Opportunity Equity Weekly Updates

August 10, 2020

Opportunity Equity Update for Week Ended 8/7/20

ADT Gains on Google Partnership While Bausch Falls on Separation Announcement

Last week, the Opportunity Equity strategy gained 6.90%, outperforming the S&P 500’s 2.49% gain (Exhibit 1). The strategy ended the week up 5.75% YTD, or 82 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 8/7/201

Time Period Opportunity Equity S&P 500
Last Week (7/31 – 8/7) 6.90% 2.49%
MTD 6.90% 2.49%
QTD 17.34% 8.27%
YTD 5.75% 4.93%
Inception (annualized since 6/26/00) 7.54% 6.30%

Source: Bloomberg, Miller Value Partners

ADT Inc. (ADT) gained over the week after announcing a new partnership with Google as well as an equity investment by Google of ~6.6% of shares outstanding. Later in the week, the company announced 2Q results with revenues of $1.33B ahead of consensus of $1.25B with EBITDA of $563M vs. $516M expected and adjusted FCF of $232M. The company updated full year guidance to revenue of $5.05-5.3B from $5-5.3B, adjusted EBITDA of $2.1-2.2B up from $2.075-2.175B and FCF of $625-725M from $600-700M. Tivity Health Inc. (TVTY) crossed above the 200-day moving average after announcing 2Q results that beat expectations. The company reported revenues of $262.6M ahead of consensus of $225.7M with adjusted EBITDA of $74.8 more than double expectations for $36M leading to EPS of $0.79 vs. $0.07 estimated. The beat was the result of consistent PMPM fee payments without the variable expense of gym visits. The nutrition segment also showed good momentum. Quotient Technology Inc. (QUOT) crossed above the 200-day moving average. The company reported 2Q revenues of $83.5M slightly below expectations of $86M with EBITDA of $4.4M beating consensus of $1.7M but missing EPS of -$0.21 vs -$0.12 expected. The company guided for 3Q20 revenue of $120-130M in-line with the Street at $123.7M with full year guidance of $430-450M from $430-470M. DXC Technology Company (DXC) gained after reporting solid FY21 1Q results. The company reported revenues of $4.502B ahead of the Street at $4.324B with adjusted EBIT margins coming in at 4.2% vs. 3.7% expected leading to adjusted EPS of $0.21 vs. expectations for $0.12. The company guided for 2Q revenues of $4.4-4.45B with EBIT margins of 5-5.5% and adjusted EPS of $0.30.35 vs. $0.65 expected. The company reiterated that it expects to close the sale of its US State & Local HHS business by the end of 2QFY21 for ~$5B and they reached an agreement to sell its healthcare software business for ~$525M. There was minimal news on Farfetch Ltd. (FTCH).

Exhibit 2: Significant Contributors to Performance, 7/31/20 – 8/7/20

Name Type Return
ADT Inc. Equity 41.7%
Farfetch Ltd Equity 6.2%
Tivity Health Inc. Equity 24.3%
Quotient Technology Inc. Equity 16.2%
DXC Technology Company Equity 10.9%

Source: Miller Value Partners

Flexion Therapeutics (FLXN) crossed below the 50-day moving average. The company announced 2Q results that were in-line with their preannounced numbers. 2Q20 net sales of $15.4M was above consensus of $10M. The company plans to recommence manufacturing of Zilretta in 4Q20. The company now expects total operating expenses for 2020 will be between $172-182M up slightly from $167-177M. Medifast Inc. (MED) reported strong 2Q results. The company reported revenue of $220M vs consensus of $191.7M with a record number of active coaches at 36,500 while productivity per active coach improved with revenue per active coach reaching $5,851. The company reported EBITDA of $32.5M vs. $30.2M and adjusted EPS of $1.96 vs. $1.83 expected. Bausch Health Companies (BHC) fell over the week after reporting results that were below expectations and announcing their intention to separate its B&L eye care division from the traditional pharma business. The company reported revenue of $1.66B vs. $1.79B expected with EBITDA of $622M vs. $741M. The company narrowed its 2020 guidance to revenue of $7.8-8B (down $200M at the high end) and EBITDA of $3.15-3.3B (down $50M at the high end). There was minimal news on Taylor Morrison Home Corp. (TMHC) and Workday Inc. (WDAY).

Exhibit 3: Significant Detractors from Performance, 7/31/20 – 8/7/20

Name Type Return
Flexion Therapeutics Equity -9.1%
Taylor Morrison Home Corp. Equity -1.3%
Medifast Inc. Equity -2.5%
Workday Inc. Equity -1.9%
Bausch Health Companies Equity -1.2%

Source: Miller Value Partners

1The performance figures reflect the results of a representative account net of management fee and certain other expenses. For important additional information about Opportunity Equity performance, please click on the Opportunity Equity Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

©2019 Miller Value Partners, LLC

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