Revance Therapeutics Inc (RVNC) Q4 2018 Earnings Conference Call Transcript

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Revance Therapeutics Inc  (NASDAQ:RVNC)Q4 2018 Earnings Conference CallFeb. 26, 2019, 4:30 p.m. ET

Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:

Operator

Welcome to the Revance Fourth Quarter and Full Year 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded today, February 26th, 2019.

I would now like to turn the conference over to Jeanie Herbert, Senior Director of Investor Relations and Corporate Communications for Revance. Please go ahead.

Jeanie Herbert -- Senior Director of Investor Relations and Corporate Communications

Thank you, Candice. Joining us on the call today from Revance's President and Chief Executive Officer, Dan Browne; Chief Financial Officer, Toby Schilke; Chief Operating Officer, Dr. Abhay Joshi; and Head of Commercial Aesthetics & Therapeutics, Dustin Sjuts.

Earlier today, Revance released financial results for the quarter and full year ended December 31st, 2018. If you've not received the news release or if you would like to be added to the company's distribution list, you can do so on the Investor Relations page of the company's website at www.revance.com.

During this conference call, Revance management will make forward-looking statements, including statements related to Revance's 2018 financial results and 2019 guidance; clinical development of our product candidates; business strategy and planned operations; anticipated precommercial and launch plans; and potential product candidates and technologies.

These forward-looking statements are based on the company's current expectations and inherently involve significant risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements, as a result of these risks and uncertainties. Factors that could cause results to be different from these statements include factors the company describes in the section titled Risk Factors in our quarterly report on Form 10-Q for the quarter ended September 30th, 2018, as filed with the SEC on November 2nd, 2018.

Revance cautions you not to place any undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in its expectations.

I will now turn the call over to Dan Browne. Dan?

Dan Browne -- Co-Founder, President and Chief Executive Officer

Thank you, Jeanie. Good afternoon and thank you for joining our fourth quarter and year-end 2018 conference call. Our business model is to be fully integrated, premier neuromodulator provider, that can provide new solutions, the long standing unmet needs. We plan to address and expand the $4.5 billion global opportunity in both aesthetics and therapeutics.

Our DaxibotulinumtoxinA for Injection or DAXI will be the first and only next-generation premium product, which uses a proprietary peptide excipient technology to deliver unprecedented response rates and duration of effect. Revance's creating a whole new category of neuromodulator that has significant value across both aesthetic and therapeutic marketplaces. DAXI has not a need to short-acting neurotoxin.

The combination of high response rates and extended duration delivers a new user experience. In aesthetics, DAXI promises to provide safe, natural, enduring wrinkle reduction for consumers with just two treatments or less per year. In therapeutics, DAXI may improve the quality of life for patients, who suffer prolonged pain and debilitation from a variety of chronic therapeutic conditions, by providing a long-acting treatment option that results in better pharmacoeconomics.

To that end, Revance had a highly productive year in 2018. I'd like to express my gratitude that the Revance team, as we asked a lot and they worked tirelessly to deliver the SAKURA Phase 3 open-label safety study trial with exceptional results; initiate three important clinical programs to broaden our portfolio of therapeutic indications and signed two significant partnering agreements.

More specifically, in December, the SAKURA 3 results confirm the safety, efficacy and long-duration of effect for DAXI in treating glabellar lines. The SAKURA Phase 3 program represented the largest ever aesthetic neuromodulator clinical trial, which included up to three treatments and monthly follow-up conducted over a year and a half. DAXI was well tolerated and delivered unprecedented safety and efficacy across more than 3,800 treatments in total.

DAXI also recorded the highest 2-point composite efficacy response rates seen in Phase 3 glabellar trials at week-four, with high response rates carry through week-28 before patients returned to baseline. It is response rates over continuous key pre-specified time points that determines duration. That is where DAXI excelled. It's important to note DAXI demonstrated it's superiority using the most stringent FDA protocol standards. Time to loss of none or mild on the investigator scale remains the standard measure for duration, the goal post has not moved.

On the heels of our pre-BLA meeting completed in December, we believe our powerful Phase 3 clinical data along with well-established label precedence, will result in a strong and differentiated label, allowing for direct promotion of DAXI's extraordinary patient benefits in terms of safety, efficacy and duration.

In therapeutics, we initiated the ASPEN Phase 3 trial in cervical dystonia; a Phase 2 trial in planter fasciitis; and the JUNIPER Phase 2 trial in adult upper limb spasticity. All three trials are actively enrolling patients and we expect to have top line results in the second half of 2020.

We signed two significant strategic business development agreements, yielding $55 million in upfront cash payments. The first was with Mylan for potential biosimilar to the reference BOTOX. The second signed in December was within -- with Fosun Pharma, a leading biopharmaceutical company in Asia, to develop and commercialize DAXI in China in both aesthetic and therapeutic indications. The infusion of cash from these partnerships, as well as our recent stock offering, that put Revance in excellent position to execute our plans launched DAXI in aesthetics and advance our current therapeutic clinical trials.

Looking ahead, 2019 is shaping up as the year of rapid transition. We are laser focused on submitting our BLA package to FDA for DAXI, in the treatment of glabellar lines in the first half of this year, which puts us on track for a 2020 PDUFA date and launch. While other companies are trying to increase their doses of their current neuromodulators or tweak diluents to produce marginal improvements and performance. DAXI is delivering meaningfully longer duration and enhanced efficacy. And it is doing it with comparable amount of active curdorotoxin found in today's market leading short-acting products.

Our patented peptide technology stabilizes the neurotoxin molecule providing stability at room temperature for at least two years. And because DAXI is highly purified neurotoxin, it presented no immune responses in the SAKURA Phase 3 trials. Based on DAXI's highly differentiated product characteristics, our aesthetic launch will focus on four key areas; creating the long-acting neuromodulator category; redefining the value of long-lasting results; updating the treatment paradigm and resonating with today's consumer. We will continue to build our commercial team against these priorities.

Throughout 2019, Revance is planning significant podium publication and one-on-one presence in the physician community, highlighting DAXI'S unmatched efficacy and duration demonstrated in the SAKURA program. At the recent TOXIN 2019 meeting in Copenhagen, where we had two podium presentations and 11 posters. The main topic of discussion throughout the meeting hall was duration. It is the most desired attribute of a neuromodulator by physicians and patients alike.

As we look to commercial launch, we are expanding our robust clinical data package in the upper phase. Already initiating a study in forehead lines, soon to be followed by another study in crow's feet. In addition, we continue to advance our plans to fully monetize our manufacturing assets and analytic capabilities. Last week, we held the Biosimilar Initial Advisory Meeting with the FDA. At that meeting FDA provided guidance on their expectations for a development program to establish biosimilarity to BOTOX. Based on this feedback, we believe that at 351(k) pathway for the development of a biosimilar to onabotulinumtoxinA is viable. Successful completion of a biosimilar program could potentially result in approval for all 11 FDA approved BOTOX indications.

After review of the final advisory meeting, then it's expected in March, Mylan and Revance will plan to discuss the development path, timing in next steps. Revance is entering 2019 with tremendous momentum a broad neuromodulator pipeline and the capital to make it all happen, that covers the recent highlights.

Let me turn the call over to Toby to summarize our fourth quarter and year end results, then we'll have a few closing comments before the Q&A session. Toby?

Toby Schilke -- Chief Financial Officer

Thank you, Dan. The company met its 2018 financial guidance, with operating expenses of $146.4 million and a cash burn of $135.6 million. Revenue for the fourth quarter of 2018 consisted of a $0.5 million recognized from the upfront payment from Mylan under the biosimilar program. Please see the earnings release for the full year and year-end results.

We ended the year with $175.8 million in cash and short-term investments with no debt, when including the upfront payment from the Fosun pharma licensing agreement and the net proceeds from the recent public stock offering the same balance was $295.5 million as of January 31st, 2019. This provides the company a cash runway through 2020.

Today, we are issuing our 2019 guidance. We expect the 2019 GAAP operating expense to be in the range of $173 million to $185 million; and the non-GAAP operating expense, which excludes depreciation and stock-based compensation in the range of $148 million to $158 million, driven by increased research and development expenditure and launch preparation activities.

With the new aesthetics studies outlined in our earlier press release, three clinical programs on the therapeutic side and preparation to file the BLA under way Revance expects the 2019 non-GAAP research and development expense to be $93 million to $100 million. Revance's shares outstanding as of December 31st, 2018 were approximately 37 million, as of February 22nd, 2019 there were 44 million shares outstanding, with 48.4 million fully diluted shares.

And with that, I'll turn the call back to Dan.

Dan Browne -- Co-Founder, President and Chief Executive Officer

Thank you, Toby. Only Revance is providing true innovation, pioneering a new first-in-class long-acting neuromodulator with the proprietary peptide excipient technology that meets a clear unmet need. The neuromodulator market opportunity continues to grow double-digits in both aesthetics and therapeutics and we know DAXI can drive significant adoption, as it appeals not only to patients already in treatment, but will also attract new patients. DAXI addresses the lifestyles, the needs and convenience of today's consumer. We are validating DAXI in a range of doses, indications, anatomies and geographies to maximize the full potential of this next generation neuromodulator.

In the near term, we plan to enter the lucrative cash pay facial aesthetics arena, while expanding our R&D focus into a growing number of neuroscience indications. We have a clearly differentiated product set to drive value. Our success in aesthetics market will fuel our neuroscience pipeline and allow us to meet patient needs in the therapeutics market.

At the same time, success with a biosimilar allows us to participate in the short-acting neuromodulator category, including all the currently approved indications. The team and I look forward to updating you on our progress on future calls. In terms of travel schedule at the end of this week we'll in Washington, DC for the American Academy of Dermatology. In March, we'll be in Boston at the Cowen Conference followed by the Barclays Conference in Miami. In April, we will be at the Needham Conference in New York followed by non-deal road show on the East Coast. Let Jeanie know if you'd like to meet with us in your area.

With that, thank you all for joining us today. I will now open it up for questions. Operator?

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from Stacy Koo (ph) of Cowen and Company. Your line is now open.

Stacy Koo -- Cowen and Company -- Analyst

Hi, Dan and team. Thanks a lot for taking my questions. Congratulations on a great 2018. My first question, have you spoken to any clinicians about Evolus' Jeuveau? And if so what has been the feedback you're getting? If not, can you provide additional clarity on their commercialization efforts. Do you think that their competitive fears are warranted? How will the Jeuveau launch change the landscape and potentially impact DAXI when it's launched?

Dan Browne -- Co-Founder, President and Chief Executive Officer

Stacey. Hi, this is Dan. Thank you for the question. We spend a lot of time with physicians, but quite frankly, they ask us predominantly about DAXI. This premium category is new, it's been long side, out side after for decades, we don't spend all our time talking about the Evolus product line that's something you need to talk to them about. I think for us it's about the differentiation with physicians. What makes DAXI unique? What makes it address their physician practices in a better way? And how do they get more patients into treatment? How do they get better outcomes? And we do that both in the aesthetics side, as well as the therapeutic side.

I think for us it's taking this really powerful SAKURA 3 data and making sure as much of that data makes it into the label, because we want the breadth this -- you have to realize this is the largest, longest followed aesthetic trial ever. We want to make sure that label is differentiated and we want to shift from the short-acting neuromodulators to the long-acting category, which we will be first and will be only for a period of time. So I think that's probably the best way to answer that question.

Stacy Koo -- Cowen and Company -- Analyst

Okay, thanks. And second question, can you provide some insight into your conversations with the FDA. What -- do you know exactly what they require for you and Mylan to prove biosimilarity?

Dan Browne -- Co-Founder, President and Chief Executive Officer

Abhay, do you want to take that one?

Abhay Joshi -- Chief Operating Officer

Yeah, this is Abhay Joshi. So with regards to our biosimilar discussion with FDA, it is suffice to say this information that we provided to the FDA was in compliance with the draft guidance for industry, which is about how to have a formal meetings between FDA sponsors and applicants for the biosimilar users Fee Act. And with regards to that, we bought it -- we give an sufficient information dealing with the initial necessary data on -- and is the similarity, some functional characterization, clinical and non-clinical plans and that was the base of our discuss with FDA.

