This Startup Is Using AI to Help Nonprofits Raise More Money

Nonprofit organizations live on fundraising. Spreadsheets and CRM systems have helped fundraisers track, sort, and reach out to potential donors. But fundraising is a high-touch, people-intensive activity. 

Donor outreach may start out with mass mailings and email blasts, but effectively engaging with the biggest and most frequent donors usually requires a high degree of customization and personalization. For resource-constrained non-profit organizations, then, one of the biggest barriers to reaching out to more high-potential donors?–?and more frequently?–?is the need to tailor outreach. 

This is one lesson Adam Martel learned firsthand as a fundraiser for Babson College, widely considered one of the world’s leading institutions for the study of entrepreneurship. Martel’s quest to solve this issue for himself and his team eventually became the kernel of an idea for an entirely new business he founded while studying for his MBA, which he pursued part-time while he helped Babson build its endowment.

Gravyty Technologies, which he co-founded in 2016 with Babson classmate Rich Palmer, draws on the power of AI to make data-backed predictions about the giving potential of donors and even help automatically write first drafts of personalized outreach emails. 

Gravyty is acquiring new nonprofit customers, raising fresh funding, and earning accolades for its AI-based technology. Earlier this year, Gravyty successfully completed its second round of funding, raising $2 million by a group of investors led by Boston’s NXT Ventures and Launchpad Venture Group.

In 2017, The Chronicle of Philanthropy selected Gravyty as the first among fifteen “New Fundraising Ideas that Worked” for the role their artificial intelligence technology played in helping increase major donor retention for the Cure Alzheimer’s Fund. The Fund increased fundraising by 49 percent, or nearly $2 million, in the first year they used Gravyty’s applications.

I spoke with Adam recently about his advice for aspiring entrepreneurs. 

1. Find a partner.

“Be on the search for somebody you can go through the journey with. Being an entrepreneur alone is not very much fun. I’ve done it. Rich has done it. It’s too hard to do by yourself. Have the humility to understand and know that you need other people. Having a partner that you go through these journeys with, makes the journey more worthwhile….To have a co-founder that goes with the same speed and has the same passion…is unique.”

2. Be prepared for the highs and the lows.

“Every day, we have high highs and low lows. There’s not a day that’s gone by where I haven’t felt like I was on top of the world and haven’t felt like I was at the bottom of the ocean…We use the phrase ‘ride a flat rollercoaster.’ Don’t try to get too excited. Don’t try to get too down. Just try to do your job to the best of your ability every single day.”

3. Find something that you truly want to do.

“Find something that you truly want to do. Find a problem that you truly want to solve. I’m compelled to be an entrepreneur because I want to provide my family with the life that I want to live with them. Working at a job that I love makes me a better father and a better husband. I’ve tried to do other things and I can’t. What drives me to be an entrepreneur isn’t anxiety or anything other than the fact that I love doing it. I wake up every day excited to do it.”

4. Find investors who are also mentors.

“I think the best investors not only give money, but give time. Raymond Chang, our investor at NXT Ventures, didn’t just give us money?–he sat down with me and spent hours with me, trying to explain things and work through challenges that I was facing. To have somebody that’s gone through this so many times, who is on your side and really mentoring you, is very useful.”

(Note: Gravyty Technologies is not a client of mine, nor do I have any other business dealings with the company.)

Where Big Money is Made Licensing Product Ideas

Industries are not equal in terms of generating royalties for product ideas. “Where is the big money in licensing being made?” is a question I get asked all the time. I get it. You could end up spending quite a bit of time developing a new product for the market and licensing it, only to be disappointed by the size of your royalty checks.

The solution is simple. Before you spend too much time on any one of your ideas, do the math. You can get a sense of your potential passive income pretty easily. Make a list of potential licensees. Select one. How many stores carry their products? If stores sell less than one unit a week, your product will get kicked to the curb. Then estimate the wholesale price of your product, which your royalty will come off of.

Calculate what you would earn if your royalty was three percent. What about five percent? Seven?

If the company is selling in 10,000 stores, the wholesale price of your product is 10 dollars, and your royalty is five percent, you would earn 50 cents for every unit sold, resulting in $5,000 a week. That’s $260,000 a year selling half a million units. Not bad.

Here’s a breakdown of some popular industries to invent for and where the big money is.

Novelty Gifts

I started out licensing my ideas for novelty gifts. Most novelty gifts are seasonal. As a result, the ideas I licensed for Valentine’s Day, Easter, Christmas, and graduations produced low royalty streams. Companies needed to fill their distribution channels with new products, but they only sold for about 60 days. I earned about $10,000 for ideas like these. That worked for me, because basically all I had done was show a very simple sketch. I’d spent very little time or money.

If you like to come up with silly and whimsical product ideas, focus your energy on events that are celebrated daily, like birthdays and anniversaries. I began coming up with my own novelty gift ideas because the inventor of the pet rock was from my hometown Los Gatos. I could not believe how well his product did!

This industry is always looking for new ideas. A rough sketch is basically all you need. Sometimes even a short paragraph is enough.

