The Blackstone Group L.P.

Transcription

1 Equity Research Financial Services and Technology Asset Management April 18, 2016 The Blackstone Group L.P. Updating Estimates and Reviewing Business Activity Ahead of First-Quarter Results We are updating our estimates ahead of Blackstone s first-quarter results, which are scheduled to be reported before markets open on Thursday, April 21. We have included a summary of our changes in the sections below, including details on the firm s market performance, fundraising, capital deployment, and realizations during the period. Our Blackstone thesis is a long-term call. We expect the stock to remain a high-beta name (as evidenced by the chart on page 13 of our December 14 initiation report) that trades on near-term equity market sentiment, despite Blackstone s track record as a premiere value-creator in a variety of market environments. We believe near-term dips offer a good entry point for patient investors willing to live with mark-to-market accountingdriven volatility. We see significant upside based on our sum-of-the-parts analysis, which includes a product-by-product DCF model for future performance fees, and we maintain our Outperform rating. Estimate Changes First quarter - We are increasing our first-quarter ENI per unit estimate to account for improvement in market conditions. We now model ENI per unit of $0.45 (from -$0.17 previously), compared with updated Street consensus of around $ We are increasing our estimate for first-quarter distributable earnings per unit by $0.10, to $0.56; this implies a cash distribution of $0.48 per unit. Current consensus calls for a cash distribution of $ and The flow-through impact from first-quarter adjustments, reduced lower management fee expectations for the year (we pushed the beginning of BCP VII s investment period to the second quarter), and lower market expectations lead us to increase our 2016 ENI per unit estimate to $2.82 from $2.29 previously. Our 2017 ENI per unit falls to $3.23 from $ We are also making slight upward revisions to our 2016 cash DE per unit estimate; we now model $2.32 (from $2.29 previously) compared with consensus of $2.05. We are maintaining our 2017 cash DE per unit estimate at $2.62, compared with consensus of $2.46. Christopher Shutler, CFA cshutler@williamblair.com Andrew Nicholas, CPA anicholas@williamblair.com Stock Rating: Company Profile: Outperform Core Growth Symbol: BX (NYSE) Price: $28.78 (52-Wk.: $22-$44) Market Value (mil.): $34, Long-Term EPS Growth Rate: 13% Dividend/Yield: $2.73/9.5% Fiscal Year End: December 2015A 2016E 2017E Estimates EPS FY $1.82 $2.82 $3.23 CY $2.82 $3.23 Valuation FY P/E 15.8x 10.2x 8.9x CY P/E 10.2x 8.9x Trading Data (FactSet) Shares Outstanding (mil.) 624 Float (mil.) 244 Average Daily Volume 5,790,572 Financial Data (FactSet) Book Value Per Share (MRQ) 10.0 Return on Equity (TTM) 10.6 Two-Year Price Performance Chart $45 $40 $35 $30 $25 Jan-15 Jan-16 Sources: FactSet, William Blair & Company estimates The Blackstone Group L.P. is the largest alternative asset manager in the world, with four industry-leading businesses: private equity, real estate, credit, and hedge fund solutions. Please refer to important disclosures on pages 7-8. Analyst certification is on page 7. William Blair or an affiliate does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision.