Stacy Koo -- Cowen and Company -- Analyst

Okay, that's great. Thank you.

Operator

Thank you. And our next question comes from David Amsellem of Piper Jaffray. Your line is now open.

David Amsellem -- Piper Jaffray -- Analyst

Thanks. So just a question on, how you're thinking about DAXI pricing given that the new entrant is coming into the market as a fairly deep discount or does that dynamic change your views regarding DAXI pricing. And then as a follow-up to that, can you just remind us, how you are thinking about not just pricing, but how you're going to make the margins for practices more attractive, if that is part of the strategy as well. Thanks.

Dan Browne -- Co-Founder, President and Chief Executive Officer

David, hi. We'll break this up into two parts, I'll take the first part, and Dustin will take the second part. I think for us is we really focus on the premium category and on the experience associated with that, I think when you look at the last 20 years, you had products that competed on price that market share has been fairly stable over a long period of time, and we've been in the 20% to 30% discount. And so I think for our perspective that's where the short-acting market is today, we really see the premium based on the data, the consumer experience, the convenience, the look and feel that comes with SAKURA that was reported in the Phase 3 program to support that premium price and we'll have more data next year on the therapeutic side as well. So I think for us is how do we sort of look at that technology and provide that practice, better economics and you want to sort of talk about the margin side of that, Dustin?

Dustin Sjuts -- Interim Head of Commercial, Aesthetics and Therapeutics

Yeah. I think we take a very thoughtful approach to this, right? If you look at why pricing is going up to the physician and down to the consumers, all products are offering zero innovation to what the consumer demands are or those unmet needs. With DAXI having the opportunity to meet the unmet need of the consumer, it gives us optionality to focus on what's the value of that treatment. What's the value of that convenience and what's the economics for the physician? So, it allows us an opportunity to look at both sides of it, we are not an opportunity, we're not in situation where we have to compete on price, we have an opportunity to address the unmet need with value, I think we'll be thoughtful over that, and we'll be bringing out more information on that as we get closer.

Dan Browne -- Co-Founder, President and Chief Executive Officer

David, I find it interesting, if you look at the TOXINS 2019 positions for at least we spoke to are not chasing price or chasing performance. And I think that's why you see everyone talking about duration, whether it's with the peptide of the Revance Technology or now trying to sort of resurrect sort of this concept around more units in different diluents, because they're all chasing duration. That is what people are chasing, not price. I think at the end of the day physicians know that they chase that price downward and that gets passed on to consumers. That's not attractive to their practices. So at the end of the day, this is all about innovation that grows markets, not price.

David Amsellem -- Piper Jaffray -- Analyst

That's helpful color. Thanks.

Operator

Thank you. And our next question comes from Annabel Samimy of Stifel. Your line is now open.

Nick Rubino -- Stifel -- Analyst

Good afternoon, everyone. This is Nick Rubino on for Annabel Samimy. Thanks for taking our questions. And so, first, congratulations on the exciting BIAM meeting, you guys had with Mylan. Is there any market or indication that's more readily accessible to you for the biosimilar or markets that you guys are excited to enter. And who kind of has more control over the direction of where you guys head with that?

Dan Browne -- Co-Founder, President and Chief Executive Officer

Look, I think that the most attractive approach with the biosimilar, is it's all 11 indications from one development program, as opposed to doing an indication by indication, we're attracted to all. When you look at this neuromodulator, it split roughly 50/50 or 60/40 depending on how you look at it by geography. There is a role for this in both indications. In fact, is we're interested in both and we've made a tremendous investment in the capabilities here in the San Francisco based area, with on the manufacturing on the analytics side, we'll focus on where the market is going to long-acting addressing that need, but there will still be a short-acting market and with this enable us to monetize with the relationship with Mylan among a biosimilar that will have a role in both, so we don't favor one over the other. But I think when you look at the potential number of indications on the therapeutic side, it's a very attractive space for both companies, whether you're looking at long-acting DAXI or in the biosimilar.

Nick Rubino -- Stifel -- Analyst

Great, thanks. And actually, you just touched on, I guess, I'm going on the second question. But, so your internal production facility has been such a large factor, in terms of your partnership abilities and is going to be important for launch timing. Can you give us an update on the state of FDA inspections of your facilities, and then I guess just lastly, have you made any headway on a potential migraine study?

Dan Browne -- Co-Founder, President and Chief Executive Officer

Abhay, do you want to take that one?

Abhay Joshi -- Chief Operating Officer

Yes, I'll take that one, so with regards to that FDA inspection as you guys all know, that once you file the BLA, we will receive a PI approved -- pre-approval inspection and that can have been any time within three to six months of our BLA filing, so we anxiously wait for that. We are fully prepared to accept Diego facility and when the time is right we will (inaudible) up that inspection. With regards to the migraine program, we are still evaluating the potential design of a chronic migraine study. We are also watching the migraine dynamics of the CGRPs and the new lines of treatment. As we mentioned you last time that our primary intent of migraine program is basically to evaluate how can we do better in the injection paradigm of currently 31 injections over reduced number of injections, and so we will provide you more update with expectation to maybe plan or trial and initiate that sometime in 2020 or late 2019.

Dan Browne -- Co-Founder, President and Chief Executive Officer

If I could come back to the facility, we think this is an asset that has tremendous shareholder value. There probably won't be another commercial scale, botulinum facility ever built in the United States again, it's the barriers to entry are just so high. We go through annual select agent approval and so that our base point is, we feel very confident in a pre-approval inspection, quality, analytics is really been at the forefront of our manufacturing operation. And I think, when you look at the Mylan partnership and the Fosun partnership. What really resonated with them, was the quality and our intense focus on drug substance and drug product at commercial scale. So we feel very confident with our capability, not only in those relationships, but as we build our own commercial business.

Nick Rubino -- Stifel -- Analyst

Alright. Great, thank you very much.

Operator

Thank you. And our next question comes from Tim Lugo of William Blair. Your line is now open.

Myles Minter -- William Blair -- Analyst

Hi guys, this is Myles on for Tim. Thanks for typing the questions and congrats on all the progress. Just a half on more about the migraine space, you mentioned that you're constantly evaluating how the space is evolving with BOTOX, but also the CGRP biologics. I'm really curious to hear your thoughts on where you think that injection number must come down to increase noncompliance for migraine patients. And even if we look further ahead with these oral CGRP antagonists, that are currently in clinical trials is a once-a-day pill for prevention. How a longer acting neurotoxin like RT002 would be positioned in that market, interested to hear thoughts on that?

Abhay Joshi -- Chief Operating Officer

Sure. Yes, so we're going -- as far as our thoughts on the injection paradigm. Obviously, the reason why we chose migraine is that, this is an opportunity with large segment, that established in growth market, there's a clear pathway and is a targeted specialty. So the only downside we see today is the number of injections that the patients have to go. And it's the only approved treatment for chronic migraine, until the CGRPs given to exist. And so we believe that it's very, very important for us, not to come in with the same number of injections, but very thoughtfully think about how we can reduce the number of injections. We are working right now with regards to what that number would be, if I know I would tell you, but we are working very closely with our KOLs to make sure that we achieve an optimal injection paradigm, and once we have that, we will definitely use that into a consideration to launch our clinical study sometime latter part of this year.

But they got the CGRP, I think the -- we are carefully tracking and monitoring what's happening out there to your point, yes, there are CGRPs, which have oral daily, there are no sub SubQ monthly, there are IV quarterly. And at end of the day, as we all believe that probably if the market that would coexist for both CGRPs and from migraine, there's is not a single winner here. There'll be a market for both, and that is why we're carefully monitoring the CGRP markets along with our chronic migraine indication of neurotoxin.

Dan Browne -- Co-Founder, President and Chief Executive Officer

Yes. And I'd say -- to add on to Abhay's points, there's also the opportunity to look at combination care, the CGRPs in the neuromodulators, as well as, where neuromodulators and the CGRPs have had patient failures. One of the things that was really resonated the TOXIN 2019 meeting in Copenhagen is, how many patients on either treatment still don't respond. So as we look at both the prophylactic treatment of chronic headache, as well as, other segments of this 40 million sufferers of chronic migraine headache, our view is neuromodulators aren't going away. And there are opportunities to create new treatment paradigms with DAXI.

Myles Minter -- William Blair -- Analyst

Beautiful. And I guess just as a follow-up to that, when you're thinking about designing one of these trials, you've made mentioned now that treatment failure patients. So would have potentially be as Phase 2 trial where we're enrolling, straight up standard prevention patients, but also a refractory population or maybe even like a cluster migraine population to try and tease pays out where RT002 might be a fit for these patients?

Dan Browne -- Co-Founder, President and Chief Executive Officer

I think this point we'll probably stay silent on the study design, I think what we typically do is once we dose the first patient we have a very comprehensive study design. I think we've still got some homework to do. I think that work is coming together quite nicely as we continue to learn more where the CGRP patients are playing out and how well the neuromodulators to continue to do. So, I think for us is we still want to do some homework and we'll get back to you later in the year, but hopefully some more information on that specific question.

Myles Minter -- William Blair -- Analyst

Okay, great. Appreciate the color and congrats again.

Operator

Thank you. And our next question comes from Seamus Fernandez of Guggenheim Securities. Your line is now open.

Etzer Darout -- Guggenheim Securities -- Analyst

Hi, this is Etzer filling in on for Seamus. Thanks for taking my question. Just one quick one for me. You commented earlier that you plan to meet with Mylan on next steps for biosimilar BOTOX. And I just wondered, following the conversations that you've had with the FDA, if you have a clearer sense of development timelines and when a biosimilar BOTOX could potentially enter the clinic? Thanks.

Dan Browne -- Co-Founder, President and Chief Executive Officer

We have no comment on the timeline, I think that we came out very encouraged with a very collaborative and productive meeting. I think the guidance that FDA provided on a 351 pathway was very helpful. And as we said in the press release, we believe it is possible to have a biosimilar for all 11 approved indications for BOTOX. We want to take time to digest the minutes, we'll look at our development plan, we have a framework right now, and we'll work carefully with Mylan and come back once we have better idea, when we would file an IND, and what that clinical development path would look like. But at this time, I think we feel very good coming out of this meeting that we know what needs to be done and the FDA has set the right level of expectations.

Etzer Darout -- Guggenheim Securities -- Analyst

Thank you.

Operator

Thank you. And our next question comes from Serge Belanger of Needham. Your line is now open.

Sean Hannan -- Needham & Co -- Analyst

Hey, this is Sean (ph) actually on for Serge. Thanks for the question. So I just have one, Allergan recently stated in their earnings call that the aesthetics users are trending younger due to this millennial movement, which they say has tripled in the last five years. So what kind of impact do you expect this type of trend will have, if any on DAXI or just the market in general?

Dan Browne -- Co-Founder, President and Chief Executive Officer

Dustin, you want to take?

Dustin Sjuts -- Interim Head of Commercial, Aesthetics and Therapeutics

Yes, I think regardless of age, the unmet need around duration and convenience is met only by DAXI. There is no product in the space that addresses the need, whether the consumers are millennial or whether she is a consumer, that's been treated for a while. So we don't really see an impact overall in DAXI, we think how you market to consumers is definitely understood and we'll make sure that our plans are associated with what markets are growing or not, but the need for duration and convenience actually suits both, right, those that have been treated for a while and those that are on the sidelines for treatment. All products today tell the consumer the same story, only DAXI can talk to her in a different way regardless of how old she is.

Dan Browne -- Co-Founder, President and Chief Executive Officer

Yes, I would just add that we've said this repeatedly, we're still at a very high single-digit penetration with the number of consumers, who have the right age demographics, or right interest in aesthetic products, we are just focused on the nine out of 10, who are not in treatment and expanding this market in a material way, as we are in the existing market. We'll play a role in both, we're not afraid to compete on the -- in the existing space, because we have something fundamentally different as Dustin shared. It's differentiated, it's been sought after, but for us, it's really about expanding this pool, whereas when I think when you look over the last 20 years, there has been sort of a fixed share, because there's really you got some good companies and some good products that all work about the same. And so for us it's really go after what no one else has and get that on label in the most scientifically, clinically evidenced based way and then compete on differentiation.