The same downsides apply to summer toys. The selling window is short! Your licensee might have wide distribution, but still. On the other hand, there are hit number one hit toys like Bunch o Balloons — licensed to ZURU — that produce a ton of revenue. In my opinion, it’s not easy to make big money licensing summer toy ideas. The competition is stiff.

Toy and Game

Who doesn’t want to relive their childhood and play with toys? It is extremely difficult to succeed at making big money toy licensing. So many people are chasing a number one hit toy. I experienced the mania firsthand when I worked at the startup that brought Teddy Ruxpin and Laser Tag to market. If you succeed at producing a hit toy, your royalties will be monumental.

I got lucky once. My toy idea could not have been simpler. I loved basketball and so I shot hoops in my office with an indoor Nerf set. The backboard was boring; it had just a small image of Michael Jordan. Why not shape the backboard itself into image of Michael Jordan? Three days after I contacted Ohio Art, they sent me a contract. I was extremely fortunate to earn royalties for 10 years. The Michael Jordan Wall-Ball was in every major retailer; there were even commercials on Saturday morning. If my memory serves me correctly, I made about $100,000 that first year. Not bad for a $10 prototype.

If you produce a number one hit toy or a toy that sells for many years (an evergreen) the royalties can be extremely large. For example, the inventor of the card game Phase 10 — Ken Johnson — has been earning royalties for decades. That’s the power of a trademark.

The toy industry is full of highly creative people. These companies have been working with outside product developers forever and see thousands of ideas every year. So, it’s tough. If you want to become successful, stick with it. Make relationships. Familiarize yourself with its history. That’s the key to inventing for the future.

Kitchen and Housewares

This industry is on fire! It has been for quite a few years now. Licensing agreements are common. Some are looking for the next gadget, which will have a lifespan of three to four years at best. Others, like OXO and Joseph Joseph, are committed to making small improvements to existing products. These have a lifespan closer to 10 years. That’s what I would stick to if I were inventing for this industry today. No gadgets, just popular products made better.

The pet and hardware industries are thriving and have also embraced open innovation. These are some of the easiest industries for licensing, because they’re looking for new ideas.

Prototypes are helpful and you will need a well-written provisional patent application to secure a deal.

Direct Response Television (DRTV)

Everyone is familiar with “As Seen On TV” products. Today these products are sold everywhere, including social media. This industry moves fast and is capable of selling large volumes. Some of the top companies offer very large minimum guarantees, meaning there’s a good chance your royalties are going to be correspondingly large. If you have a hit, wow!

This is a difficult industry to succeed in. There are only five major players, and they only need one or two big hits a year. They review thousands of ideas, test some, and move forward with just a few. Your likelihood of success is small.

You will need a prototype. Most of these companies do not care about intellectual property.

Consumables

These are products people use every day. Usually only once before they’re thrown away. This is where the big money is.

In my experience, this is also one of the most difficult industries to invent for. Yes, the volumes are enormous. But think of the speed at which products like these are manufactured. If your innovation depends on new equipment, that requires a huge investment of capital. (More than one facility will be impacted no doubt.) All of which adds up to risk for potential licensees.

You will need a wall of intellectual property to secure your ownership over an idea like this.

One example that comes to mind is the Zip It, a tool for cleaning drains invented by my friend Gene Luoma. It’s a thin inexpensive piece of plastic that you can find in every major hardware store. Tens of millions have been sold. You might use it more than once, and it’s not as if this product is used every day, but every home in America has drains that need unclogging at one point.

Only one of my products sold hundreds of millions of units worldwide, and it was a rotating label called Spinformation. It appeared on many different types of products, including water, vitamins, spices, alcohol, etc. These products are used every day.

My royalty was five percent and based on the label’s cost. Not a large royalty. But, due to volume, it added up very quickly. A small account that ran one line generated about $250,000 in royalties, and this was just one category. Because there were so many different categories of products that featured labels, the royalties were very large.

That’s a double whammy. If you invent a product that offers a benefit across many different categories, sells worldwide, and involves consumables, the royalties can easily merit you millions. Spinformation barely scratched the surface of its potential. After all, billions of labels are consumed every day.

Don’t be surprised. It all comes down to distribution.

Happy counting.

Google to Pay Apple $12 Billion to Remain Safari’s Default Search Engine in 2019: Report

Google’s search engine dominance can seem invincible, but that doesn’t mean the search giant isn’t willing to pay billions to ensure it stays that way.

Google will reportedly pay Apple $9 billion in 2018 and $12 billion in 2019 to remain as Safari’s default search engine, according to Business Insider. The report comes courtesy of Goldman Sachs analyst Rod Hall. It seems like a hefty price to pay, but with Safari being the default browser on iPhone, iPads, and Macs—and Google continuing to generate a great deal of revenue from its original search engine business—the Goldman Sachs report finds the payments to be a fraction of the money it ends up making.

“We believe Apple is one of the biggest channels of traffic acquisition for Google,” the report said, according to Business Insider.

