WSM
$52.00
Williams-Sonoma
($1.24)
(2.33%)
Earnings Details
3rd Quarter October 2017
Thursday, November 16, 2017 4:15:01 PM
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Summary

Williams-Sonoma Misses

Williams-Sonoma (WSM) reported 3rd Quarter October 2017 earnings of $0.84 per share on revenue of $1.3 billion. The consensus earnings estimate was $0.84 per share on revenue of $1.3 billion. The Earnings Whisper number was $0.86 per share. Revenue grew 4.3% on a year-over-year basis.

The company said it expects fourth quarter earnings of $1.49 to $1.64 per share on revenue of $1.61 billion to $1.675 billion. The current consensus earnings estimate is $1.66 per share on revenue of $1.64 billion for the quarter ending January 31, 2018.

Williams-Sonoma Inc is a multi-channel specialty retailer of home furnishings in the United States and Canada.

Results
Reported Earnings
$0.84
Earnings Whisper
$0.86
Consensus Estimate
$0.84
Reported Revenue
$1.30 Bil
Revenue Estimate
$1.29 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Williams-Sonoma, Inc. announces third quarter 2017 results

Williams-Sonoma, Inc. (WSM) today announced operating results for the third fiscal quarter ended October 29, 2017 ("Q3 17") versus the third fiscal quarter ended October 30, 2016 ("Q3 16").

3rd QUARTER 2017 RESULTS

-
Q3 17 net revenues grew 4.3% to $1.299 billion versus $1.245 billion
in Q3 16 with comparable brand revenue growth of 3.3%. Net revenues
reflect an estimated $7.0 million impact of lost sales (or
approximately 60 basis points) associated with the hurricanes in
Texas, Florida and Puerto Rico.
-
Q3 17 operating margin was 8.5% versus 8.8% in Q3 16. Excluding
severance-related reorganization charges, non-GAAP operating margin
was 8.9% in Q3 16 (see Note 1 in Exhibit 1). See Exhibit 1 for a
reconciliation of GAAP to non-GAAP operating margin.
-
Q3 17 diluted earnings per share ("EPS") was $0.84, reflecting an
unfavorable impact of approximately $0.02 from the impact of lost
sales associated with the hurricanes, versus $0.78 in Q3 16.
Excluding severance-related reorganization charges, non-GAAP EPS
was $0.79 in Q3 16 (see Note 1 in Exhibit 1). See Exhibit 1 for a
reconciliation of GAAP to non-GAAP EPS.
-
Cash returned to stockholders totaled approximately $95 million,
comprising $61 million in stock repurchases and $34 million in
dividends.

Laura Alber, President and Chief Executive Officer, commented: "Our third quarter results demonstrate the effectiveness of our strategic priorities to deliver value, quality and excellent customer service. During the quarter, strong execution against our product and digital initiatives drove new customer acquisition and top-line expansion in a competitive and dynamic retail environment. Importantly, our demand during the quarter exceeded or was at least equal to net revenues across all of our brands - most notably in Pottery Barn and PBteen - which is a strong indication of the health of our business. Additionally, our investments in digital innovation and cross-brand services, as well as continued optimization of our supply chain, position us to further differentiate our business and to deliver long-term profitable growth."

Alber continued, "All of our initiatives are underpinned by our vision to create a high-touch customer service platform that is truly transformational for the home furnishings industry. Our acquisition of Outward, Inc., announced today, will enhance and extend this platform and enable us to create highly engaging and interactive shopping experiences that set a new industry standard."

Net revenues increased to $1.299 billion in Q3 17 from $1.245 billion in Q3 16.

Comparable brand revenue in Q3 17 grew 3.3% compared to a decline of 0.4% in Q3 16 as shown in the table below:

3rd Quarter Comparable Brand Revenue
Growth by Concept*
Q3 17
Q3 16
Pottery Barn
(0.3 %)
(4.6 %)
Williams Sonoma
2.3 %
0.1 %
West Elm
11.5 %
12.0 %
Pottery Barn Kids
0.1 %
(1.0 %)
PBteen
3.0 %
(10.9 %)
Total
3.3 %
(0.4 %)
* See the Company’s 10-K and 10-Q filings for the definition of
comparable brand revenue

E-commerce net revenues in Q3 17 increased 6.4% to $690 million from $649 million in Q3 16. E-commerce net revenues generated 53.1% of total company net revenues in Q3 17 and 52.1% of total company net revenues in Q3 16.

Retail net revenues in Q3 17 increased 2.1% to $609 million from $597 million in Q3 16.

