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Wednesday Weakness – Selling Pressure Continues

Down and down we go

I said last week that we'd more likely to see 2,800 on the S&P before we see 3,000 but I didn't think things would fall apart so hard and fast.  Still, a correction is a correction and this one is long overdue and it's still very mild as 2,850 is only down 5% from the 3,000 line and that means we expect 30-point bounces to 2,880 (weak) and 2,910 (strong) from there so we know exactly what range to watch and, conveniently, 2,855 is now the 200-day moving average – so it's a perfect level to test to see how real this rally is.

As you can see from this S&P chart, we're moving right within the 5% Rule™ around 2,850 as we predict 30-point incriments to drive the index in either direction.  If we can stay in the top of the range and hold the 2,850 line and get back over the strong bounce line – then we're be consolidating for a move over 3,000 but anything below 2,850 and we'll have to consider another 5% drop (2,700) before this correction is over. 

We're happy either way as we've considerably lightened up our portfolios as of last month, taking 1/3 of our gains off the table in the Long-Term Portfolio and bulking up our hedges – just in case.  Having more cash on the sidelines allows us to take advantage of new trade opportunities, like yesterday's UGA spread and, in our Live Member Chat Room, we decided to buy the long July $29 calls for $2.75 as they weren't getting lower while the $32 puts were an easy sale at $2+ and we're waiting for a bounce to sell the July $32 calls for $1.70 now (to make up for the extra quarter we spent on the calls).  

The July $32 calls are now $1.15 after bottoming at $1.10 and, since we expect $1.70, that's a 0.55 (48%) gain from here so actually it's good for a long play at this point too!  We're nothing if not flexible in our outlook because we're Fundamental Investors which means we know the value of an option and, since we fell the July $32s are worth $1.70, but not more – just because we want to short them at that price doesn't mean we can't go long on them when they are far below it.  Either way, our value assessment remains the same!  

These contracts have 72 days to go and, as I noted, there are two major holiday weekends between now and then that can be beneficial for gasoline prices AND there might be a war in the Persian Gulf – also good for prices.  Lots of ways to win and it's very unusual for Gasoline (/RB) to be below $2 in the summer and now it's $1.94 (we're also long on the Futures down here).  

This morning, at 10:30, we get the EIA Petroleum Status Report, which will give us a handle on inventory levels but last night the American Petroleum Institute released the API Report, which shows a 2.8Mb build in Oil but a 2.8Mb draw in Gasoline and an 834,000 barrel draw in Distillates which is not a very bullish overall number – but it's not bearish either and that makes it hard to justify Gasoline's 0.20 (10%) drop since April 25th so we expect at least a weak bounce of 0.04, back to $1.99 but once we're there – why not test $2?  

While an escalating trade war with China MIGHT lead to lower demand for gasoline – it certainly hasn't had that effect so far and, of course, a real war in Iraq could cause gas prices to skyrocket.  Just the amount of oil it takes to get our Army, Navy and Air Force (not to mention our new Space Force!) moving is incredible.  At the height of the Iraq war, the US Army alone was burning about 1Mb/day of Gasoline and Gasoline was $5/gallon in some parts of the country while oil topped out at $140/barrel.  Trump wants to make America Great Again – no matter how much it costs you…

We'll examine the full EIA Report when it's released at 1pm this afternoon in our Live Trading Webinar, so tune in for that as we fine-tune our play but I'm loving the Gasoline (/RB) longs at the moment and the play we were making in the Futures is the July contract (/RBN19), which bottomed out at $1.91 and may still hit our lower goal of $1.90 - so see yesterday morning's PSW Report for our trading plan on that one

Remember:  I can only tell you what is likely to happen and how to profit from it – the rest is up to you.

As to the trade negotiations, China says they will be sending a trade delegation tomorrow to meet with Trump's team despite the fact that the US has accused Beijing of reneging on promises and Trump has threatened more tariffs on Friday but I suspect that China is coming over to tell Trump to F off in person – as they don't want to appear petulant and not attend a scheduled meeting – despite the insulting behavior on the part of Team Trump.  

Related imageTrump's threat to tax American's another $50Bn through tariffs if China doesn't concede to his demands is juvenile at best but more idiotic and tone deaf as a negotiating tactic with China, who like to build relationships brick by brick while the President just hit them with a wrecking ball and pushed China into a position where any concessions they give him would be rewarding this insulting behavior – it's just not going to happen.  

