August 12, 2019

Opportunity Equity Update for Week Ended 8/9/19

Flexion Gains on 2Q Results While Quotient Falls on 2Q Earnings

Last week, the Opportunity Equity strategy lost -3.86%, underperforming the S&P 500’s -0.40% decline (Exhibit 1). The strategy ended the week up 10.49% YTD, or 735 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 8/9/191

Time Period Opportunity Equity S&P 500
Last Week (8/2 – 8/9) -3.86% -0.40%
MTD -6.50% -2.00%
QTD -4.00% -0.59%
YTD 10.49% 17.84%
Inception (annualized since 6/26/00) 6.54% 5.76%

Source: Bloomberg, Miller Value Partners

Flexion Therapeutics (FLXN) crossed above the 50-day moving average after announcing 2Q results which beat expectations. The company announced Zilretta sales of $17M ahead of consensus of $15M and maintained full year guidance for revenue of $65-80M. Out of 4,400 target accounts, 2,733 had purchased Zilretta as of 6/30 adding roughly 500 new accounts per quarter. Reorders increased to 73% from 71% in 1Q. Tivity Health Inc. (TVTY) crossed above the 50 and 100-day moving average after reporting 2Q results. The company reported healthcare revenue of $158M ahead of consensus of $154M with Nutrition revenue of $183M slightly below expectations of $186M with EPS coming in at $0.64 vs $0.66 expected. The company reduced their 2019 consolidated guidance to revenue of $1.13-1.14M from $1.15-1.18M and EPS of $2.14-2.32 from $2.24-2.52. CVS Health Corp. (CVS) gained over the week after reporting 2Q EPS of $1.89 ahead of consensus of $1.69 with revenue of $34.84B vs. $34.18B expected. The company raised full year 2019 guidance with adjusted operating income of $15.16-15.36B up from $14.97-15.18B and adjusted EPS of $6.89-7.00 up from $6.75-6.90. Lennar Corp. (LEN) crossed above the 50-day moving average. There was minimal news on Pulte Group Inc. (PHM).

Exhibit 2: Significant Contributors to Performance, 8/2/19 – 8/9/19

Name Type Return
Flexion Therapeutics Equity 23.5%
Tivity Health Inc. Equity 11.6%
CVS Health Corp Equity 6.4%
Lennar Corp Equity 4.2%
Pulte Group Inc. Equity 2.3%

Source: Miller Value Partners

Quotient Technology Inc. (QUOT) crossed below the 100-day moving average after reporting mixed 2Q results and lowered guidance. Revenue came in at $104.7M above consensus of $103.8M and EBITDA of $11.7M below the Street at $12.7M. The company lowered full year guidance to revenue of $422-432M from $460-470M and adjusted EBITDA of $42-48M below $66-71M. The decrease is the result of lower spending from three large CPG customers and delays with new products. The company announced the completion of its stock buyback program with $60.1M in buybacks. Steven Boal is returning as CEO and board member Scott Raskin was named President. Ziopharm Oncology Inc. (ZIOP) crossed below the 50-day moving average. The company reported 2Q net loss of -$14.6M versus -$13.8M expected. The company continues to make progress on all three of its development programs. The company currently has $88M in cash on hand and expects it to last them through 1H21. ADT Inc. (ADT) reported solid 2Q results with revenue of $1.284B vs. $1.247B expected with EBITDA of $630M beating consensus of $618M and EPS of $0.19 vs. $0.16. The company raised full year guidance to revenue of $5.0-5.15B from $4.90-5.10B previously and EBITDA of $2.47-2.50B from $2.46-2.50B due to commercial strength. The company increased full year expected revenue attrition to 13.1-13.4% up from 12.8-13.2% previously. Management also provided more color on the 3G conversion cost estimating it to be around $200-325M over the next three years but noting they are still working on alternatives to lower the expense. Bausch Health Companies Inc. (BHC) crossed below the 50 and 200-day moving average after reporting 2Q results. The company reported revenue of $2.15B in-line with consensus and adjusted EBITDA of $880M below consensus of $891M due to elevated selling and administrative expenses. The company raised full year guidance to revenues of $8.4-8.6B versus $8.35-8.55B previously and adjusted EBITDA of $3.425-3.575B from $3.40-3.55B previously. Endo International plc (ENDP) declined after reporting in-line 2Q results. The company reported revenue of $700M vs. $695M expected and adjusted EBITDA of $307M vs. $298M leading to EPS of $0.52 beating $0.42 expected. Management reiterated full year guidance but focus is still on ENDP’s opioid exposure.

Exhibit 3: Significant Detractors from Performance, 8/2/19 – 8/9/19

Name Type Return
Quotient Technology Inc. Equity -28.9%
Ziopharm Oncology Inc. Equity -15.1%
ADT Inc. Equity -17.4%
Bausch Health Companies Inc. Equity -5.4%
Endo International plc Equity -18.1%

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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