Bernstein analyst Toni Sacconaghi additionally revealed in 2017 that Google previously paid Apple an estimated $3 billion. However, the only real number available is from 2014, due to court filings, which revealed Google paid Apple $1 billion for its search engine spot. Considering $9 and $12 billion are big jumps in four and five years, respectively, and that Google and Apple won’t actually disclose the figure, it’s unclear how accurate the Goldman Sachs estimate really is.

Why Did Bezos Do It? An Inside Look at Whole Foods and Amazon

A lot of people thought, when Amazon acquired Whole Foods, they had just witnessed Jeff Bezos’ first big business misstep. Coming in at a cool $13.7 billion, this particular acquisition is one for the record books. Now, that they’ve just passed their one-year anniversary, I thought it would be interesting to look through the lenses of experts plus some amazing data, and see how the year really went, whether or not it’s working, and what we can expect for year two. Is Amazon + Whole Foods a match made in heaven, or are they destined for divorce?

To pull off this kind of review, the expert panel needs to be top notch (which they are) so the opinions expressed in this article were influenced by the following retail, data, and business heavyweights: Sterling Hawkins, Head of Venture & Innovation at CART (Center for Advancing Retail and Technology), Gary Hawkins, Co-Founder of CART & Career Retailer, Anne Marie Stephens, CEO & Founder of Retail Innovation Lounge & kwolia, and Eli Portnoy, CEO & Co-Founder of Sense360. With that, let’s dig into the goods.

Why Did He Do It?

The million billion dollar question everyone is dying to ask Bezos, and with a year’s worth of data, we can begin to see why he pulled the trigger on such a massive acquisition.

  • The grocery market is ripe for innovation, and unchanged for decades.
  • Great opportunity to learn a new business with a small footprint, as Whole Foods is only 450 stores to date – which also means 450 new distribution points to expand.
  • A lot of demographic overlap, fifty percent of Whole Foods shoppers were already Prime members, and eighty-one percent of Whole Foods customers also shop on Amazon.
  • A great opportunity to create a deeper relationship with consumers by multiple touch points and interactions across multiple markets.
  • A new avenue to lock people into the Amazon ecosystem.

The Intersection of Whole Foods Customers + Amazon

  • Folks who frequently consider Whole Foods were twenty-five percent more likely to use Amazon
  • Folks who frequently consider Whole Foods were fifty percent more likely to be Prime members.
  • Forty percent of Prime non-members who frequently consider Whole Foods said the potential benefits of this partnership increases their likelihood of joining Prime.
  • Fifty-six percent of Prime members who frequently consider Whole Foods said this partnership increases their likelihood of retaining Prime membership.

What we can see from this data is a self-serving cycle where Whole Foods is driving traffic to Amazon while Amazon is driving traffic to Whole Foods.

“I want to make it fiscally irresponsible to not be a Prime member.” – Jeff Bezos ?

What About the Competition?

Sense 360’s Exclusive Report on this acquisition and their first-year progress, also shows us some interesting insights about what this partnership is doing to the competition. Using Trader Joe’s as an example, their data showed that over the past year, Whole Foods has taken an astounding four percent of market traffic from Trader Joe’s. And it isn’t only Trader Joe’s. When there is another competitor within a one-mile radius, the gains are not limited to Trader Joe’s. Whole Foods is showing head-to-heads gains with every single market competitor

“Amazon is a company that spent $23 billion dollars on research and development last year. To give you some perspective, that sum is larger than Dollar General’s entire market cap.” – Sterling Hawkins, Head of Venture and Innovation at CART & 5th generation retailer

Data Is Now A Necessity

This is so true, and I really feel for the giant chains who, up to this point, have collected no data on their consumers, have built no profiles, and really cannot personalize the shopping experience per individual person. All businesses need data because it helps them to make smarter decisions, removing much of the guesswork. Without data, these businesses are trying to do exactly what their competitors are doing but without insights, and without a “behind the scenes” view of buyer behavior.

Into the Future: Beyond Transactional

Amazon is forcing their competitors to wake up, to think about the future of retail and grocery, and to recognize their own weaknesses with the hopes of staying in the game. Amazon makes for a fierce competitor because they are thorough, they aren’t afraid to take risks, and they execute very, very well. The ecosystem they are building is one that goes beyond the transaction to meet their consumers across multiple platforms, in many different forms, and to do it all in a way that is catered directly to that individual. With Prime memberships sitting at over 100 million across the globe, that sounds like an almost impossible feat, yet Bezos and his teams are making it look fairly easy.

One Last Point

When we talk about a buyer profile, I want you to consider how many touch points Amazon has created just in your life. The amount of data and insights Amazon is amassing will only help them learn more, faster because they are basically building an entire user profile through choices made in entertainment, grocery, video, shopping, and app preference. With this data, Amazon is already showing us, in the first year, that they can monitor their market, react quickly, pivot, innovate, and disrupt, while everyone else just watches.

Intel says has enough PC chip supply to meet revenue targets

(Reuters) – Intel Corp is prioritizing the production of chips used in personal computers and has enough supplies required to meet its full-year revenue targets, the world’s second-biggest chipmaker said on Friday.