So strap in for more turmoil as I'll be surprised if the Chinese delegation isn't back on a plane by Friday with no deal in hand for Team Trump.  Of course they will lie (10,050 and countring) and spin it and we've already got an army of Fed speakers lined up Friday with Brainard, Bostic and Williams all speaking early in the morning, following up on Powell, Bostic and Evans tomorrow – so who knows what the markets are going to do but certainly these are going to be INTERESTING TIMES (aptly that's an old Chinese curse).  


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  1. Not posting much… In meetings all week! Trying to setup my pool boy with a new hotel!

    Good thing we moved the lines.

  2. Morning, All!

    Join in on the weekly webinar, today at 1!

  3. Good Morning!

  4. Phil, I am protecting a total of 50 apple jan 2021 and June 2021 BCS with -11 June 185 calls left over from before earnings. Seems that now might be a good time to roll. What do you think?

  5. Good morning!

    /NG flying back to $2.60 for the same no reason it went down.  $2.68 on /NGV19 is a very nice move for the day!  

    Got that DD on /RBN19 right at $1.90 so 2 @ $1.91 but back out now that we're crossing so back to 1 at $1.91.

    Even /KCZ19 is chipping in with a pop back to $95.50.

    Big Chart – We're testing those moving averages but it's the RUT that can do the most damage as it's actually death-crossing, of all things!  

    Oddly it can't be stopped as a move higher would raise the 50 dma above the 200 dma so DEATH CROSS and a move lower will drop the 50 dma below the 200 dma so DEATH CROSS.  Watch the NYSE, if it fails the 200 dma then DEATH CROSS there as well and that's all 6,000 stocks death-crossing, which would be a very clear signal to CASH OUT!!!

    AAPL/JMD – 50 long AAPL spreads and 11 short June $185s?  The June $185s are $21 ($23,100) and have no premium and yes, you caught a break on the pullback and the high VIX means the premiums on longer calls is holding up well for you to sell so great time.  Sept $200s are $15 so I'd go to 15 of those ($22,500) as an even roll and you can always sell more if AAPL fails to hold $200 and then use that as a stop on 1/2 if it comes back up.