Sean Hannan -- Needham & Co -- Analyst

Thanks.

Operator

Thank you. And our next question comes from Difei Yang of Mizuho. Your line is now open.

Difei Yang -- Mizuho -- Analyst

Hi, good afternoon and thanks for taking my questions. Just a couple quick ones. With regards to the BLA filing, could you update us if there are any gating items left or is it just a matter of putting together the package?

Abhay Joshi -- Chief Operating Officer

Yes, I can take that, Difei. This is Abhay Joshi, again. So, as you know for completing BLA, there are three or four major modules under Common Technical Document, CDD. And so we are busy right now trying to compile other documents. We just got our Phase 3 studies there in a month ago, we're trying to finishing, compiling -- clinical study reports, while that's basically its a procedural thing for us, and we hope that we can wrap that up in next few months.

Difei Yang -- Mizuho -- Analyst

Okay, thank you, Abhay. And then, I was wondering from the work that you have done, working with the physicians, interviewing them about patients preference. I was wondering, if there are common themes with regards to the ideal patient profiles on long-acting versus short-acting toxins?

Dan Browne -- Co-Founder, President and Chief Executive Officer

Good question, Difei, it's nice to chat with you again. I think this was a question we tried to present objectively at JPMorgan Conference. Earlier this year, we had two physicians sort of speak to their current practices. Both are key opinion leaders, I think our objective physicians, who are highly respected. And I think that kind of worked through their practice on and where DAXI really resonates and as -- it was the earlier question about millennials, but I think you sort of look at those patients, who are either dropped out of treatment or don't want to jump into treatment, I think those are ideal candidates, those who are men. Men typically don't like to look at treatment, millennials probably don't need a lot of treatment. So this will be a premium-priced product. All those segments all play a role for a longer duration.

I think from our perspective, we still got additional work as we sort of think about this, but that convenience, that durability, that performance, that look really sort of dial-in all those segments. And so, I don't think there's one that jumps out at us at this point. And I think for us is how do you present this premium product in each of the segments, and then I think once you're in market, you'll be able to prioritize those.

Difei Yang -- Mizuho -- Analyst

Thank you, Dan for the additional color. Then my final question on pricing. I know we're still maybe 18 months -- 12 to 18 months away from launch. At a very high level, how do you think about pricing for the aesthetics market versus therapeutics market?

Dan Browne -- Co-Founder, President and Chief Executive Officer

Difei, I don't think we've been bashful about this. We see -- our pricing is a premium price over where the existing short-acting neuromodulators are, not just because it's convenient to price it higher, but there is actual specific clinical benefit, pharmacoeconomic benefit that we think warrants into a premium price. I think premium pricing will play a role into both. And I think for us, we've said that we have to make a fundamental decision to price our products based on maximizing share in aesthetics or to maximize value capture on the therapeutic side or we fit something in the middle. And that's the work that Dustin and his team are going through. They sort of understand where those lines break.

At the end of the day, I think we're less focused on maximizing our share at the expense of lowering our price. That's not the way that we're going to compete. We see a more apple-like model. We're going to provide a better experience and hopefully better performance and that will resonate with the patients and certainly physicians and patients alike so far had been very bullish on the premium product concept, but until we put it out there and they have to put their credit cards and cash down, you don't know for sure, but we're testing that pretty aggressively, but we're really pleased that -- look, this market is going to grow from innovation.

We're going to provide something that no one has done in 30 years, and I think we're confident based on the data we can get it on label. We think that's going to resonate in market and now it's just a matter of how we tell that story of how we set that price. And I think, we'll be very thoughtful and I think we'll come up with a right answer.

Difei Yang -- Mizuho -- Analyst

Thank you. Thanks for taking my question.

Operator

Thank you. And our next question comes from Sameer Kandola, Wells Fargo Securities. Your line is now open.

Sameer Kandola -- Wells Fargo Securities -- Analyst

Hi, thanks for taking my questions. So, I was just wondering what discount do you believe Evolus will launch as you rollout? And then, kind of, based on the commentary you already gave, do you believe RT002 will be a premium product to Jeuveau or to Allergan's BOTOX? Any commentary on that would be helpful. Thank you.

Dan Browne -- Co-Founder, President and Chief Executive Officer

You have to ask the Evolus folks on pricing of that product. It's not in our purview, and it's not up to us. Look, I think that we look at the goal standard of brand and we look at BOTOX, because we have great respect for that product for what that company, what that product has achieved. I think we understand when we went into this with our eyes wide open that we have to provide meaningful innovation to grow the market. And I think that though some would put the two companies against each other, I really don't think that either one of those companies is our direct competitor. We're trying to grow this space with a new technology that is then a base of evasive for many. And so wherever the others price their product, it's entirely up to them, but we understand that there is a great brand in market and we have to purviewing something out, if we're going to grow it and capture the share that we expect.

Sameer Kandola -- Wells Fargo Securities -- Analyst

Got it, and then maybe one quick follow-up on the biosimilar to BOTOX. How you're thinking about this product, potentially taking some market opportunity away from RT002. How do you think about that or how should we think about that?

Dan Browne -- Co-Founder, President and Chief Executive Officer

We don't see it taking away from RT002 is distinct. Its unique, it's fundamentally different. It's formulation is different, it's performance is different and I think that from our perspective, there will be a short-acting market, it's been there for a couple of decades. We get to have the good fortune of monetizing our investments in our manufacturing and analytics. But I think that the biosimilars have been discounted of biogenerics -- branded generics have been focused at about 30% discount. And for us, we want to sort of look at the premium side of this and we don't see it changing, because there isn't anything else like it.

Sameer Kandola -- Wells Fargo Securities -- Analyst

Got it. Thank you.

Operator

Thank you. And that concludes our question-and-answer session for today. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.

Duration: 41 minutes

Call participants:

Jeanie Herbert -- Senior Director of Investor Relations and Corporate Communications

Dan Browne -- Co-Founder, President and Chief Executive Officer

Toby Schilke -- Chief Financial Officer

Stacy Koo -- Cowen and Company -- Analyst

Abhay Joshi -- Chief Operating Officer

David Amsellem -- Piper Jaffray -- Analyst

Dustin Sjuts -- Interim Head of Commercial, Aesthetics and Therapeutics

Nick Rubino -- Stifel -- Analyst

Myles Minter -- William Blair -- Analyst

Etzer Darout -- Guggenheim Securities -- Analyst

Sean Hannan -- Needham & Co -- Analyst

Difei Yang -- Mizuho -- Analyst

Sameer Kandola -- Wells Fargo Securities -- Analyst

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Innophos Holdings Inc (IPHS) Q4 2018 Earnings Conference Call Transcript

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Innophos Holdings Inc  (NASDAQ:IPHS)Q4 2018 Earnings Conference CallFeb. 20, 2019, 9:00 a.m. ET

Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:

Operator

Greetings, and welcome to the Innophos Fourth Quarter 2018 Earnings Conference Call. My name is Michelle and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I would now like to turn the call over to your host Mark Feuerbach, Vice President of Investor Relations. Mr. Feuerbach, you may begin.

Mark Feuerbach -- Vice President Investor Relations, Treasury, FP&A

Good morning and thank you for joining us today for Innophos' Fourth Quarter and Year-End 2018 Results Conference Call. Joining me on the call today are Kim Ann Mink, Chairman, President and Chief Executive Officer and Han Kieftenbeld, Chief Financial Officer.

Please turn to Slide Two. During the course of this call, management may make or reiterate forward-looking statements made in this morning's press release regarding financial performance and future events. We will attempt to identify these statements by use of words such as expects, believes, anticipates, intends, estimates and other words that denote future events. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important risks and other factors as set forth in the forward-looking statements section and in Item 1A Risk Factors in our Annual Report on Form 10-K as filed with the SEC that could cause actual results to differ from those in the forward-looking statements made in this conference call.

Also, I would like to remind you that during the course of this conference call management will discuss non-GAAP measures in talking about the Company's performance. Our adjusted EBITDA financial measure excludes stock-based compensation, currency translation, severance, value chain transition expenses, Mexico natural gas imbalance and supply adjustment charges, fair value inventory adjustments and M&A-related costs. Please refer to our press release, the appendix of today's presentation and our SEC filings for the GAAP to non-GAAP reconciliations.

We will make a replay of this conference call available for a limited time over the telephone at the numbers set forth in the press release and via webcast available on the company website. In addition, please note that the date of this conference call is February 20, 2019, and the presentation for this call can be found on our website at www.innophos.com in the Investor Relations Events section.

Any forward-looking statements we may make today are based on assumptions that we believe to be reasonable as of this date, and we undertake no obligation to update these statements.

Please turn to Slide Three. During the call today, management will be reviewing our fourth quarter and year-end 2018 financial performance and 2019 outlook, after which we will open the call up for questions.

With that, please turn to Slide Four, as I turn the call over to Dr. Kim Ann Mink.

Kim Ann Mink -- Chairman, Chief Executive Officer and President

Thanks Mark, and good morning everyone, and thank you for joining us today. 2018 was an important transition year for Innophos, as we executed against our Vision 2022 strategic road map by building the critical capabilities that will transform the growth profile of the company. Significant strides we made in advancing the multi-faceted strategic value chain repositioning initiative, developing innovative solutions that better serve our customers and enhance our position in attractive Food, Health and Nutrition end markets and capitalizing on our values selling commercial model.

On a full year basis, we grew sales by 11%, GAAP net income by 61% and adjusted EBITDA by 4%, all consistent with our expectations going into the quarter. Now in Q4, sales of $193 million were flat compared with the prior-year as a stabilized base business and pricing power were partially offset by lower nutrition sales resulting from our previously announced decision to discontinue a portion of low-margin nutrition trading business.

GAAP net income for the quarter was $5 million, or $0.24 per share, which was 143% ahead of Q4 2017 due primarily to tax reform changes in the prior year. Q4 adjusted EBITDA of $30 million was up 10% and adjusted EBITDA margin of 15% was up 143 basis points as higher input costs were fully offset by the benefits of selling price increases and lower operating expense.

Further by remaining disciplined with the management of our liquidity position, we reduced our debt and realized net leverage up 2.2 times. Now by taking actions to proactively manage near-term market dynamics, while advancing our key initiatives under our Strategic Pillars, we are entering 2019 with good momentum. Our priorities this year are to execute against these initiatives in order to pursue our Vision 2022 goals and deliver long-term value for our customers and shareholders.

Please turn to Slide Five. Now before moving onto strategic highlights, I want to note that despite the headwinds we faced throughout 2018, we achieved year-over-year revenue and EBITDA growth and importantly, sequential stability across key metrics. Notably, 2018 revenue grew compared with 2017, as acquisitions and pricing actions in our base business more than offset operations related issues and the discontinuation of select low-margin nutrition trading business in the second half of 2018. Adjusted EBITDA was up on a full year basis and was also sequentially consistent throughout the year.

With that, I would like to take a closer look at some of the key achievements in 2018 under our Strategic Pillars, so please turn to Slide Six. In operational excellence, significant progress was made throughout the year in advancing our strategic value chain repositioning initiative with the completion of major milestone. This included, the signing of strategic PPA and MGA supply agreements and we see of the negotiated $20 million payment to offset near-term value chain specific transition charges, as well as the long lead-time environmental and operational government permits.

We also advanced the multi-faceted CapEx investments to increase the self-sufficiency of MGA supply from the Coatzacoalcos facility and switched the Geismar facility to the new multi-source supply structure. The transition of the multi-faceted supply chain is expected to continue through the first half of 2019, with the benefit of the lower cost structure being captured during the latter half of the year. Now we do remain on track to deliver adjusted diluted EPS improvement of 10%, which represent an estimated annual run rate of $0.25 to $0.27 per share.

Additionally, in Q4 we completed our Phase II operational excellence program capturing a total of $5 million of savings in 2018, across raw material purchases, MRO ports and labor and planning and logistics. This did fall short of the Phase II operational excellence savings target of $9 million due to the unprecedented increases in freight market rate.