2 Market Performance By our calculations, the weighted average performance of Blackstone s publicly traded private equity and real estate investments in first quarter 2016 was +4.5% and +2.4%, respectively. Since publicly traded investments represented only 30% of unrealized investment value in private equity drawdown funds at the end of the fourth quarter and 20% in real estate, we prefer to look at public company returns relative to prior quarters to inform our estimates. For reference, our calculated first-quarter return on public company investments in the private equity portfolio of +4.5% compares with a calculated return of -0.8% in fourth quarter 2015, and in the latter case the segment actually experienced 1.4% of investment appreciation. In real estate, our calculated first-quarter return on public company investments of +2.4% compares with a calculated return of -2.3% in fourth quarter 2015, and in the latter case the segment actually experienced 0.2% of investment appreciation. Taking these items into account, we now model market appreciation of 3.0% for private equity and 0.5% for real estate in the quarter. - Key private equity performance contributors were Kosmos Energy (KOS $5.89; +11.9%), Catalent (CTLT $30.30; Outperform; +6.6%), Hilton Worldwide (HLT $22.49; +5.2%), Seaworld (SEAS $20.75; +7.0%), Cheniere Energy Partners (CQP $28.48; +10.6%), Vivint Solar (VSLR $3.09; -72.3%), and Michaels (MIK $29.09; +26.5%). - Key real estate performance contributors were La Quinta (LQ $12.43; -8.2%) and Hilton Worldwide (+5.2%). By our calculations, the weighted average performance of publicly traded private equity and real estate investments in second quarter 2016 (through April 15) was +3.2% and +1.4%, respectively. We model blended market performance of +1.8% per quarter in each segment through the end of The HFRI Fund Weighted Composite Index declined 0.8% in the first quarter, a couple of percentage points better than our previous estimate of -3.0%. While Blackstone s market appreciation has outpaced the index by 1.4%, on average, over the past four calendar years, we are modeling first-quarter performance to be worse by 1.0%. The Blackstone Alternative Multi-Manager Fund (BXMMX) had a rough performance quarter, which biases us to the negative. Fundraising Despite being in between fundraises for its flagship private equity (BCP) and real estate (BREP) funds, we expect other strategies to continue to generate solid inflows over the next several years. We model gross inflows of $12.1 billion during first quarter 2016 and $57.5 billion for the full year. Current fundraising areas include BREDS III, Strategic Partners (secondaries), Tactical Opportunities III, BREP Europe V, and core-plus real estate. We expect these products to remain the focus through 2016 and beyond. Other longer-term focuses include a third mezzanine fund and a third rescue lending fund in the firm s credit segment and a newly designed core-plus private equity platform, which we expect to hear more about in the near future. In the hedge fund segment, near-term flows could be challenged as a result of the firm s decision to close the Blackstone Alternative Multi-Manager Fund (BXMMX) on or before May 31, We attribute part of the firm s decision to close the $631 million fund (as of March 31) to news of Fidelity withdrawing nearly $600 million in the first several weeks of March. Performance of the fund, which is representative of several clone funds as well, has been poor year-to-date. Still, we expect continued strength in the direct investing (Senfina and Special Situations) and hedge fund ownership (Strategic Alliance and Strategic Capital) areas. Capital