    • Stocks start with modest losses after positive-sounding tweets from Pres. Trump lifted prices from earlier lows; Dow -0.2%, S&P -0.3%, Nasdaq -0.5%.
    • Trump tweeted that Chinese Vice Premier Liu He is coming to the U.S. to "make a deal," but the Office of the U.S. Trade Representative officially filed paperwork to raise the tariff rate on $200B of Chinese imports to 25% from 10% starting Friday.
    • "Stocks are betting on a rebound in the global economy in coming quarters [but] if we get higher tariffs this week and talks break down between the U.S. and China, you can kiss that hope for [a] global economic rebound goodbye," said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
    • European markets are mixed, with Germany's DAX +0.4%, France's CAC flat, and U.K.'s FTSE -0.2%; in Asia, Japan's Nikkei -1.5%, China's Shanghai Composite -1.1%.
    • In the U.S., the financials (-0.5%), consumer staples (-0.4%) and health care (-0.4%) sectors are the top early losers, while real estate (+0.9%) and energy (+0.2%) sectors are the only groups trading higher.
    • U.S. Treasury prices are slightly higher, pushing the two-year down 2 bps to 2.26% and the 10-year yield a basis point lower at 2.44%; U.S. Dollar Index -0.1% to 97.54.
    • U.S. WTI crude oil -0.1% to $61.36/bbl.
    • YRC Worldwide (NASDAQ:YRCW): Q1 EPS of -$1.48 may not be comparable to consensus of -$0.55.
    • Revenue of $1.18B (-2.5% Y/Y) misses by $10M.
    • Press Release
    • YRC Worldwide (NASDAQ:YRCWfalls 8.55% after the company reports Q1 revenue of $1.18B vs. $1.20B consensus and adjusted EBITDA of $30.1M vs. $36.3M consensus.
    • YRC's consolidated operating ratio was 102.7 during the quarter vs. 100.4 a year ago. The operating ratio at YRC Freight was 102.8 vs. 100.9 last year and the regional segment's operating ratio was 101.6 vs. 98.9 a year ago.
    • Previously: YRC Worldwide EPS of -$1.48 (May 8)
    • Following through on its commitment to promote lower drug costs, the Trump administration announces that pharmaceutical and biotech companies will be required to disclose prices in television commercials for medications covered by Medicare that cost more than $35 for a month's supply (meaning all new drugs).
    • HHS Secretary Alex Azar says the new standard will go into effect in 60 days.
    • No word yet from biopharma firms, but investors should expect a lack of enthusiasm from the group.
    • Digitimes sources say Intel (NASDAQ:INTC) informed its notebook clients that entry-level processors would start shipping next month.
    • The promised shipment volume suggests continuing but significantly smaller shortages.
    • Brand vendors including Dell and HP will reportedly step up orders with Intel rather than with rival AMD (NASDAQ:AMD).
    • U.S. Steel (NYSE:X-4.9% pre-market after UBS downgrades shares to Sell from Neutral with a Street-low $10 stock price target, saying near-term capital investment will not reverse market share losses in the coming years.
    • UBS says U.S. Steel is spending significantly in its asset base to remain competitive but will result in negative free cash flow over three years through 2021, and believes the investment may only modestly reduce costs, and markets for new products may not be proven.
    • UBS reduces its 2019-21 EBITDA estimates by 31% and raises capex estimates by 94% on average.
    Related image
    Related image
    • New York Times (NYSE:NYT): Q1 Non-GAAP EPS of $0.20 beats by $0.08; GAAP EPS of $0.18 beats by $0.10.
    • Revenue of $439.06M (+6.1% Y/Y) beats by $5.14M.
    • Press Release
    • Barrick Gold (NYSE:GOLD+1.1% pre-market after posting better than expected Q1 earningsand a 17% Y/Y revenue increase to $2.1B in its first quarter of operations since the acquisition of Randgold Resources.
    • Q1 gold production jumped 30% Y/Y to 1.36M oz. at all-in sustaining costs of $825/oz. vs. $804/oz. in the year-ago quarter, while copper output climbed 25% to 106M lbs. at all-in sustaining costs of $2.46/lb. vs. $2.61/lb. a year ago.
    • Barrick's average realized gold price for Q1 was $1,307/oz. from $1,332/oz. in the prior-year quarter.
    • Net cash provided by operating activities during the quarter rose to $520M from $507M a year ago; free cash flow fell to $146M from $181M in the prior-year period.
    • President and CEO Mark Bristow says the company's key operations had all performed on plan and within guidance during the quarter, with Nevada exceeding plan as the Cortez Hills open pit ramps down.
    • The company reiterates its full-year production forecast of 5.1M-5.6M oz. of gold, a Y/Y increase of at least 13%, but expects all-in sustaining costs to rise to $870-$920/oz. from $806/oz. a year ago.
    • Chesapeake Energy (NYSE:CHK-6.4% pre-market after falling short of Wall Street expectations for Q1 earnings and revenues; pre-market trading is active, with volume topping 600K shares at 7:30 a.m., MarketWatch reports.
    • CHK says total revenue fell to $2.2B from $2.52B, as revenue from natural gas and natural gas liquids tumbled to $929M from $1.24B, while marketing revenue was roughly flat at $1.23B.
    • Q1 daily production fell 12% Y/Y to 484K boe/day from 554K boe/day in the year-ago quarter; oil production represented 22% of the company's Q1 aggregate production vs. 17% a year ago.
    • CHK says its operating margin increased significantly in Q1, driven primarily by a higher oil production mix and an $18/boe reduction in cash operating expenses.
    • Q1 capex totaled $559M, compared to $543M in the year-ago quarter, largely attributable to a higher average rig count.
    • CHK's debt outstanding jumped to nearly $10B from $8.1B at year-end 2018, largely due to $1.375B in debt assumed as part of the WildHorse acquisition.
    • MBA Mortgage Applications
    • Composite Index: +2.7% vs. -4.3% (W/W).
    • Purchase Index: +4.0% vs. -4.0%.
    • Refinance Index: +1.0% vs. -5.0%.
    • 30 year mortgage rate at 4.41% vs. 4.42%.
    • Pound traders are on edge with Theresa May's future hanging in the balance as Brexit-supporting members of the 1922 Committee believe they are close to securing enough support for another attempt to oust her.
    • May is currently protected by guidelines that say she cannot face another challenge from Tory MPs within 12 months of the previous no-confidence vote, which she won in December, but more members of the committee are considering backing a rule change if she doesn't commit to setting out a timetable for her departure.
    • FTSE -0.2%; Sterling -0.2% to $1.3048.
    • Tensions between drivers and ride-hailing companies are flaring again, as Uber (UBER) drivers in major cities across the U.S. and the U.K. plan to strike today over low wages and unstable working conditions.
    • Uber, which prices its IPO tomorrow, has steadfastly beaten back attempts to compel it to treat drivers as employees, arguing that its main business is a platform that brings riders and drivers together.
    • The money-losing company is also under pressure to cut costs
    • Lyft (NASDAQ:LYFT) will soon begin offering rides from self-driving cars operated by Waymo (GOOGGOOGL) in suburban Phoenix, in what would be one of the bigger commercial deployments of robo taxis so far.
    • The tie-up is the latest example of how tech companies and automakers developing the technology are increasingly turning to each other to help defray costs or expand their offerings.
    • General Motors' self-driving division, GM Cruise, on Tuesday announced it raised an additional $1.2B, including from investors Honda, SoftBank and T. Rowe Price Associates
    • A year after the U.S. pulled out of the Iran nuclear accord, Tehran declared it's no longer committed to parts of the deal.
    • President Hassan Rouhani said the remaining signatories – the U.K., France, Germany, China and Russia – had 60 days to implement their promises to protect Iran's oil and banking sectors, giving them a choice of following President Trump or engaging with the Islamic Republic in violation of American sanctions.
    • Iran will also begin to build up its stockpiles of low enriched uranium and heavy water, and threatened to resume construction of the Arak nuclear reactor.
    • Alibaba (NYSE:BABA) will change up its AliExpress model, allowing for retailers outside Chinato sell products on its platform, the Financial Times reports.
    • That's seen as a move squaring off with (NASDAQ:AMZN) in global markets.
    • The report says the company has started opening its platform to SME vendors in Russia, Turkey, Italy and Spain, according to company executives, and it will roll that further out worldwide.