A visitor passes an Intel logo at the Mobile World Congress in Barcelona, Spain, February 26, 2018. REUTERS/Sergio Perez

The company’s shares reversed course and were up 3.5 percent at $47.46 following the announcement, while rival Advanced Micro Devices Inc fell 7 percent.

“We’re prioritizing the production of Intel Xeon and Intel Core processors,” said Chief Financial Officer and interim Chief Executive Officer Bob Swan. “Supply is undoubtedly tight, particularly at the entry-level of the PC market,” he said.

Intel, which is the dominant supplier of PC chips, has been increasingly catering to data centers as revenue from PCs has flattened since shipments peaked in 2011.

“We now expect modest growth in the PC total addressable market (TAM) this year for the first time since 2011, driven by strong demand for gaming as well as commercial systems,” Swan said.

With Intel saying that the return to growth in the PC market was putting pressure on its factories, companies selling chip manufacturing gear rose.

Applied Materials gained 1.2 percent. Lam Research added 0.6 percent, erasing a loss from earlier.

Other technology companies including Micron Technology have also pointed to the PC chips shortage weighing on their revenue forecasts.

Intel also said here it was making progress with its 10nm chips and that yields are improving and continue to expect volume production in 2019.

In July, the company said the 10nm chips launch was being pushed from 2018 to 2019. Intel originally predicted the chips could be ready by 2015.

Intel reiterated its plan to increase its capital spending in 2018 by $1 billion to about $15 billion.

Reporting by Vibhuti Sharma and Sonam Rai in Bengaluru and Noel Randewich in San Francisco; Editing by Sai Sachin Ravikumar and Sriraj Kalluvila

Don't Worry About The Fed – Cramer's Mad Money (9/26/18)

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Wednesday, September 26.

The market was dealing with different forces on Wednesday, namely the Fed’s interest rate hike and the tariff worries. Cramer advised investors not to trade according to every word that comes out of the Fed. “I’m not saying ‘In Fed we trust.’ That’s not me. That’s what got the bulls burned. I say ‘In Fed we trust, but verify,’ and so far, that verifying makes me think that you’ll be safe if you sit tight with a diversified portfolio rather than flitting in and out of stocks every time Jay Powell opens his mouth,” he added.

Higher interest rates are bad for the stock market but they are still lower than pre-recession levels. The economy is strong and the Fed is taking a measured approach. At such times, a diversified portfolio helps hedge against volatile moves of the market in response to Fed comments. Some money managers sold the industrial stocks and moved to the sectors that do well in a slowing economy.

On the other side of this trade were money managers who thought that the hike will not have much impact and bought into sectors like tech and retail. “Short-term interest rates are still at such low levels, just 2.25%, that the bulls simply don’t believe a quarter-point tightening can derail the economy,” said Cramer.

As the economy gets hot, the Fed uses interest rates to keep inflation under control. This situation is different from 2008 as rates are still low, the economy is strong and the longer-term rates went lower.

Have a diversified portfolio and invest in stocks that have nothing to do with rate hikes or tariffs. Don’t get caught up in the market’s hourly movements.

Old is gold?

When there is nothing new to trade, the market looks at the old. It’s a classic case of rotation into sectors that were left earlier due to lack of growth. When the market looks for growth, they re-look at sectors with the current worldview.

The retail sector saw money coming into it after a research report that said the mall is not dead. It said that the merchant talent, brand power and product positioning along with the strength of the mall is still doing well for many companies.

Stocks like TJX Companies (NYSE:TJX) which is up 46% for the year, Burlington Stores (NYSE:BURL) up 34% and Canada Goose (NYSE:GOOS) +100%. “Believe it or not, I think Canada Goose is best of the bunch simply because we’re going into the best time of the year for this maker of fancy fur-lined coats and parkas. I know Canada Goose has been diversifying away from winterwear, but this is still the season they’re practically synonymous with,” said Cramer.

Nike (NYSE:NKE) has not been hurt after their controversial ad campaign and this will be good for Foot Locker (NYSE:FL) too. Even GoPro (NASDAQ:GPRO) went up on an analyst upgrade.

CEO interview – United Continental (NASDAQ:UAL)

The stock of United Continental has bounced back after the PR scandal. Cramer interviewed CEO Oscar Munoz to find out what lies ahead after the stock has moved up 25% in the last three months.

They are trying to heighten United’s focus on the customer and their 90,000 employees are their best asset. Commenting on earnings growth and hiking baggage fees, Munoz said that it’s important to strike a balance. “It’s important to reinvest in the business. I think it’s one of the things about this industry that people, our customers, don’t always understand. All that money that we’re getting back is being piled back into the business,” he added.

He thinks the overcapacity will not be an issue if the correct balance is sought. “We want to make you, as our customer, feel good about flying us. And so our customer-centricity, our customer properties, are something we really want to sort of engage,” he added.

The company has a lot planned for next year when they roll out a new customer engagement initiative. “Trust is the underpinning of a lot of things that we do and that doesn’t compute, as you know, on spreadsheets,” he concluded.

Viewer calls taken by Cramer

Dow DuPont (NYSE:DWDP): Sit tight and do some buying because the upcoming split of DowDuPont will make a lot of money.

