NORWEGIAN CRUISE LINE HLDGS NCLH
October 19, 2016 - 6:15pm EST by
natey1015
2016 2017
Price: 38.11 EPS 3.39 3.92
Shares Out. (in M): 227 P/E 11.2 9.7
Market Cap (in $M): 8,655 P/FCF 11.2 9.7
Net Debt (in $M): 6,415 EBIT 0 0
TEV ($): 15,070 TEV/EBIT 0 0

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  • Cruises
  • Norway

Description

Description:

Norwegian Cruise Line Holdings (NCLH) is the third largest publicly traded cruise line by market capitalization in the United States. The Company operates three distinct brands: Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises. Oceania and Regent were acquired when their parent company, Prestige Cruises International, was purchased by NCLH in 2014. Together, these brands skew toward the upper end of the contemporary (Norwegian), premium (Oceania), and luxury markets (Regent), making NCLH uniquely positioned relative to its competitors, Carnival (CCL) and Royal Caribbean (RCL), whose fleets are heavily concentrated in the contemporary segment. NCLH currently operates 24 ships with 46,500 berths. The company offers itineraries to more than 510 destinations worldwide.

 

Investment Thesis:

The cruise industry is currently out-of-favor. CCL, RCL, and NCLH all trade near 52-week lows. The average/median stock is down 25%+ with NCLH being hit the most, down ~35% year-to-date. Concerns over capacity growth, Chinese demand, pricing weakness in Europe, Zika, and rising oil prices have all weighed on the industry and contributed to the recent sell-off. Yet despite these concerns, I believe that NCLH remains an attractive investment opportunity given its ability to continue to earn incremental ROIC in excess of its cost of capital, its disciplined fleet expansion and its attractive current valuation (under 10x forward P/E vs. 10-year average of ~14x for peers CCL and RCL).

Boosting my confidence in NCLH is the fact that the cruise industry is relatively straight forward to model because of the visibility into future capacity. It takes between 3-4 years for a new ship to be constructed and there are only three major shipyards (Meyer Werft, STX France, and Fincantieri), which places a cap on future capacity growth. Together these shipyards have a maximum capacity of 12 ships per annum. With future volume growth given (while exact timing can vary), to model NCLH one primarily needs to make assumptions regarding pricing and expenses. Based on my analysis, even if pricing were to remain flat (historically it has grown 3%-4%), NCLH should be able to exceed FY 2017 current consensus estimates of $3.92 per share and ultimately earn ~$5.00 per share in 2019 (barring any major exogenous event and/or global recession). 

 

Industry Analysis: Relative to other industries, the attractiveness of the cruise industry is above average. From a financial perspective, cruise operators typically pay almost no taxes, have sustainably low cost of capital and collect cash upfront from bookings, which helps with general liquidity and free cash flow.

Low taxes: NCLH qualifies for the benefits afforded under Section 883 of the U.S. Tax Code, “Exemption of International Shipping Income”. NCLH is incorporated in a qualified foreign country (Bermuda) and more than 50% of the value of its stock is owned by qualified shareholders. Therefore, the Company meets the relevant tests under the tax code.

Low cost of capital: cruise operators typically use export credit agencies (ECA) to line up financing for new builds. Before a new ship is ordered, operators usually get an 80% financing commitment from an ECA. In terms of payment timing, approximately 80% of the total purchase price is due at delivery.

Upfront collections: Operators typically try to (and do) book cruises at least six months in advance of the actual departure date. This helps not only from a pricing perspective, but also from a cash flow perspective.

Complementing the cruise industry’s durable financial advantages are strong secular trends. Cruising has been the fastest-growing category in the leisure travel market for many years. Growth in passengers carried has compounded at 5.1% per annum over the last decade. Looking forward, operators should continue to benefit from demographic tailwinds (particularly the baby-boomers), growth in Chinese demand from nascent levels, constrained capacity and the value proposition of cruising over land-based vacations.

Demographics: ~52% of North American (NAm) cruisers are 50+ years of age. I expect the utilization from this age group to accelerate moving forward, which should benefit NCLH since its target customer is older and more wealthy.

Growth in Chinese demand: currently there are about 1M Chinese cruisers. By 2020, that number is estimated to grow to 4.5M passengers. Chinese customers spend significantly more than Americans on international cruises.