  6. Oil down 4M, much better than API, that sent things a bit higher.

    • EIA Petroleum Inventories: Crude -4.0M barrels vs. +1.2M consensus, +9.9M last week.
    • Gasoline -0.6M barrels vs. -0.4M consensus, +0.9M last week.
    • Distillates -0.2M barrels vs. -1.1M consensus, -1.3M last week.
    • Futures +0.24% to $61.55.

    Not very exciting but supportive off the lows.  

    Got /NG over the hump at $2.60! 

  7. VW’s Tesla Attack Gets Real as Electric-Car Sales Begin

  8. Analysis | More than 228,000 students have experienced gun violence at school since Columbine

  9. US is hotbed of climate change denial, major global survey finds

  10. Phil,

    Now that $1.90 is unlikely on /RB, where do we get in?

  11. /RB/Japar – Well, that's what we discussed yesterday and today:

    Speaking of which, front-month Gasoline (/RB)Futures fell to $1.95 this morning and it's sent the July contract (/RBN19) down to $1.92, which is a great floor to play off as it covers two holiday weekend but keep in mind that Gasoline contracts are $420 PER PENNY, so they can be very painful if you get them wrong but we're looking for a pop to $1.95 for over $1,000 per contract in profit and the way I would play this one is to go long one at $1.92 and then double down at $1.90 (if it keeps falling)to average $1.91 on two contracts and then put a stop below $1.90 for about a $1,000 loss but re-enter on any cross back over $1.90.

    May 7th, 2019 at 9:31 am | (Unlocked) | Permalink |

    And I'm liking /RBN19 at $1.92 as well – seems like an over-reaction to me and, even if it's not, it's the 2.5% line so expect a good penny bounce, even if it's just weak.

    May 7th, 2019 at 10:05 am | (Unlocked) | Permalink

    Yikes, /RB hitting $1.91 but the good news is we're going to fill our spread. 


    Got that DD on /RBN19 right at $1.90 so 2 @ $1.91 but back out now that we're crossing so back to 1 at $1.91.

    Not sure how I could have made a bigger deal of this over the past two days.  Yesterday's 9:31 note was sent out as an Alert to Members.

    Seems like now the WH is saying China is coming to make a deal tomorrow so we're rebounding on that.

  12. Took the /NG money and ran at $2.69 (/NGV19) didn't want to blow $1,800 gain on the day.

  13. Not so fast !

    S&P ticking lower following report suggesting China might propose countermeasures to any increase in tariffs.


