Welcome back to our earnings season weekly update on trending topics, macro trends and key management commentary with highlights from earnings call transcripts of S&P 500 companies for the Q1’22 earnings season. With Chegg, PROS Holdings, OneSpan, Fastly, CSG Systems, Fortinet and Cars.com among some of the tech names that reported earnings last week, here are some key trending topics that emerged during earnings updates from the week of May 2nd, 2022:
- Subscription & Membership Revenue Growth: Companies across the S&P 500 are reporting on subscriptions or membership growth directly contributing to company revenue. In April, Netflix reported subscriber growth of 8.3 million users, which fell short of their initial guidance. Since then, other companies with business models reliant on similar metrics to drive revenue growth have fared well this earnings season.
- European Headwinds due to War in Ukraine : As the war in Ukraine enters it’s 11th week, companies continue to provide updates on how business operations have been impacted due to impacts caused by the geopolitical tensions in Europe.
- Talent Hiring & Employee Retention: Facing a competitive labor market, companies are frequently being asked about their efforts in hiring and the associated costs for onboarding new employees, while maintaining a culture that promotes retention.
Companies across the S&P 500 are reporting on subscriptions or membership growth directly contributing to company revenue. In April, Netflix reported subscriber growth of 8.3 million users, which fell short of their initial guidance. Since then, other companies with business models reliant on similar metrics to drive revenue growth have fared well this earnings season.
Question – Patrick Joseph O’Shaughnessy: Got it. Thank you for that. Itiviti, I think it looks like the revenue was up nicely quarter-over-quarter. And I believe, during your prepared remarks, you mentioned something about the timing, but can you speak to the Itiviti revenue contribution in the quarter and what was driving that strength?
Sure. Let me make a few comments about that, Patrick, and then I’ll turn it over to Tim to see if he wants to add anything. And let me just remind you, we have always said that Itiviti was a business that grew at mid-single-digit rates as we brought it on. We’d be able to move that to high single-digit rates. And we thought that, this year, it contributes 7 to 8 points to our overall recurring growth and through the first three quarters is contributing 9 points. So strong, strong performance there. That is primarily a subscription-like revenue model on SaaS, on our hosted solutions here.
- Edmund Reese – Broadridge Financial Solutions, Inc., Chief Financial Officer
Turning to Cigna Healthcare, we delivered a strong start to the year. Our medical care ratio during the quarter was 81.5%, which was better than we had projected. This reflects the disciplined and targeted actions we initiated last year to improve our results, including implementing new affordability efforts and pricing actions. In US Commercial, we achieve strong membership growth during the quarter with growth across each of our segments…Our International business also contributed to our growth during the quarter, as it achieved higher customer retention and membership growth levels.
- David Michael Cordani – Cigna Corp., Chairman and Chief Executive Officer
While we continue to see robust product growth from our SD-WAN and operational technology, or OT, the core platform product revenue growth was mainly driven by the wide range of other use cases embedded in our operating system. Service revenue was up 24% to $584 million. Support and related services was up 26% to $271 million, while security subscription services revenue was up 23% to $313 million.
- Keith Franklin Jensen – Fortinet, Inc., Chief Financial Officer
Strength in aftermarket service parts continues to be a key driver of the core sales growth in this category, due to the heightened power outage activity in recent years and a larger and growing install base of our products in the field, which is also leading to higher levels of extended warranty revenue. Also contributing to the increase were continued growth in our services offering in certain parts of our business and higher grid services subscription revenue.
- York Anthony Ragen – Generac Holdings, Inc., Chief Financial Officer
Recurring revenue growth, which accounted for nearly 85% of segment revenues, grew by 6% in the quarter, once again driven by double-digit growth in our index and consolidated fees businesses and strong performance from our ICE Global Network and Other Data services businesses. And importantly, annual subscription value, or ASV, enters the second quarter up over 6% year-over-year.