Now under Commercial Excellence, our commercial organization has continue to successfully leverage our pricing power to offset input cost increases from inflation and higher freight expenses. We have made great progress in involving our go-to-market value-selling model. We now have cross-functional market segment teams in place that will leverage our expertise across innovation, technology, marketing and sales and the shift to a value-based selling approach has enabled Innophos to more effectively understand the market and customers we serve. This has been key in supporting our efforts to capture price increases and in driving success with new product development initiatives under the strategic growth pillar.

Now under Strategic Growth, we remain focused on advancing both organic and inorganic growth opportunities that strengthen Innophos' position as a value-adding higher margin ingredient solutions provider for high growth FHN market. Now on the organic side, we do continue to deliver wins through our SPARC new product development program. These efforts leverage our acquired and legacy capabilities as well as our cross-functional commercial models. They also support our strategy to shift our portfolio mix over time to a greater level of higher margin, higher value branded ingredient and formulated solutions.

So for example, during the fourth quarter, we have launched a new proprietary herbal blend for a well-known global consumer health company. This new product required specialized processing to deliver specific properties that support the launch of two new product forms, chewable and effervescent tablets, under a well-known brand supporting immune health.

Our formulators also developed a custom blend of health promoting minerals and vitamins for children's chewable product launched in Asia for one of our global dietary supplement customers. And finally supporting the demand by today's active consumers for nutrition derived from natural, plant-based sources, we've launched a vegan mineral complex for a new dietary supplement for the sports nutrition market.

We also continue to actively evaluate M&A opportunities to drive inorganic growth that meet our disciplined and requisite, corporate strategic and financial criteria to strengthen our FHN platform. At this stage in our transformation, our three strategic pillars are deeply ingrained in the Innophos culture and highly interconnected. So, looking forward to 2019, our focus is on executing on the key initiatives across our strategic pillars. And by doing so, we are positioning Innophos to deliver improved profitability and realigns our Vision 2022 goals for sustainable top and bottom line growth.

So with that, I'll now turn the call over to Han. Han?

Han Kieftenbeld -- Senior Vice President & Chief Financial Officer

Thank you Kim Ann, and good morning everyone. Please turn to Slide Seven. Before I review the details of our Q4 financial performance, I would like to note key financial highlights for the quarter. Q4 revenue of $193 million was in line with our guidance and the prior year. Adjusted EBITDA also in line with our guidance was up 10% year-over-year with an adjusted EBITDA margin of 15%, reflecting base business, price increases that exceeded input cost increases. We ended the year with a strong cash position including $52 million of free cash flow generated in the quarter, which is triple the prior-year quarter, as we received the $20 million Nutrien payment and $23 million from the sale leaseback transaction.

Now let's turn to Slide Eight to take a closer look at the quarter details. Sales of $193 million in the quarter were flat year-over-year, as the 3% increase in the base business was offset by the discontinued portion of low-margin nutrition trading business, which we communicated in Q3. Volumes were down 7%, while average selling prices were up 7%.

On a full-year basis, our sales improved by 11% versus 2017, reflecting the benefit of our acquisitions and proactive pricing programs that have offset input cost increases. Q4 gross margin was 15% down 147 basis points from the prior-year quarter due to the impacts from the value chain transition charges, higher energy cost and the write-off of mining concessions in Mexico, an action we decided to take as the mining rights acquired in 2009 do not align with our strategy. Excluding the impact from these cost increases, Q4 gross margin would have been 19% of sales. For the full-year, gross margin was impacted by the same factors.

Moving on to earnings on Slide Nine. Q4 net income of $5 million was 143% higher than the prior year due to tax reform provisions booked in the prior-year quarter. Adjusted EBITDA of $30 million was up 10% compared with last year, which included a Mexico plant maintenance outage. As shown on the adjusted EBITDA bridge, selling price increases offset lower volumes and higher input cost in Q4 and for the full year.

Moving on to Slide 10 to review our performance by segment. FHN Q4 sales of $113 million represent a 58% of total company sales and were down 2% overall, as the 5% increase from prices was offset by an 8% decrease in volumes, due largely to our decision to discontinue a portion of low-margin nutrition trading business.

On a full year basis, the FHN segment represented 60% of the year sales, an increase from 55% in 2017. FHN Q4 adjusted EBITDA margin of 15% was sequentially similar to the past two quarters, but 377 basis points below Q4 2017 due to continued increases in freight market rates and other input cost.

IS Q4 sales were up 1%, as a 7% selling price increase was largely offset by a 5% volume decline. The IS Q4 adjusted EBITDA margin of 15% was significantly above the same quarter last year due to improved selling prices in 2018 and a favorable comparison from the maintenance outage effects in Q4 of 2017. Other Q4 sales were $15 million, up 11% compared with the same period last year, as higher co-product selling prices more than offset lower volumes. Other adjusted EBITDA margin of 22% was up 90 basis points from Q4 2017.

Now turning to Slide 11. In the fourth quarter, net interest expense of $4 million was up $1 million due to higher average debt levels along with higher market interest rates. The underlying effective Q4 tax rate were 38%, higher-than-expected due to foreign exchange effects, which have been taken out for adjusted diluted EPS. The Q4 rates normalized for these FX effects was 30%.

Capital expenditures of $13 million in the quarter were $3 million higher than prior year mostly due to the value chain reposition and manufacturing optimization initiatives. We paid $9 million in dividends during the quarter and maintained our annual dividend rate of $1.92 per share.

Net debt was $280 million in Q4, down $1 million year-over-year, as we remain disciplined with the management of our liquidity position. Our net debt-to-adjusted-EBITDA ratio was 2. 2 times compared to 2.3 times last year. In December, we proactively put an interest rate swap in place fixing LIBOR at 2.677%. This rate will be valid for three years on a $150 million of our debt.

Now turning to Slide 12. On a GAAP basis, earnings per share of $0.24 was up a 142% due to tax reform provisions taken in the prior-year period. Q4 adjusted diluted EPS was $0.54, up $0.02 or $0.03 -- 3% year-over-year as the high EBITDA contribution was largely offset by higher adjusted tax rate of 30% in the current year versus 17% in the prior year.

Moving to Slide 13. Q4 cash from operations was $43 million and free cash flow was $52 million, three-times the prior-year quarter, reflecting the receipt of the $20 million Nutrien payment and $23 million from the sale lease-back transaction. Average working capital for the quarter and for the full year 2018, was 23% of sales.

Now turning to our revenue outlook on Slide 14. Overall market conditions and the competitive landscape in 2019 are expected to be similar to 2018. Revenues are expected to be largely in line with 2018 revenue of $802 million and approximately equally split between H1 and H2. The underlying base business is expected to remain stable.

Positive year-over-year contributors to 2019 revenue are: Selling price increases with a particular focus on Food, Health and Nutrition, new product development wins, and new business gains. These gains are expected to be offset by: The discontinuation of lower margin FHN nutrition trading business in 2018, lower co-product sales in the Other segment due to efficiency improvements delivered from the strategic value chain initiatives, and indirect tariffs pressure from competition redirecting mostly technical grade product to international markets. We anticipate limited direct impact on our North American sales.

Now turning to our earnings outlook on Slide 15. Adjusted EBITDA is expected to grow 1% to 3% in 2019 from $125 million in 2018, with phasing in the range of 42% to 45% in H1 and 55% to 58% in H2. Positive year-over-year contributions to 2019 earnings are expected from: Selling price increases, margin contribution from business gains and new product development, and the strategic value chain program, which is on track to realize adjusted diluted EPS improvement of 10%, or $0.25 to $0. 27 per share run rate by the end of 2019.

These gains are expected to be partly offset by: Input cost increases for raw materials and freight, and higher costs related to Mexico energy supply shortages that are expected through H1 of 2019. The anticipated non-recurring portion is expected to be adjusted for non-GAAP purposes.

From a GAAP and cash perspective, the expectation is that costs will be higher during H1. The anticipated non-recurring portion is expected to be adjusted for non-GAAP reporting purposes such as value chain transition expenses and Mexico natural gas supply adjustment charges.

Capital investments are expected to be in line with 2018 to finalize the value chain and manufacturing optimization program that commenced in 2018. Average working capital is estimated to remain in line with 2018. The company expects its effective tax rate to operate in the 28% to 32% range.

With that, I'll turn the call back over to Kim Ann.

Kim Ann Mink -- Chairman, Chief Executive Officer and President

Thanks Han. And before we open the call up for questions, please turn to Slide 16, as I highlight a few key points. Now although we expect to face some headwinds in 2019, our base business remains stable and we are confident that we have the critical capabilities in place under our strategic pillars to deliver on our promise to generate sustainable value for our shareholders, our customers and our employees.

Now in 2018, we made exceptional progress with the complex, strategic value chain initiative and as a result, we are on track to meaningfully reduce our cost bases, as we move through 2019. Through our commercial excellence work, we have established deep customer relationship that are supported by a cross-functional go-to-market model and insights-driven value proposition and the strong commercial foundation positions us to continue to proactively leverage our value-selling approach.

We also have excellent momentum with the SPARC program and expect to accelerate our rate of new product introductions, as we move through the year. And finally, our M&A pipeline remains active and we are committed to pursuing further inorganic growth initiatives that shift our position over time to value-adding, higher-margin ingredient solutions provider. We look forward to keeping you updated, as we execute on our plan and continue on the path to deliver our longer term Vision 2022 goals.

So with that, we'll now open the call for questions.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Larry Solow with CJS Securities. Please proceed with your question.

Larry Solow -- CJS Securities -- Analyst

Hi. Good morning, guys. Thanks.

Kim Ann Mink -- Chairman, Chief Executive Officer and President

Hi Larry. How are you?

Han Kieftenbeld -- Senior Vice President & Chief Financial Officer

Good morning.

Larry Solow -- CJS Securities -- Analyst

I'm doing great. Could you just maybe give us, Han maybe or Kim Ann, just a little more color on the sales outlook. It sounds like this price increases are sort of offsetting the calling activity in your base business. And then there's a little bit of stuff in the other in the tolling business that's impacting you. And maybe a little bit impact from tariffs.

But just on the base business, novel ingredients and the other nutritional business, are they still growing sort of at the 6% to 8% rate, you'd thought? And then maybe phosphates are more flat to slightly up? I know you mentioned price increases, but those seem to be more just some reaction to the higher cost basis. So, could you just give us a little more volume look, and what's driving the revenue?

Han Kieftenbeld -- Senior Vice President & Chief Financial Officer

Yes. So, Larry this is Han. Good morning. So, if we look just at the past quarter and then I'll talk to you a little bit about the looking ahead. We obviously saw the impact. We mentioned it in the remarks that we just made from the low-margin nutrition. If you actually look and you asked specifically about the acquisitions, we did see volume growth to the tune of 3%. But if you actually take out that particular fact and the decision we made, we're closer to 6%. So, actually, so that's in line with, where we expect it to be as you mentioned the range. So, that just a little bit of a background of information.

Looking ahead, obviously from a year-over-year comps perspective, we will not have that piece of business. And you also mentioned indeed there was a piece in the Other segment, which is the co-product sales due to the efficiencies that we're going to realize in our Coatzacoalcos facility that we will no longer have. So, we're kind of starting up from a little lower base if you will, that's the way to think about it. And then as we're growing back, we're growing back our revenue and that's why we said in line with 2018. But make no mistake, there was actually underlying growth in both the phosphates and the nutrition portfolio to actually get us back to that same level.

Kim Ann Mink -- Chairman, Chief Executive Officer and President

Right. And, Larry, if you strip all those factors out, the company would be showing growth at the top-line just over 3%.

Han Kieftenbeld -- Senior Vice President & Chief Financial Officer

Yeah.

Larry Solow -- CJS Securities -- Analyst

But it seems to me that the mix of your revenue is certainly getting better obviously right? You're intentionally calling out some of the lower-margin stuff, which I know you did for a couple of years and then you had stopped and then I guess this is in relation to novel more, you know, more novel. But and then obviously some of the stuff that's also dropping off is the tolling stuff, which I imagine at the end of the day on the bottom line profit is not driving much of a drop.