CenturyLink (NYSE:CTL): The dividend is strong but be cautious after the CFO resignation.

Urban Outfitters (NASDAQ:URBN): They have a great handle on fashion. Buy on weakness.

:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

Jim Cramer’s Action Alerts PLUS: Check out Cramer’s multi-million dollar charitable trust portfolio and uncover the stocks he thinks could be HUGE winners. Start your FREE 14-day trial now!

Get Cramer’s Picks by email – it’s free and takes only a few seconds to sign up

Mobile Websites Can Tap Into Your Phone's Sensors Without Asking

When an app wants to access data from your smartphone’s motion or light sensors, iOS and Android require them to get your permission first. That keeps a fitness app, say, from counting your steps without your knowledge. But a team of researchers has discovered that those rules don’t apply to websites loaded in mobile browsers, which can often often access an array of device sensors without any notifications or permissions whatsoever.

That mobile browsers offer developers access to sensors isn’t necessarily problematic on its own. It’s what helps those services automatically adjust their layout, for example, when you switch your phone’s orientation. And the World Wide Web Consortium standards body has codified how web applications can access sensor data. But the researchers—Anupam Das of North Carolina State University, Gunes Acar of Princeton University, Nikita Borisov of the University of Illinois at Urbana-Champaign, and Amogh Pradeep of Northeastern University—found that the standards allow for unfettered access to certain sensors. And sites are using it.

The researchers found that of the top 100,000 sites—as ranked by Amazon-owned analytics company Alexa—3,695 incorporate scripts that tap into one or more of these accessible mobile sensors. That includes plenty of big names, including Wayfair, Priceline.com, and Kayak.

“If you use Google Maps in a mobile browser you’ll get a little popup that says, ‘This website wants to see your location,’ and you can authorize that,” says Borisov. “But with motion, lighting, and proximity sensors there isn’t any mechanism to notify the user and ask for permission, so they’re being accessed and that is invisible to the user. For this collection of sensors there isn’t a permissions infrastructure.”

That unapproved access to motion, orientation, proximity, or light sensor data alone probably wouldn’t compromise a user’s identity or device. And a web page can only access sensors as long as a user is actively browsing the page, not in the background. But the researchers note that on a malicious website, the information could fuel various types of attacks, like using ambient light data to make inferences about a user’s browsing, or using motion sensor data as a sort of keylogger to deduce things like PIN numbers.

In past work, researchers have also shown that they can use the unique calibration features of motion sensors on individual devices to identify and track them across websites. And while the World Wide Web Consortium standards classify data from these sensors as “not sensitive enough to warrant specific sensor permission grants,” the group does acknowledge that there are some potential privacy concerns. “Implementations may consider permissions or visual indicators to signify the use of sensors by the page,” the standard suggests.

The group looked at how nine browsers—Chrome, Edge, Safari, Firefox, Brave, Focus, Dolphin, Opera Mini, and UC Browser—handle access to motion, orientation, proximity, and light sensors. They found that all of them allow web pages to access motion and orientation sensors without permission. Only Firefox also allows access to proximity and light sensors in addition. The researchers also found that the popular ad and tracking blockers they tested didn’t reliably block scripts seeking sensor access, catching them less than 10 percent of the time, and in most cases only 2 to 3 percent of the time.

“There are limitations of the available protections for users,” Acar says. “In general we don’t think ad blockers and black lists were efficient in blocking these scripts.”

The researchers classified the sensor scripts they found by what they seemed to be doing. Some had benign uses, like orienting and resizing pages or reacting to gestures. A few even used the data to fuel random number generators. But the researchers also found about 1200 sites that seemed to be using sensor data to aide tracking and analytics-gathering or audience recognition. And 63 percent of the scripts the researchers analyzed that access motion sensors also fingerprint browsers for tracking.

“I did not expect that we would find thousands of sites and hundreds of domains that are engaged in using these sensors,” Borisov says. “Or that there’s a link between doing that and other stateless tracking approaches. These are advanced techniques in browser fingerprinting.”

The researchers say they hope to bring awareness to the topic and start a discussion within the browser industry about the best way to give users more control and information about what sensors websites can access without interrupting browsing every time a user wants to reorient their phone. And the group notes that there is more work to be done, since they encountered many scripts that they couldn’t easily classify as using sensor data in a particular way. This means that there may be more uses for this type of data—both legitimate and potentially invasive—that they haven’t yet identified.

The prevalence of ad networks also makes it difficult to get a handle on the issue. The researchers even found three scripts attempting to access user sensors in ad modules on WIRED.com, though at least one had been removed when the researchers rechecked the site for this story. Other media sites, including CNN, the Los Angeles Times, and CNET have ad networks using similar scripts as well.

“There’s a difference between the access from the web scripts compared to say mobile apps,” Acar says. “And a lot of this is legitimate. But the fact that access can be granted without prompting the user is surprising. It’s currently up to the vendors, and vendors tend to choose the side of more usability.”


