amicable, with no indications of misconduct. BOC will invest approximately $19M to buy out Rozek’s shares, though he will continue to represent the company on the board of the investment firm Sky Harbour Group.
My Take
The co-CEO structure at BOC, while often rife with challenges due to potential conflicts, has demonstrated success thanks to the productive partnership between Peterson and Rozek. As we look forward, the spotlight now turns to Peterson, who is recognized for his conservative leadership style. Investors should closely read the upcoming annual shareholder letter for insights into Peterson’s vision and strategic plans for BOC.
This transition may be disconcerting, but it shouldn't spur rash decisions. The chatter on social platforms likely stems from novice investors who had built a shaky investment thesis around Alex Rozek being related to Warren Buffett, whimsically dubbing him "Alex Buffett Rozek." Such a superficial rationale for investment is inherently flawed. Viewing the company holistically, BOC is performing solidly. It's simply engaged in industries that might lack the allure of high-growth tech sectors like SaaS, which could skew perceptions of its attractiveness.
It's important to temper reactions to such news. Executive changes are more common than many think, especially at higher caliber companies. Recent examples include leadership transitions at Snowflake and MercadoLibre, with the latter's CFO moving to another esteemed firm, DLocal. These companies continue to thrive and deliver strong results. The situation with BOC is no different, in my view, and warrants patience from its investors. Initially, I was somewhat unsettled by the news, but upon reflection, my stance remains that BOC is a solid hold, particularly with strategic insights expected in the soon-to-be-released shareholder letter.