    Definitely a headline driven market.

  14. LOL – How silly.  The silliest thing is believing anything the WH says…

  15. The bots must be having a field day.

  16. Back to really low volume and it's Webinar Time!

  17.  Trump just announced sanctions on Iran on iron and steel aluminum and copper.     All a big money grab as far as I can tell. 

  18. Phil,

    You were very clear on your /RB play. My question was if we missed that entry is there another point to enter or is it best not to play? What’s your target for /RB by Memorial Day?

  19. /RB/Japar – Well that's a different question.  Now we're coming into the weekend so not a good time to play but hopefully, Monday or Tuesday, they'll be back in the low $1.90s and our target for July is $2.10 and I'm fairly sure over $5 at the end of the month, which is why we're using the /RBN19s.  If we get to next week and $1.95 keeps holding AND the conditions seem bullish, THEN we might start using that as a line but, for me, now my attention is on /KCZ19, which is right near the 94 line, where I can DD to average $95 at $375/$1 per contract and I don't see any reason I can't get $105 out of that for $3,750 per contract or, if we're lucky $115 for $7,500 per contract.

    The point is, /RB went low and my fallback position was the holidays were coming so it made for a good percentage entry – even if it did go against me but I just made a .03, which is a lot on /RB and $1.94 is WAY less attractive than $1.91 was – so I'm not all that interested in /RB anymore unless it gets cheaper again.  

    I'm not paid to be a gasoline trader, there are lots of things to trade so I look to trade the thing that seems to have the best chance of winning rather than force myself to get back in on /RB.  THAT is why my calls have a high winning percentage – I only play when the odds are greatly in my favor.

  20. Phil thoughts on BYND? 

  21. BYND Nov $70 puts $23

  22. Even in a full-scale trade war, China is not going away—and it's not going to stop being the world's No. 2 economy

    Asia stocks resume slide following through soft US session as tariff worries linger. China's Liu He and US's Lighthizer will only have a few hours together Thu night to de-escalate trade tensions before tariffs are hiked on Fri morning. US 10y yield holds at 2.46%. Gold near 1.3k

    The confrontation between the U.S. & China has already widened beyond the point that a trade agreement can easily resolve. U.S. companies are rethinking their reliance on China for manufacturing. Chinese investment in the U.S. sank 60% in 2018.

    Farmers are "losing their patience" with Trump over China trade deal, GOP Senator Pat Roberts says: “There’s a lot of feeling in farm country we’re being used as pawns in this whole business”

    China has vowed to retaliate if the US proceeds with higher import tariffs later this week, saying a move by Washington to raise levies on $200bn of Chinese goods from 10% to 25% would not be in the 'interests' of the two countries — or the world.

    Replying to 

    First you say U.S. China trade talks going well. Then you threaten to increase import tariff to 25% on ALL Chinese goods. Now affer 3 days of global markets crashing you say China is coming to the U.S. to make a deal ! Someone somewhere in the know is making tons of money !

    Sources said President Xi Jinping earlier vetoed extra concessions proposed by his negotiators. “Xi told them ‘I’ll be responsible for all possible consequences’,” one of the sources said.

    Chinese negotiators subsequently presented a tougher proposal to Washington, although it is not clear if they pitched an amended proposal to Xi after the latest round of talks in Beijing last week.

    “The latest Politburo meeting did not focus on economic stabilisation as it had done in February. Leaders may feel the impact of tariffs on China’s economy is not as grave as expected,” Chen said.

    In a research note, Simon Evenett, a visiting professor with Johns Hopkins University, and Gary Hufbauer from the Peterson Institute for International Economics, said that “seen from Beijing’s viewpoint, the downside from a failed deal and higher US tariffs is diminished now that Chinese stimulus plans are in place”.

    “If China meets US demands on structural changes and an enforcement mechanism, it will be a humiliation for Chinese when nationalism is on the rise at home. This is unacceptable for the Chinese leaders,” Chen said.

    BYND/Coulter – I think it's a great space but the company is too high now.  At $25 I would have liked them but not $72.  

  23. STJ, did you sell some VXX calls yesterday?  It may be beneficial if we trade notes on our trading plan.  As a reminder, I setup a new portfolio, invested in T-Bills, that I'm going to use to short volatility when it spikes.  I figured out what I think is a conservative trading plan based on various levels of the VIX.  Let me know if you are interested in sharing notes.  Maybe on email so we don't clutter chat.  