More Great WIRED Stories

As the Arctic Melts, the Fabled Northwest Passage Opens for Cargo Ships

This story originally appeared on Grist and is part of the Climate Desk collaboration.

When a blue-hulled cargo ship named Venta Maersk became the first container vessel to navigate a major Arctic sea route this month, it offered a glimpse of what the warming region might become: a maritime highway, with vessels lumbering between Asia and Europe through once-frozen seas.

Years of melting ice have made it easier for ships to ply these frigid waters. That’s a boon for the shipping industry but a threat to the fragile Arctic ecosystem. Nearly all ships run on fossil fuels, and many use heavy fuel oil, which spews black soot when burned and turns seas into a toxic goopy mess when spilled. Few international rules are in place to protect the Arctic’s environment from these ships, though a proposal to ban heavy fuel oil from the region is gaining support.

“For a long time, we weren’t looking at the Arctic as a viable option for a shortcut for Asia-to-Europe, or Asia-to-North America traffic, but that’s really changed, even over the last couple of years,” says Bryan Comer, a senior researcher with the International Council on Clean Transportation’s marine program. “It’s just increasingly concerning.”

Venta Maersk departed from South Korea in late August packed with frozen fish, chilled produce, and electronics. Days later, it sailed through the Bering Strait between Alaska and Russia, before cruising along Russia’s north coast. At one point, a nuclear icebreaker escorted Venta Maersk through a frozen Russian strait, then the container vessel continued to the Norwegian Sea. It’s expected to arrive in St. Petersburg later this month.

The trial voyage wouldn’t have been possible until recently. The Arctic region is warming twice as fast as the rest of the planet, with sea ice, snow cover, glaciers, and permafrost all diminishing dramatically over recent decades. In the past, only powerful nuclear-powered icebreakers could forge through Arctic seas; these days, even commercial ships can navigate the region from roughly July to October—albeit sometimes with the help of skilled pilots and icebreaker escorts.

Russian tankers already carry liquefied natural gas to Western Europe and Asia. General cargo vessels move Chinese wind turbine parts and Canadian coal. Cruise liners take tourists to see surreal ice formations and polar bears in the Arctic summer. Around 2,100 cargo ships operated in Arctic waters in 2015, according to Comer’s group.

“Because of climate change, because of the melting of sea ice, these ships can operate for longer periods of time in the Arctic,” says Scott Stephenson, an assistant geography professor at the University of Connecticut, “and the shipping season is already longer than it used to be.” A study he co-authored found that, by 2060, ships with reinforced hulls could operate in the Arctic for nine months in the year.

Stephenson says that the Venta Maersk’s voyage doesn’t mean that an onrush of container ships will soon be clogging the Arctic seas, given the remaining risks and costs needed to operate in the region. “It’s a new, proof-of-concept test case,” he says.

Maersk, based in Copenhagen, says the goal is to collect data and “gain operational experience in a new area and to test vessel systems,” representatives from the company wrote in an email. The ship didn’t burn standard heavy fuel oil, but a type of high-grade, ultra-low-sulfur fuel. “We are taking all measures to ensure that this trial is done with the highest considerations for the sensitive environment in the region.”

Sian Prior, lead advisor to the HFO-Free Arctic Campaign, says that the best way to avoid fouling the Arctic is to ditch fossil fuels entirely and install electric systems with, say, battery storage or hydrogen fuel cells. Since those technologies aren’t yet commercially viable for ocean-going ships, the next option is to run ships on liquefied natural gas. The easiest alternative, however, is to switch to a lighter “marine distillate oil,” which Maersk says is “on par with” the fuel it’s using.

But many ships still run on cheaper heavy fuel oil, made from the residues of petroleum refining. In 2015, the sludgy fuel accounted for 57 percent of total fuel consumption in the Arctic, and was responsible for 68 percent of ships’ black carbon emissions, according to the International Council on Clean Transportation.

Black carbon wreaks havoc on the climate, even though it usually makes up a small share of total emissions. The small dark particles absorb the sun’s heat and directly warm the atmosphere. Within a few days, the particles fall back down to earth, darkening the snow and hindering the snow’s ability to reflect the sun’s radiation—resulting in more warming.

When spilled, heavy fuel oil emulsifies on the water’s surface or sinks to the seafloor, unlike lighter fuels which disperse and evaporate. Clean-up can take decades in remote waters, as was the case when the Exxon Valdez crude oil tanker slammed into an Alaskan reef in 1989.

“It’s dirtier when you burn it, the options to clean it up are limited, and the length it’s likely to persist in the environment is longer,” Prior says.

In April, the International Maritime Organization, the U.N. body that regulates the shipping industry, began laying the groundwork to ban ships from using or carrying heavy fuel oil in the Arctic. Given the lengthy rulemaking process, any policy won’t likely take effect before 2021, Prior says.

One of the biggest hurdles will be securing Russia’s approval. Most ships operating in the Arctic fly Russian flags, and the country’s leaders plan to invest tens of billions of dollars in coming years to beef up polar shipping activity along the Northern Sea Route. China also wants to build a “Polar Silk Road” and redirect its cargo ships along the Russian route.