Operating margin in Q3 17 was 8.5% compared to 8.8% in Q3 16. Excluding severance-related reorganization charges, non-GAAP operating margin was 8.9% in Q3 16:

-
Gross margin was 35.9% in Q3 17 versus 36.8% in Q3 16.
-
Selling, general and administrative ("SG&A") expenses were $356
million, or 27.4% of net revenues in Q3 17, versus $348 million,
or 28.0% of net revenues in Q3 16. Excluding severance-related
reorganization charges of approximately $1.2 million, non-GAAP
SG&A expenses were $347 million, or 27.9% of net revenues, in Q3
16.

The effective income tax rate in Q3 17 was 35.3% versus 36.6% in Q3 16. The year-over-year tax rate improvement was primarily driven by the overall mix and level of earnings, as well as the incremental benefits we are seeing from improved profitability across our international operations, which are taxed at a lower tax rate.

EPS in Q3 17 was $0.84 versus $0.78 in Q3 16. Excluding severance-related reorganization charges, non-GAAP EPS was $0.79 in Q3 16.

Merchandise inventories at the end of Q3 17 increased 10.6% to $1.177 billion from $1.064 billion at the end of Q3 16. A large portion of this inventory growth, however, was associated with inventory that is in-transit and not yet received at our distribution centers. The biggest drivers of inventory growth are associated with our higher growth brands, particularly West Elm and Rejuvenation. Based on our estimates, we believe that inventory growth will be relatively in-line with sales growth by the end of the year.

STOCK REPURCHASE PROGRAM

During Q3 17, we repurchased approximately 1.3 million shares of common stock at an average cost of $46.84 per share and a total cost of approximately $61 million. As of October 29, 2017, there was approximately $256 million remaining under our current stock repurchase program.

FISCAL YEAR 2017 FINANCIAL GUIDANCE
4th Quarter 2017 Guidance Financial
Highlights
Total Net Revenues (millions)
$1,610 -
$1,675
Comparable Brand Revenue Growth
2% -
6%
Diluted EPS
$1.49 -
$1.64
Fiscal Year 2017 Financial Guidance
Total Net Revenues (millions)
$5,225 - $5,290
Comparable Brand Revenue Growth
2% - 4%
Non-GAAP Operating Margin*
9.0% - 9.2%
Non-GAAP Diluted EPS*
$3.45 - $3.60
Income Tax Rate
35.0% - 36.0%
Capital Spending (millions)
$200 - $220
Depreciation and Amortization (millions)
$185 - $195
* Excludes certain items affecting comparability. See Notes 1 and
2 in Exhibit 1. Including these items,
GAAP operating margin
guidance would be 8.9% to 9.1%. See Exhibit 1 for a reconciliation
of GAAP to
non-GAAP EPS.
Store Opening and Closing Guidance by Retail Concept*
FY 2016 ACT
FY 2017 GUID
Total
New
Close
End
Williams Sonoma
234
4
(9)
229
Pottery Barn
201
8
(6)
203
West Elm
98
10
(2)
106
Pottery Barn Kids
89
-
(4)
85
Rejuvenation
7
1
-
8
Total
629
23
(21)
631
*
Included in the FY 16 store count are 19 stores in Australia
and one store in the UK.
FY 17 guidance includes one additional UK store, and does not
reflect the temporary store closures due to the hurricanes.

CONFERENCE CALL AND WEBCAST INFORMATION

Williams-Sonoma, Inc. will host a live conference call today, November 16, 2017, at 2:00 P.M. (PT). The call, hosted by Laura Alber, President and Chief Executive Officer, will be open to the general public via live webcast and can be accessed at http://ir.williams-sonomainc.com/events. A replay of the webcast will be available at http://ir.williams-sonomainc.com/events.

SEC REGULATION G -- NON-GAAP INFORMATION

This press release includes non-GAAP SG&A, operating income, operating margin and diluted EPS. These non-GAAP financial measures exclude the impact of severance-related charges in Q1 16, Q3 16 and Q1 17, a one-time favorable tax adjustment associated with intercompany transactions in Q4 16, and tax expense related to the adoption of new accounting rules related to stock-based compensation in Q1 17. We have reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in the text of this release and in Exhibit 1. We believe that these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of our actual results and Q4 17 and FY 17 guidance on a comparable basis with prior periods. Our management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or are proven incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include statements relating to: the progress on our strategic initiatives; our growth drivers; our future financial guidance, including Q4 17 and FY 17 guidance; our stock repurchase program; and our proposed store openings and closures.