Deployment Following a record $7.8 billion of real estate segment capital deployment in fourth quarter 2015, we expect the segment s activity to dip slightly in the first quarter. First-quarter activity was headlined by the closing of Blackstone s $4.8 billion acquisition of BioMed Realty Trust on January 27. Other smaller deals during the quarter include a hotel portfolio in East Germany, the Club Quarters Hotel in Boston, and the Arbor Park Shopping Center in San Antonio. Looking ahead to the second quarter, we expect Blackstone to close acquisitions of a retirement village in New Zealand and a 1,500 home property in Spain; financial details have not yet been disclosed. 2 Christopher Shutler, CFA

3 Given volatility in public markets during the first two months of 2016, it is no surprise that capital deployment in the private equity segment was light in the first quarter; the closing of its Armacell acquisition and a Strategic Opportunities investment in Future Finance Loan Corp (total deal value of $171 million split among multiple investors) are the only items of note. The second quarter has started off on a better note, however. Blackstone announced the acquisition of a majority stake in Mphasis on April 4 (the purchase price will be between $825 million and $1.1 billion), which it expects to complete in the coming months. Outside of the BioMed deal (which had been agreed to last quarter), market uncertainty took a significant toll on capital deployment in the first quarter. While less industrywide deployment prospects will likely remain challenged in the very near term, we have confidence that Blackstone s scale will help it navigate the environment more successfully than most. Further, one of the benefits to Blackstone s diversification is that when market uncertainty pressures certain segments, it can create opportunity in others. In this particularly instance, we believe the credit business is poised to capitalize on a low liquidity environment and the uncertainty surrounding interest rate policy. We also expect energy investments to pick up, but likely not until later in the year or Realizations Key private equity realizations: - Blackstone sold portions of its equity in several publicly traded companies via secondary offerings during the first quarter. Based on our calculations, sales of Zimmer Biomet (ZBH $114.03; Outperform) and Michaels resulted in proceeds of approximately $0.7 billion and $0.2 billion, respectively. Since both companies were held in BCP V, we expect both transactions to drive significant realized performance fees in the period. - Blackstone s sale of isight Partners to FireEye Inc. (FEYE $17.94; Outperform) closed on January 14. The deal is valued at approximately $269 million. - On January 16, Blackstone (along with several other investors, including Bain Capital and Comcast) agreed to the sale of Weather Services International s B2B, mobile, and cloud-based web properties for $2 billion. - On March 16, Blackstone closed its sale of GCA Services Group to Thomas H. Lee Partners and Goldman Sachs. The deal is valued at $1.0 billion, according to DealLogic. Key real estate realizations: - Blackstone closed the sale of a four-tower, 1.7 million-square-foot office portfolio in Los Angeles for $1.3 billion on March 1. The properties were originally acquired as part of Blackstone s Equity Office Properties Trust takeover in Blackstone sold several smaller property portfolios during the quarter, including the High Holborn Estate in London ($197 million), One America Square in London ($185 million), a hotel property in Tampa Bay ($45 million), a multifamily unit in Raleigh ($116 million), and an office tower in New