So, I'm now just trying to struggle a little bit with why the EBITDA number is sort of -- is it just -- because if we look back last year, your guidance for '18 was $140 million, and we're now in 2019 and we're only guiding to under $130 million. So, I'm just trying to sort of gap the two if you will?

Han Kieftenbeld -- Senior Vice President & Chief Financial Officer

Yeah. So, if you look at this year's jump off point, obviously, so the $125 million, we see obviously some margin impact from, albeit small, from the business that we talked about in terms of that being discontinued, if you take that into consideration. The other factors are obviously there is continued input cost and freight market rate increases that we factor in this outlook.

The other thing that is -- that is there is, we talked about the Mexico energy component that is -- that is still sizable it was in Q4 and we see that. For now at least based on the best information we have, we see that for the first half of 2019, but obviously, we're seeing to take stock as we learn more about that. But those are factors Larry on the downside that we see.

Now on the positive side, we see wins from NPD, so new product development. We see gains, business gains particularly in our nutrition portfolio to make up for some of the discontinued business. And then thirdly, our continued focus on value selling and the selling price increases, those are the three factors that we see to more than offset some of the downside that I just mentioned.

Kim Ann Mink -- Chairman, Chief Executive Officer and President

Yeah, so Larry I would sort of summarize all that. We're really providing what we believe is a realistic view of the year, given the factors that we're aware of. We're really focused on controlling the factors that we can control, things like NPD, things like pricing, by closely monitoring those that we can. And those are those, if you kind of think of the three buckets that are impacting us from an earnings standpoint: The Mexico energy.

Larry Solow -- CJS Securities -- Analyst

Right.

Kim Ann Mink -- Chairman, Chief Executive Officer and President

The continuing increase in freight charges; and those in-direct impacts from tariffs, if you think about those three buckets. So, again base business stable. We're seeing actually increase, but if you take away -- when you take away the headwinds, but those headwinds are real.

Larry Solow -- CJS Securities -- Analyst

Right. That's fair enough. And just on the value chain initiatives and I know your guidance, you have certainly more back-end loaded. Do you start getting some of that benefit in '19? I mean is there any way to sort of save that $0.20 $0.25, you achieve x percent in '19 and the rest in '20. Is it, it sounds like majority is in '20, but is there a piece in '19 that you actually realize?

Han Kieftenbeld -- Senior Vice President & Chief Financial Officer

Yes, there is Larry. So, the way we're looking at it right now and obviously we're going through this transition still in the first half of 2019, making sure that everything is lined up in terms of our storage, our supply chain with the new supply mix, if you will. What we expect is to see an effect that's what we factored in for this outlook right now is for the second half, OK. So, if you look at that number and you look at the $0.25 to $0.27, we factored in the second half component of that.

Now the one thing that we've mentioned before is always that we hold approximately a quarter worth of inventory, so that basically means that as we get to realize this benefit is pretty much takes an average of three months to actually go through the system, if you will, from the balance sheet into the P&L. But just to be crisp on the answer, the answer is, is that we factored in half of -- for the second half of the benefit that we've talked about.

Kim Ann Mink -- Chairman, Chief Executive Officer and President

And Larry one last item I would add is just to put it into context, it's taking the first half of the year to really optimize the new supply structure, and hence the reason, why the benefits are more back-end loaded.

Larry Solow -- CJS Securities -- Analyst

Okay, fair enough. And then just how about, lastly, I realize the acquisitions are not an exact science and I imagine that the queue is still very full, but just globally can you give us sort of an update, I know, you guys have targeted, sort of, I guess almost getting EBITDA to double with the sort of rate we're at today and that by 2022 is that maybe a little bit pushed out now, or is it any thoughts on that?

Kim Ann Mink -- Chairman, Chief Executive Officer and President

Yes, no, I can start here. Our pipeline remains very active. And as we've spoken about in the past, we're looking at target acquisitions that are really going to build on the novel and NutraGenesis acquisition is really strengthening that FHN platform. I can say we continue to be actively pursuing our M&A agenda and evaluate opportunities, but we are disciplined and we look at our financial and strategic fit criteria.

With regard to Vision 2022, we are on track. We do remain on track to hit that $1.25 billion, which as we discussed and as we rolled out our Vision 2022, $475 million of that would come from M&A. So, we do remain on track that was actually, when we put that Vision 2022 out, that was actually looking at getting our first tranche, if you will, of new acquisitions in the 2018 timeframe and we actually bought them in 2017. So, we still remain confident about that direction.

Larry Solow -- CJS Securities -- Analyst

Great. Okay, excellent. Thank you.

Operator

Thank you. (Operator Instructions) There are no further questions at this time. I would like to turn the call back over to Ms. Mink for any closing remarks.

Kim Ann Mink -- Chairman, Chief Executive Officer and President

Sure. Thank you, Michelle. I want to thank everyone for joining us today and we look forward to keeping you updated on our progress throughout 2019. Thanks again, and have a great day.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Duration: 33 minutes

Call participants:

Mark Feuerbach -- Vice President Investor Relations, Treasury, FP&A

Kim Ann Mink -- Chairman, Chief Executive Officer and President

Han Kieftenbeld -- Senior Vice President & Chief Financial Officer

Larry Solow -- CJS Securities -- Analyst

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Thompson Investment Management Inc. Boosts Holdings in Facebook, Inc. (FB)

Thompson Investment Management Inc. boosted its holdings in shares of Facebook, Inc. (NASDAQ:FB) by 32.5% during the third quarter, according to its most recent 13F filing with the Securities and Exchange Commission (SEC). The fund owned 13,707 shares of the social networking company’s stock after acquiring an additional 3,365 shares during the quarter. Thompson Investment Management Inc.’s holdings in Facebook were worth $2,254,000 at the end of the most recent quarter.

A number of other institutional investors and hedge funds have also bought and sold shares of the business. IMA Wealth Inc. acquired a new position in shares of Facebook in the 2nd quarter worth approximately $122,000. Aviance Capital Management LLC acquired a new position in shares of Facebook in the 2nd quarter worth approximately $151,000. Arlington Partners LLC acquired a new position in shares of Facebook in the 3rd quarter worth approximately $164,000. Lenox Wealth Management Inc. lifted its position in shares of Facebook by 65.5% in the 3rd quarter. Lenox Wealth Management Inc. now owns 1,023 shares of the social networking company’s stock worth $168,000 after purchasing an additional 405 shares during the period. Finally, Wagner Wealth Management LLC lifted its position in shares of Facebook by 100.0% in the 3rd quarter. Wagner Wealth Management LLC now owns 1,056 shares of the social networking company’s stock worth $174,000 after purchasing an additional 528 shares during the period. 60.49% of the stock is currently owned by hedge funds and other institutional investors.

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In other news, CFO David M. Wehner sold 4,761 shares of the company’s stock in a transaction on Thursday, January 31st. The shares were sold at an average price of $165.59, for a total value of $788,373.99. The transaction was disclosed in a document filed with the Securities & Exchange Commission, which is available at this hyperlink. Also, VP Colin Stretch sold 9,000 shares of the company’s stock in a transaction on Wednesday, January 30th. The stock was sold at an average price of $150.00, for a total transaction of $1,350,000.00. Following the completion of the sale, the vice president now owns 94,680 shares of the company’s stock, valued at approximately $14,202,000. The disclosure for this sale can be found here. In the last 90 days, insiders have sold 356,138 shares of company stock worth $49,865,941. Corporate insiders own 16.25% of the company’s stock.

FB opened at $162.50 on Friday. Facebook, Inc. has a 1-year low of $123.02 and a 1-year high of $218.62. The firm has a market cap of $472.06 billion, a price-to-earnings ratio of 21.47, a price-to-earnings-growth ratio of 0.96 and a beta of 0.93.

Facebook (NASDAQ:FB) last released its quarterly earnings data on Wednesday, January 30th. The social networking company reported $2.38 earnings per share for the quarter, topping the Thomson Reuters’ consensus estimate of $2.18 by $0.20. Facebook had a net margin of 39.60% and a return on equity of 27.51%. The firm had revenue of $16.91 billion for the quarter, compared to the consensus estimate of $16.40 billion. During the same quarter in the prior year, the company posted $1.44 earnings per share. The business’s revenue was up 30.4% on a year-over-year basis. Equities analysts forecast that Facebook, Inc. will post 7.55 EPS for the current year.

A number of brokerages have recently issued reports on FB. Aegis boosted their price target on shares of Facebook from $206.00 to $215.00 and gave the stock a “buy” rating in a research report on Wednesday, October 31st. Stifel Nicolaus dropped their price target on shares of Facebook from $202.00 to $186.00 and set a “buy” rating on the stock in a research report on Wednesday, October 31st. BidaskClub upgraded shares of Facebook from a “strong sell” rating to a “sell” rating in a research report on Tuesday, December 11th. Cleveland Research reiterated a “buy” rating on shares of Facebook in a research report on Tuesday, October 23rd. Finally, BMO Capital Markets dropped their target price on shares of Facebook from $190.00 to $175.00 and set a “market perform” rating on the stock in a research report on Wednesday, October 31st. Four research analysts have rated the stock with a sell rating, seven have assigned a hold rating and forty have assigned a buy rating to the company. The company presently has a consensus rating of “Buy” and an average target price of $190.62.

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Facebook Company Profile

Facebook, Inc provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. The company's products include Facebook that enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers; Instagram, a community for sharing photos, videos, and messages; Messenger, a messaging application for people to connect with friends, family, groups, and businesses across platforms and devices; and WhatsApp, a messaging application for use by people and businesses to communicate in a private way.

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Want to see what other hedge funds are holding FB? Visit HoldingsChannel.com to get the latest 13F filings and insider trades for Facebook, Inc. (NASDAQ:FB).

Yandex (YNDX) Q4 2018 Earnings Conference Call Transcript

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Yandex (NASDAQ:YNDX) Q4 2018 Earnings Conference CallFeb. 15, 2019 8:00 a.m. ET

Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the fourth quarter and full-year 2018 financial results conference call. [Operator instructions] I would now like to hand the conference over to your speakers today. Please go ahead.

Katya Zhukova -- Investor Relations Director

Hello, everyone, and welcome to Yandex's fourth-quarter and full-year 2018 earnings call. We distributed our earnings release earlier today. You can find its copy on our IR website as well as on Newswire services. On the call today, we have Arkady Volozh, our chief executive officer; Mikhail Parakhin, our chief technology officer; Tigran Khudaverdyan, our head of YandexTaxi; and Greg Abovsky, our chief operating and chief financial officer.

Vadim Marchuk, our VP of corporate development, will be available on the Q&A session. The call will be recorded. The recording will be available on the IR website in a few hours. As usual, we prepared a few supplementary slides, which are currently available on the IR website.

Now I will quickly walk you through the safe harbor statements. Various remarks that we make during this call about our future expectations, plans and prospects constitute forward-looking statements. Our actual results may differ materially from those indicated or suggested by the forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Annual Report on Form 20-F dated March 27, 2018, which is on file with the SEC and is available online. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of subsequent date.

Although we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, you should not rely on those forward-looking statements as representing our views as of any date subsequent to today. During this call, we'll be referring to some non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with the U.S.

GAAP. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today. And now I'm turning the call over to Arkady.

Arkady Volozh -- Chief Executive Officer

Thanks, Katya, and thank you, everyone, for joining us today. I am very pleased to say that 2018 was a truly remarkable year for Yandex. First, we saw a significant acceleration in our revenue and adjusted EBITDA growth rates, this was the highest rate in five years going back to when we were one-fourth of our current size. We also had great results across all of our core business areas, including Search, and we saw very strong progress in a number of our recent important initiatives.

We had a number of key highlights this year, some of which my colleagues will elaborate on in more detail, but from my side, let me briefly highlight just a few. We grew our share on Android to approximately 50%, and we expect that share to continue to grow. We made significant advancements with Alice, our voice assistant, growing the size of its audience, while enhancing and expanding its functionality. We started producing hardware devices this year with Alice embedded in them, such as the Yandex.Station smart speaker, the Yandex.