The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: accounting adjustments as we close our books for Q3 17; continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending; new interpretations of or changes to current accounting rules; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; changes in consumer spending based on weather, political, competitive and other conditions beyond our control; delays in store openings; competition from companies with concepts or products similar to ours; timely and effective sourcing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; effective inventory management; our ability to manage customer returns; successful catalog management, including timing, sizing and merchandising; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; challenges associated with our increasing global presence; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy and other operating costs; our ability to improve our systems and processes; changes to our information technology infrastructure; general political, economic and market conditions and events, including war, conflict or acts of terrorism; the impact of potential corporate tax reform; and other risks and uncertainties described more fully in our public announcements, reports to stockholders and other documents filed with or furnished to the SEC, including our Annual Report on Form 10-K for the fiscal year ended January 29, 2017, and all subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

ABOUT WILLIAMS-SONOMA, INC.

Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies - Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams Sonoma Home, Rejuvenation, and Mark and Graham - are marketed through e-commerce websites, direct mail catalogs and retail stores. Williams-Sonoma, Inc. currently operates in the United States, Canada, Australia and the United Kingdom, offers international shipping to customers worldwide, and has unaffiliated franchisees that operate stores in the Middle East, the Philippines and South Korea, and stores and e-commerce websites in Mexico.

Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Thirteen weeks ended October 29, 2017 and October 30, 2016
(Dollars and shares in thousands, except per share amounts)
3rd Quarter
2017
2016
$
% of
$
% of
Revenues
Revenues
E-commerce net revenues
$
690,045
53.1 %
$
648,743
52.1 %
Retail net revenues
609,291
46.9 %
596,642
47.9 %
Net revenues
1,299,336
100.0 %
1,245,385
100.0 %
Cost of goods sold
832,269
64.1 %
787,162
63.2 %
Gross profit
467,067
35.9 %
458,223
36.8 %
Selling, general and administrative expenses
356,254
27.4 %
348,244
28.0 %
Operating income
110,813
8.5 %
109,979
8.8 %
Interest expense, net
594
-
488
-
Earnings before income taxes
110,219
8.5 %
109,491
8.8 %
Income taxes
38,906
3.0 %
40,113
3.2 %
Net earnings
$
71,313
5.5 %
$
69,378
5.6 %
Earnings per share (EPS):
Basic
$0.84
$0.78
Diluted
$0.84
$0.78
Shares used in calculation of EPS:
Basic
84,940
88,382
Diluted
85,384
89,144
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Earnings (unaudited)
Thirty-nine weeks ended October 29, 2017 and October 30, 2016
Year-to-Date
2017
2016
$
% of
$
% of
Revenues
Revenues
E-commerce net revenues
$ 1,901,348
52.6 %
$ 1,824,660
52.1 %
Retail net revenues
1,711,101
47.4 %
1,677,571
47.9 %
Net revenues
3,612,449
100.0 %
3,502,231
100.0 %
Cost of goods sold
2,326,911
64.4 %
2,240,952
64.0 %
Gross profit
1,285,538
35.6 %
1,261,279
36.0 %
Selling, general and administrative expenses
1,030,667
28.5 %
1,004,499
28.7 %
Operating income
254,871
7.1 %
256,780
7.3 %
Interest expense, net
974
-
587
-
Earnings before income taxes
253,897
7.0 %
256,193
7.3 %
Income taxes
90,112
2.5 %
95,433
2.7 %
Net earnings
$
163,785
4.5 %
$
160,760
4.6 %
Earnings per share (EPS):
Basic
$1.90
$1.81
Diluted
$1.89
$1.79
Shares used in calculation of EPS:
Basic
86,111
88,906
Diluted
86,582
89,764
Williams-Sonoma, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(Dollars and shares in thousands, except per share amounts)
Oct. 29, 2017
Jan. 29, 2017
Oct. 30, 2016
Assets
Current assets
Cash and cash equivalents
$
90,779
$
213,713
$
75,381
Accounts receivable, net
92,282
88,803
96,386
Merchandise inventories, net
1,176,941
977,505
1,063,747
Prepaid catalog expenses
22,992
23,625
25,329
Prepaid expenses
65,326
52,882
74,195
12,141
10,652
12,176
Other assets
Total current assets
1,460,461
1,367,180
1,347,214
Property and equipment, net
931,131
923,283
918,020
Deferred income taxes, net
131,793
135,238
136,558
Other assets, net
56,999
51,178
51,540
Total assets
$
2,580,384
$
2,476,879
$
2,453,332
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
$
470,783
$
453,710
$
450,144
Accrued salaries, benefits and other liabilities
103,349
130,187
111,445
Customer deposits
288,569
294,276
289,737
Borrowings under revolving line of credit
170,000
-
125,000
Income taxes payable
48,865
23,245
1,122
Other liabilities
55,985
59,838
53,423
Total current liabilities
1,137,551
961,256
1,030,871
Deferred rent and lease incentives
195,220
196,188
192,948
Other long-term obligations
75,439
71,215
70,031
Total liabilities
1,408,210
1,228,659
1,293,850
Stockholders’ equity
Preferred stock: $.01 par value; 7,500 shares authorized;
none issued
-
-
-
Common stock: $.01 par value; 253,125 shares authorized;
84,478, 87,325 and 88,014 shares issued and outstanding
at October 29, 2017, January 29, 2017 and October 30, 2016,
845
873
881
respectively
Additional paid-in capital
557,198
556,928
547,513
Retained earnings
623,170
701,702
623,243
Accumulated other comprehensive loss
(8,314 )
(9,903 )
(10,772 )
Treasury stock, at cost
(725 )
(1,380 )
(1,383 )
Total stockholders’ equity
1,172,174
1,248,220
1,159,482
Total liabilities and stockholders’ equity
$
2,580,384
$
2,476,879
$
2,453,332
Williams-Sonoma, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
Thirty-nine weeks ended October 29, 2017 and October 30, 2016
(Dollars in thousands)
Year-to-Date
2017
2016
Cash flows from operating activities
Net earnings
$
163,785
$
160,760
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization
135,473
127,745
Loss on disposal/impairment of assets
1,299
1,852
Amortization of deferred lease incentives
(18,987 )
(18,789 )
Deferred income taxes
(11,884 )
(14,461 )
Tax benefit related to stock-based awards
15,439
23,571
Excess tax benefit related to stock-based awards
-
(4,817 )
Stock-based compensation expense
30,164
37,975
Other
(416 )
(647 )
Changes in:
Accounts receivable
(2,341 )
(17,400 )
Merchandise inventories
(197,757 )
(82,410 )
Prepaid catalog expenses
633
3,591
Prepaid expenses and other assets
(20,001 )
(29,205 )
Accounts payable
7,544
(17,403 )
Accrued salaries, benefits and other liabilities
(26,883 )
(507 )
Customer deposits
(5,815 )
(7,445 )
Deferred rent and lease incentives
17,000
25,969
Income taxes payable
25,677
(65,915 )
Net cash provided by operating activities
112,930
122,464
Cash flows from investing activities:
Purchases of property and equipment
(135,821 )
(127,169 )
Other
458
370
Net cash used in investing activities
(135,363 )
(126,799 )
Cash flows from financing activities:
Borrowings under revolving line of credit
170,000
125,000
Repurchases of common stock
(154,321 )
(115,167 )
Payment of dividends
(101,928 )
(100,854 )
Tax witholdings related to stock-based awards
(14,836 )
(26,518 )
-
4,817
Excess tax benefit related to stock-based awards
Proceeds related to stock-based awards
-
1,532
Other
(20 )
(48 )
Net cash used in financing activities
(101,105 )
(111,238 )
Effect of exchange rates on cash and cash equivalents
604
(2,693 )
Net decrease in cash and cash equivalents
(122,934 )
(118,266 )
Cash and cash equivalents at beginning of period
213,713
193,647
Cash and cash equivalents at end of period
$
90,779
$
75,381
Exhibit 1
(Unaudited)
Reconciliation of 3rd Quarter GAAP to
Non-GAAP Operating Income and Operating Margin By Segment*
($ in thousands)
E-commerce
Retail
Unallocated
Total
Q3 17
Q3 16
Q3 17
Q3 16
Q3 17
Q3 16
Q3 17
Q3 16
Net Revenues
$690,045
$648,743
$609,291 $596,642
$
-
$
-
$1,299,336
$1,245,385
GAAP Operating Income/(Expense)
142,865
150,164
42,804
47,080
(74,856)
(87,265)
110,813
109,979
GAAP Operating Margin
20.7%
23.1%
7.0%
7.9%
(5.8%)
(7.0%)
8.5%
8.8%
Severance-related Charges(1)
-
-
-
-
-
1,185
-
1,185
Non-GAAP Operating Income/ (Expense) (5)
$142,865
$150,164
$42,804
$47,080
$(74,856)
$(86,080)
$110,813
$111,164
Non-GAAP Operating Margin(5)
20.7%
23.1%
7.0%
7.9%
(5.8%)
(6.9%)
8.5%
8.9%
* See the Company’s 10-K and 10-Q filings for additional
information on segment reporting and the definition of Operating
Income/(Expense) and Operating Margin.
Reconciliation of Quarterly and Fiscal Year GAAP to Non-GAAP
Diluted Earnings Per Share**
(Totals rounded to the nearest cent per diluted share)
Q1 17
Q2 17
Q3 17
Q4 17
FY 17
ACT
ACT
ACT
GUID
GUID
2017 GAAP Diluted EPS
$0.45
$0.61
$0.84
$1.49 - $1.64
$3.39 - $3.54
Impact of Severance-related Charges(2)
$0.04
-
-
-
$0.04
Unfavorable Tax Impact from the Adoption of New Accounting Rules (3)
$0.02
-
-
-
$0.02
2017 Non-GAAP Diluted EPS (5)
$0.51
$0.61
$0.84
$1.49 - $1.64
$3.45 - $3.60
==================================================================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ====================
Q1 16
Q2 16
Q3 16
Q4 16
FY 16
ACT
ACT
ACT
ACT
ACT
2016 GAAP Diluted EPS
$0.44
$0.58
$0.78
$1.63
$3.41
Impact of Severance-related Charges(1)
$0.09
-
$0.01
-
$0.10
One-time Favorable Tax Adjustment(4)
-
-
-
($0.08)
($0.08)
2016 Non-GAAP Diluted EPS (5)
$0.53
$0.58
$0.79
$1.55
$3.43
==================================================================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ====================
** Due to the differences between the quarterly and year-to-date
weighted average share count calculations and rounding to the
nearest cent per diluted share, totals
may not equal the sum of the line items and fiscal year diluted EPS
may not equal the sum of the quarters.
Store Statistics
Avg. Leased Square Footage
Store Count
Per Store
Jul. 30, 2017
Openings
Closings***
Oct. 29, 2017
Oct. 30, 2016
Oct. 29, 2017
Oct. 30, 2016
Williams Sonoma
234
1
(2)
233
241
6,700
6,600
Pottery Barn
204
1
(3)
202
202
13,900
13,800
West Elm
101
5
(1)
105
97
13,100
13,300
Pottery Barn Kids
88
-
-
88
89
7,400
7,500
Rejuvenation
8
-
-
8
6
8,800
9,300
Total
635
7
(6)
636
635
10,200
10,000
Jul. 30, 2017
Oct. 29, 2017
Oct. 30, 2016
Total store selling square footage
3,998,000
4,031,000
3,966,000
Total store leased square footage
6,428,000
6,468,000
6,381,000
*** Q3 17 closings include two Williams Sonoma, two Pottery Barn and
one West Elm temporary closures in Puerto Rico and Florida due to
hurricanes in these areas. These stores are expected to reopen in
Q4 17.