York ($180 million). - China s Anbang Insurance Group has agreed to acquire Strategic Hotels & Resorts from Blackstone for approximately $6.5 billion, according to multiple news reports. The agreement, which we expect to close at some point in the second quarter, came just three months after Blackstone purchased the company for a reported $5.7 billion. While significant market volatility in the first few months of 2016 had a dampening effect on the frequency of investment realizations, the combined value of the deals included above does not actually represent too significant of a step down compared with fourth-quarter results. With market conditions having improved over the past month-plus, we are more optimistic about future realization prospects. 3 Christopher Shutler, CFA

4 Quarterly Earnings Model ($M) Annual Annual Annual Annual Annual Mar-15 Jun-15 Sep-15 Dec-15 Annual Mar-16 Jun-16 Sep-16 Dec-16 Annual Annual Q15 2Q15 3Q15 4Q Q16E 2Q16E 3Q16E 4Q16E 2016E 2017E Management Fees $ 1,631.0 $ 1,877.5 $ 2,135.0 $ 2,286.1 $ 2,568.0 $ $ $ $ $ 2,564.9 $ $ $ $ $ 2,536.0 $ 2,868.4 Performance Fees , , , , , (639.3) , , ,966.9 Investment Income (136.1) (11.4) Interest Income and Dividend Revenue Other (0.6) (4.9) 4.0 (0.8) Total Revenue $ 3,141.4 $ 3,283.6 $ 4,066.8 $ 6,611.5 $ 7,537.3 $ 2,508.7 $ 1,202.2 $ (32.2) $ $ 4,555.9 $ 1,113.4 $ 1,570.7 $ 1,728.9 $ 1,798.0 $ 6,211.1 $ 7,517.1 Compensation , , , , , ,375.2 Performance Fee Compensation , , (130.5) ,338.8 Other Operating Expenses Total Expenses 1, , , , , , , ,402.7 Economic Income (EI) 1, , , , , , (388.9) , , , ,114.3 Taxes (45.8) (45.7) (82.2) (199.5) (9.7) (20.6) (27.1) 29.8 (27.5) (32.6) (33.3) (33.4) (49.8) (149.1) (175.8) Economic Net Income (ENI) $ 1,567.4 $ 1,539.2 $ 1,995.3 $ 3,513.9 $ 4,345.0 $ 1,622.1 $ $ (415.9) $ $ 2,150.3 $ $ $ $ 1,030.3 $ 3,394.9 $ 3,938.5 ENI per Unit $ 1.28 $ 1.38 $ 1.77 $ 3.07 $ 3.76 $ 1.37 $ 0.43 $ (0.35) $ 0.37 $ 1.82 $ 0.45 $ 0.71 $ 0.80 $ 0.85 $ 2.82 $ 3.23 ENI Margin 50% 47% 49% 53% 58% 65% 42% NA 50% 47% 49% 55% 56% 57% 55% 52% Fee-Related Revenue 2, , , , , , ,346.4 Fee-Related Earnings (FRE) , ,027.7 FRE per Unit $ 0.50 $ 0.62 $ 0.71 $ 0.88 $ 0.15 $ 0.15 $ 0.22 $ 0.26 $ 0.79 $ 0.17 $ 0.18 $ 0.18 $ 0.24 $ 0.78 $ 0.85 FRE Margin 26% 29% 27% 33% 22% 30% 46% 49% 36% 30% 30% 29% 38% 32% 31% Distributable Earnings (DE) , , , , , , , , ,049.9 DE per Unit $ 0.62 $ 0.57 $ 0.93 $ 1.56 $ 2.51 $ 1.05 $ 0.88 $ 0.58 $ 0.72 $ 3.23 $ 0.56 $ 0.59 $ 0.77 $ 0.81 $ 2.72 $ 3.08 Actual Distribution per Common Unit $ 0.62 $ 0.52 $ 0.72 $ 1.34 $ 2.12 $ 0.89 $ 0.74 $ 0.49 $ 0.61 $ 2.73 $ 0.48 $ 0.50 $ 0.65 $ 0.68 $ 2.32 $ 2.62 Adjusted EBITDA , , , , , ,137.2 Adjusted EBITDA Margin 26% 34% 33% 47% 52% 92% NM 109% 91% Company Metrics ($B) Fee-Earning AUM (EOP) Private Equity Real Estate Hedge Fund Solutions (BAAM) Credit Total Fee-Earning AUM Weighted Average Fee-Earning AUM Total AUM (EOP) Private Equity Real Estate Hedge Fund Solutions (BAAM) Credit Total AUM Dry Powder Fundraising Outflows Deployment Harvesting NA Investment Performance (3.7) (1.0) As % of Beginning AUM 19% 4% 10% 16% 9% 2% 2% -1% 0% 3% 0% 1% 2% 2% 5% 7% Total AUM Split by Segment Private Equity 23% 28% 24% 25% 25% 25% 28% 27% 28% 28% 28% 29% 29% 30% 30% 32% Real Estate 26% 26% 27% 30% 28% 30% 28% 28% 28% 28% 28% 27% 27% 26% 26% 24% BAAM 27% 24% 22% 21% 22% 21% 20% 20% 21% 21% 20% 20% 20% 20% 20% 20% Credit 24% 22% 27% 24% 25% 24% 24% 24% 24% 24% 24% 23% 23% 24% 24% 24% Revenue Split by Segment Private Equity 26% 18% 20% 22% 36% 46% 32% NM 41% 30% 54% 49% 48% 49% 49% 50% Real Estate 33% 48% 40% 48% 40% 36% 27% NM 41% 39% 31% 36% 32% 32% 33% 30% BAAM 12% 10% 11% 10% 9% 7% 15% NM 15% 13% 10% 11% 10% 10% 10% 10% Credit 15% 12% 19% 13% 10% 7% 20% NM 3% 11% 6% 5% 10% 10% 8% 10% Financial Advisory 14% 12% 9% 6% 5% 3% 6% NM 0% 7% 0% 0% 0% 0% 0% 0% Note: Deployed capital represents LP capital invested. Sources: Company data and William Blair estimates 4 Christopher Shutler, CFA