Such ambitions hinge on a melting Arctic and rising global temperatures. If the warming Arctic eventually does offer a cheaper highway for moving goods around the world, Comer says, “then we need to start making sure that policies are in place.”


More Great WIRED Stories

Stepping Outside The Sabra Box

As you may recall, I recently wrote on Omega Healthcare Investors (OHI) and Medical Properties Trust (MPW). While these two healthcare REITs are completely different in terms of their underlying real estate, they share the same operator profile.

You see, both of these REITs generate revenue from the government, via Medicare and Medicaid, and this exposes their operators to higher risk.

In addition, skilled nursing properties and acute care hospitals are generally located in secondary markets where cap rates are much higher (than medical office, life science, or senior housing properties). This makes the business models for these two REITs higher risk and of course that’s why the dividend yields are higher.

In order to close the circle, I thought it would be appropriate to take a closer look at Sabra Health Care REIT (SBRA). Like OHI and MPW, SBRA invests in the higher-yielding properties that, in turn, generate higher dividends.

We recently upgraded MPW from a HOLD to a BUY and we are maintaining a BUY on OHI (after a 25% run-up YTD). At the end of this article, I will provide you with our updated SBRA recommendation, and for now, let’s determine what SBRA’s CIO means when he says, “we are not afraid to step outside the proverbial box”.

Photo Source

SABRA: A Top Performer

You may recall, I upgraded shares in SBRA from a HOLD to a BUY in January, and that has proven to be a well-timed recommendation.

No need for a victory lap, the purpose for this article is to determine whether or not to continue with SBRA. It’s been over two quarters since we published an article on SBRA, and there’s a lot of ground to cover…

First off, remember that in August 2017, SBRA completed the merger with Care Capital Properties (formerly CCP) in a 100% all-stock combination. When CCP merged with SBRA, the company planned to reduce its concentration to Genesis (GEN) – from 33% of NOI to 11% – and Holiday – from 16% to 6%.

As of Q2-18, SBRA had around 8% exposure to GEN and 6% exposure with Signature Health. However, in a recent investor deck, SBRA revealed it will have 3.6% exposure (based on rent) after selling 19 facilities (that generate $10.0 million in rent).

Also, the Signature Health restructuring is going well; SBRA revealed it provided a term loan of up to $12M at a 7% interest rate for a period of 7 years to provide Signature with working capital. Also, SBRA combined existing master leases (with Signature) into a single master lease with an 11-year term commencing on May 7, 2018 with three 5-year extension options.

The cash rent of $35M (net of estimated $15M annual rent deferral) is anticipated to result in normalized EBITDAR coverage of 1.30x. Annual CPI-based rent escalators between 2.50% and 3.50%. Also, SBRA has targeted dispositions of up to four non-core Signature assets, resulting in an estimated rent credit of $1.9M based on projected proceeds of $22M.

Keep in mind that SBRA is not so much of a “pure play” skilled nursing REIT like OHI, the company has 66% exposure (to skilled nursing) vs. 83% skilled nursing exposure for OHI and 86% exposure for CareTrust (CTRE).

Here’s a snapshot of SBRA’s portfolio. As you can see, the company has 24% invested in senior housing, 8% invested in specialty hospitals, and 2% in other.

Accordingly, SBRA has plans to grow its private-pay exposure through acquisitions and portfolio management. The company’s strong proprietary development pipeline provides future deal flow for primarily purpose-built, senior housing facilities. Here’s a snapshot of SBRA’s diversification – based upon the top 5 operators:

The Balance Sheet

SBRA is in compliance with all of its debt covenants and continues to maintain a strong balance sheet with the following pro forma credit metrics: Net debt to adjusted EBITDA of 5.53x, net debt to adjusted EBITDA (including unconsolidated joint ventures debt) of 5.99x, interest coverage of 4.14x, fixed charge coverage of 3.88x, total debt to asset value 50%, secured debt to asset value 8%, and unencumbered asset value to unsecured debt of 216%.

On June 1, SBRA redeemed all 5.75 million shares of its Series A Preferred stock price at a redemption price of $25 per share plus accrued in unpaid dividends for an aggregate payment of $146.3 million. As a result of redemption, the company incurred a charge of $5.5 million coming to the write-off of the original issuance costs of the Series A Preferred stock.

As a result of the CCP merger, SBRA’s diversified tenant base and scale positioned the company to achieve investment grade credit ratings. SBRA now sports an investment-grade rating from Fitch after the agency boosted to BBB- from BB+. On August 8th, SBRA announced that its Board of Directors declared a quarterly cash dividend of $0.45 per share of common stock.

The Latest Earnings Results

In Q2-18, SBRA reported revenues and NOI of $166.3 million and $162.7 million, respectively, compared to $64.7 million and $60.3 million. These increases are due predominately to revenues and NOI generated from the properties acquired in the CCP Merger and the Enlivant transactions. SBRA’s FFO for the quarter was $104.5 million, and on a normalized basis was $109.7 million, or $0.61 per share.