Notes:

(1)
During Q1 16 and Q3 16 we incurred severance-related reorganization
charges due to headcount reduction primarily in our corporate
functions totaling approximately $13 million, or $0.09 per diluted
share, and $1 million, or $0.01 per diluted share, respectively.
These charges were recorded as SG&A expense within the unallocated
segment.
(2)
During Q1 17 we incurred severance-related charges associated with
the previously announced departure of the former President of the
Pottery Barn brands, as well as other severance-related charges, of
approximately $6 million, or $0.04 per diluted share. These charges
were recorded as SG&A expense within the unallocated segment.
(3)
During Q1 17 we incurred tax expense of approximately $1 million, or
$0.02 per diluted share, associated with the adoption of new
accounting rules related to stock-based compensation.
(4)
During Q4 16 we incurred a benefit of approximately $8 million, or
$0.08 per diluted share, related to a one-time tax adjustment
associated with intercompany transactions.
(5)
SEC Regulation G - Non-GAAP Information - These tables include
non-GAAP operating income, operating margin and diluted EPS. We
believe that these non-GAAP financial measures provide meaningful
supplemental information for investors regarding the performance of
our business and facilitate a meaningful evaluation of our actual
results and Q4 17 and FY 17 guidance on a comparable basis with
prior periods. Our management uses these non-GAAP financial measures
in order to have comparable financial results to analyze changes in
our underlying business from quarter to quarter. These non-GAAP
financial measures should be considered as a supplement to, and not
as a substitute for, or superior to, financial measures calculated
in accordance with GAAP.

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SOURCE: Williams-Sonoma, Inc.

WILLIAMS-SONOMA, INC.
Julie P. Whalen, 415-616-8524
EVP, Chief Financial Officer
-or-
Beth Potillo-Miller, 415-616-8643
SVP, Finance & Corporate Treasurer
Investor Relations