5 Private Equity Annual Annual Annual Annual Annual Mar-15 Jun-15 Sep-15 Dec-15 Annual Mar-16 Jun-16 Sep-16 Dec-16 Annual Annual Q15 2Q15 3Q15 4Q Q16E 2Q16E 3Q16E 4Q16E 2016E 2017E Revenue $ $ $ $ 1,482.3 $ 2,738.9 $ 1,158.1 $ $ (521.9) $ $ 1,382.1 $ $ $ $ $ 3,059.9 $ 3,756.5 Expenses (10.9) , ,610.3 Economic Income (EI) , (511.0) , ,146.2 Pre-Tax Margin 59% 42% 50% 50% 67% 72% 45% 98% 45% 47% 57% 61% 62% 63% 61% 57% Fee-Related Revenue Fee-Related Earnings (FRE) (14.6) FRE Margin 18% 25% 23% 28% 27% 17% -13% 16% 25% 13% 4% 8% 11% 24% 12% 18% Fee-Earning AUM (EOP) Weighted Average Fee-Earning AUM Beginning AUM Inflows Outflows (2.1) (0.1) (0.1) (0.7) (1.6) (0.0) (0.1) (0.1) (0.2) (0.4) (0.3) (0.3) (0.4) (0.4) (1.3) (1.6) Realizations 0.0 (4.2) (3.5) (9.6) (15.4) (3.3) (4.0) (2.7) (3.4) (13.5) (2.8) (2.2) (4.1) (4.2) (13.4) (18.5) Net Inflows (Outflows) (1.4) (3.3) (0.5) (1.6) (0.6) (0.2) 5.8 Market Activity (1.6) Total AUM Investment Performance 24% 7% 10% 21% 16% 5% 2% -2% 1% 7% 3% 3% 3% 3% 12% 12% Dry Powder NA NA NA NA NA NA Deployment NA NA NA NA NA NA Real Estate Revenue $ 1,035.6 $ 1,581.3 $ 1,634.3 $ 3,205.1 $ 2,986.7 $ $ $ $ $ 1,790.7 $ $ $ $ $ 2,031.9 $ 2,267.0 Expenses , , ,039.0 Economic Income (EI) , , , , ,228.0 Pre-Tax Margin 62% 63% 61% 65% 63% 70% 42% 6% 45% 53% 52% 57% 58% 57% 57% 54% Fee-Related Revenue Fee-Related Earnings (FRE) FRE Margin 37% 33% 37% 37% 34% 26% 27% 28% 43% 32% 34% 33% 33% 33% 33% 31% Fee-Earning AUM (EOP) Weighted Average Fee-Earning AUM Beginning AUM Inflows Outflows (0.9) (0.4) (0.3) (1.0) (0.9) (0.2) (0.1) (0.0) (0.1) (0.3) (0.1) (0.1) (0.1) (0.1) (0.3) (0.4) Realizations 0.0 (2.5) (3.9) (8.3) (20.4) (9.2) (4.8) (3.1) (4.0) (21.0) (3.0) (5.6) (5.8) (5.8) (20.2) (22.6) Net Inflows (Outflows) (10.2) 9.0 (2.7) (2.2) (2.3) (2.4) (6.5) (7.0) Market Activity Total AUM Investment Performance 44% 13% 13% 25% 15% 4% 2% 0% 0% 6% 1% 2% 2% 2% 6% 7% Dry Powder NA NA NA NA NA NA Deployment NA NA NA NA NA NA 5 Christopher Shutler, CFA

6 Hedge Fund Solutions (BAAM) Annual Annual Annual Annual Annual Mar-15 Jun-15 Sep-15 Dec-15 Annual Mar-16 Jun-16 Sep-16 Dec-16 Annual Annual Q15 2Q15 3Q15 4Q Q16E 2Q16E 3Q16E 4Q16E 2016E 2017E Revenue $ $ $ $ $ $ $ $ 98.2 $ $ $ $ $ $ $ $ Expenses Economic Income (EI) Pre-Tax Margin 54% 42% 56% 58% 60% 48% 53% 41% 57% 50% 39% 52% 50% 65% 53% 55% Fee-Related Revenue Fee-Related Earnings (FRE) FRE Margin 47% 41% 49% 51% 56% 42% 51% 50% 59% 50% 45% 47% 45% 62% 50% 50% Fee-Earning AUM (EOP) Weighted Average Fee-Earning AUM Beginning AUM Inflows Outflows (3.3) (3.6) (3.2) (3.9) (5.4) (1.3) (1.8) (1.0) (1.5) (5.6) (2.1) (2.1) (1.5) (2.2) (7.9) (7.2) Realizations (0.4) (0.4) (0.0) (0.1) (0.3) (0.2) (0.6) (0.1) (0.1) (0.1) (0.1) (0.3) (0.4) Net Inflows (Outflows) Market Activity 3.0 (1.7) (1.3) (1.2) Total AUM Investment Performance 10% -5% 8% 10% 4% 2% 1% -2% 0% 1% -2% 1% 1% 1% 2% 5% Dry Powder NA NA NA NA NA NA NA NA Deployment NA NA NA NA NA NA Credit (GSO) Revenue $ $ $ $ $ $ $ $ 55.0 $ 22.7 $ $ 68.9 $ 70.9 $ $ $ $ Expenses Economic Income (EI) Pre-Tax Margin 36% 36% 42% 41% 45% 47% 49% 19% 25% 44% 27% 26% 42% 51% 40% 44% Fee-Related Revenue Fee-Related Earnings (FRE) FRE Margin 18% 26% 32% 30% 41% 44% 45% 38% 49% 44% 41% 40% 39% 50% 43% 43% Fee-Earning AUM (EOP) Weighted Average Fee-Earning AUM Beginning AUM Inflows Outflows (3.7) (1.5) (2.4) (2.8) (4.2) (2.3) (2.2) (1.2) (1.2) (6.9) (1.1) (1.1) (1.1) (1.1) (4.4) (4.9) Realizations 0.0 (4.2) (5.2) (11.2) (8.4) (1.0) (1.3) (3.0) (1.6) (6.9) (2.0) (2.1) (2.5) (2.5) (9.1) (10.8) Net Inflows (Outflows) Market Activity (0.3) (0.7) 1.5 (1.1) (2.4) (2.8) (0.8) (0.8) (0.8) 1.7 Total AUM Investment Performance 5% 1% 7% 7% 0% -1% 2% -1% -3% -4% -1% -1% 1% 1% -1% 2% Dry Powder NA NA NA NA NA NA Deployment NA NA NA NA NA NA Sources: Company data and William Blair estimates 6 Christopher Shutler, CFA