Constrained capacity growth: Historically, capacity has grown in-line with passenger growth at 5.1%. If every shipyard produces at maximum capacity (without going bankrupt or experiencing any significant delays during construction), capacity could theoretically grow at ~7%. While this unlikely to happen, even if capacity does grow too rapidly in one region, operators should act rationally and move their ships to a region where returns are more attractive.

Value proposition of cruising over land-based vacations: cruising allows passengers to “sample” a number of different destinations within a short time span at a comparatively low cost. According to industry publications, it’s not unusual for cruisers to subsequently plan a land-based vacation at one of the sites they visited on their cruise. The main factors influencing an individual’s decision to cruise, ranked in order of importance, are as follows: 1) cost; 2) destination; 3) overall experience; 4) the ship itself; 5) facilities.

 

Why NCLH (over CCL/RCL):

NCLH is more attractively positioned than its competitors because its portfolio skews toward the top-end of each of the contemporary, premium, and luxury categories. As a result, NCLH is able to maintain pricing integrity and is much more recession resistant relative to its peers. For instance, CFO Wendy Beck, commented how net yields of Regent and Oceania barely dropped during the GFC. By comparison, net yields dropped (~8.2%) for Norwegian’s legacy fleet (excludes Prestige) before recovering a year later. Assuming Regent and Oceania had flattish net yields during the last recession, the weighted average net yield drop for NCLH’s current fleet mix would be ~7%, which compares extremely favorably to the net yield drop of ~14% experienced by RCL and CCL in 2008. Importantly, I estimate that even if another Great Recession type event did occur between now and 2019 (I assume this occurs in 2018 in my low case), Norwegian would still be able to earn $3.30-$3.40 per share by 2019 using similar levels of pricing recovery experienced in 2010 post the GFC. Using a below historical trailing EPS multiple of 10x, the stock would trade in the low-mid $30s, implying downside of 10%-15% from current price levels.

By making the conservative assumption that net revenue yields will remain flat through 2019 (historically they’ve grown 3%-4%), NCLH should be able to grow earnings simply by increasing capacity (new ships usually results in higher net yields, though I give NCLH no credit for this in the above figures). NCLH will be adding ~3,900 berths in 2017 when the Company introduces the Norwegian Joy, which has been designed specifically to meet Chinese consumers’ preferences. NCLH has a second-mover advantage in the Chinese market. CCL and RCL have had a presence in the Chinese market for years but have earned poor ROIC there. The reason for this, in NCLH’s view, is that the ships deployed to China by RCL and CCL weren’t tailored to the Chinese customer. NCLH has been more patient and methodical in studying the Chinese market opportunity and to help support the launch of the Joy, Norwegian added three sales offices in the Asia-Pacific region during 2015. According to management, pricing and demand for the Joy has been strong. (Note: the new sales offices could help NCLH reduce its dependency on North American sourced revenue).

In addition to the Joy, NCLH will add ~4,300 berths in 2018 and ~4,300 berths in 2019 (~8% CAGR from 2017-2019). The Breakaway Plus 3 (unnamed) is scheduled to come online in the middle of 2018 and the Breakaway Plus 4 (unnamed) is scheduled for delivery in the last quarter of 2019. NCLH’s capacity growth through 2019, coupled with rational capacity growth from RCL (5.3%) and CCL (5.1%) through 2019, should enable the company to improve its industry leading ROIC margin. Management estimates that the Company’s incremental ROIC is 20% for a new ship—I use mid-teens due to a more conservative view on pricing.

On top of the new capacity that NCLH will be rolling out, through its refurbishment program termed, “Norwegian Edge”, the Company has spent $400M renovating its legacy ships, with four more dry-docks scheduled until the program is complete (spring 2017 dry-docks: Spirit, Sky, Pearl, and Jade). Renovations include enhancements to: restaurants, bars, night clubs, casinos, pools, movie theatres, carpets, furniture and bedding, among others. The refurbishment program should allow for net yield growth and importantly, increase total capacity days (berths x avg. days per year that the ships operate) due to reduced dry-docking. (Note: dry-docking refers to the process of taking a ship out of service to complete maintenance, which can last several weeks. Ships are required by law to dry-dock every five years). The refurbishment program highlights Norwegian’s continued commitment to delivering a superior value proposition to its customers. Prior to the Norwegian Edge program, the Company already boasted the youngest fleet among its competitors. NCLH’s average fleet age is ~3 years younger than RCL and CCL.