  24. Palotay and STJ, I would be interested in participating in your vxx discussions.  I have looked at selling calls on spikes before on /vx or vix options but could never find the right recipe.  Thanks guys.

  25. VXX / Palotay – It's a matter of fact, I did sell a couple of December 45 calls to stake a new position yesterday. I am quite busy with meetings all day but I even had an order to sell some December 50 if they hit $3.50 today which they didn't…

    I'll be OK to trade notes. My idea is to recap all my trades at the end of the year and draw some lessons. I am not sure yet on the strategy that works best – when is best to enter (size of VIX spikes), what size and all. Hopefully I have enough data points by December. Right now my main issue is that it's decaying faster than I like.

  26. Phil; please look at STMP.  Getting killed after hours.  LTP position is 2021 80 Puts (collected $20).  Thanks

  27. Wow, losing 45% after hours… Not good.

  28. STMP/Options – Well, we knew they lost their USPS contract but we thought the worst was over but now they guided down to under $4/share and, since there’s no indication of where growth can come from, 10x $4 is $40.  Luckily, we only sold 5 and we’re in for net $60 and down $7,500 and there’s not much sense in rolling until 2022s come out – unless the premium is really good.  

  29. Good morning! 

    We're off the lows but still down 0.666% – maybe some kind of sign…

    I went back to see what we were thinking with STMP:

    Submitted on 2019/02/25 at 11:45 am

    STMP/Tangled – I don't get it (their whole model) but they have great growth and nice profits.  Frankly it's always seemed silly to me as I thought mail was a dying thing but I guess companies still do plenty of it and their foray into shipping seems to be paying off.  They dropped like a rock after terminating their exclusive deal with the USPS after the post office refused to pay more for exclusivity, which the company thinks has been holding them back.


    I don't follow them closely enough but I'd say the price drop reflects the business they'll lose from USPS and it's going to take them a while to get it back using a mix of carriers.  On the bright side, due to the recent volatility, you can sell the 2021 $80 puts for $19.80 so, I would just do that and net in at $60.20 while they are rebuilding or be THRILLED with keeping the $19.80 if things go well. In fact, let's sell 5 of those ($9,900) in the LTP as the margin is only $4,808 – so a very efficient way to make $9,900!  

    Now it's $45!  

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 2019E 2020E CAGR / Avg
    Revenue $m 127.8 147.3 214 364.3 468.7 586.9 554.8 632.7 +35.6%
    Operating Profit $m 34.1 23.8 -5.32 120.2 163.5 194.4     +41.6%
    Net Profit $m 44.2 36.9 -4.20 75.2 150.6 168.6 103.7 116.9 +30.7%
    EPS Reported $ 2.71 2.25 -0.26 4.12 8.90 8.99     +27.1%
    EPS Normalised $ 2.71 2.58 1.96 4.12 8.90 8.99 5.43 7.21 +27.1%
    EPS Growth % +18.0 -4.7 -23.9 +110 +115.9 +1.0 -39.6 +32.7  
    PE Ratio x           9.31 15.4 11.6  
    PEG x           n/a 0.47 n/a

    $45 is about $750M in market cap and they are guiding Revenue down to $520M with profits just under $100M so I don't see any reason to dump them – especially as there's nothing new here (in fact they beat expectations) other than the guide down.  In fact, we'll give the downgrade police a chance to attack but then I think we'll add a bull call spread if the numbers are good.

    From the CC:

    We also continue to make strides in our diversification for our carrier relationships and with international post including Royal Mail, French Post and Australia Post and non-traditional carriers and with our Global Advantage Program. Our financial results for the first quarter were in line with our expectations in light of our new strategic direction that we outlined in detail on last quarter’s earnings call.

    Our goal is to position this company for the best long-term outcome, as all of these trends play out and any changes to the reseller industry are going to just accelerate our plans to diversify our business. We have amassed a significant number of assets in worldwide e-commerce shipping that put us in a great position to succeed, as all of these rapidly changing global shipping trends unfold.

    Worldwide volume of shipping done by our customers is over $11 billion. We are currently by far the largest shipping partner of the USPS with the $5.5 billion in packages that we generate for the USPS, which represents over 35% of the US domestic priority mail packages. We also have significant strengthen in our partnership network worldwide with over 450 partnerships, where our solutions are embedded into or integrated with those partners software solutions.