- Warren Gardiner – Intercontinental Exchange, Inc., Chief Financial Officer
Starting with Direct-To-Consumer. Our dual revenue stream model delivered strong year-over-year growth of 82%, with total D2C revenue reaching nearly $1.1 billion. This growth consisted of an increase in subscription revenue of 95%, aided by the addition of 6.3 million global subscribers in the quarter and 59% advertising revenue growth.
Total global streaming subscribers were 62.4 million at quarter end, resulting in $742 million of D2C subscription revenue. Q1 D2C advertising revenue was $347 million, reflecting user growth, increased engagement and monetization across our ad platforms.
Paramount+ added 6.8 million global streaming subscribers in Q1, bringing our worldwide base to nearly 40 million. The net additions reflect a balance of domestic and international growth, with international benefiting from both direct subscribers and hard bundled offerings, another example of how our differentiated playbook is driving growth.
Paramount+ saw continued improvement in engagement in Q1 as the breadth of our content portfolio expanded. This is evident in our domestic monthly active rate, which improved quarter-over-quarter and year-over-year. Additionally, we saw double-digit sequential growth rates in hours per active and unique titles streamed per active.
- Naveen Chopra – Paramount Global, Executive Vice President & Chief Financial Officer
Moving to our organic constant currency results adjusted for non-operating items, as defined in the non-GAAP financial measures section of our press release, we are pleased with our operating results led by continued and consistent growth in our subscription revenues. In the first quarter, organic constant currency revenues grew 5.3% driven by continued strength in our Insurance segment and sequential improvement within our Energy segment.
- David J. Grover – Verisk Analytics, Inc., Vice President & Controller
As the war in Ukraine enters it’s 11th week, companies continue to provide updates on how business operations have been impacted due to impacts caused by the geopolitical tensions in Europe.
The Ukraine war has disrupted predominantly European Tier 1 suppliers and OEMs with shortages of wiring harnesses. In China, the COVID-related shut downs are creating yet another level of significant supply uncertainty. The extended auto supply chain continues to be very lean with reported days of inventory at the Tier 1s and at the auto OEMs out of sync with each other. And lastly, based on our very frequent and detailed customer conversations across the supply chain, the Tier 1s and OEMs continue to be challenged by kitting issues to complete module and vehicle assemblies. These kitting issues are not due to one semi supplier or shortage of just one common golden screw (00:07:17) device.
- Kurt Sievers – NXP Semiconductors NV, President, Chief Executive Officer & Executive Director
Our market-driven cost inflation has gotten higher, worsened by the war in Ukraine, and it looks like it will persist longer than originally anticipated. This has been incorporated into our outlook. From a supply disruption standpoint, we are largely past the fire and strike impact, though we will still expect bottlenecks and shortages to persist, at least through the first half, with disruption related to the war in Ukraine more weighted to the second half.
- Amit Banati – Kellogg Co., Chief Financial Officer & Senior Vice President
First, we believe Marathon Oil, as a global oil and gas producer, has a clear and much needed role to play in the longer-term energy landscape. This belief has only been reinforced as the energy markets have struggled to respond to a confluence of factors: continued demand recovery from the pandemic; struggling global supply chain; labor shortages and a fully employed US labor market; and systemic underinvestment in both new oil and gas supply and the requisite infrastructure.
The invasion of Ukraine by Russian forces has only exacerbated these pressures, upending geopolitics and creating a level of uncertainty and hostility between NATO and Russia that has not been experienced since the Cold War. The reality is that energy markets were already tightening from supply and demand fundamentals before this Russian action; and the risk premium now embedded in commodities, including oil and gas, has returned with a vengeance.
Even in the unlikely event of a near-term resolution to this crisis, the die has been cast; and actions, particularly by European countries, are already underway to move away from Russian oil and gas and secure more reliable supply from the Middle East and the US. And here at home, these events are only adding to an inflationary environment that has once again put the energy on center stage; inflation that impacts every American family. It has underscored the need for an orderly energy transition that includes oil and gas as part of an all-of-the-above strategy, and has recalibrated global views as to the current and ongoing role of US oil and gas in the world economy.