Norwegian’s world-class fleet is accompanied by a strong balance sheet that should improve over the next few years as the Company deleverages to its target of 3x-4x adjusted EBITDA range (adj. for new build debt that doesn’t have supporting EBITDA until a ship is delivered).

 

Management: CEO Frank Del Rio has over twenty years of experience in the cruise industry. Before becoming CEO of NCLH, he held executive positions at Renaissance Cruises, Oceania Cruises, and Prestige Cruise Holdings. The incentive structure of his compensation is very much aligned with investors’ interests. For example, adjusted EPS and adjusted ROIC are the two metrics for his stock options and PSUs. The weighted-average strike price of his options is ~$59 per share, and one-third of his performance based (non-time vesting) incentive compensation is tied to the stock price hitting an average price of $100 over any 20-day period during the course of his employment. On August 31, 2016 Del Rio bought ~$3M worth of stock at an average price of $35.90. Subsequently, on September 2, 2016 VP Lindsay Robin purchased ~$430k of shares at the same price. (Note: RCL’s CEO bought ~$2M worth of RCL stock at an average price of $68.52 on August 3, 2016).

 

Inputs/Assumptions for Model/Valuation: Since Norwegian and Prestige have been consolidated for only one full year, I model the two segments separately (although NCLH reports on a consolidated basis). I believe net revenue per capacity day is approximately $195 for Norwegian and $426 for Prestige. Holding pricing flat, net revenue should be driven by new capacity and reduced dry-docking.

NCLH has hedged 82% of fuel for 2017, 55% of fuel for 2018, and 50% of fuel for 2019.

The Company has ~$200M left on its announced share repurchase program, which could take place as early as 2017.

NCLH guidance on maintenance capex is $175M-$200M per annum compared to over $400M in depreciation equal to nearly $1 per share. Thus adjusted cash EPS should be over $5.00 per share in 2017.

NCLH trades below peers RCL and CCL on a forward P/E basis despite having a younger and higher quality fleet, better pricing power and a stronger growth profile. I do not believe NCLH’s discount relative to RCL and CCL is warranted given my view that the market has overreacted to the Company’s revised guidance for FY2017. Guidance is now for EPS growth of 15%-25% or $4.08 (at the mid-point) for FY2017 (down from $5.00 previously).

Applying a 12x P/E multiple to a reasonably conservative base case for potential 2019E EPS of ~$5.00 results in a target price of ~$60 or target upside of ~60% over the next 2-3 years equating to a potential IRR of ~20%. A P/E of 12x seems reasonable given NCLH’s potential to continue to grow its EPS primarily by expanding its fleet with incremental return on invested capital in excess of its cost. At the same time, this exit multiple is a material discount to the long-term averages of ~14x that CCL and RCL have historically traded at.

 

Risks: A deep and prolonged global recession. Reduced desire to travel due to terrorism, Zika and/or other exogenous events. Also, since NCLH has a much smaller fleet of ships compared to RCL and CCL, should anything happen to one of its ships (like what happened to CCL’s Costa Concordia), it would have a much greater impact to its business compared to RCL or CCL. Lastly, Apollo owns ~15.9% of shares outstanding and any material selling could put downward pressure on the shares. Mitigating this concern is the fact that Apollo last sold shares in mid-late 2015 in the mid-high $50s (which gives some indication of what they think the business is worth).

 

Important Disclosure

The provision of this report does not constitute a recommendation to buy or sell the security discussed herein.  The report is an example of the author’s company write-ups / research process; its breadth and coverage may differ materially from other such reports.  Certain statements reflect the opinions of the author as of the date written, are forward-looking and/or based on current expectations, projections, and/or information currently available.  The author cannot assure future results and disclaims any obligation to update or alter any statistical data and/or references thereto, as well as any forward-looking statements, whether as a result of new information, future events, or otherwise. Such statements/information may not be accurate over the long-term.  The views are those of the author acting in his individual capacity and not as a representative of the firm; in no way does this report constitute investment advice on behalf of the firm.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

Continued execution of its business plans including meaningful growth in the Chinese market where industry penetration rates are a fraction of what they are in the U.S. and Europe.