    Total revenue was $136.0 million in Q1 that was up 2% year-over-year versus Q1 of 2018. Total revenue excluding MetaPack was $122.9 million in Q1 that was down 8% year-over-year versus Q1 of 2018. The growth in revenue in the first quarter was driven by inclusion of MetaPack revenue and by growth in our Global Advantage Program and offset by the elimination of USPS commission revenue.

    Q1 2019 was negatively impacted by an increase in our estimated effective tax rate for 2019 from our previously estimated 30% to our now revised estimate of 40%. The increase in our revised estimate – estimated effective tax rate was primarily driven by an increase in projected non-deductible expenses related to executive compensation, which now includes additional executives were previously excluded, coupled with the reduction in projected pre-tax book income.

    There was an impact on our paid customer metric numbers, our churn rate and our ARPU metrics for the first quarter that resulted directly from our decision we made earlier this year to discontinue our exclusive revenue share relationship with the USPS.

    While we are ongoing negotiations with uncertain outcomes and we have limited visibility given that the negotiations are being conducted between the USPS and our reseller integration partners, we believe it is reasonably possible for the margins associated and earned by the resellers as a result of these negotiations will begin to decrease around the second half of 2019.

    We have therefore reduced our 2019 guidance to reflect this potential reduction as we currently understand it. We expect fiscal 2019 revenue to be in a range of $510 million to $560 million, which compares to our previous guidance of $540 million to $570 million. With the elimination of USPS commission revenue and now we expect a decrease in revenue earned through reseller revenue sharing arrangements, our shipping related revenue is expected to continue to decline year-over-year. We expect mailing shipping revenue to derive from our SOHO mailers to be approximately flat year-over-year and we expect our customized postage revenue to be down 30% to 40% year-over-year.

    We expect operating expenses to increase in 2019, reflecting the strategic investments we made in 2018 and the additional investments we anticipate making in 2019, as well as the inclusion of MetaPack in our financials. We would also expect to see the impact of these investments to be front-loaded, given the effect of 2018 headcount investments and MetaPack’s operating expenses impact in 2019, while the effect of additional investments in 2019 will occur throughout the year.

    We expect fiscal 2019 adjusted EBITDA to be in the range of $110 million to $150 million, which compares to previous guidance of $145 million, to $155 million. Our revised guidance implies a full year adjusted EBITDA margin in the low to mid 20%, based on all the aforementioned factors affecting our business.

    Now as the USPS appears to be changing its approach to shipping, we have discontinued our exclusivity with them, we have shifted our focus to our new global multi-carrier strategy. Every time we made a major strategy shift in the past 20 years, we faced short-term challenges as we moved into a new direction, but in the long run all the changes were necessary so that we could continue to thrive as the complex and dynamic mailing and shipping industry has changed.

    We’ve built an extraordinary company with incredible assets and amazing workforce, we’re exceptionally well positioned to continue to drive our organization in this new direction. We’re confident we will become the global leader in multi-carrier e-commence shipping.

    You can imagine how other carriers have seen that as a very, very attractive thing to potentially get onto their side and so we’ve been in lots of conversations and with lots of carriers and there’s lots of interest in either adding new partnerships or enhancing existing partnerships with carriers. So it’s only been a short period of time that was two months ago. So these conversations take time to play out, but we’re very optimistic that we’ll submit cement new carrier partnerships and basically put those building blocks in place as we change our direction, our strategy.

    As we mentioned, there’s a lot of uncertainty there, right. And a lot of opacity for us and they are subject to ongoing negotiations. So it is quite uncertain what the impact financially will be in terms of precise numbers and hits for 2020 and 2021, but we want to make sure people understood that based on what we know to date, there would be further reductions, not a termination of the program but reductions in 2021 and as we get more information we will of course provide additional color. And obviously, at 2019, at the end of 2019, we will guidance for 2020, but as of right now, we want to just make sure people understood that as it stands currently we would expect further declines in 2020 and 2021.

  30. CTL

    Bought a bunch of CTL 2021 $10 calls for 2.10-2.13.

    Company reiterated 2019 guidance.  Looking at strategic alternatives such as spinning off wireline into separate company.

    Think the market is seriously mis-pricing this stock.  We'll see.