7 IMPORTANT DISCLOSURES William Blair or an affiliate is a market maker in the security of The Blackstone Group L.P. William Blair or an affiliate expects to receive or intends to seek compensation for investment banking services from The Blackstone Group L.P. within the next three months. Additional information is available upon request. This report is available in electronic form to registered users via R*Docs at or Please contact us at or consult williamblair.com/research-and-insights/equity-research/coverage.aspx for all disclosures. Christopher Shutler attests that 1) all of the views expressed in this research report accurately reflect his/her personal views about any and all of the securities and companies covered by this report, and 2) no part of his/her compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed by him/her in this report. We seek to update our research as appropriate, but various regulations may prohibit us from doing so. Other than certain periodical industry reports, the majority of reports are published at irregular intervals as deemed appropriate by the analyst. In addition, the analyst has not received compensation from any subject company in the past 12 months. DOW JONES: 17, S&P 500: 2, NASDAQ: 4, $45 Blackstone Group L.P. (BX) Apr 05, Apr 05,2016 Previous Close: $27.07 $40 $35 Date: 12/14/2015 rec_name: I-O $30 $25 $20 Jan-14 Jan-15 Jan-16 Source: FactSet and William Blair Legend: I = = Analyst = No Recommendation Change, tg_price = Price Target Current Rating Distribution (as of 03/31/16) Coverage Universe Percent Inv. Banking Relationships* Percent Outperform (Buy) 65 Outperform (Buy) 14 Market Perform (Hold) 34 Market Perform (Hold) 3 Underperform (Sell) 1 Underperform (Sell) 0 *Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months. The compensation of the research analyst is based on a variety of factors, including performance of his or her stock recommendations; contributions to all of the firm s departments, including asset management, corporate finance, institutional sales, and retail brokerage; firm profitability; and competitive factors. OTHER IMPORTANT DISCLOSURES Stock ratings, price targets, and valuation methodologies: William Blair & Company, L.L.C. uses a three-point system to rate stocks. Individual ratings and price targets (where used) reflect the expected performance of the stock relative to the broader market (generally the S&P 500, unless otherwise indicated) over the next 12 months. The assessment of expected performance is a function of near-, intermediate-, and long-term company fundamentals, industry outlook, confidence in earnings estimates, valuation (and our valuation methodology), and other factors. Outperform (O) stock expected to outperform the broader market over the next 12 months; Market Perform (M) stock expected to perform 7 Christopher Shutler, CFA