Auto on board computer for connected cars and our experimental smartphone. We launched Yandex.Eats, which in December, delivered over one million of orders. Yandex.Drive was launched in February of last year and rapidly became the No. 1 car sharing service in Russia, the second largest in Europe and the third largest in the world.

I believe it is well-positioned to enter into international markets. Our ride-sharing business reached breakeven, and our self-driving car division has significantly progressed over the past year. It operates now in two Russian cities, where it drives in a completely autonomous mode without anyone at the driver seat at all. In Q4, we extended our tests to the street of Tel Aviv, and finally, recently in January, we demonstrated our self-driving car at the CES Conference in Vegas.

And as you may have seen in the press at the time, the demonstration blew people away. For many years, since company's inception, we have been following the concept of just one business model. This was focused around Search and online advertising. This model still continues driving our growth of our core business at 20% per year, but today, Yandex is much more than just Search.

At this point, I can say that we've effectively built yet another company on top of the original one. As a shareholder, I am extremely proud to own the stock. And with this, let me hand over to Mikhail Parakhin. Mikhail, over to you.

Mikhail Parakhin -- Chief Technology Officer

Thank you, Arkady, and hello, everyone. We are very pleased with the results we achieved in Q4. Our consolidated revenue, excluding Yandex.Market from both periods, grew 46% year over year. Revenues of the Yandex properties, excluding Yandex.Market from both periods, grew 27% year over year.

Revenues of Yandex ad network grew 16% year over year this quarter. Acceleration of growth rate was due to greater contribution from small- and medium-size partners. We have always worked hard to provide our clients with great targeting technologies and tools to achieve their goals. And we are always delighted to see new successful use cases.

For example, there is an ad campaign of [Inaudible], a popular travel website, brought 140% return on investment in Yandex advertising network. Search and Portal segment demonstrating solid growth in Q4, with revenue in growth rates of 27% year on year. This growth rate was primarily driven by solid performance of Search, mainly as a result of template launches and mobile search share gains as well as by robust growth across other Yandex properties, such as Zen, homepage and images. Sales of hardware devices contributed approximately one percentage point to Search and Portal revenue growth in Q4.

On netback front, templates continued performing well, and we estimate that templates contributed approximately 5% to our Search revenue growth on Mobile and 2.5% on deskstop; experiments with templates is a continuous process, and we will keep unveiling new ad layouts going forward. We continued rolling out Turbo Pages, our analogue of instant articles. Turbo Pages allow websites to significantly increase traffic and time spent on the website as well as decrease bounce rate. Currently, Turbo Pages appear on 50% of search result engine pages on mobile.

In Q4, monetization of Turbo Pages has increased 6 times compared to a year ago. In Q4, the share of mobile traffic reached 49.2% of our total search traffic. Mobile revenues represented 41.4% of our Search revenues. Revenue-to-traffic ratio improved 320 basis points compared to the previous quarter.

To continue the Mobile topic, it is certainly worthwhile mentioning Geo services, providing users with local-based search experience and helping us in bids get online. In Q4, local-based mobile searches grew 30% year over year. Ad App pings in Navigator were shown approximately five billion times. Just recently, we started experimenting with new native ad formats.

Now when a driver stops near a shopping mall or a gas station, we show them a small, but highly relevant ad banner at the bottom of the screen. This is an efficient way to provide drivers with information and to convert online-to-offline traffic for advertisers. It is really impressive the way our Geo services evolved beyond just navigation. Now I can arrive at a gas station, open my Yandex.Navigator app, choose the pump number, gas amount and pay inside the app.

This is extremely helpful during severe winters in Russia. Currently, the service is available on over 1,000 gas stations. Yandex.Taxi drivers can also use this option in their driver app. Turning to recent product launches and updates.

In November, we presented Andromeda, our latest search algorithm update. It further improves personalization of user search experience and helps find answers as quickly as possible. Now we provide increased coverage of in line answers on surf, feature badges for the most relevant and accurate websites and allow users to save searches in visual format in Yandex. Collections.

Collections particularly drew large interest among users. There are already over 100 million carts added by users and are up 500-plus percent year over year. Another great feature that we've been testing for several months now already with chartered business. This is a kind of a messenger that appears right on our search result page and allows users to interact with businesses in a real-time manner, while businesses get a unique opportunity to reach out to users from Yandex.Serve.

The quicker the business responds to a user, the higher the probability that this user converts into a client. Now over one million messages per day already including messages generated through the dialogues with our AI system, Alice. An offline business, which often doesn't have a website can use our chatting tool as well. Turning to Search share dynamics.

In December, our overall Search share reached 56.4%, down 30 basis points compared to the year ago due to the mobile and desktop mix effect. In January, our overall Search share increased to 56.9%. Our Search share on desktop reached 68% in December, gaining 110 bps from September and 70 bps from a year ago. On Mobile, our Search share averaged 47.3%, growing 280 basis points year on year.

Our Search share on Android was 49.4% in December, up 380 basis points versus a year ago. In January, we reached 50.7% on this platform. Our Search share on iOS was 40% in December, down 70 bps compared to September 2018 and up 110 bps from a year ago. While we improve user experience online, our Taxi and related businesses help our customers off-line.

Tigran will walk through these services. Tigran, please go ahead.

Tigran Khudaverdyan -- Head of YandexTaxi

Thank you, Mikhail, and hello, everyone. During the past couple of years, we have been focusing on services that significantly improve user off-line experience, including the ride sharing food, delivery and in the future, autonomous vehicles. 2018 was a truly great year for us. We completed the integration of Yandex and Uber's ride-sharing businesses in Russia and CIS.

We have learnt how to efficiently optimize subsidies without sacrificing growth. This allowed us to achieve profitability on the adjusted EBITDA level in our ride-sharing business in H2 2018. In September, we fulfilled one billionth ride, and we will reach two billion rides sometime this year. We launched our food delivery business and quickly gained significant market share.

We significantly progressed on our self-driving front. Our self-driving car is driving Skolkovo and Innopolis in Russia without a driver at the wheel. We also started testing in Israel and successfully demonstrated our capabilities at this year's CES in Las Vegas. I'm extremely proud of what we have achieved.

Now the details. Full-year revenues of Taxi grew 293% year on year. In Q4, our revenues increased 216%, driven by unit growth and lower subsidies. Adjusted EBITDA loss of the Taxi segment was RUB 129 million in Q4.

Our ride-sharing business was consistently profitable, while the loss was driven by our investments in food delivery and driverless technology. In Q4, the number of rides grew 112% year on year. We believe that our technological expertise in mapping, ride dispatch, dynamic pricing and management of the balance between supply and demand are very important competitive advantages, which are applicable beyond our domestic markets as well. Turning to food delivery.

Yandex. Eats, our food delivery service, has been growing rapidly since its launch in February 2018. In December, the number of orders delivered exceeded 1 million. As of today, we have over 8,000 restaurants.

We mostly rely on our own delivery as it allows us to better control the service quality. We leverage our proprietary technological set to optimize routing and logistics. Since February, we lowered our delivery times from order-to-delivery by 35% to approximately 32 minutes currently. We will continue investing in our food delivery service as we believe that this market has a huge potential, and we are at early stage of this development.

Our self-driving technology is another great testament to our deep expertise in machine learning, navigation, mapping tools and cloud technologies. We are very excited to be at the forefront of driverless technology, which will completely change the way people commute within the next decade. With this, I'm turning the mic over to Greg, who will walk you through the operational performance of business units and our financials.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Thank you, Tigran, and thank you all for joining our call today. We delivered another strong quarter. Our consolidated revenue excluding Yandex.Market grew 46% year on year in Q4. Online advertising revenues excluding Yandex.Market increased 25% year on year.

Other revenues grew 235% year on year in Q4, primarily driven by the growth of Yandex.Taxi and to a smaller extent of Yandex.Drive. Total TAC increased 29% year on year and amounted to 15.9% of total revenues, down 130 bps from Q4 '17 and down 40 bps on a sequential basis. Traffic acquisition costs related to partner advertising network grew 24% year on year, mainly reflecting partner and products mix shifts. Traffic acquisition costs related to the distribution partners increased 44% year on year, primarily affected by the growth of Android.

In Q4, distribution tax stood at 7.9% of Yandex properties' revenues, which is 20 basis points higher than in Q3. Turning to our cost structure. In Q4, total OPEX, excluding TAC and D&A, grew 44% year on year. Excluding stock-based comp, operating expenses increased 47%.

The growth is primarily driven by our Taxi and car-sharing businesses. As of December 31, we had 8,767 employees, down 1% compared to September 30. This decrease was mainly due to headcount reclassification, which we implemented to ensure consistency in internal reported. This primarily relates to customer support positions, which we now treat as outsourced labor.

On a year-over-year basis, our headcount was 18% higher. In Q4, our personnel costs amount to 17% of total revenues. Stock-based comp grew 18% year on year in Q4 and constituted 4.2% of revenues. G&A expense in Q4 increased 6% year on year.

Our consolidated adjusted EBITDA, excluding Yandex.Market, grew 38% year on year. This quarter, the impact on FOREX was a gain of RUB 904 million related to the depreciation of the Russian ruble during Q4 from RUB 65.6 to the dollar to RUB 69.5 to the dollar. Adjusted net income was up 32% year over year, and adjusted net income margin was 17.9%. Excluding Yandex.Market, adjusted net income was up 53% from Q4 '17.

Our CAPEX, excluding the one-off effect from the headquarter site acquisition, was 11% of total Q4 revenues, while on an annual basis, our CAPEX-to-revenue ratio was 15%. We expect our CAPEX, excluding expenses related to the new HQ, to be in the low teens as a percent of consolidated revenues in 2019. Just to remind you, in late December, we announced a purchase of the property site for our new Moscow headquarters of approximately 10 acres, situated at Kosygina Street in Moscow. We're very excited with the opportunity to create our own campus in the heart of Moscow.

The acquisition price was $145 million. Turning to the performance of our business units. Search and Portal revenue grew 27% year on year, driven by the growth on our owned and operated properties as well as in partner websites. Adjusted EBITDA in Search and Portal grew 24% year on year in Q4 and it's adjusted EBITDA margin was 43.5% down 100 bps compared with Q4 of last year and down 230 bps compared to the previous quarter.

This decrease was mainly due to the sales of hardware devices as we previously talked to you about. In 2019, we expect margins of Search and Portal to be down 100 to 200 basis points primarily due to sales of hardware devices. Since Tigran has just updated you on the Taxi business, let me turn to Classifieds. Revenue of Classifieds business grew 61% year on year in Q4, primarily driven by revenues from listing fees and VAS, which grew 90% year on year.

Auto.ru continued strengthening its market positions in its core markets. Adjusted EBITDA of Classifieds was negative RUB 18 million in the quarter. Turning to Media Services. In Q4, Media Services revenues were RUB 679 million and grew 69% year on year, primarily driven by subscription services, video advertising and to a smaller extent by commissions from ticket sales.

Media Services adjusted EBITDA loss was negative RUB 215 million and mainly reflected the growth of advertising and marketing costs, our continuing investments in content and product development. KinoPoisk keeps expanding its content library, which currently includes over 5,000 movies and TV shows available by subscription. In Q4, KinoPoisk launched premium subscription in partnership with Amediateka, the exclusive distributor of HBO content in Russia. On the Experiments front.

In Q4, revenues of Experiments primarily represented by Yandex.Drive, Zen, and Cloud reached RUB 1.2 billion, led by Yandex.Drive and Zen. Adjusted EBITDA loss of Experiments was RUB 665 million, primarily due to our investments in Yandex.Drive and Yandex.Cloud. The Yandex.Drive maintained its leading position with total fleet of 8,000 cars and over 11 million rides completed since launch. In Q4, we extended Yandex.Drive to St.

Pete, where we also became the market leader. In December, we introduced our car-sharing service in the cargo segment. Our personalized content feed service, Yandex.Zen, continues actively developing its publisher content platform, which currently generates over 50% of Zen's feed content. According to recent operators data, monthly audience of Zen reached over 39 million people, while time spent averaged approximately 35 minutes per day.