AFFO, which excludes from FFO merger and acquisition costs and certain non-cash revenues and expenses, was $98 million, and on a normalized basis attributes including similar items as normalized FFO was $102.8 million or $0.57 per share. This compares to normalized AFFO of $35.2 million, or $0.53 per share in Q2-17, a per share increase of 7.5%.

As John Kim, analyst at BMO Capital Markets, explains, “through a series of controversial acquisitions, and subsequent lease restructuring with Genesis, SBRA has significantly improved its risk profile, in our view, as it reduced tenant concentration of its top two tenants to 11% from 50%, leading to credit ratings upgrades. The expected sale of its portfolio leased to Senior Care (10% of NOI; 1.02x rent coverage) would further enhance its risk profile, in our view.”

SBRA has been one of the most active net acquirers in the healthcare REIT sector in 2017-18, and Kim “believes [SBRA] is poised to grow externally in 2019, ahead of some of its peers”. KIM estimates SBRA’s FFO per share growth will accelerate moderately to 3.2% CAGR in 2018-20, from 2.5% from 2015-18. However, he estimates “SBRA has recently disposed of assets at a 24% cash loss, thus acquisitions may be scrutinized”.

Stepping Outside The Sabra Box

As referenced above, SBRA has been a top-performer year-to-date, and thankfully, we got outside of the box early on this trade. However. Let’s take a closer look at valuation today, starting with the dividend yield:

As you see, SBRA is yielding 7.8%, sandwiched between MPW (6.9%) and OHI (8.1%). Now let’s examine the payout ratio (using FFO/share data):

Again, SBRA’s payout ratio is in better shape than OHI, and SBRA has continued its dividend growth trajectory, as viewed below:

Now, let’s examine SBRA’s P/FFO multiple below:

As you can see, SBRA is trading at 9.3x, lower than MPW (10.6x) and OHI (10.6x). Also, SBRA is trading at 3% above the company’s trailing 4-year P/FFO average.

Given the continued volatility in skilled nursing, we believe there’s limited opportunity for price expansion. Both skilled nursing and senior housing occupancies are low, and we consider OHI a better pick because of the company’s “pure play” management structure. However, there’s no question that SBRA is a stronger company today:

And obviously, Mr. Market acknowledges SBRA’s management team for steering the vessel to safety…

In conclusion: We are maintaining a BUY on SABRA as we consider the price performance to be an indicator that the management team is executing on its promise – “the product of creative and timely execution of strategy”. Sometimes investors must also “step outside the box” and we are happy that we did so with Sabra Health Care REIT.

Note: Brad Thomas is a Wall Street writer, and that means he is not always right with his predictions or recommendations. That also applies to his grammar. Please excuse any typos, and be assured that he will do his best to correct any errors, if they are overlooked.

Finally, this article is free, and the sole purpose for writing it is to assist with research, while also providing a forum for second-level thinking. If you have not followed him, please take five seconds and click his name above (top of the page).

Sources: FAST Graphs and SBRA Investor Presentation.

Disclosure: I am/we are long ACC, AVB, BHR, BPY, BRX, BXMT, CCI, CIO, CLDT, CONE, CORR, CTRE, CXP, CUBE, DEA, DLR, DOC, EPR, EQIX, ESS, EXR, FRT, GDS, GEO, GMRE, GPT, HASI, HT, HTA, INN, IRET, IRM, JCAP, KIM, KREF, KRG, LADR, LAND, LMRK, LTC, MNR, MPW, NNN, NXRT, O, OFC, OHI, OUT, PEB, PEI, PK, PSB, PTTTS, QTS, REG, RHP, RLJ, ROIC, SBRA, SKT, SPG, SRC, STAG, STOR, TCO, TRTX, UBA, UMH, UNIT, VER, VICI, VNO, VNQ, VTR, WPC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Dell Is Reportedly Reconsidering an IPO Following Hedge Fund Pushback

Dell Technologies might be reconsidering a move that would take the company public.

The company’s executives are debating whether to hold an initial public offering (IPO) and go public after deciding against the move earlier this year, Reuters is reporting, citing people who claim to have knowledge of its plans. Some of Dell’s executives reportedly believe that the company’s improving financial picture, coupled with some pushback from hedge fund managers over its “tracking stock” maneuver, create an IPO opportunity.

Dell was considering going public earlier this year but backed off the idea over concerns that Wall Street wouldn’t take kindly to its massive debt, according to Reuters. Instead, Dell decided to pursue a $21.7 billion deal that would see it acquire tracking stock held by hedge funds, including activist investor Carl Icahn. Tracking stock is a specific type of share that centers on a single company unit rather than the entire business. Dell’s tracking stock is specific to its 81% stake in VMWare (vmw).

Hedge fund managers, including Icahn, have bristled at Dell’s buyback, ostensibly believing there’s more value to be gleaned from the company.

If Dell goes public, those shareholders would be forced to sell all of their tracking stock, according to Reuters. And Dell is reportedly looking to work with investment banks to determine how an IPO might ultimately affect both its operation and those shareholders.

For its part, Dell hasn’t commented publicly on an IPO and declined Fortune‘s request for comment on the Reuters report.