8 approximately in line with the broader market over the next 12 months; Underperform (U) stock expected to underperform the broader market over the next 12 months; not rated (NR) the stock is not currently rated. The valuation methodologies used to determine price targets (where used) include (but are not limited to) price-to-earnings multiple (P/E), relative P/E (compared with the relevant market), P/E-to-growth-rate (PEG) ratio, market capitalization/revenue multiple, enterprise value/ebitda ratio, discounted cash flow, and others. Company Profile: The William Blair research philosophy is focused on quality growth companies. Growth companies by their nature tend to be more volatile than the overall stock market. Company profile is a fundamental assessment, over a longer-term horizon, of the business risk of the company relative to the broader William Blair universe. Factors assessed include: 1) durability and strength of franchise (management strength and track record, market leadership, distinctive capabilities); 2) financial profile (earnings growth rate/consistency, cash flow generation, return on investment, balance sheet, accounting); 3) other factors such as sector or industry conditions, economic environment, confidence in long-term growth prospects, etc. Established Growth (E) Fundamental risk is lower relative to the broader William Blair universe; Core Growth (C) Fundamental risk is approximately in line with the broader William Blair universe; Aggressive Growth (A) Fundamental risk is higher relative to the broader William Blair universe. The ratings, price targets (where used), valuation methodologies, and company profile assessments reflect the opinion of the individual analyst and are subject to change at any time. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our trading desks that are contrary to opinions expressed in this research. Certain outstanding reports may contain discussions or investment opinions relating to securities, financial instruments and/or issuers that are no longer current. Always refer to the most recent report on a company or issuer before making an investment decision. Our asset management and trading desks may make investment decisions that are inconsistent with recommendations or views expressed in this report. We will from time to time have long or short positions in, act as principal in, and buy or sell the securities referred to in this report. Our research is disseminated primarily electronically, and in some instances in printed form. Electronic research is simultaneously available to all clients. This research is for our clients only. No part of this material may be copied or duplicated in any form by any means or redistributed without the prior written consent of William Blair & Company, L.L.C. This is not in any sense a solicitation or offer of the purchase or sale of securities. The factual statements herein have been take from sources we believe to be reliable, but such statements are made without any representation as to accuracy or completeness or otherwise. Opinions expressed are our own unless otherwise stated. Prices shown are approximate. This material is distributed in the United Kingdom and the European Economic Area (EEA) by William Blair International, Ltd., authorized and regulated by the Financial Conduct Authority (FCA), and is only directed at and is only made available to persons falling within articles 19, 38, 47, and 49 of the Financial Services and Markets Act of 2000 (Financial Promotion) Order 2005 (all such persons being referred to as relevant persons ). This document is intended for persons regarded as professional investors (or equivalent) and is not to be distributed to or passed onto any retail clients. No persons other than persons to whom this document is directed should rely on it or its contents or use it as the basis to make an investment decision. William Blair and R*Docs are registered trademarks of William Blair & Company, L.L.C. Copyright 2016, William Blair & Company, L.L.C. All rights reserved. 8 Christopher Shutler, CFA