Number of daily unique users reached 9.5 million, while number of visitors and devices exceeded 15 million on a daily basis. In late December, Zen become available to users of Opera desktop browser in Russia. Zen's annualized revenue run rate was RUB 5.9 billion in December. Moving on to Yandex.Market, which we no longer consolidate in our financial results.

In Q4, revenues of Yandex.Market on a like-for-like basis grew 136%, mainly driven by the marketplace launches as well as solid performance in price compression service. Adjusted EBITDA loss at Yandex.Market was RUB 1.3 billion in Q4, reflecting our investments in both food delivery and marketing expenses, primarily related to the launch of the Beru marketplace. In Q4, our marketplace Beru came out of data with 15 shopping categories and 100,000 SKUs. In November, we introduced first Beru-operated fulfillment center in the Rostov region to ramp up fast delivery across the southern part of Russia.

In addition, Yandex.Market launched its cross-border marketplace, Bringly. Getting back to corporate matters. We ended the quarter with approximately RUB 68.8 billion in cash and equivalents, which is approximately $990 million with the exchange rate as of December 31. This includes the cash of Yandex.Taxi, which amounted to RUB 27 billion.

Cash and equivalents of Yandex.Market are approximately RUB 29.1 billion are not included in the consolidated results of Yandex N.V. In December, we repaid in full the amount of convertible senior notes in the face amount of RUB 321 million. Turning to guidance. Based on the recent solid performance, we provide an early outlook for the Search and Portal business to be in the range of 18% to 20% year over year in 2019.

Excluding Yandex.Market from 2018 results, we expect our total revenues to grow 28% to 32% in 2019 compared with 2018. With this, I'm turning the mic over to the operator for the Q&A session. 

Questions and Answers:

Operator

Thank you. [Operator instructions] Your first question comes from the line of Lloyd Walmsley of Deutsche Bank. Please ask your question.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Thank you. I have two, if I can. First, just on templates. It sounds like it's really starting to move the needle on revenue.

Wondering if that contribution is mostly helping O&O or if that's also part of the network strength? And can you kind of talk about the timing of that inflection point? Was it really kind of a 4Q event? Because you all have been downplaying the impact to somewhat to revenue. So it sounds like a bit of a change in tone there. And then the second question would just be on kind of scaling the robo-taxi business. Can you talk about what your plans are this year? And what really needs to happen from a technical standpoint, operationally, from a compliance kind of regulatory perspective, to really scale that business in Russia or any other markets, I guess, around the world?

Mikhail Parakhin -- Chief Technology Officer

Mikhail, sure, I'm going to take the first one and then maybe Greg will take the second one. So on templates, as we repeatedly said, templates are not like a one thing, right? It's a constant work in progress where we release new bids every month essentially. So as you correctly pointed out, in accumulation, you could see already the impact quite a bit, and we're going to continue rolling out new templates going forward. This is -- so templates is mainly search result, so it's search only, it's not Yan.

They do not impact Yan results.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Hey, Lloyd. And on self-driving cars, what I would say is, we're still very much in the investment phase. We're looking to ramp up the fleet of vehicles that we will be deploying, mostly in development and test mode. I'm not sure there's going to be a whole lot of live deployment such as the one you saw with Innopolis and Skolkovo, but we will look to ramp those up as well.

Overall, I'd say we're extremely bullish by the technology that we have created around self driving, and we think that obviously, over the long term, this is definitely the future of transportation. And we want to be one of the companies globally that's at the forefront of this innovation.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Thank you.

Operator

Your next question comes from the line of Miriam Adisa of Morgan Stanley. Please ask your question.

Miriam Adisa -- Morgan Stanley -- Analyst

Hi. Good morning, everyone. Two questions from me. Just firstly, on the Search guidance of 18% to 20%, just wondering how much of an impact from smart speakers is baked into that, as that looks rather conservative sort of based on the guidance, the margins deteriorate by up to 200 bps? And then secondly, on Taxi.

Based on the current structure, it looks like you can reach profitability in Q1 this year. Is that a fair statement? Or is there any reason assisting why that wouldn't be the case?

Greg Abovsky -- Chief Operating and Chief Financial Officer

Hey, Miriam, it's Greg, let me try to take them one by one. On the Search and Portal, so what we've said is, we expect that the margins will be down about 100 to 200 basis points in the Search and Portal segment. Obviously, the revenues are also in that 18% to 20% guidance a little bit of them in there. Given that they are either done at breakeven or even the slight loss, they have quite an impact.

And then the rest of the margin compression is just a result of the fact that we continue to invest in new products, right? The Search business has very natural operating leverage. And every year, we reinvest that operating leverage back into important products that the team develops, whether it's the Alice intelligent voice assistant, the Collections that Mikhail was just talking about, the chats with businesses that we recently rolled out, the neighborhood, social network that we are currently deploying, so on and so forth. All of those require investments, all of those require investment in people, first and foremost. And so what we like to do is, we like to maintain this kind of high-teens, low-20s types of growth rates in the Search portal over the long term and that requires coming up with new things constantly rather than just focusing on search and search only.

Hopefully, that answers your question about the guidance? On the Taxi front, just as a reminder, within the Taxi segment, you have sort of four different buckets, if you will. You have Russia or Russia CIS ride-sharing business, which is profitable -- increasingly profitable, I would add, over the last few quarters, and we expect it to keep getting better and better. It includes sort of the emerging countries where we launched service recently and obviously, many of those are loss making, and we're still kind of in the investment phase there. It also includes the self-driving business that I just talked about in response to Lloyd's question.

And finally, it includes the Eats segment. Eats is a new business -- relatively new business for us. We started in food delivery in December 2017. And only the course of a year, we grew the size of that business to 10 times and are now a significant and important player in this business.

We think that food delivery is a very attractive part of the business, and we'll continue to invest in it. So net of that is we expect that the losses in the segment will moderate in 2019, driven by very healthy economics in the core Russian CIS segments, offset by investments in earlier stage undertakings.

Miriam Adisa -- Morgan Stanley -- Analyst

That's helpful. Thank you.

Operator

Your next question comes from the line of Slava Degtyarev of Goldman Sachs. Please ask your question.

Slava Degtyarev -- Goldman Sachs -- Analyst

Hi. Thanks for the call. Also couple of questions. Firstly, can you comment on the Taxi gross bookings dynamics or if possible disclose some of the basically recent run rate for the Taxi business? And the second question is, maybe you can comment on the advertiser behavior by the key subsegments at the beginning of the year? Do you see directly or maybe indirectly the effect from the increase in value-added tax started from January this year? Thank you.

Tigran Khudaverdyan -- Head of YandexTaxi

Hello, this is Tigran. CEO of Yandex Taxi, may I take this question? So gross bookings are -- so let's start from rides. Rides are growing 112% year over year in Q4. The gross bookings generally annualized run rate reached USD 4.2 billion based on December.

Let's keep in mind, please, that December is high season. And so taking -- talking about gross revenues. This grew 170% year over year in Q4. This is a slight slow down from 200% growth rate last quarter.

And also, we are continuing optimizing subsidies. They declined as a percent of gross revenues and in absolute terms also.

Mikhail Parakhin -- Chief Technology Officer

Hey, Mikhail here for the advertiser's question. So -- well, we just gave the outlook on Search and Portal revenue growth, 18% to 20%. So that sort of reflects of what we see right now and basically, what -- how we see the business. We will give update on trends probably in April.

So far, we see that our key advertising category is continuing to grow well. The top is auto, finance, eating out, there are IT, there are all growing at healthy double-digit, 30%, 40% range.

Slava Degtyarev -- Goldman Sachs -- Analyst

OK. Thank you very much.

Operator

Your next question comes from the line of Cesar Tiron of Bank of America. Please ask your question.

Cesar Tiron -- Bank of America Merrill Lynch -- Analyst

Hi, everyone. Thanks for the call and the opportunity to ask questions. I have three questions if that's OK. The first one, I just wanted to clarify on the margins for our core search in 2019.

Do you expect those to trend down? Second question is on food delivery. Is it fair to say that we're seeing some rationalization in the market? It looks like subsidies are being reduced, and you're now charging for deliveries in Moscow. And then the third question would be on potential regulation for Taxi. I mean, I think there were some proposals, for example, to ban foreigners to drive taxes and few other things if you can clarify.

Thank you so much.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Hey, Cesar, let me try to take these. On margins, I think, we've sort of said everything that there is to say, which is we expect that they will be down about 100 to 200 basis points driven almost entirely, if not entirely, by sales of hardware devices. Whereas, the national operating leverage of the core Search gets reinvested in new products that we just named or new ones that will launch over the course of the year. So there is not much to add on that front.

On food delivery, I think it's early to draw conclusions whether or not this market is rationalizing or not. We have been extremely disciplined in terms of our pace of investment in this segment. And so far, well, I think we've achieved very significant results without sort of irrational exuberance in this segment. With respect to delivery fees, yes, we do introduce them from time to time and what -- we tested them out, but our primary focus is on product, which means that, gets -- getting the click to eat time down to -- this is 30 minutes or so is that consumers in the Western world are sort of used too.

As you know, historically, delivery times for Russian restaurants were an hour or more, which is just completely different type of experience. I would draw the parallel to calling up a taxi aggregator company back five, six years ago and having to wait 45 minutes for a taxi. Now you open up your Yandex.Taxi app and within three, four minutes, there is a car waiting for you of any type, class, size, whatever you want. So it's quite an investment that you need to make, but it's also quite a difference in product that consumers are really appreciate.

And then finally, on regulation. Look, I'd say is that we're in constant dialogue with regulators kind of regarding a wide array of questions that come up. And it covers sort of many different aspects of the business both ride-sharing, news aggregation and so on. I think our position is consistently to be in a constructive dialogue with its regulators.

We're sometimes sort of at the forefront of regulation working with other industry participants to introduce new regulation that is beneficial for everyone. I kind of draw your attention to the video anti-piracy memorandum that was signed in Q4 in early November, where Yandex together with other Internet players such as Mail and Rambler got together with the media companies, the guest-run medias, the -- and MGs of the world Channel Ones and so on and signed a memorandum, which has drastically cut the amount of video piracy that is accessible on the Russian Internet. So I think, that that's certainly a very legitimate approach to regulation, which is trying to identify problems that come up from time to time and trying to introduce kind of self-regulatory mechanisms that address the concerns of all the parties involved.

Cesar Tiron -- Bank of America Merrill Lynch -- Analyst

Very clear. Thank you.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Maria Kahn with HSBC. Please ask your question.

Maria Kahn -- HSBC -- Analyst

Hi. Thank you so much for the opportunity. Just wanted to ask the take-up of your Cloud business? And that's probably number one question. And second question, I think, investors would be interested to hear what you're doing in terms of addressing the single-person risk in your shareholder structure? Thank you.

Mikhail Parakhin -- Chief Technology Officer

Hey, Mikhail here, on the cloud question. So overall, I'm delighted with how Cloud is progressing. We rolled out our public usage in December of 2018. So it's a bit early to be able to estimate the rates of growth.

Overall, we have 50,000 registered users right now and 10,000, which are active. We added -- we're continually adding new services, just recently added like five services in the last week and things like reddit-based managed service and datarent, our data visualization tool. Of course, all of them are available on serves located in Russia. So right now, all I would say it performs in line with what we would expect.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Maria, it's Greg, and on the second question. Look, I don't think there is anything kind of new to add to the statements we've made in the past, which is to say that the board's committed to good corporate governance and it kind of evaluates any potential steps toward achieving optimal capital or government structure of the groups or its subsidiaries. And obviously, the long-term view is to protect the long-term interest of the company and all of the stakeholders. So there is not much to add to what we said before.

Maria Kahn -- HSBC -- Analyst

OK, OK. Very clear. Thank you so much.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Ulyana Lenvalskaya of UBS. Please ask your question.

Ulyana Lenvalskaya -- UBS -- Analyst

Hi, everyone, and congratulations on a very strong quarter. The first question will be on the car sharing. Can you if possible disclose the number of cars you currently have? And also, the regional strategy, like how big is this business in Moscow versus regions and plans about the potential expansion outside of Russia?