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    Description

    Description:

    Norwegian Cruise Line Holdings (NCLH) is the third largest publicly traded cruise line by market capitalization in the United States. The Company operates three distinct brands: Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises. Oceania and Regent were acquired when their parent company, Prestige Cruises International, was purchased by NCLH in 2014. Together, these brands skew toward the upper end of the contemporary (Norwegian), premium (Oceania), and luxury markets (Regent), making NCLH uniquely positioned relative to its competitors, Carnival (CCL) and Royal Caribbean (RCL), whose fleets are heavily concentrated in the contemporary segment. NCLH currently operates 24 ships with 46,500 berths. The company offers itineraries to more than 510 destinations worldwide.

     

    Investment Thesis:

    The cruise industry is currently out-of-favor. CCL, RCL, and NCLH all trade near 52-week lows. The average/median stock is down 25%+ with NCLH being hit the most, down ~35% year-to-date. Concerns over capacity growth, Chinese demand, pricing weakness in Europe, Zika, and rising oil prices have all weighed on the industry and contributed to the recent sell-off. Yet despite these concerns, I believe that NCLH remains an attractive investment opportunity given its ability to continue to earn incremental ROIC in excess of its cost of capital, its disciplined fleet expansion and its attractive current valuation (under 10x forward P/E vs. 10-year average of ~14x for peers CCL and RCL).

    Boosting my confidence in NCLH is the fact that the cruise industry is relatively straight forward to model because of the visibility into future capacity. It takes between 3-4 years for a new ship to be constructed and there are only three major shipyards (Meyer Werft, STX France, and Fincantieri), which places a cap on future capacity growth. Together these shipyards have a maximum capacity of 12 ships per annum. With future volume growth given (while exact timing can vary), to model NCLH one primarily needs to make assumptions regarding pricing and expenses. Based on my analysis, even if pricing were to remain flat (historically it has grown 3%-4%), NCLH should be able to exceed FY 2017 current consensus estimates of $3.92 per share and ultimately earn ~$5.00 per share in 2019 (barring any major exogenous event and/or global recession). 

     

    Industry Analysis: Relative to other industries, the attractiveness of the cruise industry is above average. From a financial perspective, cruise operators typically pay almost no taxes, have sustainably low cost of capital and collect cash upfront from bookings, which helps with general liquidity and free cash flow.

    Low taxes: NCLH qualifies for the benefits afforded under Section 883 of the U.S. Tax Code, “Exemption of International Shipping Income”. NCLH is incorporated in a qualified foreign country (Bermuda) and more than 50% of the value of its stock is owned by qualified shareholders. Therefore, the Company meets the relevant tests under the tax code.

    Low cost of capital: cruise operators typically use export credit agencies (ECA) to line up financing for new builds. Before a new ship is ordered, operators usually get an 80% financing commitment from an ECA. In terms of payment timing, approximately 80% of the total purchase price is due at delivery.

    Upfront collections: Operators typically try to (and do) book cruises at least six months in advance of the actual departure date. This helps not only from a pricing perspective, but also from a cash flow perspective.

    Complementing the cruise industry’s durable financial advantages are strong secular trends. Cruising has been the fastest-growing category in the leisure travel market for many years. Growth in passengers carried has compounded at 5.1% per annum over the last decade. Looking forward, operators should continue to benefit from demographic tailwinds (particularly the baby-boomers), growth in Chinese demand from nascent levels, constrained capacity and the value proposition of cruising over land-based vacations.

    Demographics: ~52% of North American (NAm) cruisers are 50+ years of age. I expect the utilization from this age group to accelerate moving forward, which should benefit NCLH since its target customer is older and more wealthy.

    Growth in Chinese demand: currently there are about 1M Chinese cruisers. By 2020, that number is estimated to grow to 4.5M passengers. Chinese customers spend significantly more than Americans on international cruises.

    Constrained capacity growth: Historically, capacity has grown in-line with passenger growth at 5.1%. If every shipyard produces at maximum capacity (without going bankrupt or experiencing any significant delays during construction), capacity could theoretically grow at ~7%. While this unlikely to happen, even if capacity does grow too rapidly in one region, operators should act rationally and move their ships to a region where returns are more attractive.