- Lee M. Tillman – Marathon Oil Corp., Chairman, President & Chief Executive Officer
Question – Mircea Dobre: Okay. And then my follow-up, I’m curious, as you’re looking at your international business, maybe Europe specifically, are you sort of seeing any change in the pace of business, customer confidence or whatever you want to call it as a result of this situation in Russia and Ukraine? How did April progress for you maybe relative to March, if you can comment on that? Thanks.
Well, on EMEA, I would say – again, it’s Tom. It’s probably too soon to know for sure how the whole Russia-Ukraine process is going to play through. Obviously, Russia – and our hearts go out to the Ukrainian people and we’ve done an awful lot of our philanthropic work has been to help all the people that were involved there. But it’s small sales for us. It’s immaterial from a – obviously, the human toll is huge. The sales toll is immaterial.
But our orders for – if I look at Q3 versus Q2, were roughly the same. They were in the low teens. I’m talking about EMEA. We do forecast sales – sales, you break out the international piece in EMEA was 13% for Q3. We are forecasting it to soften in Q4 to 5%.
So, we do anticipate some moderation there. Some of it is comp, some of it is based on what we’re seeing with the orders, and that’s all baked into our guide. I mean, I think to fully understand what the second derivative is of all the Ukrainian war, I think we’re going to need more time to see how that plays through.
- Thomas L. Williams – Parker-Hannifin Corp., Chairman & Chief Executive Officer
The biggest factor outside of our control is changes in global supply and demand. At the end of 2021, global light product inventories were already tight. Sanctions and boycotts, following the Russian invasion of Ukraine, have increased supply uncertainties. Product margins have risen to cover the higher cost structure of marginal supply, particularly in European regions where there’s a high reliance on Russian natural gas.
We expect continued volatility in 2022 with an advantage for safe, reliable and low-cost operators. We are focused on optimizing our maintenance schedules to maximize uptime and allow us to do what we can to produce volumes to meet the market demand. As we do this, we remain steadfast in our commitment to safely operate our assets, protect the health and safety of our employees and support the communities in which we operate.
- Michael J. Hennigan – Marathon Petroleum Corp., President, Chief Executive Officer & Director
Before I review FMC’s full year 2022 and Q2 earnings outlook, let me share our view of the overall market conditions. We continue to expect the global crop protection market will be up low- to mid-single digit percent on a US dollar basis. Breaking this down by region, we expect Latin America, North America and Asia to be up mid-single digits, while EMEA is now expected to be down low-single digit. The war in Ukraine may further reduce market growth in the EMEA region. Commodity prices for many of the major crops remain elevated and stock to use ratios are near historical lows, creating a favorable backdrop for crop protection products. FX is projected to be a headwind for EMEA and Asia markets on a US dollar basis.
- Mark A. Douglas – FMC Corp., President, Chief Executive Officer & Director
Recent volatility has increased due to several factors surrounding production, including the impact on global food supply from Russia’s war on Ukraine. This region is vital to providing grain and oilseeds to the world, including countries where food security is critical, leading to further pressure on an already tight global food system. Corteva recently announced our decision to exit Russian operations while also committing to donate commercial seed to countries affected by these issues to help ease food security risk.
- Charles V. Magro – Corteva, Inc., Chief Executive Officer & Director
Facing a competitive labor market, companies are frequently being asked about their efforts in hiring and onboarding new employees, while maintaining a culture that promotes retention.
Question – Thomas G. Allen: Perfect. And then just lastly on the brick and mortar business, what are you seeing in terms of labor availability, your competitors increasing marketing? Any other kind of cost changes – big cost changes you’re seeing that you want to call out?