Greg Abovsky -- Chief Operating and Chief Financial Officer

Ulyana, it's Greg. On drive, I think, it currently has about 8,000 cars. We're adding a lot of cars every single month. Of the cars, almost all of them with the exception of roughly 1,000 are in Moscow.

We've expanded the services to St. Petersburg back in December, where we very quickly became the largest player there. We are looking to expand the service to other cities within Russia. And we're also evaluating opportunities for international expansion of Yandex.Drive.

I think the achievements that this team has demonstrated are remarkable, driven by their single-minded focus on product, which is quite unique in the marketplace. So we're very excited with the prospects.

Ulyana Lenvalskaya -- UBS -- Analyst

Yes. I agree the achievements are truly remarkable. In that sense, the business really becomes bigger, so you can see there to start reporting it separately outside of Experiments?

Greg Abovsky -- Chief Operating and Chief Financial Officer

Absolutely, I think. We constantly look for how to provide optimal level of disclosure to our shareholders. And I think generally speaking sort of at the forefront of transparency, and we always want to give you guys more information about how we make investment decisions and providing more disclosure around drive is certainly one way of achieving that.

Ulyana Lenvalskaya -- UBS -- Analyst

Thank you. And if I may, just, again, to quantify on the stability outlook. So with the core business, it's very clear, the guidance is straightforward. Taxi, you said that loss should be smaller year on year, but it is still a loss, right? And then how about the Classifieds and Media Services? Should we expect the losses to stay there during 2019?

Greg Abovsky -- Chief Operating and Chief Financial Officer

Sure. So I won't cover for the Search and Portal and Taxi, since I think you got those covered. On Classifieds, our strategy is unchanged from the previous year, which is, we expect a very robust growth in Classifieds as we are increasingly taking share away from the leading competitor there in the regions, and we will continue to reinvest all of the incremental revenues back in the business as we sort of turbocharge this segment. And with respect -- so I assume that it kind of operates at more or less breakeven, maybe slight positive, maybe slight negative depending in kind of the pacings of the business.

On Media Services, we will invest slightly more this year as compared to last year as we invest more in content. And as we look to grow our subscription base of Yandex.Music subscribers as well as video service subscribers.

Ulyana Lenvalskaya -- UBS -- Analyst

Thank you. And just final. On music, can you disclose the number of users you currently have?

Greg Abovsky -- Chief Operating and Chief Financial Officer

I don't think we've disclosed it yet, but it's tracking nicely. I should say, we haven't disclosed recently since we've disclosed it in the past, but it continues to grow month on month and hopefully year on year.

Ulyana Lenvalskaya -- UBS -- Analyst

Thanks.

Operator

Your next question comes from the line of Sebastian Patulea of Jefferies. Please ask your question.

Sebastian Patulea -- Jefferies -- Analyst

Hello, everyone, Sebastian from Jefferies here. I've got two questions, please. Firstly, we've seen an interview with one of your main competitors in the taxi vertical in Russia saying that they are open to the idea of selling that business. I realize this topic is sensitive, but would you be opened for further consolidation? And -- or do you believe that now you've achieved the necessary scale to grow organically and profitably for the foreseeable future? That's the first one.

And the second question still regarding Yandex.Taxi, global ride-hailing companies are pivoting more and more toward the strategy of last mile mobility and one of collaboration with two of your operators. For example, as you know, [Inaudible] recommending bus or train routes. These give the user at the destination both faster and cheaper everything within the same app. So with Moscow being one of the most congested cities in the world, do you guys see any benefit to go through this strategic shift yourselves? And if so, what are the opportunities here?

Greg Abovsky -- Chief Operating and Chief Financial Officer

Sure, Sebastian. First of all, on your second question with last mile mobility, I think that's an excellent question. And one of the remarkable things that the Department of Transportation has done in Moscow is three or four years ago, they introduced regulation which really enables car-sharing initiatives. I think Bloomberg just did a story about this last week, which was very interesting.

What they're doing is, they are allowing for car-sharing vehicles to pay lower parking rates than normal cars. And so what that has done is, it made Moscow of the largest car-sharing market in the world. While bikes and scooters are sort of one aspect of the last mile mobility, I would say Yandex.Drive is kind of an important participant in this space given kind of the weather conditions and the fact that bikes or scooters are probably not the best ways of getting around 250 days of the year or maybe slightly less than that. But we're also looking to integrate our offerings with Yandex.Transport, which provides a live information about the movements of buses, trams and so on throughout the city, and we're looking to see if we can integrate it even further within Yandex.Taxi.

On the question of M&A, look, we obviously don't comment on speculation or market rumors about consolidation. I think the business is in excellent shape and grows strongly organically and is improving its margin profile domestically. So there's not much to add.

Sebastian Patulea -- Jefferies -- Analyst

Thank you very much.

Operator

Your next question comes from the line of Alexander Vengranovich of Sova Capital. Please ask your questions.

Alexander Vengranovich -- SOVA Capital -- Analyst

Hi. So two questions from my side. So first, again, on Taxi. One of your competitors, Citymobil, is actually expanding in Moscow market.

And just wanted to understand whether you see any rising competition from their side? And in the case, they become like more aggressive, how do you plan to handle this situation? Do you think you might continue further shrink the subsidies or drivers in this environment? That's the first question. And the second question is regarding your office. So have you already estimated total construction costs? And when do you plan to start building the new headquarters? So how should we plan the impact of that construction in your financial results? Thank you.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Hi, Alexander. On competitive front, I think that the overall market is to the benefit of the consumer, right? What ride-sharing enables is, it allows consumers to summon a car at the push of a button within a few minutes and get from point A to point B at extremely competitive rates. And so our single-minded focus is on investing in the product and providing the best consumer experience. That's what we worry about.

And from that point of view I'd say, we've done extremely well in terms of growing the number of rides, in terms of growing GMV's and increasing the utilization rates for drivers, which is an extremely important metric to keep in mind, right? The thing that matters most for drivers is how much earnings do they generate per hour. And we basically use all of our expertise in machine learning and artificial intelligence to increase the utilization rates for those drivers and maximize their earnings per hour. And this is, I think, really were kind of the strength of the Yandex ecosystem bears its fruit. On the question of the office, I don't think we're in a position to provide any meaningful updates to you other than to remind you that the office lease for our main office runs through the end of 2021, and obviously, we'd love to start migrating to a new facility at some point in 2022.

Alexander Vengranovich -- SOVA Capital -- Analyst

OK. Just a quick clarification then on the office side. Do you already include any costs associated with the construction in the '19 guidance?

Greg Abovsky -- Chief Operating and Chief Financial Officer

We would break out those separately.

Alexander Vengranovich -- SOVA Capital -- Analyst

OK. Thank you.

Operator

Your next question comes from the line of Vladimir Bespalov of VTB Capital. Please ask your question.

Vladimir Bespalov -- VTB Capital -- Analyst

Hello. Thank you for taking my question. Congratulations on the results. My first question would be on your hardware initiatives.

You are increasingly moving into this area and probably it gives you another angle to look at your technology and for license with clients. Maybe you could share what you learned from developing this initiative. And what probably would be the next steps? Are you going to do something in this area, for example, the -- in the autonomous drive technology? And one more question I have on Media Services. We have heard quite a lot of news on different developments starting from the illegal [Inaudible] contract, some content products, but maybe you could give in a more strategic way the outlook where this Media Services is develop -- how this Media Services is developing where it's heading and what you see, let's say, in two, three years with this vertical?

Mikhail Parakhin -- Chief Technology Officer

Hi, Mikhail here. I'm going to take the first one. Well, what we learned? We learned that hard and hardware is there for a reason. It actually turned out to be surprisingly nonobvious where the pitfalls might be, and we learned a lot about difficulties of manufacturing and even things like you would think that nothing can go wrong and then something definitely goes wrong.

We learned to overcome those. Long term, we don't really disclose our plans, but we are super committed to growing all kinds of digital assistance and smart home presence. We, of course, would prefer not to become a hardware company. We prefer to stay on software side, but if we need to do something to grow the market, we will.

We're still, I would say, in a learning curve period where we sort of manage to overcome manufacturing and now learning to sell things.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Hi, Vladimir. On your question with respect to Media Services, look, our strategy there is focused on kind of three main pillars, subscription music, where we aim to be one of the leading players in this field. We compete with Apple Music and VK to some extent. But our focus is in sort of providing the best consumer experience on creating really compelling playlist for consumers to listen to and for them to have a reason to comeback to the service.

On the video side, look, it's not a secret that consumers tend to watch a lot of video online from -- sometimes it's short-form content, sometimes it's a long-form content. And then we respect kind of our own content creation, let's say, creating our own content is not a goal in itself. The goal is to provide consumers with what they want to watch. We're happy to partner with content owners, but in some cases, the content that we need is either not available on the market or at prices that are not reasonable.

And so in those instances we would look to create our own and go into content production. But look, in an ideal world, obviously, we're happy to partner with content owners, happy not to invest into content production on our own. What we provide is obviously robust monetization opportunities driven by advertising or subscription services we'll provide as a powerful distribution platform, we provide data analytics, obviously. And we provide the physical infrastructure to stream all that content, which we have enhanced.

And then sort of last pillar of Media Services is on ticketing. And over the last year, we have made a real push into ticketing services, initially was focused on movies, but increasingly it's focused on concerts and also on being able to provide sort of end-to-end services to artists, which include ticketing, promotion and subscription sales for music and driving more and more consumers to listen to their content. So I think, all of those things combined make us bullish on Media Services and make us want to invest in this business more.

Vladimir Bespalov -- VTB Capital -- Analyst

OK. Thank you very much.

Operator

Your next question comes from the line of Alexander Vengranovich of Sova Capital. Please ask your question.

Alexander Vengranovich -- SOVA Capital -- Analyst

Yes. Thanks again. So a quick question. So I've noticed you have quite a substantial increase of your distribution TAC in the fourth quarter.

I think it was up 44% year over year. Can you please provide the reason behind that growth? Thank you.

Mikhail Parakhin -- Chief Technology Officer

Sure. Mikhail here. So while you might have noticed that our share on Mobile and especially on Android grew significantly, and also last year, we were able to get much better placements on OEM distribution deals. And of course, that provided an upward pressure on distribution TAC.

And some of the changes were quite large like even if you take Huawei, where we were likely to get very good installation configuration in first screen, they -- their sales grew from 15% in December of 2017 to 38% in December 2018, quite a large shift in that market. So going forward, we still can expect distribution TAC to grow somewhat. We would say next year it might go as high as maybe 100 basis points up from Q4.

Greg Abovsky -- Chief Operating and Chief Financial Officer

I would just add that those increases in TAC have been fairly modest. If you look at full-year 2018 compared to full-year 2017, TAC has gone up a bit, will go up a bit more in 2019, but it'll also come with increased Android share, which we're obviously very excited about.

Alexander Vengranovich -- SOVA Capital -- Analyst

OK.

Operator

We have no further questions at this time.

Katya Zhukova -- Investor Relations Director

Thank you so much for joining our call today. We hope to see you back on our Q1 [Audio gap].

Operator

[Operator signoff]

Duration: 60 minutes

Call Participants:

Katya Zhukova -- Investor Relations Director

Arkady Volozh -- Chief Executive Officer

Mikhail Parakhin -- Chief Technology Officer

Tigran Khudaverdyan -- Head of YandexTaxi

Greg Abovsky -- Chief Operating and Chief Financial Officer

Lloyd Walmsley -- Deutsche Bank -- Analyst

Miriam Adisa -- Morgan Stanley -- Analyst

Slava Degtyarev -- Goldman Sachs -- Analyst

Cesar Tiron -- Bank of America Merrill Lynch -- Analyst

Maria Kahn -- HSBC -- Analyst

Ulyana Lenvalskaya -- UBS -- Analyst

Sebastian Patulea -- Jefferies -- Analyst

Alexander Vengranovich -- SOVA Capital -- Analyst

Vladimir Bespalov -- VTB Capital -- Analyst

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