    Value proposition of cruising over land-based vacations: cruising allows passengers to “sample” a number of different destinations within a short time span at a comparatively low cost. According to industry publications, it’s not unusual for cruisers to subsequently plan a land-based vacation at one of the sites they visited on their cruise. The main factors influencing an individual’s decision to cruise, ranked in order of importance, are as follows: 1) cost; 2) destination; 3) overall experience; 4) the ship itself; 5) facilities.

     

    Why NCLH (over CCL/RCL):

    NCLH is more attractively positioned than its competitors because its portfolio skews toward the top-end of each of the contemporary, premium, and luxury categories. As a result, NCLH is able to maintain pricing integrity and is much more recession resistant relative to its peers. For instance, CFO Wendy Beck, commented how net yields of Regent and Oceania barely dropped during the GFC. By comparison, net yields dropped (~8.2%) for Norwegian’s legacy fleet (excludes Prestige) before recovering a year later. Assuming Regent and Oceania had flattish net yields during the last recession, the weighted average net yield drop for NCLH’s current fleet mix would be ~7%, which compares extremely favorably to the net yield drop of ~14% experienced by RCL and CCL in 2008. Importantly, I estimate that even if another Great Recession type event did occur between now and 2019 (I assume this occurs in 2018 in my low case), Norwegian would still be able to earn $3.30-$3.40 per share by 2019 using similar levels of pricing recovery experienced in 2010 post the GFC. Using a below historical trailing EPS multiple of 10x, the stock would trade in the low-mid $30s, implying downside of 10%-15% from current price levels.

    By making the conservative assumption that net revenue yields will remain flat through 2019 (historically they’ve grown 3%-4%), NCLH should be able to grow earnings simply by increasing capacity (new ships usually results in higher net yields, though I give NCLH no credit for this in the above figures). NCLH will be adding ~3,900 berths in 2017 when the Company introduces the Norwegian Joy, which has been designed specifically to meet Chinese consumers’ preferences. NCLH has a second-mover advantage in the Chinese market. CCL and RCL have had a presence in the Chinese market for years but have earned poor ROIC there. The reason for this, in NCLH’s view, is that the ships deployed to China by RCL and CCL weren’t tailored to the Chinese customer. NCLH has been more patient and methodical in studying the Chinese market opportunity and to help support the launch of the Joy, Norwegian added three sales offices in the Asia-Pacific region during 2015. According to management, pricing and demand for the Joy has been strong. (Note: the new sales offices could help NCLH reduce its dependency on North American sourced revenue).

    In addition to the Joy, NCLH will add ~4,300 berths in 2018 and ~4,300 berths in 2019 (~8% CAGR from 2017-2019). The Breakaway Plus 3 (unnamed) is scheduled to come online in the middle of 2018 and the Breakaway Plus 4 (unnamed) is scheduled for delivery in the last quarter of 2019. NCLH’s capacity growth through 2019, coupled with rational capacity growth from RCL (5.3%) and CCL (5.1%) through 2019, should enable the company to improve its industry leading ROIC margin. Management estimates that the Company’s incremental ROIC is 20% for a new ship—I use mid-teens due to a more conservative view on pricing.

    On top of the new capacity that NCLH will be rolling out, through its refurbishment program termed, “Norwegian Edge”, the Company has spent $400M renovating its legacy ships, with four more dry-docks scheduled until the program is complete (spring 2017 dry-docks: Spirit, Sky, Pearl, and Jade). Renovations include enhancements to: restaurants, bars, night clubs, casinos, pools, movie theatres, carpets, furniture and bedding, among others. The refurbishment program should allow for net yield growth and importantly, increase total capacity days (berths x avg. days per year that the ships operate) due to reduced dry-docking. (Note: dry-docking refers to the process of taking a ship out of service to complete maintenance, which can last several weeks. Ships are required by law to dry-dock every five years). The refurbishment program highlights Norwegian’s continued commitment to delivering a superior value proposition to its customers. Prior to the Norwegian Edge program, the Company already boasted the youngest fleet among its competitors. NCLH’s average fleet age is ~3 years younger than RCL and CCL.

    Norwegian’s world-class fleet is accompanied by a strong balance sheet that should improve over the next few years as the Company deleverages to its target of 3x-4x adjusted EBITDA range (adj. for new build debt that doesn’t have supporting EBITDA until a ship is delivered).

     

    Management: CEO Frank Del Rio has over twenty years of experience in the cruise industry. Before becoming CEO of NCLH, he held executive positions at Renaissance Cruises, Oceania Cruises, and Prestige Cruise Holdings. The incentive structure of his compensation is very much aligned with investors’ interests. For example, adjusted EPS and adjusted ROIC are the two metrics for his stock options and PSUs. The weighted-average strike price of his options is ~$59 per share, and one-third of his performance based (non-time vesting) incentive compensation is tied to the stock price hitting an average price of $100 over any 20-day period during the course of his employment. On August 31, 2016 Del Rio bought ~$3M worth of stock at an average price of $35.90. Subsequently, on September 2, 2016 VP Lindsay Robin purchased ~$430k of shares at the same price. (Note: RCL’s CEO bought ~$2M worth of RCL stock at an average price of $68.52 on August 3, 2016).

     

    Inputs/Assumptions for Model/Valuation: Since Norwegian and Prestige have been consolidated for only one full year, I model the two segments separately (although NCLH reports on a consolidated basis). I believe net revenue per capacity day is approximately $195 for Norwegian and $426 for Prestige. Holding pricing flat, net revenue should be driven by new capacity and reduced dry-docking.

    NCLH has hedged 82% of fuel for 2017, 55% of fuel for 2018, and 50% of fuel for 2019.

    The Company has ~$200M left on its announced share repurchase program, which could take place as early as 2017.

    NCLH guidance on maintenance capex is $175M-$200M per annum compared to over $400M in depreciation equal to nearly $1 per share. Thus adjusted cash EPS should be over $5.00 per share in 2017.

    NCLH trades below peers RCL and CCL on a forward P/E basis despite having a younger and higher quality fleet, better pricing power and a stronger growth profile. I do not believe NCLH’s discount relative to RCL and CCL is warranted given my view that the market has overreacted to the Company’s revised guidance for FY2017. Guidance is now for EPS growth of 15%-25% or $4.08 (at the mid-point) for FY2017 (down from $5.00 previously).

    Applying a 12x P/E multiple to a reasonably conservative base case for potential 2019E EPS of ~$5.00 results in a target price of ~$60 or target upside of ~60% over the next 2-3 years equating to a potential IRR of ~20%. A P/E of 12x seems reasonable given NCLH’s potential to continue to grow its EPS primarily by expanding its fleet with incremental return on invested capital in excess of its cost. At the same time, this exit multiple is a material discount to the long-term averages of ~14x that CCL and RCL have historically traded at.

     

    Risks: A deep and prolonged global recession. Reduced desire to travel due to terrorism, Zika and/or other exogenous events. Also, since NCLH has a much smaller fleet of ships compared to RCL and CCL, should anything happen to one of its ships (like what happened to CCL’s Costa Concordia), it would have a much greater impact to its business compared to RCL or CCL. Lastly, Apollo owns ~15.9% of shares outstanding and any material selling could put downward pressure on the shares. Mitigating this concern is the fact that Apollo last sold shares in mid-late 2015 in the mid-high $50s (which gives some indication of what they think the business is worth).

     

    Important Disclosure

    The provision of this report does not constitute a recommendation to buy or sell the security discussed herein.  The report is an example of the author’s company write-ups / research process; its breadth and coverage may differ materially from other such reports.  Certain statements reflect the opinions of the author as of the date written, are forward-looking and/or based on current expectations, projections, and/or information currently available.  The author cannot assure future results and disclaims any obligation to update or alter any statistical data and/or references thereto, as well as any forward-looking statements, whether as a result of new information, future events, or otherwise. Such statements/information may not be accurate over the long-term.  The views are those of the author acting in his individual capacity and not as a representative of the firm; in no way does this report constitute investment advice on behalf of the firm.

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise do not hold a material investment in the issuer's securities.

    Catalyst

    Continued execution of its business plans including meaningful growth in the Chinese market where industry penetration rates are a fraction of what they are in the U.S. and Europe.

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