Labor is still tight. It’s gotten better. Obviously, we talked about how – Anthony talked about how we were able to remove our caps as we ended first quarter. That was as a result of a lot of hiring effort and activity so we’re feeling better. Labor costs are higher, but nothing that’s a considerable drag on the organization as you know gaming taxes is our number one expense category and thankfully those don’t inflate. And if they do, it’s because you’re getting more gaming revenue and getting increase on a percentage of revenue basis, so we feel while there are pressures, the strength in the underlying customer activity strength is swamping anything that we see on the cost side.
- Thomas R. Reeg – Caesars Entertainment, Inc., Chief Executive Officer & Director
Question – A.J. Rice: Okay. Just a brief follow-up. You haven’t been asked this late in the call – it’s sort of surprising – on inflation, supply chain, labor. Any updated thoughts on any of that?
And, A.J., on your labor question, obviously, we continue like everyone else to experience a very tight labor market, but as I mentioned in the prepared remarks when we’re closing stores we’ve been able to retain those Retail colleagues, which has been really helping us out in those locations. We also had very strong retention across our business, and we’ve been very successful in hiring some of the key areas that in our company like digital and tech and analytics, so – and the other thing I would just say is we’re very pleased that more than half of our hires are diverse and are reflecting the communities that we serve.
- Karen S. Lynch – CVS Health Corp., President, Chief Executive Officer & Director
Question – Alex Zukin: Hey, guys. Thanks for taking the question. So maybe just the first one, Chad, given this is probably one of the largest beats I think you’ve had in a Q1 and I think one of the largest raises you’ve had, a lot of the questions we get, to kind of Raimo’s first question, is around how to think about your business in terms of recession resiliency or recession exposure. You’ve run this company for a long time through many economic cycles, and this one seems a little different given the difficult hiring environment that most of your customers are experiencing. So just maybe comment on what’s driving your incremental level of confidence in the face of some of these macro issues, and I have a quick follow-up.
I think tight labor markets, they do a couple of things. One thing it does is you have to do more with less. And one way to do more with less is have the right technology that you’re deploying for everyone. If you’re in a business that moves pipe around, not everybody drives the forklift, but everybody does use the app. So with our system, you’re able to really impact the entire company. And to some extent, it gets more difficult to hire back office people as well. And so we’re able to make that make that impact. So I think from that perspective, it’s helpful. It’s always a good time to automate and become more efficient for any business. And I think that when you run through markets like this, it forces people. In good times you don’t necessarily see what’s going wrong, and in times that get a little bit tougher it forces you to make those changes within your business. That creates efficiency through automation, and that’s where we come in. So provided again that we’re not having massive unemployment shifts, I believe we’re in really good shape as we move throughout this year.
- Chad R. Richison – Paycom Software, Inc., Chairman, President & Chief Executive Officer
First, Bio-Techne was selected as one of 500 midsize companies on the Forbes 2022 list of America’s Best Employers. Additionally, we were included on the Forbes 2022 list of Best Employers for Diversity. These awards are a testament to the epic culture and workplace we’ve built at Bio-Techne, and I am proud of the team for these achievements.
Awards and recognition like these, as well as targeted employee recruitment and retention strategies are fortifying our efforts to build the team necessary to support our future growth plans.
I am pleased to report that we filled several key positions in the company during the quarter, including key business, technical, operational and commercial roles. We are still behind our original hiring plan for the year, but I’m encouraged with the progress we made in the quarter.
- Charles R. Kummeth – Bio-Techne Corp., President, Chief Executive Officer & Director
While industry staffing challenges persist, primarily in certain US markets, we’ve made great progress since last summer in successfully hiring for open positions. As always, we’re keeping a close eye on wage and benefit inflation, but we’re optimistic that our cost reduction efforts could mitigate inflation in future years.
- Kathleen K. Oberg – Marriott International, Inc., Chief Financial Officer & Executive Vice President, Business Operations
Thanks for reading this issue of the Earnings Recap blog for the Q1’22 Earnings season. Stay tuned for our trending topics recap next week!
Reference – in case you’re interested, please feel free to review the prior versions of this blog: