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2018 | ALG | ALG
#Good day, ladies and gentlemen.
Welcome to Alamo Group Fourth Quarter and Fiscal Year 2017 Earnings Conference Call.
(Operator Instructions) This conference is being recorded today, Friday, March 2, 2018.
I will now turn the conference over to Mr.
Bob <UNK>, Vice President of Alamo Group.
Please go ahead, Mr.
<UNK>.
Thank you, and good morning, everyone.
By now, you should have received a copy of the press release.
However, if anyone is missing a copy and would like to receive one, please contact us at (212) 827-3773, and we will send you a release and make sure you are on the company's distribution list.
There will be a replay of the call which will begin 1 hour after the call and run for 1 week.
The replay can be accessed by dialing 1 (888) 203-1112, with the passcode 788-3065.
Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days.
On the line with me today are Ron <UNK>, President and Chief Executive Officer; <UNK> <UNK>, Executive Vice President and Chief Financial Officer; <UNK> <UNK>, Vice President and Corporate Controller; and Ed Rizzuti, Vice President and General Counsel.
Management will make some opening remarks, and then we'll open the line for your questions.
During the call today, management may reference certain non-GAAP numbers in their remarks.
Reconciliation of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release.
Before turning the call over to Ron, I'd like to make a few comments about forward-looking statements.
We will be making forward-looking statements today that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risk and uncertainties which may cause the company's actual results in future periods to differ materially from forecasted results.
Among those factors which could cause actual results to differ materially are the following: Market demand, competition, weather, seasonality, currency-related issues and other risk factors listed from time to time in the company's SEC reports.
The company does not undertake any obligation to update the information contained herein, which speaks only as of this date.
I would now like to introduce Ron.
Ron, please go ahead.
Thank you, Bob.
And we want to thank all of you for joining us here today.
<UNK> <UNK>, our CFO, will begin our call with a review of our financial results for the fourth quarter and fiscal year 2017.
I will then provide a few comments on the quarter and year-end results.
And then following our formal remarks, we look forward to taking your questions.
So <UNK>, please go ahead.
Thank you, Ron.
Alamo Group's fourth quarter and full year 2017 results again set company sales and operating income records.
Except for onetime charges related to U.S. tax reform, net income and earnings per share also would have been at all-time record levels.
In the fourth quarter of 2017, we recorded as additional income tax expense a net $10.2 million onetime charge related to the Tax Cuts and Jobs Act.
This consisted of $13.1 million of additional income tax expense related to the mandatory deemed repatriation of foreign earnings, which is payable over an 8-year period, partially offset by the revaluation of net deferred tax assets and liabilities due to the lowering of the U.S. corporate tax rate.
In the fourth quarter of 2016, we recorded a onetime non-cash pretax charge of $2.9 million related to the early termination of a pension plan.
For the balance of my comments, any reference to adjusted earnings simply excludes the above charges from the GAAP results for the applicable time period.
Our 2017 results also included the effects of 3 acquisitions: Santa Izabel and Old Dominion Brush in June and R.
P.
M.
Tech in August.
Santa Izabel is included in our Agricultural Division operating results, while Old Dominion Brush and R.
Tech are included in our Industrial Division operating results.
These acquired businesses contributed $13.9 million and $25.5 million to fourth quarter and full year sales as well as $1 million and $1.7 million to full year and full year operating income, respectively.
For the balance of my comments, excluding acquisitions means we excluded the operating results of these acquisitions from divisional or total company results as applicable.
Fourth quarter 2017 sales of $243.3 million were up 18.4% over fourth quarter 2016 sales of $205.5 million.
Excluding acquisitions, fourth quarter 2017's sales grew 11.6% over the prior year quarter.
Full year 2017 sales of $912.4 million were 8% higher than full year 2016 sales of $844.7 million.
Excluding acquisitions, the full year 2017 sales exceeded prior year sales by 5%.
Net income for the fourth quarter was $3.2 million or $0.27 per diluted share.
Adjusted net income was $13.5 million or $1.15 per diluted share, an increase of about 43% over fourth quarter 2016 adjusted net income of $9.4 million or $0.81 per diluted share.
Full year 2017 net income was $44.3 million or $3.79 per diluted share.
Full year 2017 adjusted net income was $54.6 million or $4.67 per diluted share, an increase of about 30% over full year 2016 adjusted net income of $41.9 million or $3.62 per diluted share.
Our fourth quarter and full year sales compared favorably to prior year periods and ---+ across all divisions, both including and excluding sales attributed to acquisitions.
Industrial fourth quarter 2017 sales of $147.2 million represented a $20.2 million increase over the prior year fourth quarter, and full year 2017 sales of $522.7 million increased 8% over full year 2016.
Excluding acquisitions, sales in this division increased 10.5% and 3.9% over the prior year fourth quarter and full year periods, respectively.
Industrial Division operating income for the full year 2017 was $51.9 million compared to $36 million in 2016, which included the previously mentioned $2.9 million non-cash pension termination charge.
The Industrial Division 2017 results also included the effects of acquisitions, which contributed net sales of $11.8 million and operating income of $1.3 million to the fourth quarter and net sales of $19.8 million and operating income of $2 million to the full year results.
Agricultural Division fourth quarter 2017 sales were $56.5 million, up 15.5% compared to fourth quarter 2016, and full year 2017 sales of $227.4 million were 10.5% above prior year.
Excluding acquisitions, sales in this division increased 11.3% and 7.7% over the prior year fourth quarter and full year periods, respectively.
Full year Agricultural Division operating income was $24.1 million compared to $20.7 million in 2016.
This division's acquisition contributed net sales of $2.1 million and an operating loss of $200,000 to the fourth quarter of 2017 and net sales of $5.7 million and an operating loss of $300,000 to the full year results.
European Division fourth quarter 2017 sales were $39.6 million or about 16% higher than the fourth quarter of 2016, and full year 2017 sales of $162.3 million were 4.8% above prior year.
Operating income for the full year was $12.8 million compared to $10.9 million in 2016.
Our operating ---+ our profit margins continue to grow faster than our top line.
Fourth quarter 2017 gross margin of $60.9 million grew by about 27% over fourth ---+ 2016's fourth quarter gross margin of $47.9 million.
Our fourth quarter 2017 gross margin was 25% of net sales, which compares favorably to 23.3% of net sales for the prior year quarter.
Full year 2017 gross margin of $234.7 million grew about 14% over full year 2016 gross margin of $205.1 million.
Our full year 2017 gross margin was 25.7% of net sales, up from 24.3% of net sales in the prior year.
These favorable comparisons continue to be helped by pricing actions, improved production efficiencies, new product introductions and purchasing initiatives.
Fourth quarter 2017 operating income of $20.9 million was about 38% higher than fourth quarter 2016 adjusted operating income of $15.2 million.
Excluding acquisitions, fourth quarter 2017 operating income was about 31% higher than the prior year adjusted result.
Full year 2017 operating income of $88.7 million was about 26% higher than full year 2016 adjusted operating income of $70.5 million.
Excluding acquisitions, full year 2017 operating income was about 25% higher than the 2016 adjusted result.
Fourth quarter 2017 operating income was 8.6% of net sales, which compares favorably to 6% of net sales for the prior year fourth quarter.
Full year 2017 operating income was 9.7% of net sales, which compares favorably to 8% of net sales for the prior year.
Our full year 2017 EBITDA was $109.4 million.
This represents about a 24% increase over full year 2016 EBITDA of $88.4 million and about a 20% increase over prior year adjusted EBITDA of $91.3 million.
Our full year 2017 operating cash flow remained very strong at $70.4 million despite the fact that double-digit sales growth drove higher working capital, and high utilization rates caused us to begin to rebuild our vacuum truck rental fleet.
These strong cash flows allowed us to improve our debt net of cash position by $18.6 million over the 12-month period, even after paying out about $39 million for the Santa Izabel, ODB and R.
Tech acquisitions.
Our order backlog ended 2017 at a record $218 million, about 48% higher than year-end 2016 backlog of $147 million.
This backlog build is primarily due to increased new order levels.
Excluding acquisitions, our year-end 2017 backlog has increased 34% since the end of 2016.
One more comment regarding income taxes before I close.
Most of our consolidated taxable income will be subject to the new 21% U.S. corporate tax rate.
Going forward, we expect significant reduction in the effective tax rate as a result of this ---+ of U.S. tax reform.
However, much is it still to be determined regarding the impact of certain provisions of the Tax Act as well as, among other things, how it will affect the income taxes of certain U.S. states.
As a result, we are not giving specific forward-looking guidance with respect to our effective tax rate.
In summary, our fourth quarter and full year 2017 results were highlighted by: New sales and operating income levels for the fourth quarter and full year periods; record net income and earnings per share, excluding the onetime effects of the new U.S. tax law; profit margins continuing to grow faster than top line; sales and operating income growth across all company divisions, both with and without the effects of acquisitions; record full year EBITDA of $109.2 million; continued strong operating cash flow exceeding $70 million and a record year-end backlog of $218 million.
I would now like to turn the call back over to Ron.
Okay.
Thank you, <UNK>.
I appreciate that.
So as we can see in the results we released yesterday, Alamo finished the 2017 with a strong fourth quarter which made the year in total the best-ever in our history.
Certainly during the last few years, Alamo has made a lot of progress on improving margins, strengthening our market presence, upgrading our product offering and a number of other achievements.
But during this time, our markets were ---+ constrained our results due to a variety of headwinds which we have talked about each quarter for the last couple of years, things like the weak agricultural sector, soft conditions in the European market, the negative effects of the strong U.S. dollar on our translation of our results, and a variety of other headwinds.
But going into 2017, we were pleased we started seeing some relief from these conditions.
And these continued to show improvement as the year progressed.
And this can be seen most vividly in our sales.
I mean, in 2016, our sales were actually down slightly.
And then as we went into the first half of 2017 ---+ I mean, they were up 2% in the first quarter, 1% in the second quarter, so it was positive but modest.
But then in the second half, they were up 11% in the third quarter and finished the year up 18% in the fourth quarter.
So it was a dramatic change.
And certainly, there were a few acquisitions during the year which helped the sales, but sales were up, like in the fourth quarter even 11%, without the acquisitions.
So this was a very welcome development after several years of little to no market growth.
And we were real pleased that this growth was fairly widespread as nearly every one of the headwinds we've talked about ---+ commented on for the last few years, showed some form of improvement, especially in the second half of the year.
So it was good to finally get some top line growth.
And this sales growth, combined with our ongoing efforts to improve our margins, led to record operating profits for Alamo, both in the fourth quarter and for the year in total.
And I say operating profits rather than net profits because, as you are all aware and have been hearing repeatedly, our tax results were impacted by the effects of the U.S. tax reform measures adopted in December of 2017.
With ---+ this resulted in a onetime net charge to our income tax expense of over $10 million.
We covered this in our press release, <UNK> mentioned this in his presentation and I mention it again here because I don't think any U.S. company, public company, can comment on 2017 results without mentioning the effects of the U.S. tax reform.
So you're probably hearing it more than you want.
But while this onetime tax reduced our 2017 after-tax results, we're actually very pleased with the tax reform measures.
We think even ---+ this will give us a lot more flexibility to repatriate cash held in our international operations without significant incremental taxation.
And of course, moving forward, the reduction in the U.S. corporate tax rate should allow for a variety of benefits which we believe will sort of make us more competitive in the international markets in which we participate.
So ---+ but ignoring tax reform for a minute, the Alamo Group had a great 2017, and we believe we are well positioned for an even better 2018.
Now I would not go so far as to say that our markets are strong, but we certainly believe they are continuing to improve.
And it helps that due to a record backlog, we should be able to start the year on a positive note.
In 2018, we will also get the benefits of the full year effects of the acquisitions we completed in 2017.
And while individually, these were relatively small, actually, they were strategically good fits with Alamo's development plans, brought in some nice products and filled some nice gaps.
And we feel optimistic that we will continue to be able to complete acquisitions going forward that will contribute to Alamo's growth, despite ---+ in spite of this climate we're in now, where higher valuations have certainly impacted our acquisition activity.
But we're pleased that we're seeing ---+ while there's nothing else imminent at this point, we're very pleased that we are seeing a reasonable flow of opportunities to look at in this area.
And even with our sort of self-imposed criteria on pricing and valuations, we feel good about our prospects, that they will continue to bring good fits with our company.
We also feel very good about our internal operations.
In 2017, we exhibited continuing margin improvement, as we have shown for several years now, and we believe there's still further opportunity in this area.
In 2018, we will be spending more effort and more money on our operations accordingly.
This is definitely an area where we will benefit from tax reform that actually provides a better climate for capital investment.
As a result, we anticipate increasing our capital expenditures in 2018 over the average levels of recent years as we work towards eliminating some bottlenecks in some of our operations and to continue to invest in technology and to work to improve our overall operational efficiency.
So with improving margins, acquisitions, further investment in our operations and the benefits of a better U.S. corporate tax structure, we are optimistic about the outlook for Alamo Group in 2018.
As always, we remain cautious and conservative in our approach as we know our markets can and do change quickly.
But we feel good about where we are positioned today.
Alamo Group is stronger than it's ever been, and we are very optimistic about our future.
So we thank you for your support.
And with that, we'd now like to open the floor for any questions you may have.
(Operator Instructions) And we'll go first to Mike <UNK> from Seaport Global.
I wanted to ask about a different topic of the day, it seems, and that is the price of steel and metals.
You've seen some of these reports in the media about tariffs being raised as early as next week on steel as well as on aluminum.
I'm just kind of curious, what levers can Alamo pull if and when we do see substantially higher steel prices from kind of where they already are, which already are pretty high.
Do you have additional operation efficiencies ---+ or pricing power at this point.
Or could the price of steel just be so much higher than it's been over the last couple of years, that it might actually be a very, very tough hill to climb this year to kind of have any kind of growth in your gross margins.
Okay, got it.
That's great color.
I also wanted to turn more broadly to the supply chain.
You had mentioned some pretty big backlog increases, of course.
You also mentioned in your press release, there's been some stretching of some of your lead times.
Are you finding any components, or perhaps, current parts and assemblies in short supply right now.
Or are the sort of the lead times simply bottlenecks at your own facilities, where you just have so much demand you can't catch up.
No.
I mean, we have a couple internal bottlenecks.
But the supply chain, it's not ---+ we're not missing deliveries or anything due to supplier issues.
Though ---+ I mean, truck chassis, certainly, the lead time is growing there, and it looks like it's going to continue to grow.
Things like hydraulic components, certainly, the lead times there are growing as well.
And I mean, we're taking this into account in our ---+ the time frames we're quoting, the lead time we're quoting.
So ---+ but we still get the availability of the things, it's just that the lead times are growing.
And as I said, it's been within a manageable range so far.
I actually think, like, trucks chassis lead times are going to continue to grow.
I think hydraulic components, lead times are going to continue to grow.
And we're trying to probably order a little bit ahead.
Not a lot.
I mean, you can see we're controlling our inventory, I think, fairly well.
But yes, we'll try to get a little bit ahead of that and just try to respond as quickly as we can.
And I'd say we're going to improve a few bottlenecks in our areas, internal areas, that are due to heavy backlogs.
And as far as springtime deliveries in Ag, now that we're already in March, that schedule is not particularly at risk.
You have enough of what you need to make your most earliest deliveries on time.
No, we did not see any effect, I mean, Europe, for us, was very strong in the fourth quarter and had very nice, even, improvements in backlog.
Those ---+ like I said, I think some of those safety regulations effected people like ---+ more like to tractor manufacturers themselves than us.
And so we ---+ it doesn't seem to have caused any shift.
I mean, I don't think this effect was anything near as strong as even, say, like the Tier 4 engine transformation in North America.
This is something, I think, we've been able to adapt to pretty seamlessly.
And we'll go next to <UNK> <UNK> from Piper Jaffray.
I was wondering if you could talk a little bit about snow removal equipment.
We've obviously had some rough years in the past, but there has been quite a bit of snowfall across the footprint this year.
Could you just talk about how orders were in the fourth quarter and kind of your outlook for that side of the business.
Got it.
And then maybe if you could talk about where you're seeing strength in Europe, just kind of the regions.
And maybe which ones, which markets are stronger or weaker.
I think Europe is pretty good across the board.
Certainly, we're strong just in Central Europe.
I mean, England, Ireland, France, Germany, the Benelux, those type of countries ---+ central Europe.
And for us, I mean, it's pretty broad spread.
England had been ---+ had sort of dropped off the most, especially following the Brexit vote, and I mean, then they kind of ---+ we saw orders and business decline as farmers and everybody was sort of playing a wait-and-see game.
And certainly, the Brexit situation is not totally resolved, but I think the market has come back.
Farm commodity prices have improved some, farm incomes are up.
One of the issues was farm subsidy payments and what was going to happen in the U.K., who are they going to get their subsidies from.
They had been getting them from the EU.
And England came back and sort of gave them some confidence that they're sort of going to mirror what they were getting, at least for the next several years until everything's sorted out.
But they were going to mirror what they had, So that helped.
But generally, I think there's a little pent-up demand, I think, not only in Ag, but even in some of the governmental, like, applications for mowing and vacuum trucks.
I mean, we saw a very nice pick up in orders in vacuum trucks in Europe.
So it's really sort of broad spread.
Like I said, probably the biggest improvement was England just because from the low ends of the Brexit.
Plus, it's also helped that, as I said, currencies there had been a headwind.
I mean, the year before, we were actually up in England, but we're down due to currency.
So now we're finally up in local currency.
We're up even further in dollars just because the dollar softened a little.
So we like it that it's pretty broad spread.
Ag was good, but even like I say, some of the non-Ag, governmental applications were also good.
And then backlog has improved nicely.
And we'll go next to Joe <UNK> from Sidoti & Company.
Just to follow up on that last question.
Just curious ---+ you saw organic revenue in Europe up about 7%, excluding the currency gains, yet your segment profits were actually flat.
And I assume if you probably include ---+ or if you exclude currency, your profits were probably down year-over-year, I would think.
So just wondering what's exactly going on there.
Is that just the unfavorable product shift ---+ mix shift.
And if so, do you think that sort of bounces back.
Yes ---+ I don't think it's as much of ---+ as the mix shift as ---+ the growth was in whole goods.
That's the ---+ like, we had been off in whole goods.
And so when it came back, I mean, the growth in there had been more in ---+ and whole goods are certain ---+ I mean, like I said, it's the spare parts that are our better-margin products.
So I think we saw some growth in the whole goods.
And the fourth quarter anyway is always a little soft, usually on spare parts in that way.
I mean, that's when the activity is a little bit less, so it's ---+ those are usually better in the second, third quarter anyways.
So I think it was kind of a little bit the a mix between whole goods and parts.
We ---+ there was some ---+ as part of some restructuring that we did last year in Europe, there were some severance expense and a few other things that ---+ probably, a few other expenses like that.
When you're restructuring, a little bit ---+ I mean, that's a little bit more expensive exercise in Europe than it is in North America.
And so we had some of that in the fourth quarter as well.
And in fact, I think that was probably the single biggest sort of anomaly factor.
No.
That was 2017 as a total.
Yes.
Yes.
We think so because, like, all of our units had nice improvements in backlog.
Europe probably had the biggest increase in backlog for us.
No.
I think what we're trying to say, that the comparables are going to be harder in 2018.
I mean, 2016, sales were actually down.
2017, they're up, very up nicely.
Profits were up, I mean like 25%, almost, a quarter.
So I think when we say it's not that the growth is slowing, but the rate of change is going to be different.
I mean, we're not going to do 25% better in the quarter.
But we can still do better, and ---+ but the comparables, 2017 to 2016, the comparables were easier.
But 2017 was records across the board, and so to have even ---+ do it even better in 2018, which we think we will do, but the growth isn't going to be double-digit growth across the board.
Look ---+ yes.
And certainly, this is being driven somewhat by a slight ---+ some increases in backlog and some lead times lengthening that we feel we don't want those to get too far out.
And so we've always got a number ---+ I mean, every year, we're investing in our plants.
I mean, more robot welders, more laser cutters, more technology in general.
And just that this year, since there is more backlog ---+ I mean the last couple of years, sales have been fairly modest, flat.
This year, since we are ---+ we're undertaking a few more of those projects than we have.
Like I say, we do a couple every year, now this year, we're probably going to be doing twice as many.
And so already, I think we start off, I mean ---+ and it's fairly broad-based.
We just put in a ---+ we've done a little expansion in Rivard in France with the ---+ a new press brake and a new laser cutter.
We just approved, I mean, literally this week, a [Lefebvre] laser in Gibson City, Illinois.
We've already, I mean, just approved putting in a new robot in McConnel.
We're putting in ---+ upgrading our production line in Bush Hog.
And so I mean I'd like to say it's just a few more initiatives than we usually would take just because of the backlogs and us wanting to keep our lead times reasonable.
So it's ---+ like I said, it's not dramatic, it's not like CapEx is going to double or anything.
But it will be above just as we take on a few more projects, and probably take them on, a few earlier.
There's also like ---+ there was one thing that will ---+ we had a facility in Washington that we had been under a lease with a purchase option.
The purchase option came up, it was a good deal, so I mean ---+ it's like $3 million.
And that's something we usually don't do every year, buy out a plant.
But like I say, it was just ---+ the economics were right to do that then.
So there's a ---+ like, so that's a bit of an anomaly.
But yes, just doing a little bit more than we normally do.
Yes.
I mean, we've been saying all along that we need to be at double-digit operating profit margins.
I mean, this year and last year, we were ---+ in '16, we were at 8.6%.
In '17, we were at 9.7%.
9.7% is getting awfully close to double digit.
And ---+ but we're not just trying to get to 10%.
We can do above 10%.
And so we think that ---+ I think that once we hit the double digits, that growth at the top ---+ at the operating profit margin may slow a little because while we still want to improve it, at that point, we're more ---+ we want to really more focus on sales growth than just continuing to see how far we can drive the profit margins.
I mean, I think where we are, we still want to improve the ---+ our operating margins.
And I think we can.
Certainly, like I say, sales obviously helped in that.
And we can get there quicker.
That's why we made more progress this year than the previous year just because we had more sales.
And so yes, there's still room to improve the operating profit margins.
And even once we get to the double-digit, we will still work on improving them.
But I think the shift a little bit focus more to top line growth than just seeing how far we can push the margins.
I mean, we want to take market share, we want to grow our overall presence in the market.
So like I say, there will be a slight shift.
But not ---+ but I mean, we will still work on ---+ we're not finished by any means of improving our operating profit margins.
Yes.
I think they could ---+ they have ---+ there's potential at both sides of that.
Like ---+ yes, it's ---+ yes.
Top end bound.
I think modest prices are ---+ we can pass them along pretty regularly.
I mean ---+ even during the downturn of the Ag market for the last several years, I mean, we've actually had positive pricing increases every year.
So they're very modest, very modest, but positive.
And you're right, in some pieces of ---+ in Ag, I mean, combines weren't getting pricing or in some other specific areas.
So I think if we can do it in sort of the worst Ag decline in the ---+ of the last several decades, then I think we can do it, especially because this time, we won't be alone.
And I mean, it's not like we ---+ like I said, everybody's going to be faced with the same thing, everybody.
And I think ---+ forget us, but even the John Deeres and the new Hollands, and those are usually fairly aggressive at adding on steel surcharges and this kind of stuff.
And I think when the big players do it, it's much more accepted for people like us to do it.
Yes, there will be a little bit in there, Mike, comparing to year-over-year, yes.
We have so many products in between the divisions.
But ---+ and it seems like ---+ and so we ---+ it's not just 1 or 2, it's half a dozen.
We've got the new sweeper coming out we're pleased with.
We've got ---+ expanding our remote control mower business.
Some new opportunities on some of our own powered platforms and the governmental mowing business.
Geez, it's ---+ I mean ---+ I know Bush ---+ our Ag guys have a couple of new mowers that we introduced at the recent February Ag show that we're real pleased with and think ---+ and had a very good response from the market on.
Like I said, it's not one thing that's going to ---+ it's a dozen things, a dozen new products that we think are all going to help in a small way rather than one thing that's going to help in a big way.
All right.
Well, thank you for joining us today.
We appreciate your participation and your interest in the company.
Certainly, if we can ---+ don't hesitate to give us a call if you've got any other questions.
And we look forward to speaking with you on our first quarter conference call in early May.
Thank you for participating.
| 2018_ALG |
2016 | MAT | MAT
#Always good to talk to you, <UNK>.
Look, we've been consistent on this.
We see this is our top priority right now, short of anything major, as a disruption of the business or something major on the investment front ---+ which, frankly, we don't expect at this point.
We stress tested this pretty carefully.
As we go through 2016, we feel comfortable that we can meet the targets <UNK> talked about on cash and still support the dividend.
Importantly, I've said, as we exit this year again into next year, we would expect to start to grow into a little bit more of a normative dividend yield as we improve performance.
And that's very much in our target range.
So right now, <UNK>, I don't see anything changing on the dividend.
Sure.
You know, we constantly test and gauge both our consumers and moms, and our research is continuing to show the brand's relevance.
And interest among moms and girls has been improving.
We know it's been improving as a result off of the effective marketing PR and various programs that we've been initiating.
I think we started that real initiation with our 23 new ethnicities as part of the Fashionista collection and really drove that point of difference with new choice and diversity for Barbie.
We did very well; and, more importantly, we created a lot of goodwill for the brand, encouraging us to continue down the strategic path of diversity and choice for the brand with its most recent launch, again, as you've seen.
The halo effect of this over the whole brand is something that we are watching and watching play out pretty carefully.
Retailers are very excited with the changes that they see on the line, both from a marketing perspective as well as product.
And there's a lot of product initiatives, new innovation, price/value ---+ a lot of structural execution points that we're not talking about on this call that took place with Barbie as well.
So we are feeling very good about the changes that we made and obviously executing against them at retail more effectively.
And we expect that that momentum will continue through 2016.
On your question on space, <UNK>, I think we've said before, we probably lost 15% to 20% over the course of the last 12 to 18 months.
Part of what we're seeing is enough velocity now and turn on that current shelf space that we, frankly, would expect to see this move in the other direction as we get into the fall set.
So it was significant.
And a lot of what we were able to do to offset that, I think, is pretty stellar as we came through the fourth quarter.
You bet.
Thank you.
I'll start it, then let <UNK> jump in.
Look, I don't think that was really the big factor.
I think we have felt for the last few months that we're not doing what we need to be doing to get the brand's salience up.
It's a combination of our content, the distribution of that content, and price/value.
And we've allowed price value and the total value proposition to shift.
And I think that hurt us in the quarter.
As you know, there's been a fair amount of private-label stuff out there at retail that actually competes directly with AG.
So we have restructured things as we go into 2016.
I think we feel a lot better about the line.
We've got a lower price segment we are doing.
I think Amazon, with the studio launch, will help us on the content front.
And we're going to be doing some interesting things on distribution to extend both our consumer reach as well as our availability.
So we think this is imminently fixable.
We were just a little slow off the mark this year.
There's not much I could add to what <UNK> is saying.
I think that he articulated it perfectly.
And I think the efforts that we are doing to re-energize consumer engagement through content, and in particular with this new deal with Amazon Studios, is really a very big and exciting long-term effort ---+ by the way, both for Amazon and for American Girl.
We're talking about specials and episodic content based on our brand's characters.
And the first special will be released in 2016.
So we are looking forward to energizing the brand through that, and that is one dimension, as <UNK> mentioned.
Well, I think what I ---+ I didn't mention 2016.
I see 2016 being higher than the historical, as we really want to make sure we've got the powder in our gun to, again, promote to the extent we need to to drive POS in the current year.
But I did say we think we'll get to more normal historical levels in 2017, as we look to get some operating leverage.
And we've got tailwinds in revenues, both behind our core brands and the Cars 3 movie, of incremental $350 million of sales in 2017.
So back to more historical levels in both sales adjustments and advertising in 2017.
Well, we said we should be approaching that range as early as 2017.
Yes, that's what our thought process is.
I think a major component of that is the incremental revenues that we expect to generate in 2017 from Cars 3 will put a lot of leverage on our infrastructure, as well as the continued momentum in our core brands.
And we expect to continue to gain traction in emerging markets.
So top line is part of the story, but we're also going to be leaning into costs in 2016 in the supply chain and SG&A.
And that will continue also into 2017.
I would think 2018, you'd look to Toy Story 4 which is great toyetic property.
So we see that.
And we're working on a whole bunch of other things with regard to licensing ---+ as well as, I think, it's continued emerging market growth, particularly in Asia Pac.
And I would say, <UNK>, we're working pretty closely with Disney on how to ensure we don't just have a huge spike and drop-off.
I think we have the same objective, to kind of keep momentum going in the year two.
So that's part of both of our plans.
We actually haven't rolled much of Fuhu in.
It's not a huge business at this point, so I wouldn't look to anything major there in the short-term.
It's really more of a platform that we want to build into some of our Fisher-Price and technology-driven toys.
So there will be some, which we'll illuminate on, <UNK>, but not a huge amount.
Yes, I think with regard to commodities like oil, we expect to see a benefit in resins and logistics.
And that's really a tailwind.
I think what we'll also have is, again, a headwind with regard to ---+ direct labor costs remain inflationary as well as packaging.
But overall, when you look at our gross margins, we're targeting 50%, to be around there in 2016, and that reflects additional headwinds with regard to ForEx.
But a tailwind is our aggressive cost savings programs in 2016.
So when it all mixes together, I think we're looking to again be around 50% next year.
<UNK>, it's <UNK>.
The shipments for that will be in the second and third quarter.
That will be the bulk of, obviously, the product flow.
And we believe that the aesthetic, the feature, the look, the content, the research all suggest that, while action figures and fashion dolls are out there, this will visibly look and feel different than everything else.
It will also obviously have a tremendous amount of content associated with it, defining characters and defining a real action-oriented girl proposition, which we think is really timed well with the girl-empowerment trend that's happening.
And certainly, as a new brand executed by Mattel globally, we'll get the full power of our execution skill set.
Space will be concurrent with the excitement by retailer.
So it varies by retailer, but obviously we are getting great support from retailers.
They are excited about the brand, and we believe that this is a great proposition for a long-term growth strategy in girls.
We'll probably have more to talk about that, <UNK>, at Toy Fair.
But we are looking at specialty retail and other opportunities to extend distribution.
We've done some testing and some changes this past year that were quite successful.
So we would expect to extend that.
There will probably also be some of our line that will be handled with Amazon.
So I would think you'll have a lot more availability points than we've had this year.
Operator, I think we have time for one final question.
<UNK>, it's <UNK>.
We've obviously got a lot of initiatives in play in 2016, and we believe many of them get traction.
But clearly, the emphasis is going to be on core brand momentum.
That is a paramount continuing strategy and priority for us going forward.
I think we have proven stability in most of our core brands for 2015, leading us to believe we are certainly on the right track and, in fact, can dial up some of the methodologies that have been working.
At the same time, we continue to look to stabilize Monster High and obviously regain some traction on American Girl.
Notwithstanding that, we're pretty excited about some the new licenses that we have.
I mean, clearly, the Warner Brothers relationship is becoming more and more important.
And we've got a great new girl initiative coming out.
We've got obviously the Batman v Superman, and the trilogy of movies going forward, well into 2017 and 2018.
You know, the MEGA business for us, which we haven't talked a lot about, is strong, and leveraging the platform itself, and attracting new partners.
Clearly, we are launching the Teenage Mutant Ninja Turtle license, which is going to be a terrific sleeper for us as well in a movie year.
So we know that that's going to prove itself out.
We've got some great new content partnerships that we've discussed that will both fuel core brands, as well as some new that you'll hear about at Toy Fair.
And last but not least, there's some really exciting programs in emerging markets, where we continue to grow ---+ as these statistics show ---+ but with even more fuel, if you will, to provide the right tools and the right product and the right content to help execute and grow market share in those areas.
So on balance, we believe we've got a good, robust program to significantly charge ourselves with covering that gap.
I think our mindset is Barbie is owed business, and that brand has the capability to do a lot more than it has.
We've proven it over the years.
I think people are starting to understand that it is part of pop culture.
And I think that as ---+ you know, there are always girl brands that come and go.
I think Shopkins was a great surprise, I think, in 2015.
But these girl brands tend to have bell curves, and Barbie is and has been a sustainable brand for almost 57 years.
And I think at this point we are well on our way to solidifying our positioning, expressing new marketing, innovating new product, and executing flawlessly.
So I would expect continued emphasis and growth on the Barbie brand moving forward.
I think, <UNK>, that is a good way to think about it.
We think we are pretty much in balance right now.
And you'll get some pockets, obviously, in a few international markets.
But, yes, I think shipping and POS should be tracking pretty closely.
Yes, I think that's particularly true because we're not losing shelf space; we're hopefully gaining shelf space in the fall.
So it should be much more aligned this year.
Thanks, <UNK>.
There will be a replay of this call available beginning at 8 PM Eastern <UNK>e today.
The number to call for the replay is 404-537-3406 and the passcode is 15869072.
Thank you for participating in today's call.
| 2016_MAT |
2015 | KMT | KMT
#Yes, so I'll pick up the aerospace.
I think in aerospace we actually made one particular customer that we decided to let go.
We decided that the margins weren't attractive enough and that's impacting our topline in aerospace, certainly.
I think overall in Europe, we have ---+ I think we're holding our own.
I'm happy with our industrial business overall.
I think we are holding share or may be even slightly getting share in Europe.
So I feel pretty comfortable there.
I think we will continue to be challenged.
I think Europe, the market in general, I don't see anything on the horizon.
I would say it is getting better.
So we're going to have to continue to do all the things we do even better to earn our new business as we had down the road here.
More cars ---+ definitely better.
But I think ---+ I don't see it ---+ I certainly don't see it in Q4.
We continue a very disciplined approach and will be keeping you updated as we make progress.
But nothing to report right now.
Yes, <UNK>.
We'll be in a much better position to comment on that in July.
I think, to be frank, on that particular question, we'll especially be watching this quarter.
So I'll defer that question til July.
Yes, <UNK>.
From an inventory perspective, and I won't put numbers around quantifying the amount of inventory reduction because we do have a lot of moving parts, but I will say we are focused on not just with [unfinished] goods inventory, which will impact the margins, but also from a raw materials perspective, some inventory restrictions there in Q4.
And I would think similar margin impacts in the quarter for Q4 as we experienced in Q3.
So roughly 50 basis point is in Q3.
Well, I think what I said was that we're going to continue to focus on the high end of the market.
We continue to focus on customers who really value the expertise and the solutions that we provide.
And in that end of the market, quite frankly, demand is high and we find opportunities.
Thanks.
Good morning, Sam.
Yes, we're going to have similar to what we said on phase 2.
Phase 3 will be a mix of administrative reductions.
And I want to emphasize that this is a structured program where we are changing processes.
We brought in an outside consultant to help us through this change process.
And so it's structured and disciplined with milestones.
And so that is certainly a significant portion of what we're going to go through with phase 3.
The second key driver here will be continued footprint restructuring.
So it will be a mix similar to phase 2.
Yes, Sam.
This is <UNK>.
I'll put it this way, the ending balance of goodwill on the infrastructure segment of $112 million is lower than the goodwill that we added through the Tungsten Materials acquisition.
So you can read into it that way.
Morning, <UNK>.
Yes, <UNK>.
That isn't usually something that I think we ever shared that kind of detail on our product line.
I can tell you that the one thing we have shared is that we ---+ the portion of the business that we are looking at divesting, we certainly ---+ that's well below the average profitability that we have in the business.
So it will be a net improvement going forward.
Yes.
But, look, we are very competitive in many markets.
And there's a range that we've never talked about what that ranges is and where.
Yes, that would be something that we would cover as we divest.
So we will give you some indication as we head down that path.
As you can imagine, it just depends on the pieces, right.
Thank you.
I think first, <UNK>, it depends on where in the world.
So certainly in some areas in emerging markets you can get a multiple on industrial growth.
But in areas ---+ infrastructure certainly not.
And certainly in, I would call it the mature markets, where we have ---+ where you have continuous productivity gains, you're probably not going to see the kind of factors ---+ those kind of factors.
Because people get more and more productivity out of the tools that the use.
So I just don't see that.
Can you rephrase that, <UNK>.
I'm not sure I understood question.
Okay.
So first of all, we certainly see opportunities for improvement.
And I mentioned in my last call, and certainly we mentioned this several times, it's one of our top three priorities.
We're just not quite yet in a position where we can lay out what is the endpoint.
Our goal is to lay that out with our strategic plan when we lay that out at the end of the year.
I will say, though, it's tied to these ---+ the portfolio realignment.
We need to get that behind us in order to be clear on what our working capital goals will be.
So first step is portfolio realignment and we'll be in a better positioned to talk about what's possible.
Thank you, <UNK>.
| 2015_KMT |
2016 | AVA | AVA
#Thank you, <UNK>, and good morning, everybody.
I am pleased with our second quarter performance as our results continue to be slightly above our expectations.
During the quarter we continued to invest in our utility infrastructure to enhance the safety and reliability of our system for our customers and to support both electric and natural gas customer growth.
The timely recovery of these costs continues to be essential to earning an adequate return on our shareholder's investment.
Based on our earnings for the first half of the year and our expectations for the second half, we are confirming our earnings guidance range.
We currently have pending general rate cases in Washington and Idaho and we anticipate filing general rate cases in Oregon and Alaska during the second half of the year.
In Juneau, AEL&P's performance continued to meet our expectations and is expected to meet its earnings target for the year.
With respect to Salix's LNG project for Fairbanks and the possibility of bringing natural gas to Juneau, we are continuing to work on these opportunities, but we do not have any additional information to share at this time.
We will continue to keep you updated each quarter on our progress for both of these projects.
To demonstrate our commitment to the future and offer additional services to our customers, during the second quarter we launched a pilot program to install electric vehicle charging stations throughout our Washington service area.
Under the program that was approved by the Washington Commission, we plan to install over 270 Avista owned charging ports at various residential, commercial, and public locations.
We will use this program to help us understand emerging electric vehicle charging needs as well as support electric vehicle adoption.
I'm also pleased to announce that we recently placed our Nine Mile Falls hydroelectric generation facility back into service.
This is a 100-year old facility that we recently upgraded including replacing two of the vintage turbines alongwith a new warehouse and a crane pad and I'm very proud of all the hard work from our dedicated employees that went into planning and completing this very important project.
And now, I'd like to turn the call over to <UNK>.
Thank you, <UNK>.
Good morning, everyone.
For the second quarter of 2016, Avista Utilities contributed $0.42 per diluted share compared to $0.39 last year.
On a year-to-date basis, Avista Utilities contributed $1.29 per diluted share, an increase from $1.10 last year.
The increase for the quarter and year-to-date was due to general rate increases and customer growth, partially offset by increased operating expenses and depreciation.
We continue to be committed, as <UNK> mentioned, to updating and maintaining our utility systems.
We expect Avista Utilities' capital expenditures to total about $375 million in 2016 and we expect AEL&P's capital expenditures to be about $17 million in 2016.
Now, I'd like to talk about our liquidity and financing plans.
As of June 30, we had $194 million of available liquidity under our corporate committed line of credit.
In May, we exercised an option to extend this agreement by two years to 2021.
There were no borrowings or LCs outstanding as of June 30 under AEL&P's line of credit.
In the first half of 2016, we issued 1.2 million shares of common stock for net proceeds of about $46 million under our sales agency agreements.
We have 2.6 million shares remaining under these agreements.
For 2016, we expect to issue approximately $75 million in common stock and $175 million in long-term debt.
Both of those numbers increased about $20 million from our prior expectations and we're doing this in order to fund our capital expenditures, refinance the $90 million maturity, and most importantly maintain an appropriate capital structure.
We expect to extend $70 million of our $90 million term loan to December of 2016 when our new long-term debt is issued.
With respect to our guidance, as <UNK> said, Avista Corp.
is confirming its 2016 guidance for consolidated earnings to be in the range of $1.96 to $2.16 per diluted share.
We expect Avista Utilities to contribute in the range of $1.91 to $2.05 per diluted share for 2016.
Our range for Avista Utilities encompasses expected variability in power supply cost and the application of the Energy Recovery Mechanism in Washington to that power supply cost variability.
The midpoint of our guidance at Avista Utilities assumes no benefit or expense under the ERM.
In 2016 we expect to be in a benefit position under the ERM within the $4 million deadband and this results in about $0.02 to $0.03 of earnings per diluted share.
Our outlook for Avista Utilities assumes among other variables normal precipitation and temperatures for the remainder of the year.
For 2016, we expect AEL&P to contribute in the range of $0.09 to $0.13 per diluted share and our outlook for AEL&P assumes among other variables normal precipitation and temperatures for the rest of the year.
We expect our other businesses to continue to be between a loss of $0.02 to $0.04 per diluted share, which includes the cost of exploring strategic opportunities.
Our guidance generally includes only normal operating conditions and does not include unusual items such as settlement transactions, impairments, or acquisitions and dispositions until the effects of such are known.
I'll now turn the call back over to <UNK>.
No, the deadband is just it's a sharing.
If you're within the deadband, it's a 100% company risk either way benefit or expense and if we are above the deadband in the benefit position; it's shared to 75% customer, 25% Company.
No, When we have items under the ERM, they don't necessarily go back to the customer immediately, but we've taken care of that generally in our rate cases.
But we [still] report that as income, that is customer dollars.
Perfect.
I would like to thank everyone for joining us today.
We certainly appreciate your interest in our Company.
Have a great day.
| 2016_AVA |
2015 | EFII | EFII
#Thank you.
Thank you.
As always, I would like to think the EFI team for their passion and dedication.
I would like to thank our customers for their loyalty.
And, of course, I would like to thank our shareholders for their confidence in us.
I'm looking forward to talk to many with you in the months to come.
| 2015_EFII |
2015 | HIBB | HIBB
#Yes, we took a very hard look at that and feel like the seasonal categories impacted us by about 130 basis points.
Yes, definitely footwear we have that opportunity.
There are also many things in equipment just in accessories that we can fill in such as socks and headwear and some of those other types of products, some of the denim that we carry and other things that are very size oriented we will be able to do that which we think is a huge opportunity.
Sure, <UNK>.
As we mentioned in the second quarter we did see a detriment there of about 200 basis points or so on our total comp for the quarter.
As we got into Q3, Q3 is a higher volume quarter so it impacted us favorably by about a point and a half.
Yes, the traffic and the ticket, very similar story to what we've seen in recent quarters.
The ticket was up mid-single and the transactions were down mid-single.
We started off the quarter where our transactions were improved over the second quarter.
September actually had a little bit better transactions than the second quarter as well.
The big shortfall was in October.
Yes, to this point we feel like we're not in a place where we need to take significant markdowns.
Certainly some items that we're not comfortable with we'll address as needed as we already have, as we always have.
But at this point we still feel with some of the missed opportunity from last year and the lack of weather that we've had so far there's a little bit early to start with significant markdowns over and above what we've historically done.
I think obviously this week with the Thanksgiving holiday coming up will be a real telltale for us.
This is the season where we start to move from a little bit less need and more to gift giving.
So we feel like we need to really see the impacts of next week and the Thanksgiving holiday to then start to make those determinations of what we realistically need to do.
Sure.
You know we are only open for a couple of weeks but we feel very good about the way it opened.
And it's actually performing above our expectations but it's early, it's only the first two weeks but we're excited about how it performed.
If you take a look at last year's fourth quarter we did have some favorability.
The bulk of that favorability was in benefit cost and we also had some benefit on gift card breakage which we true-up once a year.
Those were the two main considers.
So I think that will be closer to normal this year.
So I think that's a piece of it.
And I think the other piece as we get into the fourth quarter we'll continue to keep a pretty tight rein on the more discretionary side of SG&A but we're going to fund the major initiatives and really not slow down there.
So that's the other piece of it that we want to make sure that we keep going.
So as I look at more of the investment versus controllable, the controllable side will be a little bit tighter but the investment side of our SG&A spending will kind of remain as planned.
We will provide more detail on that when we give out next year guidance on the next call.
But I would anticipate next year that SG&A, the investment side of SG&A will be slightly above what we saw this year.
I would say that there would be a fairly even spread next year and we'll provide more details in the next call but I would say it would be a fairly even spread and slightly more than this year.
Not really.
I think a lot of that is in some ways under our control where as we continue to make improvements in our assortment and replenishment and allocation I think we'll see some benefit there.
The new store productivity does always kind of ebb and flow with our overall comp number, so that is a big part of it.
So as we see our comp numbers improve typically our new stores come right along with that.
I think we continue to look at that and the biggest driver is really what is the demographics and the traffic patterns of the area, especially since most of our stores are in strip centers.
So that one-, three-, five-mile radius of the store from a demographic standpoint and traffic counts in those particular markets, so that's probably how we look at it a little bit stronger.
So the better the demographics are and the better the traffic count and how close people are proximity to our centers is a big driver of it.
Some of the areas that the weather has gotten cool we definitely have seen the increase in sales, especially in the apparel area.
We also feel very good about what they launch calendar looks like the rest of the year, especially in late November and all of December.
And then also as we go into January just last year if you remember we had some delivery delays with the port strike, so we think we will be able to have goods in earlier for our tax season.
So we feel very comfortable that we're going against some really soft numbers and then being able to fully utilize our distribution center on filling in on sizing and all that should pay some dividends.
So as we've seen some of those things in certain areas we think when we get that across the rest of our states that we're in a well-positioned because the assortments that we have in our stores.
We're actively seeking a VP of e-commerce currently.
We are evaluating what platforms we want to do within the next four to five weeks and we're looking at everything possible we can to move up the timeline as soon as possible.
So we have also we hired consultants and are spending the money and all the initial laid work to put in the core systems are going as planned and we are moving quite rapidly.
I can give you a little bit of details on that.
The first thing we're working on is the initial deployment of all of the hardware required for the POS implementation.
So that's the stage we're working on now and first half of next year we expect to have that deployed.
The back half of next year most of that time will be spent on the capability to ship from store to home.
So if one store doesn't have a particular item we can have another store ship it to the customer's home.
The following year is really the work that will be done on the website and mobile or app, so more of the e-commerce work will be done that following year.
And <UNK> we are doing things simultaneously.
We are actively getting our distribution center and all that all set for e-commerce.
So there is a lot of work being done as we continue to go through the year.
Very low.
We had very minimal but obviously there was some flooding and some of those type things but very minimal closures.
But when the weather is that way sometimes people can't get to stores.
Whenever we put guidance out there it's more of what we would call a normal season.
And so that would include minimal store closures, and that's usually how we try to guide is kind of normal middle-of-the-road.
Well both of those are clearly not normal.
But I would say if you look over the last four or five years excluding this past year that was more of a normal cadence I would say.
And so that's why when we talk about January our assumption is it will be getting close to normal, not including the past couple of years.
Yes I mean I think we still have some work to do to get the inventory a little bit more balanced appropriately with the sales growth.
We are expecting obviously more inventory than last year due to some of the port delays and the opportunities that we have around the tax and the season at the end of January and early February.
So we'll balance what we feel are the appropriate investments to ensure that we're driving revenue during that holiday which we consider Taxmas a holiday.
But then we also know we need to get some balance between the sales and inventory.
I was just going to say on a per store basis we're up 7% and we feel like we need to be up a little bit per store, especially with the work that we're doing on in-stock and making sure that we have product to replenish those stores.
So we want to be higher than last year on a per store basis.
Sure.
$100 million of buybacks is not sustainable through the long term unless we do some borrowing.
And so as we look forward we will continue to look at where we are, cash availability and where the stock price is and be opportunistic.
If we see an opportunity that makes sense then we will go into the revolver.
That's really what it's for and so we will use it if we think it makes sense.
No, it includes the $0.05.
Correct.
Minimal for the fourth quarter.
Obviously we have made a big buyback in the third quarter, so you should expect that to moderate quite a bit in the fourth quarter.
Yes, about 75% of the current decline is weather related.
The bottoms category was excellent during the third quarter.
We still see it as one of our fastest-growing categories.
It was impacted to a degree by weather but we still saw really nice growth.
Our deliveries on wearables we are in business now with our first vendor with two more vendors delivering within the next 10 days to two weeks.
So we expect that category to perform overall and we're going to certainly looking forward to having that in our stores.
The bigger driver will certainly be us moving our apparel business forward.
Without question we would expect the wearable business to have less of an impact than the improvements in apparel.
Thank you for your interest in Hibbett Sports.
I want to thank our customers for their loyalty, I want to thank our employees for their dedication and I look forward to having all you guys back on our fourth-quarter results in March.
Thank you.
| 2015_HIBB |
2016 | TXRH | TXRH
#I would say it's got to be close to 100 planned for 2016.
The impact, we don't know quite yet.
We have not done a full in-depth study of the Star Bars, we are going to be able to do that pretty soon because we would have had enough history behind the Star Bars.
It is tough to isolate just the Star Bar change because many times we're Star Barring at the same time we're bumping out a restaurant.
We may also be reskinning, retinting buildings, reconstructing parking lots, a whole bunch of stuff at the same time we're doing Star Bars.
So it is a little bit tough to isolate the Star Bar.
Anecdotally, I would tell you, it certainly seems like there's a lot more guests eating at the bar than what I have seen historically.
That could be another reason for some challenging alcohol compares since, because they're eating more versus drinking more a the bar, but again, that's just anecdotal.
We haven't done a full index study on it.
We do believe that the Star Bar itself is a big part of keeping our concept and brand relevant in 2015 and fresh for 2015.
So the bar is center of the energy universe within a Texas Roadhouse, so we knew we needed to take it up quite a bit from the original design over 20 years ago.
If you've had the same haircut for 20 years, you might want to mix it up a little bit.
You need more servers if you have additional seats, and then the kitchen maybe is not affected as much as the front of the house.
It helps, but the number of bump outs we have been doing the impact is very, very small to the system as a whole.
So I would not say it has much of a discernible impact on our labor productivity.
Our guys get paid 10% of the bottom line still, so they have an incentive to do the best job they can in managing their cost structure and while balancing that with staying on offense from a guest experience perspective.
They are also very competitive with each other, and they share a lot of best practices with each other on how they staff and schedule their restaurants.
We probably have anywhere from four to six or maybe three to six managers in our restaurants that would be impacted in some way by the new regs.
It really depends on sales volume which impacts the number of managers we might have.
Our Managing Partners started out making a base salary of $45,000 a year.
So technically, they would be under the what's been at least told to us so far that the salary threshold might be $50,000; technically they would be under it unless we change something in the way they're paid.
Right, that's back to our earlier comment where we could shift some of the bonus dollars that we currently have today over to the base, so we will see.
Yes, because some of them are at $45,000, and technically would be ---+ we'd have to do something.
And their base is typically more than the $45,000, or I mean their bonus, I'm sorry.
We will see.
Certainly that could happen over time, it just really depends on what those pressures end up being.
And it's probably an inevitability that there's going to be some raising of the federal minimum wage, and more states are going to get more active in minimum wage and it's going to happen.
And it's not a matter of if, it's just a matter of when.
But certainly, we're getting a good learning from what we're having to do in the states that you mentioned.
And with that said, we already have experience in California and New York where they have already jumped ahead.
I'm sorry we couldn't hear your question.
No.
| 2016_TXRH |
2015 | APC | APC
#This is <UNK>.
I'll address the discussion on Heidelberg, and then let <UNK> talk about the expiration in Cote d'Ivoire.
Heidelberg, the timing on the wells is really due to the drilling and the completion plans that we have set.
I wouldn't say that having three wells, and a partial well completion would be our mantra going forward, it's simply the timing.
Our project team has made incredible progress here in the last I would say six months.
The Gulf of Mexico has had difficult loop currents, and they were successful in placing the hole in the top sides.
And the commissioning work ongoing for the top sides is in process.
And as they have advanced that ahead of schedule, we've pulled the start date up a few months early.
So it's just a timing issue on when the wells will be completed and then brought online across the facility.
<UNK>, on Paon, we'll announce the results of whenever quarter it's done.
We probably won't even start that process until early in the new year, maybe very, very late December.
So whether we get it done in the first quarter or the second quarter, we'll be releasing it once we have that information.
Thanks, <UNK>.
Yes.
You did reference the comment correctly.
And we do see ourselves being cash-neutral to our CapEx as we go into next year on our preliminary thoughts.
Now we've not taken a plan yet to our Board for approval.
So these are very early ideas on our part.
And you can anticipate, given that we haven't run a dry rig or a rig for dry gas in over two years, that our percentage of oil will continue to increase in our mix.
You've seen that through the course of this year.
And you saw the increase year over year for the quarter of 24,000 barrels per day of greater oil.
I think you should anticipate oil will continue to be a bigger percentage of our overall mix in 2016, even if the capital on a year-over-year basis is likely down unless commodity prices do something that I don't anticipate.
Yes, I think we'll probably be in a position, as we usually are in early March, with our analyst conference to be able to give you the granularity you're looking for once we have a budget approved by our Board.
Well, the short answer is, <UNK> is really good.
And let me give you the longer version then, <UNK>.
The redesign was probably the biggest thing we did out there.
And so right now, we're working on a rate of penetration there in some of our nonproductive time to continuously improve on what we're doing there on the drilling side.
I think the other part of that equation is early on as we change some of this design, we didn't have it going across all of our rig fleet.
And today, we do.
And so you're seeing the benefit of that across the whole fleet out there.
And so that's a part of that improvement as well.
As far as going forward, I think the opportunity probably rests with both our completions and even some of the facility costs that we have in front of us.
We're working on a central stabilizer system right now, which essentially allows us to put less equipment on some of our well sites today.
So I see that there's going to be a future opportunity to get that DC&E cost down in the Wattenberg.
Okay.
Well, again, this is <UNK>.
Right now, we're not in a development mode.
So we're continuously ---+ you got a couple things going on.
We're holding acreage in some cases where the leases require it, but in other cases, we're still testing.
Again, where there's multiple benches out here, although we generally talk about one bench within the Wolfcamp A.
But there's other benches here to be tested, along with the completion styles we're using.
And so we're varying both the water and sand components here, just to better understand how do you get these EURs up.
And so part of the discussion earlier on the increased EURs, we do think we're better understanding what completions are working out here.
And so again, it's not a hodgepodge.
But we're going across a huge acreage position to better understand what we have.
So that when commodity does turn and we go into development mode, we'll probably start where a large part of our infrastructure is.
But we'll know where some of the better places are.
But as we recognize it right now, really across the entire acreage, we really think most of this is all tier 1.
And so we're pretty excited about all the results we're getting in.
But to another point on the infrastructure side, we continue to build that out.
<UNK>though we've slowed down some of our drilling activities, we have not slowed down our buildout of the infrastructure.
No, I think that is fair.
Once things go into a pad drilling format, if you will, we'll likely start very near the infrastructure that's out there.
So that we ought to be up and running and see the benefits on the production side pretty quickly.
Yes, on the resource range, we're right where we thought.
We always do a probabilistic resource range.
We're still in that range with the results of the well.
We still haven't established to water contact over here, so you still have uncertainties associated with that.
As to FID and whether or not we need additional wells, I think those discussions are ongoing.
But I think we also need to get all the data in and really incorporate that into our thinking as to, okay, what do we have here for sure, what do we now have uncertainties around, and what does that mean for additional activities.
So it's too early to say on whether there needs to be an additional well.
And the FID would come after that ---+ or the predevelopment work leading to an FID is ongoing, but that would come after we've got all the data that we need.
Morning.
<UNK>, we always give a risk to operational profile for our objectives here.
And what we've done for the fourth quarter, we think we've included in our capital guidance the flexibility to add the additional completion crews to start working down the ducts, as indicated in the table in our ops report.
And the volumes reflect status quo.
So it's the ---+ we've covered ourselves both ways.
And I think you'll be pleased with the outcome.
No, <UNK>.
I think you're seeing it correctly.
Well, you're talking about on the volume side in some of our big assets.
Right now, I would say there's upside in looking forward.
Because again, with the EUR improvement, especially in Delaware, that should give us upside going forward.
And these are some of the results we're seeing now.
And so as we continue to do these lookbacks, hopefully we got additional upside to that.
But again, remember, Delaware's relatively new and we're drilling this thing across the field.
So we're pretty encouraged.
So I think there's going to be a lot of little things out there to help us.
So there's probably nothing I can point to specifically.
Thank you.
This is <UNK>.
I would start with Wattenberg.
We were sort of between the Codell and Niobrara, we were 12 to 14 wells per section.
Now our norm is more 16.
But I can tell you we're looking at some tests this coming year from 20 to 30 wells per section.
And we'll see what the results there are.
But we're feeling pretty good that we probably, from a section standpoint, we think there's more to be recovered.
As we continue to get our well costs down, we think there's more opportunity to increase that density.
And so we're feeling pretty good about that we'll end up adding to that as opposed to where we are today.
If you look at Delaware, we're probably on 600-foot spacings, based on what we know today.
But I continue to make the point, this is early.
So the more oil we see in these sections and that we can recover that too may go ---+ may be increased.
And a lot of that's just going to be driven by our drilling and completion costs.
So as we get those costs down economically, we probably can afford to put more in a section if we're seeing those recoveries go up.
So it's a little earlier there.
But Wattenberg, for sure, we're seeing that density go up right now.
We have finalized the plans for next year, but there will be several in the Gulf of Mexico.
We'll probably have wildcats in Colombia and also over in Cote d'Ivoire, and beyond that, we're still working the planning.
Thanks.
Well, this is <UNK>.
Let me just say, we all recognize that this (inaudible) are challenging times, not just for companies, but for investors and for the broader investment community.
And we really appreciate the support we're seeing from investors, and appreciate the support we're seeing from analysts that follow us.
You guys do a great job.
Thank you.
I know it's difficult right now to do your job, it's difficult to do our job.
But I'll just leave you with this.
You can anticipate that our employees will go to work every day working as hard as they can to create as much value as they can, given the market conditions that we're in.
I think what we've achieved so far this year reflects that determination and hard work.
And you have our pledge as employees at Anadarko that we will come to work every day trying to create as much value as we can during a very challenging environment.
So with that, I hope everybody has a good day and a good week and thank you for joining us.
| 2015_APC |
2015 | FCF | FCF
#Thank you, Roland.
As a reminder, a copy of today's earnings release can be accessed by logging on to FCBanking.com and selecting the investor relations link at the top of the page.
We've also included a slide presentation on our investor relations page with supplemental financial information that will be referenced throughout today's call.
With me in the room today are <UNK> <UNK>, President and CEO of First Commonwealth Financial Corporation, and <UNK> <UNK>, Executive Vice President and Chief Financial Officer.
After brief comments from management we will open the call to your questions.
For that portion of the call we will be joined by <UNK> Emmerich, our Chief Credit Officer, and Mark Lopushansky, our Chief Treasury Officer.
Before we begin, I'd like to caution listeners that this conference call will contain forward-looking statements about First Commonwealth, its business, strategies and prospects.
Please refer to our forward-looking statements disclaimer on page 2 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.
Now I'd like to turn the call over to <UNK> <UNK>.
Thanks, <UNK>, and welcome to our second-quarter analyst call and thank you for joining us this afternoon.
Our second-quarter net income was $13.4 million, or $0.15 earnings per share.
Our first and second-quarter earnings per share of $0.31 are the best consecutive quarterly earnings per share figures since the second and third quarters of 2008.
<UNK> will elaborate, but tailwinds for the second quarter included improved noninterest income on a linked-quarter basis of over $2 million and a significant reduction in operating losses stemming from debit card activity as compared to the first quarter.
Headwinds on a linked-quarter basis were a $1.9 million increase in provision expense, a $1.1 million OREO write-down, and the $400,000 write-down of a former headquarters building and branch as we sell the property and consolidate it into a location less than one mile away in Dubois, Pennsylvania.
I will briefly touch on two themes, our earnings capacity and, secondly, our cost structure.
First, our earnings capacity is improving as prior initiatives are taking hold, and I will speak to just a few of these areas.
Loans grew roughly 5.1% on an annualized basis in the second quarter, largely due to momentum in corporate banking.
We saw nice traction in direct C&I lending, commercial real estate lending and construction lending.
We have two corporate banking initiatives, our Cleveland corporate banking LPO and a dealer floor plan initiative, and they are both growing in line with our business plan.
Corporate lending also offset some sluggishness in our branch consumer lending and in our indirect auto business.
<UNK> will tease out the nuance in our net interest income and margin in a minute.
Next, our wealth management and insurance income is performing well as the partnership with our branches has strengthened.
You can see this in the insurance and retail brokerage commissions line item in the press release.
Here the year-over-year figures increase from $3 million to $4.4 million.
Also contributing to fee income momentum were some meaningful traction in a few consumer categories, namely deposit service charges, interchange income, ATM fees, and merchant fees.
All told, these improvements contributed probably half of the increase in the noninterest income of over $2 million.
Importantly, our mortgage-funded loan volumes improved from the first quarter to the second quarter and the gain on sale increased some $200,000.
We still have a long ways to go, but the quarter had good traction and trajectory with mortgage.
Although a small deal, we are enthused about the prospects of our acquisition of First Community in Columbus, Ohio.
It provides a good commercial lending and mortgage platform in a market where we already have over $100 million in loan commitments.
The market is vibrant and growing.
Our First Community acquisition is on track with an expected closing of October 1.
We expect to have a one-time charge of $1.3 million in the fourth quarter.
As we convert the bank and begin in earnest, our cost basis looks to be about $600,000 per quarter as compared to an acquired revenue stream of over $900,000 per quarter.
In short, we feel like we have a good market, a great family-owned bank, and a wonderful opportunity to build upon.
Now for my second theme and our efforts around efficiency.
Adjusting for the previously-mentioned OREO write-down and the sale of the former bank headquarters building, our noninterest expense was $39.1 million in the second quarter.
Salaries and benefits were in line with our expectations and were essentially flat on a linked-quarter basis and as compared to the second quarter of 2014.
And this includes absorbing $1.1 million in salaries and benefits from the new mortgage division and the acquisition of the insurance agency.
In closing, just a few additional items.
We are now three quarters removed from our core conversion and we feel we are at the upper end of the range of committed savings of $6 million to $8 million annually.
Just as importantly, our bandwidth to integrate new technologies and product has increased markedly.
Essentially, we've remade the IT backbone of our Company.
This has and will continue to enhance the customer experience.
I want to follow-up on several items I mentioned last quarter.
We launched [Opening Act], an online deposit account opening option for customers and prospects, and we are seeing nice activity.
We introduced a critical system to automate our dealer floor plan business and more seamlessly keep track of a dealer's inventory of cars and trucks and give them good reporting, as well as ourselves.
Next our mobile banking adoption is robust with year-to-date growth of well over 31%.
We also have good momentum with our bill pay and Internet banking adoption continues to exceed our targets.
We are also relaunching our mobile remote deposit capture alongside our new suite of mobile banking and online products, and we expect a nice pick up there as well.
We are also weeks away from watching our debit EMV chip cards and also Apple Pay, so a great list of items.
Just one more thing.
Although our overall credit costs do include our second-quarter provision expense of just over $3 million and the $1.1 million OREO write-down, we are elevated compared to prior quarters recently.
The following credit indicators were really at 8- to 10-year lows: total nonperforming loans of $45.1 million; OREO of $6.5 million, NPAS at $52 million; criticized loans at $120.5 million; and total delinquency at 23 basis points.
We are vigilant with our approach to credit.
With that I will turn it over to <UNK> <UNK>, our CFO.
As usual, I'll pick up on some of <UNK>'s themes that drove our performance in the second quarter along with providing some additional detail that we hope you will find helpful.
I encourage you to take advantage of the earnings release supplement that is available on our website, which we feel provides investors with useful information that expands on the earnings release.
First of all, net interest income at $47.2 million was up by $1 million over the same quarter a year ago, but decreased by $800,000 compared to last quarter, reflecting the impact of the $1 million special dividend from the Federal Home Loan Bank that we received in the first quarter of this year.
Loan growth of $57 million from last quarter and $167 million from a year ago helped offset declining loan yields and maintain net interest income.
Our net interest margin in the second quarter was 3.26%, exactly the same as the year-ago period, but down 9 basis points from last quarter.
7 basis points of the quarter-on-quarter decline was driven by the one-time FHLB special dividend in the first quarter.
Total loan yields contracted by 5 basis points.
The Bank once again experienced positive commercial loan replacement yields continuing the trend from the first quarter.
However, this was not enough to offset unfavorable replacement yields in other categories.
Lower funding costs contributed 2 basis points to the margin as we continue to run off higher-cost brokered time deposits and grow demand deposits and savings deposits.
Our total cost of deposits is now down to 16 basis points and our total cost of funds is 26 basis points.
Non-interest-bearing demand deposits increased by $28 million over the prior quarter for a 10.9% annualized rate and currently comprise over 25% of total deposits.
Loan-loss provision expenses of $3 million in the second quarter increased by $1.9 million over the first quarter, primarily as a result of a $1 million increase in general reserves and a $600,000 increase in a specific reserve on a loan that had been previously classified as nonperforming.
Net charge-offs were $4.4 million during the second quarter, primarily driven by a $2.3 million write-down of a loan that was classified as non-accrual in the fourth quarter of last year.
$2.1 million of this $2.3 million write-down was against specific reserves.
The Bank's ratio of reserves to total loans was 1.01% at June 30 and its general reserves as a percentage of non-impaired loans remained at 0.98%.
The big story of the quarter is the rebound in non-interest income, which improved by $2.2 million over the prior quarter.
A number of items contributed to the increase.
Interchange revenue from debit card swipes improved by $300,000.
Gain on sale of loans from our mortgage banking initiative improved by $200,000 as that business continues to grow.
Merchant fees included in other income improved by $200,000 over the prior quarter as a result of the introduction of a new merchant services provider.
And, finally, service charges on deposits improved by $600,000 through a combination of two things: higher fee income related to overdrafts and insufficient funds and improved ATM surcharge and foreign fee income as a result of a new fee structure we introduced in the second quarter.
Fee income from commercial loan swap activities also increased over the prior quarter, but this figure reflects a normal quarterly credit revaluation of swap [counterparties] and swings from quarter to quarter.
Nevertheless, all-in-all this was a great quarter in terms of fee income and a nice rebound from the first quarter.
Turning to non-interest expense, our total non-interest expense increased by $800,000 in the second quarter as compared to last quarter, but the quarterly comparison is strongly affected by $800,000 in fraud-related debit card losses in the first quarter, which, thankfully, return to more normal levels in the second quarter.
We also had in the second quarter a $1.1 million write-down of a collection of REO properties and $400,000 write-down for the anticipated sale of a building that had previously been the headquarters of an acquired bank, which <UNK> mentioned earlier.
We adjust for these items at a calculation of, quote-unquote, operating expense that can be found in the supplement.
Operating expense was $38.7 million in the second quarter, relatively unchanged from $38.5 million in the prior quarter.
The most noteworthy items affecting operating expense were a decrease in occupancy expense of $600,000 over the prior quarter due to lower snow removal and utility costs, offset by a $400,000 increase in collection and repo expense in the second quarter.
Of course, any time we talk in terms of non-recurring items and operating expense these are non-GAAP and a full GAAP ---+ a full reconciliation to GAAP figures can be found in the supplement, which is available on our website.
In other news, our effective tax rate was 29.8% at the end of the second quarter.
And in terms of capital management we completed the remaining portion of our $25 million stock buyback authorization, repurchasing 714,000 shares from the second quarter.
So far in 2015 we have returned $25 million to shareholders in the form of stock buybacks and $12.6 million in the form of dividends.
While we currently have no open share repurchase authorization, our long-term strategy is to earn an acceptable return on capital for our shareholders and return excess capital to shareholders using a balance of dividends and buybacks.
And with that we will take any questions you may have.
Yes, they should and the only upward pressure will come in the fourth quarter with the integration of First Community in Columbus.
And I shared that number before; it's about a $600,000 uptick.
And there will also be one-time closing costs if that merger closes, which we expect in the fourth quarter of this year.
Yes, $1.3 million there.
Pretty satisfied with where it's at.
I think we're clipping along at about 5%.
And also encouraged as we look at the pipeline, the percentage is ---+ even the closings in the first half of the year are predominantly direct loans, about 86%.
And then the type of loan really: C&I, predominantly, 43%; IRE and construction about 45%p; and municipal about 10%.
So we like that mix and when we look at the types of loans we're getting some really nice looks.
We are seeing some strain on ---+ little bit with convenance and recourse around the edges of investment real estate.
We tend to maybe walk away from a few of those, but some nice companies.
I'm looking at a long-term care facility for the elderly we just did here in the last month for about $6 million; a highway and bridge construction company for about $10 million, nice new client.
Just the type of thing you expect a community bank to do; a foods company expanding and acquiring a medical office building.
Just kind of garden-variety kind of stuff, <UNK>.
A school district and a really highly-rated for capital projects about $6 or $8 million there; another food company $6 million.
Good, good stuff.
We saw three or four downgrades in our portfolio that created a little strain that showed up in ALLL methodology and the provisioning.
It's not there yet, on mortgage that is.
We are running probably at 50% to 60% of where we had hoped to be, but we saw some nice, positive traction in the second quarter.
So we think that will continue to contribute and we may be another six months away or so from breakeven there.
I would say with ATM fees that was a nice, sustainable outcome in the second quarter.
I would say with deposit service charges probably the same and interchange income.
And the other real positive is just good traction with wealth income and a lot more there over the course of the last 6 to 7 months, so pretty positive.
That was actually the beginning of the second quarter and when I mentioned that I was referring to our ATM surcharge fees and foreign fees.
Correct.
Yes, sure.
So the margin actually has exhibited remarkable stability.
The margin in the second quarter at 3.62% is exactly the same as it was in the same quarter a year ago.
The margin for the first half of this year is 3.30%, which is also exactly the same as it was in the first half of the prior year, so nice stability in the margin there.
The replacement yields on commercial loans, we've been watching that very closely.
That seems to go back and forth quarter on quarter, depending on the loan originations and the run-offs, and the payments that we experience.
As I noted, this is the second quarter in a row with positive commercial loan replacement yields, so that's really good.
But we think that the margin is, generally speaking, going to be bouncing around in this range until we see a rise in interest rates.
That was primarily the SNC review.
It's not.
We are just being opportunistic with the cleanup in an adjacent facility and we've been kind of nipping and tucking with real estate probably for two to three branches a year for the last several years, so this is just more of the same.
We have a bull's-eye on those old headquarters buildings that are a little unwieldy and used to have a lot of employees in and now we just have a branch.
And we really don't have too many of those left.
<UNK>, to give you an idea on the financial impact, we mentioned that it's a $400,000 charge we are taking in the second quarter, but it should save about $200,000 a year.
So it's about a two-year payback.
Nothing to announce right now, but generally speaking, the timing of that acquisition's close will coincide rather nicely with the timing of our annual capital plan as we prepare ---+ as we do our strategic planning exercise.
And when we do all that together towards the end of this year, we will be looking at our capital levels and if we think it's appropriate to seek another authorization, we will.
You mean in terms of product or capability.
No, I think we're in good shape.
Just as always, we appreciate your interest in our company and the services that you provide us and also thank you.
| 2015_FCF |
2017 | HNI | HNI
#Good morning everybody.
We'll share a brief assessment of our 2016 results and provide some thoughts on our outlook for 2017, and then open the call up for questions.
Before I start, I'd like to take a moment to welcome <UNK> <UNK>, as we recently <UNK> had been appointed Vice President, Chief Financial Officer for HNI.
<UNK> has been with HNI for 16 years in a variety of financial executive positions, and he possesses significant finance business strategy and transactional experience and expertise.
<UNK> is succeeding <UNK> <UNK>, who was promoted to President of HNI International, following the retirement of Marco Molinari.
<UNK> possesses a strong background and knowledge of the Asia Pacific region, and we are excited about what he brings to that role.
I want to thank Marco for his 13 years of service and contributions.
He did an outstanding job, and we're excited for him, as he pursues the next stage of his life and requirement.
I also want to thank <UNK> for his role and great leadership as CFO.
We are excited that we have such capable, experienced members ready and able to fill in these critical roles, as we pursue development and succession for the corporation.
Now let me shift back to a look at our full year results.
2016 was another strong year.
Our business has performed well.
We increased earnings, generated significant cash flow ,and increased our strong dividend.
Non-GAAP gross profit margins have increased by more than 100 basis points for the third year in a row, and have now approved year-over-year for 14 consecutive quarters.
We continue to make deliberate strategic choices to further strengthen our core foundation.
This process is an extension of our rapid and continuous improvement philosophy and culture, which includes product simplification, design commitization, operational consolidation, and significant productivity improvements.
These actions that we have taken will continue to improve future profitability, while providing a stronger platform for growth.
During the fourth quarter we completed the sale of artcobell, a kindergarten through 12 education furniture company.
Our divestiture of this business allows us to improve our focus on the core, and will increase profits by nearly $5 million per year.
We learned a great deal from this experience, and we'll leverage those insights moving forward.
Let me pause a little bit here and expand on this artcobell divestiture.
We bought the company five years ago as an extension to our core.
We periodically make these types of acquisitions to expand our frontiers.
During my tenure with HNI, we have used the same strategy to build our hearth business into a leader in their industry, in a powerful economic engine for shareholders.
We've done the same to build a strong and profitable contract furniture presence.
Some of these probes work, and some do not.
We had a thesis around artcobell that we failed to realize.
I called to question the latter part of last year, and we are now moving on.
It was not an inexpensive probe, but we learned a lot, which we have incorporated into our core businesses.
In the future, when we see opportunities to invest money to extend our frontiers, we will do so.
We will go.
Not all will be successful.
The connection of risk and reward continues to live.
There is no reward without risk.
We have a strong but not flawless track record, of taking calculated risks to drive rewards for shareholders and customers, and we will continue to do so in the future.
Back to the comments.
We make strong progress on our long term quarter core growth strategies with our investments in new products and selling capabilities.
Yesterday we announced the consolidation of a Hearth manufacturing facility into existing operations.
This difficult decision was another action on our never-ending journey to reduce structural costs.
Consistent with our long history, we continued to derive core productivity, and pursue structural cost reductions, in good times and in bad times.
We feel good about our results, and our improvements and earnings and profit margins.
We enter 2017 a stronger company, positioned to drive increase value for our customers, and long term profitable growth for our shareholders.
I will now turn the call over to <UNK> <UNK> for some specifics on the fourth quarter.
<UNK>.
Thanks <UNK>.
For the fourth quarter non-GAAP net income per diluted share was $0.82, compared to $0.91 in the fourth quarter of 2015.
Consolidated net sales decreased 2.6% to $581 million, and were down 4.3% organically.
Sales for the office furniture segment decreased 2.3%, or minus 4.6% organically.
Looking within our office furniture segment, sales in our supplies [inaudible] business increased approximately 1%, or decreased by 3% organically.
Sales in our North American contract business decreased 2%, while sales in our international businesses decreased 24%.
In our Hearth segment, sales decreased 3.4%, looking within the hearth segment, new construction sales increased 3%.
Sales of retail wood and gas products decreased 2%, and sales of pellet appliances fell 19%.
Non-GAAP consolidated gross profit margins increased 70 basis points to 38.6%, labor and material productivity gains were partially offset by lower volume.
Non-GAAP selling and administrative expenses increased 110 basis points, as a result of lower volume, and the impact for stock price depreciation on deferred compensation.
The increase in stock prices resulted in a $0.05 per share reduction to quarterly earnings.
<UNK>.
As we look at 2017, we expect strong performance driven by top line growth, and the continued benefits of structural cost reductions, and business productivity improvements.
We expect demand to start slowly and build throughout the year, driven by the improving economy, investments in our new products, selling and fulfillment capabilities.
In office furniture, we expect mid single digit organic growth that will improve throughout the year.
In hearth, we expect continued growth in our new construction business driver by single family housing starts.
We project modest improvement in our retail wood and gas businesses, while retail pellet appliance sales are projected to stabilize.
<UNK>.
Thanks <UNK>.
As we look into the first quarter of 2017, we expect consolidated organic sales to be down 3% to 6%, or minus 5% to minus 8% including the effects of acquisitions and divestitures.
Office furniture sales are expected to be down 7% to 10%, or minus 5% to minus 8% organically.
Within office furniture, our sales and our supply driven business are projected to be down 7% to 10%, or down 5% to 8% organically.
Sales in our remaining office furniture businesses are forecasted down 7% to 10%, or minus 6% to minus 9% organically.
Hearth sales are expected to grow 1% to 4% versus the prior year, within the hearth segment , new construction sales are forecasted to be up 2% to 5%.
We are projecting retail wood and gas sales to be flat to up 3%, and retail pellet sales to be flat versus prior year.
Non-GAAP gross profit margin as a percentage of net sales is expected to be approximately 39%, which represents an improvement over prior year.
Non-GAAP SG&A which includes freight and distribution expense is expected to be approximately 35% of net sales.
Our estimate of non-GAAP diluted earnings per share for the first quarter is in the range of $0.17 to $0.24.
For the full year 2017 we expect consolidated organic sales to grow 3% to 6%.
The net impact of small office furniture company acquisitions and divestitures will reduce sales by approximately $80 million.
As a result total net sales are forecasted to be in the range of minus 1% to plus 2%.
Office furniture sales are expect to be up 3% to 6% on an organic basis, and sales in our hearth business are expected to be up 2% to 5%.
We are projecting the full year 2017 tax rate to be approximately 34%, full year free cash flow is expected to be in the range of $100 million to $110 million, including approximately $110 million of capital expenditures.
Our best current estimate of non-GAAP earnings per diluted share for the full year 2017 is now in the range of $2.80 to $3.15.
<UNK>.
Okay, so to conclude, our businesses are strong.
Well-positioned for the future.
We continue to see attractive investment opportunities that will deliver strong financial returns in the future.
I remain confident in our ability to drive long-term shareholder value.
With those comments complete, we will now open it up to questions.
For the year, artcobell approximately $50 million in sales, and in Q1 it's much smaller than the annual rate would be.
It's about $6 million.
We are starting to see modern signs of inflation for 2017.
I'd like to remind you about half of our input costs are on contracts in which we lag the spot prices.
So we'll see the impacts of that as we go through the year.
We're basically seeing around 4% on input costs, and we do expect to input productivity increases and price increases to offset that.
Yes.
I would say the trend is stable, <UNK>.
If you look at the contract furniture industry, there are periods market by market, and quarter by quarter, where it kind of ebbs and flows, got a little bit more intense, I think last fall, just I think demand and supply, local skirmishes, it seems that it has stabilized.
I don't think there are any significant trends that we need to communicate, or you need to be worrying about further deterioration.
We are always well-positioned with our sort of focus on cost and our cost structure to respond to those moves.
We are in good shape if it we need to respond to those.
It's not a challenge, or not a big issue for us.
Matt, we're on a bit of an economic uptick.
We are feeling there, a large part of our business, or a significant part of our business is driven by small business confidence.
It feels like to us that even though there is lots of volatility and lots of crazy press, and lots of crazy stuff going on, overall small business it is going to feel more confident, therefore going to invest more, and therefore it's going to drive furniture events.
As far as what we're seeing now, we're feeling that or hearing that from our dealers, are more optimistic and talking about increased activity, we are seeing a modest increase in our activity quote levels, bid activity, and just overall sales momentum, and so we're simply saying, it feels like to us like we should see the overall economy up, and then finally we're gone through a period of pruning and cleaning up the portfolio, and at the same time investing.
We believe that we'll see the return on those front end investments which include product, selling resources, distribution, programs, and those sorts of things as well.
We're not hearing that specifically.
I'm reading that same speculation.
But I think that's a pretty fine point for sort of our fitters to pick up.
I think it's a really interesting sort of time around what's going on here, and who knows how it's going to work out.
We're, as we said, forecasting it to go up.
Position prepared if it doesn't.
To sort of react like we always do.
Yes, it is an interesting question, so I am going to use your question, Matt, if you are okay, to expand a little bit on how we feel about this potential for a border tax, or whatever.
We're okay with that.
We do import components from China, from Asia, other parts of the world.
It's not a huge exposure, it is relatively moderate, by the way we have the ability to domestically source or domestically produce a lot of those components.
Quite frankly, we have a significant product underway to develop manufacturing capabilities specifically around seating, et cetera.
Before this whole sort of phenomena, political phenomenon happened, really to in-source, or to resource or back source seating made in America for our largest customers, so we can play this either way.
I think we're in a good spot regardless of where it goes with our domestic manufacturing capability, along with our offshore sourcing, and so I can paint a picture either way, that it will be fine, it may be good, either way as we think about it, Matt.
That's a good way to think about it.
That plan is a commitment, an objective, a very attainable aspiration, and so we don't parse it that finely.
I mean, if you look at the actions we've taken, the Artcobell is relatively small, in the structural cost reductions.
So you can add it on.
It wasn't specifically in there.
There are a lot of other bigger things that make it look rather small, to be honest with you.
Yes, I mean, we always are thinking about, we have a pretty good process to look at our portfolio.
Artcobell was a very deliberate probe.
When we did it, we said this is a probe.
The profitability of that K-12 classroom furniture has been challenged.
Our hypothesis was we can bring cost efficiency to this, and create a profit pool that currently doesn't exist.
We found that we were not able to do that for all sorts of factors.
And so, it was really standalone probe that stood out.
Now, we are always cleaning up our portfolio.
When we look at it, we say look, does this business have a long term strategic bid.
Is this something that we can generate a fair return for our shareholders over time.
Is it something that our largest customers want from us and value from us.
And we constantly are running those screens, and some businesses come, and some go.
I wouldn't say there's anything that stands out right now like Artcobell.
If there was , if there is, then we'll take action.
We're pretty patient by the way about trying to make stuff work, and fix it.
I've learned in my career, that if you can't make it work after five years then you ought to take the bitter pill, and this is a bitter pill for us as a Company, for shareholders, and for us, even financially as executives.
You take the bitter pill, you move on, you apply the lessons learned, and don't look back too much.
Just keep leaning into how do we continue to extend the frontier, get more profit from the core, and then pick up these adjacencies when they make sense.
I think <UNK> said it well.
Marco did a fantastic job of building a strong foundation in that business.
It's a long-term growth platform for us.
It's two key markets, I will remind you around China and India.
So this is a continuation of strategy, and a continuation of that growth opportunity.
I would say stay tuned, and you'll hear more from <UNK> and <UNK> over the years.
I'm looking for some brilliant input and ideas for <UNK>.
Yes, <UNK>, we're always looking at these businesses.
We run this split and focus sort of strategy and we look at individual P&L, and then we spend lots of time with the operating companies, talking about strategy, and what do their customers need, and what are logical extensions, and what are the acquisition opportunities, is it made versus buy probe.
And then we run them and then we do constant evaluation, and sometimes, I talked about hearth.
We have done this at hearth for years, and we have done this in the contract, and most all of those started off as sort of challenged troubled acquisitions.
It's sort of plan, do, check adjust, and plan, do, check adjust, and sometimes we conclude, look, we're not making enough progress.
The hypothesis around the strategic finish changed, the industry dynamics have changed, blah blah blah, and then we take action.
It's not like we have a season that we look at all of these and act on it.
It's an ongoing consistent dialogue with the operating companies, it is an ongoing consistent dialogue with my corporate group, as to what makes sense and what doesn't.
Probably similar to the way you manage your investments, I would guess.
You look at your portfolio, you decide what mix you want, you decide whether somebody has got a prospect to getting better, and every now and then you stop and say, this isn't a good fit, I'm going to take my losses, and I am going to move on, and I think it's a similar process for us.
<UNK>, the growth prospects.
We're expecting growth across all of the businesses.
There is growth in hearth.
As it relates to office furniture, we're seeing relatively similar outlooks for both the supply side and the contract side, albeit maybe a tad more growth on the contract side.
So I hope that helps.
I don't know if you have more questions on that.
I would say, <UNK>, first off, it's encouraging to hear your comment.
We're seeing a little bit of that.
I would say that as we look forward, consistent with small business confidence, and where we historically play is likely to see more of the small to medium sized product activity, less of the large project activity, again based on sort of the economic dynamics and based on our strategic position, and our history in office furniture.
All right, thank you.
Well, we thank everybody for taking the time to tune in.
Wish you all of the best in the future.
We will talk to you soon.
| 2017_HNI |
2017 | GTY | GTY
#Thank you, operator.
I would like to thank you all for joining us for Getty Realty's Second Quarter Conference Call.
Yesterday afternoon, the company released its financial results for the quarter ended June 30, 2017.
The Form 8-K and earnings release are available in the investor relations section of our website at gettyrealty.com.
Certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements.
These statements are based on management's current expectations and beliefs; and are subject to trends, events and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Examples of forward-looking statements include our 2017 guidance; and may also include statements made by management in their remarks and in response to questions, including regarding future company operations, future financial performance and the company's acquisition or redevelopment plans and opportunities, included expecting closing of pending transactions.
We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially.
I refer you to the company's annual report on Form 10-K for the year ended December 31, 2016, as well as our other filings with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.
You should not place undue reliance on forward-looking statements, which reflect our views only as of the date hereof.
The company undertakes no duty to update any forward-looking statements that may be made in the course of this call.
Also, please refer to our earnings release for a discussion of our use of non-GAAP financial measures, including our revised definition of AFFO and our reconciliation of those measures to net earnings.
With that, let me turn the call over to <UNK> <UNK>, our Chief Executive Officer.
Thank you, Josh.
Good morning, everyone, and welcome to our call for the second quarter of 2017.
With Josh and me on the call today are <UNK> <UNK>, our Chief Operating Officer; and <UNK> <UNK>, our Chief Financial Officer.
I'll begin today's call by providing an overview of our second quarter 2017 performance and business prospects.
And then we'll pass the call to <UNK> to discuss our portfolio in more detail, and then <UNK> will discuss our financial results.
Our second quarter performance exemplified our commitment towards implementing our growth strategy, which is comprised of 3 aspects of value creation: generating consistent organic growth from our existing net lease portfolio, the ongoing pursuit of accretive acquisitions and unlocking embedded value in our portfolio through selective opportunities for redevelopment.
We are very pleased with our progress on each of these fronts, particularly in terms of acquisitions where we've recently increased our activity.
We produced another quarter of steady results with modest growth over the prior year's quarter, which displays the continued stability of our net lease portfolio and the health of the convenience store and gas station industry.
At the same time, we made significant progress on our strategic goal of growing and enhancing our portfolio through disciplined acquisitions and redevelopment projects.
Specifically, we produced growth in net earnings, FFO and AFFO for the quarter.
Our quarterly AFFO per share was $0.53, which represents a significant increase over the prior year's quarter.
After adjusting for certain nonrecurring notable items, which <UNK> will discuss, our normalized AFFO was $0.42 per share for the quarter ended June 30, 2017, up from $0.40 per share for the quarter ended June 30, 2016 on a comparable basis.
Moving to our portfolio.
We made considerable progress towards growing the company during the second quarter.
As <UNK> will discuss in more detail, we acquired 5 high-quality, well-located properties for $11.6 million during the quarter; and subsequently announced 2 significant portfolio acquisitions for almost $200 million, which we expect to close later this year.
The first is a 49-property acquisition leaseback transaction with Empire Petroleum, a regional fuel distributor.
And the second is a 42-property acquisition leaseback transaction with Applegreen, a publicly traded C store operator headquartered in Ireland.
We continue to evaluate a robust pipeline of actionable acquisition opportunities, which includes both single-unit and portfolio transactions.
We are seeking to partner with stronger operators to acquire real estate that meets our underwriting criteria and have strong operating fundamentals located in geographic regions which either enhance our current holdings or where we are targeting new investments.
Regarding our redevelopment program, we commenced active redevelopments on 2 new projects in the quarter, both of which are new-to-industry convenience store and gas stations, bringing our number of active redevelopments to 9, with another 6 leases executed and in various stages of redevelopment.
Finally, on the balance sheet.
We opportunistically used our ATM program during the quarter.
And in addition, we completed a successful $105 million capital raise after quarter end.
These equity offerings support the funding needed for our pending acquisitions and further enhances our capital structure.
We are excited about our accomplishments year-to-date and about our business prospects for the remainder of the year.
We are focused on executing on our stated growth strategies, which we believe will drive additional shareholder values as we move through 2017 and beyond.
With that, I'll turn the call over to <UNK> <UNK> to discuss our portfolio and investment activities.
Thank you, Chris.
We've been quite active in terms of acquisitions.
Year-to-date, we have completed or announced the acquisition of 101 properties, for a total purchase price of $210.9 million.
During the second quarter, we purchased 5 properties located in Arizona, Georgia and Oregon for a total purchase price of approximately $11.6 million.
These acquisitions have been the purchase of a small portfolio and 2 triple-net lease properties, all of which meet our underwriting standards for real estate attributes, tenant credit and operational quality.
In total, these acquisitions were purchased for a weighted average initial cash return of 7.3% and had a weighted average remaining initial lease term of 9.3 years.
In addition to the transactions we closed during the quarter, we also announced 2 significant portfolio transactions which we expect to close prior to the end of the year.
On a portfolio basis, the properties need a disciplined approach to both underwriting real estate and credit worthiness of the future tenants.
The first, Empire Petroleum, is a 49-property transaction with assets located in 7 states, including Arizona, Colorado, Florida and Texas.
Empire, our future tenant, is a large regional fuel supplier with track record of both company-operating locations and supplying fuel to the industry.
Empire is acquiring the business at these properties as a result of the divestiture of certain properties stemming from the Couche-Tard/CST brands merger.
These properties ---+ the properties we acquire ---+ we are acquiring have an average lot size of 1.3 acres and a store size of approximately 2,700 square feet, both of which compare favorably to the industry as a whole.
We expect to fund $123 million at closing and recognize an initial-year rent of approximately $9 million.
As previously disclosed, we expect the transaction to close before the end of the third quarter this year.
The second transaction, Applegreen, includes the acquisition of 38 fee properties and 4 leasehold interests, which are all located in the greater Columbia, South Carolina metropolitan market.
Of the 42 properties, 34 are convenience store and gasoline station properties, many of which contain Burger King, Subway or Blimpie outlets inside the store.
And 8 of these properties are stand-alone Burger Kings.
Once again, the properties compare favorably to the overall industry with an average lot size of 1.7 acres and average store size of 2,900 square feet.
Applegreen, our future tenant, is a publicly traded convenience store operator with more than 240 locations in Ireland and the U.K. This transaction marks a significant strategic expansion by Applegreen into the U.S. market, and we are happy to be their partner in South Carolina.
We expect to fund $70.1 million at closing and recognize an initial-year rent of approximately $5 million for our investment in fee properties and $0.2 million of NOI from the 4 leasehold properties.
As previously disclosed, we expect the transaction to close before the end of the year.
I should note that, although we expect these deals to close as contemplated, as we have previously disclosed, each of these deals is subject to certain contingencies.
And we cannot guarantee that they either will close on the terms of our agreements or at all.
While the acquisition market continues to be competitive in the convenience and gas sector and remain disciplined in our underwriting criteria, our pipeline of actionable opportunities continues to grow.
And we are in the process of reviewing and pursuing several additional acquisition opportunities for both single asset and portfolio.
In terms of capital recycling, during the quarter, we sold 2 properties for $1 million in the aggregate.
Moving to our redevelopment platform.
We ended the quarter with 15 signed leases and LOIs, which include 9 active projects and 6 additional projects on properties which are currently included in our net lease portfolio.
All these projects are continuing to advance through this development process.
We expect substantially all these projects will be completed over the next 2 to 3 years.
In total, we have invested approximately $1.2 million in these 15 redevelopment projects to date, and we expect to have rent commencement at 2 projects later this year.
On the capital spending side, we estimate that these 15 projects will require total investment by Getty of $11.2 million and will generate incremental returns to the company in excess of where we can invest these funds in the acquisition market today.
For a more detailed information on the redevelopment pipeline, please refer to Page 12 on our investor presentation, which we can ---+ which it can be found on our website.
We remain committed to transforming certain sites in our portfolio and look forward to updating everyone as we make progress.
Finally, we did not enter into any new leases during this quarter.
As a result of our activity, we ended the quarter with 806 net lease properties, 9 active redevelopment sites and 10 vacant properties.
Our weighted lease term is approximately 11 years.
And our overall occupancy, excluding our 9 active redevelopments, remains constant at 98.8%.
With that, I turn the call over to <UNK>.
Thank you, <UNK>.
Turning to our financial results.
For the second quarter, our total revenues and revenues from rental properties which excludes tenant expense reimbursements and interest income were $29 million and $24.8 million, respectively, representing increases of 2.8% and 1.5% over the prior year's quarter, respectively.
These increases were driven primarily by our year-to-date completed acquisitions and leasing activities.
During the second quarter of 2017, our results were positively impacted by reductions in all of our major expense categories, including property costs, environmental and G&A expenses, which declined a collective $1.1 million quarter-over-quarter.
For more information on specific expense movements, please refer to last night's earning release.
Our FFO for the quarter was $19.9 million or $0.57 per share, including an $0.11 per share net benefit from notable items, which we highlight as they are not part of our core operations.
For more information on notable items, please refer to last night's earning release.
After removing notable items from the comparable quarters, our normalized FFO per share for the quarter was $0.46 per share, as compared to $0.45 per share for the prior year's quarter.
Our AFFO for the quarter was $18.7 million or $0.53 per share.
After removing notable items from comparable quarters, our normalized AFFO per share for the quarter was $0.42 per share, as compared to $0.40 per share for the prior year's quarter.
Turning to the balance sheet and our capital markets activity.
We ended the quarter with $310 million of borrowings, which includes $85 million under our credit agreement and $225 million of long-term fixed-rate debt.
Our weighted average borrowing cost is 4.9%.
And the weighted average maturity of our debt is 4.4 years, with 73% of our debt being fixed rate.
Our debt-to-total capitalization currently stands at approximately 28%, and our net debt-to-EBITDA is 3.9x.
In addition, we used our ATM program during the quarter and issued $1.6 million of equity at an average price of $25.34 per share.
After quarter end, we issued 4.7 million shares through a follow-on equity offering at an offer price of $23.15 per share.
The offering raised net proceeds, after underwriting fees, of approximately $105 million.
We have used the proceeds to pay down all of our revolving credit facility borrowings, with the balance going to cash on hand.
We ultimately expect to use cash on hand and borrowings under our credit agreement to fund the Empire and Applegreen transactions when they close later this year.
Our environmental liability ended the quarter at $64.6 million, down $9.9 million so far this year.
For the quarter, the company's net environmental remediation spending was approximately $3.6 million.
Finally, we are reaffirming our 2017 AFFO per share guidance of $1.54 to $1.60 per share.
Our guidance excludes a net benefit of $0.12 per share related to notable items, as discussed in our earnings release, but includes the impact of our 4.7-million-share common stock offering in July of this year and the expected closings of the pending Empire and Applegreen transactions but does not assume any potential future acquisitions or capital markets activity.
With that, I will turn the call back to Chris.
Thank you.
That concludes our prepared remarks, so let me ask the operator to open the call for questions.
I would say that both transactions were certainly sourced through industry relationships, but I don't think either of them were completely off market.
I think I actually would tell you the other way with that, Mitch, because I think there is a significant amount of consolidation and M&A going on in the C store industry at this point.
So I think there is a lot of activity that we're seeing in the market.
And I do think all situations, especially marketed situations, will continue to see competition from other REITs and other types of investors that focus on our sector.
Well, we did that earlier this year with a $50 million refinance.
So we're certainly comfortable of doing that.
And I think, as the year progresses, we'll certainly look at all of our options for freeing up capacity to make sure that we're capable of executing on what's in our pipeline right now.
This is <UNK>.
I don't think we have any specific.
We're looking at multiple type usage, from quick-service restaurants, fast food, convenience stores, financial institutions; and some mixed-use opportunities, where there might be some medical or urgent care as they compatibly used with our properties.
But it's basically what's appropriate for the individual sites and the typical financial and risk and due diligences that we do on any transaction.
No, that's it.
I mean there ---+ those 2 transactions are subject to ---+ our transactions are subject to the closing of separate transactions, so we're not able to control the actual closing dates there.
So that uncertainty is why that we just hold our guidance where it is.
And we'll revisit as there's additional clarity on when our deals are going to get done.
I think, based on the way the 2 transactions are progressing and the fact that we've publicly stated that we think they're going to close in no certain time frames, we feel pretty confident that they'll get done before the end of the time frames we've laid out.
This is <UNK> <UNK> again.
So the disclosed projects are in the development process, which is largely can ---+ the timing of which and acceleration is largely controlled by the entitlement and project design process.
And we continue to dedicate resources to generating rent from redevelopment projects as soon as possible.
Yes, <UNK>, we've publicly said that we think the total basket of projects is somewhere between 5% and 10% of our overall portfolio by number of properties.
So the team has got the 15 projects that we've talked about in our investor slides, which are the 9, both of which are active; and the 6 that are in various stages of the process.
Behind that is the balance of what we think we can redevelop.
Those are in various stages of marketing, whether we're trying to find new tenants or in various stages of negotiation for leases.
So there's a significant amount of emphasis with inside of <UNK>'s group in terms of trying to move those projects along as quickly as we can.
So it ---+ I think the one thing I would leave you with is, yes, they have 15 projects that we talk about, but there are a host of projects behind that, that we obviously hope to bring onto that list as quickly as we can.
Yes.
So it ---+ there's a few different ways, but mostly it's the traditional marketing of the sites through the appropriate type of broker assurances.
So we've identified sites that have potential for redevelopment.
We assess what can ---+ what is likely and can be developed on the property.
And then we'll dedicate a marketing program around that individual property and try and generate interest and pull some offers through the redevelopment.
Yes.
It is a mix of transaction structures where, as you said, there are standard, simple ground leases where the incoming tenant is doing the bulk of the investment in the property, up through build-to-suit type of delivery, vanilla box delivery to the tenant.
So yes.
I think directionally, where there's larger spend, it would be a build-to-suit type of a transaction.
And where there's less spend, it would be basically demolition, some site improvements and the incoming tenant doing the building construction.
Well, I think we're certainly looking at opportunities that both overlap with the historic focus of the company, which is Northeast, Mid-Atlantic.
In 2015, we did a significant transaction which included an entrance into Colorado, Washington and Oregon.
And then there's been expansion of our presence in California.
There are certain areas of the country where we're ---+ we certainly spend a lot of time studying.
The acquisition in '15 was 1 of those.
And these 2 deals which we announced this quarter or after the quarter were ---+ are more Southeast, in South Carolina.
And then the Empire transaction is really across the entire Sunbelt.
But that doesn't mean we wouldn't look at transactions that are overlapping where we currently are.
We're really focused on what the real estate attributes are, what the credit of the tenant is and what the operations are.
So I think the coasts are certainly there.
The South is certainly there.
What I don't think you'll see us do is doing all 50 states.
I think there are certain areas where we're just not as excited to invest.
Well, I think what you see out there or that we see in the one-offs for the folks you mentioned are sort of in 1031 market or ---+ and those are in the 4s and 5s, not ---+ that's just not something that we're going to play in.
We have racetracks in our portfolio.
We have other large-scale formats in the portfolio.
We ---+ the 2 acquisitions which we announced this quarter definitely have components of it that are that 4,000, 5,000-square-foot C store, but the average is ---+ average out to where some of what <UNK> discussed earlier in the call.
The large-format C store is definitely attractive to us.
It's attractive to our tenants, but the dynamics of the industry are such that the profitability inside the store drives the majority or more than the majority of site-level profitability.
So the more revenue sources that tenants can pack into the store, the better it is from a coverage standpoint and overall profitably standpoint for us and our tenant.
Okay, thank you.
I just wanted to say thank you to everyone for joining us this morning.
We appreciate your interest in Getty.
And we look forward to continuing our activity and speaking to everyone again when we report for the third quarter of this year.
| 2017_GTY |
2016 | INTL | INTL
#Thanks, <UNK>, and good morning, everyone, and welcome to our FY16 first-quarter earnings call.
We had strong core operating results during the quarter in spite of the difficult macro environment, especially in commodities.
Total segment net income was up 26% with very strong guidance from securities and global payments segments offsetting declines in our commodities related segments.
This strong growth in aggregate segment net income was offset by mark-to-market losses on our portfolio of interest rate instruments held to our enhance our return on our segregated client assets.
This is a reversal of prior gains recorded in the preceding quarter.
Excluding the impact of these mark-to-market adjustments, our core operating earnings were significantly ahead of the same quarter a year ago although still slightly behind our record fourth-quarter results.
As we mentioned previously, we have invested in a laddered portfolio of Treasuries to enhance the interest earnings from our client segregated funds.
Under this program, we don't actively trade in such instruments and intend to hold these investments to the maturity date.
The impact of this approach has been to enhance our cash interest earnings on these assets by some $7.2 million per annum using the current run rate.
However, since merging the FCM with the broker-dealer, we now have to mark these and other investments to market which resulted in positive unrealized earnings impact for the immediately preceding fourth quarter and a similar unrealized negative impact in this current quarter.
We have always managed business to achieve the best long-term commercial results and believe that this is the correct approach to monetizing our interest earnings from these client assets.
While volatility in the interest rate market may cause some short-term noise in our quarterly earnings, our medium-term earnings and cash flow is enhanced.
Our operating revenues were up 10% driven by strong gains in securities and global payments offset again by weaker revenues in the commodity related segments.
We continue to see very strong growth in our global payments volumes and smaller steady volume gains in all other areas except exchange traded instruments and physical gold.
We reported net quarterly earnings of $8.8 million or $0.46 per share, down 6% from a year ago.
This resulted in an ROE of nearly 9% despite the impact of the negative mark-to-market adjustments mentioned above.
Our trailing 12-month earnings declined slightly to $55.1 million while our trailing EBITDA increased slightly to just over $104 million.
As we mentioned last time, during the fourth quarter we took the decision to exit from our investment banking advisory activities and that should largely be completed during the upcoming quarter.
I will now hand you over to <UNK> for a discussion of the financial results.
<UNK>.
Thank you, Sean.
I would like to start my discussion with a review of the quarterly results.
I will be referring to slides in the information we have made available as part of the webcast.
Specifically starting with slide number 3, which represents a bridge between operating revenues for the first quarter of last year to the current year fiscal first quarter.
As noted on the slide, first-quarter revenues were $151.3 million which represents a 10% increase as compared to the $137.5 million in the prior year.
Looking at the performance in our operating segments, the most notable change was a $31.6 million or 184% increase in securities segment operating revenues.
The largest driver of this increase within this segment was the performance of our debt trading business, which added $26.3 million in operating revenues versus the prior year.
There were two main drivers of this performance with the first being the acquisition of G.
X.
Clarke & Company at the beginning of our second fiscal quarter of 2015, which added $12.8 million in incremental operating revenues.
In addition, strong performance in our Argentina debt trading business resulting in a $11.9 million increase in operating revenue primarily as a result of hedging gains realized and overall market volatility following the devaluation of the Argentine peso.
Also within our securities segment, these market conditions in Argentina drove a $3.5 million increase in asset management operating revenues.
The other driver of our increase in operating revenues was our global payments segment, which added $3.1 million in incremental revenues to $18.3 million, albeit this was down from the outstanding performance achieved in the fourth fiscal quarter of 2015, which was driven by strong spreads in the global foreign exchange markets.
An increase in payments from financial institutions drove transactional volumes to increase 39%, however, our average revenue per trade declined to $191 per payment.
Difficult market conditions in the global commodity markets drove a $13 million and $600,000 declines in operating revenues in our commercial hedging and physical commodities segments respectively.
Tempering the declines in operating revenues in the commercial hedging segment was the fact that customer volumes actually increased year over year with the exchange traded volumes growing 9% and OTC volumes growing 8% versus the prior year.
A 42% decline in the average rate for contract in the OTC business led an $11.2 million decline in OTC revenues which was the main driver behind the overall decline in commercial hedging operating revenues.
Finally, CES segment operating revenues declined $1.4 million with exchange traded commissions and clearing fee revenue declining $2 million as a result of a 7% decline in volumes.
This decline is partially offset by a $500,000 increase in customer prime brokerage revenues as volumes in this business increased 7% over the prior year.
Moving on to slide number 4, which represents a bridge from first quarter pretax income in 2015 to the current period, overall pretax income declined 11% to $12.1 million in the first quarter of 2016.
As mentioned by Sean and disclosed in our earnings release and 10-Q filing, the biggest contributor to the decline in pretax net income was the mark-to-market loss on investments held in our interest rate management program.
In our corporate unallocated overhead segment, we recorded a pretax unrealized loss of $6.7 million on US Treasury notes and interest rate swaps held in this program.
This was nearly a complete reversal of the $6.9 million unrealized gain that we had recognized in the fourth fiscal quarter of 2015.
Slide number 7 on the slide deck shows the after-tax effect of these unrealized gains and losses by quarter.
Securities segment income increased $20.2 million and global payments segment income increased $1.8 million as a result of the increases in operating revenues in these segments.
The segment income in commercial hedging decreased $9.9 million as a result of the decline in operating revenues and a $1.7 million increase in bad debt expense primarily related to a customer account deficit in our energy business.
Slide number 5 shows the realized interest income in our exchange traded business which holds our customer segregated balances and encompasses our interest rate management program.
The continued implementation of our interest rate management program led to an underlying increase in interest income shown here of approximately $950,000 versus the prior year period.
Overall customer segregated deposits declined 12% versus the prior period primarily as a result of lower margin requirements due to lower commodity volatility.
Overall, our portfolio of treasury and money market fund investments averaged $1.4 billion over the first quarter which combined with $375 million in interest rate swaps earned $2.4 million in interest income for an average yield of 66 basis points.
The overall portfolio including both US Treasuries and the swaps had a weighted average duration of approximately 20 months at the end of the period.
Moving on to slide number 6, our quarterly financial dashboard, I will just highlight a couple items of note.
Variable expenses represented 56.9% of our total expenses for the quarter, and non-variable expenses which are made up of both fixed expenses and bad debt expense increased $7.4 million or 15% driven primarily by the G.
Clarke acquisition and an overall $2 million increase in bad debt expense.
Net income from the continuing operations for the first quarter was a $8.8 million versus $9.4 million in the prior-year period which resulted in 8.8% return on equity versus 10.7% in the prior year.
Finally, in closing up the review of the quarterly results, the trailing 12 months results have led to a 13% increase in book value per share closing out the quarter at $21.18 per share.
With that, I would like to turn it back to Sean to wrap up.
Thanks, <UNK>.
We believe that we continue to report strong cooperating results despite challenging markets.
While our results were less uniform across our different segments, our diversity in products, capabilities, and regions allowed us to continue to grow while most others in our industry struggled.
We continue to believe that we are delivering a best-in-class performance.
There has been much press coverage recently on commodities in China.
Some of this turmoil has affected our short-term results.
However, we believe that this will likely lead to a faster and perhaps deeper consolidation of the industry, something we welcome and that we see as an opportunity.
As we said last time, we are uniquely placed in our ever changing financial services industry able to provide execution, market intelligence and advice, and post-trade clearing services in nearly every asset class and market globally.
With that, I would like to turn it back to the operator to open the question-and-answer session.
Well, I think we pretty consistently have been telling people for probably the better part of six quarters now that we anticipate that the revenue per contractor per trade in global currencies will decline at a steady rate.
The reason for this being that as we get more of the bank transactions onboarded, these tend to be smaller in size than our traditional NGO segment, and the result of that is we make less per trade.
We did have an anomaly which I think we discussed last time in the fourth quarter that Q4 had actually went up.
I think I was pretty clear and signaled to everyone that was an anomaly.
That was really a result of kind of dislocation we're seeing in some of our key markets where the spreads in the currencies really blew out.
And it was good for us, but not a sustainable situation.
So in summary, I think you should assume that we would see a small but steady decline in transaction per trade on the global currency side ---+ global payment side.
Okay.
Well, let me start off with my thoughts on market volatility.
And these are longer-range kind of thoughts, and you know, clearly quarter-to-quarter or month-to-month, you can have aberrations up or down, I guess.
But my thought is, we are heading for a period of increased volatility generally in all asset classes which I think will go on for a long time.
The reason for that is twofold.
One, from a very macro point of view, the central bank intervention that we have seen over the last seven or eight years has had one of its purposes to reduce volatility in financial markets.
And as the Fed and perhaps some of the other central banks eventually start pulling out of the markets, that is going to cause volatility to increase, and I think that's what we've seen here in the US.
We haven't experienced that yet in Europe or in Japan, but I think as that situation normalizes and it's just started in the US and it may take a long time, that is going to drive volatility higher.
So that's I guess the first point.
The second point I would make is, regulations that have been implemented over the last five or seven years have had the effect of taking out a pretty large portion of the risk capital that used to support the markets.
And with the Volcker Rule and banks pulling out, there is just much less liquidity and much less risk capital to provide liquidity in these markets and the result of that is, even small trades can push markets pretty significantly.
So those two factors together I think are going to cause much increased volatility.
And if you look at any volatility index, the last seven years has been abnormally low versus what we had prior to the financial crisis.
I think we may find a situation in due course where volatility is actually higher than what it was prior to the financial crisis because some of the structural changes in the financial markets.
So that's my anticipation.
I think it will take a while, but it's going to be a steady increase in volatility with perhaps blips of more and less volatility along the way.
That scenario for us is a very good scenario.
Volatility is good for us.
We are in the business in some of our segments of providing liquidity to our clients.
As liquidity decreases and risk capital gets extracted, the premium you can earn for providing liquidity to clients will increase.
So we see both a potential spread expansion and we see more client activity with this volatility.
So it's not going to be sudden, and it can ---+ it may not be a steady trend, but I think in the long term we will see better market conditions for us.
So I hope that answers your question.
Acquisitions has never been part of our strategy.
It looks like it has, but it really hasn't.
We have never gone out and said, we would like this business or we would like to acquire this asset.
We have a vision of what we want to be, and we want to be the premier financial services company serving midsize customers across all asset classes and in all markets.
And we are building that.
We opportunistically looking at acquisitions that come across our desk, and if something fits that strategy and is priced correctly for our shareholders, we will seriously consider it.
I think we are in a place where we are starting to emerge as one of the larger, more profitable, potentially more dynamic midsize players and as a result of that we are being shown an awful lot of opportunities.
But a lot of them don't fit with our client-first, client-centric type approach.
Some of them are just bad business models and then some of them are just priced to the point where they make no sense for us to acquire them.
So we will continue to evaluate opportunities, but don't think that acquisitions are part of our strategy.
Our strategy is to build our business, drive our client base, and control our costs.
That's our strategy.
If something comes along that fits, we will look at it and plan accordingly.
Operator, do you have any other questions.
Hello, <UNK>.
How are you.
I don't think we said that.
<UNK>.
Do you have any guidance.
About pre-tax $3.1 million, after-tax $1.9 million.
This is the last quarter ---+ well, we did G.
X.
Clarke transaction January a year ago, so from next quarter on, it will be in the comparative every time.
It's only related to the interest rate laddered program.
It has nothing to do with the G.
X.
Clarke business.
That's factored into their results.
So the thing we are highlighting was just the interest rate management program.
Okay.
So if you ---+ I think the best proxy to look at if you wanted to make some determination on what this mark-to-market impact could be is probably to look at the two-year Treasury because we run an average duration currently of about 22 months.
So that's probably the best proxy.
So if you have a look at September results, the two-year rate ---+ and this is from memory so I could be off a little bit, but the two-year note was trading around 80 basis points and that's because we brought all those instruments in and I think up until September, probably the interest rate declined about 15 basis points, 20 basis points from close to 100 basis points.
That gave a rise to about $4 million after-tax gain.
Then we went into the Fed tightening cycle and at the end of December, it was 102 basis points, and we are now sitting at about 74 basis points.
So we have seen a total sort of reversal of everything that's happened over a three-quarter period.
<UNK>, the earnings release we put out yesterday, we kind of put something in there that shows the pre-tax and after-tax for the last five quarters.
There's only been a meaningful impact for [five quarters].
Just to be clear, the G.
X.
Clarke business, their intent is not to hold any of that inventory to maturity.
Those are trading assets of being an institutional fixed-income dealer.
This is solely related to the interest rate management program where our intention is to hold the swaps and the Treasury notes to their ultimate maturity.
The average maturity on them is 20 months.
I don't think we've ever not done that since we've done this.
So that is on this.
Well, the G.
X.
Clarke business was always a very profitable business.
It's a great franchise.
They've done really well.
I think we have indicated to you previously that they have outperformed our expectations and have done a lot better than we thought.
I don't think that's necessarily being driven by market volatility, although that helps.
I honestly think just having clear direction.
They were for sale for a long period of time.
I think putting that behind them, getting focused back on business, being able to recruit people, all of those sort of psychological factors I think had a big impact.
Additionally, as we are seeing in every one of our businesses, just continual retrenchment from the big banks from these market segments.
And it's kind of amazing in some areas how we are able to step in where these banks are just not servicing the customers.
And it's providing a really good runway for us.
So I think those are kind of the factors that have affected G.
Clarke more than necessarily market volatility.
But market volatility for all our businesses does help.
No doubt.
You had ---+ I mean, you had about ---+ there was a pickup in bad debt.
There was some trail over for variable comps but then you also had variable comp related to Argentina business.
The executives down there running the business, they had a tremendous quarter down there.
So there's a pickup in some of the overhead there as well.
And also G.
X.
Clarke overhead as well which wasn't there a year ago.
Right.
Yes, I think, <UNK>, you were asking Q4 to Q1, right.
If you're going Q1 to Q1 then, yes.
G.
X.
Clarke, that's about a $2.5 million of additional overhead.
And there was a $2 million provision as well.
Not their legal and compliance and accounting.
All the kind of administrative functions are not necessarily included in segment income.
Segment income is going to be all the front office revenue, front office expenses, and then the operations costs.
So the people that are settling trades, making payments, everything related to doing that specific business is going to go into segment income.
But they did bring with them a compliance team and accounting team, more overhead related to the business.
And we are slowly integrating that business into our business.
So that would be an incremental $2 million of bad debt increase plus the roughly $2.5 million from G.
X.
Clarke.
And then the remainder, the biggest chunk of that is going to be $6.7 million mark-to-market loss on the interest rate management program.
That all flows through the corporate unallocated because the real realized cash interest we pushed down to the segments on those customer segregated deposits in the program, but the mark-to-market fluctuations we just keep in corporate allocated because, like Sean had said, those are temporary fluctuations.
We ultimately are looking to hold the investments long term.
So we don't want to view or judge our segments based upon temporary fluctuations in market prices related to something we're going to hold to maturity.
Good morning.
It's really, really difficult for us to get clear sort of auditable data from the exchanges or the markets we are active in.
But we do internally try to track those as best we can using what we consider to be the best proxies.
So internally we look at that.
Given that is not an exact science, it's not possible for us to make those public.
And most indicators we are looking at show us over the last 18 months, let's say, having increased market share in almost every single one of our businesses.
In some areas, we are a pretty dominant player.
So for example, the equities business you spoke about which is the unlisted ADR so foreign companies that trade ADRs that aren't listed on NASDAQ or the New York Stock Exchange, being a business we've been in for a long time.
That business we probably by far the biggest in the market.
We have dominated ---+ and you can go look on the pink sheet volume stats there.
So that's pretty easy to pick up.
We are bigger than Jefferies, we're bigger than all the big investment banks, and we have a very large market share there.
Some of the other areas, we may end up with sort of between 5% and 7% market share but that may still make us a tier 1 player just because the industry is so diverse and lots of players in the industry and fragmented.
So anyway, we track it internally.
That's I guess the answer but very hard for us to give that information publicly.
We are doing both.
I think we really focused on the big banks just because the underlying pool of transactions there is so large and to a certain extent we have good visibility on what's there.
As I said last time, we feel we are in the third inning of that.
But we are also onboarding new customers, both on the NGO side, although our run rate there is probably somewhat limited because we have such a huge market share in that space.
But we're also adding some sort of second- and third-tier banks.
And also actually starting to deal with some payments companies that don't have despite their sexy front ends really don't have the capability to do anything internationally.
So we are adding those customers.
In aggregate, they are smaller than one of the top 10 banks in the world, but it's all incremental, it's all important, and we're going after all of it.
Thank you.
All right, operator, it doesn't look like we have any other questions.
So let's close the call.
I would like to thank everyone for participating, and we will speak to you all in three months' time.
Thank you.
| 2016_INTL |
2015 | CMCSA | CMCSA
#So the strong dollar is obviously affecting any of our ---+ any of the dollars that we are bringing back to the United States from the movie and television businesses that we distribute around the world.
And despite the strong dollar, we have had the most successful film in our history with Fast and Furious 7, which actually the benefit of which is in the second quarter, not the first quarter.
But we are currently standing at over $1.4 billion in worldwide box office and that would be pretty significantly higher if the dollar wasn't so strong.
As it relates to Orlando, we have really seen no impact from the strong dollar.
It is very difficult to tell because our attendance is up so dramatically.
When your attendance is up 25%, it is basically coming from everywhere including international and we have very, very strong Latin American business and European businesses.
So we lap ourselves with Harry Potter this summer and would anticipate that the overage or the increase in attendance to decline but we don't think that international is going to be the kind of drag that is noticeable because we are on such a run and we are growing the overall business and a piece of that is international.
But a big piece of that is local, domestic and faraway domestic as well.
<UNK>, I will take the cash point.
I think you know, we really don't provide multiyear sort of forecasts on where we think cash is going.
But the reality is the Company is generating cash, we are providing the vast majority of it back to shareholders in both the form of dividends and buybacks and we increased the dividend about 11% a few months ago and now we are continuing to increase the buyback pretty significantly.
So as we go forward, I think that is sort of an annual review.
The annual review is where do we think free cash flow is, where do we think leverage should be, where do we think our overall dividend and return of capital should be.
I really don't see our ---+ the investment area that you mentioned having any material impact on return of capital or leverage.
We are an A-rated credit and I do think now we will probably end the year approximately at 2 times and as we go forward could we delever just a little bit organically as we have over the last four years.
Sure, but I don't anticipate any large change or swings.
Yes, this is <UNK>.
On Title II, it really hasn't affected the way we have been doing our business or will do our business.
We believe on Open Internet and while we don't necessarily agree with the Title II implementation, we conduct our business the same we always have, transparency and nonpaid peering and things like that.
I think how it will emerge remains to be seen.
We have been flexible in our packaging with HSD.
We have invested significantly in our capacity and will continue to do so and that includes both the ---+ we launched a 2 gigabit speed, 2 gigabit symmetrical speed recently.
We are rolling that out across 18 million homes by the end of the year and we've got the fastest in-home Wi-Fi router.
So the broadband in terms of pricing we remain market flexible.
We are always balancing rate and volume and packaging in different ways so we will be in tune with the market is the way I would describe it.
Consumption patterns continue to go up.
We increased 40% to 50%, our capacity consumption going up that amount per year and we haven't seen a dramatic change in that but we will continue to invest.
We double our capacity every 18 months and we don't see that slowing down in the near term.
Retrans has been very helpful.
I believe the number for 2015 is approximately $500 million so that has just been a great tailwind for NBCUniversal.
I think going back four or five years ago when we acquired the Company, the number was in the single-digit millions of dollars and now that number is approaching 500.
So that is certainly helping and importantly dropping to the bottom line.
That was an important factor that we have talked about internally is making sure that yes, we are investing significantly and programming across the board but that some of those dollars can increase profitability.
Again we don't have any new news or even new focus today.
I do think as <UNK> said, the international results at NBCUniversal have been really strong and part of what is helping our growth so clearly we now have products, we have opportunities internationally that we never had before, buying NBCUniversal, <UNK>'s new company is what you have an opportunity to look at things from all over the world.
But I think our number one focus and just want to make sure you hear it, is the kind of results that we posted in the first quarter here.
It is staying focused, not taking our eye off of the ball, looking at how to accelerate this great X1 experience for customers, improving customer service every quarter as we did in the last quarter.
But we know we can continue, we will have a lot of news to talk about that at the Cable convention and continuing to onboard great products that we have got in the Company and get them to more consumers.
So good quarter and thank you to the team for making it happen.
Thanks, <UNK>.
We will wrap up there and again, thanks everyone for the flexibility this morning with the time change.
Brent, back to you.
| 2015_CMCSA |
2017 | HPE | HPE
#Good afternoon, everyone
Thank you for joining us on the call
Today I would like to cover a couple of things
First, I’ll review the results for the quarter, then I’d like to talk about what we see ahead, how we are redesigning this company to be fit for purpose and how we are driving the innovation needed to win in the market
So let’s dive right in
Overall, I am very pleased with our Q3 performance
We saw strong momentum across key segments of the portfolio
Execution continued to improve and our profitability increased over last quarter as we reduced costs across the organization and we successfully closed the spin merge of our software business late last week
With that milestone behind us, we are off and running
In Q3, we delivered total revenue of $8.2 billion which includes a final full quarter of revenue contribution from software
Future HPE, which now consists of Enterprise Group and Financial Services was $7.5 billion, up 6% year-over-year and if you remove tier-1 revenue was up 10%
From a profitability perspective, we made good progress on improving our operating margins as we began executing the cost reduction plan we outlined last quarter
Tim will provide more detail, but our EG margin improved sequentially to 9.3% as we work to mitigate increased commodity prices, stranded costs from divestitures and dilution from acquisitions
We expect to see even greater improvement next quarter
With the strong revenue performance and improved profitability we were able to deliver non-GAAP EPS of $0.30 above our previously provided outlook of $0.24 to $0.28 per share
Free cash flow was also strong at over $400 million in the quarter putting us in a good position to achieve our full year outlook
Turning to the business performance, while we have seen some improvement in the market overall, our strong Q3 performance was driven primarily by better execution and a compelling portfolio resulting in solid growth across key businesses
For example, core server revenue was up 13% year-over-year and we expect to gain share in calendar Q2. Since its launch, late last year, Synergy is experiencing very strong momentum with over 600 customers to-date
As a side benefit we are also seeing an uptick in blade sales as customers move on to the path to become Synergy ready
We are also experiencing continued strength in High Performance Compute with our combined HPE and SGI portfolio
And early this summer we launched the first fully integrated HPE SimpliVity hyper converged offering
Hyper converged is core to our strategy of making hybrid IT simple for our customers and we saw over 200% growth in Q3 although off a small base
All-Flash storage grew 30% year-over-year driven by Nimble, which exceeded both revenue and profit plans for the quarter
With Nimble and our marketing-leading 3PAR portfolio, HPE delivers a full range of superior flash storage solutions for customers across every segment
We are already seeing the benefits of the combination of Nimble and HPE and we couldn’t be more excited about the potential
Aruba continues to perform exceptionally well
Wireless LAN solutions grew over 30% in the quarter and Aruba won approximately 70 new logos
Aruba continues to take share from competitors like CISCO by introducing truly breakthrough solutions for the intelligent edge
For example, in June, Aruba announced a fundamentally new core aggregation switch called Aruba 8400. This differentiated solution has a completely redesigned operating system to support the new requirements of modern networks
It enables simplified operations for the network operator, a more powerful and scalable core to support the influx of data, faster time to remediate issues and granular visibility into what’s in the network
We estimate the market for this technology is nearly $4 billion and technology services which includes Pointnext continued to perform well with Q3 revenue up 2% over last year
We’ve now seen five consecutive quarters of order and revenue growth in consulting as we put more emphasis on advisory and transformed services post the ES split
To further strengthen our consulting capabilities, just this morning we announced our intent to acquire Cloud Technology Partners, a leading cloud consulting company that helps its Fortune 500 customers move to a cloud, build new cloud-based solutions and manage their cloud environment
CTP’s consulting, design and operational advisory services for cloud environments will strengthen our hybrid IT consulting expertise in a fast-growing market
As I mentioned earlier, while executing our business plan for the quarter, we also completed a major milestone
On Friday, we officially closed the spin-off and merger of our software business with Micro Focus on time and below budget
This deal delivered approximately $9 billion in value and I am confident that this was a great move for the new Micro Focus and for HPE
With that transaction now behind us, we have the right strategy and the right portfolio to succeed in today’s environment
Our strategy is clear, to make hybrid IT simple, to power the intelligent edge and to provide the services to make it all happen
It is based on what customers are asking for today and where we see the market moving
Now as a smaller organization with fewer lines of business and clear strategic priorities, we have the opportunity to create an internal structure and operating model that is simpler, nimbler and faster
To that end, this quarter we announced a program we are calling HPE Next
The goal of HPE Next is to produce an organization that is precisely built to compete and win in the marketplace
To do so, we are clean sheeting the operating model and organization structure to simplify how we work
We are improving core business processes to clarify accountabilities and make the company more efficient and effective
We are rightsizing the end-to-end cost structure to ensure we deliver on our financial architecture
All of this will be done with a continued commitment to operational excellence and to our customers
These efforts will simplify everything from how we engage with customers to how we process orders and compensate sales
For example we are reducing the layers in our customer-facing organizations and shifting resources to the geographic markets that will drive the vast majority of our business
These changes will be better for HPE and for our customers
We will have much more detail on this program and the associated financial impact at our Security Analyst Meeting in October
But as discussed on previous calls, we do expect to accelerate most of the $200 million of cash payments originally planned for fiscal year 2018 into Q4 2017 to help quickly enable this program
Looking forward, we aim to offset a portion of the funding requirements associated with HPE Next through lower than expected separation costs and real estate sales enabled by the spin merge transactions completed this year
For example, we recently sold our Roseville site for approximately $100 million and are now leasing back smaller offices there
Ultimately, HPE Next will produce the long-term operating and financial blueprint for our company with cost discipline built into the system
While we work to create the strong internal structure, we cannot lose sight of innovation
Innovation is our life blood and the investments we make now will drive HPE in the future
Our innovation is at the core of some of the most significant technology trends in the market today like cyber security, internet of things and artificial intelligence
And today, more than ever, we are able to make focused investments in the areas where we see the most opportunity for growth in the future
For example, security has become a board level issue for customers across industries and market segments
In June, we announced the world’s most secured industry standard server
HPE is the only company that embeds proprietary silicon-based security into its industry standard servers
This approach addresses firmware attacks, which are one of the biggest threats facing enterprises and governments today
We are also integrating the behavioral analytics based security software from our recent acquisition Niara, across Aruba’s networking portfolio
In the internet of things and in particularly the industrial internet of things, we see a tremendous opportunity as customers are looking to transform everything from retail environments to manufacturing floors
Our solutions and services capabilities are allowing customers to connect, monitor and analyze these environments, enable new customer experiences, new revenue streams and reduced cost structures
We are already seeing growth in our Aruba Wireless Connectivity business driven by IOT and we are seeing significant emerging interest in our highly differentiated edge compute business known as Edgeline driven by these same trends
Another example is artificial intelligence, which is transforming industries from retail to manufacturing
We help our customers use AI to simplify operations and drive business outcomes in a number of ways
For example, we are incorporating Nimble’s predictive analytics technology that uses machine learning to predict and resolve performance issues across our storage portfolio
Also our High Performance Compute systems provide the power that is required to crunch the massive amount of data used for AI applications
As the amount of data grows, we have a strong roadmap to memory-driven computing based on our machine research project that will exponentially extend these capabilities in the future
Finally, there is one commonality our customers have, it’s that they live in a hybrid IT world
They run a mix of workloads in their datacenter as well as private, managed and public clouds
Our top priority is to help them succeed in this environment and that requires a single data management plan across different environments
At Discover we unveiled our vision for our new hybrid IT stack which brings together our industry-leading one view platform with a new multi-cloud management capability as well as key software assets like Cloud Cruiser to create a truly unique, software-defined approach to hybrid IT management
This new platform will allow customers to simply manage assets across traditional IT, private cloud, managed and public clouds and optimize their right mix of hybrid IT
We already have a number of beta customers and this platform will be widely available by the end of the year
So, overall, I am very pleased with the quarter and we now have achieved most of our significant milestones for the year
While we have more work to do, I continue to be excited about the future of HPE
The markets where we play today offer tremendous opportunity and with laser focus and a world-class portfolio we are positioned to win
We will have a lot more to tell you at our Security Analyst Meeting on October 18 in San Francisco
Before I turn it over to Tim, I want to quickly touch on the devastation we are seeing in Texas caused by Hurricane Harvey
HPE has been part of the Houston community for decades and our nearly 3400 employees are deeply rooted in that community
The well-being of our employees and their families has been our top concern over the past week and we are providing support to many of them
From a business perspective, we are continuing to assess the impact
But Tim will provide a bit more color on that
I want to thank our amazing team in Houston who has been working around the clock to get our office back up at running, answer customer enquiries and make sure their colleagues have the support they need
So thank you to them
And with that, I will turn it over to Tim
And adding to that Toni, I think we can return to historic levels in 2018 but we are going to be probably a quarter or so delayed and we’ll see what happens in commodity pricing and those other things, but I also think HPE Next will certainly help
Yes, sure
There has been some press
So, listen, I thought, I was called in very late in the Uber search and I thought it was a very interesting business model to me
It’s actually quite similar to Ebay in many ways
It’s very disruptive, that relies on a community of drivers just like Ebay relies on a community of sellers and the growth prospects reminded me of Ebay in its early days and as you know, I am also an investor in Uber and – but, in the end that wasn’t the right thing
And but I would say, that has really nothing to do with HPE which is quite special in its own right and we have a very focused strategy and a path forward to build a very big business on what I think is a quite compelling strategy, hybrid IT, edge computing, IOT and much more
And we also have a remarkable customer base and partner base
So, the other thing is I have dedicated the last six years of my life to this company and there is more work to do and I am here to help make this company successful and I am excited about the new strategy
So, lots more work to do and I actually am not going anywhere
Yes, I’ll take that and Tim can follow on
So, the results were quite a bit better in servers
Flat overall, but grew 12% to 13% excluding tier-1. And I’d say there is a couple of things going on
One is better execution, particularly in Americas, but actually across the board
And I think that execution will continue and we expect as we said to gain a bit of share in the second quarter
There was also some improvement frankly in the overall market and in all – or easy compares in Q3 than they were in Q1 and Q2. But I also have to say the portfolio that we have worked hard to create that we have pivoted over the last couple of years, that is in faster growing more profitable areas in the markets is starting to kick in and you can see that in High Performance Compute, you can see it in synergies momentum that is not only, the actual product of Synergy, but it’s actually accelerating the core blade business
We are also seeing good traction in hyper converge that grew triple digits, albeit off a small base
And then across Aruba continues to do very well
And interestingly on Aruba in the U.S
it reignited the wired networking business which was part of the thesis of the acquisition, but it’s actually playing out very nicely in the United States
So, listen, I mean, I think the market is going to continue to be competitive
We are going to continue to face some headwinds from Tier-1s that was down versus Q3. But we are feeling much better about that core business and you really need to think about this as stabilizing the core transactional rack and tower business while we pivot the portfolio to higher margin and higher growth segments in the marketplace and that’s working
The only thing I will say is what I’ve learnt over the last six years in this business, there is always something that could happen here, whether it’s floods in Thailand, floods in Houston, I mean, this is a remarkable situation that we face in Houston I have to say
And so, I feel good about our execution
I feel good about what we can control
So, listen a core part of our strategy is we make hybrid IT simple
And what CTP does very well is very consistent with our strategy which is what customers think to do is they just with their applications and their workloads
First, make sure that they’ve got, they’ve rationalized those workloads as fast as they – and as much as they can and then decide where each of those workloads should go based on a total cost of ownership and how they want to pay for it, whether it be on a consumption based pricing model or CapEx
So, that’s what this team does and we will add our expertise on on-prem private cloud
We’ll add our expertise in – because we do some of this today and it’s an opportunity to scale that practice
But listen, there are some workloads that customers probably should move to a public cloud and you know Azure is our public cloud partner
We are excited about Azure’s stack on-prem
We aim to be the leader in infrastructure behind Azure stack on-prem
And so we want to make sure that we help customers find their right mix of hybrid IT and this is a nice way to scale that business for us
Yes, listen, we are excited now about our storage portfolio
3PAR plus Nimble, we get incremental scale, we get InfoSight which is obviously AI for the datacenter in the context of Nimble and I think one plus one here is going to equal more than two and we are really pleased, we are going to combine the R&D
We are combining the sales specialist teams
We are leveraging, I think the strengths of both companies to give us more scale particularly in the All-Flash segment in the market which is growing
And you will recall that only about 10% of datacenters have moved to All-Flash
So there is a lot of running room there and we are a leader in that marketplace and we aim to continue that trend
Let me give you a little context on that
So listen, there is obviously some short-term cost reduction that we are doing
But I have to say what we have done to the $200 million to $300 million in Q3 and Q4, I do not think it’s actually hurting the business
I think we are executing better than we were before and you can see that in our results
But as we move into HPE Next, it is a much broader initiative than sort of normal cost reduction
We are essentially rearchitecting the company to be precisely built to compete and win in our markets and we are actually clean sheeting both the operating model and the organizational structure to simplify how we work and we want to take actions that optimize business processes and operations
And let me just give you a couple of examples of that and this has all become very obvious as ES has moved out
When ES went to DXE on March 31, a $28 billion business on 110,000 people left this organization and it was in some way is like the tide going out
You could see where there were real opportunities to improve and I’ll give you a perfect example
Think about platforms and SKUs and options
So we have about 50,000 live configs, live configurations in our server business
The old 80-20 rule applies
And so, as we are to really focus on the configurations that make the most difference
This will – think about it, inventory, nodes, purchasing, supply chain, everything gets simpler and easier
Think about decreasing the layers in our customer-facing organization, so there is more accountability and decision-making closer to the customers
Reducing the number of markets that we operate in to prioritize the customers and the countries that are driving the vast majority of the business today and we’ll drive almost all the growth
So this is the kind of thing we are doing
So, yes, I think the travel and the contractors are interesting and have not hurt the business, but the fundamental rearchitecture and reengineering of this business is I think very, very exciting
I think it’s going to be good for customers and it’s going to be good for our speed and nimbleness and agility as a company
Yes, so, listen, I think when Brexit was first announced, we did see a pause in the demand in the UK market
No question about it because customers were trying to decide do they want to build their next datacenter in the UK or should they be building that datacenter someplace else in Europe
I think we are still feeling some after-effects from Brexit, because it’s not clear exactly how this is all going to work
So I would say, the UK market is a bit challenged for us
It’s not only Brexit, it’s also the public sector that is cutting back spending quite dramatically
So the UK is not one of our stronger markets
It’s a very important market for us
But I wouldn’t say it is doing as well as the rest of Western Europe and frankly the United States, Canada, Latin America and Asia are all outperforming the UK right now
Yes, so, listen, I’d say we are cautiously optimistic about our server business
Synergy has made a difference, High Performance Compute has made a difference, SimpliVity has made a difference and so there is – and we talk about Synergy is also really helping our blade business
It’s interesting people are buying more C-7000s because there is a roadmap to a future state
So we are excited about that
I would also say Gen-10 is a real opportunity for us
I mentioned in my opening remarks that Gen-10 is now the industry’s most secure server
This is a big issue now for everybody and we are the only server company that has built security into the silicon in our servers
So we are cautiously optimistic
I think, I would add commodity pressure, currency, it’s a very competitive pricing environment still
So, the only reason I am not even more enthusiastic is just there is challenges that remain in the market
We are executing a lot better here
Thanks to EMEA and APJ and Latin America
We are executing a lot better here than we have in the past with the stronger portfolio
Cloudline, you had a question about Cloudline
So, listen, Tier-1 continues to be a headwind for us
It’s a very lumpy business with not much profit attached to it
And so, we need to figure out what the long-term answer is on Cloudline
And so we are evaluating that right now
We will, I think have an answer by the Security Analysts Meeting about what we want to do about Cloudline on a go forward basis
And Tim you might talk a little bit about how much – I think he asked a question about…
Okay, let’s see
So, you’d like to know the number
So, I can tell you, High Performance Compute with 40% with SGI and 10% organically
Yes, so, I think actually, I think did a very good job of getting to All-Flash early with 3PAR and then of course Nimble and then the two competitors that you mentioned actually showed up with an All-Flash product quite recently and they’ve been able to mine their installed base which we understood would happen
So our objective is we got to go mine our installed base and then when a customer is thinking about upgrading to All-Flash, we got to make sure that we are in a competitive position there
I can’t give you an estimated growth rate of All-Flash
What I can tell you is, it’s faster, better, cheaper
And that is usually a winning formula for CIOs and we are seeing a huge amount of interest in All-Flash as CIOs continue to be under cost pressure and performance pressure, All-Flash is a natural opportunity for them
So, I don’t know whether this will continue at a 30% growth rate, but it will be at least double-digits, I think for the foreseeable future, this is a fundamental trend in the datacenter
So, the federal business is an important part of our business in the United States
I think it’s roughly 10% to 15% of our revenue in the United States and we have an excellent position there
We’ve got longstanding relationships with almost every agency and every part of the federal government
So, a government shutdown would probably a blip honestly for us
There would be a speed bump there
What I will say is a lot of these purchases are long head, they buy and then the delivery is over a long period of time
So probably that would not – if there was a government shutdown in October, that probably wouldn’t affect us until a little bit later in 2018. But listen, the government shutdown I don’t think is our friend or anyone else who sells to the government
That’s not our friend and we certainly hope that will not happen
Yes, let me talk a little bit about Aruba and why I think Aruba is seeing the traction that they are seeing
First is, you hear about CIOs digitalizing their environment and their interactions with customers
How many times have you heard a CIO saying I’ve got to digitize my environment
In many ways, Aruba is the wedge of how that gets done
Either they are transforming their employee environment in their campuses across the world
So that it is a more modern work environment, mobile first and fundamentally changing their employee experience or it is a customer who is saying, I’ve got to change my interaction with my customers and whether that is a retail environment, fast food, hospitals, government interaction
So, Aruba is on the cutting edge of this digital transformation that every organization is undergoing and that is fundamentally what’s driving demand
There is two things that differentiate Aruba
One is security
Whether that is ClearPass or Niara, we win on security virtually all the time
We have the most secure wireless network and that is an important decision criteria
There is also interesting things built into Aruba
They bought a company called Meridian which is way finding and GPS
So whether that is way finding through a large big box retail environment, whether that is way finding through a hospital, this is a very important application that rides on top of Aruba
The other thing is asset tagging
If you think about a hospital environment, where are- most of their assets are mobile and at the end of everyday they are never where they are supposed to be and the ability to asset tag and work to the wireless network has been a big selling point for a number of different customers
So, listen, we compete hard every day there
But it is a very rapidly growing market and we are gaining share in the campus branch and edge
So, listen, we expect that to continue
I think that the Aruba team would also tell you they have benefited by part of being a part of Hewlett Packard, because when they were Aruba people loved the product, but some big companies were a little bit hesitant to sign on to a small independent start-up while part of HPE, they know we will stand behind Aruba and that has totally helped the revenue trajectory of Aruba
So listen, we remain optimistic and they have a fantastic product, well priced with an excellent sales force with terrific white glove service and that’s another differentiator
Yes, so listen, we think HPE Next will have positive revenue accelerators and it really goes to two major initiatives, one is how do we make decisions on accountability much closer to the customer
So that frontline sales executives can make the decisions in the field faster
And that by increasing the agility and the decision-making, I think actually, we will do more business
Another case on revenue acceleration is our ability to quote configurations much faster
We’ve made progress on this over the last several years, but we need to make more progress
And how we change our pricing and our quoting to be much more customer-focused and customer-friendly, I think is an important element for us
If you think about reducing the number of SKUs and options, this also makes it easier to sell, and faster to configure on offering and I think that will accelerate
And then I mentioned, probably like most companies, a small number of countries account for the vast majority of revenue and profit and will account for the growth in our industry over the next five to ten years and we want to make sure we are allocating the resources correctly to the largest countries with the countries that have the most growth and profit potential for us
And so, I think that actually will accelerate
As you can imagine a 1% increase in the United States dwarf just about if you think of the long tail of countries that dwarfs the revenue in those long tail of countries
So those are some of the initiatives that I think by extension will impact revenue to the positive
So, we are very focused on, how do we be simpler to the business with, faster to the business with, which should result in revenue increases
We do, actually we really do
We aim to go into FY 2018 with a clean sheet operating model in a way that I hope customers will see a difference right away and frankly it would be easier for our employees to get things done
If you think about what was required to hold this company together when it was a very large multi-business company, some of those ways of doing business, we need to let go off
And I understand why it was here, it was necessary in terms of growing together such a large company, but now that we are more focused with a focused strategy and a smaller company, I think we can do better in terms of making it easier for our employees to get things done
Thank you very much
| 2017_HPE |
2017 | RS | RS
#Yes, <UNK>, it is <UNK>.
I will address that.
We have seen I think the tariffs and the fact that China is pretty much out of the market, I think that has helped more stability on the pricing side for us.
Most of our purchases are domestic, but there definitely has been more stability on pricing, I think that is one reason that the January base price increase happened, and we think that increase is in place.
And then we think also, if you look at the fairly significant increase in the surcharge in January, we think that surcharge is in place.
Looking out what we think will happen, February the surcharge will be down a bit, we think March down slightly also, but based on what we believe will happen with nickel and chrome, maybe we will start to see in April these surcharges may start to move back up slightly.
But overall, our demand, we are pleased with our stainless demand, and our stainless business, it has been one of our higher growth areas.
Yes, we think that there was a little bit of that, but again, nothing that was super, real significant.
And really for the same reasons, right, that we talked about on the carbon side, with the customers that we are calling on and doing most of the business with, are not contractual related OEMs, they are small to mid-sized job shops, sheet metal fabricators, and what not.
So they are not as apt to do a larger buy, so we are guiding, if we were doing business directly with appliance makers, or kitchen equipment manufacturers, that were massive, we would probably seen more of that.
But as it turned out, yes, that was a pretty significant increase.
And those decreases that we have seen recently were very minor, very minor.
Sure, good morning <UNK>.
Yes, <UNK>, in our stainless product group it is a pretty broad mix, so a good portion of it is more of the stainless flat rolled, where we have followed the market trends more from a pricing standpoint.
But then we have also got a lot of stainless long products in there, a lot that goes into energy, and so in that market, we haven't seen necessarily the price increases.
And even generally those products generally maintain, hold their prices a little bit more, and don't follow the general market increases, the way that the flat rolled does.
Yes, surcharge there is less significant, particularly as a percentage of the total price, and normally when we are talking surcharges, we are talking the 304 stainless product, which is the bigger volume product.
We think that we have a pretty good footprint right now as we speak in the Aerospace business, especially after that acquisition that we made in 2014.
So we are going to look at any and all opportunities, okay <UNK>.
And if something comes along with a titanium related or specialty metals related, or anything else, Aerospace, we enjoy that market, we think that it is very strong, it has got a lot of legs, we think buildings are good for many years to come.
So any opportunities that came along on Aerospace, we would look at it very, very closely.
But we are not actively going out and shaking the trees for titanium related, or what have you.
<UNK>.
Yes.
And we do have a titanium company that we acquired back in the early 2000s, just a small portion of our overall product mix, so as <UNK> said, we will keep looking at all of the opportunities that are out there, to see what is a fit.
But in Aerospace distribution, there are limited opportunities out there.
But <UNK>, we like that space, we would definitely look at any opportunity there.
Thank you.
No.
Other than one of our major suppliers, Zekelman Industries, seems to be enjoying, I think he bought the very first coil that ever came off of their line.
We have not seen that.
Are we anticipating that we will be seeing that shortly.
Yes we are.
And we are in touch with them, <UNK> and his managers are on top of that.
But as of today, that we are sitting in this room, okay, we are not seeing an impact from that company.
Yes.
Yes, exactly.
And I think probably the people that will see Big River first will be the tubers.
Okay.
That is where I would go if I were them.
I would have to say that really we are in the mood for a large acquisition if it fits anytime.
I mean our balance sheet, and 30.3% debt to capital is solid as a rock.
The availability of cash is certainly there.
And our appetite is there, it is just a matter of when, and if the deal that we look at is appealing.
Yes, and making sure that it is most dependant upon there being that good company out there of that size, we have only used our stock one time for an acquisition.
We are open to doing that, but generally the sellers want cash.
And I would also like to comment, <UNK>, that I certainly wouldn't consider our stock price high, I would think that we are finally showing a more reasonable value, with much more room to grow.
Thanks <UNK>.
Okay.
Thank you.
On behalf of our team here at Reliance, I would like to thank all of you for participating in today's call.
I would also like to thank our loyal employees, customers, suppliers, and stockholders, for their continued support and commitment, which has helped shape Reliance into the strong company that it is today.
We look forward to a productive 2017.
Have a great day.
Thanks for joining us.
| 2017_RS |
2017 | ALGN | ALGN
#Good afternoon and thanks for joining us
On our call today, I'll provide some highlights on the quarter, and then briefly discuss the performance of our two operating segments, clear aligners and scanners
<UNK> will provide more detail on our financial results and discuss our outlook for the third quarter
Following that, I'll come back and summarize a few key points and open up the call to questions
Our second quarter results were better than expected across all key financial metrics, including revenue, volume, margins and EPS
Q2 revenues increased 32.3% year-over-year, driven by strong Invisalign case shipments across all channels, and especially in the teen segment
Solid execution of our strategy and key investments continue to deliver strong growth across the board, with record Invisalign volume in almost every geography
Q2 also had all-time high of nearly 5,000 newly trained doctors in a quarter for the first time ever
And our iTero scanner business also performed well this quarter with revenues up 36.7% year-over-year
For Q2, North American Invisalign case volume was up 10.3% sequentially and 27.6% year-over-year, reflecting strong year-over-year growth from both orthodontists and GP dentist channels
Continued uptake with teens drove Invisalign growth in North America and contributed to another record quarter for ortho volumes, up 34.5% year-over-year, and an utilization up to 13.6 cases per doctor
Q2 volume for North America GP dentist increased 18.9% year-over-year, primarily reflecting continued expansion of our GP customer base and utilization growth, which increased to a record 3.3 cases per doctor
Q2 was the first quarter we offered Invisalign Lite in North America and we saw solid uptake, especially among GP dentists
Invisalign Lite includes up to 14 stages of aligners and is intended to treat simple to moderate cases
Q2 Invisalign volume for international doctors was up 13.6% sequentially and 37.4% year-over-year, driven primarily by new customers in both EMEA and APAC regions
In EMEA, Q2 volumes were up 33.2% year-over-year
All five of our core European markets showed record growth rates led by Spain and the UK
Expansion markets also had record volume with over 50% year-over-year growth led by Central and Eastern Europe and the Benelux
In Asia Pacific, Q2 volumes were up 44.4% year-over-year led by China where we trained over 1,000 doctors for the first time, followed by growth from Southeast Asia, Japan, and ANZ
Turning to the teen markets, over 55,000 teenagers started treatment with Invisalign clear aligners in Q2, up 12.6% sequentially and 37.6% year-over-year, reflecting continued acceleration above adult case volume growth
North America ortho teen cases increased 11.6% sequentially and 42.1% year-over-year compared to adult cases of 9.8% and 30.5%, the third consecutive quarter teen growth rate that has been above adults
International case shipments to teen patients increased both 13.7% sequentially and 40.5% year-over-year as well
In Q2, we expanded commercialization of Invisalign treatment with mandibular advancement to select countries in EMEA and APAC
MAT (05:29), as we call it, is the first clear aligner solution for Class II correction that advances the mandibular while moving teeth at the same time
While we're still very early in adoption cycle to-date, we're pleased with the initial update and expect to see continued ramp-up over the course of the year Invisalign treatment with mandibular advancement is not available in the U.S
yet where it's pending FDA approval
The Invisalign brand and our consumer marketing campaign programs continue to be key factors in raising awareness and creating demand for Invisalign treatment
In Q2, we continued to benefit from our investments in new programs as well as optimizing online spending and media mix for existing programs
, we launched our new teen-focused marketing campaign in May that aims to educate teens and their parents, moms especially, about the benefits of teeth straightening with Invisalign clear aligners
It also works to ensure that teens know Invisalign treatment is the best option for their lifestyle
The new program contributed significant growth in consumer demand during the quarter that helped drive Invisalign teen volume
Our teen campaign expands to the Invisalign Made to Move campaign that we introduced in March and we continue to see positive impact from the overarching campaign and consumer interest as well
Specifically, in Q2, we saw 23% year-over-year increase in unique visitors to our website and achieved significant growth year over year in doctor locator searches
We also saw continued uptick in adult male patients as compared to females as a result of our changing consumer targeting approach
In EMEA, early results show the Invisalign Made to Move campaign is resulting in higher engagement with consumers across digital display, PPC and social channels
During the quarter, we piloted new social media formats that delivered exceptional results, Pinterest, Facebook Canvas and Instagram, all outperforming benchmarks
Social media remains a key driver delivering 200% more users
Although we also saw a significant increase in the number of smile assessment completions, plus 22%, and total leads, plus 30%, and we'll continue to roll out the Made to Move campaign across the remaining countries in EMEA in Q3. In the Asia Pacific region, our Q2 customer marketing campaign is focused primarily on Australia and New Zealand where we saw momentum from our Summer Campaign featuring Invisalign Ambassador, <UNK> (sic) Jason Dundas, a well-known TV host and personality in Australia
The campaign shares Jason's personal journey of how Invisalign treatment helped transform his smile and his career along with a call to action for consumers focused on their New Year's resolution to improve their lives by getting the smile they've always wanted
We also continued driving Invisalign website doctor locator visits by reaching out to potential patients who engaged with our ads and banners in Q1. And in India, where we're just getting started, we participated in Beach Fashion Week, where the Invisalign brand was their Beautiful Smile Partner
In Q2, our scanner revenues increased 36.7% year over year and 26.9% sequentially
In May, we announced the new iTero Element 1.5 software upgrade, which includes two key features, TimeLapse and 1 minute scans
TimeLapse compares a patient's prior 3D scans to their most current scan and gives doctors an enhanced visualization assessment and communications tool that can help them provide additional treatment recommendations
1 minute scans enable practitioners to complete a full arc scan in less than a minute, with the same accuracy and reliability practitioners have come to expect from iTero scanners
The use of our iTero scanners for Invisalign case submissions in place of PVS impressions continues to expand, remains a positive catalyst for Invisalign utilization
In Q2, total Invisalign cases submitted with a digital scanner in North America increased to a record 59%, up from 47% in Q2 of last year
In the doctor-directed, at home channel, Q2 was our second full quarter supplying clear aligners to SmileDirectClub or SDC
Q2 shipments to this new channel was strong and nearly tripled sequentially off a small base
As their exclusive third-party supplier, we produced roughly one-third of SmileDirectClub's clear aligner volume and they manufacture the remaining amount
In Q2, SDC continued to invest significantly in consumer marketing, including TV advertising, print, online media, including social media, which we believe has a positive effect on both SDC and Invisalign demand
We also opened several new SmileShops in the U.S
, which are continuing to ramp
Overall, we're excited about the long-term potential for the at home, doctor-directed market; remain pleased with our investment and supply agreement
Today, we also announced that we have purchased an additional 2% of SmileDirectClub for $12.8 million, which brings our total ownership to 19%
We've extended SDC's line of credit from $15 million to $30 million
Finally, before I turn the call over to <UNK>, I want to provide a brief update on our operational expansion plans
In June, we opened a new treatment planning facility in Chengdu, China which services and supports our customers within China
It also serves as a clinical education and training center for all of our customers across Asia Pacific
We have been steadily migrating Chinese Invisalign cases to Chengdu and are continuing to train new technicians and improved lead times
We'll also open a treatment planning facility to support our EMEA customers in Cologne, Germany in Q3. With that, I'll turn it over to <UNK>
Thanks, <UNK>
Overall, we're pleased to see the first half of the year off to such a strong start
Many of you already recently think of a question about us being at a tipping point and I'm sure we'll get that question following today's call
Frankly, we think it's too early to tell
The growth we're seeing in our business is better than we expected and reflects progress in several areas, including clinical efficacy, sales coverage and support models, customer engagement and demand generation and patient capture
We believe it also reflects a healthy underlying market with solid patient traffic and a significant increase in direct to consumer programs by us and others
There's still a lot of work ahead as we move toward our goal of replacing metal braces and making Invisalign the standard-of-care in orthodontics
We know there will be challenges and we aren't drawing a straight line up and to the right at this point
But we're confident in our ability to drive this industry forward and transform it from an outdated analog process to a fully digital system
Thanks for your time today and we look forward to your questions
Question-and-Answer Session
Bob, from a teen's standpoint, overall, I'll just focus on North America for a second
We mentioned last year when we put our plan together that we would have a strong focus on teens as we go into the second quarter this year, because this is the teen season for North America
What we started that program off with is we had several programs in North America just to get doctors ready for this program overall, next-level partnership, a program we call IMOP (23:50), some specific things that really focused on teen to get that base ready
And then we started to really unleash the communications part of this, the $14 million or so that we're moving in consumer advertising to do that
So I think when you look at the first half and those two kind of simultaneous actions, that's been really one of the biggest underlying drivers in North America to make that really go
That along with our ad campaigns and everything else we've put in place that are much more specific these days in the sense of how we go to market
You see how we're working both at teens channels and the moms channels from a marketing standpoint also
It's just a much cleaner, more specific approach to teens that includes a real sales effort with our doctors and a real strong customer patient facing piece with moms and teens
Yeah
I'd say two major variables, Bob
One would be just media spend
We've had a significant increase in media spend itself and we have seen a strong correlation between media spend in the U.S
and the GP increase
And then secondly, like our Lite product that we introduced in the second quarter with the GP segment, we're more and more targeting that segment with easier products that are more simple for them to deliver to the marketplace
So I'd say media spend in some specific products have really helped in that sense
Thanks
Hi, <UNK>
Well, you know what, we mentioned in my briefing that we're doing one-third of their cases right now
It's still not material in that sense, <UNK>
We just wanted to give you just an idea of where we stand overall
They do still two-thirds of their volume
As far as the percent equity, it was just an opportunity we have
We work closely with David and his team at SDC
And that equity was available
We're pleased with the relationship and we thought that was just a great next step for us in that sense
Thanks, <UNK>
We haven't had – <UNK>, it's Joe
We haven't had terrific conversion rates in that sense, but we've learned a lot and we tweak that model all the time is the patient to SmileDirectClub service, they have a certain price point in mind
They usually have a simple kind of an approach that they want in the sense of correcting their smile
And they need to be dealt with really quickly
In other words, when those patients are interested, moving them into an orthodontist in this case or a GP that wants to do that, it has to be done quickly and concisely, because these patients are – they're just different than the normal patients that we work with
So we keep honing that model
We've had some success and we keep building on it, but we think in the future, as we put this thing together, we'll have a much better yield
I'll go back to India again this year
What we do when we go into a country like that, <UNK>, is you really do this by city
You go in a city and you recruit doctors and you just begin to ramp up in those specific cities
You find great doctors in the sense of peer-to-peer being able to – one doctor teach another
And so, you look at this as almost the city-by-city effort in India
We'll take obviously the biggest and the most prosperous cities first and we work out from there
We're really in our second year of this in a big way
We're reaching our goals
The businesses has been growing pretty rapidly in that sense and this is a model we really follow all over the world
It's just when you get to India, you just have to make sure that you approach it in an Indian way
And here is an example what's an Indian way is
They often don't want to buy our scanners
So what we have is a scanner that's up in a few of them in a city on a truck, just they rent and we move them in almost daily into different offices
They line up patients to do scans
And so we just acclimatize, to use that word to the marketplace, and keep working that
So we're excited about it and we feel very confident of our long-term trend there
Thanks, <UNK>
Thanks, <UNK>
Data filing is 20 years
There's some multi-layer material
We do have patent protection on it now
The vendor that we use on it has a certain amount of restrictions in the sense of dentistry and where it can be used, but also has patents on process and all and how this is put together, not an easy material to doing that way
So yeah, I mean, just look at it as from data filing and all, we have a significant number of years that SmartTrack continue to be an Invisalign material
We'll both be on a beach by then, so
Hi, Jon
Joe again, on your question on third quarter, fourth quarter
I think the best way to take what we're saying is we're not calling a step-down in the fourth quarter
We're just doing and giving you a good clarity on what the third quarter is
That's what we have clarity on now
Yeah
Hey, Jeff
No, I'm not trying to give you any kind of warning or anything like that, Jeff
I have all the confidence in the world, like I said in my final comments, that we'll complete this mission of eliminating wires and brackets with a digital system, with plastic
I think, I get questions all the time as you can guess when you see these kind of growth rates about the tip – that we're at a tipping point in this business
I think we all know about the whole term tipping point, and what it would mean
And all I was trying to get across is I don't think you can take two quarters and draw a line towards the tipping point, but don't mistake in anything at all that there is something that we see that would in some way shake our confidence in what we think we can do
Okay, Jeff
<UNK>, on the scanner penetration, you have to look at it as almost two separate markets, the orthodontic market and the GP market
I'm not sure exactly how far penetrated we are in the orthodontic side, but, let's say, what you have to look at is often when a doctor starts to do more and more Invisalign they want an iTero scanner per chair
And so you really can't look at it as a unit per doctor in that sense
You've got to look at it as a unit in the sense of number of chairs in that office
And so I'd say, obviously, we have a higher penetration rate right now on the ortho side than we do on the GP side, what's like <UNK> quoted a moment ago at 150,000 GPs in the United States
We haven't really even begun in that sense
And that type of scanner has a good balance between Invisalign and being able to do restorative applications too
So if you're worried about kind of a max out on penetration that's not necessarily in the way that we're thinking certainly on a yearly basis
On the SDC volume piece, I don't think we've given out that data and I don't think we necessarily want to do that both for our sakes and SDC's too
<UNK>, first, I think your question is a great question
It's just from a penetration standpoint how do you drive more of it, and what you do
TFM is one of it
I mean, we've really rolled that out strongly in North America this year
Our numbers are tremendous in the sense of when you have a customer who wants to dedicate time to really learn
So again think of TFM as kind of the learning curve, as you have primarily an analog process and your whole office is worked around gluing wires and brackets and adjusting emergencies to people's teeth and what's it look like when you go do more of a digital format
And at the front end of the digital system, how you work with ClinCheck
And these are doctors that come forward and say they want to devote 90 days, 120 days of just learning, spending time to learn how to really ramp up in a digital format and it works well
But it's self-selected in that case, because doctors come forward
They really want to do that and spend their time
I'd also say the other thing I've learned in this job over the last two years is how important peer-to-peer is from a growth standpoint
It is having really good strong doctors that can communicate to other doctors about how to use Invisalign
We see this not just in North America
And we've ramped up new programs like IMOP (42:47) and some other things that just really helped in that sense, both across the orthodontic community and also across the GP community to do it
So those are the two big programs I'd say we use to address the question that you have about how you ramp-up doctors
<UNK>, I call than an IQ question, kind of, okay
And the way I'd answer that is we're in the clear aligner business and anything that help us to sell more clear aligners directly, it doesn't have to be explained, would be in our wind – our range
So, that's why we have a scanner business
We have a scanner business not from a diversification standpoint
We have a scanner business because it allows us to sell more clear aligners
And so, just you're not looking, I don't care how much cash we have
We're not looking to be a diversified dental company
I think, Zach, the best way to think about that is if we take a step back from this whole thing
Our approach to GP channel more and more is we make it easy and efficient
And Go is a product like that
It's a product where you can adapt quickly from a GP standpoint
It does simple cases
Most Gos are less than, I think, 15 aligners or so
We've adopted the protocols to make it simpler for doctors to do also
So, I would say, don't just take Go
We'll have a series of more simple kind of products and systems that we'll introduce to GPs to get through
iGo is just the first one of those
That's not to down-sell iGo, but as we learn from iGo, we continue to iterate on that product line and make new and new offerings
But it's a big part of our GP strategy overall, is having the right product and the right kind of system that have feature that make it really simple for the GP docs
No material impact and you usually don't see material impact in that for 18 months or two years really, so
Next year this time is a great time to ask that question, Zach
| 2017_ALGN |
2017 | LEN | LEN
#Great, thank you, <UNK>
This morning, I'm with Rick <UNK>, our President; <UNK> <UNK>, our Chief Financial Officer; Dianne Bessette, our Vice President and Treasurer; and of course, <UNK> <UNK>, who you just heard from
And we also have Jeff Krasnoff, CEO of Rialto here and Eric Feder, from the Rialto Group; John <UNK>, our Chief Operating Officer; is also with us by phone from California and will participate in the Q&A portion
As always, I am going to start with a brief overview, <UNK> will deliver further detail, and we’d like to ask that during the Q&A portion that you limit your questions to one question and one follow-up, so that we can accommodate as many participants as possible in the hour allotted
So let me go ahead and begin by saying that we are very pleased to announce a very strong earnings for the second quarter, with strong and balance results being reported by each of our operating segments
While in our first quarter, we noted that the somewhat sluggish overhang from the end of 2016 had negatively impacted margins and therefore our operating results
We felt that the market was improving, as sales picked up throughout the first quarter
We anticipated that the spring selling season would be solid and that we would in fact see improved results as the year progress
These are exactly the conditions that drove our results for the second quarter
We have continued to see strength in the housing market through the second quarter and have seen new orders, home deliveries and margins exceed our initial expectations
Generally speaking, in spite of the often noisy political environment, there continues to be a general sense of optimism in the market, there continues to be a perception that jobs are being created across the country and that wages are generally moving positively
We often discussed labor shortage in many sectors of the economy is translating into a sense that many job sectors compensation is moving up and while much of the data collected by the government doesn’t seem to reflect significant wage growth
The customers visiting our welcome home centers are reflecting an optimistic sentiment
There continues to be a general sentiment that the business environment is positive and that the governmental pro-business environment will result in at least job security and possibly some tax relief as well
Overall, the attitude of our customers continues to confirm the sense that we have as business operators that the economic environment in general is strong and stable and improving
The slow and steady though sometimes erratic market improvement that we have seen for the entirety of this recovery continues to seem to be giving way to a more definitive reversion to normal
We continue to feel that limited supply and production deficits from the past years are now intersecting with land and labor shortage and we started to see some pricing power as we have moved through the selling season, somewhat offset however by construction costs increases
Additionally the economic realities of a constrained and supply of housing options and the economic realities of higher rental rates are beginning to have a rational impact on decision making for the first time home buyer as millennials are continuing to come to the housing market
Across our platform each of our business segments benefits from the overall improvement in the market as we look ahead through the remainder of 2017. We are expecting that each of our business segments will continue to grow to mature and to improve as we enter the back half of the year
Against that backdrop, let me briefly discuss each of our operating business segments
To begin, our for sale core homebuilding operations continue to be extremely well positioned for a very strong 2017. Deliveries for the first quarter increased 15% and our gross and net margins improved 40 basis points and 130 basis points sequentially
In the second quarter, new orders were up approximately 12% year-over-year, driven by higher sales pace of four homes per community per month versus 3.9 last year, combined with a community count growth of some 6%
Interestingly, our strongest markets Portland, Seattle, Inland Empire, Coastal California, the Bay area, Tampa and Southeast Florida, all had a sales pace of over five homes per community per month
We continue to gain stronger results, powered by our focused strategy on driving better quality traffic to our digital marketing efforts
Today, our social media outreach generates internet leads that now surpass 100,000 per quarter
And that is driving our marketing and advertising spend, which is now down year-over-year for 10 consecutive quarters
We continue to operate at a very high level of operating efficiency and we're continuing to focus on improving from here
Alongside our digital marketing effort, another example of one of our technology initiatives is the implementation of our dynamic pricing tool
This technology provides a dashboard for real-time matching of deliverable inventory so that it can be priced and delivered more efficiently
We saw the power and success of the dynamic pricing tool during this quarter as we exceeded home delivery expectations by reducing our completed unsold inventory by 17% without sacrificing margin
As you've heard from us in prior quarters, we're using various technology initiatives to dramatically improve our operating model, fueled by our digital marketing efforts, our dynamic pricing tool and other technology initiatives as well
We continue to focus on overall operational efficiency driving our SG&A to historic lows for our first quarter and now for our second quarter as well
We're simply building a better mousetrap one technology at a time
In addition, we closed on the WCI acquisition in the first quarter and the integration, which is being guided by Rick <UNK> and his team led by Fred Rothman and Darren McMurray is progressing exactly as planned
WCI will continue to contribute to earnings as expected as purchase accounting and non-recurring cost dissipate and as cost benefits and SG&A savings accumulate
Overall, our core homebuilding strategy remains to pivot our land strategy towards shorter term land acquisitions and to maintain a 7% to 10% growth rate for the company, while we enhance our operating platform by reducing SG&A
Parenthetically, given the WCI addition, our 2017 growth rate should be on the higher side or little bit overall goal for the year
Additionally, we are focused on expanding our first time homebuyer offering with our mix now standing right at around 40%
Combined, these strategies ---+ these strategic elements will produce very strong cash flow for the company and will result in continued balance sheet improvement
Let me turn briefly to our Financial Services segment
As you've seen, our Financial Services segment is continuing to perform well in the second quarter as it contributed operating earnings of almost $44 million
Of course, the business is growing and lockstep with our homebuilding operations and with the addition of the WCI acquisition as the refi business has diminished over the past year Lennar Financial Services is continuing to expand its non-Lennar business reach and bottom-line to replace those earnings
<UNK>, who oversees this operation will give additional color in just a few minutes
LMC, Lennar Multifamily Communities, our Multifamily Apartment segment has continue to grow and exceed expectations
LMC generated $6.5 million of earnings in the second quarter driven by the sale of one of our merchant build apartment communities
While we have continued with the development of our merchant build communities, we also have grown LMV our build-to-core program, which is cash flow focused on building an apartment portfolio
In the second quarter, we started 1,140 apartment homes in 4 communities, with the total development cost of approximately $520 million
As of May 31st, we had a geographically diversified pipeline of 76 communities, totaling approximately 23,600 apartment homes with a total development cost of approximately $8.2 billion
These included 37 merchant build communities totaling approximately 12,000 apartments with a total development cost of $4.1 billion
And 39 LMV build-to-core communities totaling approximately 11,600 apartments with a total development cost of approximately $4.1 billion
Our Multifamily platform continues to grow and to perform beyond our projections and expectations
Turning to Rialto, Rialto contributed $6.2 million to the bottom-line this quarter versus a loss a year ago
Rialto's investment and asset management platform has continued to grow its asset base as well as harvest value for investors and for us
Our first two flagship opportunity funds continue to be top quartile performers
We are also pleased that our third opportunistic fund held its final closing with approximately $1.9 billion in total commitments and it has already invested or has under contract 33 transactions involving the investment of over $600 million of equity
And to complement our opportunistic funds, we also have over $1.1 billion of investor equity dedicated to investment CMBS, mezzanine and transactional lending, which we also will be looking to grow this year
On the Rialto Mortgage Finance side of the business, market conditions have continued to be favorable for RMF, which has maintained its position as one of the largest and most profitable non-bank CMBS originators
RMF completed its 39th and 40th securitization transactions during this quarter with net margins averaging 5.8% selling over $392 million of RMF originated loans
Our direct investments should be winding down over the next quarters as the remaining assets are monetized and cash is recycled into our higher returning businesses
Going forward from that point our focus will be solely on our investment management and RMF business segments there
Finally, FivePoint successfully completed its IPO this quarter and now enters the public market as a pure play California, master plan community developer
We expected overtime the value embedded in the FivePoint management team and its extraordinary asset base will be realized as the appreciation cycle of these extremely well located communities will be revealed through transparency and public filings
Certainly from a Lennar perspective the new stock symbol FPH will afford Lennar shareholders greater transparency to this part of our balance sheet
Finally in conclusion, across the platform, our company is very pleased with the accomplishments of our second quarter and we're feeling very optimistic about the reminder of the year
We are clearly well positioned to capitalize across the platform on the strong market conditions that have materialized and seem to define the market in the near future
Each of our operating segments is mature and positioned to perform and strengthening market conditions
People, assets and operations are all align to perform in 2017 and we look forward to keeping you updated
So with that let me turn over for greater detail to <UNK>
Sure, look I think that ---+ I think it’s clear pricing has been moving up and even the line between first time and move up buyer is starting to get a little blurry and has been moving up over the past couple of years
I think that ---+ I am going to turn over to Rick and Jon to give some color from the field
I think generally speaking we are seeing that people though the pricing is moving up people are finding that the affordability from employment wage growth and general economic factors is increasing as well and enabling people to come to the market
John, you want to weigh in on that
I think there are some governors out there IV and we've mentioned this in past conference calls
I think there is the limitation on land availability, land pricing that yields to affordable housing
I think there are labor shortages generally
I think that while demand is continuing to grow, I think there are some limiters on how quickly the production can keep up and can expand to meet that demand
The question is to whether there is going to be a flood to B and C locations, there are certainly more demand for those locations as the market expands
As we've highlighted before, it's our strategies to stay inside those outskirts
And so we think that our strategy is really well crafted for where the market is going and we certainly don't want to get way out on the outer trenches
Rick you want to add to that?
So Bob, I would turn the sentiment around and say that we feel that we're at the very beginning stages
We are articulating our successes relative to digital marketing and now dynamic pricing because we can point to some tangible effects that people can latch on to
But this is a big strategic initiative within the company
We feel that we're at the very early stages, very early innings of what I said in my comments building a better mousetrap
We think that there is a lot more leverage
I think it arrives from a lot of smaller initiatives adding up overtime
And as they become more provable, we'll start to put them on the table
I don't want to start getting out over my skies or creating false optimism it has been done before
But as we prove these up, we're talking about them a little bit more
I think that many know, many people know that this is a very big strategic focus for the company
And we think that we can produce a lot of operating leverage and bring our operating margins up
I don't want to quantify it, but we don't think it's tens of basis points we think it's much bigger than that and it will be overtime
So, we’ve highlighted in past conference calls that we’re very focused on reverting to pure play to the pure play homebuilding model
Of course we’ve talked about the IPO of FivePoint, we think that brings growth transparency and visibility
But we’re working every day on some of the other components of our business
You've heard us talk a lot about LMC or multifamily apartment rental program, that program as we move through our merchant build assets and migrate towards our build-to-core strategy this sets up an opportunity for us to maintain this strategy within the company if it strategically make sense as a core asset or to do some kind of alternative transaction and that can very well happen over the next couple of years
On the Rialto side, you’ve seen the buildup of our investment management business, you seen the buildup and execution around Rialto Mortgage Finance and you are seeing a very focused strategy on liquidating our core holdings our assets that where we invested Rialto capital
So that we're going to reduce that business to just those two core business lines of RMF and investment management
And as we do that we come to the end of 2017 the next few quarters, we're really going to have something that will be able to be either combined IPO or spun out and we look forward to doing that over the next couple of years as well
So, we think as we look forward expect to see a refined pure play homebuilder over the next couple of years
We haven’t broken that out by region, but that’s something on a follow-up I could certainly talk though with you
So, I think you are talking about the four star news that's out there as those of you that don't know Starwood Capital has that as a merger agreement to acquire that company
Another builder has recently announced that they have an interest in trying to put something together that buys the majority of the company and run it as a land bank type of machine that would feed that company
It’s an interesting set of cards, we really don’t want to comment on the viability of that platform or the stub piece that would trade in the market, but as we look at we have had absolutely no problem sourcing land
We do a lot of partnerships and have a tremendous depth of connectivity with the land sellers and land developers out there
And we think that we’re going to continue down our path and continue to grow the company
Let me just add to that and say WCI really is a textbook merger and combination integration story, it happened very quickly, very efficiently
We are as Rick says up, we are one company at this point
The positive side of that is that we have clean and clear operating strategies going forward
And the two pronged programs that lead to the best operating results and that is the ability to apply our construction cost preferred customer approach to dealing with subcontractors is really going to benefit the WCI business going forward
And the SG&A leverage that we have been improving on the Lennar platform, we think better than others is going to help leverage the additional volume that we see from WCI in the future, getting the integration behind us quickly and efficiently really enables us to take advantage of those two strategic advantages
And we think we’re going to see that going forward
So [indiscernible] Steve, we are very focused on cash flow generation
And focused on really improving the balance sheet as we go forward
That's ---+ first of all FivePoint today is a strong independent company with a strong Chief Executive Officer, Emile Haddad
And I certainly don't want to take away from his articulation of strategy
But having been on the road show with him now for a few weeks I do feel that I can comfortably say that FivePoint strategy is to remain focused as a California pure play master plan community focused developer
It has a strong complement of assets that it is focused on today
And it's not going to be distracted by a land strategy for Lennar or any other builder across the country
It's going to stick to its core competence
We endorse that strategy for FivePoint, we think that's how they're going to drive bottom-line and execute their strategy in the public markets as they've articulated it
So they are ---+ for those who might think about the Four Star strategy and applying that to a FivePoint that’s just simply not our thinking about strategy nor is it the articulated strategy of FivePoint
Jon leads that, a lot of that effort and he has done extraordinary work there
Jon, why don't you take that?
Within our environment, we've really engineered and Jon has sphere headed using our everything included marketing strategy as a mechanism for creating Lennar as a builder of choice among subcontractors
And we've built a lot of partnership to be able to strategize in how we can breed efficiencies into our building process and our cost structure
And I think we've made some meaningful inroads along those lines
Well, look, number one I think that transparency associated with FivePoint being a public company
That really helps our shareholder base understand its horsepower
Now that story is going to evolve over the next quarters and years as residential lands are sold, as infrastructure improvements add to value, as the cycle of appreciation embedded in master plan communities really reveals itself through quarterly conference calls and accomplishments
Our shareholders are going to be able to see FivePoint’s improvement through the transparency and articulation through the public markets
I think that FivePoint’s strategy as it’s been articulated is very focused
There is excellent management team in place
We are happy to number one, be invested in the assets that are ---+ that make up FivePoint, invested in the management team that makes up FivePoint and we think that giving California’s land constraint, we’re going to have ---+ we’re going to see tremendous appreciation overtime
It’s a little bit of both
We are seeing some mix, but we are seeing some price appreciation, the 3% this quarter gave us the confidence as we looked at our backlog the increased average sales price for the rest of the year
So, it’s a little of both
Good morning
Jon, want to give prospective there?
There is always a question around mix versus price appreciation when you are rolling up numbers from across the country and it’s very hard to disentangle
I think that there is some offset with construction cost and labor cost and everything else, it’s really hard to get these margin numbers and everything perfectly refined as we look ahead and it moves around through the quarter
So, it is as you said in your prior question Mike, it’s in exact science and I think we’re all kind of trying to look ahead to what the trend looks like
Generally speaking we’ve seen some initial pricing power, some initial sense of pricing power
But remember that you also have the offset of construction costs and labor costs that are moving in tandem
So we will see how the quarter unfolds, we have given the best guidance that we can at this point
You bet
I think we have time for one more question
We don’t use Foo Foo, well, less specialness on the outside let’s say
Just easier to build, faster from the production standpoint
Next question, Steve
Let me add to that and say that, I think, Jon highlighted earlier that a lot of what’s driving people to the market is a sense of confidence, it’s animal spirits, it’s the notion that all of this is in exact science, interest rates and affordability and wages and pricing all play a part and what people can afford and how the math actually works out
But the confidence that people bring with them to the table about whether their job is table and whether there’s going to be a wage increase or there is opportunity for them to move and be mobile to the next job opportunity
Whether they have been to able accumulate a down payment or in excess of a down payment, or whether their family members that are able to help support with the gift or something else, all of these are moving parts that define this in exact science that we are all trying to kind of define going forward
So it’s kind of hard to wrap all of our heads around where the market is going, but the general trajectory is positive and even at the first time buyer level as the millennials start to unwind their doubling up and come to the market realizing that rental rates have gone up and there is a real reason to go ahead and purchase
That first time buyer segment is showing some optimism and some ability to be flexible in and around the affordability levels and as prices move up
I don't know if that's helpful or not Steve, but…
Well, first of all let me say I'm so happy to hear that people are listening to my opening remarks and you did reside back to the ---+ as you have clearly listened
Look, these initiatives are really core to what we are working on day-to-day inside the company
And your questions are good one, the answer is that those metrics are the starting metrics for those two initiatives, but they are not the only metrics for those two initiatives
There are other embedded metrics that we're working at
So relative to digital marketing, the very first thing was proving that we could improve our traffic particularly the quality of traffic
Put aside the quantity for a minute, but the quality of traffic while reducing the spend
So it was really can we cut the spends by 50 basis points while we improve the quality of the traffic and continue to grow our business
And that was the beginning metric, but as we become more proficient at digital marketing and as we can expand the flow of qualified traffic I highlighted 100,000 customers, qualified customers coming to the doors driven by social media and internet marketing
As we can expand the number coming through the doors, we are probably going to be able to see greater pricing power and other efficiencies as well
And I'm not going to go through and start articulating those matrices, but we think there is more firepower in the digital marketing strategy and we are very focused on that on a regular basis
Likewise with the dynamic pricing tool, what you're seeing in a reduction in standing inventory is a starter, but the ability to sell homes that are not standing inventory at the end of quarters helps elevate the need to use discounting mechanisms or incentives to move that inventory
And so as we move forwards with those digital tools or technology tools, we think that there is more firepower in them
But we have a whole host of initiatives of that we're working on, that we don't articulate
Because we're simply not getting out over our skies, but we are telling you that we're working on these things every day and we are committed and think we will build a better mousetrap
Okay, you bet
And I do want to say thank you everybody for joining us
We look forward to keeping you updated as we move through the rest of 2017. Thank you
| 2017_LEN |
2015 | AIT | AIT
#Yes, <UNK>, on the foreign currency things, for the most part within each of our countries, we are buying our product from our suppliers in local currency and then selling it in local currency.
That's not 100% true because we do have some currency losses through translation-type items.
But for the most part, if they are operating within their own countries in local dollars, we're not hedging that.
Let me start on that a little bit.
I think within the sales guidance numbers that we have, our perspective is that our sales-per-day run rate, which is $10 million a day in the September quarter, is going to stay relatively flat for the remainder of fiscal 2016 with the opportunity for a very slight improvement.
But there's ---+ that improvement may happen, let's say, in the third and fourth quarter as we get more traction on some of our strategic initiatives.
But we don't have a big hockey stick or anything on our sales guidance numbers.
So with that, our view is we're going to manage the business as the markets are presenting them to us today in an aggressive way.
And then with that, maintaining our gross profit percent strategies and initiatives and our cost savings or cost management initiatives should be able to take that sales number and convert it into the EPS guidance number that we have presented today.
What I do have is I know this quarter compared to year ago, our ---+ for the oil and gas subsidiaries that we owned a year ago at this point in time, our overall sales are down 50% from them.
And like we mentioned in the call ---+ or I think <UNK> may have mentioned in one of his comments ---+ for the oil- and gas-focused subsidiaries that are serving producing-type wells, we've seen some stability in their sales over the last several months.
And their sales decline is smaller than the subsidiaries that are focused on drilling-type customers.
And they have had a much larger percentage that more closely mirrors the reduction in rig counts.
But for them, we've seen some stability as well with their numbers because the rig count has been down for so long.
Until we get to December 31, our year-over-year comparisons with our oil- and gas-focused subsidiaries are going to be difficult.
But starting in, I guess, near the beginning or mid-January is when we saw our sales numbers with our oil- and gas-focused subsidiaries turn around in a negative way.
So our comps for the rest of the year will be more modest.
Yes.
I would say overall, I think 13 of the 30 would be up, so you can do the reverse math.
The obvious headwinds ---+ challenges around the energy markets ---+ both oil and gas and mining ---+ I think also in metals and some of the OEMs, providing or feeding into some of those segments, so that group.
I would say positives would be around aggregate food, lumber and even automotive.
So those would be more on the positive side.
I think the short answer is yes, that we do.
Obviously with our guidance coming down, our perspective on net income is coming down a bit.
But our view is we should have solid cash provided from operations each and every quarter as we march through fiscal 2016, and then it should exceed it.
When I take a step backwards and I look at our overall cycle of cash provided from operations, the first six months of any fiscal year is when our cash from operations is more modest than our second six months of the year.
And some of that reason for the modest numbers is, hey, we've got to pay our federal income taxes a little earlier with our estimated payments.
Uncle Sam makes you pay more up front.
And so that impacts cash from operations earlier in the year.
And as well as some of the incentive plans that we have; annual plans that we've paid out in the beginning of the current fiscal year.
So those have a natural cycle that provide lower cash in the first half of the year but then a little bit higher cash in the second half of the year, which is sort of our normal perspective.
I don't really have those.
<UNK>, maybe you want to lead off with a little ---+
Yes, I think our 8.6% year-over-year sales change that we experienced for the September quarter ---+ we are seeing a similar situation for the month of October.
And <UNK> mentioned on the call that our run rate from the month of September to the month of October is down about 2%.
But I think our view on the sales numbers is still similar to the 8.6% down.
Let me start on that.
I think in this current quarter, our fluid power business segment had a greater sales decline than the service center-based business segment.
And I think from the fluid power perspective, just like when we look at the major manufacturers of fluid power components, when they are looking forward into the fluid power market and they are seeing that the downturn that they've experienced is going to continue into the foreseeable future, I think that's what we're seeing with the fluid power guys.
A year ago ---+ and we've been talking about our increases in fluid power sales and had seen that for many quarters, even throughout fiscal 2015.
And now we are seeing the decline that the manufacturers have started experiencing six or so months ago.
So I think when we look forward with that, the fluid power business segment, we will see a continued challenging environment for that.
Yes.
And <UNK>, I would just add with that, it's going to be a challenging environment.
I think we see it from the large suppliers going forward.
I think with that, if we look back and even at the current results with some of the industry forecasts and such, we are performing better.
It doesn't necessarily feel better with the result, but we are.
And the teams are working very closely with many key OEMs on adding more technology into these solutions.
So we think that will help us in a slow softening environment.
No better time to work on designs and their product offering when there's a little bit of lull.
We wish not to have the lull, but it creates that opportunity.
And what I'm impressed with our fluid power group on two fronts.
They are continuing to be very aggressive on that, but they are also being near-term accountable to their costs in these environments as well.
I think I touched on them a little bit earlier.
I would say ---+ I think, one, we're just bringing better focus, better rigor around price and price variation.
So if we can reduce the variation across products and some customer groups as we go through this, that's different and that's helpful.
The teams, especially in our service center-based businesses, have a focus on current customers, many large ones, but also a very good heightened focus on local accounts.
So that customer mix is helpful.
And then as we go through and look to expand our product offering and our solutions around services, that's helpful.
And in consumables, which right, those products have a typical higher or longer margin.
So the better we do at that, that helps us in the overall gross profit.
So it's no one thing, no one easy lever in these.
It's a host of activities.
But I like we've got progress; I like that we've got momentum.
And that's why we believe it continues throughout ---+ even in this environment throughout the fiscal year.
Yes, I would say our pipeline reflects our business, so they will be core bearing and power transmission.
There will be fluid power opportunities, and they will be maintenance supplies and solutions, consumables in that.
So our preference would be to be active in all of those.
And I would say with that, we would expect them to be in our served geographies as well ---+ where we operate today, not extensions into new geographies or play.
This is a ---+ many North America opportunities in that, and so those are the ones that we would be pursuing.
But I want us to be active in all of those areas because I think it's helpful and added to our business, and I think we are proven to be very good from the acquisition standpoint to the companies coming in.
I think ---+ so, oil and gas that you mentioned, probably <UNK> can lay out a little bit on currency.
But I think if we continue in some of these patterns, FX will be less of a ---+ less of a drain in the back half of the year and do it.
And so, hey, we think we are in this environment.
We know it.
We can't make the market, but we can respond to it, and I think that's what we've done from a cost accountability standpoint.
But we are also responding to it where we see market opportunities.
They may not turn into perfect incremental growth as we go through, but we think it narrows some of those headwinds that we're going to be having.
Yes, I don't know that I would agree with best guess, but ---+.
So I think a couple things.
In operating in break-fix MRO, we're not perfect predictors, especially out of the service center is what's going on.
But higher activity in those segments, higher-capacity utilization, those things are helpful.
In bearings and power transmission, the OEM is doing better is a segment.
They are big consumers of those products.
That is helpful.
And so I think as we went through, we knew we had challenges to start the year.
As they continued into that first quarter, I think they just ---+ they developed more.
So from our perspective, we think we have those accounted for.
We're not overly pessimistic, nor are we overly aggressive.
And while these are our guidance, our teams are working very hard to do better than that.
I don't have the exact number, <UNK>, in front of me, but I will tell you that we do expect operating inventories to come down and our turns to improve as we march throughout the year.
I just don't have a number for you here.
Yes, <UNK>, this is <UNK>.
I would say no real closures.
We've taken the opportunity, like we usually do or annually do, to look at where the end markets are and do we have the opportunity for consolidations.
And so there would be a modest number of those that we would But there is not a radical change in footprint.
I think <UNK> said that we expect there to be some expense in the coming quarter, the December quarter, around severance and such to be coming through.
But all of those then will help that SG&A rate continue at that sequential movement going through the fiscal year.
No, it would mainly be there, and the leaders of those businesses are experienced.
They have worked through many cycles from greater than four to as many as seven or eight.
So I guess I would ---+ our focus, my focus on those would be they're an allowance.
We think that's prudent, but it is not our plan for those to materialize.
Yes, I would say it's got that into account.
But also as we work closely with our customers, some will or contemplate some added timeout around the holidays for adjustments of their production to what they see as their demand environment.
We know in some of the other segments, and we reference them being up, some of them are going to work clear through.
So that's factored in.
There's also the opportunity, especially when we have projects with customers that are around productivity initiatives to kind of help their ongoing competitiveness.
The little longer timeout does create that opportunity for that work to fit in.
Now, will that overcome added time being out.
That's to be determined.
But we expect some to take more days off around holidays in the calendar year end, but we already know they are ---+ there's works and plans underway for some of those maintenance projects and capital initiatives in those times.
I think the short answer is no.
Obviously supplier support is a critical component for us with their gross profit percent, and we continue to work with them on that on a daily basis.
Yes, <UNK>, let me start with this.
We do not expect to have any LIFO layer liquidation benefit during fiscal 2016, so there's nothing in our numbers that would have a boost from that.
So we think the gross profit percentages that we're talking about is just core operations from that view.
Regarding supplier support, we expect the supplier support to be relatively stable year over year from a gross profit percentage perspective.
We don't expect to see a big boost or a big decline from that.
So I think that's just business as usual.
Yes, I would say that that's a ---+ would be about maybe 1% of revenue on an annual run rate type of a thing.
So, little over 1% would be my guidance on that.
Yes, <UNK>, I would say our gross profit percentage view is the same as what we've had before with this improvement that we accomplished in Q1 and what we expect to accomplish.
And I would say our view on the SG&A is that we are able to make sure that we're making the appropriate moves to deal with that.
So for instance, if you look back on our conference call that we had in August when we were trying to project out on some of our SG&A going forward, at that point time we said, hey, in Q1, we think SG&A might be lower by $5 million versus prior year.
Well, we ended up being $8.8 million lower, and we layered in a small acquisition on top of that, too.
So we were able to do a little bit better.
And so when you think about SG&A, when you think about planning and for the guidance for fiscal 2016, with higher sales levels we are ---+ we did plan for, let's say, additional positions and headcounts that are not going to happen.
So the moves that we make on SG&A for headcount is not just trying to not have replacements and folks leave, but it's also to maybe work with ---+ and not have ---+ and have fewer open positions, I guess is what I would say.
Let me start on this one.
I believe we have a guide of a run rate from our oil and gas folks to be relatively stable.
Obviously no snap-back for an increase, but no real major decline either from what they have been experiencing the last couple of months.
<UNK>, I'd say ---+ I was just out with the teams and the business units all across Texas a few weeks ago.
And so we would agree in the fiscal second quarter towards the calendar year end, it's likely what we're in now; maybe a little softer.
But there is variation in that.
And obviously the ---+ still the upstream production guys doing a little bit better in comparison.
There's a fundamental belief including with customers that I meet with and talk with as well, they think that the first quarter is slightly better.
Obviously no snap-back, but they think there will be some more activity as they are looking at consolidating from where they were producing to where they will continue to produce.
So we think that creates a little bit of work.
There is some weather seasonality and reliance side of the business on the maintenance side.
They will see a little bit of benefit of that in the third quarter of the fiscal year.
And then we think the fourth is the sequential carry-out.
So we do not have a big improvement.
We think there's a little variation around Q2 and Q3 in those timings, but that's what we have in.
<UNK>, obviously we would prefer to be investment-grade, which we have been and have always been.
Investment-grade gets you up to a 3-to-1 debt-to-EBITDA ratio.
We are currently tracking about, I'd say, 1.7-to-1 ratio.
And so we still have lots of room to go to potentially add some debt to do additional acquisitions.
I would say when we look at our short-term interim-type goals for that, we would feel extremely comfortable being closer to 2 to 1 on a debt-to-EBITDA ratio for acquisitions.
And obviously we're not scared about going over 2 to 1, but we feel that we have a very conservative balance sheet and we have lots of capacity to expand the business through debt on acquisitions.
I think there's opportunities for that, yes.
Hey, I want to thank everyone for taking the time and joining us today.
We look forward to talking with and seeing many of you throughout the upcoming quarter.
| 2015_AIT |
2015 | RRGB | RRGB
#Thanks, <UNK>.
Well, first, Texas is almost exclusively a franchise market for us, and they are doing very well.
Secondly, each one of our major largest franchisees has a transformation complete or in the process.
They are seeing obviously future opportunity there going forward.
I think that some acquisitions we made may have taken some lower volume restaurants out of the franchise base, which again helps on a year-over-year basis.
Yes, if you look at overall what we're cycling over, is really I think where I'll start with.
The benefit of mix last year that we had from ---+ particularly from Finest ---+ was over 2% of our comp increase related to mix.
The mix benefit that we had in the first quarter was a little bit Finest and Crab Cake, but also continuing some more appetizers and alcoholic beverages.
Our alcoholic beverage mix continues to grow, as well.
If you look forward, we're cycling over pretty strong growth.
As <UNK> said, we're trying to put menu items out there for our guests that they can enjoy and add on themselves, and not trying to force mix all to itself.
If we put great menu items on there, our guests will come into the restaurant.
They may see the $6.99 everyday value menu item, come in, trade up to Finest or other entrees on our menu.
That will continue to drive mix for us.
Driving mix this year's not going to be a big driver of sales.
It's going to be really primarily comp growth associated with the brand transformation remodels.
<UNK>, as you know, we began screening our movie titles this year.
We have a high level of confidence that the product that we've picked this summer is going to do very well.
We'll give you some more details about that at the Q2 call.
But we do think the box office does have momentum, which is also good.
We think we've got a good program for Q2 as it relates to this burger and a movie promotion.
Thank you.
Menu price, and I didn't, in the first quarter was about 1.4%.
Hold on just a second.
Total CapEx was about $31 million, $32 million.
We continue to see a lift.
If you look at our guidance this year, we've assumed we're going to get a gift card lift continuing of about 10% to 15%.
As <UNK> mentioned, Mall Cop 2 performed from a sales standpoint as well as Godzilla, which from a profitability standpoint, does really well for us.
We're continuing to bring new news into our gift card program, and that just continues to grow.
Yes, I think the piece you're missing is ---+ and I touched on it in my remarks ---+ is you've got about $5 million of new restaurant CapEx related to 2016 openings.
That's probably the other piece of it.
Yes, and then the cost per re-model, if you look at overall construction inflation, and you saw the housing numbers this morning.
Construction inflation I think is going to continue to pick up.
As we move more towards the east coast and northeast, we may get more impacted by more union labor areas, so I would expect there to be probably 4% to 5% inflation on that.
Yes, it's more the Red Robins.
The Burger Works, we opened up three of those in the first quarter.
The other two of those will probably be in the fourth quarter.
It's just ---+ it's amazing, the things we had.
We had two restaurants delayed this year where our landlord had to get approval from another tenant for us to go in there, and the tenant's general counsel quit, and that added four weeks to getting approvals.
Those are the types of things we're facing this year that are a head scratcher, but yes, that's the cause of it.
Thanks.
I think overall if you look at the unit economics, <UNK>, AUV ranges will be dependent upon the location ---+ call it $1.1 million to $1.5 million.
The restaurant level margins overall, sort of what we're targeting, will be upper teens.
If you put that together with a build cost of $600,000 to $800,000 depending upon the location, you'll get a cash-on-cash target of somewhere around 30% or mid-teens IRR.
Sure, Bob.
We've been testing Ziosk for several years, if you look at our franchisees' experience in Lehigh Valley.
It's consistent with what you've heard from other folks there.
The single biggest paying point it brings for the guest, which is significant, is the ability to pay at the table.
The guest is not held hostage by their check, which all of us know as consumers is irritating at best, and very frustrating at worst.
Secondarily, we get some ---+ literally some labor savings as you look at the server not having to go over to a remote POS station with a card and then come back.
It seems trivial, but when you look at all the times that happens in our system, it adds up.
We think that one of the things Red Robin has and we're very proud of, and we know we have opportunities to reinforce, is our bottomless proposition.
We know our bottomless proposition is really important to guests, whether it's fries, root beer floats, or broccoli.
Ziosk gives the guest the ability to order their bottomless refills on demand.
We think that's great, because we want our guests to take advantage of that, because we know what a powerful value and brand enforcer that is.
Then I think last, but not least, there is an opportunity for us to completely engage our servers with it, and make it part of the Red Robin experience.
We've got some basic back-of-the-house work to do from a technology standpoint, as a contingency before we can roll Ziosk out, which really drives the Ziosk roll-out into Q3 and through the balance of this year.
Yes.
Well, you remember the old pre-remodel Red Robins had a bunch of arcade games in the lobby, which is not exactly what you wanted to see in your Match.com first date.
We think that the ability for parents to engage with their kids in the family dining experience is a positive.
We need to make it clear that there's a charge for that, and we think that some parents love the fact that they can connect with their kids during the dining experience.
Other parents love the fact that they can disconnect from their kids and put them onto a game.
That choice is important, too.
If you look at it, it's some former employees of one of our franchisees, our franchisee in Pennsylvania suing the franchise group.
It's litigation that they are involved in.
It's not something that we're involved in.
Completely inappropriate for us to comment.
Thanks, Eric.
We appreciate everybody's time and attention this morning.
Remember, we'll be back in Q2.
Thank you.
| 2015_RRGB |
2016 | IDCC | IDCC
#Thank you, <UNK>, and good morning to everyone.
As you saw in this morning's release, we delivered another very strong quarter.
In fact, it was our fifth consecutive quarter with revenue over $100 million, reflecting the continued strength of our research-based licensing business.
It will also show us continue to manage our expenses well, taking advantage of the operating leverage in our business model.
A couple of points to note for the quarter.
On Tuesday, you no doubt read about our joint agreement with Huawei pursuant to which they will begin making royalty payments under our license agreement with them.
While they've reserved the right to appeal the recent French decision that denied their request to annul the arbitration reward and we are confident that we would prevail again in any such appeal, we believe getting them on a paying basis is a major step forward in bringing the licensing matter with them to a close for now.
We will continue to work with them and are open to a broader resolution with Huawei that would settle all of our disputes and establish a long-term cooperative relationship.
We will continue to pursue this, but again, are very happy they've agreed to begin paying the royalties owed.
We think Huawei paying royalties will be helpful in our other discussions with Chinese manufacturers, as well as LG and the other remaining unlicensed partners.
Our flexible approach to licensing will also continue to be the hallmark of our success.
If we can reach amicable terms on a straight patent license with a company, we will do so.
If the company wants a broader relationship that includes R&D, patent transfers, or access to some of our commercial platforms, we are happy to do that as well.
If the company wants to arbitrate the terms of a license, we are open to that method of resolution.
Only when a company refuses to meaningfully engage on the many options we can present would we resort to litigation.
We think this is how licensing should be done and we think it is a reason we have succeed when so many others have failed.
That's not to say that licensing will be easy.
It remains a business model that requires a great amount of patience.
It also requires that we continue to innovate to make sure that our offering to our customers is as attractive as we can make it.
And innovate we continue to do.
You saw us in the first quarter continue to move our research forward.
That research covered a number of important areas.
First, on 5G we continue to work with the standards community to move that standard forward.
At a significant 5G meeting in South Korea two weeks ago, we made a good number of contributions, including building blocks of the new air interface, that were accepted, among others, for consideration as part of the 5G design.
As in 3G and 4G, we will work hard to demonstrate the value of our innovation and believe we will have significant success in getting our ideas adopted into the 5G standard.
That success will drive the future of our core licensing programs.
Our work around IoT also continued.
In addition to our work with Sony and in the IoT standards process, we entered into a commercial relationship with Harman to be a channel partner to push our IoT platforms into the market.
We are looking to engage other partners to give us the broadest reach into a very diverse market.
We were also pleased to be awarded a Competitive Strategy and Innovation Leadership Award by the research firm Frost & Sullivan for our wot.
io platform.
Finally, we continue to work with our partners to grow the UK-based oneTRANSPORT smart city initiative which we think gives us a strong platform for similar initiatives elsewhere.
To provide our investors with a better understanding of the IoT opportunity, we intend to have an investor's day in September of this year at which we will lay out our IoT plans.
We also continued to see success with [XL Air], our commercial initiative focused on improving the efficiency and operation of Wi-Fi and LTE small sale deployments.
XL Air is working with partners to offer their commercial platform to operators world-wide.
XL Air also continued to trial its solution with cable operators who have become increasingly interested in being able to manage Wi-Fi deployments and enhance quality for customers.
Like any startup, the Company has a good ways to go to begin to drive revenue and profit and build a market position but we are pleased with their progress to date.
We also continue to see very good progress from our investment activities in external startup companies.
We began a more systematic method of investment about a year ago, bringing in a seasoned fund manager to manage our investment activities.
The purpose of our investments is pretty straightforward: we generally restrict the investment activities to areas of strategic interest for the Company.
Namely, next generation networks, IoT, and content delivery.
By doing so, we get the strategic value of a richer and broader understanding of the full range of innovation happening in the areas where we are also innovating.
This allows us to re-direct our activity when appropriate and also gives us the opportunity to acquire small startups as they have begun innovating in a space we see as valuable, leaping us forward in a cost-efficient way.
While the investments are strategic because of their focus, we also compensate the investment managers on how well the investments perform financially.
We believe this is a great balanced approach to investing and we are seeing excellent results both in terms of the opportunities to invest and the knowledge gained through the exercise.
<UNK>l in, we've evolved the Company to be a very different animal than it was just three years ago.
We have a very solid and continuing royalty platform.
We are making reasonable inroads at patent licensing in China, which will be important in terms of the long-term value of our company.
While our internal [ads] remain focused in our areas of expertise, we are balancing our internal activities with fresh thinking from the outside.
This includes having a dramatically different board of directors than we had two years ago.
I think our board today has a great balance of expertise needed to guide our business.
For those reasons, I continue to see great opportunity for the Company and am pleased with how we are driving the business.
As always, we have hard work to do but we certainly have the car pointed in the right direction, the engine is tuned, and the tank is full.
With that, let me turn the call over to <UNK>.
Thanks, <UNK>.
It's a pleasure to once again have an opportunity to discuss financial results from another strong quarter.
Our financial results for first quarter 2016 were driven by over $100 million of recurring revenue and total revenue of nearly $108 million.
As was the case in first quarter 2015, our per-unit royalties benefitted from strong fourth-quarter sales related to late 2015 product launches.
This year, we expect to see similar perhaps more pronounced sequential deline ---+ decline from our current per-unit licensees as we move from first to the second quarter.
Our first-quarter results did not include any revenue from Huawei, as we had continued to defer revenue recognition from our related patent license agreement.
As <UNK> mentioned, Huawei has recently agreed to make payments of outstanding amounts under our patent license agreement.
We look forward to the scheduled collection of those first payments and possibly the related revenue recognition as early as second quarter of 2016.
In first quarter, we updated our compensation accrual rates consistent with our expectation that we will recognize revenue from Huawei this year.
That resulted in a non-recurring charge of $3 million in the quarter.
Taken together with a severance charge, our first-quarter operating expenses of $59.4 million included nearly $5 million of non-recurring charges.
Our pro forma operating expenses, which adjusts for these and other items, is essentially flat with the prior year quarter and down $1.2 million from the fourth quarter.
There are a couple of noteworthy balance sheet updates.
We paid off our $230 million of convertible debt upon its maturity this March.
As you may remember, this maturity was pre-funded with a $316 million convert that we issued last year.
We also repurchased approximately $40 million of our common stock during the quarter at an average price of $46.49.
After factoring in the just over $5 million we've repurchased so far this month, we have a balance of approximately $105 million remaining on our $400 million stock repurchase authorization.
As is always the case, we will continue to evaluate our cash balance and our plans for capital allocation.
With that, I'll turn it back over to <UNK>.
Yes, <UNK>, it's <UNK>.
So the reason we've deferred payment up until now is we haven't at this point met all the criteria for revenue recognition.
Most notably, collectability is reasonably assured and the terms are fixed and determinable.
So we'll continue to evaluate that in the second quarter as we look forward to collecting that payment.
But as <UNK> mentioned, there's also opportunities to continue to work with Huawei to expand beyond what we've even agreed to so far.
Yes.
I really don't have anything more that I could add at this point, <UNK>.
I think it's something that we typically will wait and issue guidance once we receive our reports.
We're going to continue to do that but we have observed in the marketplace, based on earnings reports of companies that you may be familiar with, indications that perhaps that will lead to low levels of per-unit royalties for us in the next quarter.
Yes, nothing on the balance sheet at this point.
Sure.
So we certainly don't have to restart it.
I think it's a continuation of a dialogue that's been going on for a number of years with some of these folks.
I think it's exactly what you said, it becomes a very important data point for them.
So, yes, I think there's been a couple data points along the way.
One, the fact that Huawei was willing to arbitrate.
I think that was actually ---+ that we would be willing to arbitrate with the other parties as well.
The second is that they're agreeing to begin paying, which is another data point we can point our ---+ those prospective licensees to.
And then once payment comes in to the extent there's visibility around that and the contribution to revenue, then that will be another data point we can point people to in terms of their competitive position.
So I think it's all going to be very helpful with respect to those prospective licensees.
And hopefully can move those discussions along.
Yes.
So the disclosure just is ---+ it just follows what the disclosure rules are from accounting perspective.
And as the case moved forward, we'd gotten some additional information from them and that caused the disclosure.
Sharp is a long-term licensee of ours.
In the case, they've asked for the modification to the royalties to an agreement that they had in 2001 that's been modified a couple times along the way.
So if that's what a party looks at, then the natural result of that is going to be a bigger number.
So there's a panel that will take a look at the claims this year.
I guess in July this year.
Typical of these cases, we believe we have strong defenses.
And so, well, like any case, we can't predict the outcome, again, we have strong defenses here.
So that's where it is.
It's ---+ we've had a number of arbitrations around our license agreements.
Without pointing to this agreement in terms of predicting an outcome, we've generally been very, very successful in supporting our agreements, our licensing practices and things like that.
I believe, <UNK>, we've disclosed the interest expense in our 10-K related to the different instruments.
Or certainly you can look at when we added the interest from the new convert, I think second quarter of last year would've been the first full quarter.
So you can kind of gauge off of that.
So I'll give you some color.
<UNK> can add.
So certainly we have within our per-unit population, we have exposure to certain manufacturers who have talked about pressure in terms of their sales.
So I think that's certainly one factor that we have there.
I think generally the ---+ it ---+ their comments reflect I think a general comment around the smartphone environment which seems to be flattening at the moment.
And that's also not that unusual.
Think about 4G's been in place for a certain period of time.
And the replacement cycle has ---+ drove really good sales for a while and it's not surprising that it kind of flattened out for a bit.
So I think for that cycle I think changes once we get to 5G.
Once again, and (inaudible) confluence of 5G that'll come out in a couple of years.
So I think, again, it can drive another refresh cycle, which is good.
From our perspective, the bigger value driver for us in the near term is not so much market growth or even market movement around our existing licensees.
But it's getting the other licensees on board.
That's the big thing for us.
(inaudible) the step functions in revenue that will drive.
We'll be up and down with the market.
And if the market's flat, all else being equal, our licensees may be flat.
But, again, our focus is going to be on ---+ as we've done with Huawei, get them on a paying basis.
Get them contributing the revenue.
Leverage that into opportunities with the rest of the folks in China and get those contributing revenue.
Those movements for us are far greater than any market movement in terms of unit sales.
Yes, I can ---+ I completely agree with everything <UNK> said.
And I'll just add that there was a seasonal nature in the decline from Q1 to Q2.
So that's something we experienced last year.
And as I indicated, would expect to experience again.
If you look at our financial metrics tracker, which has been updated, we do disclose the contribution to revenue for those licensees that have a greater than 10% contribution.
And if you look at the first quarter of this year, for purposes of this discussion, revenue was close to flat.
It was down maybe a little bit from last year.
And yet Pegatron's contribution was 46% this year compared to 39% last year.
So there's a little bit of timing in terms of when sales volume throughout the year occurs.
And that kind of sets you up for a potentially bigger drop from Q1 to Q2.
Yes.
I think just generally, if you look at the things that we have to offer.
So we've always had research as a component of our offering.
So initiative patents people could do research.
I (inaudible) say that research continues to be something of interest to folks.
I think because they equate it to a very strong point for the Company.
The commercial initiatives are gaining some traction.
I'd say it's still early because the initiatives themselves are still somewhat early.
Certainly having Sony acquire one of the platforms or taking license of one of the platforms was very helpful in terms of getting one customer on board.
And I think the other things that we've been doing inside to sort of mature platforms in an effective way.
And even work we're doing through our spins or commercial startups is helping to create more attractive assets.
And so we've had some [nibbles] around those things and I would hope as we mature them, then the conversations around them make ---+ will mature.
<UNK>l ---+ the third component of consideration that we can look at is ---+ it is patents.
But the patents can flow in either direction.
So patents can flow from us to a customer, to the extent the customer needs defense.
And that's always something that is on the table with folks.
They can flow in the other direction as well.
They can flow into us.
And that can be ---+ they can come in two different ways.
One is just in sort of in-kind considerations.
The other is an opportunity for that other company to have some sort of joint licensing activity with us in a particular space.
I'd say that last one is also an area where we've seen more interest.
I think that's because it kind of goes back to how people look at the Company and what our core competence are ---+ is.
So certainly research is a core competence and that means interest.
Licensing is also viewed as a core competence and so people would be comfortable with us managing intellectual property for them.
So we're looking at those opportunities as well.
So, again, I think it's a nice list of things that gives us a lot of options for talking about something other than just a straight patent license with folks.
I think we do.
I think we have it for a couple sense.
One, I think the Company has got a very good reputation as a licensing company both in terms of our fairness and the fact that we tend to put research behind things.
And so it's not just a depleting asset that you're licensing, but it's one that's growing.
And so I think that that makes us ---+ in the new environment that we're living in today where various patent licensing practices come under scrutiny.
Our kind of licensing program tends to be less ---+ tends to be more favored because it's a really research-based program with a company that's had a long history of doing it right.
So if a company with patents is worried about its reputation in terms of how it monetizes its patents, we're a more attractive partner than someone who doesn't have the same reputation as we do.
Second, a lot of non-practicing entities, they run these pure partnership models with no cash up front and everything's [going to come].
We don't have to go down that path.
We can provide sort of more certain compensation either by some cash payment up front.
Or some revenue share off of their assets but perhaps their assets in combination with other things that we have.
So I think we're a more attractive partner from a financial perspective as well.
Sure.
So what Huawei has done so far is they've reserved the right to appeal.
And so they actually ---+ whether they actually appeal or not, as we've described, think about this as an appeal of an appeal of an arbitration award.
And that's not something that has a significant track record of a success at all.
And so I think obviously they need to think through what they want to do with re---+ on the legal side.
And on the legal side, typical of any type of thing like this, options start to ---+ you have less and less options and those things become harder and harder as a case goes on.
And so that is the situation facing them.
From our perspective, we would ---+ we continue to be and very open to a broader solution with them.
We think that they're, obviously, an important player in the market.
And to the extent we can do all the things I described earlier in terms of research and access of platforms and other things with them over a longer period of time, that is certainly our preference.
Little hard to give you a timeframe on something like that but it certainly is something that we would like to get done in the shorter term versus the longer term with them.
And I think that we have certainly the arbitration result gives us some strength in that discussion.
But I would hope that other aspects of the Company are ---+ would be attractive to them as well in terms of things that we can do with them.
So it's ---+ I would say it's ---+ certainly it's a pretty big focus of mine to try to see if we can do something broader and longer term with them.
That said, if that doesn't work out, the situation we're in today is just fine.
Yes, so, in terms of positive momentum, I think the that Huawei arbitration result ---+ the decision in France.
And now their agreement to begin payment is a very strong bit of momentum.
Ultimately, these companies are all going to make up their own minds on things.
But having some clarity around Huawei situation for them I think is very important because it will define the competitive position that they will be in vis a vis Huawei.
And that (inaudible) licensing, that's a pretty important component in the discussion.
So I think that that, we will certainly use that to our advantage.
At least advantage in terms of getting them the information that they need so they can make an educated decision on their part.
I think that the item I just talked about, the ---+ in terms of ways to work with companies, I think we are ---+ continue to be, I think, better and better positioned to work with folks in part because of the decline of the NPE community.
And therefore we become one of the few but also one of the better, if not the best, option for folks to monetize patents, if that's an opportunity we want to look at.
Another time-driven component is 5G research.
And so the 5G standards are sort of reaching a ---+ it's a very active period of time over the next year sort of which the main development work will take place for 5G.
It's the perfect time for companies to engage with us.
And I would tell you that those ---+ Sony was ---+ I can't tell you what was in their mind.
But certainly one of the things they could've thought about was in terms of why they engaged with us in 5G was it was timely to do that and it won't be timely a year from now.
And so we're very well-positioned in the 5G standards both from a participation and leadership standard position.
So I think we can use that timeframe to drive opportunity there.
And there's a similar opportunity within the 802 environment as well.
So I certainly like the things that are happening in terms of the drivers for licensing.
That said, as I mentioned, this is not a business model we can predict the timing of outcomes.
But certainly we ---+ I think we're doing things the right way and creating right incentives for folks.
So the arbitration itself covers sales outside of China.
And so the sales inside of China would be ---+ or the royalties for those will be determined via the process going on inside China.
And that is sitting up at basically the Supreme Court within China where we have requested a rehearing based on a variety of factors.
Among them, the lack of evidence in the case that occurred below.
So we're basically at this point waiting for a ruling from the Chinese courts.
Yes, you're welcome.
| 2016_IDCC |
2018 | DAKT | DAKT
#Thank you.
Good morning, everyone.
Thank you for participating in our third quarter earnings conference call.
I would like to review our disclosures cautioning investors and participants that in addition to the statements of historical facts, we will be discussing forward-looking statements reflecting our expectations and plans about our future financial performance and future business opportunities.
All forward-looking statements involve risks and uncertainties, which may be out of our control and may cause actual results to differ materially.
Such risks include changes in economic conditions, changes in the competitive and market landscape, management of growth, timing and magnitude of future contracts, fluctuations of margins, the introduction of new products and technology and other important factors as noted and detailed in our 10-K and 10-Q SEC filings.
With that, let me highlight some of the financials for the quarter.
Orders for the third quarter of fiscal 2018 were $126 million as compared to last year's third quarter of $143 million.
Most of the order fluctuation this quarter is attributable to the timing volatility of large projects and account-based business in the Commercial, Live Events, Transportation and International business units.
As a reminder, both orders and net sales fluctuated due to the impact of our large projects and account-based business.
Large projects include multimillion dollar orders of display systems for professional sports facilities in colleges and universities and spectacular projects.
Account-based orders can also be multimillion dollars in size for national or global customers most in the out-of-home advertising space.
Our business also fluctuates seasonally based on the sports markets and construction cycles, and is dependent on various schedules based on our customers' needs.
Sales for the third quarter of fiscal 2018 were $130 million as compared to $160 million last year.
Sales increased in Live Events, Transportation and International business units and decreased in the Commercial and High School Park and Recreation business units' quarter-over-quarter.
Live Events contributed to the sales increase as the number of projects for professional sports was up as compared to last year, specifically projects for spring baseball facilities.
Continued market demand and delivery timings also contributed to sales increases in Transportation and International business units.
Commercial business unit sales declined compared to last year due to lower order volumes of on-premise displays, the timing and delivery of large projects in the spectacular niche, partially offset by an increase in the billboard niche due to timing of customer demands as compared to last year.
High School Park and Recreation business unit sales decreased compared to last year due to timing as well as customer demand.
Gross profit was 21.9% during the third quarter as compared to 20.1% during the third quarter of fiscal 2017, and was 24.5% compared to 24.1% on a year-to-date basis.
Gross margin percentages for the quarter were positively impacted by the higher sales volumes, improved productivity and favorable sales mix.
Total warranty as a percent of sales remained relatively flat quarter-over-quarter and increased to 3.3% during the 9 months ended fiscal 2018 as compared to 2.8% last year, which was due to the additional warranty cost we booked during the second quarter of fiscal 2018.
Operating expenses increased $1.6 million or 5.5% during the third quarter of fiscal 2018 compared to the same period last year, due to a large degree from our increase in product development expenses.
They increased $1.3 million for additional resources focused on speeding up the development of display and control solutions to the market.
Selling expenses increased quarter-over-quarter, mostly related to increased personnel expenses, travel and entertainment expenses, commission expenses and convention and advertising expenses.
General and administrative expenses decreased quarter-over-quarter, mostly related to decreases in personnel expenses.
Our overall effective tax rate expense was 67% as compared to a benefit of 27.9% last year.
The primary factor impacting our effective tax rate was due to the U.S. Tax Cuts and Jobs Act of 2017.
Most notably, the Tax Act reduced the statutory federal income tax rate for corporations from 35% to 21%.
In addition to the effect of the lower overall federal tax rate, the Tax Act resulted in a 4.2% ---+ $4.2 million provisional one-time tax expense for the estimated remeasurements of our net deferred tax assets and estimated one-time transition tax on certain undistributed earnings of our foreign subsidiaries during the third quarter of fiscal 2018.
This impact accounted for approximately $0.10 of loss per share.
We expect our effective tax rate to be approximately 30% for the fourth quarter, but could be impacted by any changes to our provisional assumptions for this new law.
Looking ahead to future fiscal years, we expect the effective tax rate to be less than 21%.
As we have previously noted, our effective tax rate can fluctuate depending on changes in tax legislation and the geographic mix of taxable income.
Taking all this into account, we experienced a loss during the third quarter, primarily due to the reasons noted, the seasonality of the third quarter for sales, and because of the tax impact for this year for that new legislation.
While the loss is undesirable, we continue to monitor and manage our cost infrastructure to the opportunities we foresee and continue to focus on serving customers with industry-leading solutions while generating profitable growth.
Our cash and marketable securities position was $73 million at the end of the quarter.
We reported positive free cash flow of $18.2 million as compared to positive free cash flow of $38.8 million for the same period of fiscal 2017.
This fluctuation in free cash flow is the result of timing differences in our operating assets and liabilities, primarily for reduced accounts payable, increase in inventory and income tax payments and the $4 million increase in capital spending this year as compared to last year during the same 9 months.
Capital expenditures for the first 9 months of fiscal 2018 were $10.9 million as compared to $6.7 million last year.
Primary uses of the capital included manufacturing equipment, research and development, testing equipment in facilities, demonstration equipment for new products and information technology infrastructure costs.
We expect capital expenditures to be less than $20 million for this fiscal year.
We made no repurchases of stock during the first 9 months of the year.
Our backlog is at $151 million going into the fourth quarter.
Much of this backlog is projected to be realized over the coming few quarters.
For the fourth quarter, we are currently estimating our sales to be comparable to last year.
However, sales could change pending project bookings and customer schedule changes.
I will now turn the call over to <UNK> <UNK>, our Chairman, President and CEO, for commentary on our business.
Thank you, <UNK>.
Good morning, everyone.
We had a positive financial performance for the first 9 months of fiscal 2018, reflected in increases in sales, gross profit and operating income.
Order bookings on a year-to-date basis was $421 million overall for Daktronics, as compared to $425 million last year.
This is not unusual due to the lumpy nature of our businesses.
Looking deeper into the business units, order bookings on a year-to-date basis were up in the Live Events business unit for continued demand for upgraded or new installations throughout professional sports, including the MLB and NB<UNK>
We continue to see demand in the marketplace from facility operators using our solutions to enhance the fan experience or the entertainment factor using increasing amounts of high-resolution display products.
We are seeing this both in upgrades or refurbishment for existing facilities as well as planning for new venues.
Orders increased in our International business unit year-over-year, primarily due to an increase in out-of-home sales as compared to last year where we have more sports projects.
This inherent variability can affect both orders and sales.
Commercial business unit orders increased this year as compared to the same time frame last year.
The major factors contributing to this difference were the competitive environment in the on-premise niche, fewer national account-based on-premise opportunities in the market during this time period and the competitive environment and fluctuation caused by the volatility of large custom projects in the spectacular niche.
Digital billboard orders were down slightly year-over-year.
While orders remained soft through the first 9 months, the marketplace continues to adopt digital technology for on-premise and third-party advertising applications, and we see this continuing in the future.
The pipeline of opportunities is active in the national account on-premise business and spectacular area of our business as well.
We are seeing strong activity for replacing, refurbishing existing systems as well as the placement of systems in new locations across our commercial segments.
Transportation business unit orders have decreased on a comparative 9-month year-over-year basis, but we believe this decline is due to the general volatility of timing and not an indication of changes in overall market activity or our market share.
Opportunities continue to surface due to stabilization of transportation funding and increased customer demand for mass transit systems and advertising applications.
High School Park and Recreation orders remained relatively flat for the first 9 months year-over-year.
This market continues to trend towards more sophisticated video systems, which have higher average selling prices in addition to continued needs outside of the sports venues to communicate with students, parents and visitors.
These trends exist where ---+ when refurbishing existing systems as well as in new locations.
The higher sales levels for the year improved gross margin through gains in manufacturing and productivity.
We have also saw improvement in gross margins on large projects and selective price increases in certain markets.
In addition, profitability improved by selling our nondigital business.
Unfortunately, these increases were partially offset by higher warranty expenses we booked in the second quarter of fiscal 2018.
We continue to make progress on increasing product release velocity and expect to continue this into fiscal 2019.
Over the coming months, we continue to release our latest generation of technology featuring narrow pixel pictures, new features in our control systems and interactive content features.
We will also continue development for modules using chip onboard technology.
While these efforts will increase development expenses as a percent of sales in the near-term, we believe this investment is appropriate to drive forward new solutions to meet customer needs and to expand our global market share.
Rollouts of products, including display and control solutions are expected throughout the coming year.
We expect continued success in growing our business over the long term for the following reasons: We continue to be confident in the expanding global digital marketplace through adoption of digital systems across the sectors we serve.
These products have a known end-of-life that will drive continued business to replace or refurbish the installed base.
We provide proactive support from initial project planning throughout the intended use of the system leading to satisfied customers and repeat business aligned with this natural replacement cycle.
We continue to enhance and develop product lines and comprehensive solutions for our broad market base and specific customer needs.
This allows us for success in markets during natural ups and downs of each segment.
In addition to our comprehensive product lines, we are committed to earning customers for life, driving continued investments in quality, reliability and other performance enhancements to meet our customers' needs today and over the long term.
While optimistic about our long-term future, various geopolitical, economic and competitive factors may impact order growth.
Our business will continue to be lumpy.
While these areas can impact a specific fiscal period, we continue to pursue long-term profitable growth.
Overall, our outlook for fiscal 2018 and beyond remains similar from a quarter ago.
Our International business unit continues to be poised for growth through increased adoption of digital systems as well as increase in market share for our focused segments of sport, out-of-home, Spectacular and Transportation.
We expect continued demand for large-sized orders due to the adoption of video and sporting applications in the High School Park and Recreation market allowing for growth.
Transportation has growth opportunities due to continued investment in U.S. Transportation Systems and the stability in federal funding.
In our Commercial business unit, we see opportunities for growth, mainly driven by digital opportunities in the spectacular segment, both new and replacement systems for our national account-based businesses, expansion of solutions for indoor applications and continued activity in the billboard segment.
We expect Live Events sales to maintain order levels of prior years.
While the path will not always be smooth, we believe the growing market and our industry-leading solutions position us to generate long-term profitable growth.
With that, I would ask the operator to please open up the line for questions.
We expect that will be all-in rates that include state.
We also will continue ---+ we'll continue to get our R&D tax credit as well.
So we are optimistic about our overall effective tax rate; that's all-in.
We were actually a bit over.
We are at 2.9% of sales in Q3 as compared to last year, we have the same amount as a percent of sales during the quarter.
As a percent of sales, we're up just a little bit on a year-to-date basis, 3.3% as compared to 2.8% last year.
We appreciate everybody attending our call this morning.
I hope you've had a nice winter.
And look forward to talking to you again in June.
| 2018_DAKT |
2016 | KRA | KRA
#Not at all <UNK>.
We said it was both.
But if I were to weight it, it is more driven to the effective C5 hydrocarbon tackifiers and what that causes in terms of relative price pressure in the rosin ester business of our Pine Chemical business.
I mean I wouldn't even think about describing it as an impact that we see for 2017.
It is the current market fundamental associated with some new capacity particularly in Asia for C5 tackifiers.
But as I have always said in these businesses, the market tends to fix itself and that is why I indicated that some of the availability of those new streams of C5 tackifiers are potentially looking at the margin points and realizing it might not be the best place to be and we are already having conversations with customers that are starting to recognize that as a potential as well.
So I think it is fairly short-term.
And it is clear to us that the value proposition of Kraton's offerings, through its Pine Chemical business right now is still very real in the eyes of the customer both from a sustainability standpoint as well the fundamental underlying performance.
So this is a little bit of noise in our adhesive business, I get that.
And we are doing a great job working through it.
But there is just all kinds of different ---+ that is the beauty of this combination, now the diversification of our overall sales mix allows us to really potentially back stop some of the downside in one particular [saw] part of our business with a lot of the upsides we are seeing elsewhere.
No, no, we are not giving up any margin.
The value proposition is sound, <UNK>.
I think that like ---+ it is almost like when we talk about the business, we always say that you don't convert ---+ when it comes to surgical gloves, you don't convert a surgeon, you convert a hospital chain.
So it is step increase in demand growth; that is kind of the nature of the business.
This is kind of one of those examples only on a much more universal impact because of the regulation change.
And it kind of hit us a little bit by surprise I admit.
We didn't have that built into our plan.
So what I would say to you is stick with our counsel and guidance with respect to the 10% to 15% low double-digit growth rates.
That is how we plan our business.
But in the meantime obviously this is just another example of the great value of this product offering to the customer and to the marketplace and with Kraton being the leading supplier in the space, we are solving those supply issues and in this case, if it is a regulatory driver, that creates that supply ---+ or excuse me, that demand.
We will certainly be ready to satisfy.
No, there is nothing with respect to the latter.
This is all just an example furthermore of the value selling or as we call it as you know in Kraton, the Price Right selling but certainly as we have always said, our team at Arizona have done a tremendous job positioning the value-added products with the right customers in the right markets to really continue to expand the margin potential in the business.
And we just saw it clearly in the second quarter results.
So we are very pleased with that but as you heard in my comments, we just see tremendous opportunity to continue to expand the business.
No, it is completely based on ---+ and what we are referring to I assume is our performance products business so we talking about our unhydrogenated portfolio and it wasn't a pre-buying fundamental at all.
I mean it is just ---+ as I said going into the quarter, we didn't want to get ahead of ourselves but we can unequivocally say right now that this is a summer paving season particularly in North America that we have not seen for quite some time in terms of the positive fundamentals.
And it is driven by a couple of I think just real factors.
One is obviously there is money through the spending bill which we have talked about.
And then secondly with the low price points associated with the overall base of crude input costs and what that does to asphalt pricing, that just means in otherwise fixed budgets there ought to be more linear miles and with no more linear miles being paved or resurfaced, that means more business for our polymer segment.
Well, to be clear, when we talk about our polymer segment, we have three parts, three businesses.
Each one of them demonstrated pretty robust volume growth in the quarter but what you were asking about specifically lands within our performance products segment, which is the USBC portfolio excluding of course Cariflex.
I don't think I would tell you that think about a sequential growth outlook for the business.
We haven't owned it long enough for me to really be confident enough in talking about sequential growth Q1 to Q2.
I would say that in the Q1 results certainly we didn't get a great start to the calendar year in January, and then all of the things I talked about on my comments around what we were doing specifically in the chemical intermediates business to really capture back some of the share loss because of commercial strategies that prior management had and the tremendous work the team is doing at looking at new market outlets in places like, for example, Asia through Kraton's footprint in India, has started to pay off.
And that is just a great signal for the business and we are just going to keep doing more of that.
You know we run all these businesses clearly on a dollar margin basis.
I think that is fair to say.
From the standpoint of in examples where we have raw material cost increases, yes, we will certainly pass that through reflective of our Price Right consistent strategy and of course the value of the inherent product itself and whatever particular use we are dealing with in the marketplace.
So I think you should think about the business in that dollar margin way.
But all of that being said, I am not smart enough here to tell you what I think is going to happen to crude oil later this year or next year.
But we have a very robust pricing process internally and our customers understand it externally.
And we would consistently apply that pricing strategy in periods of raw material escalation should that occur.
No it is not ---+ are you talking about the expansion, <UNK>, the capital cost.
No, you shouldn't think of it as being currency exposed anymore that it is frankly today.
And as you know in our business globally, currency whether it is transaction or translation is a relatively benign number with sort of a $4 million impact in the year to date results.
So we don't have any significant concerns in where we are acquiring the assets to build that plant outside of Brazil.
We of course put hedging in place to avoid currency risk.
Well, what I said I talked about it in the context of regions.
I am not going to talk about it in the context of certainly specific markets and customers because we want to keep that obviously proprietary.
But with respect to regions, clearly Asia and predominantly India has played a key role.
And what is really good about it is clearly we have got tremendous market knowledge and insights through our existing employee base.
But here we are able to take full advantage of Kraton, legacy Kraton if you will footprint in these regions and relationships that our people on the ground had to work together with colleagues across the new combined business to generate these outlets.
And to me that is one of those things that you can't put a value on going into it but we knew it was there so that cross-selling opportunity has been already demonstrated.
I would say it is more in terms of traditional outlets that perhaps the market ---+ the business hadn't served in quite some time.
We have gone back and revisited some of those accounts.
From a competitive standpoint.
So you know clearly what the driver is is the availability of C5 tackifiers.
And as you know, our price setting mechanism effectively is pricing relative to those C5 tackifiers in the marketplace.
And in periods when tackifiers are in significant short supply, that is highly beneficial to our business.
And in periods when there is new capacity being introduced at relatively lower costs because of the underlying energy building block value, then that is what has caused C5 tackifiers therefore to come down.
But I want to be very clear about something.
At the end of the day, we have ---+ we serve a part of the market, we have served a part of the market historically and we will serve that same market in the future.
So it is not a question about whether customers decide to use our material for rosin ester or a C5 tackifier.
This is just a discussion around pricing because we are preserving our position with our key accounts.
And I would say that that is very consistent with any of the businesses that we run and even our legacy when there is competitive dynamics.
With again part of our Price Right strategy is just to make sure we position our products well to satisfy customer needs but recognizing there is market dynamics that always need to be taken into account.
Well, I am not going to answer that question per se.
But it is pretty clear to us that this business historically and currently and certainly as we look at the outlook for the balance of the year that other than what I called out in terms of some of this adhesive pressure, there is ample opportunity for us to continue to improve the business both on a volume basis and obviously attacking more attractive market outlets in the process.
So this is a business that can and will generate 20% plus EBITDA margins and that is why we were attracted to it in the first place and that is why we are certainly attracted to the growth it is going to demonstrate for the combined Company in the future.
Yes, I think so.
What was fascinating about the two quarters in the first quarter obviously polymers was stronger than chemicals and in the second quarter chemicals was stronger than chemicals which again speaks to the uniqueness now this combined Company portfolio.
But as we look into the future, I wouldn't distinguish the two.
There might be some quarterly differences as we just had but overall the trend line and the run rate should be comparable especially in the immediate term.
Right.
And as I just said a few minutes ago, I think a similar type question was asked maybe a little bit differently.
Adhesives in general, if I were to weight it I would weight it more to the pine side than the polymer side.
So, again we characterize it as no more than or up to $10 million for the year of which some of it we have already seen in the second quarter.
On the polymer side, what is the ---+ is it raw material or is it supply-side.
I would say probably in the case of pricing pressure that we are seeing, it is going to be more on the supply side.
It is not significant but there has been a couple.
And if you are starting up new capacity what is the first think you are going to do.
You are going to look for who the market leader in the space is and go attack what is the lowest value added part of their product offering.
And that is why I said that it is not in the differentiated part of our sales mix, it is really in what we refer to as the more highly competitive part of our sales mix.
And we face this from time to time and we will face it again.
But nevertheless, it is ---+ it is really a fundamental in the immediate term because of that availability of new supply.
This is not a structural change by any sense at all.
Yes, those plans are unchanged.
Yes, <UNK>, I will hit the first one first.
On your observation on the cost reset initiative, the $70 million in the legacy polymer business, we do expect the back half of the year on a year-over-year basis, the benefits to decline somewhat because that boiler project did come online in the second half of last year.
But that is not to say that the team can't come up with some quick hits between now and the end of the year.
On the synergy side, your observation is a good one there as well.
Is there upside to the $12 million to $15 million.
I would say, yes, there is upside.
And collectively the three areas of cost, which is the $70 million cost reset initiative in polymers, the $25 million of G&A which spans both segments and then the production optimization focused on driving cost out of the fine chemical segment, quite easily the third and fourth quarter could mirror in total what we generated in the second quarter which was approximately $10 million.
| 2016_KRA |
2016 | PCAR | PCAR
#Good morning, <UNK>.
Directionally.
Boy, I'd say it's fairly comparable if you look at the all-in external margins.
It's pretty comparable.
So we have the benefit of having manufacturing operations in the UK.
The only OEM to have that.
So we have a partial offset to our revenues that we earn out of the UK.
So the impact as we see it for 2016 is relatively insignificant.
And assuming the currency stays at its current level, then the OEMs will make pricing adjustments to achieve a reasonable margin on their businesses in the UK over time.
So we don't see it as being a major factor in our margins over time.
So it's about 25% of our revenues for DAF.
Sure.
So again, I don't know what you're comparing ---+ if you're comparing back to 2014 to now, clearly currency has had a sizable impact on the revenue side, but also on the cost side.
And the cost side has gone down over that period of time because of the excellent factory efficiencies that we've gained with our new products, the performance of those products in the field, the material cost savings, the benefits of commodities, and just ongoing working with our suppliers to incorporate new materials, new technology into the products to achieve better operating efficiency and cost levels.
So the MX engine penetration is beneficial to that as well.
So all those things are the elements that are driving that enhancement over that period of time.
To a year ago.
I'd say very little on currency.
That would be most of the other difference.
I think a lot of that is mix, because the European units have a slightly lower average sales price than North American units.
Good morning.
Truck connectivity is just something that everybody has to have in today's market.
And we're into phase one of a probably 20-phase era [laughter] of enhancing that on an ongoing basis.
And we evaluate our suppliers and capabilities of who can provide that and so we'll continue to work with our partners and provide the best solution that we think is available in the marketplace for them to get the best result operating their truck.
I think that's ---+ we have suppliers that ---+ I guess I would add ---+ the connectivity piece is ---+ call it common technology.
What's most important is what we do with the data and how we interpret that data in a way that makes our trucks perform better in the marketplace, helps our dealers support customers and that's all homegrown.
So the connectivity piece is pretty common technology.
Thank you.
It's just reflective of what the retail activity is at our dealer locations.
Our team continues to have great products and services for our dealers to help them gain share but I think the overall market is a little softer than what we had anticipated previously.
Absolutely.
That's correct.
We'd like to thank everyone for their excellent questions and thank you, operator.
| 2016_PCAR |
2018 | NSP | NSP
#Good morning.
My name is Beth, and I will be your conference operator today.
I would like to welcome everyone to the Insperity First Quarter 2018 Earnings Conference Call.
(Operator Instructions) At this time, I would like to introduce today's speakers.
Joining us are <UNK> <UNK>, Chairman of the Board and Chief Executive Officer; <UNK> <UNK>, President; and <UNK> <UNK>, Senior Vice President of Finance, Chief Financial Officer and Treasurer.
At this time, I would like to turn the call over to <UNK> <UNK>.
Mr.
<UNK>, please go ahead.
Thank you.
We appreciate you joining us this morning.
Let me begin by outlining our plan for this morning's call.
First, I'm going to discuss the details behind our record first quarter 2018 financial results.
<UNK> will then comment on the key drivers behind our Q1 results and our plans for the remainder of the year.
I will return to provide our financial guidance for the second quarter and an update to the full year 2018 guidance.
We will then end the call with a question-and-answer session where <UNK>, <UNK> and I will be available.
Now, before we begin, I would like to remind you that Mr.
<UNK>, Mr.
<UNK> or myself may make forward-looking statements during today's call, which are subject to risks, uncertainties and assumptions.
In addition, some of our discussion may include non-GAAP financial measures.
For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements and reconciliations of non-GAAP financial measures, please see the company's public filings, including the Form 8K filed today, which are available on our website.
Now, let's discuss the details behind our strong first quarter results, in which we achieved record highs of $1.41 in adjusted EPS, a 53% increase over Q1 of 2017, and adjusted EBITDA of $84 million, an increase of 34%.
These better-than-expected results were driven by outperformance in both worksite employee and gross profit growth.
Average paid worksite employees increased 12.2% over Q1 of 2017, above the high end of our forecasted range.
This quarter's growth was driven by both the high level of client retention during our heavy Q1 client renewal period and continuing strong sales.
Client attrition totaled only 8% during the quarter and an improvement over Q1 of the prior year and now our fourth year in a row where attrition has come in substantially lower than our previous historical first quarter trend of 11% to 13%.
Worksite employees paid from new sales increased by 23% over the first quarter of 2017 on a 15% increase in the average number of trained Business Performance Advisors.
Additionally, net hiring by our client base improved over recent historical trends.
An increase of 25% in gross profit over Q1 of 2017 was driven by the 12% worksite employee growth and favorable results achieved in each of our direct cost areas, particularly in the benefits area in which costs per covered employee declined slightly from Q1 of 2017 compared to a budgeted increase of approximately 2%.
As per our first quarter operating expenses, we continued to make planned investments in our growth, including growth in the number of Business Performance Advisors and new sales offices; our high-touch, high-tech service offering; and our technology infrastructure, security and development.
We managed these investments and other G&A costs below budgeted levels.
We additionally paid out the onetime tax reform bonuses to employees and accrued for additional incentive compensation tied to our outperformance.
Our effective tax rate in Q1 came in at 23% and, as expected, was favorably impacted by the recent Tax Reform Act.
Also, keep in mind that our Q1 tax rate is typically lower than our full year rate due to the tax benefit associated with divesting of long-term incentive stock awards.
For the remaining quarters, we are estimating a tax rate of 28%, which then equates to a full year rate of 26%.
As for our balance sheet and cash flow, we ended the quarter with $87.5 million of adjusted cash and have $245 million available under our line of credit.
During the quarter, we repurchased 131,000 shares of stock at a cost of $8.6 million and paid $8.4 million in cash dividends.
Now, at this time, I'd like to turn the call over to <UNK>.
Thank you, Doug.
Today, I'd like to provide some commentary on 3 topics, including: #1, our substantial outperformance in Q1 and the strong momentum we've established; #2, the key drivers of our growth acceleration, giving us confidence in our plan for the balance of the year; and #3, our strategic initiatives forming our new 5-year plan.
This quarter was exceptional as nearly all the key metrics in our business model were positive.
The first quarter of every year sets the foundation for the full year in our cumulative residual income business model.
This incredibly strong Q1 in 2018 paves the way for a fourth consecutive year of growth in adjusted EBITDA at very impressive rates.
Adjusted EBITDA grew at 31%, 28% and 26% in 2015, '16 and '17, respectively, and our guidance for this year is now an increase to a range of 23% to 25% on this metric.
This clearly demonstrates our capability to perform consistently as a high-growth company and capitalize on our dynamic market opportunity.
This strong quarter was the result of a very successful year-end transition in new and renewing accounts.
This strength was evident in new sales, client retention and pricing and allowed us to start the year with tremendous momentum.
New sales in the first quarter came in at 118% of budget and 19% ahead of last year, filling the pipeline for paid worksite employee growth in Q2.
Sales efficiency actually increased slightly in spite of accelerating our growth rate in the number of trained Business Performance Advisors to 15% over the same period.
This is certainly a credit to our sales training, sales management and marketing efforts.
As Doug mentioned, client retention was exceptional in Q1 as we came through the heavy renewal period at 8% attrition, below last year's level of 8.3%.
This puts us on track for another excellent full year retention number in the range of the last few years of 84% to 86%.
The other major highlight of the first quarter was the gross profit outperformance due to solid pricing, coupled with all 3 primary direct costs coming in below expectation.
The ongoing management of these programs provides cost stability for clients and a management fee contributing to Insperity's gross profit.
So we have the benefit of strong momentum, which we expect to translate into continued growth acceleration over the balance of the year.
In our model, the front end of the ship is the number of trained BPAs.
Historically, the growth rate in worksite employees follows the growth rate in trained Business Performance Advisors within a year or so, subject to a plus or minus from our mid-market division.
We finished the first quarter with 500 total BPAs and recent sales activity levels and efficiency rates give us confidence that the core sales engine is likely to continue to perform very well.
Since attrition rates are typically less than 1% per month from April through the year-end, we would expect growth acceleration over this period.
Our mid-market division in our model is considered an opportunity for a premium to our growth rate, but on the flip side, the loss of large clients can also be a drag on the growth rate.
You may recall that last year we had our largest client acquired by a larger company midyear, eliminating the need for our service, and this caused a drag on our growth rate of approximately 1.5% for 2017.
This year, we expect the opposite effect as we are seeing some real traction in our mid-market sales effort.
Our pipeline of mid-market accounts already sold and, in the queue, to be paid in Q2 or Q3 is very strong.
When you layer in these additions, we expect worksite employee growth rates of 14% to 15% over the last half of the year.
So for the full year, we're comfortable raising our guidance for worksite employee growth from a range of 11.5% to 13.5% to 13% to 14%, bracketing the high end of our previous range.
Another reason for our confidence is the market receptivity we have seen in the introduction of Insperity Premier, our HCM technology platform designed to facilitate the co-employment relationship.
This industry-leading technology has been very well received by clients and prospects, helping to retain current clients and win new business.
Now that the platform is in place, we'll be releasing new features and functionality to continue to set the bar in providing technology that drives desired outcomes when combined with our HR expertise and our software with the service model.
Our 2018 roadmap will highlight the power of our co-employment solution while delivering industry-leading HCM flexibility.
Soon, we will introduce a series of usability improvements, making it faster and easier to accomplish key responsibilities, including a task box, bringing forward workflow notifications and approvals, collecting the most urgent and important tasks like to the default home dashboard.
In addition to our recently rolled out fingerprint and facial recognition log in on the mobile app, we will also provide an expanded number of personnel preferences such as adding a photo to the profile and selecting a preferred landing page.
We will also introduce self-service configuration capabilities and an interactive employee directory, leveraging our OrgPlus technology.
This powerful data visualization engine will allow clients and managers to view a wide array of information within an organization chart from payroll and time and attendance data to performance and benefits information.
The point is Insperity Premier is already an amazing HCM platform, but with our development capability, combined with the collaborative client and worksite employee interactions, our customer experience will only get better and better over time, cementing our client relationships.
These technology advancements are strategic investments that not only improve the customer experience, but also play a key role in our efforts to gain efficiency in serving clients and controlling operating expenses.
Last quarter, I mentioned we completed a 5-year plan over 3 years from 2015 to '17 and formulated a new plan late last year.
This quarter, we have communicated this plan to leadership across the company and we are aligned around our theme of one Insperity.
Our 5 major initiatives, which we expect to drive our desired results over this period, are growth acceleration, operational excellence, technology leadership, risk optimization and talent development.
As you can tell from our first quarter results and our revised guidance, we are well underway on these stated priorities, especially growth acceleration, operational excellence and technology development.
What's less apparent is the progress we are making on the last 2 initiatives.
A major element in our 5-year plan is our expansion into the traditional employment solution space.
We intend to offer Workforce Administration as the most comprehensive traditional employment solution in the marketplace, mirroring what we have accomplished in the co-employment space.
We believe offering Workforce Administration side-by-side with our Workforce Optimization offering and right upfront in the sales process will be a growth accelerator for Insperity.
As we continue to ramp up our efforts in this area, we believe our business model will be enhanced in several ways, including increased sales efficiency, greater contribution to gross profit and higher client retention.
In addition, traditional employment solution sales will not come with the same type and level of risk as our co-employment offering.
This is central to our risk optimization strategy within our 5-year plan.
The most critical initiative in our 5-year plan is to continue the recruiting, development and retention of top talent to support our substantial growth.
We will continue to focus on leveraging our dynamic corporate culture, which drives our resiliency to overcome obstacles, and the strong execution we have seen over recent years.
Over the last 3 years, we've returned nearly $400 million to shareholders through dividends and share repurchases and our ranking in total shareholder return among our peer group is #1.
Our primary objective in our new 5-year plan is to continue this pattern of success into an extended period of outstanding results and exceptional total shareholder returns.
At this time, I'd like to pass the call back to Doug.
Thanks, <UNK>.
Now, before we open up the call for questions, I'd like to provide our financial guidance for the second quarter and an update to our full year 2018 forecast, which includes top and bottom line growth significantly above our initial budget.
As <UNK> just mentioned, we are now forecasting full year growth of average paid worksite employees in a range of 13% to 14%.
This is up from our initial guidance of 11.5% to 13.5% due to the strong start to 2018 and continuing sales momentum.
We are forecasting Q2 worksite employee growth in a range of 12% to 13% and continued acceleration over the remainder of the year based on the number and sales efficiency of our trained Business Performance Advisors and continued success in our mid-market area.
We are increasing our earnings guidance based upon the outperformance in Q1 and an improvement in our outlook over the remainder of 2018 driven by the higher worksite employee growth rate.
While the first quarter's results included some upside from favorable direct cost trends, we intend to take our typical approach to conservatively forecasting our benefit and workers' compensation costs over the remainder of the year.
Our forecasted operating expenses include those costs associated with our initial 2018 operating plan, along with incremental costs tied to being ahead of our plan, which include a higher number of Business Performance Advisors, higher sales commissions on more paid worksite employees and higher incentive compensation costs tied to our outperformance.
We are now forecasting full year 2018 adjusted EBITDA in a range of $218 million to $223 million, an increase of 23% to 25% over 2017 and up approximately $20 million over our initial guidance.
As for Q2, we are forecasting adjusted EBITDA of $41 million to $43 million, which, as expected, is down sequentially from Q1 due to the typical seasonality in our gross profit.
We are forecasting full year 2018 adjusted EPS of $3.36 to $3.44, a 37% to 40% increase over 2017.
Q2 adjusted EPS is projected in a range of $0.59 to $0.63, an increase of 44% to 54% over Q2 of the prior year.
In conclusion, we are very encouraged by a strong start to our year and we look forward to updating you on our progress throughout the year.
Now, at this time, I would like to open up the call for questions.
(Operator Instructions) Our first question comes from the line of Jim <UNK>, First Analysis.
So just trying to get a feel.
It sounded like, Doug, that your increased guidance is mostly related to the strength in hiring, not assuming the direct cost programs will continue at the rate that they did in the first quarter.
Right.
We intend to ---+ we are, right now, our BPAs are out there.
Our first ---+ what we call our first call brochure or discovery call brochure has both bundles in the graphic side-by-side.
So we do introduce the options right upfront.
However, our Business Performance Advisor, once they gather information, they're going to go back and make one recommendation, one bundle, and then further customize that bundle with other business performance solutions that we provide that make it even a better fit for an individual client.
So they will go back with the recommendation that they feel is right for the customer.
And so, over time, what we will be doing is growing both of those.
And like I've been saying, the ---+ when you put them side-by-side and discuss it, then you're able to talk to what are the advantages of one or the other and what stage is that company at right now and what level of support do they need to start with.
And over time, we think there will be a channel between people coming on in Workforce Administration and us working with them in that model for a while and then migrating to Workforce Optimization.
So we think it ---+ we're hoping that it will not only increase Workforce Optimization sales over time, but also you'll get ---+ out of every 10 we see, maybe you'll get 2 or 3 Workforce Administration sales that will roll in next year into optimization.
So that's the game plan.
Sure.
The way we've designed the offering to work, we've kind of positioned it in the marketplace strategically based on what we put into the bundle based on what the market demand is and then we price it in a way so that it mirrors what we're doing in Workforce Optimization, the co-employment model.
We wanted it to be the most comprehensive business solution in the traditional employment space.
But how it compares between the 2, we've tried to position it where it's approximately 40% of the value to Insperity to sell a Workforce Administration deal compared to a Workforce Optimization deal.
And we've tried to make the same, like, for example, the benefit to a BPA in terms of their commission, how valuable is the sale of WA for them.
We also wanted to be around 40% so that the emphasis remains on Workforce Optimization, but you're not going to pass up a Workforce Administration sale.
So I think we've got that right now.
We do need enough repetitions and enough volume to see how that's going to come out and that's why it will be a little while before we have all that pinned down.
And we'll be share ---+ we'll be telling you more about that.
Sorry.
I was going to say the good news is that, from a risk perspective, that's just ---+ there is no risk associated with those ---+ with that margin.
I think it's too early to tell.
Yes.
It's too early to tell, but we're ---+ it's additive.
If it changes ---+ we look at everything as a per worksite employee basis and we'll be looking at that as well as how ---+ right now, how we roll all those numbers together, but we think it's really significant in a lot of ways.
I'm not going to call it a silver bullet, but it is one initiative that affects a lot of different things: Sales efficiency, your profitability in the model, your retention.
There's just a lot of things that it can help move along.
Right.
It's a good question.
And this is why we're carefully implementing here.
And you have other factors going on with the high growth of that organization, which normally is a drag on your sales efficiency if you weren't trying to do something new.
So we're being careful about that.
And as we reported here for Q1 and for last year, we maintained the same level of sales efficiency we had the year prior, even though you ramped up the number of BPAs.
Then we get to the first quarter, not only did it ---+ you ramped up a little faster, but your sales efficiency was slightly higher.
So that's just a really good sign that we're ---+- all those other pieces that make that happen, which are the DMs, the district managers doing their thing really well; along with the sales training, really equipping the BPAs to be successful, like <UNK> was talking about earlier, and faster; and then also having the marketing programs that are serving up qualified leads so that the way people are using their time is more efficient.
So all those factors' a part of it.
Now, you will start to weigh in another one, which is how we have brought in this new offering and creating the option for both the BPA and the customer as to which bundle to start with.
So we like the way that's going now, but it's really hard to predict.
How much more sales efficiency will we be get out of it.
Not sure yet.
It just will take a little time.
Yes.
I don't have specific cases where I can say, yes, that made the difference, but I got to tell you, as we've been looking around here, we've always had ---+ you talked about the cadence in sales.
We've always had the really strong fall campaign selling season.
We just had a district managers' meeting here.
In several of the discussions, it was like ---+ we just rolled from fall campaign into the new year and it still feels like fall campaign.
So this issue of does this even out over the year because of the no double taxation, there may be some of that behind it, but I don't really have specific mid-market accounts where we see that made the difference.
Yes.
Trained BPAs were up like 15% for the quarter and total is at just a little higher than that, like 16%.
And just tweak it up as we can and as it ---+ it's in an opportunistic fashion.
We're not saying it has to be 18% by such ---+ or whatever.
We just know that when you ---+ this time, it's creeping up more because of retention.
And so we'll continue the hiring rate and we can ---+ as long as we can bring on BPAs, really have them trained up well, have them reach a level of efficiency in about the right time frame and we can provide enough leads for everybody, well, then it makes sense.
Well, as you know, you run on your service capacity, but we're not anywhere near that.
We got to be ---+ we are also paying close attention to that because you really have to make all those pieces fit.
There's a balance to that.
We're not trying to grow 25%.
We're just saying that we're in a really nice range now where you can modulate up a little bit and get a lot of benefit at the bottom line.
This quarter was an example of how when you have ---+ across the metrics, if everything is ---+ comes in near the higher end of the range, it really all ---+ glows out the numbers at the bottom.
So they don't always work that way, but nicely done.
Thanks, Tobey.
I'll miss this part.
Right.
We look at our total addressable market of about 70 million worksite employees out there when you basically size companies from 5 or 10 employees up to about a couple 3,000, maybe 5,000 employees.
And what I think we're doing with Workforce Administration is just creating another option and entry point for more of that market to come in earlier than they may be otherwise would have.
I think we can really well serve a much larger portion of that addressable market with the approach that we're taking.
And so it's both ---+ it doesn't make the addressable market that will be responsive to us.
I think it really increases that.
And so it flows into the pace of our growth.
We've always balanced growth and profitability.
But when you are growing and can kind of be on the top end of your range or a little at ---+ a little above that range on growth, a little extra growth really adds a lot to the model.
Yes.
So this quarter, our ---+ we actually ended up at ---+ with about, I guess it was ---+ we're about $13 million.
Right.
I mean, the way I'd answer that is the larger piece of the upside in the gross profit area was in the benefits area.
And we had ---+ again, we had budgeted about a 2% increase as our health care trend.
It came in as a decline of about 1.5% or so.
And so that was outside of the growth in the worksite employees within the gross profit area.
The biggest contribution was out of the benefits area.
Yes.
That's a great question.
I do think that, just in the big picture of market receptivity and kind of the adoption curve, if you will, even though it's taking a long time to get to this point, I believe that the combination of the federal law being passed and just the growth of the industry, I really think that we're in a kind of across the chasm, if you will, if you're familiar with that concept of market adoption and receptivity, but we have definitely crossed the chasm.
I think we're getting ---+ mid-market is a good place to look at the receptivity and how it's changed.
I also think when you look at awareness and actual preference to do businesses away from folks like private equity firms where you're able to start to have some real productive channels to bring business on.
So a lot of things we're working there, that I think, can help with the momentum.
This is really what I'm talking about, about momentum and we have that.
It really gets to be fun now.
On the issue of large customers and whether they prefer co-employment or traditional, we have found ways to have our co-employment model provide more flexibility than we used to.
And large customers used to feel pretty restricted or constrained in that model, but our folks have done a great job on the service model.
The feeling as a customer now, as a mid-market customer, is very customized, very ---+ they've ---+ we know they're unique.
They know we know they're unique and we fit the service model to really help them.
And so we have large customers choosing co-employment.
So it's kind of the same kind of dialogue.
So it's not ---+ I don't look at it as the bigger you are, the less likely you will choose co-employment.
That's not what the numbers tell us today.
Okay.
Well, first of all, if we go back to the fall of last year, there was a lot of discussion and dialogue with our primary care, UnitedHealthcare, talking about that they were expecting a rather difficult flu season.
And so we, taking their guide, lead to try to forecast some of that into our experience for the first quarter.
And as they reported a week or so ago, it didn't happen for them.
So obviously, we were kind of in that same boat and so we didn't have near the utilization.
We are seeing, when we look at their detailed metrics in the plan, the medical side, our trend was actually negative this quarter.
The pharmacy utilization was actually lower than what we had forecasted as well.
So both of those fronts were good.
When we look at all the detailed metrics like the ---+ what ---+ hospital days and stays and all that kind of stuff, which we use all that to help our own forecasting, it's all positive.
And so it's just across the board.
But it is what it is.
And when you think about that going forward, you can't bake that into a future quarter because you just ---+ you don't necessarily know how the utilization is going to play out.
So we maintained a conservative approach, as Doug said, by forecasting that at the levels that we had previously.
When we started this year's budget, we just left those in place for our forecast at the gross profit line for the balance of the year.
And if it turns out better, then great.
Yes.
You wouldn't expect the negative trend for a whole year.
No.
That would ---+ no.
You can't bake that in.
Once again, we just want to thank everybody for joining us today and appreciate your interest.
And we look forward to continuing to produce some exceptional results.
And hopefully, we'll see you out on the road.
Thank you very much.
Have a great day.
| 2018_NSP |
2016 | RGEN | RGEN
#Yes, I think that's the right way to think about the year.
Sure, sure.
So first and foremost, we are going to continue to reinvest in the business to support the future growth that we are expecting to see.
Also I think of equal importance really is M&A and we continue to be active on the M&A front looking for opportunities and that's a really, really high priority for us next year.
We will be reinvesting in CapEx as we talked about and ---+ but that will be not significantly above where we were at this year, but a little bit above this year.
Yes, <UNK>, absolutely.
So I think one of the things that really has helped us in 2015 as we go into 2016 is the expansion of the commercial organization.
So we've been able to now broaden our customer base in both the US and in Europe and we are seeing an uptick in Asia as well.
Really pulled through from the strength that we have in ATF.
So as we broaden the customer base, the opportunities to get into more processes and to ship multiple columns is absolutely the case.
So when we look at our top customers, it's not one or two columns, it's probably 5 to 10 columns per year that we are shipping to those sites.
And as I said a little earlier, it depends a little bit on the number of campaigns that a customer would run in a given year.
So if you are a CMO, there's kind of a fixed set of campaigns they run.
When you start to get into the large pharma accounts, clearly if we can move into their preclinical Phase 1/Phase 2 opportunities, the number of columns goes up significantly.
So we are pretty pleased, <UNK>, as we've kicked off this year that we have a number of customers now that are asking about going 100% committing to our pre-packed columns.
So that's exciting for us and that's what's spearheading our investment in man capacity and physical capacity for OPUS.
Yes, I think it's ---+ obviously the distributors that we've brought on have worked out really well for us and we've put Repligen people into Asia as well and that's also played a big part in our success in 2015.
It's clear to me that we need to continue to add more people into Asia and we think that the right balance of applications people to support the customers, especially on ATF evaluations and implementation, is probably our number one priority.
So we will be looking at China and Korea as the two areas where we want to add in the applications people and additional salespeople.
We have a very strong distributor in India and so we think we can manage that territory quite nicely through the folks that we have on the ground right now.
So for us, the biosimilar story is really strength in the biologics market, so whether it's an originator molecule that moves through Phase 3 into approval or it's a biosimilar, we are agnostic because, from a Protein A ligand point of view, it's purely a volume play and so we will ship to our top two customers in GE and Millipore the same amount of ligand to do a purification of a biosimilar as it would be to do the purification of an originator molecule.
So we like the fact that the biosimilar market continues to mature and it's exciting to see biosimilars coming through now for final approval and I think that's going to help the overall growth in the market going forward.
Yes, that's a great question.
So I'd say since mid-2015, I've personally been very focused on driving the M&A strategy for the Company and I think we've made a lot of progress.
We have an active pipeline of targets that we are working with.
I can't really speak to timing of when a deal may or may not get done, but we are making progress.
I don't think it's an issue ---+ every company that you deal with, there's always a valuation piece, but I think it's just a matter of getting the targets that we are interested in in getting deals done with to a point where they are comfortable with getting a deal done with Repligen.
And that's really what we are working towards and it's our strategic priority for this year and our goal is to get some deals done this year for sure.
Sure, sure, so I will touch on the Refine question first, the contingent consideration.
So we paid out ---+ it's a three-year program.
Obviously, we paid out in the first quarter of 2015 a $1 million earnout that occurred for the 2014 year.
In the 2015 year, we achieved the full maximum amount of payout and we will be paying out another $4.35 million in the first quarter of 2016.
We accrued $2 million towards the 2016 milestone in Q4 and there are additional amounts of about $2.25 million to $3.55 million that we could pay out if our sales actually hit the lower end to the high end of the milestone schedules.
So we can't really say right now whether we are going to hit those milestones or not, but right now we are accrued to about 48% of the lower end of the milestone, which gives you the level of confidence that we think we will be able to hit that milestone.
In terms of cash flow, we guided basically a few minutes ago that we have a good solid forecast for next year and we expect to generate about $13 million to $15 million of free cash flow and spend about $3 million to $3.5 million obviously in CapEx.
So a total next year finishing around $87 million to $89 million is our expectation.
Obviously that excludes any M&A activity.
| 2016_RGEN |
2018 | SWX | SWX
#Thank you, Lateef.
Welcome to the Southwest Gas Holdings, Inc.
2017 Earnings Conference Call.
As Lateef stated, my name is Ken <UNK>, and I am the Vice President, Finance and Treasurer.
Our conference call is being broadcast live over the Internet.
For those of you who would like to access the webcast, please visit our website at www.swgasholdings.com and click on the Conference Call link.
We will have slides on the Internet, which can be accessed to follow our presentation.
Today, we have Mr.
<UNK> <UNK>
<UNK>, President and Chief Executive Officer; Mr.
<UNK> <UNK>
<UNK>, Senior Vice President, Chief Financial Officer; and Mr.
<UNK> <UNK>
<UNK>, Vice President of Regulation and Public Affairs; and other members of senior management to provide a brief overview of 2017 earnings and an outlook for 2018.
Our goal ---+ our general practice is not to provide earnings projections, therefore, no attempt will be made to project earnings for 2018.
Rather, the company will address those factors that may impact this coming year's earnings.
Further, our lawyers have asked me to remind you that some of the information that will be discussed contains forward-looking statements.
These statements are based on management's assumptions, which may or may not come true, and you should refer to the language in the press release, our SEC filings and also Slide 3 of the presentation today for a description of factors that may cause actual results to differ from our forward-looking statements.
All forward-looking statements are made as of today, and we assume no obligation to update any such statement.
With that said, I'd like to turn the time over to <UNK>.
Thanks, Ken.
Turning to Slide #4, I'd like to briefly overview some of our 2017 highlights.
From a consolidated results perspective, we achieved record earnings of $4.04 a share.
And while those results are certainly helped by the tailwind of tax reform, as we will talk about later in the call, even absent the positive impacts of tax reform, our consolidated earnings per share represented a new record.
We also increased our dividend for the 12th straight year with a 5% increase that our Board approved just this past week.
Shares of Southwest Gas Holdings will now provide an annualized dividend of $2.08 per share.
Also, at a special shareholder meeting that was convened in October of last year, our shareholders approved a proposal to eliminate cumulative voting and adopt a majority voting policy.
We're also able to acquire the 3.4% noncontrolling interest previously held by the owners of Link-Line Group, the predecessor of our NPL Canada construction unit.
Focusing on the natural gas segment, our 2017 operating margin increased by $23 million over the prior year.
We added 31,000 net new customers.
The total number of utility customers we serve across our 3 service territory reached the 2 million mark in November.
And we invested $560 million in capital to serve new customers and increase the safety and reliability of our gas distribution systems.
At our Centuri construction unit, our revenues exceeded $1.2 billion, a new record.
We amended our credit and term loan facility to increase our borrowing capabilities to $450 million.
We completed our acquisition of New England Utility Constructors, Inc.
, expanding our footprint into the Northeastern United States.
And NPL, the business unit under which most of our U.S. construction operations are conducted, celebrated its 50th anniversary.
Moving to Slide 5.
A few weeks ago, we announced the retirement of our esteemed Chief Financial Officer, <UNK> <UNK>, effective April 1.
I very much enjoyed working with <UNK> for almost 30 years and consider him to be a great strategic partner, especially over the past several years, as well as a friend.
He will be succeeded by Greg Peterson, who is our current Chief Accounting Officer and someone who has over 20 years of experience at Southwest Gas.
For those of you on the call who will be joining us at our April 4th Analyst Day at the New York Stock Exchange, you will have the opportunity to meet Greg.
Greg, in turn, will be succeeded by Lori Colvin as Chief Accounting Officer.
Lori has over 25 years of utility and public accounting experience, the past 18 years of which have been at Southwest Gas.
While we're sorry to see <UNK> leave, we're extremely happy to have a solid bench for the management team at Southwest Gas that supports orderly succession planning and that will give our investors the confidence and the quality financial reporting and financial results that they've come to expect at Southwest Gas.
On Slide 6, we show an outline for our call today.
For today's call, <UNK> <UNK> will provide his last conference call overview of our consolidated earnings, along with the segment details for both the natural gas and construction services operations.
<UNK> <UNK> will follow with an update on our various regulatory activities.
And then I will close with an update on our customer growth and regional economic conditions, our capital expenditures and rate based growth, our dividend growth and our expectations for 2018.
With that, I will turn the call over to <UNK>.
Thank you, <UNK>.
Certainly appreciate the kind words and happy to finish my career with such a strong earnings year.
So today, I will provide a high-level review of our 2017 consolidated and business segment operating results, including explanations of significant changes between years.
I'm also going to spend a few minutes reviewing the impact of tax reform on our 2017 results as well as expectations for 2018.
Let's start with Slide 7.
In 2017, we earned $4.04 per basic share, an improvement of $0.84 over the $3.20 earned in 2016.
Net income grew to $194 million from $152 million.
Strong operating results were enhanced by $20 million of tax benefits resulting from tax reform as well as strong returns on our investments underlying company-owned life insurance or COLI policies.
Moving to Slide 8.
You can see that net income increased $41.8 million between periods, with $37.4 million of the improvement coming from our natural gas operations segment and $5.7 million from construction services.
Before getting into the results by business segment, let's review tax reform impacts beginning on Slide 9.
The Tax Cuts and Jobs Act was signed into law late December.
The Act reduces the federal income tax rate from 35% to 21% and for utilities, eliminates bonus depreciation and provides an exemption from limits on interest deductions.
For Centuri, we'll have an immediate and ongoing beneficial impact on financial results.
For Southwest Gas, we will experience reduced cash flows once lowered tax rates are reflected in customers' bills, but we'll experience higher rate-based growth on future capital expenditures due to lower deferred tax growth.
Slide 10 summarizes specific nonrecurring income statement impact in 2017 due to the reevaluation of net deferred tax liabilities.
At Southwest Gas, we recognized an $8 million benefit from a reduction in deferred taxes related to nonplant-related items, while at Centuri the benefit was $12 million related to the overall deferred tax balance.
Other noteworthy items are that Moody's and Standard & Poor's both recently reaffirmed our debt ratings, and 2017 cash flows were not impacted by the passage of tax reform.
Let's now turn to Slide 11 to review 2018 impacts.
At Southwest Gas, varying regulatory actions have been initiated by the state, which <UNK> <UNK> will review in a few minutes.
Our cash flows are not expected to be materially impacted.
However, this year, the effective tax rate is difficult to predict until regulatory outcomes and timing become clear.
And income statement line item variances may result from regulatory actions without impacting our bottom-line earnings.
At Centuri, we expect our effective tax rate to drop to around 27% or 28%, factoring in Canadian operations and state income taxes.
There will be no impact to interest deductibility, and longer-term retention of benefits of lower tax rates is difficult to predict due to the competitive nature of the bidding process.
We'll now move to Slide 12 to review financial results by business segment.
This waterfall chart identifies the major line item changes for the gas operations segment income statement.
Just want to highlight a couple of items.
We had strong growth in operating margin totaling $23 million, mainly due to the addition of 31,000 customers and the impact of rate changes in Arizona and California.
Depreciation and amortization and general taxes declined by $26 million due mainly to a reduction of depreciation rates in Arizona that became effective in April 2017.
Other income included COLI income of $10.3 million, which was $2.9 million greater than last year and well above our expected range of $3 million to $5 million.
And finally, as noted, tax reform resulted in an $8 million benefit.
Let's turn to Slide 13 and construction services segment.
This slide provides the summary waterfall chart reconciling contribution to net income between 2016 and 2017.
Revenue growth was quite strong, increasing $107 million or 9% year-over-year.
About $30 million of the increase came from a relatively new contract to replace water lines and $17 million from the November 2017 acquisition of Neuco.
The remainder was principally from additional work with existing customers.
Construction expenses and depreciation combined for a net increase of $118 million or 11%.
Consequently, our operating income was 3.9% of revenue compared to an expectation of nearly 5%.
The 2 principal causes of low rate of return were: the temporary work stoppage earlier in the year with one of our larger customers and losses incurred on the water replacement project.
Most of our other operating areas ---+ or major operating areas performed at or above expectations.
Regarding the water contract, we remain in negotiations with the customer to get relief in the form of modified terms or additional cost recovery and are hopeful a resolution will be reached soon.
Finally, tax return ---+ reform was a significant positive factor accounting for 31% of 2017 net income.
Looking ahead to 2018, we expect Neuco to be a significant contributor to our revenue growth and are optimistic of a return to more customary operating profit levels.
With that, let me turn the time over to <UNK> <UNK> to provide a regulatory update.
Thanks, <UNK>.
As highlighted on Slide 14, I will be providing an overview of our various regulatory initiatives, including an update on rate case activity, tax reform proceedings, infrastructure tracker programs and several expansion projects.
Let's start with an update on rate case proceeding and planning activities on Slide 15.
With the Arizona Corporation Commission's decision last April, our operating income was positively impacted by approximately $45 million in 2017, and we still have 1 quarter of rate relief remaining before we have ---+ will have realized the full 12-month benefit of Arizona rate case.
As such, following the conclusion of the first quarter of 2018, we should have a better picture of the contributions the Arizona rate cases had on closing the gap between our authorized and earned rates of return.
Turning to Nevada, we're currently preparing our Nevada rate case and plan to make a filing before June of 2018, with new rates expected to become effective by January of 2019.
With respect to California, we're on a 5-year rate case cycle, which means we were scheduled to file a rate case this past year since our last rate case was filed in 2012.
However, the Commission granted a 2-year extension so that we're now targeting September 2019.
In the meantime, we will continue to make our annual adjustments to margin through 2020 as part of our annual 2.75% attrition filing.
In fact, for 2018, we were authorized to increase revenue by $2.7 million beginning January of this year.
Turning to Slide 16.
We wanted to provide an overview of where we stand in terms of working with our regulators to ensure a fair and balanced approach to passing tax reform savings back to our customers in a timely manner.
With respect to Arizona, the Commission issued an order in February authorizing regulatory accounting treatment to track all impacts resulting from tax reform.
The Commission also directed utilities to make a filing within 60 days requesting approval of 1 of 3 things, a Tax Expense Adjustor Mechanism, and attempt to file our rate case within 90 days or some other application to address ratemaking implications of tax reform.
We're currently working with our stakeholders in Arizona and plan to make a filing in response to the Commission's directive later this month.
In Nevada, just last week, the Commission opened an investigatory docket and requested utilities file comments by April 4th outlining their respective plans to pass on any savings to customers associated with tax reform.
Similar to Arizona, we plan to continue ---+ we plan to file our written comments in a timely manner and will work collaboratively with our stakeholders.
With respect to California, as I mentioned previously, last year we were granted approval to extend our rate case cycle by 2 years.
As part of that approval process, the Commission authorized the establishment of a regulatory accounting treatment in the form of a memorandum account to track impacts associated with future changes in tax law, procedure or policy.
As a result, we do not anticipate any regulatory filings in California prior to our currently planned rate case.
And lastly, with respect to our FERC regulated pipeline, Paiute, we have not received any direction from FERC regarding tax reform.
Turning to Slide 17.
We continue to focus on maintaining infrastructure recovery mechanisms in each of our jurisdictions to timely recover capital expenditures associated with Commission-approved projects that enhance safety, service and reliability for our customers.
In Arizona, we have 2 such programs.
First, our COYL replacement program.
To date, we've invested approximately $54 million in this program and have been able to make annual filings to recover our cost in a timely manner.
You may recall as part of our recent rate case, we moved the previously approved COYL expenditure of $23 million into rate base, and the cost recovery is now incorporated into our base rates.
So the current tracker has effectively been reset as of January 1, 2016.
Presently, we're collecting margin of $1.8 million based upon 2016 capital expenditures of approximately $12 million.
Yesterday, we filed our annual report with Arizona, requesting to increase our surcharge revenue from $1.8 million to $4.2 million based upon cumulative capital expenditures of $30.9 million, $18.8 million of which was invested in 2017.
Turning to Slide 18.
In addition to our COYL program, we were granted approval in our last rate case to start a vintage steel pipe replacement program so we can start chipping away at replacing the approximately 6,000 miles of VSP in Arizona.
Similar to COYL, we made our first VSP annual report filing yesterday, requesting to establish a surcharge in the amount of $3.1 million to recover the costs associated with the 40 miles of replacement VSP work that we were able to get started on last year, given the ACC's April decision on our rate case.
We also met with the Commission staff last fall to review projects eligible for replacement in 2018 and are currently targeting approximately $100 million of replacement work for completion in 2018 as we start to ramp this program up going forward.
We expect decisions on both Arizona filings in time for rates to become effective by June of 2018.
Turning to Nevada, on Slide 19.
Since 2014, we have received approval to replace over $180 million of qualifying replacement projects through our GIR program, including the recently approved $66 million worth of projects targeted for replacement this year.
We also recently received approval on our 2017 rate application authorizing the increase in surcharge revenue from $4.5 million to $8.7 million, an increase in incremental margin of $4.2 million for 2018.
New rates became effective last month and with this approval, we have been authorized to recover over $18 million in margins since the inception of the program.
Turning to Slide 20.
In addition to our 2018 Paiute expansion project and our Southern Arizona LNG facility, both of which continue to make progress in line with our expectations, we recently made a filing with the Public Utilities Commission of Nevada requesting to extend our facilities to Mesquite, Nevada, which is currently an unserved area of Southern Nevada.
Our proposal includes an approach main and a distribution system consisting of approximately 44 miles of pipe and will require an initial capital investment of $30 million.
Included in the filing is a proposal to help Mesquite residents access this distribution system by distributing cost recovery for these localized cost among Mesquite customers to help make access more affordable.
We held consumer sessions on the filing yesterday.
Intervenor testimony is due next week, and hearings are currently scheduled for the first week of April.
We expect a final decision by the end of May or early June as the regulations require a Commission decision within 210 days of filing the application.
We are looking forward to continuing to work with all stakeholders on this initiative to ensure a successful outcome.
And with that, I'll turn it back to <UNK>.
Thanks, <UNK>.
Turning to Slide 21.
You see a table detailing our customer growth over the past few years as well as our expectations for the next several years.
As I mentioned at the outset of the call, we added 31,000 net new customers this past year and anticipate continued customer growth in the next few years of approximately 1.6%.
On Slide 22, we see a variety of metrics illustrating robust economic conditions throughout our service territories.
Unemployment rates declined across the board year-on-year while job growth continued in an accelerated pace.
Moving to Slide 23.
You see that our continued investments in our gas distribution systems to serve growth and increase safety and reliability have resulted in our gas utility plant growing at a 6% compounded annual growth rate over the past several years.
Gas utility plant totaled $6.6 billion at year-end.
Turning to Slide 24.
We provide a breakdown of our capital expenditures for the next few years.
As you can see from the graph, a significant and growing portion of our capital investment is receiving supportive regulatory treatment from our state regulatory bodies through the provision of the infrastructure tracking mechanisms detailed earlier in our call by <UNK>.
Over the coming 3-year period, we expect to invest upwards of $2 billion in our gas distribution business to improve safety, serve growing markets and raise the high bar we have for customer service.
On Slide 25, we show a detailed illustration of how our ongoing capital expenditures impact rate base.
Roughly speaking, we anticipate our rate base to grow by over 12% over the next 3 years, reaching $4.5 billion at the end of 2020.
On Slide 26, we provide a graph illustrating the growth in our dividend.
Southwest Gas Holdings has realized a 9.5% compounded annual growth rate in its dividend since 2013.
And as I mentioned at the outset of our call, just this past week, our Board approved an increase in our annual dividend to $2.08 per share.
Moving to Slide 27.
We provide a list of factors that will influence results of our business moving forward into 2018 and beyond.
On the utility side of our business, again, we anticipate continued robust customer growth of approximately 1.6% across our service territory.
Our growing capital expenditures will require some additional financing activity.
We will continue to observe incremental Arizona rate case revenue in 2018, given the April effectiveness date of our last order.
Pension expense will rise due to lower year-end interest rates.
And our effective tax rate for utility operations will become clearer as we proceed through some of the state regulatory proceedings that <UNK> referenced.
While on the construction side of the business, our acquisition of Neuco is expected to drive continued revenue growth, as <UNK> mentioned.
Current cost recovery negotiations for our referenced water project had not been factored into our 2018 expectation metrics.
And lower tax rates, while generally beneficial, will likely increase the seasonal loss we typically experience in the first quarter of the year.
Turning to Slide 28.
Our 2018 expectations for our utility operations include the following observations: capital expenditures for the year are expected to total $670 million; operating margin is expected to increase by 2%; O&M expenses should increase by 2% to 3% plus the previously mentioned $8 million increased pension expense; depreciation and general taxes should be relatively flat; operating income is expected to be comparable to 2017 levels; COLI returns should range between $3 million and $5 million and will, generally, directionally track the volatility observed in the broader equity markets; and net interest deductions are expected to increase by $9 million to $11 million.
And then, finally, on Slide 29.
Our 2018 expectations for our Centuri Construction business include revenue growth of 5% to 7% over 2017; operating income that should average 5% to 5.5% of revenues; interest deductions of $11 million to $12 million; and the potential for some foreign currency fluctuation impact due to our Canadian operations.
With that, I'll return the call to Ken.
Thanks, <UNK>.
That concludes our prepared presentation.
For those who have accessed our slides, we have also provided an appendix of slides which includes other pertinent information about Southwest Gas Holdings, Inc.
and can be reviewed at your convenience.
Our operator, Lateef, will now explain the process for asking questions.
We don't predict that.
There's a slide in the back of our appendix, which is Slide 45, that kind of shows the ---+ what the historical ROE has been over the last few years.
I think with the information that we provided, including equity information there, that's something that could be computed once you calculate out your forecast of our net income.
You're talking about the utility income tax rate.
So because we have these ongoing discussions with our regulators, I think if you were to use the historical average rate of about 36%, you would get the appropriate net income projection for the utility business, given the other line item projections that we provided.
And that would only change if we moved ---+ if we got some different outcomes in those regulatory discussions.
So I think the ---+ I guess the way I would view it is that perhaps there's upside potential, but sort of the worst-case scenario is that we would have an effective tax rate equal to last year's.
Just to clarify that last question, it sounds like any benefit from lower tax rate you're going to book as a reserve until you get direction otherwise from the Commission.
That's correct, yes.
I think the effective rate, again, at least with regard to the bottom line projection, the use of 36%, that would be consistent with the other line item projections that we give.
And then cash flow might move around within that, okay.
And then any contracts that you signed at Centuri since implementation of tax reform, have you seen any margin pressure with customers looking to ---+ trying to get some of the benefit of tax reform.
At this point, we haven't signed any new contracts since tax reform has been implemented.
Every year, we have master service agreements that on average about 4 to 5 years in duration.
And so each year, we probably have 20% to 25% of our contracts come up for renewal.
At this point, we have not negotiated any renewal contract.
And I assume none of the legacy contracts have reopeners around tax changes or anything.
That's correct.
So one last question.
When do you expect kind of more clarity on the negotiations you're having with the overages on the pipe contract.
Yes, we really are hoping that in the next month or 2 that will happen.
There's provisions within the contract that state certain time frames that should occur if you have a contract dispute.
And those time tables would point towards something in the late first quarter, early second quarter.
And are these ---+ is this related to the work stoppage, or is this weather-related.
I'm just trying to remember the history here.
No, the work stoppage was with a different customer early in the year.
This is the water replacement work that we have going on.
Hey, this is actually <UNK>.
Can you just ---+ I just wanted a clarification on a couple things.
The last question with regard to the negotiations on the contracts with the construction business, what's this assumption that's put into your guidance directionally for the thing on Slide 29 with regard to the revenues in the operating income.
Is there an assumption that anything is done with those contracts.
Or that is ---+ you don't want to take a position at this point.
No.
We've just kind of assumed that things would continue the way they have been.
We're certainly trying not to accept any more work or very little work until we have resolution.
But we didn't try to project in there any kind of recovery level.
So again, I guess I would view that as maybe modestly conservative but until we have something, we don't want to try to predict.
Got you.
And then on the gas operations.
I'm still a little confused because there's a ---+ it's just a lot going on, and we're trying to get to sort of the bottom line here.
So if I just walk through all the components, everything in operating margin could be up or down based on how tax reform is reflected, I assume, because the pass-through of taxes, is that how I should think about it in the future.
Yes.
I guess, <UNK>, we recognize that it\
Okay.
Yes.
Can I just ---+ if I think about it, so when I look at ---+ so when I ---+ I guess the top ---+ until operating income ---+ it could be plus or minus but the operating income you're saying is flat.
So if I look in the appendix section, that's flat.
The COLI is the $3 million to $5 million, I add that, I subtract the net interest deductions of the $9 million to $11 million and then that brings me to the pretax amount.
And then on that pretax amount, you're saying I tax effect that at the 36% and then I get to net income, or should it be a number ---+ an effective tax rate below 36% that's closer to the tax reform number.
So let me clarify 2 things.
One is that COLI does not have a tax impact because it's recorded without taxes as an insurance item.
But other than that, you would compute a pretax income and use the 36% effective tax rate.
Okay.
So you're ---+ so what you're guiding to this year is do that math, tax effected at 36%, and that's your net income, essentially.
Yes, for the gas segment, that's correct.
We have a little bit lower tax rate, if you recall, on the Centuri side.
On the Centuri side, okay.
On Centuri, we're ---+ I don't think ---+ we may not have made that clear.
I think I just mentioned it, but we're estimating a 27% and 28% effective rate over there.
So they would benefit immediately from the 21% plus state income taxes brings it up to about 27% or 28% kind of number.
Okay.
Then your return, it looks like ---+ is your return on equity ---+ then your return on equity is not going up.
Is that effectively what you're saying, the return on equity is not going up in 2018 for the construction business.
I'm just trying to get a guide.
You're trying to give us all the inputs and the output, it's not clear what the output's supposed to be, I guess is what I'm getting at.
So I just want to make sure that I'm hearing exactly what you're trying to say.
I don't think we've said anything about return on equity, for starters but particularly at Centuri, we don't really calculate a return on equity there.
We calculate a total company return on equity, and we calculate a gas segment-only return on equity.
Okay, I got it then.
Thank you, Lateef.
This concludes our conference call, and we appreciate your participation and interest in the Southwest Gas Holdings.
Have a good day, now.
Thanks.
| 2018_SWX |
2018 | CBB | CBB
#Thank you, and good morning.
I'd like to welcome everyone to Cincinnati Bell's First Quarter 2018 Earnings Call.
Today's call is being recorded if you would like to listen to it at a future time.
Before we start, let me remind you that our press release and presentation slides for today's call are posted on our Investor Relations website.
As previously announced and stated in the press release issued this morning, Cincinnati Bell changed its segment reporting to more closely align with our long-term strategy of building 2 distinct complementary lines of business.
Beginning this quarter, revenue in the Entertainment and Communications segment will be reported in the following 3 categories to highlight the success of our fiber investment: Fioptics, enterprise fiber and legacy.
To better reflect the strength in our recurring strategic IT services within the IT Services and Hardware segment, revenue will now be reported in the following practices: communications, cloud, consulting and Infrastructure Solutions, which was previously referred to as telecom and IT hardware sales.
Also as a reminder, the new revenue accounting standard was effective this quarter and, as a result, Infrastructure Solutions sales are now reported net of cost of goods sold with prior periods also being restated for comparability.
Now I would like to draw your attention to the Safe Harbor statement presented on Slide 2.
In our remarks this morning, we will be discussing forward-looking information.
Due to various risks and uncertainties, actual results or outcomes may differ materially from those indicated or suggested by any such forward-looking statements.
More information on potential risks and uncertainties is available in the company's recent filings with the SEC, including Cincinnati Bell's Annual Form 10-K report, Quarterly Form 10-Q reports and Form 8-K reports.
This presentation also contains certain non-GAAP financial measures.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available on our website.
With me on the call today is our President and Chief Executive Officer, <UNK> <UNK>; and our Chief Financial Officer, Andy <UNK>.
<UNK>'s comments today will recap highlights and the company performance for the first quarter of 2018.
Andy will then provide an update on our financial performance by segment.
Following the prepared remarks, Tom <UNK>, our Chief Operating Officer, will join <UNK> and Andy for a question-and-answer session.
With that, I am pleased to introduce Cincinnati Bell's President and Chief Executive Officer, <UNK> <UNK>.
Thank you, Josh, and good morning, everyone.
Thanks for joining us today.
We delivered solid performance this quarter as we continue to execute on our strategy of expanding our fiber network, while advancing our next-generation service-based IT products within our 2 distinct complementary lines of business.
Consolidated revenue was up 18% year-over-year and adjusted EBITDA increased $6 million, due to the increase in revenue and cost-out initiatives.
For the IT Services and Hardware segment, strong demand for UCaaS drove an 11% increase in communications revenue, and cloud services were up 8% compared to the prior year.
Also highlighted on the slide, we continue to win where we have fiber; more specifically, fiber-to-the-premise.
Fioptics revenue grew an impressive 13% year-over-year, adding another 6,200 Fioptics Internet subscribers during the quarter.
Moving on to Slide 6, I'd like to take a moment to highlight the progress we have made towards our strategic transformation.
In our Entertainment and Communications segment, we have built one of the densest and most competitively advantaged fiber networks in the country, spanning more than 11,000 fiber route miles and reaching more than 70% of the residential and commercial addresses in Greater Cincinnati.
As you can see on the slide, our fiber-to-the-premise penetration and churn metrics are far superior to the other Internet products we offer.
The reason is simple.
In neighborhoods where we have deployed fiber directly to the home, our Internet speeds and product performance are unmatched by the competition.
As previously discussed, the pending merger with Hawaiian Telcom is an extension of our fiber strategy and represents an opportunity to replicate our success in Cincinnati and another attractive market that is already big on progress on a fiber-to-the-premise strategy in Oahu.
We recently received approval from the Hawaiian Public Utilities Commission and continue to make progress with the FCC, as we expect the merger to close in the early second half 2018.
Moving to our IT Services and Hardware segment.
I am pleased to report the integration of OnX is progressing as planned, and we are now reporting revenue by our 4 product practices to highlight the strength and growth in our recurring contractual IT services.
Before moving to the quarterly segment results, I'd like to spend a moment describing each practice.
Historically, our initial point of entry with the customer has been our Infrastructure Solutions practice.
This group offers a complete portfolio of equipment and software tailored to our customers' organizational goals, creating a platform for buyer engagement and a bridge towards recurring revenue streams through the migration towards other services beyond the simple hardware sale.
The consulting practice provides hands-on IT expertise by sourcing more than 850 IT professionals to address businesses' technology needs, including IT staffing.
These talented individuals become the on-site representation of our company and have the opportunity to become the trusted advisors to our clients.
Moving further up the value chain, our cloud services include the design, application transformation, implementation and ongoing management of the customers' infrastructure, which includes on-premise, public cloud and private cloud solutions.
Our team's build and design solutions, using either the customers' existing infrastructure or new cloud-based options that change the way that our customers do business.
Similar to our cloud offering, the communications practice is transforming the way businesses connect with their employees, vendors and customers.
Our 140-year history as a provider of voice solutions combined with our understanding of network configuration has proved to be an invaluable resource as businesses upgrade from legacy voice and data applications to customized UCaaS, SD-WAN and NaaS solutions.
The reporting changes we made this quarter highlight the opportunity for increased valuation multiples for our 2 distinct complementary lines of business, by demonstrating the density of our fiber network and the breadth and scale of our IT services offering.
Let me now turn it over to Andy, who will provide additional detail for our quarterly financial performance.
Thanks, <UNK>.
Starting with our Entertainment and Communications quarterly segment performance on Slide 7, Fioptics and enterprise fiber now represent 60% of E&C revenue as we continue the expansion of our fiber network.
Adjusted EBITDA was up $1 million over the prior year, due primarily to cost-optimization initiatives associated with our legacy network.
As <UNK> mentioned earlier, one of the significant changes in our reporting was to consolidate all VoIP and UCaaS revenue into our communications practice within the IT Services and Hardware segment, which has had a flattening effect on E&C revenue.
Slide 8 further demonstrates the strength of our fiber network as these assets produce higher bandwidth and faster Internet speeds than our competition.
As of the end of the quarter, Fioptics was available to nearly 581,000 addresses or more than 70% of Greater Cincinnati.
During the quarter, we added 2,200 Internet subscribers as the growth in Fioptics more than offset DSL subscriber losses, despite increased direct target marketing and advertising activities from our primary competitor.
Fioptics Internet penetration rates reached 40% compared to 38% a year ago, and ARPU was up 3% to $50.
As expected, video churn increased slightly due to price increases implemented during the quarter, resulting in video subscribers being flat compared to the previous quarter.
A summary of our IT Services and Hardware segment results is presented on Slide 9.
This quarter, we generated $128 million in revenue and adjusted EBITDA of $12 million, including contributions from the OnX acquisition.
Each of our practices generated year-over-year revenue growth, and we are especially encouraged by the growth opportunities coming from our communications suite of products and services.
Slide 10 illustrates the recent success of our communications practice.
This quarter, we were awarded a UCaaS contract, hosting 32,000 profiles across 96 separate locations.
We also were awarded an SD-WAN project to provide service to 18 sites that went live last month.
This quarter, we increased our number of hosted UCaaS profiles by 6%.
We also added approximately 200 NaaS locations and 50 SD-WAN locations during the quarter.
Moving on to our financial position and cash flow performance on Slide 11, I'm happy to report that we successfully reduced the interest rate spread on our credit agreement by 50 basis points, saving $3 million per year and partially mitigating the impact of rising LIBOR rates.
We ended the quarter with net debt of $1.3 billion, resulting in a current net leverage of 4.1x, which is consistent with the prior quarter.
Turning to cash flow.
Cash from operations increased $5 million compared to a year ago.
Free cash flow totaled $33 million in the first quarter and was positively impacted by the timing of interest payments and lower-than-planned capital expenditures in the quarter, further outlined on Slide 12.
Capital spending for our Fioptics suite of products totaled $17 million in the quarter, with construction costs totaling $6 million.
During the quarter, we passed 8,600 new addresses and remain on track to pass 35,000 homes and businesses during 2018.
We also invested $5 million in enterprise fiber builds and an additional $5 million in new IT services projects.
Our capital spending for 2018 supports our strategy of continuing to invest where we see opportunities to gain or maintain market share and expands our fiber footprint as we need fiber to compete effectively across our markets.
Although capital spending was lighter than expected during the quarter, we are still planning on capital expenditures between $190 million and $210 million for the full year.
As noted on Slide 13, we remain on track to generate positive free cash flow for the year.
We are also reaffirming our 2018 annual revenue and adjusted EBITDA targets, previously communicated on February 15.
Please note that this guidance does not include any contribution from the pending merger with Hawaiian Telcom.
With that, I'll now turn the call back to <UNK> for some closing remarks.
Thanks, Andy.
We are very excited about the growth opportunities in our fiber and IT Services businesses.
We now have 2 distinct businesses with separate reporting and organizational structures, which allows us to execute the appropriate growth and investment strategies for each business to deliver superior operating results and drive respective brands forward.
In our Entertainment and Communications segment, our goal is to continue to differentiate Cincinnati Bell from traditional carriers with our fiber-to-the-premise investments.
Our results demonstrate the growing demand for our fiber offerings and illustrate the critical need for dense fiber networks with the increasing adoption of IoT devices in the home and rapidly approaching expectations for wireless 5G networks.
These dynamics are not confined to Cincinnati, and the dense fiber network already constructed in Oahu provides the opportunity to replicate our fiber success in Hawaii.
Fiber is the future, and our goal is to continue to build fiber-to-the-premise within our footprints.
At the same time, we will increase the pace of our copper decommissioning and ultimately migrate to managing one superior next-generation network.
In our IT services segment, we remain focused on transitioning from a hardware-centric business to growing our suite of services across our North American platform and diversified customer base.
Our new focus allows us to capitalize on the opportunities created by our customers and changes within the IT landscape to transition towards recurring contractual IT Services.
We remain confident in our path forward with growing 2 distinct businesses and creating platforms for sustainable free cash flow as we drive towards increasing valuation multiples associated with our growing fiber-rich network and IT Services business.
Our strategic transformation combined with our disciplined capital allocation and sharp focus on execution has positioned Cincinnati Bell to capitalize on industry trends and deliver long-term shareholder value.
Over the past several weeks, I've had the opportunity to speak with many of you directly regarding the strategic transformation we are pursuing for Cincinnati Bell.
I want to thank each of you for your valuable feedback and input.
Also, before closing out the official remarks, I wanted to let those individuals being impacted by the volcanic activity on the Big Island of Hawaii know that our thoughts and prayers are with them.
I will now turn the call over to the operator and open up for Q&A.
Yes.
Thanks, <UNK>.
On Hawaii, yes ---+ what I'll say about that is, the teams have been working together.
They have a fairly detailed plan to begin executing once we've closed on everything.
We're excited about it.
I think their team is excited about it.
We're looking forward to, as you mentioned, hopefully closing on the sooner end of what we had expected.
So everything is going as well as can be expected on our end.
I'm excited.
As you can imagine, we're just excited to get going and just get the teams moving forward.
On the volcano front, I do want to send, again, our best wishes and thoughts and prayers to folks out there being impacted by that.
As per ---+ our infrastructure out there is not being impacted as of now.
And honestly, the teams out there, I got an update just the other day, are doing fantastic work to help that community get connected and stay connected.
And they're putting together some pretty, I think, original technology to help the folks out there.
So I'm really proud of what's going on out there.
On the fiber question, we've had a lot of conversations about what fiber looks like in the future, obviously for the company.
I think you're seeing it through the metrics.
I think you're seeing more and more of this out in the news.
Fiber is just the future, period.
And as I said in the script, it's a superior asset, it's where I think technology needs to go.
You look at everything, all the overlying technologies that are going to ride over that (inaudible) network.
We need a deep fiber network as a nation, personally.
But for what we control, we need to continue to build.
As per our footprint, I think you've heard us say this in the past that, if we have 800,000-plus homes here in Cincinnati, my goal would be to be ---+ let's build 100% of 800,000 homes.
That is unrealistic.
But I think what we have is the opportunity to say, look, if we started with a footprint of 800,000 homes, can we expand even slightly beyond Cincinnati to match 800,000 homes.
So ideally, look over the next few years, I want to see a footprint of 800,000 fiber homes.
They don't necessarily have to all be in the traditional legacy CBT network as we've defined it.
We've got a lot of opportunity expanding slightly out into Dayton or Columbus, where we can use our data analytics and almost do a Google-esque fiber build to neighborhoods that are ---+ we know have a high customer lifetime value.
And so that's what we're looking at.
I think for our investors, what's important is, we replace one footprint with a footprint of a similar size with a better network.
And then, for those houses remaining in the old ---+ in the legacy network, we are currently looking at technology that allows us to maximize speeds, do the best we can for those customers, while also getting as far through network transformation over the years as we can.
So I think that's what you can expect from us.
As I said in the script, I think it is important that at some point in the future, we run one fiber network.
And that's where the value is going to be.
And I think that's where the future is.
And <UNK>, I would add to that.
I'm sure you noticed in our earnings release as well as in our Q, we have started to focus on fiber-to-the-prem and Fiber-to-the-Node by way of what we report.
So when you talk about covering our footprint with fiber, we think it's very important that we cover the footprint as much as possible with fiber-to-the-prem.
So we will continue to report those metrics, so the folks understand and can differentiate between making it to a point terminating prior to the home or making it all the way into the home.
Ultimately, they do not need to be together.
And the CBTS entity can be separated, if need be.
As I mentioned in the past, our job is to do the best we can to articulate the value that the teams are creating.
They're doing great work.
I think this quarter is the first quarter that the ---+ I think the world sees what we have seen in that company in its distinct practices, its growth trajectory in revenues.
There's a ton of opportunity there.
But no, they don't have to be together, and there is a possibility of spins.
Thanks, <UNK>.
I'll answer them in reverse.
I'll answer the second question and then I'll put that over to Tom to talk about 5G.
I think, what you're seeing trend-wise is going to be all about pace and pace of build.
Right now, we feel like we have a good steady pace, which helps offset the legacy declines.
We see some positives in the legacy area also.
There are pieces of it that are slowing down a bit.
But as you are well aware, there are pieces that are just in steady decline and will be.
So it's going to be about pace.
I do see the potential of matching pace and keeping things relatively stable and then even slightly growing.
And that's really going to be our focus.
And when we look at builds, it's really going to be, how do we build efficiently and effectively from a cost standpoint.
And then, how does that match the pace of decline.
As I mentioned in the comments to <UNK>, it's ultimately about replacing the legacy footprint that we have today with a next-generation footprint.
And that's what we're really going to focus on.
Pace is really going to dictate how you see top line move.
But we've also got some cost areas that we still can attack too.
So I think overall, this quarter was probably indicative of (technical difficulty) as we increase in pace.
And then, Andy, you want to add to that.
Yes, let me add to that briefly, <UNK>.
So from a video perspective, to just get a little more granular, I would anticipate video will likely be flat, similar to what you saw this quarter.
And that being driven by the shift and even really intentional shift from Cincinnati Bell toward Internet and Internet subs.
So I would anticipate growth from an Internet perspective ---+ continued growth, and likely flat from a video perspective.
Yes.
And that's a good point.
We have ---+ from a video strategy standpoint, I think the one benefit that we have versus our competition is that we have less exposure on the video side from a profitability standpoint.
Obviously, getting into the game a little late and with some of the content cost pressures that we see as an independent carrier, we're fully moving down the strategy of deemphasizing video.
We're going to be releasing over-the-top products.
For us, it is all about the Internet.
And we feel like we are setting ourselves up and this company up to have a superior network and the superior pipe in our footprint.
And that's probably a good segue into the 5G question for Tom.
And on timing, it's already begun.
We have dedicated leadership here in Cincinnati that's focused on the migration, the decommissioning.
Once we close with Hawaii, the teams will combine and we'll have a dedicated group and dedicated leadership focused on just this area.
Yes.
On the M&A front, I think there's potential out there on the IT Services side.
I think, on the network side, we are ---+ we haven't closed Hawaii yet, so I don't think you're going to see much on the network side from us for a while.
We've got to focus on integration and execution with those 2 teams, and so we'll be heads down in that area.
And as I mentioned many times on the call that we're going to be focused on the fiber build and creating value that way.
So we've got some things to prove there and we ---+ so we're going to work through that.
On the IT side, you're probably ---+ if you see anything, I think there is an opportunity for product augmentation for the practices.
So one of the things that we see, the IT landscape is ---+ remains very fragmented.
I think what we've done in really separating these practices and cleaning up the reporting structure, we now have pretty tight focus on different areas of growth.
I do see the potential of maybe adding a small tuck-in company for, as an example, the cloud practice or the communications practice.
So there are those potential opportunities out there.
I would say, there's probably nothing large that we're seeing.
So if we were to see anything, it would be small and really focused on accelerating the growth in those practices, especially the practices that we believe are the future.
I said this in the past, and I want to reiterate it that we're trying to deemphasize product sales and point product sales, I think.
We have the right assets to make the transition from being what is traditionally called a VAR to a service-oriented company.
I think you're seeing that in the reporting now in the business.
And so what we would be focused on is really the services side of that.
Is that helpful.
Yes, it's great question.
I think, we've got ---+ as I mentioned earlier, a multi-pointed plan to address on the operations side.
I think working with the teams on the build and assessing where they are at with the build and seeing what we can do, if anything, to accelerate the build in the short or the midterm.
It will more than likely be in the midterm, not in the short term.
They've got a plan that they're executing.
On the sales momentum side, we've been working pretty tightly with the team on organizational structure.
The thing that you would think would make sense to make sure that once the deal is closed that you really hit the ground in a sprint together and not see a gap in momentum.
So that's really what we're focused on.
In the short term, just seamless transition, and then in the midterm, how do we begin implementing with that team some of the things we've learned here in Cincinnati; and vice versa, implementing some of the things that they've learned in Hawaii here in Cincinnati, so that we can take the best of both worlds.
Thank you.
Just want to finish with some short comments.
We entered 2018 with really strong momentum.
I want to take the opportunity to personally thank our team for their hard work and commitment to our strategic transformation.
As always, we anticipate ---+ or appreciate your continued support and interest in Cincinnati Bell.
I just want to reiterate the thank you to our teams with all the work done in the Q1.
It's been exceptional.
Things have not been easy, but they've done a tremendous job.
And I just want to say how much I really appreciate it, and look forward to speaking to everyone soon.
Thank you for joining us, and have a great day.
| 2018_CBB |
2017 | PKE | PKE
#Thank you, operator.
Welcome, everybody, to Park Electrochemical's first quarter conference call.
I have with me as usual, Matt <UNK>, our, I guess, Senior Vice President and CFO, and we'll kick the call off with some introductory comments and we'll go into our Q&A.
Also, remember that a transcript of Matt's comments are already posted on our website.
There are some detail in Matt's comments, so you may want to check the posting on the website.
Fill in, Matt.
All right.
Thanks, <UNK>.
Certain statements we may make during the course of this discussion, which do not relate to historical financial information may be deemed to constitute forward-looking statements.
Any forward-looking statements are subject to various factors that could cause actual results to differ materially from our expectations.
We have set forth in our most recent annual report on Form 10-K for the fiscal year ended February 26, 2017, various factors that could affect future results.
Those factors were found in Item 1A and after Item 7 of that Form 10-K.
Any forward-looking statements we may make are subject to those factors.
I'd like to briefly review some of the items in our fiscal year 2018 first quarter ended May 28, 2017, P&L, which are not specifically addressed in the earnings release.
During the fiscal year of 2018 first quarter, North American sales were 56% of total sales, European sales were 7% of total sales and Asian sales were 37% of total sales compared to 53%, 8% and 39%, respectively, for the 2017 fiscal year first quarter and 55%, 7% and 38%, respectively, for the 2017 fiscal year fourth quarter.
Sales of Park's high-performance, non-FR-4 electronics materials were 92% of total electronics materials sales in the 2018 fiscal year first quarter and 94% in the 2017 fiscal year first and fourth quarters.
Park's aerospace sales were $8.7 million or 32% of total sales in the 2018 fiscal year ---+ I'm sorry, fiscal year first quarter compared to $7.7 million or 24% of total sales in the 2017 fiscal year first quarter and $8.2 million or 30% of total sales in 2017 fiscal year fourth quarter.
Park's electronics sales were $18.7 million or 68% of total sales in the 2018 fiscal year first quarter compared to $23.8 million or 76% of total sales in the 2017 fiscal year first quarter and $19.4 million or 70% of total sales in the 2017 fiscal year fourth quarter.
Gross profit for the 2018 fiscal year first quarter was $6.3 million or 23.1% of sales compared to $8.8 million or 27.9% of sales for the 2017 fiscal year first quarter and $7.4 million or 26.8% of sales for the 2017 fiscal year fourth quarter.
Before special items, selling, general and administrative expenses for the 2018 fiscal year first quarter were $4.4 million or 15.9% of sales compared to $5.3 million or 16.9% of sales for the 2017 fiscal year first quarter and $4.7 million or 17.0% of sales for the 2017 fiscal year fourth quarter.
Investment income, net of interest expense, in the 2018 fiscal year first quarter was $510,000 compared to $45,000 in the 2017 fiscal year first quarter and $422,000 in the 2017 fiscal year fourth quarter.
Before special items, earnings before income taxes for the 2018 fiscal year first quarter were $2.2 million or 8.1% of sales compared to $3.5 million or 11.1% of sales for the 2017 fiscal year first quarter and $2.8 million or 10.2% of sales for the 2017 fiscal year fourth quarter.
Before special items, net earnings for the 2018 fiscal year first quarter were $2.5 million or 9.1% of sales compared to $3.0 million or 9.5% of sales for the 2017 fiscal year first quarter and $2.5 million or 9.2% of sales for the 2017 fiscal year fourth quarter.
Depreciation and amortization expense in the 2018 fiscal year first quarter was $807,000 compared to $827,000 in the fiscal year ---+ the 2017 fiscal year first quarter and $733,000 in the 2017 fiscal year fourth quarter.
Capital expenditures in the 2018 fiscal year first quarter were $105,000 compared to $41,000 in the 2017 fiscal year first quarter and $48,000 in the 2017 fiscal year fourth quarter.
The effective tax rate before special items was negative 12.4% in the 2018 fiscal year first quarter compared to 14.4% in the 2017 fiscal year first quarter and 9.1% in the 2017 fiscal year fourth quarter.
The first quarter tax rate included a reversal of Fin48 tax reserve.
The tax rate excluding the reversal of the Fin48 tax reserve would have been 18.7%.
For the 2018 fiscal year first quarter, the top 5 customers were Aerojet, GE, including its subcontractors, Sanmina, TTM and WUS, in alphabetical order.
The top 5 customers totaled approximately 34% of the total sales during the 2018 first quarter.
Our top 10 customers totaled approximately 49% of total sales and the top 20 customers totaled approximately 66% of total sales for the 2018 fiscal year first quarter.
Okay.
Thanks a lot, Matt.
It\
So <UNK>, first of all, in terms of the first 3 weeks of the second quarter, there really is nothing to talk about, it's kind of just tracking the same trend.
The 3 months of the first quarter were kind of very flat when compared to the other, maybe March, April and May.
So no particular movement yet.
So we're talking about in the first 3 weeks of the second quarter.
As far as electronics, that's obviously the big question, and that's what we're saying when we believe that things will start moving up in the second half.
There's 2 aspects of it.
One is the bottom line, and that really relates to restructuring.
The restructuring isn't designed to get us more business; that's the refocus our business in the U.S., so our costs are lower but also we focus more on being a niche company in the U.S., a niche business in the U.S. In Asia, it's quite different.
It's like the totally different story.
That's where we are aggressively seeking revenue with these OEM ---+ with our OEM marketing program and OEM program pricing.
And we're saying, although we don't know for sure, that we're looking for the second half of the year, where the revenues would start to move up again for electronics.
You're quite correct.
So it looks like we're kind of bumping along the bottom here.
And the issue for us is, we explained this before, we have new products and we have legacy products.
The legacy products are going to get less, there's really very little we can do about that.
That's just how it is.
As programs end, those legacy product revenues for us end.
So the challenge is for our new product revenue to exceed the loss of our legacy product revenue.
So that's what we're looking for in terms of switch.
It's not that the new product revenue is not there, but it hasn't outpaced the loss of the legacy product revenue yet.
I don't agree with that at all.
I think it is doable, and it should be something we should achieve.
Yes, the gross margins, they are our core in the first quarter.
We mentioned some of the factors.
It's really an electronic story, I said that aerospace is actually up as compared to the fourth quarter, both top and bottom line.
So it's really an electronic story now, the P&L and the gross margins are being held down.
Remember, partly we talked about the shutdown credits that we had in the fourth quarter that made the fourth quarter look better as compared to the first quarter.
But also, we're still bogged down with the duplicative cost related to the restructuring; it's a messy P&L until we get through the restructuring.
Ultimately, the key driver for the top to bottom line and the gross margin electronics is going to be the revenue.
So it's really critical that we start to move the revenue up based upon the OEM marketing plans and programs that we have in place, that we've been working on, the guys have been working on very aggressively, I guess, for about 9 months now.
Which fiscal year.
This fiscal year.
So I think we mentioned, it could be up to $15 million for that factory.
And the question, it would be, what period that the money is spent on and it's really hard for us to predict that.
So it could straddle this fiscal year and next fiscal year.
It depends when we start it, and that's not totally something we can predict because that depends on when GE gets back to us with this additional information we requested.
So it's really difficult for us to predict how it would break out between this fiscal year and next fiscal year.
But if we start a project, let's say, in 3 or 4 months, there would be a straddle.
I would think that all the spending would be complete by the end of next fiscal year, though.
Yes.
So it's a similar question anyway, <UNK>.
I think we said last quarter's call, and we'll say again, we think we'll see the change in the second half of our fiscal year, right, in terms of when the new product gains will start to outstrip the legacy product losses.
That's just the best we can do to predict.
The ---+ there's a ---+ I guess, I'm not giving you very much color because we've done it before and it kind of gets to be repetitive, but there's a lot of I think very positive, very good reception to the OEM marketing program.
The activity is very high; there are a lot of arrangements that we've reached with these OEMs.
I guess, in some cases, it takes a little while for new programs to actually go into effect and for a product to actually be put in production, it's not nearly as long as aerospace, but there could be some little lag time.
So I think you're right also.
I think we expected that inflection point, to use your term, to have occurred a little earlier, maybe by now.
So if we see it in the second half, maybe we're a few months behind what we thought ---+ where we felt we would be about 6 months ago, if that makes sense, you understand what I'm saying.
But the dynamics are still in place.
That really is not different from my point of view.
There is a question of timing.
And as we said a few times now, we believe we'll see that inflection point in the second half of next year.
We're seeing a lot.
And I'm not doing a very good job of kind of conveying the sense of positive direction, and then maybe even excitement.
What we don't have is quantification.
It's something we ask 25 times every time we meet with an OEM or customer.
And in terms of quantifying the time frame, it's been really difficult for us to pin these people down.
So we do the best we can with our forecasting; we update our forecast on a pretty regular basis.
But forecasting is going to be somewhat a guess based upon information we have and we have to extrapolate, obviously, into a real forecast.
That's nothing unusual; that's how any business operates.
But the questions you're asking us, <UNK>, those questions are asked 25 times every time, I mean, it's a little bit exaggeration, but maybe half a dozen times every time we sit down in a meeting with a big OEM or a big circuit board customer in Asia with ---+ I mean, without exception.
And we'll go see them every 6 weeks or so, so we'll check again.
You said this, now we're back.
Is that still true.
You want to modify, you want to adjust it.
So I think we do the very best we can to really hone in on the timing because we know it's important, but I still think that, notwithstanding that we've done the best we can, there's some limit to our ability to really nail it to a month.
So I think we'll stick with the second half of next year.
We feel that will be the inflection point, and that's probably the best we can do.
And if I gave you anything more in terms of an answer, I think I'd be getting over the line and going into just a kind of utter speculation area, and that's really not useful.
I don't think you want me to do that.
So, so far, so good.
We have not had any supply problems yet.
Although some of the suppliers have taken the opportunity to raise prices.
We have our procedures where we've passed through these increases.
So this happens from time to time, recently.
I guess, as you said, <UNK>, there's other uses for copper in automotive and things like that, and that's the explanation anyway as to why prices need to go up, and we've had some price increases.
However, normally the price increases are tied to the LME, but this is something a little different.
Supply has not been an issue for us.
I hear the same thing ---+ we hear the same things that there are supply issues in the industry.
I think we've done a pretty good job of working over the long haul with our suppliers, and so I think that's been a good thing for us and it's probably paid dividends.
We've worked with suppliers for many, many years on a consistent basis.
It's a good question.
I think it's a first choice, which is progression should be similar.
We just heard yesterday that there is an increasing of forecast from our big customer, and that helps us.
But the big quantum improvements and increases in top line are going to be not this year.
The forecasting we have for GE Aviation in particular and MRAS is pretty precise.
It goes out 10 years and it's based upon aircraft units, so it's pretty predictable.
How many Boeings, how many airbuses the Boeing Airbus plan to produce and sell.
So the numbers get quite big, quite big, quite big, but that's ---+ it grows over time, but we get to 20 ---+ 2021, fiscal '22, calendar '21, fiscal '22, we're starting to see some significant revenues.
Now, it doesn't just go up that 1 year, <UNK>.
It's not that kind of thing; it goes up over time.
But those kind of significant revenues will not really be seen in this fiscal year, we don't believe.
So it's more the first choice, the progression rather than the large quantum leaps.
But when we get out of those '21, '22 years, then the numbers are quite significant.
So good question.
I guess the thing that\
'18.
So we're saying that we hope to see the improvement in the electronics top line in the second half of the current fiscal year, which is '18, as you said.
Glad you asked the question, because it would be unfortunate if I left that confusion out there.
So there's 3 programs that are using the LEAP engine.
The 737 is not a program we're on.
That's because MRAS is not in that program.
We're still sourced with MRAS, I think we've explained that before.
The LEAP programs that we're on are the A320neo, the COMAC919, but not the 737.
This is <UNK>, again.
Thank you, operator, and thank you, everybody, for listening in and for questions today.
Matt and I will be in the office the rest of the day.
So if you have any follow-up questions, please feel free to give us a call.
And I guess, we won't be talking to you at least in the conference call till after the summer is over, so I wish all of you a very wonderful summer, and have a nice day.
And hopefully, we'll talk to you soon.
Take care.
| 2017_PKE |
2016 | BKNG | BKNG
#<UNK>, on the ADR side, no significant impact on our overall blended ADRs from our increasing share of vacation rentals, and it's still fairly early days in the vacation rental space and we've got teams of people at Booking.com that are continuing to innovate and grow that business.
Right now it's mostly through property managers, but we are going to continue to add properties there, and we're looking to make our tools easier for single property owners to also be able to participate, so we're going to continue to advance there but right now it's mostly property managers.
Okay, so <UNK>, thank you for those questions.
In terms of online brand spend, that's something that has grown in brands around the Group in the last couple of years, and it does provide the opportunity for different ways of measuring effectiveness, and at least in our view in some cases, more effective ways to measure the effectiveness of your brand spend.
So I'm actually very optimistic that moving of brand spend to those channels has the potential to help us drive better long term returns on investment on our brand spending.
But at this point in time, it's not being measured like performance-based advertising where you're looking at the same session unit economics divided by cost per click kind of thing.
It's just not those kind of measurements, so I don't want to represent that we are or ultimately we'll be looking at it the same way, but I think it's a ---+ it bodes well for our ability to better manage our brand spending over time.
With respect to from a higher level, the changes that we're seeing in the space, I think that I continue to be very impressed by the size and the scope of the opportunity that the Priceline Group and others in our space have in front of us.
Year after year, good execution is rewarded when demand goes to new distribution channels, when you look at the importance of two businesses that you just mentioned in terms of sources of demand, YouTube and Facebook and others, it just, it's an opportunity for companies that can execute quickly and well to diversify and build on their demand.
I also continue to be impressed by how attractive the global nature of the business is and the scale that we've developed, and in particular Booking.com has developed that just gives us an opportunity in markets around the world to build really big businesses, despite the turmoil that characterizes not only the world economy but the political situation around the world.
And one thing that has impressed me about this business since I started running it as Chief Operating Officer of Priceline.com in late 2000, is the resiliency of our businesses in the face of some of these challenge.
Which is not to say that we don't see the impact of terrorism or financial crisis.
We absolutely see it.
The economic cycles do affect our business, but time after time after time, they recover quickly and they build because of the very substantial tailwinds that we have benefiting us in terms of movement of this activity from offline channels to online channels.
The growth of economic activity and middle class spending in emerging markets around the world, and finally the ability of our talented teams around the world to improve the edge we have in trying to drive demand in these channels.
I hope that's responsive to your question.
I don't think that the deceleration that we're pointing to here has really anything to do with competitive factors in the marketplace.
We obviously have a number of brands that are out there, and I think it's fair to say that not each one of them has the exact same competitive strength and positioning, but as we look at the share of the business we're getting from major distribution channels, we feel very comfortable that we're holding or gaining share.
When we look at what's happening in alternative accommodations, and particularly the growth that Airbnb is advertising in the marketplace, I personally think that represents an opportunity for us because we are in a position to build our business in that space and to drive very substantial demand to those properties to convert them with an experience that's great for the customer and profitable for us.
So I view that as a net substantial positive in terms of marketplace conditions for the Group.
Okay, thank you.
With respect to branding and branding spend in the United States, I would start off by saying that we are very pleased with the progress that Booking.com has made in building its business and in building its brand in the United States.
From time to time we've given some insight into what our overall growth rate is in the United States, and we're not providing that color today, but I will say that we are pleased with the absolute and relative rates of growth of the Booking.com, its business here in United States.
We're very pleased with the results of the original brand launch on television of Booking.com in the United States and saw a demonstrable impact in terms of not just awareness but also the Business and ultimately the total cost that we experienced to drive customers as a whole were attractive to us.
As to why brand spending versus performance-based marketing, in the United States, it's a different market than international markets.
First of all, our competition has very substantial share of voice on television, and if you don't participate you are conceding awareness and ultimately demand to your competition.
And when you think about the size of the US market, in terms of population and the travel market, and the fact that it's a homogeneous market that you can advertise to with one campaign across the country, it really makes sense to have brand advertising here, and I think that strategy is spot on.
And as we said in our prepared remarks, having a push associated with a new campaign is not something that's going to happen every quarter of every year, but we think it's a solid and sound strategy to continue to build awareness for our brand which today research is available everywhere under indexes in terms of awareness with other major travel brands in the space.
In terms of OpenTable and their plans to expand internationally, I think I said in my prepared remarks that there's a technology job to do in terms of revisions to their tech platform that make international expansion easy versus having to build a new platform in every different country, and that work is under way.
And I think once it's completed, we'll be in a better position to essentially build on the international footprint that we have as a Group in helping OpenTable bring its product overseas.
I'll mention that they've done some work in Australia on a preliminary basis to try to understand what the potential impact of that is, and while it's very small and very early days, we think it's showing us that this strategy is the right strategy to help build out the brand.
Why don't I do the second one and <UNK> will do the first.
With respect to the major hotel chains, a couple of things to keep in mind.
First is, just say at the outset that our relationships with hotels in particular, and with the hotel chains, is an important part of who we are as a group that we have a tradition of supplier friendliness of bringing demand to our hotel partners at very low distribution costs.
And in particular because of the international footprint of our business, we uniquely can provide access to demand around the world that even the most sophisticated chains cannot access themselves because they don't have the functionality, the language capabilities, or the distribution capabilities that we have on a global basis.
So we're providing a little bit of a different, and at least in my judgment a more valuable service to hotel partners really than anybody else in this space.
With respect to their efforts to drive traffic directly to their website, it's understandable.
They have a strong desire to strengthen their brands and we understand that.
On the other hand, we believe our customers are entitled to competitive pricing and the best availability that is out there for intermediaries because we provide the largest business to most of the hotels that we work with, so we try to maintain that balance.
I think people should keep in mind that the share of business that the Priceline Group does with the chains is relatively small.
It's not like it used to be for Priceline when the chains for the US business were such a major part of the whole.
It's really a much smaller part of the business, and ultimately for any hotel that wants to maximize the benefit they get from working with our brands, the most important things are going to be their pricing, their content, their availability, the competitiveness of the offer that we can show to our customers.
And <UNK>, in terms of the EBITDA overperformance in Q1, we typically don't manage our brand spending that way so we don't say okay, we've overperformed therefore let's just churn a lot more money into advertising.
Our performance advertising approach has been very consistent over many years now.
It's consistent in Q1 and Q2 with what it has been in the past.
In terms of the brand advertising, the timing was more in Q2 than Q1 based upon when the campaigns were available to roll for Booking.com, and for Priceline.com it was a strategic decision to hold back a little bit on running the campaign until we were further along with the tech platform relaunch.
So we're trying to spend what we think is the right amount to build our brands for the long term rather than overs pending because we had some overperformance in EBITDA in a quarter.
Yes, so we aren't going to quantify the Ramadan and Euro Cup impact, but I will say growth is strong thus far out of the gate and we typically then assume that growth will decelerate as we move through the quarter, given the size of the business.
There's no change in our approach there, and then we factored in what I would say overall for the quarter is a relatively small impact related to the two specific issues.
And then the brand spending, what we said is that the deleverage in Q2, almost half of it is driven by accommodation of the Easter shift in timing and the increase in brand spend, so you can get a pretty good idea on what that amount is by doing the math.
You know, <UNK>, I don't think we have any particular comment to make about the relative strength or weakness of outbound APAC.
It's ---+ I think the performance of the business in APAC in general has been consistent with our expectations.
The only regional comment I would make there is that inbound travel, international travel to China, has continued to be under pressure for primarily pollution reasons, honestly, more than anything else.
And in terms of hotel quality, I don't have a comment to make to you there.
No, nothing to call out, <UNK>.
I mean it pretty much tracks the footprint of our business, so we are adding vacation rentals in all of our markets, principally in Europe, which is our biggest market.
So nothing I would call out there that's noteworthy.
You're welcome.
Thank you all for participating in the call.
| 2016_BKNG |
2016 | WING | WING
#Thank you, Operator, and good afternoon.
By now everyone should have access to our fiscal first quarter 2016 earnings release.
If not, it can be found at www.wingstop.com under the Investor Relations section.
Before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements.
These forward-looking statements are not guarantees of future performance and, therefore, you should not put undue reliance on them.
These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.
Lastly, during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance.
The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release.
With that I'd like to turn the call over to <UNK>.
Thank you, <UNK>.
Hello, everyone, and thank you for joining join us.
I'd like to begin with a few highlights from the quarter and transition into a discussion about how we are executing on three strategic priorities that will continue to drive our performance.
Solid development, investments in technology to grow online ordering and migrating to a national advertising platform.
<UNK> will then review our first quarter financial results and update our annual guidance for fiscal 2016.
Afterwards, I will conclude our remarks with some closing thoughts before we open the line for questions.
We had a solid start to the year with an impressive first quarter which has enabled us to raise our fiscal 2016 annual guidance for revenue and profitability.
Even as we continue to lap strong numbers from the prior year.
Revenue grew 16% while adjusted EBIDTA and adjusted net income grew even at higher rates of 24% and 33% respectively.
We added 28 net new restaurants during the first quarter and ended with 873 restaurants across 39 states in six countries, representing a unit growth rate of 17% over the prior year period.
We're currently on track with our targeted range of 125-235 net openings in 2016.
And by year end we anticipate that we will be just short of 1,000 restaurants worldwide.
We still have a long runway ahead of us to reach our long-term target of 2,500 domestic restaurants.
During the first quarter domestic same store sales increased 4.6% with our Company operating units boasting 9.0% growth.
Our primary long term growth strategy is new restaurant development.
This is fueled by the strong unit economic model we offer to franchisees.
At the end of our first quarter our average unit volumes exceeded $1.1 million.
With a target investment cost of $370,000 our model yields a Best In Class sales to investment ratio of three times.
For new units, our target model delivers unleverred cash on cash returns between 35% and 40% in year two of operation.
These targets are based on results of our 2013 class of restaurants and sales performance of new units has been in line with the targets that we set.
The combination of low entry costs and high returns provide a compelling investment opportunity for our franchisees that has helped drive the continued growth of our system.
And with only about half of our potential footprint sold, we still have a significant amount of growth ahead of us.
Our second core long-term strategy is to increase our business through our online channels.
As we have spoken about in the past, advances in technology will drive our business forward, both from a sales and operations standpoint.
And we have invested heavily over the past few years to improve the guest experience and realize greater (inaudible) efficiencies.
At the end of the first quarter we reached 60% implementation with our new point of sales system and expect this new system to be about 90% implemented by year end.
The new POS system is also integrated with our online ordering capabilities.
During the first quarter, online sales comprised 15.8% of total sales, which compares favorably to approximately 11% mix reached in the first quarter last year.
You may recall that online orders generate a $4 higher average check than all other orders and 60% of our total orders still come in over the phone today.
For the first quarter of 2016, 20% of our domestic restaurants have online sales mix in excess of 20% of total sales.
That and our 75% mix of takeout orders gives us confidence that we can continue to grow our online ordering mix much higher over time.
In the first quarter we continued to increase our digital advertising spend which yields a much higher return on investment by driving current and new guests to our website to place their orders.
Our third strategic growth priority is to migrate to a national advertising platform.
We held our worldwide franchise convention last month in Las Vegas, bringing together over 600 franchisees, key suppliers, and Wingstop corporate employees from all over the world to celebrate our success, learn from each other and plan for an even brighter future.
One of the primary topics we discussed at convention was a migration to a national advertising platform.
We have previously communicated to you that our franchise agreement calls for the transition to national advertising at the earliest of 1,000 domestic restaurants, or 2018.
We are excited to inform that you we have received an almost unanimous vote from our franchisees at the convention to accelerate this transition to a national ad fund beginning in the first part of 2017.
This pivotal decision now allows us to buy media more efficiently and increase brand awareness in all markets, including significant benefits in smaller and newer markets where we don't currently leverage TV and radio.
We are working on the details of this transition and will provide updates on future earnings calls as we develop our plan for national advertising in 2017.
In summary, our results in the first quarter continue to be strong and are ahead of our expectations and we are therefore comfortable raising our guidance for the full year.
Our key strategic comparatives are in place and we're executing on our plan very well.
We're excited about the future growth opportunities discussed today and look forward to continuing the strong momentum in our business.
With that, let me turn it over to <UNK> for further comments on our performance.
Thanks, <UNK>.
Let's now review our quarterly results for the 13 week period ended March 26, 2016.
Total revenues increased 16% to $22.1 million for the first quarter 2016 from $19 million in the first quarter of last year.
Given that the Wingstop system is overwhelmingly franchised most of our revenues are made up of royalties and franchise fees, and they increased 21% to $13.5 million for the first quarter.
Compared to $11.2 million in last year's first quarter.
As <UNK> stated there were 28 net new restaurant openings during the first quarter, all franchise locations, bringing our quarter end total to 873 total system wide restaurants.
This represented a unit growth rate of approximately 17%.
In addition to restaurant development, revenue growth was also driven by domestic same store sales growth of 4.6% in the first quarter.
Our Company owned restaurant revenue increased to $8.6 million from $7.9 million in the prior year, driven entirely by 9% growth in same-store sales.
Cost of sales increased 5.9% to $6.1 million, from $5.7 million in the prior fiscal year's first quarter.
As a percentage of Company-owned restaurant sales cost of sales decreased 210 basis points to 70.8% from 72.9%.
The decrease was primarily due to the leveraging of fixed costs as the Company owned same store sales increased 9%, and a 1.5% decrease in commodities rates for bone in chicken wings as compared to the prior year period.
Selling, general and administrative expenses remained flat at $7.7 million as compared to the prior year comparable period.
This year's first quarter include $450,000 of transaction costs related to the March 2016 secondary offering whereas last years SG&A included $1.3 million of expenses associated with our preparation to be a public company.
A decrease in nonrecurring costs was offset primarily by increases related to head count additions and other recurring costs associated with being a public company.
Adjusted EBIDTA, a non-GAAP measure, increased 24% to $8.9 million from $7.2 million last year.
Please review the reconciliation table provided in our earnings release between adjusted EBIDTA and net income, its most directly comparable GAAP measure.
For the quarter income tax expense was $2.5 million.
Our effective tax rate was 37.3% compared to 38.2% in the comparable period in the prior year.
This is consistent with our expectation of an effective tax rate between 37% and 38% in 2016.
Net income increased to $4.3 million, or $0.15 per diluted share compared to net income of $2.6 million, or $0.10 per diluted share in the same quarter last year.
Weighted average diluted shares outstanding were approximately $29 million for the first quarter 2016 and approximately $26.6 million for the prior year period.
Adjusted net income, a non-GAAP measure, increased 33.2% to $4.6 million or $0.16 per pro forma diluted share, compared to $3.4 million, or $0.12 per pro forma diluted share last year.
Please review the reconciliation table provided in our earnings release between adjusted net income and net income and pro forma diluted shares to diluted shares, their most directly comparable GAAP measures.
In terms of our liquidity and balance sheet, as of March 26, 2016, we had cash and cash equivalents of approximately $8.3 million, an outstanding debt of $85.5 million.
During the first quarter we made a voluntary prepayment on our term loan of $10 million.
Note that we do not have a required principal payment on our current term loan until 2020.
On a trailing 12 month basis our net debt to adjusted EBITDA ratio was approximately 2.5 times.
In our traction to date we are pleased to be raising several key metrics as it relates to the annual guidance for 2016.
Specifically, we are raising our range for total revenues to be between $89 million and $90 million.
This represents 14.1% to 15.4% growth over 2015.
We are maintaining our forecast of 125 to 135 net new system wide restaurant openings, representing approximately 15% annual unit growth.
Included in this range is one additional corporate restaurant that should open in the second or third fiscal quarter.
Consistent with our long-term guidance domestic same store sales growth of low single digits.
SG&A expenses are projected between $33 million and $34 million inclusive of approximately $1.3 million of stock based compensation expense, $0.9 million of expenses associated with our franchise convention, $0.8 million of expenses associated with the 53rd week, $0.8 million of incremental ongoing public company costs, and $.
5 million of transaction costs related to the March 2016 secondary stock offering.
Adjusted EBIDTA is now anticipated to be approximately $33.5 million, up from $33 million, representing 16% growth over 2015.
Pro forma adjusted fully diluted EPS has been raised to approximately $0.57 per share from $0.55 per share.
And finally, fully diluted share count should be approximately 29 million shares, which is unchanged from prior guidance.
Before I turn the call back to <UNK>, I would like to provide a few additional comments for modeling purposes.
Fiscal year 2016 includes a 53rd week and all of the guidance just provided includes the 53rd week impact.
For context, the impact of the 53rd week is estimated to contribute approximately $1.4 million of revenue and $0.3 million of adjusted EBIDTA.
Secondly, we hosted our franchisee convention in April, which is held every 18 months.
There is a net zero impact to profit dollars from this event but we will have expenses associated with the convention of approximately $0.9 million in SG&A in the second quarter with offsetting revenue from support we received to fund the convention.
Lastly, I want to provide some incremental color on same store sales.
As we look at the cadence of quarterly count for the balance of the year, we are reviewed both two and three year stat comps.
In the second quarter of 2016 we will be lapping two year comps that were significantly higher than any other quarter in 2015.
The strong performance in the prior year was partially due to the boxing match between Floyd Mayweather and Manny Pacquiao.
As we overlap those strong results we would anticipate our same store sales in the second quarter to be somewhat impacted against our incoming trend.
And now, I will turn the call back over to <UNK> for closing remarks before we begin Q&A.
Thank you, <UNK>.
Our mission is to serve the world flavor and we execute our business by trying to deliver on our commitments to our guests, our franchisees, our team members, and our stockholders.
I am energized by the opportunities in the business and the engagement of our franchisees.
The resounding feedback from our franchisees at our convention was that it was the best one yet, and this is in large part due to the performance of the business and the success our franchisees are enjoying through their investment and hard work.
Although we'll be closing in on nearly 1,000 restaurants worldwide by the end of 2016, we're still far away from our 2,500 unit domestic potential.
Thanks again for joining us this afternoon.
We appreciate your interest in Wingstop and would be happy to answer any questions that you may have.
Operator, please open the line for questions.
Hey, <UNK>.
It's <UNK>.
So, you know, as we've looked at guidance, first of all, we're guiding the annual terms, you know, our long-term guidance is for low single digits and we like to just reiterated that coupled with the strong unit development that we have, where there's great growth for the shareholders.
From a first quarter standpoint, we don't break down the comps by period.
I would tell you that we were very proud of the results in the first quarter and it does signify the underlying momentum that does continue to exist in the brand and that same underlying momentum we believe continues to exist in the second quarter.
We don't provide quarterly guidance so we're not going to talk about April results to date but we did point out obviously the tough overlap that we have.
We do have the Mayweather/Pacquiao fight that we have to overlap from last year, the NBA playoffs we're monitoring strong performance from the prior year based on the teams that were in and the match ups, and also some of the Houston floods that came in the second quarter as well.
So we're monitoring all those things.
We're not implying call it flat to even plus one comps in the guidance.
We believe the underlying momentum still to be strong in the business but as we said we would anticipate a moderation from Q1 levels going into Q2.
It was on Saturday, this past Saturday we rolled over it.
Yes.
Sure.
And, excellent question.
We're very excited about the opportunity to move to national advertising.
The total spend that a franchisee will spend on marketing will not change in terms of their allocation of spend.
And it's a 4% spend that we have in our contractual obligation through the franchise agreement.
Historically that's been 2% that's paid to the national and 2% that's spent locally.
In certain of our markets, franchisees have joined co-ops, some certain of the larger markets, Dallas being one of those as an example.
But in every case as we analyzed the approach to national advertising, we've found that even against what those markets are buying today in terms of media, on a national basis by pooling the dollars together and spending 3% nationally instead of 2% we would be able to actually deliver more TRPs, meaning more media weight across every market across the country instead of the 13 markets that had co-ops in place today.
It does not have an impact to our P&L specifically.
This is purely our national ad fund and it's just a reallocation of the dollars, again, out of those co-op markets and out of the field at a local market spend and consolidating that nationally.
Sure.
It just comes down to the favorability that we saw relative to our own expectations for Q1.
Obviously there's a range of possibilities with low single digits and with the unit count and also it reflects the strength that we're seeing in the Company store performance, which we don't provide guidance on.
Yes.
I think the national digital transition was effectively a precursor so what we wanted to do on a national TV and radio media budget overall.
We've been very pleased with the results simply because we've been able to consolidate our buying power by digital media much more effectively from a national perspective and deploy more dollars.
Typically, what those dollars yield is a very high return on investment as it relates to customers that come in and utilize our online ordering platform.
Simply clicking through in some of these ads.
But we also migrated to a digital video platform to help increase brand awareness in markets where we may not have had a presence previously.
And I think the same principles apply when we go to a national advertising platform, where, as I mentioned in the prior question, all markets benefit because we'll be able to spend at a higher rate than any other market could otherwise spend, which means that we'll be able to generate awareness across the brand in all the markets we're in, 39 states across the country already in the US, and most if not all the major metro areas.
We think it's going to be beneficial to the brand for the long-term by being able to continue to raise awareness through these platforms.
Yeah, sure.
Thanks for reminding me.
I did miss that one, Matt.
The Easter shift for us is not that material in either quarter.
It does move a little bit, but particularly as we're looking at the end results it's not something I would point out that's material for us.
And so what were the questions on the sports calendar.
Yes.
So, you know, if you look at the competitions of the teams it was very comparable to last year, but the match ups last year on the first round you had Houston playing Dallas that went seven games and then you had Clippers playing Spurs, that's right, <UNK>, they went seven games as well in the first round.
So those were two really strong series last year in favorable markets for us.
Like I said, the teams that are in this year are comparable but the series weren't as compelling, they went shorter games and also the time slots on TV then weren't as favorable when the match ups weren't as compelling.
Obviously San Antonio made it through where they didn't last year and that's a pretty big market for us so we're hopeful they do well the balance of the quarter, which can help us out.
No, nothing that we can measure or see.
We haven't seen historically a benefit when the Olympics were on so I can't say that we're anticipating that right now.
<UNK>, it's <UNK>.
You cut out on the second brand you mentioned.
I'm just curious what that other brand was.
I heard Buffalo Wild Wings.
Okay.
I don't think it has an effect necessarily on Wingstop.
Most of those, as you just noted are bar and grill concepts.
We participate in the fast casual space and that's the area of strength for us, 90% of our revenue, and then some comes from wings, fries and sides, 75% is takeout.
And although there are some movements I guess by some of the folks to have more of an off-premise occasion, I think the general tendency for those occasions is the bar first and the product second and so that really doesn't play into how we operate our business.
So we haven't seen anything or identified anything that would specifically call out that Wingstop would be affected by those promotions.
So what we've mentioned on the script was the first quarter wing prices were down 1.5% over the prior year.
I think on our earnings call, our last earnings call, we mentioned our expectation that wing prices would generally be flat to 2015 on an annual basis.
And so we were about there in Q1.
You know, wing prices have been elevated a bit as we've gotten past March Madness but we still feel like based on what we're hearing from economists and the supply dynamic in the industry that on an annual basis roughly flat to prior years to where we would expect it to be.
From a basket standpoint, there's nothing of significance.
Outside of the wing category, it's a pretty flat year from a standpoint.
One of the big things we talked about at the convention was the remodel, new look and feel of our concept and we shared that with our franchisees in the form of a fully mocked-up walk through prototype of that at the convention.
Very well received by our franchisees and we're already in the process of starting to incorporate that into all new restaurants that go into the system, and then we are soliciting and we've already received a lot of interest in this new concept of remodeling the restaurants and we'll have firmer ideas of exactly how many franchisees will be impacted by this over this year, but it takes like anything else some time to get them into the pipeline.
But I think it's reasonable to expect we can start to really affect restaurants in the coming months with this new look and feel.
Well, I think first and foremost we've been a TV advertiser for quite sometime in our 13 co-op markets primarily, those that are media efficient, which most of these are.
What we weren't able to do was really be able to buy as many TRPs consistently across the markets on TV so this migration to national advertising gives us the opportunity to get to as many as 22 weeks of TV a year in our calendar across the entire country.
So we'll still maintain a TV presence.
Social digital will still be a big piece of the puzzle, and I would say that as it relates to other brands that may not have as high a spend as we do.
We would probably disproportionately spend to digital social against other types of brands.
But that doesn't mean that digital social would be more than more traditional advertising, TV especially.
A number of them in the restaurant, we have merchandising that guides the guest to order online.
We also can incorporate a bag stuffer to our products to help encourage the guest.
We're in the process of putting on some new on hold platforms that allows us to basically communicate to the guest if they're on hold or a prerecorded message of some of sort in the restaurant to do that.
And then, some of our best franchisees talked about this when we were all together last month, about incentive programs at the restaurant level that encourage people over the phone when they do call in, hey, next time go to wingstop.com or use the app as a means to order online.
We haven't specifically quantified anything in terms of the absolute benefit on the P&L, per se, but what I can tell you is that an online order is much easier to execute for our operators simply because that order comes straight into the restaurant, passes through the point of sales system and delivers a ticket to the make table.
Which allows, one step of the process, which is taking the phone order or the counter order and putting that into the POS.
So that time is saved for either redeployment or to add capacity for growing restaurants, which we know we have.
As it relates to any of the back-office features, that's really a part of our point of sales system platform that we're putting into the system right now.
As I think <UNK> mentioned or we've talked about before, that's in 60% of the restaurants today.
We expect to be over 90% deployed by the end of the year, and that functionality gives our franchisees and all of our restaurant operators the ability to have a theoretical food cost system as well as a very robust labor management system to monitor and operate their business.
So I think the tie-in between the POS and online platform, that full integration creates a lot of technological efficiency that's help our operators.
I don't have anything that specifically would tell me that they're a more frequent guest than perhaps a phone or walk-in guest.
I think it's their preference to use it and once they use it becomes very sticky and they stay with it.
But an online order allows us to deliver much higher quality occasion.
The product is delivered consistently.
The accuracy of the order is dictated by the customer themselves.
So they're in control of the process, which everybody wins on.
But as it relates to a specific frequency, I don't have a metric that I would otherwise share.
Sure.
Well, as I mentioned earlier, we're in 39 states already across the country, which incorporates almost every major market in the US.
The one market that comes to mind right off the bat that we really haven't started to penetrate, haven't built our first restaurant, although we're close, it should open here before too long, is in Boston.
But we've already established partnerships with two folks in that market to grow that market.
In most of the markets across the country, we've already established a presence either through agreements we've signed and in some cases it's just a matter of getting the real estate secured and actually getting the first restaurants open.
But, you know, that's an example of a market where we don't have one that's a major market.
Otherwise, most of the major markets up and down the eastern sea board also into the deep south are areas that were less penetrated perhaps than the upper Midwest or southwest but are really moving along very rapidly and growing.
You're welcome.
CapEx, I don't have the specific number.
Our full year estimate for CapEx is around the $2 million range and so we were right in line with kind of a run rate from that standpoint, <UNK>.
And cash flow would have been right around the $8 million range.
So we don't break down the comps by geography's typically, but we have made comments on Texas in the past.
I think one of the data points to point towards is our Company's store performance 14 of 19 company stores we have are in Texas and they obviously continue to perform very well.
12 of those 14 are in the Dallas/Fort Worth market, which is our largest market in Texas, so that continues to be a positive for us.
Our smaller markets as we mentioned in the past that are particularly exposed to oil do tend to run behind a little bit and have softened.
Even the first quarter I'll tell you that comps remain strong in Texas overall but the state did trail the overall system average.
No.
This is <UNK>.
The maturity of the restaurants has historically been part of the equation of the continued comp performance, and I think, as you know Texas is one of our most mature, the most mature market that we have in the system, continues to grow well despite some of the challenges economically that the state has seen.
The brand and its momentum have continued to carry forward very nicely in this market.
So aside from that, and, you know, <UNK>'s great leadership, I don't think there's much else I would specifically identify there.
<UNK>, one cleanup.
CapEx was $300,000 for the quarter.
There you go.
Thank you.
| 2016_WING |
2016 | EOG | EOG
#Yes, <UNK>, this is <UNK> <UNK>.
Certainly to each one of our tests we've learned a lot.
I would say that without hesitation that all of our pilot tests were successful.
Certainly we continue to learn from each one.
We started the project really with some laboratory experiments on just trying to understand what the fluid behaviors would be.
And that certainly was very encouraging.
Then we rolled it out to a single well pilot and had positive results from that.
And then we started applying it to more multi-well pilots.
We had two full well pilots and a six well pilot.
And each one of those was successful.
So the next step, as we discussed, is to roll it out on more of a field scale model, which is a 32 well pilot.
And we will certainly continue to learn from that.
But yes, each one was very successful.
Yes, <UNK>.
As you know, we believe we have very sustainable cost reduction and technology gains.
We have done it every year we have been in the business.
And we have a lot of confidence and we see a lot of upside going forward to continue that process.
So as we increase productivity through being able to identify better rock and precision targeting and get even better with our high density frac techniques, we believe that the well productivity will continue to increase.
That would be one way to convert.
And then we also believe that we have sustainable cost reduction.
So two-thirds of our cost reductions during the downturn have been through technology and efficiency gains.
And we do not see any end in that.
And so we are quite confident that efficiency and technology will continue to drive those costs down.
So we believe a large percentage of the inventory that we have in the Eagle Ford will be converted to premium.
We also believe that in the Permian and we believe we will add continued premium in the Bakken and other plays too.
So we are very confident that our premium inventory but grow much faster than our drilling pace.
Yes, <UNK>, this is <UNK> <UNK>.
We've ---+ typically the governing part will mainly be ---+ and actual field applications will be on how we develop each pattern.
So as <UNK> mentioned earlier, the primary goal will be to go through and do a full-scale development on each and every lease with the latest high density completions.
That's the number one goal.
And the pace of development from that will dictate as to when we roll out the secondary or the EOR process.
But typically as we ---+ I think we have a slide in the deck on I think slide 4 that shows that timeframe will be somewhere in the first two to five years.
So I think that will probably be our initial guide.
There's no detriment that we see as to if you wait too long to implement it, it's going to be detrimental.
We think it is a great tool for just continuing to contact the remaining oil left in the reservoir.
Certainly economically there might be an advantage to doing it earlier than later.
But more importantly, the advanced completions are driving probably incrementally more success to start with.
So I don't know if that helps to answers your question but I would say that it will be somewhere in that first couple of years ---+ two to three years of developing.
The Eagle Ford is ---+ as we mentioned in the call, the primary ---+ one of the primary factors in the Eagle Ford success is the vertical containment.
The Eagle Ford is very well incased and has good strong barriers for both upward and downward growth, which is key for the process.
The Bakken and many other plays are going to be more challenged in that area.
That's probably the key primary difference that I would say lends the success more readily to the Eagle Ford than maybe other plays.
We have no desire or intention to consistently out spend.
So the number one goal this year is to balance our discretionary cash flow with CapEx and then, of course, we are working on property sales to help us ---+ prices continue to firm.
We have a lot of confidence that we are on the road to accomplishing that.
We do believe that because we are seeing significant cost savings in the current drilling, we think that is going to continue.
And any extra capital that we would have from cost savings, we will apply to completing new wells.
And that will be ---+ we're going to be disciplined.
We are certainly watching the market to make sure that we are not in a temporary uptick on prices, that the prices are more sustainable.
But when we feel good about that, we will apply those cost savings to completing additional DUCs later in the year ---+ most likely in the fourth quarter.
We want to enter 2017 on a growth mode in an uptick.
So we believe that we will be ---+ we will have the capital to do that.
Yes, we have a very robust exploration effort on new plays.
So we have various plays ---+ actually we will be testing this year.
We will see ---+ update you that when we have some meaningful results.
And then we're also picking up acreage.
It has been a great time to pick up low-cost acreage in places that we couldn't get acreage in the previous years.
So we have an active program going on.
Of course, we are very selective.
We only want premium plays to fit into our capital program.
So we are trying ---+ we're identifying rock that would meet that category and deliver those kinds of returns.
So we're not short changing that effort at all.
<UNK>, this is <UNK>.
On the chalk, we drilled these two wells.
We have taken a couple cores here and we've got quite a bit of log dated to go with that.
So we have really kind of mapped out the play and we are feeling pretty confident that we can move this play into the premium category and have a meaningful impact to EOG.
So we're going to go ahead and test, like a mentioned in my remarks, we will test another seven wells this year to kind of delineate the play.
And then, like I said, we will go ahead and move that into the premium [in-store] account.
And so it will be developed along with the Eagle Ford.
Yes, <UNK>, this is <UNK>.
The second part of your question to the extent of the acreage that might be applicable to this, honestly we just don't know at this point.
We do know that there are some areas that probably will be challenged to work economically.
We ---+ but we are still early on in that process and trying to determine how much of the acreage is applicable.
We just don't know yet.
Now the 32 well pattern is probably a good indication and maybe what we will look at in the future.
Will be subsets of ---+ or leases that will dictate the size of how we develop it going forward.
So maybe you guys think about it ---+ instead of a single well it will be groups of wells that will be implemented at one time and not single wells.
So we've kind of given you some guidelines of what we think the capital cost is.
And we tried to boil that down to a single well just so you can kind of think about it and knowing that each lease will have different counts of wells ---+ maybe 12 to 20 wells on any given lease.
And then the production profile we have kind of given a [cueme] curve out there that maybe give you some insights on what the cueme curves might look like.
The production response from this is pretty unique in the sense of secondary recovery projects in that it is probably the only process that gives you such a rapid production response.
You get a response in the first three months essentially, which is pretty fast.
And then it holds pretty steady for a number of years.
And so that maybe ---+ and so that is probably about as much detail on the ---+ on how we see the ---+ how it would be rolled out.
Again, the pace of development ---+ I know this is tough to model economically.
The pace of development is purely just going to be on the things we learned from this next pilot.
And then our development of existing units, we've used our high density completions.
So we de expect to increase the ---+ I would say we expect to increase the number of wells each year as we rollout the new budgets.
And it will become an ever-increasing part of San Antonio's capital allocation.
Yes, <UNK>.
This is <UNK> again.
You're exactly right.
I think that's a part of it.
First of all, we're early in the process.
So you have to remember that our forecast start out with trying to model ---+ trying to use simulation models to match our history from the pilot projects and then forecast what the future production might be from these.
So we haven't actually seen long-term production from a pilot.
Over the number of years it would take to demonstrate what the ultimate recovery is going to be, we're trying to model that with some simulation techniques.
I would say that our challenge technically ---+ so we're working on some enhance models to better understand what the long-term production will actually be.
So I think we just need further clarification and tests from existing pilots that were ---+ and future pilots to really nail that down.
And then you're right.
I think the vintage of the completions so ---+ will make a big difference.
The new high density completions, we expect, will respond better than some of the completions done several years ago.
Our pilot projects to date have been older style completion in large part.
So we expect improvements to continue to improve.
I think there is upside there.
Yes, <UNK>.
This is <UNK>.
I think you are on the right path there.
What we've learned is here where we're playing the chalk is the oil is stored a bit different than has been in kind of the previous history of the play.
And what that does is it allows it to be a bit more predictable.
And also allows us to employ our completion techniques.
And so I think going forward it is just going to give is a little more certainty on drilling repeatable high-quality wells.
<UNK>, I would like to add to that too to kind of expand on what <UNK> said.
I think that same kind of techniques that we're finding very successful in these other plays, by identifying their very sweet spots, the very best rock quality with our proprietary techniques and then being able to keep that bit at a very small zone in conjunction with the high density frac, that's really the key to all of these plays.
And it's no different from the chalk.
So we're just finding that we can identify a quality pay in the chalk and we are very encouraged about that.
You know, <UNK>, right now at this point we're not going to give you a lot of detail around the process itself or how we're implementing it.
But we will say that it is a missable process.
And so you can read into that what you might.
But we're not really giving a lot of specific details about how we're doing that or the interaction between wells or those kinds of things.
No, it's definitely not that process.
Again, were not going to give a lot of details on how much gas we are injecting.
But the important thing there is that ---+ two things I guess.
One, is that we have gas readily available in the field.
And then two, with our large footprint there in the facilities and infrastructure that we been able to put in place for our field really enhances our ability to move the gas around and get it to these leases to take advantage of this EOR process.
It really helps position EOG uniquely to be able to take advantage of something like this.
We'll it will be ---+ we're reporting production on a lease basis as we're required to do under the Railroad Commission rules.
And certainly over time there may be some things you can gleam from that data.
We'll see.
Honestly, I haven't checked a lot of that dated to see what it looks like versus what we see internally.
But I think over time you'll be able to discern what the actual results are.
And I would expect that data will become apparent in the future.
Yes, <UNK>.
We would ---+ we hold Austin Chalk with our Eagle Ford production.
So, yes.
It's right above the Eagle Ford.
And the second part of your question was.
As you know, there in the Eagle Ford, acreage is held pretty tight.
So at this point we're not leasing anything new on the Austin.
Yes, <UNK>.
I think that's right.
I think the overall benefit in the long-term is, yes, it will help flatten the decline ---+ the long life decline from the field.
We still haven't been able to quantify that yet.
But we're certainly very optimistic that it will certainly be very meaningful to not only the individual leases but the field in general.
<UNK>, this is <UNK> <UNK>.
As far as the potential on our acreage, we are encouraged because we see data, rock data and test data on various parts of our acreage that are encouraging.
And so we have seven wells, additional wells, additional to the two we've already drilled that we have planned this year that we will be testing some of these concepts.
And so once we get those done and we get some results that confirm the production like we have seen, then we will be able to, I think, give people an update that will be more meaningful on what the scope could be.
And then on the technical side of it ---+ let me let <UNK> kind of update you on that part of the question.
Like I mentioned before, we have collected a substantial amount of data.
Pretty much all the Eagle Ford wells that we've drilled have drilled down through the chalk.
So we have a very good set of log data, seismic data and, like I mentioned before, core data to delineate this.
So that's what gives us confidence.
And as well, there has been other industry wells drilled.
Some of the larger operators have not necessarily drilled very good wells.
But some of the smaller operators have drilled some really good wells along this trend.
Some of them have [cuemed] 300,000 to 400,000 barrels of oil in the first year.
So these are substantial wells.
And like I mentioned before, based on the data we have, we think they are very repeatable.
<UNK>, the technical advantages from a competitive standpoint are our ---+ I think our ability to recognize these pay zones.
And then target those pay zones.
That is ---+ it's what we've learned on the other plays is applying to the Austin Chalk.
So we're just taking this targeting ---+ precision targeting a step further to the chalk.
And we think that's very proprietary knowledge at this point.
Yes.
This is <UNK> <UNK>, <UNK>.
And what we've shared before is we're just going to be completing roughly 270 wells this year ---+ drilling about 200.
So we will be completing roughly 70 of our DUCs.
And we're just ---+ as <UNK> said, we've got these in inventory.
When we see prices improved, when we have additional capital, this will be just a source of assets that we can develop rapidly to bring on production when it is justified.
Yes, <UNK>, we've certainly taken a look at a lot of different pricing scenarios.
But we've looked at it in the sense of what we are currently modeling and also incrementally up to $5 gas prices.
And we still see incremental benefit and good economics even up to those levels.
So our economic sensitivity is not really a factor of what we think gas prices could be anywhere in the near future.
So I think it's going to be ---+ continue to be ---+ it will continue to be economic, even at what we see could be a foreseeable gas price in the future.
Good morning, <UNK>.
This is <UNK>.
We have 11 rigs under contract currently.
And that will declined to 9 at the end of the year.
So we will really average about 9 because we started with 15 rigs there in January.
And then next year I will start with 8 and that will declined to 4 so we will average about 5.5 rigs in 2017.
So, yes, we will have some DUCs but we will have quite a number of wells that we will be able to drill.
And we've got quite a few of these patterns we would like to further develop.
So we will maintain certainly more than 5.5 rigs in 2017.
The first ---+ that's a long question there.
As far as the premium DUCs, roughly 100 of the DUCs are in the Eagle Ford.
Most all of those are going to be premium.
We've got some there in the Permian Basin, they will also be premium.
The neat thing here is when you look at it on a finding cost basis, our new drilling is roughly $10 a barrel ---+ barrel oil equivalent.
And when you look at the DUCs and having already spent the dollars to drill, it's probably in the $7 range.
So those all look pretty darn good.
And as far as on our Eagle Ford and what wells have the modern completion to fit with EOR, by the time we get these patterns developed, a large portion ---+ the majority of our wells will have the more modern completion.
So that is what <UNK> and <UNK> are talking about now and just mentioning, yes, we want to go ahead and further develop these.
Because we're still working on our spacing and we need to get our spacing down there in the Eagle Ford.
So with that, the vast majority of the wells will have modern completion ---+ very fitting for EOR.
Yes, in closing, the first thing I would like to say is that we are extremely proud of all of the EOG employees.
They're doing an incredible job this year of resetting EOG to be successful in lower price environment.
The second thought I will leave you with is that EOG continues to focus on long-term value creation by making sure that every dollar we invested today is making a strong return.
And [growth] should be a product of making great returns.
So because of the tremendous technology and efficiency gains, the Company has the ability to make strong returns in the $40 oil environment.
And this uniquely positioned EOG to continue its leadership in high return US oil growth as prices improve.
Thanks for listening at thanks for your support.
| 2016_EOG |
2016 | CELG | CELG
#Thank you very much, <UNK>.
I can't thoughtfully respond to the first part of the question because the study is not completed and I haven't seen the data.
It is not unusual for large studies to have protocol amendments and some minor changes to plans and things during the course of the execution of the study.
I've never personally been involved in a study that had no amendments at all from start to finish.
So, some minor amendments can happen for a lot of different reasons.
Specific to this case, the study is not complete, I haven't seen the data, so I can't thoughtfully comment on whether there's anything there which would lead us to change.
But at this point we don't believe that there's anything that we see that would lead to major changes in the program.
Relative to what to expect, this is where it's a little bit different to take a look at comparables in the external world.
Very few other companies use SES-CD as the main endpoint to look at endoscopic healing.
There's been an evolution in time on what endpoint you should use.
Some of the older studies have different endpoints.
And the other thing that I think is very important when you look at the data from GED or any new entity in Crohn's disease from this point forward, is we're starting to do baseline endoscopies so that we can confirm that there actually is mucosal involvement at baseline.
The prior studies didn't do that.
Some of the patients didn't have any lesions when they went into the study, maybe didn't have Crohn's disease.
And that was one of the development challenges with Crohn's disease.
The way to get around that is to confirm active disease at baseline.
This is a little bit different study.
It's more rigorous from that perspective, making sure that there's mucosal involvement and mucosal damage.
And then taking a look at, with the SES-CD endpoint, which is different than endpoints that have been used in the past.
So, it's a pretty stringent study that's going to give us a really good idea of what's going on in terms of not only signs and symptoms in this population, but really, importantly, what's going on from an endoscopic perspective.
Can I answer the question.
You will see in CD-001 both clinical response from a CDAI perspective and clinical remission so you can compare that to what you saw on a slightly different patient population in the IGON-2 study.
The relative correlation between what you see in the mucosal signs and real healing, it's been an area of major debate, particularly in Crohn's disease.
Much clearer, you can see in Crohn's disease it's been an area of major debate.
There's a couple of recent review articles looking at all the data that are out there that sort of provide a picture.
But, the only correlation that's arisen that I'm aware of that you can see is, if you get control from a signs and symptoms perspective early, and you start to see some improvements in the mucosa, it generally leads to a positive effect when you get out to week 52.
So, that's basically what we're looking for in new Crohn's treatment ---+ signs and symptoms, significant remissions, and signs that it's actually starting to work at the early time points, and seeing endoscopic response, endoscopic improvements.
And those things together yield a probability of a patient being in long-term remission and getting through endoscopic healing at those longer time points.
Thanks for the question.
This is <UNK>.
We believe that our treatment of strategic collaboration transactions, where the portion of an upfront is related to the acquisition of rights, is excluded from non-GAAP is appropriate.
The acquisition of rights is unique to the formation of the collaboration, it's very strategic, and it's not part of our ongoing operations.
Of course, subsequently after that collaboration is formed, all other ongoing operating costs of the collaboration, whether they be development costs, they be milestones, they be royalties, co-commercialization, all the ongoing operational activities that we do together with our collaborator are included in our non-GAAP presentation.
I think that's the way we've always thought about it.
It's very hard to forecast strategic transactions.
It's something where I don't think many companies talk about what M&A deals they are going to do next year or what collaboration activity they're going to do.
And there are many reasons we could talk about in terms of how to think about this and how it makes sense.
In the interests of time now, since we're almost on the hour, I won't drag you through all that at this point.
But in the interest of time, our approach has been consistent for many years.
It's not uncommon across the industry.
Many companies have the same approach.
Importantly, we're fully transparent on all the factors we have in our GAAP to non-GAAP presentation, always have been.
And so anybody who wants to particularly look at it slightly differently certainly is able to do that.
That's fine.
At this point, really, we feel we're right on track with where we've been.
Obviously we are always talking to all the government agencies, the SEC and everybody else.
Some of those ongoing dialogues occur over lots of different topics.
Basically if something comes out of that, we'll communicate that.
But at this point really there's not much to talk about.
It's <UNK>.
We've got 12 other analysts who are trying to ask a question, so I'm going to ask that you go back into the queue.
And I think we're ready for the next caller
Yes, we are collecting those biomarkers and it should be part of either the oral presentation or a publication at some point in time.
But we are collecting them.
Thank you, <UNK>.
Where we are right now, we would always, similar to what we did with OTEZLA, we would always take a look and have some discussions and see what's in the environment.
There's been a lot of interest in ozanimod and MS and a lot of companies and others have reached out to us.
The way that I would look at this is you would like to see the fullness of the program and the Phase 3 data before finalizing any decision on how you're going to commercialize in any of the commercial aspects including pricing or partnering or other things.
We're going to get that data and we should have a good view on that in the first half of next year.
But we feel confident if we make the decision to go ahead and go alone, we feel very confident that we can do that very successfully.
We're doing that right now currently with OTEZLA.
It's a very relatively tight specialty group of physicians.
It fits what we do at Celgene.
If we looked at the data and made an organizational decision to move forward alone, we feel very confident that we would be able to do that.
We would also look to talk to partners, as well, if that made sense in terms of the overall value of the asset and the reach to patients worldwide.
| 2016_CELG |
2016 | VRSN | VRSN
#Sure, <UNK>.
Let me try to just, I guess, factually state what's actually changed.
First of all, the IANA transition was completed and the IANA contract between NTIA and ICANN was allowed to sunset.
So ICANN is now accountable to the community under enhanced accountability mechanisms.
Second, the term of VeriSign's .com Registry Agreement with ICANN is now extended to November 30, 2024.
So, the next renewal cycle for .com will be in 2024, not in 2018.
Third, the Root Zone Maintainer portion of the transition is now complete, as VeriSign will continue the Root Zone maintenance function it has historically performed but now under a new contract called the RZMA between VeriSign and ICANN.
Fourth, there are two amendments to the Cooperative Agreement between VeriSign and NTIA.
Amendment 33 discharges VeriSign from its Root Zone maintenance responsibilities and Amendment 34 approved the extension of the .com agreement to 2024 and gives NTIA the right to extend the Cooperative Agreement past its current expiration of 2018.
It also allows NTIA to conduct a public interest review for purposes of making the extension decision.
And also VeriSign still has the right, I would point out, under Amendment 32, to seek removal of the pricing restrictions in the .com Registry Agreement if we demonstrate to the Department that market conditions no longer warrant such restrictions.
Those are the basic, factual changes in all of these various events of the last 30 days or so.
So, if NTIA decides ---+ and it's their process and their decision ---+ but if they do decide to allow the Cooperative Agreement to sunset, as opposed to exercising their right to extend it ---+ so, I don't want to speculate on that process because that's NTIA's decision whether to sunset it or extend it beyond 2018.
I can tell you that we agreed to work with NTIA as they go through their process and make the decision.
However, I would point out one thing, which is that if there's a change to, or a termination of, or expiration of the Cooperative Agreement, the .com Registry Agreement itself contains something called the Cooperation Clause that states that VeriSign and ICANN will negotiate in good faith to amend the terms of the Registry Agreement, the .com Registry Agreement, as necessary for consistency with changes to, or expiration of the Cooperative Agreement, if that helps.
I think I can answer part of that.
I'm just trying to avoid speculating.
But in your scenario, if you are assuming that the Cooperative Agreement is allowed to sunset and there is no other contractual relationship or provision or restrictions ---+ relationship between DOJ, DOC and VeriSign, then VeriSign would negotiate in good faith, as we are both required to under the agreement, with ICANN to effect whatever changes need to be effected as a result of the sunset of the Cooperative Agreement.
So, that certainly would include pricing, but I don't want to speculate what that would look like today.
I believe that's correct.
It's a fact that the relationship that we have with NTIA is the mechanism by which the price caps are imposed on .com and that NTIA, where appropriate for its oversight through the Cooperative Agreement, consults with DOJ on issues of competitive issues, etc.
So, if that went away there would be at that point ---+ if that's all that happened and the Cooperative Agreement sunsetted, there is no other contractual relationship that we have at this point.
We don't have that type of relationship that you described upfront in your question.
I don't want to speculate on what that process in detail would look like and, therefore, it's hard to say where it would come out.
But it would, according to the language that's in the documents today, it would be the result of a good-faith negotiation between VeriSign and ICANN.
Essentially, the DOC is not in the picture if the Cooperative Agreement is allowed to sunset.
So, having said that, I would say that trying to determine what that will yield I think would be speculating.
But I would observe that ICANN's policies at least are fairly consistent in how they've applied pricing across TLDs, certainly since the new gTLD program.
There are a number of legacy TLDs, of course, like .com and .
net and .
org and others.
But it's just difficult to speculate on a process that only gets invoked under a set of circumstances that are two years away.
I think the main point is that the pricing imposed on .com at least since 2006 has come directly from DOC, so that mechanism goes away.
But in terms of what happens and who has the authority, it's a good-faith negotiation between VeriSign and ICANN.
That much is factual.
Nothing other than it typically does slow down as the year progresses.
Typically, at least historically we used to have very large registrations in the first quarter, so we'd get a bump in deferred revenue and it would decline sequentially over the year.
More recently that bump in Q1 has gotten less and so some of the changes year over year have rolled through, but nothing material that I am aware of, <UNK>.
So, we will give you Q1 guidance on our fourth-quarter call.
But, again, the reason for the large range that we put in place this particular quarter is the fact that it was a fairly large amount of names that came up for renewal, or will come up for renewal in this quarter.
And the cohort, or the type of names that they are, they are related to a Chinese investment community, we really don't have a tremendous amount of data around that.
And so we are really waiting to take a look at those names as they come up for renewal.
In the middle of November and early December we will get a better look at that, and once we have a better look at that it will give us a little more clarity into Q1.
But we have always said, the Q4 is a relatively unique event.
There's over 4 million names that are really coming up for renewal as a result of the demand that happened last year.
And so we are really waiting to take a look at that before we provide guidance to Q1.
Yes.
I would say, as you have commented on, I think we've done a pretty good job of trying to keep expenses level.
When you talk about year over year you are looking at the third quarter.
And I think it's probably more appropriate to look at the nine months because things can move from quarter to quarter.
And when I look at the nine months on a non-GAAP basis, expenses in total are down a little bit.
You are correct there.
But we are seeing some movement between the groups.
So, we've seen an increase in our cost of goods sold.
We've got more labor going on there.
Sales and marketing, we've talked about that.
It's been lower, but we do have an intention to put more money to work there and I would think that's really more of a timing function.
R&D is down.
We have reduced labor there.
As we talked about last quarter, I believe we did close our Indian Development Corporation over there last year and so we are getting some benefits from a labor perspective through the P&L at the present time.
And then G&A is up a little bit.
We do have some slightly higher labor and we've incurred some higher legal costs this quarter.
As far as your questions to the sustainability, we really try to manage the total expense of the Company, the entire $400 million number on an annual basis.
And we try to allocate those dollars to where they are.
Clearly, we try to gain efficiencies but at the same time we are not starving the business.
And as you know, our business is relatively dynamic.
As the cyber environment continues to evolve we absolutely want to make sure we put enough resources into maintaining the security and stability of the business.
So, we will continue to be vigilant on that, but to date we've done a good job of keeping them in the range where they've been historically.
Yes, a couple of data points.
The names that were up for renewal this quarter was 28.7 million and the names that are up for Q4 are going to be 32 million names that are up for renewal.
I would say it's too early for that at this point.
Yes, we ran some marketing activities in the quarter around .
net and they were actually relatively successful.
And so the team is evaluating programs to see if we want to run some more of those.
But we had a marketing program basically, and those numbers are roughly right, about 300 names came in from those marketing programs.
The programs vary from program to program.
This was more of a program we were looking to see if we were in a short-term program what would be the effect of it.
Sometimes we run programs throughout the year, much longer-term programs and we are questioning the effectiveness of those compared to some shorter-rate programs, shorter-term programs, and this one was a relatively short program.
We just wanted to understand the duration of programs and get some feedback as we think about 2017.
Thank you, operator.
Please call the Investor Relations Department with any follow-up questions from this call.
Thank you for your participation.
This concludes our call.
Have a good evening.
| 2016_VRSN |
2016 | AEE | AEE
#Sure, <UNK>.
This is <UNK>.
You may recall when we gave the long-term guidance outlook back in February we, number one, said we expected 5% to 8% compound-annual EPS growth from 2016 through 2020.
The foundational element of that, of course, is the 6.5% rate-base growth that we have which we showed from 2015 to 2020.
Importantly, when we talked about that 5% to 8% compound-annual EPS growth, we were basing that off of an adjusted 2016 EPS guidance of $2.63.
Obviously if you took our guidance for this year, the midpoint's $2.50, but we added to that the impact we estimated at that time of the Noranda outage which was $0.13 at that time, to get to an adjusted midpoint of $2.63 and then base the earnings guidance off of that.
The reason we did that is that we do believe the impact of Noranda's outage on our earnings to be temporary.
As we mentioned on the call, we do expect to file a Missouri rate case in early July of this year.
We expect that, that rate case will reflect the reduced usage by Noranda and as our rates are adjusted next year, then the temporary impact of this earnings decline from the outage would be erased.
So that's how we expect it to go.
Long term in terms of our earnings growth guidance, Noranda may be there, Noranda may not be there; we are not speculating on that.
But we do believe that through the rate case process that the impact of the outage will be mitigated.
Yes.
That's absolutely right.
We said that in February, we stand by that.
As you know, the overall 6.5% rate-base growth is the foundation.
We've got about 2% growth forecasted for Missouri over that period of time.
We do believe both that rate-base growth as well as our earnings growth expectation of 5% to 8% can be achieved without the need for legislation in Missouri.
<UNK>, it's a good question.
I think going forward, continuing to think about that 38% effective tax rate is probably the right way to think about it, but to be aware that there could be some variation up or down from year to year based upon this new accounting guidance.
As mentioned on the call, what it would really be a function of is what the fair value is of long-term share-based compensation is at the time it vests, versus what's been reflected in book expense over the three years as it relates to our plans over the three-year vesting period.
That can create a little bit of volatility in the effective rate.
In this particular period, as you see, the value of what vested was greater than what had been recognized in expense over the past three years.
Therefore, the tax benefit was greater than the effective tax rate reflected over the past few years, so we ended up with a benefit this year.
But as noted on the talking points, it could be a benefit or it could be a detriment.
But I think in the absence of any further information, I think I would expect that 38% effective tax rate.
As it relates to this year, that item had a discrete impact on the first quarter, so it lowered the first-quarter effective tax rate.
At the end of the year, as we mentioned in the prepared remarks, we expect the effective tax rate to be around 35%, which would imply over the remainder of this year in the remaining three quarters that effective tax rate somewhere between 37% to 38%.
<UNK>, this is <UNK> <UNK>.
At this point in time, we are fully expecting just to go to each county and present the evidence of ---+ really their statutory obligation in each county is to ensure that the transmission line doesn't have any impact on the user safety of public roadways.
We will put that packet of information together for each county and pursue getting their assent when we make that demonstration.
At this point in time, we're not anticipating any additional litigation in that regard.
Thanks, <UNK>.
You bet, <UNK>.
How are you.
<UNK>, this is <UNK>.
Could you restate your first question.
We're not clear what statistics you are referring to.
<UNK>, this is <UNK>.
I think a couple things.
Number one, by and large, Illinois has clearly made progress in an improving reliability as well as responding to outage duration as a result of the grid modernization project.
By and large, what you are seeing between the two jurisdictions is that they are moving closer in terms of what their overall reliability and ultimate responsiveness to outages are.
Illinois will continue ---+ they have specific metrics that they have to hit as part of the Grid Modernization Act and they will continue to pursue that.
As part of the legislative effort in Missouri, there were specific performance metrics that are put out there as well for reliability and that was in the legislation.
I think importantly what really we were focused on and will continue to be focused on Missouri is to address the aging infrastructure.
So what are the kind of things that we would think about doing.
Well, we would certainly be doing many of the things that you're seeing over in Illinois.
Investing in smart meters, Missouri needs to do that.
And it's an opportunity not just for our customers ultimately to be able to use the more advanced meters, it's investing in a smarter grid, whether it be in the power lines, whether it be in automating much of the grid compared to where it is today.
Substations, all of these things are very important and things that we're doing in Illinois that we would be focused on doing in Missouri.
But also as part of the legislative effort we would be looking at the generation portfolio.
Clearly we have aging infrastructure there and we could do improvements in a more timely fashion, we think, in our generating power plants as well as investing in renewable energy which was a significant aspect of this bill.
So when you put all those things together, these are things that we would be focused on in Missouri, should we get legislation passed that would support that investment.
Those are the kind of things that we are going to continue to talk about with policymakers, both the remaining part of this session as well as, frankly, moving into next year, both during the rate case as well as preparing for the next legislative session.
We're going to have <UNK> <UNK>, she can jump in.
As we've seen some of these retirements, we think there are some transmission opportunities.
And so, <UNK>, why don't you jump in talk a little bit about some of those.
Yes.
It's a little too early to be specific about what projects, but process-wise when a generator applies to MISO to shut down even on a interim basis, there's a study that is done by our transmission planners if it's a generator on our system to determine what the transmission needs would be to make sure the system can still operate reliably.
So there's certainly the potential as these reported shutdowns are studied for our additional transmission investment.
The one thing I would point out is that because any needed investment here would be for reliability purposes, that would be outside of the competitive process and it would be Ameren's own companies that would be making any investment that was identified.
So, <UNK>, I apologize, I think I was saying <UNK> a moment ago.
It's <UNK>, so I apologize for that.
I'm sure <UNK> was not offended; hope that you're not as well.
<UNK>, this is <UNK> again.
I think a couple things.
It would be premature for us to say if we're going to do something special from a regulatory framework perspective.
Every time we move into a rate case we step back and say, okay, what from a policy perspective things that we want to pursue.
So we'll step back and think about that.
And in terms of the overall rate increase, it too is premature.
You will see a lot of that here coming up very soon in early July.
We will give you all of the specifics and as we move forward in the rest of the year, we will explain the case in more detail to you and the rest of our shareholders.
Thank you, <UNK>.
Good morning, <UNK>.
<UNK>, this is <UNK>.
That 2% I was referencing was rate base.
So overall we are expecting 6.5% compound-annual rate-base growth.
In Missouri, we expect it to be 2% compound-annual rate-base growth.
So really not commenting specifically there on earnings, but overall I would say that 6.5% rate-base growth is the midpoint of our long-term earnings-per-share growth guidance of 5% to 8%.
Consistent with what we've talked about in prior quarters, the bulk of that growth is coming in our FERC-regulated transmission and our Illinois electric and Illinois gas distribution businesses where we're allocating a significant amount of capital because of the constructive regulation we have in those jurisdictions.
We've typically experienced 11-month resolution of the rate cases in Missouri.
We hadn't given that, but to your point, what we said on our call today is we expect the impact to be about $0.15 this year.
And just to give you an idea of how that breaks down, this year we expect ---+ obviously, we experienced in the first quarter about a $0.03 drag on earnings.
We expect another $0.03 drag in the second quarter, $0.06 in the third quarter, and $0.03 again in the final quarter of the year in the fourth quarter.
So through the first half of this year about $0.06.
To your point, Noranda was up and running to some extent in the first quarter.
So I would say an impact on the order of $0.07, $0.06 to $0.07 in the early half of next year until we can get rates updated is probably a fair assumption.
Yes.
Noranda ---+ and we talked about this at some length in our February call.
Noranda has differential in rates, so between October and May of each year their rate has been $31 and during ---+ per megawatt hour, and June to September about $46.
So they've had differential, I'll call them winter and summer rates, and so there is a differentiated impact in those various quarters.
Sure, <UNK>.
What you're referring to in the Q, I believe, is that we actually lay out what the amount was that was actually included in rates when rates were set and then contrast that with the transmission costs that we are actually experiencing in 2016 and so there is a differential there.
The transmission costs have grown.
During our last rate case the transmission costs were removed from recovery in the FAC.
That's an element of lag that we are experiencing.
So you would expect as we go to file this next rate case that we would update our cost of service for the transmission costs that we're incurring and through the rate-case process you would expect then that, that increased cost would be incorporated into the revenue requirement.
You know, <UNK>, in the absence of a change in the regulatory framework or some mechanism to avoid that, there would be continuing drag on earnings or regulatory lag associated with that item.
It's something that certainly we will consider as we go into this next rate case is how to deal with that.
But absolutely at this point in time it is not incorporated into the FAC.
I would remind, <UNK>, that overall we continue to work very hard to earn as close to our allowed returns as we can.
We have had that lag from transmissions since the last rate case and we have been working hard to do what we can to find cost reductions in other areas.
We mentioned in the guidance earlier this year that year over year as we move from 2015 to 2016 that we expect overall our operations and maintenance expenses to be down in Missouri.
When you normalize for the Callaway refueling and remove the effect of Noranda, we expect to earn within 50 basis points of the allowed this year.
In isolation absolutely, yes, the increases in transmission costs are creating lag for us.
Yes.
I think was ---+ you might look.
I think it was in 2015, but I can't remember what the exact cutoff date was.
I think I'll let <UNK> address it.
I think we would have to give that one some thought whether that simplified works or not.
I don't know if I'd assume that to be the case.
As we work through the rate case, maybe there will be clarity brought to that issue.
But I wouldn't want to speculate that there would be some windfall that would be achieved as a result of that.
Good morning.
<UNK>, this is Warren.
A couple things.
Just in general, as you know, from a buyer perspective obviously you look in the past we have been a buyer of M&A.
But as I've said before and will continue to say, our policy has been we don't get into the specifics or comment on speculative transactions or M&A activities just in general.
That's not very constructive.
As you know, we've grown in the past through acquisitions.
But to be clear, our current plan is focused on the plan that I laid out before and that's on the organic growth in our regulated business.
We plan to deliver strong earnings growth that I outlined and it's driven by the rate-base growth, of course.
With our strong dividend, we believe we will deliver the superior value to our shareholders and ultimately to customers too.
M&A is happening in our space, so it doesn't surprise us that there continues to be some level of consolidation.
In particular, we continue to be attentive to the things going on in our space like other companies.
But whether we're a buyer or anything, that probably takes it one step too farther than just what we've done in the past.
<UNK>, this is <UNK>.
I will ask <UNK> <UNK> to speak up as well.
I think that there's ---+ whether there's going to be a specific workshop, I don't think there's anything that's been decided in particular on that, that's always a possibility.
I don't think the Commission has come out with a specific statement or ruling that they plan on doing that.
<UNK>, I don't know.
I'll let you ---+
I think that's right, <UNK>.
I think the Commission remains focused on trying to help deal with this regulatory lag issue.
I think that could potentially be an outcome to work through the summer to help gain some additional support with respect to what we're trying to do here in Missouri.
Sure, <UNK>, this is <UNK>.
I guess a couple things.
Number one, the session, as I said, ends this Friday.
The reality is time is very short.
While comprehensive performance based regulation legislation will not pass, at least from our perspective, it doesn't mean that we still don't have conversations with key stakeholders to see if we can make some level of progress.
It's probably not appropriate for me to speculate, frankly, to say what that may or may not look like.
We will know, frankly, in a few short days whether anything happens.
But time is short.
While it may be difficult, it doesn't mean that we are still not at the table talking to the key stakeholders.
Stay tuned That's a good way to put it.
Sure.
Yes, <UNK>, this is <UNK>.
Still if you look at our slides that we've got out there today, we look to keep a parent Company cap structure around 50% equity.
Today I think in our Missouri rates we've got a little north of 51%, in Illinois about 50%.
The transmission business, depending on where it's at, anywhere from 51% to 56% with our hypothetical cap structure for ATXI.
We have, over time, tried to keep those all in the ballpark in the general vicinity of one another and generally keep strong balance sheets and solid credit ratings.
I would say in Missouri we really haven't experienced any sort of look-through kind of issue, if that's what you're getting at.
I think over time in Missouri we have been able to demonstrate that the equity in the utility balance sheet hasn't been funded by any debt at the parent.
So largely, I would say, it's by choice.
We think it's good to keep all of those in general alignment.
Like I said, keep a strong balance sheet.
I do think as you look around the state there's different historical practices in terms of use of the parent Company balance sheet or utility-specific balance sheet, but seems more situational versus some bright-line test or standard practice.
You're welcome.
| 2016_AEE |
2016 | WBS | WBS
#So <UNK>, it's <UNK>.
Good morning.
We do expect or anticipate a Fed rate hike December 14 up to 75 basis points.
And really what's driving the margins, so we're at 310, we continue to see as the securities portfolio reprices, to give you an example of that, our purchases are coming on at say 256 with a 5.3-year duration.
They are coming off still a little above 3.
So that's going to continue to put pressure on the margin, about 2 basis points in NIM.
On the other hand, as we've seen live or increase both on the CRE and C&I portfolio we will claw back 2 basis points.
To give you an example, CRE, 91% of the CRE portfolio is floating or periodic.
So that benefits, and it's LIBOR-based so that benefits from the increase in LIBOR that we've seen over the last couple of months.
Likewise on C&I, 84% is floating and periodic.
So we claw back another basis point.
So you have 2 basis points pressure from the securities portfolio and then you claw back 2 on the commercial portfolio.
And so you end up, and that's broad-based, you end about 310.
Hey, <UNK>, it's <UNK>.
Again, that's a hard line to forecast.
And we had terrific swap revenue, record swap revenue in the second quarter, $4.6 million, and this quarter it was more like $2 million, which is still put a good.
That was offset by some of the loan fees, the syndication fees that you saw.
So it's a really hard line to predict on an annual basis.
And as <UNK> indicated it's very lumpy, but I don't know, <UNK>, if you want to add something.
Yes, it is.
It's almost impossible to do it by category.
I mean, I think we target, along with our PPNR and loan growth we target low double-digit growth year over year.
So we make our internal forecasts and we are aspirational to get a 10% to 12% increase in total non-interest income from the various categories.
I would say within the range of 32% to 33%.
<UNK>, it's <UNK>.
So there are things in the quarter.
We have indicated that we are investing more aggressively in the HSA business.
I wouldn't give guidance on a full-year basis, but I think going into the fourth quarter we expect it to be around 62%.
I think a lot of the gains that we will get on the efficiency ratio will be on the revenue side as opposed to the expense side given our appetite for investing in strategic initiatives.
I want to add to that.
It's <UNK>.
We've reiterated the comments that we've made about investing in our businesses, which will provide us with higher revenue, better efficiency ratio over time.
So the idea of having a sustainably lower efficiency ratio was a goal.
In the meantime, we've done a very good job of managing our expenses.
And so the point we are making is as we invest in our highly differentiated businesses, particularly HSA Bank and Commercial Banking, that there may be some investments sooner rather than later.
And as a result of that you could get a little bit of lumpiness in the ratio but the trend is still very positive.
So when you look at it over the intermediate term we are going to do better as a result of the investments that we make today by delivering a sustainably lower efficiency ratio over time.
And that's what we are focused on.
Well, what we are saying is you've got Boston, you've got investment in HSA, Commercial Banking.
There may be some quarters where it's under 60% and others where it may be a little bit over 60%.
Longer term we think it will be well under 60%.
So instead of trying to nail a prediction on efficiency ratio quarter over quarter, what we are saying is that expense discipline is ingrained in every decision we make here at Webster but we also recognize there's an opportunity to invest.
And sometimes we want to invest now rather than trying to smooth that out over a longer period of time.
So I'm not trying to avoid your question.
I'm saying we will manage our expenses tightly and we will invest in our businesses as appropriate and we will deliver better performance and a better sustainable, lower efficiency ratio over time.
No, it was $1 billion in deposits over five years and $0.5 billion in loans.
And we have no doubt that we are going to be able to achieve those goals.
We don't want to predict it, but clearly we are on track to be able to achieve that.
We originally had thought we would be somewhere between 250 and 300 at the end of 2016.
We think that's going to be closer to 200 at this point.
Yes, in deposits.
But over the five-year horizon where we had estimated what we thought we could achieve we said $1 billion in deposits and $500 million in loans we were holding (technical difficulty)
<UNK>.
Good morning.
We had a couple of opportunities as we looked across the portfolio.
One we were originally anticipating rates would start to go up but given the current environment that we took a hard look at all of our tiers and then some of our partner agreements.
And so we adjusted in just a few minor areas within our pricing structure and that's what drove the 2% or the 2 basis point increase.
And I think I don't see any changes in the near term, but as we see opportunities we make those decisions and make those changes.
No, it was elsewhere, it was spread around the organization.
Some of that is more of annuity but some of it is one-time, as well.
But it was in the other areas as opposed to HSA.
Mark I just want to say, too, that your question about the cost of the HSA deposits reinforces what's so important about those deposits is that they are stable, they are long, term and they are low-cost deposits with less elasticity than other deposit categories.
So, no, we don't think deciding that we should push rate to gain deposit share.
In fact, that is exactly what we are not doing.
I want to be clear about that.
We could have kept our promotional rates relatively high, extended the periods.
We said, no, we are not going to do that.
That's not the right call.
But as we assess the market we think the potential is as great or greater than initially estimated, which is why we still have confidence that we will make the goals we originally had estimated.
And not just for deposit and loan growth but for profitability, as well.
The environment, <UNK>, was such that, particularly when Citi deposits were in the minds of many up for grabs, that that was one of the developments that I think encouraged people to promote very heavily and we think that is going to subside and so that was an unusual period.
I think, importantly, as we noted, we actually have more accounts open than we had expected that we would at this point.
We've got a great team of people in Boston that's going to develop those relationships.
And in the end that's what it's all about.
So for those reasons we remain highly confident we will achieve our goals.
And let me just add to that, <UNK>.
It's <UNK>.
We also are just starting to get traction on things like small business banking and commercial where there's definitely some upside there.
So that's not going to impact the pricing.
But small business banking, as an example, I think they just started to get a lot more traction on that.
The halo effect of our expansion into Boston on the commercial <UNK> can probably highlight, but I think we are definitely getting a lot more looks at things as a result of our presence being there.
Part of it, <UNK>, is just timing.
So business banking, we've hired out our group of business bankers and we are starting to see a big pipeline for business deposits there and it is just taken a little bit longer in our initial assumptions.
We are seeing activity in government banking around the municipalities where our branches are located which will give us additional momentum.
Commercial bankers are seeing a lot more momentum.
Our private banker and wealth manager there, who we really have a lot of confidence in, is starting to gain significant traction.
So I think part of this is just timing.
It's why we remain confident, but we are in that blocking and tackling phase where we are fully staffed, positioned and now we just have to continue to get it done.
One thing about Boston is that they really have the right type of customers.
When we think about emphasizing mass affluent focus there's no question about that being a very, the most attractive market, no question about it for us.
So that holds.
And we are assessing the quality of the deposit opportunity and we think it's as high as we originally had expected.
And I think the point is already made here is that it's not simply what's happening on consumer deposit side, it is also what's happening in business deposits and what's happening on the mortgage banking side and what's happening in Webster investment services and the private bank.
And the commercial bank is benefiting, as well, as is government banking.
So basically the totality of Webster is being delivered in the market.
Our brand awareness is increasing every day.
So when we think about what's happening over the longer term there is no doubt that we are going to be able to achieve our goals and have the quality of relationships that we had envisioned.
And let me say the average balances are pretty good for these relationships, as well.
Well, we're still getting the benefit of the LIBOR increases I highlighted.
So I think we'd be relatively flat going into just the fourth quarter.
Maybe a half a basis point assuming if they raise (multiple speakers).
Yes, it's two weeks and it really, it doesn't, I guess, it's $300,000 at the end of the day.
So it's not a big number.
So it's about a half a basis point.
Thank you, Michelle.
Thank you all for being with us today.
Have a good day.
| 2016_WBS |
2017 | UHS | UHS
#Thank you, Jennifer.
Good morning.
Alan Miller, our CEO, is also joining us this morning.
We welcome you to this review of Universal Health Services\
Sure.
When the BuzzFeed article came out, which was in early December, we obviously speculated at the time and anticipated that we did not believe the article would have much, if any, impact on our underlying behavioral operations, on demand, on our referral sources, on the behavior of our clinicians, et cetera.
Unfortunately we went into our quiet period about a week after the article so we didn't really comment with any great specificity after that.
So, it's with a measure of relief that I'm happy to say that with the passage now of several months that all that we represented at the time really seems to be valid and verifiable, that there's been little impact on our underlying business.
I think you see that in our Q4 volumes which incrementally improved during the quarter and continued to get a little bit better with each passing quarter.
And I think we can say that in January and February that improvement continued.
So, again, from an underlying operational perspective, we see no material evidence that the BuzzFeed article has had an impact on us.
In terms of the investigation, we filed our 100K last night, and if you read the legal disclosure section you'll see that there's really no change to the disclosure there, which I think is an indication that our conversations with the government and the activity with the government has also not changed, at least in any way that's apparent to us, in any measurable way since the BuzzFeed article came out.
Sure.
What we have talked about, quite frankly, for some time now is that beginning in the middle of 2015, really with the third quarter of 2015, our behavioral revenues and volumes became more muted and we largely attributed that moderation to difficulties in finding an adequate number of clinicians, mostly nurses but to some degrees psychiatrists and mental health technicians, in certain markets to service the demand and the patients who were requesting services at our facilities.
We've been working on that issue ever since and have and have said that we believe in the back half of 2016 that we are beginning to make some incremental progress, and that our expectation was that by the time we got to the end of 2017, we would be back to what we consider a normalized run rate, which would be something like 5% or 5.5% revenue growth and 6% or 7% EBITDA growth.
I think if you look at the cadence of how we expect that recovery to continue, I think it's what creates, in large part, the range of our guidance for next year.
So, I would say the mid point of our range for next year assumes that recovery in our behavioral revenues and volumes takes place rather ratably over the course of the year.
The low end of the range would suggest it takes place a little more slowly, and I think the high end of the range would suggest it takes place a little more quickly than that.
Again, I think that our acute care guidance for next year is really something we've been talking about for some time, and that is, while we are extremely pleased with our robust acute care volumes and revenue care growth in 2016, we acknowledge that they are industry-leading numbers and, frankly, industry-leading numbers by quite a large margin.
And obviously certainly we're going to try and stem those numbers as much as we can but, realistically, feel like some moderation is likely.
The guidance for next year presumes that acute care same-store revenue growth moderates to something in the neighborhood of 6% next year, and that would translate to 7% or 8% EBITDA growth.
And while you didn't ask this, and while we don't normally give quarterly guidance, I will mention that, as people look at their quarterly models, they should just keep in mind that, particularly in Q1, our comparisons for 2016 are very difficult on the acute care side.
So, I would, again, suggest to people that's something you keep in mind as you think about the cadence for next year.
As far as capital deployment goes, historically, our convention has been to simply reflect in our guidance the share repurchases we've made already at the time of our guidance but then not assume any further share repurchases, and a just really assume that all of our free cash flow goes toward the repayment of debt, which, in our case, would be the repayment of relatively low-cost debt.
So, from a guidance perspective, it's a fairly conservative position to take, but consistent with what we've historically done.
Sure.
So, I would note this ---+ in the fourth quarter of 2016, our overall Medicaid volumes have grown by about 3.5%, our overall rotation days, compared to the 1.5% divisional-wide growth.
So, our Medicaid volumes are growing faster than our overall volumes.
It is impossible for us to attribute that directly to the impacts of the IMD exclusion being lifted, et cetera, but it seems to be consistent with the idea that we'd be getting some benefit from that.
At the same time, and I don't think the two are absolutely directly related, but, as you suggest, we have talked a great deal of the last few quarters about the fact that we are having much more frequent conversations with acute care hospitals about, in some way, penetrating and sharing in the economics of their behavioral health facilities.
And we probably have about a half a dozen arrangements that we've had a place for some time representing executed transactions already reflecting that.
Those numbers are already embedded in our same-store results.
I think we concluded that there was no point in trying to extract them or really call them out separately.
As we move forward, I think we will identify these new arrangements separately and talk about EBITDA impact, et cetera.
We announced in the third quarter, for instance, two joint ventures to build new behavioral freestanding facilities with acute care hospitals, one in Lancaster, Pennsylvania, and one in Spokane, Washington.
Neither of those will have an impact in 2017.
They will both open in 2018 so they don't really have an impact on guidance but it's something we continue to work on.
And then we probably have about a dozen other conversations that I would describe as likely resulting in some sort of arrangement but still a little too early to discuss them with any level of specificity.
And then, quite frankly, a number of other conversations that are at much more preliminary levels or preliminary stages.
So, we continue to view the opportunity to penetrate or integrate the behavioral units within these acute care hospitals as a tremendous development opportunity for us, not just in the next year or two but, frankly, for the intermediate and long term.
And we will continue to report on those as we do then.
But other than the about half a dozen that, I think, as I said, are already embedded in our same-store numbers, I don't think those conversations and those new arrangements are likely to have a material impact in 2017.
I know that a number of our acute care peers have talked about that dynamic of increased outpatient competition from all the sources that you mentioned ---+ freestanding EDs, ambulatory surgery centers, et cetera.
And certainly we have noticed and continue to feel the same dynamics.
Now, I will say that it appears, if you look just look at the relationship between our admissions and adjusted admissions, that we haven't had the negative impact on our outpatient revenue that at least some of our peers have had.
I don't necessarily have any real explanation for that other than it may well be that in some of our more mid-sized urban or suburban markets that outpatient pressure is not quite as severe as it is in some of these really large urban markets.
That's really mostly speculation on my part.
It does look, as you compare our outpatient numbers to our peers, that our outpatient volumes are holding up a little bit better, although certainly we feel the same pressures from these niche outpatient providers that our peers report, as well.
Honestly, <UNK>, I almost have the view that in markets like McAllen and Las Vegas, that outpatient push occurred even earlier.
Those happen to be two very, what I would describe as entrepreneurial from a physician perspective, market.
So, while something like freestanding EDs are a relatively new development and concept, things like physician-owned surgery centers and even a physician-owned hospital, when it comes to the McAllen market, are things that we have been dealing with for years and years.
So, I also think that maybe one of the issues is that, again, in some of our larger markets, we are maybe a little bit further along on that outpatient competition curve and so the comparisons don't look as difficult for us.
No, it's really just a function of giving people what they want.
I've been asked by investors for a couple of years to include more detailed information, particularly about EBITDA, in the guidance.
So, we thought it would just be useful progress.
<UNK>, I think what we have said up to now is that our view is that the Affordable Care Act has had relatively minimal impact on our behavioral business.
The biggest impact we think it's had on our acute business has been on the Medicaid expansion side of it.
And on the behavioral side, because most of those new Medicaid expansion patients are adult patients, and because the IMD exclusion has precluded those people from being treated in most freestanding behavioral facilities, that really wasn't a benefit for us.
And on the commercial exchange side, because so many of those plans were high deductible plans, and because behavioral bills tend to be much smaller, we felt that, besides the anecdotal patient here or there or the incidental patient here or there, there really has not been a pervasive positive impact on our behavioral facilities that there has been on the acute facilities.
As far as what the prospects are going forward, as you suggest, speculating how modifications to the ACA are going to deal with the essential health benefit piece of it is very hard to say at this point.
While there's been tons of talk about repeal and replace, or repeal and repair, or whatever, there's very little agreement on any details because.
The President suggested just a couple of days ago, this is a very complicated subject, and I think everybody's realizing that.
So, I think it would be difficult to speculate how we'd be impacted, although I think we share the view that you articulated, <UNK>, which is that we believe that behavioral care and behavioral treatment in general is viewed positively at both the federal and state levels at the moment, and that it is not a segment or space that is under a lot of scrutiny or pressure.
So, just our general expectations are that it will be treated favorably however the details are worked out progress
Starting backwards, we never imagined that there would be significant synergies from this transaction.
As you articulated, <UNK>, our existing footprint pre-Cambian in the UK was relatively small.
So, there was not a great deal of overhead to be ultimately synergized, if you will, between the new Cambian business and our existing business, maybe ultimately $1 million or $2 million of ultimate savings.
And we certainly haven't even included that in our guidance, or the assumption of that in our guidance.
We certainly did our own due diligence before the transaction with trade restraint attorneys in the UK and had them look at the geographic overlap of the businesses we were acquiring and those that we already had, and generally concluded that we thought there was relatively minimal overlap and risk of CMA issues.
But of course we won't know that until the CMA does there work.
We have been providing information to the CMA almost from, I think even the time that we announced the transaction.
They, of course, just announced this past week or last week that they were beginning their formal process.
We don't really have a lot of feedback from them.
We view this at the moment as just part of their routine exercise.
As they communicate with us, we'll keep folks updated, but at the moment it's really impossible for us to know what direction and with what rigor and scrutiny they're going to approach this.
I think the one nuance is that our year-over-year UK pricing, even though as you again articulated is a relatively small component of our business, the pound declined in value about 22% from the fourth quarter of 2015 to 2016.
And that dramatic decline, even on our relatively small UK business, was enough to drive that same-store pricing metric down about 100 basis points.
So, when you adjust for the currency fluctuation, we're at about 1.5% price increase, which is pretty consistent with what we've been running, and pretty consistent with what we, frankly, expect is a sustainable number.
Sure.
I think from the outset, based on our previous experience, I can think in my 30-plus years with the Company of maybe two or three other nursing shortages, relatively severe nursing shortages, that I have been through, mostly, honestly, on the acute side.
They tend to, I think, have a life cycle to them because I think the market, as markets generally do, tend to correct themselves.
So, as a nurse shortage becomes apparent and nurse wages and demand for nursing hours increases, the market responds in a macro way by more and more people enrolling in nursing school, by part-time nurses working extra shifts, by retired nurses coming out of retirement and working an extra shift here or there.
There's a natural increase in the supply of nursing hours.
Now, that takes some time, and I think historically has taken 18 to 24 months.
So, if you peg the beginning of this shortage as right around the middle of 2015, we're just about at the 18-month mark with the end of 2016.
So from a macro perspective, there's some of that, just expectation that the market itself and the macro environment will begin to improve beginning in 2017.
Certainly as a Company, we have not been just sitting on our hands waiting for that to happen and we've been aggressively implementing our own initiatives to increase our recruitment activities and our recruitment focus and our recruitment infrastructure and our internet application process, and a million other things, as well as trying to focus on better retention policies for the nurses we do hire.
That's been an enormous focus of ours, as well, so that once we hire nurses, making sure that we have mentoring programs and educational opportunities and career advancement incentives all in place so that we keep the nurses who we to hire.
Now, all that, to be fair, is relatively generic, et cetera.
I think what ultimately gives us confidence is that over the last couple of quarters, we clearly see the amount of nurse vacancies being reduced and a lot of those vacancies being filled.
We see a number of the units that we have closed or in facilities where we've capped the census or limited the census.
We've seen those caps either reduced or lifted.
Now, what we do think Q3, and what we said we expect it to continue into Q4, is that there is this transition period, that as we hire new nurses there is some increased expense as we begin to pay them their salaries, but they are going through orientation, they're going through training.
Frankly, one of the tactics that we've had to adopt in some cases is hiring less experienced nurses, more nurses who are directly out of nursing school so they require, frankly, more training, more orientation, which just elongates the period of time it takes.
But it's really that visibility that we have, <UNK>, into how many vacancies are open, how many beds we been able to re-open they gives us the confidence that, as we've been talking all along, will really begin to make some traction in 2017 in building those volumes back up to the pre-Q3 2015 levels.
I think about it in a couple ways.
I think that what we experienced in Q3 and, to some degree, continue to experience in Q4 is some, what I would describe as, duplicate costs, meaning we're paying these nurses, and we have that expense but they're not yet really productive.
That is, they're not on the floors treating patients or they're not on the floors treating what we would describe as a normal or average workload of patients as we bring them incrementally into the system.
Obviously at some point we will get past that incremental investment and this new expense, et cetera, and I think that will begin to occur in the first quarter of 2017.
I DO think there is an ongoing level of increased expense.
We've had to raise wage rates in a number of markets.
We're using temporary nurses in markets at an added cost.
And we've added temporary psychiatrists, quite frankly, in some markets that we haven't had to do in a long time.
And I think the way we've reflected that is, we've talked about exiting 2017 with something like 5% behavioral revenue growth and 6% or 7% EBITDA growth.
If we were having this conversation two years ago, I would have probably suggested at that time that 5% revenue growth translates to maybe 8% or 9% EBITDA growth.
The moderation, I think, in the EBITDA growth assumptions is a reflection that some of this wage pressure and wage increase is more permanent in nature and something that we're going to have to deal with on a more permanent basis.
So, I think about it, again, in some ways, as some of these costs are temporary, some are more permanent.
But I think we've reflected all that in our guidance for next year and in the assumed and projected ramp-up in our earnings and revenue growth for next year.
Again, I don't think there is anything terribly new in Q4 in terms of the dynamics we've been discussing.
Obviously, our volume and revenue growth on the acute side has been rather robust for a while now.
But we've seen choppy performance in the resulting EBITDA, and not necessarily the pull-through on margins that we would normally expect.
I think the biggest reason for that is, again, the labor shortage and the pressure on nurse wage rates that we've experienced on the acute side.
We've said all along that I think the labor shortage has manifested itself in the two divisions in different ways.
On the acute side, I think the labor shortage has manifested itself mostly through higher use of premium pay, overtime for our own nurses, and the use of temporary or registry nurses.
And, by the way, I think it's related to our strong top line.
One of the reasons why I think we're experiencing more labor pressure than some of our peers is because our end-market economies are improving faster, unemployment is dropping quickly.
There are more labor shortages in our markets, I think, than in some of our peers' markets.
That's why, quite frankly, our demand is growing so much.
But at the same time there is this offsetting dynamic of higher pressure on wages.
I think our expectation next year is that we will see some stabilization both, again, at a macro level and also we'll see some improvements from some of our own initiatives.
And, as a result, I think we're expecting the acute care model to show somewhat moderating revenue trends next year but a return to what we would describe as a more normalized pull-through of EBITDA.
So, with revenues growing by 6%, we would expect EBITDA to grow by 7% or 8%, and margins to expand.
Now, again, I will make the same comment I made to <UNK> ---+ if you had asked me this question two years I would have said that maybe with 6% acute care revenue growth, EBITDA margins would expand 8% or 9%.
And I think the fact that we've moderated that view is a reflection that we think that some of these wage increases are more permanent in nature.
I think those who listen to our calls and commentary will know that we tend not to really focus on bad debt as a distinctive line.
But we tend to focus much more on our overall net revenue growth and net revenue per admission growth on the acute side net of bad debt expense.
Our net revenue growth per admission was about 2.5% in the quarter.
That's really largely within our expectations, and I think continues to be so.
Now, look, much like I was saying about outpatient competition before, I think we feel like some of the dynamics our peers have talked about we certainly have experienced, as well.
There's no question that over the last few years payers have shifted more of the ultimate payment burden to the consumer and to the patient, and we are collecting, we're being asked to collect more, on co-pays and deductibles from the patients themselves than we have been asked to collect from insurance companies historically.
And that is certainly a tougher exercise and we certainly are making changes in our approach, in our systems, et cetera, to do that more effectively.
think we feel it has certainly having an impact and has somewhat pressured our overall net revenue yield over the last couple of years, but I don't think we feel like that's accelerated in any material way in the last quarter or two.
And I think we just feel like that's a trend that, again, is now just a part of the business and something that we've kept in mind as we've created our 2017 guidance.
We have tended, I think, to artificially describe the middle of 2015 as the end of the ACA era.
And obviously the ACA has continued to have an impact.
But I think our point of view was the most dramatic and meaningful impact from the ACA really occurred in 2015 and the first half of 2015.
And I think since, the back half of 2015 and in the four quarters since then, the payer mix dynamics that we've experienced have been pretty consistent.
You repeated them, to some degree.
The strongest growing segment of our payer population has been the Medicare population.
Medicaid is probably second.
We have seen our commercial volumes decline a little bit, and we have seen our uninsured volumes tick back up.
And, again, again I think all of those dynamics have really been fairly consistent for the last four quarters or so.
We view that, again, as indicative of the underlying strength in our markets because I think Medicare business is largely unimpacted by the ACA.
It's largely impacted by a lot of the economic recovery issues.
It just, I think, is reflective of the strong market share position we have in our markets, our ability to take market share and grow demand, et cetera.
And I think we have a view that continues.
As far as the flu, interestingly, I think in most of our markets, I know that generally it's been a relatively busy flu season, particularly over the last four to six weeks.
I think in most of our markets it's been a pretty moderate flu season.
Now, again, I think we tend to largely ignore the transient impact of the flu either way.
But I will say that I don't think we're benefiting greatly from the flu in our markets.
And, finally, I think the leap year, leap day, that's just a mathematical issue.
It just makes what for us ---+ which I already said earlier ---+ was a very difficult comparison in Q1 just even a little bit more difficult, but not something that I think has any real impact on our ultimate and full-year guidance.
When this labor shortage really started to manifest itself in the middle of 2015, we talked a lot about the psychiatrist shortage because, quite frankly, in the beginning that's what I think was most impactful on us.
I think what we found was that we were able to devise ways to mitigate the physician and psychiatrist shortage more easily.
We used things like telemedicine.
We used things like physician extenders, RNs and psychologists, doing some of the work that psychiatrists had traditionally done, to fill in for that.
And I think it proved to be fairly effective.
While we continue to have some pockets of psychiatry shortages in a few markets, I think we don't view that as a really pervasive issue at this point.
Relatively quickly the bigger issue became nursing shortages and we really couldn't find the same kinds of solutions, meaning there were not technical solutions.
You really can't replace a nurse with telemedicine.
They really are at the bedside.
They're the hands-on provider.
You really can't extend the nurses' duties with people under them because the people under them tend to be non-professionals.
So, the nurse shortage proved to be a little bit more intractable to us, so that remains an issue.
Again, just back to my overall comments, I think we feel like we've made progress on our clinician shortages in general.
I think you've seen that reflected in slightly improving, incremental improvement in volumes in Q3 and Q4.
We obviously would hope that the pace of those improvements will accelerate in 2017, and expect that they well.
We have to do what you said, which is, in order to have access to these managed Medicaid patients, we obviously have to make sure that we are a contract provider with the appropriate managed Medicaid plans in particular markets.
I think for the most part we have been able to accomplish that and that has not been a real hurdle.
I think the hurdle, which may have been under-appreciated, quite frankly, by providers as well as by investors, has been that this pattern of referrals and this pattern of patient behavior has been in place for decades.
These adult Medicaid patients have been accustomed, I think, to going to acute care emergency rooms when they need care.
And our ability to step in and just redirect what are these decades old patterns in a very short period of time is somewhat limited.
Now, again, I think we're trying to do that.
And we can certainly engage with the managed care companies to help us in that endeavour by competing on the basis of price and offering lower rates.
But I think what we've concluded is that the more economically effective way to get to those patients is in some sort of collaborative venture with the acute care hospital ---+ getting them to close their units down and send their patients to us, or getting them to lease their behavioral units or freestanding behavioral facilities to us, or joint venturing their facilities with us, or joint venturing new facilities with us.
We've done every version of what I just described and we continue to negotiate with more acute care hospitals to do every version of what I just described.
I think ultimately that's the way that we will really enjoy the benefit of the lifting of the IMD exclusion, although, again, in the short run, as I was suggesting, I think we're already seeing, we're likely to see some incremental benefit just from an increase in Medicaid utilization, which clearly we have already experienced.
It's still relatively early, <UNK>.
The facility opened in the beginning of October.
We had consistently guided and told people that it would have an impact on EBITDA ---+ an EBITDA drag, if you will ---+ of $5 million to $10 million in the back half of 2016.
I think that the actual results are absolutely in that range.
I think our expectation embedded in our guidance for 2017 is a turnaround and some level of accretion.
And, honestly, I think the turnaround at Henderson would otherwise have provided a bigger tailwind for us in our 2017 guidance except for the fact ---+ and these are unrelated but I think they wind up mathematically offsetting each other ---+ but we've got a schedule in the 10-K, for when folks get a chance to read it in more detail, that shows our Texas Medicaid reimbursement and our expectations that our Texas Medicaid reimbursement will go down $16 million or $17 million in 2017.
That decline, unfortunately, I think, largely offsets the improvement in Henderson.
What I think we were hoping would be a standalone tailwind really doesn't.
It winds up just being an offset for us.
As far as cannibalizing our existing business, you described as very quickly, I think every other hospital that we've opened in the last 10 or 15 years in Vegas has, to some degree, cannibalized some existing business, mostly on the (inaudible) side of the market.
But in the case of Henderson in the southeast part of Las Vegas, that's been a market that has historically been dominated by Dignity.
And I think we have the view that most of the market share that we would take would be from Dignity.
That seems to certainly be the outcome in the first few months of operation.
I don't think anything else that's a material change for next year or this year.
Yes, I think they're actually flat between the fourth quarter of this year and the fourth quarter of last year.
Okay.
We would like to thank everybody for their time and look forward to speaking with everyone again at the end of the first quarter.
| 2017_UHS |
2017 | CLX | CLX
#Welcome, everyone, and thank you for joining Clorox's third quarter conference call
On the call with me today are <UNK> <UNK>, Clorox's Chairman and CEO; and <UNK> <UNK>, our Chief Financial Officer
We're broadcasting this call over the Internet, and a replay of the call will be available for seven days at our website, thecloroxcompany
com
Let me remind you that on today's call, we will refer to certain non-GAAP financial measures, including, but not limited to, free cash flow, EBIT margin, debt to EBITDA and economic profit
Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations
Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast's prepared remarks or supplemental information available in the financial results area of our website as well as in our filings with the SEC
In particular, it may be helpful to refer to tables located at the end of today's earnings release
Please recognize that today's discussion contains forward-looking statements
Actual results or outcomes could differ materially from management's expectations and plans
Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans
Company undertakes no obligation to publicly update or revise any forward-looking statements
So with that, we'll now turn to our prepared remarks
I'll cover our highlights of our third quarter business performance by segment
<UNK> <UNK> will then address our financial results and outlook, and then finally, <UNK> will close with his perspective
And then we'll open up the call for your questions
So let me start with our top line results
In the third quarter, we reported 4% sales growth, which is really building on the results we've seen year-to-date
And, I think it's worth noting, this is in a consumer environment, where generally growth has been hard to achieve
Helping drive these results for Clorox are the investments we've made in our brands, including in innovation, and I'll be talking more about that in a moment
So let me start with our Cleaning segment
In our Cleaning segment, we saw third quarter volume increase 13% and sales grew 7%, and this was behind higher shipments of Home Care and Professional Products
And sales growth, while quite strong at 7%, did lag volume growth primarily due to unfavorable mix from incremental distribution in the club channel, as well as our higher investment in trade promotion in the quarter
In Home Care, which is our largest U.S
business unit, sales increased double digits and this gain was driven by very strong volume growth, particularly from disinfecting products with record third quarter shipments of Clorox disinfecting wipes behind club channel distribution, as well as from our new Clorox Scentiva line of disinfecting wipes and sprays
These products provide an experiential fragrance while cleaning the home, and while still early, Clorox Scentiva is off to a strong start
If you look across all of Home Care, the gains in volume were really very broad-based across both channels and the entire portfolio
And this is really consistent with our results because, as we saw, the business unit delivered its 11th consecutive quarter of market share gains
Moving to the Professional Products business, it delivered strong sales growth in the quarter with continued strength in professional cleaning, driven by Clorox disinfecting wipes, Pine-Sol and Glad, aided in part by strength in B2B e-commerce channels
And in professional healthcare, the new product we discussed with you last quarter, Clorox Fuzion, continues to run well ahead of expectations
As a reminder, Fuzion is a new cleaner and disinfectant for healthcare institutions that kills microorganisms, but with minimal residue or odor which addresses a significant need in the healthcare business
Turning to our Laundry business, sales decreased slightly largely due to continuing softness in our Clorox 2 color-safe laundry additive business
However, our strategy for the entire Laundry business remains unchanged as we continue to trade up consumers to more value-added offerings such as Clorox Splash-less Bleach, which is doing quite well, as well as leveraging the Clorox equity across both Laundry and Cleaning, which is reflected in the success we've seen in our Home Care business
Turning to our Household segment, we delivered 9% volume growth and 4% sales growth
Lower third quarter sales in Charcoal were more than offset by the benefit of the Renew Life digestive health business we acquired last May, as well as from higher sales in Cat Litter
Starting with Charcoal, sales and volume were down in Q3, but this was following high single-digit growth in the year-ago quarter
So simply put, we were facing some pretty challenging comparisons versus a year ago
Looking at this year, the initial ramp-up for the summer barbecuing season was a bit slow, in part due to poor March weather, and it also skewed slightly away from our premium instant-lighting product, Match Light, resulting in an unfavorable mix impacting Q3. But, as a reminder, the bulk of our Charcoal business occurs in the fourth quarter, which is the current quarter that we're in now, and we're supporting the 2017 grilling season with our new premium Kingsford long-burning briquette that we started shipping in January
Turning to Cat Litter, sales increased strongly, supported by all-time record shipments of Scoop Away and strong shipments of Fresh Step, primarily due to increased merchandising support, the Fresh Step with Febreze innovation, and strength in the grocery channel
And while still early, our new Fresh Step Hawaiian Aloha item, which began shipping in January, is off to a strong start
And while the category remains highly competitive, we did have our fourth consecutive quarter of market share growth for the Scoopable Fresh Step franchise
Turning to Glad Bags and Wraps, sales came in flat for the quarter with volume down slightly, driven by a softness in our food protection business
However, our premium trash bag business, particularly behind OdorShield, continues to grow, consistent with our strategy to support retailers in trading up consumers to more value-added offerings
And then I'll wrap up the discussion of the Household segment with Renew Life, which contributed strongly to the segment's growth this quarter
You know, in short, we remain very excited about this acquisition
Again, we made this acquisition about a year ago, this month
And we continue to be focused on distribution expansion strategy
That remains on track, and we feel very optimistic about future distribution opportunities
Turning to our Lifestyle segment, volume decreased 1%, and sales decreased 3%
And the slight decline in volume was primarily driven by lower shipments in Water Filtration and Natural Personal Care, reflecting comparisons to double-digit volume growth in both businesses in the year-ago quarter
So, starting with our Brita water-filtration business, despite the sales and volume decline due to tough comps, again, particularly on our faucet mount products, our Q3 shipments this year on our pour-through systems and filters increased behind our latest wave of innovation, and specifically that was on a couple of products launched in mid-February
At that point, we started shipping our new Brita Stream Filter As You Pour Pitcher, which makes filtering water ten times faster, as well as our premium Brita Longlast Filter, which lasts three times longer than legacy filters and reduces more contaminants, including removing 99% of lead
Looking at Burt's Bees, Q3 sales and volume declined in comparison again to double-digit volume gains in the year-ago quarter as we lapped the launch of Burt's Bees lipsticks
At the same time, our lip balm business continues to perform very well with record third quarter shipments
And looking ahead to fiscal year 2018, we have strong plans in place for innovation in several areas to keep growing this business
Turning to our Food business, sales decreased and volume was flat for the quarter as we made significant incremental investments in March that are anticipated to contribute meaningfully to fourth quarter volume growth in support of new products
And these include Simply Ranch, a preservative-free offering in our original ranch lineup, and two new flavors of ranch, chili lime and cucumber basil
We're also leveraging the strength of the Kingsford brand, our Charcoal brand, by launching a new line of barbecue sauces
And then finally looking at our International business, sales increased 3%, while volume declined 2%
The modest volume decline was mostly due to lower shipments in certain Latin America countries, notably Argentina, driven by macroeconomic conditions
Partially offsetting this were increased shipments in Canada, which benefited from the Renew Life acquisition
And broadly speaking, although macroeconomic conditions remain tough, we are encouraged by the progress in our International business as our go-in strategy to improve profitability is also providing for selective investments in key markets which will support future top line growth
For example, in recent quarters, we have launched laundry innovations in several international markets that are off to a good start, including in Asia and Latin America
So with that, I'll turn it over to <UNK> to provide more detail on our Q3 performance and financial outlook
| 2017_CLX |
2015 | HSII | HSII
#Good morning, everyone, and thanks for participating in Heidrick & Struggles third-quarter conference call.
Joining me on today's call is our CEO <UNK> <UNK> and <UNK> <UNK>, the Chief Financial Officer.
As a reminder, we will be referring to some supporting slides that are available on our website Heidrick.com and we encourage you to follow along or print them.
As always we advise you the call may not be reproduced or retransmitted without our consent.
In today's call we will be using the terms adjusted EBITDA and adjusted EBITDA margin.
These are non-GAAP financial measures that we believe better explain some of our results.
Reconciliation between GAAP and non-GAAP financial measures can be found in the last page of our press release and on slide 21 of our supporting slides.
Throughout the course of our remarks today, we will be making some forward looking statement and ask that you please refer to the safe harbor language contained in our news release and on slide one of our presentation.
The slide numbers that we will be referring to are shown in the bottom right-hand corner of the slide.
<UNK> will cover the first 12 slides.
And <UNK>, I will turn it over to you.
Thanks, <UNK>, and good morning.
I am pleased with our third-quarter results.
They reflect continued solid progress to strengthen and grow our business.
Compared to the same period in 2014, consolidated net revenue increased 10% to $138 million.
Similar to the second quarter, currency exchange rate adversely impacted our year-over-year comparisons, especially in Europe and Asia.
Our executive search and leadership consulting business had a solid quarter.
Excluding the impact of currency, every region achieved year-over-year and sequential revenue growth.
The Americas region was the driver of the growth, up 20% as reported or 22% on a constant currency basis.
Europe reported a 5% year-over-year decline, but excluding the impact of currency revenue increased almost 8%.
Asia-Pacific reported a 7% increase in revenue and was up almost 19% in constant currency.
We ended the quarter with 334 search and leadership consulting consultants.
The Americas region has steadily grown its consultant base over the last year, adding mostly experienced consultants.
Additionally, many of our seasoned consultants in this region are having the best years ever.
The combination has driven year-to-date revenue growth of 13% in the Americas.
In Asia, we had a net 10 consultants in the first nine months and productivity has improved, resulting in year-to-date revenue growth in constant currency of almost 14%.
By contrast, in Europe our headcount this year was flat.
We are still very focused on targeted hiring initiatives in these regions to grow our talent base.
From a practice perspective, three stand out.
The healthcare and life sciences, global technology and services, and financial services practices were the primary drivers of growth in third quarter with billings up 89%, 43% and 9% respectively.
The improvement in healthcare and life sciences is not a surprise.
Our hiring in this practice over the last year has been very deliberate, targeted, and that increasing our market share in the sector that will continue to grow in importance globally.
Year-to-date billings in healthcare and life sciences are up 41%.
Our culture shaping segment, Sam Delaney, reported a decline in revenue of $1 million compared to last year's third quarter, which was a record revenue quarter for this business.
In this year's second quarter, Sam Delaney booked a record number of new clients.
What you are seeing in the variability of these results is largely a function of the timing of project executions.
We are expecting a stronger fourth quarter for culture shaping.
As we said in the past, our operational infrastructure can support higher revenue growth.
With this leverage, more falls to the bottom line as revenue improves.
This quarter was a good example of net leverage.
Adjusted EBITDA and EBITDA margin improved, operating income and operating margin increased and net income and earnings per share were higher.
I will have more to say after <UNK> gives you a deeper review of our results for the quarter.
Thanks <UNK>, and good morning, everyone.
I am going to begin my comments on the third quarter results on slide 13 and cover some of our other key financial and operational metrics.
All the revenue drivers work together to improve the results in the executive search leadership consulting business.
Consultant productivity improved $1.6 million even with a 7% year-over-year increase in headcount.
On a trailing 12-month basis, consultant productivity has now been at $1.5 million for six quarters in a row, a first since 2008.
As shown on slide 14, executive search confirmations in the third quarter were up 13% year over year.
Turning to slide 15, reported average revenue per search of $121.2 million was down slightly compared to the last year's third quarter.
When adjusted for constant currency, the revenue per search was $127.8 million.
The trailing 12-month trends would also look much better if not for the impact of currency fluctuations.
Turning to slide 16 and 17, 2014 salaries and employee benefits expense increased approximately $12 million or about 14% to $96 million, and represents 69% of net revenue.
With the improvement in revenue this quarter, more consultants became bonus-eligible, explaining most of the $8 million increase in variable compensation.
Fixed compensation expense, up about $4 million, reflects an increase in the cost associated with the hiring we did over the last year especially in the Americas, partially offset by the impact of currency in other regions.
As with many of the financial and operational metrics, it is often quarter-to-quarter variability in salary and employee benefits expense, based on revenue and Company performance in general.
We encourage you to look at the year-to-date results as well.
Turn to slide 18.
General and administrative expenses declined about 8% or approximately $2 million, to just under $30 million for the quarter and represented 21.5% of net revenue.
The decline reflects the impact of foreign currency exchange rate fluctuations, as well as lower expenses in a number of areas across the Company.
Now, I will refer to slide 19 through 25.
<UNK> mentioned earlier the improvement in revenue flow-through to our operating earnings.
Adjusted EBITDA in the third quarter improved to $18 million compared to $15 million in the comparable quarter of last year.
The adjusted EBITDA margin was 13.1% compared to 11.9%.
Operating income in the third quarter improved to $13 million and the operating margin was 9.3%, the highest operating margin we've achieved since the fourth quarter of 2009.
Net income in the third quarter of $7.5 million and diluted earnings per share of $0.40 reflect an effective tax rate of 32.7% in the quarter and a full-year projected tax rate of approximately 42%.
Both the third quarter and annual rates are based on the affected mix of pretax income for the year.
With the improvement in the third-quarter results, we were able to use some of our net operating loss carryforwards and had smaller losses in countries with valuation allowances.
Now referring to slide 26, cash and cash equivalents at September 30 was $129 million compared to $159.5 million at September 30 of 2014.
The year-over-year decrease reflects the increase in CapEx related to new office buildouts.
Also, on September 30, we repaid in full the outstanding amount of $26.5 million on our term loan facility.
You will recall that the debt was established when we acquired Senn Delaney nearly three years ago.
I feel extremely comfortable with retiring the debt.
Our senior unsecured revolving credit facilities that we've established of $100 million with an optional increase of up to $150 million, combined with our strong balance sheet and capital structure, give us a great deal of financial flexibility to grow and invest in our business and meet all of our obligations.
After the close of the third quarter on October 1, we acquired Co Company, a London-based advisory boutique specializing in accelerating organizational performance.
We paid an initial all-cash consideration of $10.4 million.
Looking forward to the third quarter, our executive search backlog is shown on slide 27 and monthly confirmation trends are shown on slide 28.
Other factors on which we base our forecast include anticipated fees, the expectations for our leadership consulting assignments and culture-shaping services, the number of consultants and their productivity, the seasonality of the business and the current economic climate.
As we experienced in the last several quarters, we continue to expect more volatility from foreign currency exchange rates and this could lead to an adverse impact in the year-over-year comparison of net revenue.
We are currently forecasting fourth-quarter net revenue of between $128 million and $138 million.
Reported net revenue was $121.3 million in last year's fourth quarter.
Slide 30 shows that on a constant currency basis, last year's fourth quarter net revenue would be $116.6 million, which we believe is the more relevant comparison against our guidance forecast.
With that, I will turn the call back over to <UNK>.
Thanks, <UNK>.
Our results this quarter are another good step in the right direction.
Yet I know we are capable of even more.
I said last quarter we have four priorities that drive shareholder value.
Namely, our talent, number two, our clients, three, our diversified offering of search, leadership consulting and culture shaping, and lastly, our operations.
Let me quickly review.
First, our talent.
We made meaningful progress attracting, developing and retaining the very best talent.
In the third quarter we hired 22 consultants, the vast majority of whom were experienced.
In the same period 13 consultants left the firm, more than half related to performance management.
Our year-to-date total turnover voluntary and involuntary is 8%, which compares to 18% in 2014 and 21% in 2013.
Even with the hiring we've completed this year, our productivity was $1.6 million per consultant in third quarter.
Second, our clients.
I am encouraged and impressed by the work we are doing in the top of many of the most important organizations around the world.
I meet with clients regularly, both current and prospective, and am humbled by the trust they place in our people across search, leadership consulting and culture shaping.
The Heidrick brand is strong and growing stronger.
I see our distinct solutions resonating in meetings more than ever.
I know that we can win more, and that there is even greater potential to build deeper client relationships as a leadership advisor.
Towards our third priority, our distinctive service offering, we took an important step on October 1 with the acquisition of Co Company.
Co Company expands our leadership consulting services and is complementary to our culture-shaping business.
I appointed Colin Price, the CEO of Co Company, to lead our leadership consulting practice globally.
Colin has spent his career advising senior leaders on key facets of organizational performance as well as building businesses as a leader himself.
Colin's directive is very clear: to grow and scale our leadership consulting business, to increase our impact with clients.
The team that Colin brings with him from Co Company, coupled with our own leadership consultant, form a solid foundation on which to build this business.
We continue to make progress on our fourth priority, improving operations.
We have built an infrastructure that generates good profit today, but can be leveraged even further as we continue to grow.
We see this in our third-quarter results.
We will continue to invest in technology, systems and processes that will help increase the productivity of our consultants, support product development and scale our operations in leadership consulting and culture-shaping to further drive profitability.
By attracting and retaining the best professionals in the business, enhancing our overall client experience with distinctive service offerings and improving operations, we will continue to grow and strengthen our business around the world and provide greater return to our shareholders.
Let me pause there.
<UNK> and I are now happy to take questions.
This is <UNK>.
From the standpoint of the culture-shaping, I think a couple things drove profitability.
First of all, we've always said that was a pretty strong operating margin business.
We are in the final years of the earn-out from the acquisition, so I know the team has been focused on making sure that they deliver the profitability and the deals they have incentives to do so, so I'm sure that has something to do with making sure that we are running a very lean business right now.
Having said that, we are also working with the team to actually invest to grow the business.
I actually think that over time we might see a little bit of erosion in that margin by a point or two just from the standpoint of we are going to continue to invest to grow that business.
The team has committed to do that.
So I still look for that business over time to average probably more between 25% and 30% type of margins as we go forward, and hopefully, and routine signs of this.
And <UNK> indicated a little bit in the call, while the project implementation tends to be lumpy, the pipeline looks very strong and we think the topline can grow next quarter as well as over the coming year.
On the other businesses, we have said all along as we constructively continue to invest in LC we are going to ---+ we are extremely pleased with the acquisition of Co Company and with the addition of Colin Price and how we are thinking about the business model going forward.
We are going to be much more selectively targeting how we do business, the type of assignments we do, the type of project profitability we are going to bring to those projects.
I think it will actually be a good thing for our consultants.
I think we are going to see many of our consultants flourish in this environment and actually do better, and that will be a more profitable business model.
That business should be a business that sends off 20%-plus margins and we have not done that historically, so ---+ because we have not had the scale.
So I think we are going to see over time as we continue to (technical difficulty) invest in that business, that be a bigger contributor to the overall pie.
As I mentioned in my remarks, we are not going to hold back in terms of hiring talent.
<UNK> indicated that talent is a key priority for driving the value of this business.
We believe that strongly.
We are investing in our people both in the ---+ heavily in our people, both who are here today as well as those that are joining us.
But I think the biggest difference is we have been far more selective in the quality rather than the quantity of the types of people that have joined the firm and we see ---+ and that has paid off in terms of overall results, as well as integration, as well as better teaming with the clients, and I think that reflects the greater value we've received in the search business as well.
I think I indicated in the comments about 42% rate currently projected.
As you know, over time, that rate has gone up and down like a yo-yo sometimes.
But I think we've seen pretty steady performance.
We've seen Europe start to calm down a little bit, which is one of the biggest drivers of volatility of that rate.
Asia-Pacific is performing well, so we are seeing good results in areas where there either were valuation allowances or maybe were on the borderline of having established new ones or contribute to existing ones.
So, we've always been a company that has been able to use its carryforwards and its tax credits.
We have not lost any in my time here and the team has done an outstanding job of managing that.
And more importantly, we've gotten the performance that is the key to that.
So as we build our scale, the good news is that I think that can increase future cash flows and profitability, as well bottom line earnings if we are successful in executing that strategy.
It's <UNK>.
Couple thoughts; one is just in general I would say that the healthcare life science business tracks where you are seeing broadly across the firm in terms of the strongest performance in the Americas, and then it goes from there, Europe and Asia.
So your trend in healthcare and life sciences is no different than the overall business.
Number two, I think healthcare and life science is a good example of, to me, the overall takeaway from this quarter, which is when you put the right people with our brand in front of clients that have been targeted, good things happen.
And we have the benefit of some pretty good tailwinds in general in the economy, particularly in the Americas.
That obviously helps.
But healthcare and life sciences, as you know from almost any daily reading of the paper, there's a lot happening in that sector in the United States and globally.
And that creates opportunities as well as challenges with respect to leadership, and that is where Heidrick can play a role.
Yes, I think about ---+ a good rule of thumb as we have been experiencing the foreign currency fluctuations, about half of the delta usually is from foreign currency.
I think we are pretty close on that metric.
I don't think it's as much an absolute decrease as really a hold in terms of kind of our overall G&A.
We have talked to you before about certain timing of different expenses like partner meetings, etc.
, that marry up second quarter to third quarter, etc.
At the end of the day, our team ---+ and I've been very fortunate in my time here to have the cooperation of our people both in the field at corporate that do a very good job of treating the money like their own.
And I'm very proud of the work they do.
Generally, we try and make sure that when we incur expenses on behalf of the clients and the work that we do, we are very conscious at corporate that we want to drive productivity and make sure that our spend is driving things that will help be more productive over time.
That is not always easy.
We are a public company.
We have compliance issues.
We have other issues, day-to-day operations.
But for the most part, we've put together a great group of people who understand how to get the most out of every dollar.
And as a result, we've been kind of holding constant the SG&A line around the $30 million mark, give or take, and unless we get an anomaly of a high professional services quarter or the meeting expense.
So, there is nothing magical to it.
I am very pleased that in a strong quarter like this we did not see it rise.
That confirms what we believed all along, is that the platform we have can hold a bigger base of consultants and revenue, as well as contributions from our other businesses.
And I think that's a very good sign, because I think as we continue to invest to grow the revenue stream, the net incremental change in expense will be less and we will achieve greater scale and profitability.
I think on a sequential basis.
I think we should see ---+ we are expecting to see the quarter be a little ---+ probably the better quarter of the year.
I would not say it is harder.
I would say that as we develop more momentum globally as a firm, and as people see where we are working with clients that we had not before, we are working at a different level within clients that we had not before, and they recognize that there is a teaming that is going on around the world to make that happen.
So the client may be domiciled in Europe and it may be more coordination within Europe to tackle that particular client or coordination between Europe and another region to address the client.
As we see more of those, it becomes at the margin easier.
But as we said before, it indicates globally there is a broader war for talent out there and we certainly participate in that.
But at the margin, I would say a bit easier as Heidrick performs in the marketplace.
So our story has more confidence in the marketplace with the talent that is looking at us.
I would be careful on calling any trend here.
I would go back to my earlier comment with respect to the broader war for talent out there in the world.
Finding people who can drive profitable growth in the world that we are in right now certainly has a premium on it.
So, when those executives are identified and recruited and retained, there is a very keen interest in making sure they are paid in a way that compensates for that.
So, is that a formal trend yet.
I would probably hesitate a bit in saying that.
But certainly it is consistent with the broader war for talent that we are seeing generally in the economy, particularly in the United States.
No, we went through a period last year and somewhat this year where we did see very healthy trends and upticks.
It kind of leveled off a bit.
They are still an important part of the overall revenue contribution.
Sometimes, that can be structural in terms of the deal versus necessarily tied to the compensation of the individual as well.
So I'm standing with <UNK> on this one.
It's hard to call it a trend.
It certainly is the bigger factor of our life today.
We are not going to project individual businesses.
I think we will get a slight contribution in revenue to fourth quarter, but not overly material to the business.
And then as we think through next year, we are going through our planning cycle now, we will probably have more to say about the overall leadership consulting business and where we expect it to go.
Not at this time.
And frankly, and the reason I'm kind of avoiding that, as if you think through what we are going to do with the business, the history is less relevant to the future, because candidly, this is much more about building the right type of business than it is about what is the business we acquired.
It's a boutique with three or four partners.
It's a very good team that comes with Colin.
They do very good work.
But we are really in the process right now of integrating our business and our pure leadership consulting business in with him.
And it will really be kind of the new beginning I think for us.
I think another way to say it is we are acquiring talent and a culture here that is focused on working at the top, that is very in sync with the leadership consultant that we have.
And as <UNK> described, we think the way to think about this is what's going to happen coming down the road here as we integrate Colin and his team at Co Company with our leadership consultants.
There are dedicated consultants inside Senn Delaney, specific to the culture-shaping process.
What we have begun to see this year with increased momentum is the opportunity where the culture-shaping consultants and the search consultants and the leadership consulting folks are working together more closely.
The whole thesis of the combination of the partnership with Sam Delaney was to layer that into our broader leadership offering and we started see that momentum build in 2015.
So, to answer your question, they have their own consultant force.
As <UNK> described, that is a team that we are investing in and adding to because of the demand we see out there for culture- shaping, about the coordination and collaboration between the culture-shaping and the search consultants has been enhanced this year.
Well, let me talk about the tax rate first.
I would love to see the tax rate hover around that 40%, so just above 40% line for the near term; until we achieve greater scale and better growth in our international markets we won't see it drop any lower than that in the foreseeable future.
I just would like it to be more constant.
I'm encouraged by what we've seen this year.
I will make a slight comment about the mix and I will certainly turn it over to <UNK>.
One of the things we are anxious to get to is obviously having a different mix of business, both for revenue volatility, financial risk, business risk, etc.
And one of the things we are going to continue to evaluate as we go forward and build the plan for next year and the years beyond, which we are in the process of doing right now, is how we scope and invest into the leadership consulting side of the business, because that will be a combination of both organic and possibly inorganic opportunities along the way that will further enhance that platform and development.
But, so we don't have a magic slate anywhere that says it has to be X because the reality is we ---+ it goes back to what I said about our people.
We are much more focused on quality than quantity and, in this game, talent is extremely important.
And so the pace of growth and the investment and growth really is going to be gauged by what we can find in terms of the talent to execute the business that we want.
My comments, to add to that, is we don't have a specific number for you in terms of how that business across search, culture-shaping and leadership really is going to break down.
What we can tell you is that what we are reacting to and the reason why we purchased Co Company is we are reacting to our clients.
And our clients are telling us that they trust us with respect to search.
And they are ---+ and they trust us with respect to all three businesses.
And as they look at our businesses and where they see Heidrick add value, they are asking for more from leadership consulting and they are asking more from culture-shaping.
And so we are responding to that.
The best way to answer it at this point is that our strategy, as always, begins with our clients and it is listening to them to determine how we pivot.
And that is what you are beginning to see here a bit with this Co Company, and that is more a directional statement than hard numbers at this point.
Okay, if there are no other questions, thank you for your time this morning and your questions and listening.
Have a good rest of the week.
Thank you.
| 2015_HSII |
2016 | WRK | WRK
#Thanks, <UNK>.
Yes, so I would refer you to the assumptions that we gave last quarter.
We're not updating every individual assumption.
I do believe per CapEx spending we will be on the low end of the range.
We give a range of $825 million to $850 million.
I think the best place to refer you to for the D&A is the exhibit that has our business, excluding Ingevity.
As you look at the Q2, I think it showed that the quarterly run rate for D&A excluding Ingevity was just over $270 million, and you can use that as you start to think forward with some additional Capital Expenditures as we exit the year.
We did not go through line by line all the other assumptions, but the pension and post-retirement funding is consistent with what we said in January.
I actually think the operating cash flow range is also consistent.
Cash taxes may be a little bit higher as we look, I'd said that the cash taxes would be in the tax rate for the year would be in the mid-high 20s, I think it will be just above 30% as we exit the year.
<UNK>, we did say our box prices were stable.
I think going forward we have a host of relationships with each of our customers, and we're just reluctant to talk about forward pricing, and so I think what we've done is we've said whatever pricing impact we expect to experience is embedded in the cash flow guidance that we gave.
You know, <UNK>, I can't really comment on what another company is doing.
I read the pubs, and we're aware of discussions with our customers, but I can't comment on what another company is doing.
Well, as I shared in my earlier comments, we're seeing currency has improved a little bit and global demand is solid and growing.
Our customer demand is firm, but beyond that, I really can't comment on forward pricing.
That is today part of our business.
We sell containerboard three channels.
One is to our most important channel is our domestic box system, which includes a portfolio of sheet feeders and full-scale corrugated box plants, and so we sell sheets to independents.
And we sell, in some cases, boxes to independents that they do other work on them.
So, there's a mix of things that we do domestically, and in addition to our other two channels of our export customers and our North American independent base.
So all three of those channels are important and we try to look for customer opportunities to provide them something that helps them to win in their markets.
Remember, last quarter we had the Newberg loss, but Dublin is actually, it's EBITDA positive.
And it's operating quite well.
We're very pleased with its performance, volumes are up, costs are going down.
We've committed to significant synergies with that addition, and we're on track to meet those synergies.
So we're really pleased with how that asset has improved our portfolio.
Thank you.
Phillip, thank you.
We did share last time, and historically, we've given color as to our inventory being managed to ensure that we can give excellent customer service and on-time delivery for our internal box plants and our external customers, and because of the heavy major maintenance downtime load of this quarter, next quarter, we said we would build inventories that peaked in January.
And since January we've seen a decline of about 40,000 tons in February and March.
And we would expect to further reduce inventories pretty significantly by the end of our fiscal year in the September quarter.
And to your point, we over the last couple of years have increased inventories, in part due to the somewhat eroding supply chain in the rail and truck logistics channels.
And we're frankly seeing that improve right now, and together with all of the work that our internal supply chain team has done, it's giving us the opportunity to further reduce our inventories going forward.
You know, we've indicated we're down about 40,000 tons February and March, and I just need to leave you with a significant reduction going forward.
I think you're talking about Bob Beckler, who's retiring.
And since you asked, I've really appreciated the opportunity to get to know Bob over the past year.
He's a quality person and worked for the Company for a long time, and I'm obviously supportive of wishing him the best going forward.
The current organization is, I think, well structured.
I think somebody asked a question earlier about cross-selling and that requires, use the word, nimble to communication across the Company.
We need the leaders of the converting businesses and the paper businesses to both manage their business, which is their primary responsibility.
But where there's opportunity, and we have significant opportunity, we need each one of those leaders to work across the packaging grades, on an integrated basis with the paper grades to meet the needs of our customers.
And I'm very pleased, very excited with the organization we have in place and optimistic about improving the results that we have as we implement our strategy.
I think there are a lot of questions in your question, and I think we addressed them in the prepared comments.
And I'd just invite you to go back and review those, and then we can talk to you off line about those, if need be.
I think we're at an hour, and so I'd just like to thank you for your time and attention during the call.
We're proud of the progress we are making and appreciate your interest in WestRock.
It's Friday, so I hope you have a nice weekend, and we look forward to speaking with you in the coming weeks, thank you very much.
| 2016_WRK |
2016 | ONB | ONB
#Yes, I think you are right on, Scott.
I think the Durbin was right where we expected.
Obviously most of that we saw ---+ virtually all of that we saw in the third quarter with a full third-quarter impact, and then declines on the branch sale a little bit.
But about what we expected.
I think ---+ I know <UNK> is very much engaged in increasing the number of accounts and it's a very important part of our 2016 focus on the branch side.
Scott, just for edification.
Durbin was almost exactly the same in the fourth quarter as it was in the third quarter.
So the only weakness might be just a little bit more from the sale of those branches.
No, if anything seasonal.
You sometimes get people that get bonuses and that at the end of the year and you get a little behavioral change.
But no pricing changes, we just don't feel the market is receptive to many changes at this stage.
Yes, and <UNK>, you are well aware of just the competitive pressures out there.
So there will continue to be that pressure going forward.
But the fact that we have some other options, specifically our SBA lending program and the expertise that we picked up with our United partnership, it is helping our RMs really find more ways to say yes to our customers and we are getting a better return on that risk.
So we will still see some pressure on yields for sure, but I think adding the SBA program has certainly given us a little bit of a boost that we didn't have really before.
It is safe to say, <UNK>, we are pleased that the yield ---+ production yield was able to stay slightly ahead of where we were last quarter even given those competitive pressures.
Yes, <UNK>, and I want to make clear, it is not necessarily an increase in reserves but certainly more kind of management and attention to the area.
So it would be the things that everybody else has talked about, it would be indirect lending, we need to watch that very closely, be commercial real estate, it would be concentrations, it would be this whole kind of discussion about end of draw around HELOCs.
And then a lot of emphasis and discussion around underwriting exceptions and how you manage those and tract those.
So if you think about just the cycles that banks go through, it is all the same stuff that we have been having to brush ourselves off and really refocus on over the last three or four cycles.
Yes, great question, <UNK>.
Much like <UNK> getting in queue at 4 AM ---+ I think once we saw the announcement for both transactions on Monday, both <UNK> and I had shot emails up to the market presidents and said, now is the time for us to take advantage of some disruption.
So, we absolutely would love to hire more people in those key markets.
We do believe that disruption does present opportunities for us.
So I know [Todd Clark] and the folks in Michigan are anxious to go out and win some more business and we will see where we go from there.
Great, thank you.
If you have follow-on questions give us a call.
We would be stunned.
Well, really if you think about those businesses absent wealth management you would see growth.
Our concern is the equity markets because such a large portion of that book is tied to a fee-based on portfolio size.
And as the equity markets decline you are going to see less revenue there.
So if you remove wealth from that equation you would see a stable to a more positive number.
We were just being a little more conservative based on our view of ---+ with the potential equity markets.
And you guys are, again as I said, smarter than I am.
But I just ---+ the way we started out the year with a decline in the equity markets, obviously as we charge fees you are going to get more challenged there.
But remove that, John, you are fair to say that we would be much more positive.
It is noise.
I was in Bloomington over the weekend, I was in Indianapolis on Friday, I have been in Michigan, I have been in the northern part of the state, I have been in Louisville.
And when I ask the specific question, how do you feel.
Our clients actually feel very good.
They don't understand this broader concern and they are still looking at projects, they are looking at expansion, they are looking at opportunities.
So we all need to remember that election cycles also kind of breed negativity and it is hard to not turn on the TV and tell everybody how you feel terrible.
But ultimately if you are in Louisville, Kentucky or Paoli, Indiana our clients feel pretty good.
Huge.
It is the biggest issue ---+ all our clients ---+ it is not an issue of capacity from a borrowing standpoint, it is just can we hire the right people and get them to the job.
And again it cuts across all our markets.
We still believe that it is gradual subject to those very large prepayments that we get and the volatility in prepayments quarter to quarter.
About the only thing that I can point to, <UNK>, is 2015 where our expectations I think at the end of the first quarter when we first used that slide was $45 million-ish and we finished up with $61 million.
Now the point being there is that it is a limited pot of money, right.
But we still have quite a bit left in unamortized discount at about $105 million.
So we do expect some prepayments.
The degree of those prepayments is awfully tough to distill.
And I would say that as we get closer to the end of these, the prepayments probably get less significant because we have worked out a lot of the large credit.
So it just kind of glides down to an end.
That is about as much color as I can give you because that is the color we are subject to in our forecasts.
Right.
History also is a great indicator of the future.
That is correct.
Great question.
So our belief that stocks are still trading a portion on tangible book, so obviously we will kind of continue to focus on growing our tangible book because we think that is important given all of the activity that we have had over the last few years.
So saying that as kind of the overhang, clearly organic growth is our first driver.
We also understand the need for the dividend with the recent increase that our directors authorized.
Then we begin to get that balance between the buyback and any potential future.
But we are really focused on organic growth and really focused in ensuring that we continue to build that tangible book as we go forward.
And <UNK>, I might add ---+ recall that the consideration for the Anchor transaction is fairly heavily cash as well.
So to <UNK>'s point, we do try to balance ---+ every time we make one of these decisions we try to balance several factors and try to use that capital in the very best way based on current market conditions and opportunities and things of that sort.
Well, it is a little of both.
But it really gets towards more course dividend payout ratios, kind of where they get focused.
We have not been ---+ we don't have a public stated payout ratio, but it is important as we look at capital.
And then the Board also has the ability to look out forward and see where our capital needs may be in the future as well.
Great.
Everyone, thank you so much for your time and attention.
And as always, please let <UNK> know if you have any follow-up questions and <UNK> and I and <UNK> and <UNK> are available to take any.
Have a great day, everybody.
Thanks, everybody.
| 2016_ONB |
2015 | GIS | GIS
#We lost you, Rob.
No, we have lost you again.
<UNK>, on the cost save side, it is an ongoing effort, it is an ongoing practice within the Company to look at where we are not as competitively fit as we could be and as opportunities present themselves that are material enough for investors to have a specific guidance on, we obviously disclose that as we did with Project Compass just a couple of weeks ago.
On your cereal question, <UNK>, I think part of it is just rooted in the fundamentals.
As you know, our Convenience and Food Service business is very, very targeted to the channels that we think have longer-term growth potential and so we are highly focused in schools and universities and healthcare and all of those channels are growing anywhere from 2% to 4%.
So part of it is that we are just seeing there is a little bit of a tailwind there.
And I would say the second part is that our innovation has just worked terrifically well in those channels.
We have great tasting cereals, the whole grain benefit of our Big G cereals has been extremely important to school food service operators and has given us a real competitive advantage.
We have a little over half the share in that segment.
So I would say it is a combination of some tailwind in those channels, very well targeted innovation and that is why we are very encouraged by the innovation that we will be bringing to the general market in 2016.
We think that is very well targeted, very focused on consumer trends and we are going to see revenue growth that will result from that innovation.
Rob, you've got to get on a different phone.
We are not hearing you.
So, Matt, we do continuously review where and how we are allocating our resources and resources defined R&D investment and marketing investment and capital investment so as you can imagine, we are just constantly looking very closely at that and we have, you have already heard about a number of opportunities that we have around the world in cereal and yogurt and snacking.
You will hear more later in July and we are dedicating resources to drive growth in those businesses and that necessarily means that other businesses are getting less and we have highlighted Green Giant.
The fact that we have done that shouldn't take away from the fact that Green Giant is in fact a profitable business for us.
As you said, it is a really good brand.
We are going to be bringing news and innovation to Green Giant both in the US and in international markets in F16.
So sort of reallocation doesn't mean not doing things.
We like that equity and we think there is innovation opportunity there so we will have news coming but we have just shifted some of the resources to areas that we see as higher growth and that resulted in the impairment analysis that we have highlighted.
Good question, Matt.
I appreciate the chance to clarify.
We do think that we are at normalized levels in the retail trade.
The issue is we had some build inventory at the end of last year and we had that inventory then depleted during this year.
So we ended up taking kind of two hits, one for the depletion this year and one for lapping last year's increase.
But we think as we enter 2016 the retail inventories are at a normalized level.
So let me start by saying first of all, I think that the category in the US as we look at that still declining but the levels, the rate of that decline is moderating and so we are encouraged by that and if you just look at the last 12, last three, it was a little over 3% decline for the year ---+ for the quarter, it was a little less than a 1.5% decline and okay, and I think as you know, the latest month was an easier comp, but there was actually a little bit of growth there.
So we do see the category rates of decline moderating not only in the US but we are also seeing that in Canada and other developed markets around the world.
So I think that is an important factor.
The second point is that we think we have a very good understanding for new preferences that consumers have for breakfast and we have talked about this with you many times for products that are simpler, products that are more filling, products that taste good, products that address very specific issues that consumers have like gluten and artificial colors.
And as we address those things and as we bring innovation that address those, we are seeing growth.
Our granola business is growing really well.
We think muesli is going to do really well for us.
We see products that have had taste improvements grow extremely well.
Cinnamon Toast Crunch which is the third largest brand in the category grew at double digit this year.
So I guess just the second part of my answer to your question, <UNK>, is that we think we have a really good theory on what is going on in the category and as we address it with Consumer First stuff, we are seeing a response.
To your last point, we are very single-mindedly focused on growing our business and we think we have very, very strong innovation in order to do that.
Of course it will be as we see other players in the category invest more in innovation, as we see stronger investment in media and we think we are beginning to see that, these of course are going to be very helpful as well.
So as the entire category focuses on these things and we get the consumer support back in the category, that is going to make a big difference as well.
So anyway long answer but hopefully gives you our rationale.
Yes, media is down, I will get the question first.
Media is down and what I said is our total consumer will be up so ---+ and just let me parcel that out.
So media is obviously what you see on air, what you see in digital or in print.
It will be slightly down.
Essentially think about it as flat on a 52 to 52 week basis so we lose a week obviously this year.
Importantly, it is going to be up on key growth platforms where we have clear ideas.
<UNK> just talked about cereal in the US and internationally, our snacks business in the US, yogurt in the US, natural and organic in the US.
Internationally we see it in Old El Paso in addition to the cereal businesses and in emerging markets.
So we will have media up on platforms where we have strong growth ideas.
Total consumer will be up low single digits and when I talk about total consumer, that takes in the things like in-store events.
We have many of those in emerging markets, we are doing Haagen-Dazs in-store displays in our Southeast Asia markets.
Obviously Yoplait displays in China, Yoki in Brazil.
So a lot of opportunity to get more exposure in the store itself.
And then sampling falls into it as well.
Again think about Yoplait in China as we are launching that brand.
(inaudible) a lot of our natural and organic businesses are getting supported by increased sampling this year in the US.
So there is a number of vehicles that don't hit media ---+ a number of our consumer vehicles that don't hit media that we will be increasing our investment on this year.
The only thing I would just underline on that is <UNK>'s comment on sampling.
Sampling is perhaps the most powerful penetration driver that we have and many of our natural and organic businesses are not really driven in the traditional media, they are in fact driven almost entirely by getting the product into people's mouths.
So that is a growing part of our marketing mix and one that is not really counted in the media thing so that is an important highlight for you.
So your other question was on Annie's sales contribution.
It was about 1% both in 2015 and in 2016 since we had it for roughly half a year in both instances.
So let me start my answer by reminding everyone that cereal is a $10 billion category in the US.
So it is very, very large and as you note, it has been declining for the last couple of years but still very, very large and still about one-third of all breakfasts include cereal.
So I think the first point is it is very, very important to the retailer and basically what they want from us is innovative ideas that will drive growth in that category.
And so they are very enthusiastic about the initiatives that we are bringing.
I can assure you that you will see lots of in-store support and activity this summer and going into the fall for example around gluten-free Cheerios.
Cheerios by far the largest brand in the category.
They are highly enthusiastic about that initiative and it will get a lot of support because they see it as great news for the whole category.
So I guess the first point is it is big and our retail partners really want us to bring innovation and so they are quite enthusiastic about what we are doing.
In terms of SKU proliferation, in these targeted areas of granola or protein or things like this, I mean those initiatives are working for us and so that is exactly what our retail partners want.
They see those trends as well in other parts of the store, makes sense to them and we are getting nice support from them on those brands.
Of course both of us are constantly looking at what are our top turning items, what are the bottom turners and making sure that we are pruning.
But as you have heard from us before in general, our cereal items are very high turning and so we have held our share of distribution.
We have actually grown our share of distribution over the last several years because we have really strong brands.
Does that kind of get your question, <UNK>.
I appreciate you flagging that.
This is a one-time repatriation.
It was $600 million.
We've looked at the economic cost of bringing that money back versus some of the cash needs that we had in the US for restructuring the acquisition of Annie's that we did last year.
We brought it back and while the effective tax rate charge was $79 million, it only carries a $24 million cash charge to it so it was low-cost from that standpoint.
It is a one time, it doesn't change our perspective in terms of how we are going to manage the rest of our cash internationally nor does it reflect ---+ it doesn't necessarily reflect anything on our investments internationally.
We have some robust investments internationally but we also have a very cash generative business internationally.
The observation that I would make, <UNK>, is that it is increasingly kind of a value focused category and the segment that is performing a little better tends to be the commodity oriented just frozen blocks of vegetables.
And so that is the direction that the category has moved in.
And of course as you know, we are also in the canned part of the category as well with our product so that would be an observation for you.
Having said that, we do see our portfolio is primarily more value added and more flavored and soft products and we see opportunities to continue to innovate and adapt with those kinds of products and it tends to be the higher and more innovative end of the category and so that will be our focus going forward.
<UNK>, what I would add to it in terms of learnings is that this is one area where the consumer preference has shifted pretty rapidly and a large focus of ours from a Consumer First standpoint is moving as rapidly as we can against those.
Sometimes you are constrained by the number of resources you can put against a business.
And so the cost savings initiatives that we are undertaking to free up resources to get after opportunities like this I think will allow us to be better and more adaptable and more agile as these kind of shifts happen as we go forward.
No, I mean we are eliminating the artificials and so any coloring and flavors that sort of thing now will be by the end of 2017 will be from natural sources.
| 2015_GIS |
2018 | FCF | FCF
#Thank you, Chad.
As a reminder, a copy of today's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page.
We have also included a slide presentation on our Investor Relations page, with supplemental financial information that may be referenced throughout today's call.
With me in the room today are Mike <UNK>, President and CEO of First Commonwealth Financial Corporation; and Jim <UNK>, Executive Vice President and Chief Financial Officer.
After brief comments from management, we will open the phone call to your questions.
For that portion of the call, we will be joined by Brian Karrip, our Chief Credit Officer; and <UNK> <UNK>, our Chief Treasury Officer.
Before we begin, I would like to caution listeners that this conference call will contain forward-looking statements about First Commonwealth, its businesses, strategies and prospects.
Please refer to our forward-looking statements disclaimer on Page 2 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.
And now I'd like to turn the call over to Mike <UNK>.
Hey, thanks, <UNK>.
And welcome, everyone, and thanks for joining us.
On today's call, I'll take a few minutes to reflect on where we've been in 2017 and where we're going in the year ahead.
Fourth quarter results were affected by the recent passage of tax reform legislation.
First, as previously disclosed, the new tax law required us to take a $16.7 million write-down of our deferred tax asset.
Adjusting for the DTA and for merger-related expense, core fourth quarter net income of $20.6 million produced core earnings per share of $0.21, a core ROA of 1.11% and a core efficiency ratio of 62.2%.
Second, in response to the tax law change, we decided to provide a onetime bonus payment of $1,500 to all of our employees.
This comes on the heels of keeping our employees' health care premium costs and benefit flat to down for yet another year while adding roughly $500 in each respective HSA account.
We have not disclosed the $1,500 bonus publicly until now that have resulted in a $2.5 million onetime expense for the company, which is financially material to our fourth quarter results.
This bonus is not adjusted for in any of our published core numbers.
Jim will provide more detail in a moment, but other key fourth quarter performance elements included the following: a $4.3 million gain from the redemption of our trust preferred securities holdings, which had been marked down ever since the financial crisis; modest provision expense of $2.3 million, reflective of strong underlying credit metrics; and loan growth of 2.2% and commercial loan growth of 3.3%, as traction and mortgage in commercial real estate was partially offset by muted growth in branch-based consumer lending.
Looking back on the full year of 2017 and again adjusting for merger expense and the onetime DTA charge, favorable variances in spread income and fee income, combined with lower credit expense and a boost from securities gains, more than offset the increase in noninterest expense that came in part from running 2 new regions of the bank.
Full year 2017 core net income of $78.5 million enabled $0.82 of core earnings per share, a core ROA of 1.09%, both of which were significantly improved over the prior year.
Core earnings per share of $0.82 was up 19% year-over-year.
Similarly, our ROA of 1.09% beat the pure bank median, and by pure, I mean the 52 regional banks with total assets between $2 billion and $10 billion, and showed progression over the prior year.
Major tailwinds in 2017 included the following.
First, the biggest part of top line revenue, net interest income, of $233 million was up 15% year-over-year as commercial banking continued a nice growth trajectory, predominantly in commercial real estate, and our 2 Ohio acquisitions were successfully integrated.
Two interest rate hikes and good pricing discipline in deposits also helped propel the net interest margin to 3.61% by the fourth quarter.
Second, fee income of $75.3 million grew 18% year-over-year as our Ohio acquisitions began to contribute and mortgage, wealth and insurance had strong years.
Our debit card business continued to show nice progression and contributed meaningfully as well.
Finally, provision expense of $5.1 million was well below prior year figures as leading credit indicators continued to improve.
Two large recoveries of previously charged-off loans totaling $3.1 million also aided our 2017 provision expense.
Despite the low provision, our allowance for loan loss figure ended the year at $48.3 million, and our coverage ratio of 96 basis points of originated loans remains in line with our peers.
In short, 2017 was a very good year for First Commonwealth and demonstrates a trajectory and a matching desire to become one of the top-performing community banks in the country.
A big part of the 2017 story was the integration of the branches we acquired from FirstMerit and the acquisition of Delaware County Bank and the further buildout of the Ohio franchise through the recently announced acquisition of Foundation Bank in Cincinnati, Ohio.
We are extremely pleased to welcome Foundation to the First Commonwealth family.
They are a well-run and a well-led profitable community bank.
This acquisition will provide a platform for growth in Cincinnati and will leave us with a presence in each of Ohio's 3 major metropolitan areas, nicely complementing our core Pennsylvania footprint.
Following the acquisition, we will have approximately $1.4 billion in deposits and a similar amount in loans in Ohio, with over $600 million of those loans coming organically above and beyond what was acquired through acquisitions.
With regard to the Northern Ohio branch acquisition in particular, I would point out that branch acquisitions are typically difficult to execute.
However, our Northern Ohio branches retained over 92% of the deposit balances.
I would also add that we actually grew deposits through the acquisition and integration of Delaware County Bank.
Our Ohio M&A activity has been supplemented by investment in separate downtown Cleveland and downtown Columbus commercial loan production offices as well as 2 mortgage loan production offices in Hudson and Dublin, Ohio.
The story unfolding in Ohio is positive, and our commercially oriented brand resonates with customers.
One final note as we look forward to 2018.
Obviously, the recent tax legislation has substantially lowered our effective tax rate.
Like all companies, we're in the process of considering how best to deploy increased after-tax income.
The first step was to give some of the tax benefit back to our employees, particularly on the heels of a busy, productive year.
We also need to rebuild capital levels to replace capital loss due to the DTA write-down.
Beyond that, we continue to evaluate ways to balance rewarding our shareholders with the need to reinvest in our company to promote growth and our ongoing digital transformation on the other.
And with that, I'll turn it over to Jim.
Thanks, Mike.
I will try to provide some additional color on our results, all while providing some limited guidance as to where we think our financial performance is headed in the near term.
As you all know, we don't provide explicit EPS guidance, but hopefully, we can describe our earnings trajectory in a way that is helpful to you as you try to better understand where our company is going.
The net interest margin was essentially flat to last quarter.
The margin benefited from annualized growth of approximately 5% in average noninterest-bearing balances in the quarter, driven by the commercial nature of our balance sheet.
However, our cost to deposits increased in the fourth quarter, mostly due to competition for time deposits in the form of CD specials and competition for public funds, which is a trend that we think will continue to 2018.
Fortunately, asset yields also went up towards the end of the fourth quarter in response to the Fed's rate hike and the deposit of replacement yields throughout the quarter, leaving the margin unchanged from last quarter at 3.61%.
Looking forward, we expect that our NIM will continue in the range of 3.60% to 3.70% until the next rate hike.
We believe that steady progression within that range is possible even without a rate increase, as positive replacement loan yields slightly outpace the increases in our cost of funds.
In addition, we continue to reiterate our guidance of mid-single-digit loan growth.
Fourth quarter noninterest income, exclusive of securities gains, is primarily driven by a surge of swap fee income as commercial customers sought to lock in fixed rates.
Beyond swap income, we expect fee income to show a nice, steady trajectory in 2018, in part because of the steadily growing contribution from our wealth, mortgage, SBA and insurance service offerings.
Provision expense of $2.3 million in the fourth quarter was well below our long-term historical averages, but reflects our improving credit quality metrics.
This compares favorably to the average provision expense we experienced of $3.9 million per quarter over the last 3 years.
While there is always some variability in our provision expense from quarter-to-quarter, in the long run, we expect that our credit costs will probably be closer to our long-term average, driven more by continued growth in our balance sheet than by legacy credit costs.
Turning to noninterest expense.
As outlined in our press release, a number of expenses impacted noninterest expense in the fourth quarter, including $2.5 million for the onetime employee bonus and $600,000 of expense related to growth in unfunded loan commitments.
Unfunded loan commitments expense is not an unusual item for us, but the number is volatile, and we think it's helpful to disclose it separately.
In addition, we are also able to employ, in a few limited cases, approximately $700,000 in expense management strategy to take advantage of the tax law change, none of which was individually material, but in the aggregate, added notably to fourth quarter expense.
Thankfully, the $4.3 million security gains in the fourth quarter more than offset these items.
But if you look at total fourth quarter noninterest expense and adjust for the items I mentioned, you get a pretty good idea of our expense run rate going forward.
More importantly, we continue to believe that our core efficiency ratio should be back into the 50s in 2018 through growth in spread and fee income as we continue to be mindful of expenses.
Our effective tax rate was 30.47% through the first 3 quarters of last year, but the DTA write-down in the fourth quarter obviously brought the effective tax rate for the full year up to 46.82%.
The more meaningful figure is our current estimate for our effective tax rate in 2018, which is approximately 19%, although we will update that figure as the year progresses.
And with that, we'll take any questions you may have.
We actually have <UNK> <UNK>, our Chief Treasury Officer, here comment on that.
One moment, please.
And that's on a total securities portfolio, about $1.2 billion.
Yes.
A couple of themes there, but I'm happy to comment on that.
Just in a general sense, looking back over the last year or 2 years, we had consistently been projecting deposit betas that were more than what the actual deposit betas were.
In other words, we have projected the beta based on an internal model just like any other bank.
And then in reality, the deposit betas were far less than that.
We think that we're coming to a point in the market cycle with the interest rate changes where that dynamic is going to change, that following several rate hikes by the Federal Reserve and now perhaps several more next year, the consumers and people and other holders of deposits will start to be more rate-sensitive.
And so we think that our deposit betas are going to increase and probably converge well with the models are telling us.
To be really specific in response to your question, we are assuming in our planning ---+ for our planning purposes 2 rate hikes next year, one in March and then one later in September.
It will be spread out evenly for each employee over the course of the year.
Yes.
I mean, we've made quite a few investments, 2 banks, a call center in Columbus, 2 mortgage loan offices in Ohio, 2 LPOs in Ohio.
We've built out an SBA group.
We're investing in digital.
Obviously, they'll be more to come there in the ensuing years.
We've also invested in a regional market president model and our markets in Ohio.
And now with Cincinnati as well and Foundation Bank, I think it's important that we realize the investment in those markets, we have a terrific foundation and we really use some operating leverage here in the ensuing year.
Yes, just a couple of things on pipelines.
The SBA pipeline is built nicely.
Indirect is a little soft, and that's really weather-related.
Mortgage pipeline is really consistent with the prior year, and we really have had nice year-over-year growth in that business the last few years.
And then in commercial real estate, we really have a good construction pipeline.
In C&I, quite frankly, our pipeline is stronger than it's been in several years.
So a lot of that is the new markets and the buildout there, but the pipelines look very good across the board.
It depends on which category you're looking at.
Give me one second, I could probably give you an aggregate number of overall loan yields.
One moment.
I also think, yes, on Page 6 of the supplemental deck, it shows the average loan yields going from 3.99% last year to about 4.29% in the fourth quarter of 2017.
And just recall, we have a commercially oriented book, about 60 ---+ so we have 64% of our loans are commercial, most of which are variable.
So we do nicely as rates have gone up.
Yes, I'll try to just give you some limited color.
Nothing in that number is sort of material.
And to be honest, we're hesitant to even disclose the figure.
We suspect that many companies looking at a kind of almost generational or once-a-generation shift in tax rates, are going to employing strategies to the extent they can, to take advantage of the tax rate change.
And actually, GAAP gives you very little discretion in terms of a little bit expenses or revenue from period-to-period, but there are a few minor things we can do.
For example, accelerating decisions that we're thinking about making early next year for purchasing equipments or office equipment, that kind of thing and purchasing those in the fourth quarter.
So it's a combination of those types of things.
Again, none of which was material, but all add up to the number.
The fact that we spend that money now will then, in turn, slightly reduce managed expense going forward, spread across several periods next year.
But the aggregate effect, to be honest, is not going to be that material.
Yes.
Thinking about ---+ if you think about the adjustments, taking that $700,000 into account, the $2.5 million onetime bonus into account, unfunded credit expense, the number we disclosed, which again that we always have that bouncing around a little bit.
You're probably going to adjust to a figure between $47 million and $48 million.
In the portfolio in general, the guidance we've given is mid-single digits.
I think we have more engines lined up against that than we have in the past.
And I think we have a mortgage portfolio that is not just running off, it now gives us a little tailwind.
I think we'll have a tailwind this year in C&I, which we haven't had for a few years.
And commercial real estate and construction, I suspect that will be ---+ that's been the most robust segment.
It'll probably be muted a bit, but I expect, across the other categories, it'll more than pick that up.
The other thing we saw was just leaking oil in small business and consumer over the last couple of years.
And in the fourth quarter, we really ---+ and throughout second half of last year, we just had more momentum with production as these new markets came online.
Just regional office and projects in some metropolitan areas and ---+ mostly in the metropolitan areas, everything from 1 to 4 family housing to office and multifamily.
I think I'm trying to say that the provision expense is going to be approximate ---+ going to converge with a more normalized view of our charge-off expense going forward.
And I think part of it is not as it was a couple of years ago due to legacy credit cost, but just consistent with overall balance sheet growth.
And as you know, because you've been following us for some time, that provision number has just been volatile and it bounce around from quarter-to-quarter.
We're just trying to be as subtle as we can, thinking about what a long-term run rate would be.
So in some quarters in 2017, we had large recoveries that brought the number down and obviously can't count on those quarter-to-quarter even.
The other thing I would add, <UNK>, is our charge-offs for nonperformance this past year were really strong year-end figures by historical standards.
The migration in our criticized loan categories was really positive for the year as well.
Our commercial loan portfolio became more granular in the last year.
I think we also probably like a lot of organizations are looking around the corner at the next credit cycle and trying to think about how prepared we are for that, whether that's a year away or hopefully 3 or 4 more years away.
So I think the guidance might be somewhere between where we were, maybe several years ago and where we are this past year.
Just as always, we appreciate your sincere interest in our company, and we are ---+ look forward to being with many of you in the next quarter or 2.
Thank you very much.
| 2018_FCF |
2015 | VZ | VZ
#Thanks, <UNK>.
So on the handset piece for upgrades, what I would say is we are anticipating a little less volume than last year because of the total iconic launch of the iPhone 6 and 6 Plus.
But this quarter, we are still anticipating a fairly heavy volume quarter as every fourth quarter is, but I would anticipate a little less than what we saw last year.
So I would think that upgrades would be a little less than what we ran last year.
As far as what we see from a take rate on installments going into 2016, look, at this point, we are guiding to 70% in the fourth quarter.
We are now 100% at the point-of-sale with Edge only.
Of course, we have an exemption for current customers who are on the subsidy model who can opt to take a new subsidized handset.
So we will have to see how that works going into 2016 and that may keep us around that 70% to 75% take rate.
But it's too early to tell, so I don't really want to give guidance yet on what the take rate will be.
Let's see how we come out the fourth quarter.
I will readjust that in the first quarter.
Thanks, <UNK>.
So on EIP, look, we've gone to the full Edge product.
As I've said before, I'm not interested in a rental program.
We are not seeing any impact from those programs from the competitors in our base and I think our results speak to that this quarter.
I think they will speak to that in the fourth quarter as well.
I think what you will see is, if you speak to the rating agencies, they are becoming very concerned with the balance sheet risk of some of the industry on putting up rental phones on the balance sheet with what the residual value will be with those rental phones.
So again, as I've said before, that is not something that we are entertaining at this point.
Again, I never say never, but that is not something that I would have an appetite for.
On the prepaid decline, I think, look, generally, if you look at how postpaid and the price points of postpaid and I've talked about this before, postpaid pricing is more or less mirroring what prepaid pricing was in the past and we are seeing some migration of our prepaid product customers to postpaid, but it's more probably limited than some others because of our intense credit models.
You have to pass the credit in order to become postpaid.
But there is a segment of prepaid customers that are good credit customers that now that the price point is closer to affordability for them on postpaid, they are moving into the postpaid product.
I don't really look into the prepaid product decline as a problem set for us at this point.
We generally really compete with prepaid in our reseller model with companies like TracFone and Straight Talk and Straight Wireless and that's where we really drive home the lower-end product without our brand connected to it.
Although we don't disclose much in reseller anymore, that segment continues to perform well for us.
Look, if you look at some of the programs, you have balloon payments that are due in 18 months.
18 months from now, the market is changing.
There's a lot of Apple product hitting the Chinese market now where China was one of the larger areas where we sold off used handsets.
So as these markets get heavily penetrated with newer product, that could impact the residual value of these phones going forward.
So it's just a risk that is going to have to be handled by the industry under that program.
And at this point, that's not something we want to deal with.
Thanks, <UNK>.
Okay, so on mobile data, what we're seeing right now is a trend across our entire network of 75% growth year-over-year.
Obviously, some of the metropolitan areas like a New York and Chicago are higher than that.
Chicago, we said, is up 75%, but New York, San <UNK>cisco, some others are higher than that in growth rates.
So it depends where you are at and then we have markets obviously lower than that because of more rural areas.
So that's generally what we are seeing in the network right now.
On the installment sale billings of 1.2%, yes, I do believe that will go lower as we make this transition into 50% of our base for installment sale.
So the trend of service revenue and the installment billings plus the service is going to continue to decline until we get into that middle part, latter part of 2016, where the curve will reverse, and then you'll start to that flatten out and start trending back up just like the math would dictate.
No, I think what you're seeing now, if you look at the previous quarters, it's pretty well trending about the same.
I don't think it's going to accelerate.
I guess, first of all, let's set the stage that the wireless industry has always been very competitive and even through all this competitiveness, the industry themselves continues to grow.
Even though everyone thinks that the industry is slowing, we continue to have net adds overall.
Tablet has become a bigger piece.
Data continues to grow.
So the industry overall, although very competitive, continues to grow despite all that.
Our focus has always been competing on network quality, reliability and simplicity.
That is how we have been winning for the past 18 years and that's our focus going forward.
You can see that with our new brand campaign, Better Matters, because what we believe with our brand and our campaign is we're trying to send the message that although some say video and data are not as important and people are willing to get disrupted, I think if you talked to millennials, the thing that frustrates them the most is the spinning wheel when they want to watch a video or download something.
So our focus on our brand is better does matter.
We have the best network.
We are the most reliable and we have become a more simple company to deal with with our simplicity of pricing.
So that's where we look to compete.
I think the fourth quarter will be a competitive quarter, as it always is every year.
I think you're going to see promotions in the marketplace and this industry is going to compete as we always have.
But I think our differentiation is how we differentiated ourselves through this whole entire process of installment sale and now rental.
As I said before, the rental programs don't seem to be having any impact or appeasing to our customers.
So I would say that we will continue to do the same.
As far as how the industry changes, I think what you are seeing from us is we are going in a different direction with our go90 launch.
We're appealing to a millennial population with our network and our products.
And I do think that, as we've said before, you can only price down so much and then you need to generate cash.
I think, as you said, some have to start generating cash in order to invest in their networks to support the growth of the data or else things are going to start to fall apart and I think you are starting to see some of that in some of the national RootMetrics drive tests on where some of the networks are starting to feel pressure and starting fall down in the rankings.
We continue to invest heavily in our networks, as I said before.
You should continue to see us as a flat overall capital company, but Wireless continues to trend up.
That is important for the product set we are launching.
So I do think there will be more focus on returns and profitability and that is good for the industry.
Well, I think that you stated it, <UNK>.
We have an existing MVNO agreement and we were informed that they are going to execute on that agreement.
The agreement is the agreement.
I am not going to get into whether we are discussing revising the agreement or the terms and conditions of that since it's under NDA and we will see how this plays out.
Obviously, the industry is moving.
Cable is going to do what they are going to do and we're going to do what we're going to do.
I think that, again, though what I would say is we truly believe that Wi-Fi is a complementary wireless network, if you will, with LTE and we don't believe one replaces the other.
Just like when we launched LTE we said, look, it's not going to replace Wi-Fi, it's not going to replace broadband into the home.
Similar, Wi-Fi is not going to replace LTE.
So I think that's where it stands right now, so I really won't interject anymore around the MVNO.
We're right on course.
We're actually testing in the labs now and we are looking to deploy sometime in 2016 and again, the unlicensed LTE is a great piece for us to increase our capacity and again, another differentiator between LTE and Wi-Fi is LTE is a fully managed network; Wi-Fi is not.
When you start to load up Wi-Fi, that's why you start to see real degradation in service, whereas with LTE and then overlaying unlicensed LTE, we can dynamically increase capacity when we see that capacity needing increased.
So it's going to be a very viable tool for us in order to increase capacity without deploying a lot of dollars.
Thanks, <UNK>.
I appreciate it.
On the auction and the spectrum bands, it's a good question because the current auction is a 600 megahertz band and as you know, we deployed LTE contiguously on 700 megahertz.
That doesn't mean that we can't operate with 600 megahertz, but 600 and 700 don't play well together.
There's a lot of interference.
So where we have 700, there would be a lot of work to deploy a 600 megahertz spectrum.
But there's areas where we could use lower band spectrum, but it's probably not the top priority.
We like the higher band like AWS.
We've said that all along that Charlie is sitting on very good spectrum.
It's very good for capacity, which is why we spent $10.4 billion in the auction.
But we also can do things like we've done in Chicago and New York, where we felt the license cost was way too high and we instead decided to deploy small cells and get capacity in a more reasonable, cheaper way, if you will.
Now some of this spectrum will come back to market.
We don't know how the FCC will treat that yet, so we will just wait and see, but higher frequency spectrum is capacity and that's really what we need at this point in time.
As far as the Wireline commitment, look, I think with the three divestitures in the South, they were more or less footprints which were not contiguous to anything else.
Most of that property was copper, not fiber.
So when we look at the East Coast, it's a much different footprint.
We will have covered over 70% of the footprint with our fios product.
This is a ---+ we are very committed to it.
We are investing over $4 billion into the Wireline company a year, so that shows our commitment from a capital investment perspective.
We have already passed 20 million homes when we committed to originally 18 million, so we are very committed to the fios product.
It goes hand-in-hand with our Wireless strategy and I think if you've asked anybody like an Altice if you were going to come in and compete for fiber into the home, you certainly would either pick the East Coast or the West Coast and they've started with Cablevision in the East Coast.
So we have a very viable footprint and we are committed to that.
Now, again, as I have always said, you never say never.
And of course, Lowell and I are always open to new options and we always keep our eyes open for that.
But, at this point, we are very committed to the Wireline business.
We have time for one more question if you can please tee that up.
All right, great.
On the enterprise piece, I guess what I would say is we are seeing more or less the same.
There has really been no change.
I think there's a lot of competition.
There's a lot of price compression continuing in the IP space.
As we've said before, the strategic side around security and data centers, but even within the data center space now, there's an awful lot of competition happening with price compression.
So I think what you are seeing is a trend that we think will continue as we revamp the portfolio, if you will, and come into more of where we are going to be willing to compete.
So I think you're just going to see more of the same here.
As far as the Wireless network and deployment of AWS, we are looking at probably in the 2017-2018 timeframe with that similar to where LTE would be for starting in 2016 and then, of course ---+ so that will continue to deploy out there.
Then on the phone only where we would only get an LTE-only handset, probably more to the end of 2016 is where we are looking to deploy an LTE-only handset.
That takes us to the end of the questions.
I'd like to turn the call back onto <UNK> to close.
Thanks, <UNK>.
I'd just like to close with a few key points.
So through the first nine months, we have solidly executed on our fundamentals, delivering quality customer growth and strong financial results while positioning the business for the future and returning value to shareholders.
This execution has generated strong cash flows, enabling us to consistently invest in our networks, platforms, future growth and innovation.
In addition, we have returned value to shareholders and maintained a strong balance sheet, keeping us on track with our deleveraging plans.
As I highlighted earlier, we have returned more than $11 billion to date through dividends and a $5 billion accelerated share repurchase program.
In September, our Board of Directors again reiterated their confidence with a 2.7% dividend increase, making this the ninth consecutive year of a dividend increase.
We look forward to maintaining our positive momentum in the fourth quarter as we execute our strategy, launch new products and services like go90, positioning ourselves for future growth and creating value for customers and shareholders.
Thank you again for joining Verizon today.
| 2015_VZ |
2015 | EVR | EVR
#The loan with Mizuho, the new loan is LIBOR -based.
So you might think of it currently, as about a 3% interest rate.
When you put their margin on top of it, that number will move around, both as rates and other factors move.
And then opportunistically, we will look at sort of other financing.
We've sought to refinance that debt for some time, and this transaction enables that.
But whether this is the right form of longer-term financing, we will address that in future quarters.
Hey, good morning.
We'll be opportunistic in the latter part of the year.
As you know, we were pretty aggressive in the first half, and continue to look to offset the dilution, particularly related to the ISI shares if the opportunities are there.
I think, we've said this a number of times.
The operating leverage in this business as a general matter, is pretty negligible in terms of adding SMDs and teams to support them.
It's basically the operating leverage is spreading, <UNK>'s comp, my comp, and maybe a handful of other people's comp over a broader SMD pool, and that's not a whole lot of operating leverage.
The operating leverage in this business generally, comes from a very ---+ I guess, I would use the term hot M&A environment, where productivity per partner goes up a fair ---+ somewhat from where it is today.
We are in a good, very good M &A environment.
And so, the idea of expecting that revenues are going to go up 20%, and comp is going to go up 10%, rest your mind, that's just not going to happen, except in a year where there is just extraordinary revenue growth.
I think you can be pretty simple-minded about this.
If you just look at how Evercore has done over the past say, five years, we been able to grow the firm quite consistently, quite steadily, maintaining comp in the high 50[%] and absent some really sharp change in the macro environment, we hope to be able to continue that.
And that's really it (multiple speakers) that's really it.
We focus on the per share value of the Company and the earnings per share.
That's not to say we don't aggressively focus on costs ---+ keeping costs under control, and comp costs and non- comp costs.
But I've been doing this for 6 1/2 years, <UNK> has been doing it for 20.
I haven't seen any real evidence that there is this fantastic operating leverage opportunity coming down the pike.
Also one of the wisest ways ---+ one of the oldest adages in businesses, if it ain't broke, don't fix it.
And I think our point of view about Evercore is ain't broke.
I have nothing to add other than, we look forward to talking to you next quarter.
Thank you.
| 2015_EVR |
2016 | NOC | NOC
#Hi, <UNK>.
No problem, <UNK>.
I would say I don't think the profile of the CapEx for 2016 is surprising to us.
We fully expected that we would have the facilities in the early half of the year and we have been executing on that, as <UNK> mentioned.
We have a couple of other major projects that are working their way through the system and we fully expected that some of that would be second-half loaded so we see a higher level of CapEx on the non-facilities side of things in the second half of the year.
And we fully expect to be within the range of $800 million to $1 billion.
In terms of the future CapEx requirements, I think what we have talked about is we expect to stay elevated from our historical amounts, if you look back a number of years, for a few more years.
And what we are seeing today, I don't see any significant change in our previous expectation as to where we are today on that outlook, so I think we would continue to say, not necessarily the number of facility actions in front of us as we saw the first half of this, but we do see as we grow the business and we are investing for the future profitable growth that we see in front of us, we will see an elevated level for a few more years, but no change from where we been in terms of the longer-term outlook.
Hello, <UNK>.
Let me start on the margin side on 9, 10, and then I'll turn it over to <UNK> on the blueprint for sustainability.
And I can comment briefly on blueprint for affordability, as I was a bit involved in that when I was in my previous role at the AS sector.
In terms of F-35 margin, I would say, yes, in fact, that the margin rates we are realizing on that program are not what we expect at this level of maturity.
We're talking about LRIPs 9 and 10 moving into full-rate production and we would expect that the margin would be a bit higher than where it is today.
That being said, the negotiation of each lot is only the first step in that process and you've got to perform in order to realize the margin.
We have been able to work hard with Lockheed Martin to get to an MOU on 9 and 10 for AS and we were previously there on the other sectors and now it's a matter of performing and delivering the margin that we expect out of that program.
From a BFA perspective, we did invest along with BAE and Lockheed Martin in the BFA through, I guess that was ---+ it was in 2012, 2013 time frame and I would say we have been making good progress on that working with the industry team and the government through that process.
Any other questions on BFA, I'd refer you to Lockheed Martin for any other comment.
To comment broadly on the blueprint investments because just the tone of your question, I think perhaps conveyed a little bit of a negative view on them that I think is inaccurate.
These investments, they are team investments that are focused on helping our customer get cost out, and as we do that, they have inherent in them a return mechanism for the Company so this is not sort of a sideswipe or some way of reducing our margin or something.
This is an overt decision by the industry team to come together to work on ways to actually get the cost, the unit costs in the case of the BFA's and the sustainment cost in terms of the BFS, to get the cost structure into a place where our customers can afford more of the capability.
So from an industry perspective, we're only doing this because we see a benefit to the program and ultimately an economic benefit to those who are participants in the program.
And it's win-win because the government, our customers, get an economic benefit from these investments as well and have worked very closely with us in both structuring the investment strategies and programs and on ensuring that there is a good return mechanism.
So we see them as very positive mechanisms, very supportive of the program objectives.
And I think it has been a really good reflection on the partnership approach that we have together across the Companies on F-35 that we're able to make something innovative like this work so well.
I'm very proud of these blueprint initiatives.
I think they are a very good thing.
So what's neat about the blueprint process ---+ and you're right, of course we're always working together to figure out ways of taking the cost down.
It really does create a really good team environment with the customer because in some of these areas they have to make decisions to do things a little bit differently.
It's a very good way of crystallizing a very effective joint process with not only the partners, but the customer to benefit the program.
So I think it's a good idea and I'm glad to see us moving forward with AS.
There is probably as much variability across sustainment programs as there is the number of sustainment programs.
There are a lot of different models that are utilized by different customers, depending on how much work the government itself wants to do.
How much they want to contract out the nature of the economic relationships they want to create.
It's a marketplace with a lot of different business models.
And I think that's appropriate because we have many different types of systems at different stages of their life cycle with different levels of technology, different desires for modernization, so it's a very interesting and dynamic marketplace.
Robin, we're going to cut it off at this point in time, so I'm going to turn it over to <UNK> for final comments
Thanks, <UNK>.
Let me just wrap up by thanking our team again for developing an approach over these last number of years that has allowed us to consistently deliver solid results.
I think this quarter was another good demonstration of the team's focus and commitment on performance.
But also the team is doing such a great job in positioning us so well for not only the remainder of this year but for the longer term, and for working closely with our customers to satisfy their needs as we go forward.
So thanks everyone for joining us on the call today and also thanks for your continuing interest in our Company.
| 2016_NOC |
2016 | IR | IR
#Good morning, <UNK>.
What we're focused on is really exactly what you said that the EBIT growth should be the free cash flow growth.
And that's exactly what's happening in 2016 is the operating income growth is falling through.
Our percentage on working capital is remaining true.
We're not having to invest heavily in terms of capital.
But we're also doing all of the projects and all of the items that our businesses bring forward that make financial sense.
And so if we can keep that rigor going, that is exactly the model we want, which is the EBIT flowing through.
<UNK>, I'm going to punt that down the road here a little bit for us to be honest.
We want to dial in what North American trailer volumes will be.
We're going probably center around a 20% down number and make sure we don't do anything in the event that it's only down 10% or if it's down 30% we want to optimize cost structure to match it.
So I know that at down 15% we're working the plan to be relatively flat.
We'll see as we get closer and dial this in but we need a few more months on this before we can really back to you on that.
Yes, so let's talk about the fourth quarter first.
So you're right.
If you do the math and you have an 80 basis point spread for the year, it would get you to flat to maybe 20 basis point spread in the fourth quarter.
But what we see happening ---+ and, again, the third quarter came out better than we had hoped at 60 basis points, which was really about 50/50 material deflation and the other price.
As we start to look at 2017, I think what 2017 does is it reverts to what we've said all along, which is that we would have a 20 to 30 basis point spread between price and cost.
And as we start to look at commodities for 2017 ---+ so steel has moved around a little bit.
We saw an increase earlier in the summer to over $800 a ton.
We currently see spot prices back in the $700 range.
So we have about a six month time lag between when those prices move around and when we see it.
Translated, that means I'm going to see some steel inflation in the fourth quarter as well as probably the first quarter of 2017.
However, I still continue to see tailwinds coming out of copper and aluminum going into 2017 helping us to offset that balance.
So we have line of sight to what we think the commodities are going to do.
And therefore we have line of sight to what our costs are so that we can price per our operating model with top line margin expansion and get back to the 20 to 30 basis points for the year.
Yes, really it's the volume running through industrial so low on the large equipment, which is where the big heavy fixed costs really tend to sit.
So it's more volume dependant.
If you look at what's actually flowing through, there's good productivity on that lower volume.
So, <UNK>, the long story short is volume helps productivity.
Cost reductions we've taken need volume to apply them too and that's ---+ it needs to happen in the industrial business.
Look, fundamentally you'll see us turning up the gas again in 2017 and we'll make sure the pipeline ---+ we try to keep the pipeline 125% of what we think it needs to be.
We try to calendarize that by quarter.
So what we're doing now and we do every month is make sure that we've got that pipeline lined up to be 125% percent of what we want it to be for our plan, allowing for things to break or timing to be different.
Absolutely.
Because we try and separate productivity on volume from volume and standards.
Yes, I think the combination of sort of the regulatory effect and the thought about getting in front of that when customers have the opportunity plus, from our point of view, there's a passion in the Company around energy efficiency and sustainability.
I think you hear that every time you talk to us.
That combination I think is helping our people in the field make the story more compelling.
And I do think it's led to why we're seeing share gain globally across the board.
Good morning, Andy.
Yes, you're seeing some of the smaller equipment growing, which is a good sign.
You're seeing really severe contractions in large machines.
But we're ready to lap that I think next quarter.
And so that's why I think it's going to stabilize where it is.
And you're seeing still good growth in oil free machines and contact cool machines that would be supplied into pharma, food and bev, in particular markets.
Which, again, the earlier comments I made were really trying to direct more of that proactive activity into the markets that are actually growing.
We don't see a lot of relief coming in iron, steel, air separation, those sorts of markets.
I'd say it's exactly that, Andy.
It's exactly what you just said.
It's North American trailer, APU and marine being weak and not really a surprise.
We've been thinking about this really all year.
We thought it would actually be earlier in the year.
It's actually in the back half of the year but certainly that's the change really as you come through now the final quarter.
I would hope not.
We're trying to look at crop yields and other fundamental factors that determine if you're going to see produce and food and perishables move.
So structurally you're getting to a pretty low level here.
Hi, Shannon.
It's the typical way it does evolve.
It really is always kind of a K through 12 led institutional recovery in that it moves up through higher ed, through healthcare and eventually with state, city and federal projects.
And a lot of that is based on just property values and the ability to tax against those values and have bonds pass local city vote.
And so you're into that cycle here now.
It's still about 25% below where it was last time on a volume basis.
So there's quite a bit of room I think in the institutional side to continue to grow.
Maybe to step back even one step further, the first thing we want to do is make sure that we are absolutely investing in the business fully.
And I can check the box and say we're absolutely doing that.
I can check the box and say we've now put the dividend in a good place relative to the peer group and we're proud of that.
So it really does come down to what do you do the with the pieces of this thing.
And if you think about it in the long run, roughly half of the cash either acquisition or share buyback ---+ we certainly would like to grow the Company but we're not going to do that at the expense of making a poor capital allocation decision.
So what you see right now is a large number of channel and potential product extension investments that might fit the portfolio.
If we could close, it would be worth the ---+ the juice is worth the squeeze on those.
So that's really why you're seeing us hold back here.
Now, with all that being said, we've continued for at least seven years ---+ I guess now that I've been saying this ---+ always controlling dilution of the share count.
So as <UNK> alluded to the fact, that's roughly 2.5 to 4 million shares and we'll continue to make sure it's part of the program going forward.
And I think what you're seeing, Shannon, just as another point on that is we're going to be patient with this and with the cash that we have because we really want to create long-term value.
We'd really like to invest in some of these opportunities.
To your point, some of them in the smaller size with channel investments but also in new products.
And so it doesn't mean that we are going to just make an either/or decision.
We're being patient with the cash that's on the balance sheet and we're finding the best opportunities.
But we want to let some of those M&A opportunities play for a little bit and see if we can close them because we think that's important, too.
Hi, Josh.
Well mix matters, Josh.
I mean definitely if you look at the high margin material handling and tools businesses, they matter a lot.
But if you look at a normal mix that we would have seen sort of pre-downturn, about 70% of the downturn that we've seen has been volume-related.
The balance being some currency and then some mix.
So fundamentally we do need volume to return.
But with that being said, if volume doesn't turn next year and we have the same mix of business that we have today, we have a healthy expectation to expand margins in 2017 in the industrial business based on the actions we know we can take at these low levels of volumes.
And we'll be bold about that.
And you'll see us commit to that probably in February.
Yes, Josh, I don't have an exact split for you.
But I'm amazed at the size of equipment and controls orders that we're getting that are not performance contract-based like the Chunnel Tunnel and I could name a handful of marquee projects like that.
So we're winning a lot of that work and we're loading up on that work as well.
With that being said, performance contracting is an interesting place for us to play and there is a healthy amount of pull-through that comes both not just in equipment but in service.
Performance contracts always have a healthy service component that comes along with the guarantee.
It's going to be large applied and performance contracting.
And so it will be equipment and controls and service with and without an energy guarantee is the way to think about that.
You're welcome.
Good morning.
<UNK>, I'll tell you I don't have a public point of view that's prime time at this point.
So good try.
I appreciate the last question as one more shot at it.
But we're putting our plans together now and there's a process of all companies to put that together.
So I don't want to sort of play our hand here too soon on that.
But we understand what top quartile will be.
We understand what our goals are, what our operating system is set out to do.
And so there's not a lot of acrimony inside the Company to understand what good performance looks like.
So that's what you'd expect for us next year and I'll dial that in as we get closer into next year.
Thank you.
I'd like to thank everyone for joining today's call.
As always, we'll be available for questions today and over the next several days.
And we look forward to speaking with you soon.
Thank you.
| 2016_IR |
2017 | MMC | MMC
#Thank you, Elaine
Good morning, and thank you for joining us to discuss our third quarter results reported earlier today
I'm Dan <UNK>, President and CEO of Marsh & McLennan Companies
Joining me on the call today is <UNK> <UNK>, our CFO; and the CEOs of our businesses <UNK> <UNK> of Marsh; <UNK> <UNK> of Guy Carpenter; <UNK> <UNK> of Mercer; and <UNK> <UNK> of Oliver Wyman
Also with us this morning is Dan Farrell of Investor Relations
Since the beginning of the third quarter we have seen a heightened level of natural and man-made catastrophe losses, including major hurricanes and typhoons, earthquakes, wildfires, senseless acts of violence and disclosures of large scale cyber events
Before we get into our third quarter results, I want to take a moment to discuss how we have been supporting our clients and colleagues, the potential market impact of these events, and the critical role that our industry plays in society
While the insurance industry has the capital strength and structural resilience to absorb these losses, the human toll has been [sobering] with significant injury and loss of life across these events
Many other individuals have been impacted through loss of homes, basic services and business interruption
The natural catastrophes of this quarter directly impacted roughly 4000 of our colleagues across over 50 of our offices
While we are very fortunate that all of our colleagues in these affected areas are safe and accounted for, there were some who tragically lost family members and our deepest sympathies go out to them
Catastrophes that occur in a different geographic region can seem remote and distance unless we are directly impacted as individuals
This is not the case at Marsh & McLennan
We understand the devastation and the stress that severe losses put on people and organizations
We are on the ground helping our clients recover as soon as possible
This includes working closely with insurance companies to process claims swiftly
In these difficult times the industry pulls together to support our mutual clients
We are reminded that our industry is a noble one
While the market impact of the recent catastrophe losses is yet to be fully determined, it is important to recognize the industry had record levels of capital and capacity leading into these events
Although the losses are significant, the impact may prove to be more of an earnings event for the industry than a capital event requiring a reloading of capital
However after several years of relatively benign activity the series of recent losses are a stark reminder of the potential loss exposures, which may cause some re-evaluation of coverage, limits and risk tolerances
While there could be some movement in pricing in catastrophe exposed areas and certain lines of coverage, the degree and sustainability of any changes remains uncertain
From our vantage point too much is unknown about how losses will ultimately develop, how capital will react or how client buying patterns will change
Ultimately these forces will play out and the market will find its equilibrium
Right now it is just too early to tell
Insurance is about more than just protection
Industry research shows that well-insured catastrophe events end up having a shorter term impact on economic growth
In contrast, events with less insurance coverage result in a more prolonged and in some cases permanent impact to economic growth of an affected region
Recent losses serve as a reminder of how the world is still relatively underinsured in many areas
For instance, U.S
risk such as flood, cyber and earthquake to name a few still have low insurance penetration relative to exposure and together account for just 2% of total U.S
premiums
Many factors contribute to global underinsurance or what is often referred to in the industry as the protection gap
They include cost and affordability, understanding and acknowledgement of risks and a lack of sufficient incentives to mitigate risk and improve insurability
It will take the combined effort of carriers, brokers and governments working together to address underinsurance in the world and better access industry risk-taking capacity
Nations and regions that have proactively addressed this protection gap are better positioned to respond and rebuild from natural catastrophes
In specific regard to flood, recent events further highlight the need for greater insurance protection and the importance for the private marketplace to play a greater role
There have been over 100,000 national flood insurance programs or NFIP claims related to Harvey and Irma
However, many of those affected lack appropriate flood coverage, and will now face these life-changing events without adequate insurance support, making the economic impact of these events meaningfully larger
A recent article looking at FEMA data stated only about 17% of homeowners affected by Harvey have flood insurance policy
And across the U.S
only 12% of homeowners buy flood insurance according to the insurance information institute
The industry should work to encourage the private market to take on more of the underinsured or uninsured flood risk
The insurance industry can improve the understanding of risk, promote loss prevention modifications and bring more coverage into the private market obviously at appropriate pricing
At Marsh, Guy Carpenter, and Oliver Wyman we are utilizing data and analytics to enhance modeling and increase private market participation in floods
Earlier this year, Guy Carpenter helped place $1 billion of private reinsurance coverage for the NFIP
And in December of this year, Marsh’s flood platform, Torrent Technologies, is scheduled to come online as the direct service provider to the NFIP
We believe there will be opportunities for the private market to take on increased roles and we look forward to working with government and carrier partners in these ongoing efforts
Also this quarter, Marsh’s Schinnerer Group announced the acquisition of International Catastrophe Insurance Managers or ICAT, a managing general agent providing property catastrophe insurance to small businesses and homeowners across the U.S
ICAT’s focus on property catastrophe complements Schinnerer’s existing services and solutions for small and middle market commercial and residential clients
ICAT’s claims and third-party administration capabilities will also provide enhanced services to our clients
The need for greater insurance protection is not limited to natural catastrophes, recent headlines related to cyber events underscore the greater need for protection in this area and we have seen continued strong growth in demand for cyber CAT programs from large global firms and cyber coverage more broadly
The vast majority of cyber premiums relate to U.S
The European General Data Protection Regulation or GDPR will go into effect in May of 2018, likely resulting in expanding demand for coverage in the EU where premium volume is low compared to the U.S
Before turning to our results, I would like to give a brief update on the UK Financial Conduct Authority’s investigation into the aviation insurance and reinsurance sector
In early October, we received a notice from the competition authorities in Brussels that the European commission has commenced a civil investigation of a number of insurance brokers including Marsh regarding the aviation insurance and reinsurance broking sector
In light of the actions taken by the European commission, the FCA informed us at the same time that it has discontinued its aviation investigation under UK competition law
We are cooperating with the European commission and taking the matter seriously
As this investigation is at an early stage we do not intend to comment further at this time
Now to our results
Overall we produced consolidated top line growth of 7% and underlying revenue growth of 3%
Operating income was up 4% while adjusted operating income increased 11%
EPS was $0.76, and adjusted EPS rose 14% to $0.79. And on a consolidated basis, our adjusted margin improved 70 basis points
Through the first nine months, reported revenue growth was 5%, underlying revenue growth was 3%, and the consolidated adjusted margin expanded 70 basis points
EPS for the nine-month period grew 11% on a gap basis, and 13% on an adjusted basis
Looking at risk and insurance services, third-quarter revenue was $1.8 billion with reported growth of 8% and underlying revenue growth of 3%
Adjusted operating income increased 12% to $337 million with the margin expanding 60 basis point to 19.1%
For the nine-month period, RIS has grown revenue by 6% on a reported basis, while underlying revenue grew 3% similar to the full-year growth rates in 2015 and 2016. Adjusted operating income of $1.5 billion rose 10% and the adjusted margin also improved 90 basis points to 26%
In the consulting segment third quarter revenue was $1.6 billion, increasing 5% on a reported basis and 2% on an underlying basis
Adjusted operating income increased 7% in the quarter to $330 million
The margin of 20.8% was up 40 basis points versus the prior year
For the nine-month period, consulting has grown revenue by 4% on a reported basis, while underlying revenue grew 3%
Adjusted operating income of $873 million rose 5%, and the adjusted margin increased10 basis points to 18.6%
In summary, we are pleased with the results for the first nine months of the year
For the full year 2017 we continue to expect underlying revenue growth in the 3% to 5% range, margin expansion across both operating segments and strong growth and adjusted EPS
With that, let me turn it over to <UNK>
Thanks, <UNK>
Okay Elaine, we're ready to go to Q&A
Question-and-Answer Session
Thanks <UNK>
There is a couple of things
Let me just start, and then I think I will hand over to <UNK> rather than <UNK> to give you a view as to the overall market and level of losses, and I can say it is going to take some time to determine the aggregate level of loss per claim and how it is ultimately distributed amongst insurance companies and also other capital providers
What is clear so far is that the announced losses thus far are far short of the estimates provided by the modeling firms
I mean that – and that is not that different from some other catastrophes that have occurred in the past
It is just too early to tell what the ultimate losses will be
Having said that, catastrophe losses tend to get larger over time rather than smaller, but <UNK> do you have more to add to that?
I will hand it off to <UNK> in a second, but bear in mind over a long stretch of time, Guy Carpenter has been a good grower for us, and in fact, has grown underlying revenue 26 of the past 27 quarters, and we have got three consecutive quarters at 4%
It is hard to talk about what normal is, I mean, at the end it is a very segmented, specialized business, which will have its ups and downs, but certainly for us the last three quarters have been at 4%
But <UNK>?
Next question please
Thanks <UNK>, it's a good question
I'll take it to begin with on in overview standpoint and then I think it's good to hear from both <UNK> and <UNK> to get there their views of what's happening in their respective areas
But I think we have to start by saying insurance market itself is a large global and well capitalized
And there are many insurers and other capital providers, so the market is competitive
Certain markets it's true have been hit pretty hard by these series of events and they're going to one rate increases
That doesn’t mean they're going to get the rate increases they want
I mean, that's where the competitiveness of the market comes in and this is going to play out overtime
Our job is to be on the client side of the table and to get the most comprehensive level of coverage that they're seeking at competitive terms
And so, <UNK> you want to talk about what you're seeing at Marsh so far?
Thanks, <UNK>
<UNK>, you want to add to that?
Any other question, <UNK>?
You should always look to the year-to-date or rolling 12 months or even over multiple years
I mean I were in the 10th year consecutive margin expansion and so they it's a great story considering we're not overly focused on it here at the executive table
But the other things to think about with regard to RIS, the third quarter is our lowest revenue quarters
So, if you've got a some movement expansive would have a larger term impact
But there's nothing underlying that to point to anything that we're concerned with regard to RIS margins
Sure, next question please?
Yes, a couple of things
1) It's interesting to note in every market, that is potentially hardening and I use the word potential year
If you look around the table, you got people who have seen hard markets and soft markets
Most of our careers have been in softer softening market environments, hard markets tend to be pretty swift
But ultimately on the underwriting side and on the booking side, we have a lot of people working for us who never experience a underwriter asking for a rate increase
You could have been in this business for decades and maybe not have ever heard those words
So, it will play itself out
My history in the business is people convert very quickly and it's all comparative in terms of how in achieving and broking the right individual arrange for a client
I think brokers can change very quickly and adaptive to changing market conditions
What it has meant to Marsh & McLennan in the past is generally been a higher levels, a moderately higher levels of prior retention in new business because of a slight equality
We got the broadest specialized placement capabilities in the world
And so, in times of stress, our phone rings more than in times that are easy
Next question, please?
Sure
Well, let me just talk a little bit about the marketplace in general because as we said before we liked our capabilities and we like our positioning and we expect Mercer marketplace 365 to be a contributor to Marsh's U.S
health and benefits business going forward
But it's important to understand it's still in the build stage for us and its one solution just one part of an overall tool kit that we use in giving Marsh capabilities in health to clients
And so, I'm not sure if we're going to go into much detail on it
And by the way for us it’s not really an exchange anymore
It's really a platform that is a year around benefits platform
But <UNK>, you want to add some more to that?
So, I feel that would agree with you
I think this is one of the things <UNK>, that in the past we said that this part of the business was getting too much attention and we thought some of the estimates that have been put out on the industry where we couldn't understand where the numbers were coming from
But ultimately giving things that's specific enrolment data number of lives, that sort of thing on a relatively small part of the subset of our business
This doesn't seem to make sense
So, let's just take it as <UNK> said they had a strong selling seasoned year which will benefit us in the future and I will leave it at that
You have another question, <UNK>?
I mean, we one thing before I hand of to <UNK>
We built our business to prosper in times that are generally broad market relative level of softness in the market and then every once in a while there is a burst of activity in terms of heightening
But it certainly some of them are still brief, it's hard to refer to them as cycles, per se
And so, that we don’t look at our businesses as really operating under the basis of cycles
It's mainly almost all the way downward and then every once in a while there is a little spurt of something
And so, the other thing is both in Marsh and in Guy Carpenter, there is always a series of puts and takes in terms of how a company's responding and then I'll hand over to <UNK>
But I would imagine if the market is too tough, many well capitalized insurance, we just make different decisions, right? And so <UNK> you want to answer that?
Thanks
Next question, please?
So, a couple of things
You mentioned how practice and I would just ---+ I want to just add a little bit because I know some of our competitors actually have things that they view as they line up business
It's important to know we do a health business had made big business for us than we do it in three different places
I mean, clearly Mercer is a cornerstone of our health business
But all of the winding either a large health practice is well that's focused on different kinds of transformation
It doesn't overlap at all with Mercer's activity
And of course both Marsh and Marsh & McLennan agency have big positions in the employee health and benefits markets
So, it aggregates to a pretty big number and we have different ways of looking at it
But specifically I think you were referring to Mercer in this case
So, <UNK> why don’t you talk about the Mercer health business a little bit?
Thanks <UNK>
JD, do you have something up?
Okay, thank you
I'll take that Larry and then I will hand over to <UNK> to give you a little bit more but, there was a few things Mercer in particular acquired some companies at the very tail-end of last year that were more leaning toward higher growth technology based organizations so by their very definition have a little bit more dilution to them in the early stages but we respect their higher levels of growth to make up for that over time and make them good acquisitions and so it's a little bit different than some of the other businesses that we've acquired but <UNK> can add to that?
I'm glad that <UNK> mentioned the GAP revenue growth because I think it's important to look like and look at, the people who look at Marsh the 9% growth for an awfully big, high quality company in a given quarter that's going to benefit us enormously in coming years, sure it's not an underlying and we want to see better underlying growth but ultimately we were happy with that number
Do we have another question, Larry?
Next question please
It's a great question
It’s a U.S
question and it’s also a global question, the protection gap is meaningful if you look over decades of time, more catastrophe risk and in particular flood has been transferred to taxpayers in post event type of situation then actually insurance company through these transfer, the value that the private market bring, it’s enough sure was transferred private markets with their capital risk and offer risk modification recommendations and other invitees which tend to reduce level of losses over time and it is something happens when it's a government entity that is funding on a post lost basis through taxpayer dollars and so we hope it's a wakeup call but we're not ---+ we're just not sure about it
If you look at the situation where okay pre the series of loss events, U.S
policyholder surplus was at around $725 billion which was an all time record and at the same time premium to surplus ratios were lower than they've been in the last 25 years
So we have this capital that at the right prices available to apply against risk and then on the other hand you have situations like flood in the United States which we view as the principal risk facing our clients and there's just a mismatch
So we spent a lot of time talking about it and we will see where it goes over the time but we do think there needs to be more collective energy between the entire industry, long voices so I don't think to carry much weight in any capital
No it's a good question and obviously something that we began to regulate, I would say a couple of things to start and then I will hand over to <UNK>, I think [indiscernible] heard over there like a comparator to last year because there was a zero in third quarter ’16 and 4% this time and <UNK> may have been willing to trade on that one could Mercer was 3% in the third of 2016, so I think that has some factor there and one of the reasons why I mean these are our clients businesses that have long kind of relationships to them and so looking quarter by quarter is really not the right way to look at the business, the way I look at the business is that on a year to date basis, Marsh & McLennan Companies has had a three which is exactly where we were on a year to date basis at the consolidated company last year
And if you recall going into this year, we sort of said our expectation was that 2017 would look a lot like 2016 and I think that has played itself out including the kind of margin expansion that we've seen in 70 BIPS [ph] year to date same as last year, year to date and when I look at the individual operating companies, I've got three operating companies up from last year and one operating company down on a year to date basis and so that that is just if I look at Marsh is at three versus a two, [indiscernible] four versus two, OW is at six versus three and Mercer is two versus a three, in the overall mix that is not an unusual year from us, we will have a different outcome on that mix each time but ultimately we rarely have all four up goes up at the same time and then there is usually some variability but <UNK> get, do you want add a little briefly to that?
Yes, anything else, <UNK>? <UNK> <UNK> I did, I don’t want to beat the rates the rates earning to depth here as you guys are talking about how uncertain it is at this point
But I'm wondering maybe as a history lesson, it seems like 2005 is the most common parallel
I'm wondering if you guys could just talk a little bit about the parallels or differences that you can draw from a national disaster that impacted your business back then
How they might be different or similar to the one that are affecting it now
And I'm just trying to think of things we might not be considering such as supply of capital is a lot more robust
But are there other factors that you would point us to say "Hey, this is what you should be thinking about as you frame the impact of the industry
I think there's just too many moving parts here, <UNK>
In fact, in your last comments in terms of the number of capital providers or the supplied capital, you think about where the market was in 2005 versus where it is in 2017. It's a completely different situation
The number of insurance companies that right more than a billion dollars of premium as an example in the United States
The level of improvement on data and analytics, it really means that any emergent, frankly after things like KRW of alternative capital in the growth in alternative capital and other ways of companies dealing with risk transfer off of primary markets into the reinsurance market
I mean, there are many moving parts there
I would say that certain insurance companies have been hit pretty hard
Policy holders' surplus getting wacked in the double digits and those insurance companies are going to be seeking rate
And they are going to be seeking rate probably everywhere that they issue a policy
And so, then the question becomes well what will other insurance companies do
Will they use this opportunity as a way to slot in somewhere beneath the incumbent as a way to grow their share in this time because they may not have been heard as badly
Now, this is a global market
If you look at the top 20 insurance companies, many of them are global but it's also a local market and a regional market
So, as <UNK> was saying earlier, the idea that in some country in Latin America or Asia, the casualty pricing will go up as a result of loss activity in the United States when there is so many regional and local champions to take the account if rates go up too high in those areas
That puts a lot of competitive pressure aware the terms of conditions will ultimately outlines that
We love to give you more but this is where our market place operates
And the losses are still being developed as we were saying earlier, the model numbers are far higher than what the aggregate reported numbers are
So, either the modelers are incorrect right now or the actual reported numbers are too low and will rise over time which will put more pressure on rating levels
We'll just have to see how it plays out
Next question please?
Sure, so <UNK>?
| 2017_MMC |
2017 | COR | COR
#I can kind of start with the ---+ answer that question.
Then I'll let <UNK> or <UNK> fill in there.
Overall as far as the likes of SDN providers in our buildings and the value that they bring there, I guess first question, I guess, is relative to the economic relationship we have there.
I don't think I can really get into too much detail there other than just letting you know they're similar to other providers and carriers that are in our facilities, and we're continuing to evolve that relationship.
But it's very important to us to maintain the strategy that we've had going forward, which is really to provide a carrier-neutral type of facility that provides our customers choice and flexibility as to how they interconnect to other networks as well as other cloud providers.
And we look at those SDN providers as an extension of that.
As to the value that they provide in our data centers, while we do have many of our direct on-ramps from many of the big cloud providers native in our data centers ---+ and we feel like that brings significant value and differentiation in the marketplace ---+ having other connectivity options we feel like is also a benefit, not only in providing access to those clouds and other networks but from campus to campus and just to other facilities around the world.
So it really just gives them more choice and more flexibility, and we feel like that's a positive thing and just providing them more attractive options for those customers.
I would only add to what <UNK> said, reiterate our strategy of having ecosystems that provide all the options, all the business partners, all the various ways of interconnecting and getting around the world that our customers might conceivably need.
That openness has benefited us strategically and we believe it will continue to do so going forward.
Thank you.
To an extent we're involved in international activities already.
We've seen a large number of non-US companies coming into our data centers.
We do have a small percentage of our customers that like our platform, like our service levels and agreements, and have asked us to look outside the US, but they also have a very cost-conscious approach to it.
So we've tried to address that with a curated referral program, and we continue to evolve and improve that.
That seems to be going well and seems to have opportunity for improvement going forward.
Perhaps more importantly, we're seeing an increasing volume of our customers who are going global via cloud or content providers or similar companies that are in our data centers that already have a global platform.
And so we focus tremendously on making sure they have the facilities and business partners they need in our centers to go global through that methodology.
Hello, <UNK>.
This is <UNK>.
I'll try to answer that for you.
Just to piggyback on what <UNK> had just mentioned regarding whether it's international expansion or even domestic expansion.
I think what we're seeing is that customers are getting more and more sophisticated on how they evaluate and select a data center provider, and as such, as long as they're looking for a deployment in our markets, we feel like we stand a very competitive opportunity to win that business.
And not being in more markets or even international doesn't seem to be slowing us down in winning those deployments.
So just give you a little bit of color there.
Relative to industries and vertical strength across the board, I would say it's very market-driven.
As you look at industries that are most interested in New York are very different than they might be in LA versus the Bay Area versus even Virginia.
So we try to take a very pointed approach to ensure we have a geographical focus in each of those markets, trying to ensure that our data center as well as our offering there resonates well with the key industries that happen to be present there.
And we continue to refine those efforts.
It's just different from market to market.
Thanks.
Let me try to address those.
The first question, I think as you saw at both our VA2 expansion and our SV7 expansion, we have moved to a model of pre-leasing of new developments and new construction and our preference for that type of pre-leasing is to find and sign up strategic anchors for those new developments.
It's worked very well in both of those cases, and we expect to continue to follow that model going forward, including for the Reston expansion.
As it relates to M&A, we believe we have a business model and a platform that has consistently delivered opportunities for attractive organic growth, and that's how we designed the Company.
And I think that's consistent with how most studies of companies have guided for the best long-term shareholder value.
I think this approach also enables us to provide more value to our customers because we deploy our capital where their growth and expansion needs are, consistent with the scale that we have.
Having said that, we recognize that there are occasionally opportunities when M&A or other inorganic growth avenues can be very attractive.
So we study the vast majority of the opportunities that are out there with an open mind.
We're trying to discover opportunities to accelerate our ability to deliver value to customers and shareholders.
Any transaction, however, would have to make sense strategically, culturally and mathematically, meaning it would be good for our customers and would most likely be accretive to share value on a risk-adjusted basis.
I think I kind of just restated what we have said at every quarterly call for the last couple years, so I don't think that indicates any real change in our approach.
I did want to make sure the philosophy behind it was well understood and assure you that we do look at this stuff, and if a good opportunity is out there, we wouldn't be averse to taking advantage of it.
Nothing that we have seen so far appears to be any threat to our sales funnel or our ability to close deals.
Please remember, we have focused our scale and our strength in these eight very strong markets and we provide a fairly unique value proposition, as well as the hybrid flexibility for customers that need to scale in those markets.
And we don't see that changing with the M&A activity we've seen out there.
Hello, Lucas.
This is <UNK>.
I would say that I don't think we see anything that would prohibit us from continuing to lease up our same-store to beyond the 90% that we're at today.
There's nothing that physically limits us.
The space is still there.
Power and cooling capabilities are still there.
So there's nothing there that limits us from an infrastructure standpoint to continue to increase that leasing.
As it relates to the overall growth on ---+ call it an MRR per cabbie basis ---+ you can see that overall, based on the same store pool we had in effect for 2016, produced very good results, increasing, call it 6% to 8% on average year-over-year.
I think as you look forward, we would expect that MRR per cabbie growth to moderate a little bit just based upon the type of sales activity we had in the previous 12 months, but still healthy, somewhere between 5% to 7% year-over-year growth as we look forward, just to give you some idea of where we think it's headed.
Right in line, I think, with our prepared remarks.
We've got about $165 million of debt capacity today and about $150 million of liquidity as we sit here at year end.
And so obviously it will fund the development needed in the near term, but we're going to have to term out some level of our credit facility, and we've guided to $150 million to $250 million of additional debt sometime here in the first half of 2017.
Ballpark just depending upon pace of development.
You could see our CapEx that would give you some idea about where we would end up.
That's correct.
I don't know that I can add much to what I said earlier.
The size of a market is important because of the scale that you can achieve and also the resilience that you have going forward via diversity of customer base and how tech-reliant and data-reliant the economy in a particular market is.
Boston and Denver are both very strong tech and data economies, and because of their proximity to headquarters in one case and our northeastern operations in the other case, we're able to achieve scale of both the sales and the operating organizations in those markets.
And we expect good growth in them in the future.
Probably as important, we were able to enter those markets at very attractive price points and begin to scale accordingly.
So when you think about scale and data dependence in the economy and the ability to have operations ---+ economies of scale in a market, Tier 2 markets are just harder to make the numbers work.
And as you go down in the tiers it gets progressively harder.
The other thing I would just add, <UNK>, is if you look at our strategy around really the three pillars of enterprise, cloud, and network, having a heavy density of all three of those factors is important.
And as <UNK> mentioned in Denver and Boston, those are high-tech centric and fast-growing markets already, so we see good growth there.
But also interconnection is critical too, and Denver specifically being the intersection of the fiber backbone that crisscrosses the country speaks to that well, as far as the attractiveness to cloud and network providers providing services here as well as Boston.
So they're a bit unique in that regard.
Hello, <UNK>.
This is <UNK>.
It's one of those areas where we just believe as the number of kilowatts that we have in our portfolio increase, it is going to drive an increased level of recurring CapEx.
That's just the expectation that we have.
And that's kind of how we manage and model it.
Solely driven on the number of kilowatts we have deployed out through our portfolio, and when you look at how much of those kilowatts commenced during 2016, we're just expecting to have some recurring CapEx increase over prior years.
It did occur, and <UNK> alluded to it in his prepared remarks.
We actually ended up having a total on that particular customer of 135 basis points, so just slightly higher than what we had anticipated.
But that did actually occur in Q4.
So absent that customer, actually churn results were fairly good in Q4 when you look at our long-term average is somewhere between 1% to 2%.
The other component that you're probably referring to and I alluded to it ---+ some elevated churn in Q2, which is about an incremental 180 basis points, which is the last component of our original customer at SV3 that will burn off.
And that is about $4.2 million of annualized rent that will terminate in the second quarter of 2017.
And that's not new churn.
We pre-announced that churn in other calls.
You bet.
<UNK>, we can't hear you if you're talking.
You might check your mute button.
That's accurate.
Yes, I think that's fair, <UNK>.
The only real visibility we have as we sit here today as we mentioned, when you look at our backlog, our GAAP backlog of $5 million at the end of the year, we expect substantially all of that to commence in the first quarter of the year.
So then everything else would commence subsequent to that.
I think the decrease in the number ---+ just look back at our backlog and just go back to where we started 2016, and then as we migrated through the year, those backlog numbers were very substantial.
And that's largely due to the fact of the pre-leasing that occurred at SV7 and some of our other developments, as <UNK> alluded to earlier.
As we sit here today, you just look at what we have under development, we just don't have the enormous amount of space under development right now.
We're obviously planning things as it relates to Reston, and as <UNK> and <UNK> both alluded to, we would look to try and drive some anchor customer there to help kick start the cash flow soon upon completion of that construction.
So I just think as we sit here today, I can't give you that golden nugget you're looking for, but we hope to find it somewhere as we migrate through the year, and we'll see how we operate here.
<UNK>, I'm glad you asked that question because it's probably worth reminding everybody.
I know that it's real important the way most of you look at the companies and do your job, and we in our SEC reporting ---+ we all have to report quarter-by-quarter, and in those results are important.
But this business doesn't really run on a quarter-to-quarter cycle.
The transaction engine does and that stays pretty consistent from quarter to quarter and has generally been on an upward trend for the last three years.
But other parts of the business, the hybrid part of our business where we take on larger deployments is lumpy and also less predictable.
So as you look at the business going forward, I think <UNK>'s given you the best guidance we can give, and we continue to believe that there will be good opportunities that may enable us to outperform, but we can't predict those.
Thanks, <UNK>.
First, I'd like to thank all of you for your interest in the Company and participating in this call, and we appreciate it very much.
<UNK> and <UNK> and I would like to thank our colleagues for a great 2016 and congratulate them on an excellent year.
We're looking forward to the rest of 2017.
We have many opportunities and a lot of work ahead of us.
And again, thank you for your interest and have a great rest of your day.
| 2017_COR |
2018 | DSPG | DSPG
#Good morning, ladies and gentlemen.
I am <UNK> <UNK>, Corporate Vice President for Business Development at DSP Group.
Welcome to our first quarter 2018 earnings conference call.
On today's call, we also have with us Mr.
<UNK> <UNK>, Chief Executive Officer; and Mr.
<UNK> <UNK>, Chief Financial Officer.
Before we begin, I would like to remind you that during this conference call, we will be making forward-looking statements about our financial projections for the second quarter of 2018, including by segment, our belief that new product revenues will be a majority of our 2018 revenues, anticipated gross margin improvement, opportunities relating to Voice User Interface, anticipated general annual secular decline of the cordless business, our engagement pipeline and ability to secure additional design wins, mass production timetables and resultant revenues and general market demand for products that incorporate our technologies in the market.
We assume no obligation to update these forward-looking statements.
For more information about the risk and factors that could affect the forward-looking statements made herein, please refer to the Risk Factors discussed in our 2017 Form 10-K and other SEC reports we have filed.
Now I would like to turn the call over to <UNK> <UNK>, our Chief Executive Officer.
<UNK>, the floor is yours.
Thank you, <UNK>.
Good morning, everyone, and thank you for joining us today.
I hope that you had the opportunity to read our press release that we distributed earlier today.
I would like to begin by reviewing our results for the first quarter, commenting on the progression of our business plan and providing context for our outlook.
In a short while, <UNK> will provide you with detailed comments on our financial results and outlook for the second quarter of 2018.
We've achieved first quarter financial results that were ahead of our guidance on most metrics.
We ended the quarter with total revenues of $28.1 million, representing an increase of 1% versus the first quarter of 2017.
More importantly, revenues from our growth initiatives were $14 million, which for the first time accounted for 50% of total sales.
Our performance reflects solid execution on our growth initiative and demonstrates the success of these initiatives in driving revenue diversification as evidenced by the solid year-over-year revenue growth of 27% in the office VoIP segment and a significant year-over-year recovery in our SmartVoice products.
Revenue from our growth initiatives increased by 26% year-over-year, while posted an expected sequential decline of 9% due to seasonality, which is largely related to our Office/VoIP segment.
Our differentiated technologies and improved product mix, coupled with operational efficiencies drove non-GAAP gross margin improvement of 490 basis points to 49.1% and a return to non-GAAP profitability.
Moreover, we have successfully built a healthy and diverse engagement pipeline with leading OEMs, which makes us excited about the solid growth prospects in each of the new product segments, namely Office/VoIP, SmartHome and SmartVoice, driving our growth beyond the inflection point, defining our future and more than offsetting the secular decline in the cordless telephony market.
Now I'd like to provide specific updates about our progress in each segment.
Started ---+ starting with an update on SmartVoice.
During the quarter, sales of SmartVoice products totaled $1.6 million, which were in line with our guidance.
We're happy to share with you that during the first quarter, we secured additional smartphones design wins with 2 Chinese manufacturers for products that are expected to be launched in the second half of this year.
In addition, we continued to grow and diversify our SmartVoice engagement pipeline and build our presence in additional end-product segments.
As evidenced by a number of noteworthy design wins in the first quarter, including a leading Japanese mobile OEM that designed our SmartVoice into its new series of tablet product that started shipping in the first quarter and a leading European consumer brand that selected our SmartVoice solution for its new smart speaker product.
This quarter, we continued to invest our R&D efforts in addressing the next frontier in Voice User Interface and build an offering around deep neural network technologies with a focus on voice and audio.
We believe that in coming years combining artificial intelligence and edge devices will change the way people interact with their devices.
We expect such technologies to revolutionize human-device interaction, including intuitive dialogues, Voice Biometrics, environmental sensing and artificially or voice-activated chatbots and more.
DSP Group is well positioned to address the AI frontier as it takes off in the coming years.
Looking ahead to the second quarter, we anticipate a sequential increase in our SmartVoice revenues as we see gradual ramp up of our previously announced design wins.
However, the ramp up is more tempered than what we previously anticipated due to industry saturation that has led to a broader weakness in the smartphone market and a supply chain correction.
Consequently, this has negatively impacted the demand from some of our SmartVoice customers.
Therefore, based on our assessment, we project second quarter SmartVoice revenues to be in the range of $2 million to $2.4 million, representing significant growth both year-over-year and sequentially, though a bit less than what we anticipated in the beginning of the year.
Nonetheless, we are confident about the value proposition of our SmartVoice technology and the potential of our current engagement pipeline.
Now to an update on the Voice, Office segment.
We're excited about the emerging trends in the workforce collaboration and the need for higher business productivity through better quality of voice and video communication.
DSP Group is at the forefront of this industry trend and is the leading vendor of SoC solutions for the unified communications market, as demonstrated by our growing design pipeline with Tier-1 OEMs as well as with other leading customers.
In the first quarter, we achieved quarterly revenues of $8.4 million, which were in line with our guidance range, representing an increase of 27% year-over-year, while showing a sequential decline of 12% due to an anticipated seasonal trend.
In addition, during the quarter, we had a number of noteworthy new product announcements by our Tier-1 customers.
Avaya launched a new series of IP phone called the J100 series based on our DVF9919 and DVF9929 SoCs.
These phones feature a rich platform and remote access management.
Cisco launched a new family of multiplatform analog telephone adapter, the ATA 191 and the ATA 192, adding third party UCaaS and cloud provisioning based on our DVF9929 SoC.
Polycom launched the Obi2182, a high-end 12-line gigabit IP phone with color display that is based on our DVF9919.
We are confident that with our current pipeline of new engagements, we are well positioned to see gradual revenue growth during this year and beyond.
For the second quarter, we expect VoIP revenues to grow on a sequential basis and to be in the range of $8.8 million to $9.6 million.
And now to an update of the Home segment.
Starting with SmartHome.
Our SmartHome is comprised of DECT ULE product, shipping with IoT sensors, actuators and home gateway products.
First quarter SmartHome revenues were $4.1 million, ahead of the high end of our quarterly guidance, increasing by 13% sequentially, while decreasing by 2% year-over-year.
We're excited to share with you that second-leading Tier-1 European service provider selected our ULE technology for its next-generation SmartHome service, which is expected to launch in late 2018.
This is yet another strong vote of confidence in the ULE technology and its unique fit for the next generation of smart IoT services.
While SmartHome remains our main focus area, we're seeing a growing interest for DECT ULE solutions in adjacent market verticals, such as the industrial IoT and security segments.
In order to address the market needs, during the quarter, we introduced the DHAN-J, a ULE module based on our ULE SoC for IoT industrial and security applications.
We believe that the industrial security segments will leverage ULE's advantages as an ultrareliable and congestion-free solution, while utilizing the DHAN-J as a market-ready solution that offers fast time-to-market and an easy path for integration ---+ for integrating the ULE technology and thereby reducing effort, cost and development time.
Moreover, we continue to see growing interest in adding Voice User Interface to ULE IoT sensors as voice is viewed as the preferred user interface for the smart home environment.
During the quarter, SGW Global, a leading designer and manufacturer of cordless products launched a line of truly wireless Alexa integrated voice-activated devices based on our SmartVoice and ULE SoC.
These products include ULE voice-enabled assistance based on our SmartVoice and ULE solutions.
Looking to the second quarter, we expect SmartHome revenues to soften on a sequential basis and to be in the range of $2.7 million to $3.7 million, reflecting temporary weakness in demand for home gateways and ULE products, mainly attributed to delays in customer product launches.
Nevertheless, we do expect a recovery in the second half of 2018, as a result of expected new home gateway product launches as well as the new SmartHome service launch in Europe.
And now for an update on the cordless phone market.
Our first quarter cordless revenues were in line with our guidance and accounted for 50% of first quarter revenues.
Cordless revenues decreased by 11% on a sequential basis and by 16% year-over-year and in line with our expectations for cordless industry annual decline of 15% to 20%.
And now to an update on our outlook.
Based on our revenue expectations across the new product initiatives, we expect our second quarter 2018 revenues to be in the range of $29 million to $32 million, which at the mid-range of guidance suggests solid sequential growth.
Looking ahead, we believe that we're in a strong position to capitalize on significant opportunities in new and emerging markets in areas of unified communication, Voice User Interface and IoT.
We have successfully built a promising and diverse engagement pipeline with leading OEMs, which is paving a promising path for long-term growth.
Now I'd like to turn the call over to <UNK>, our Chief Financial Officer.
<UNK>, the floor is yours.
Thank you, <UNK>.
I will now review the income statement for the first quarter of 2018 from top to bottom.
For each line item, I will provide the U.<UNK> GAAP results as well as the equity-based compensation expenses included in that line item and the expenses related to previous acquisitions.
Our revenues for the first quarter of 2018 were $28.1 million.
Gross margin for the quarter was 48.4%.
Gross margin for the quarter included equity-based compensation expenses in the amount of $0.1 million.
R&D expenses were $9 million, including equity-based compensation expenses in the amount of $0.7 million.
Operating expenses for the quarter were $16.1 million, including equity-based compensation expenses in the amount of $1.6 million and amortization of acquired intangible assets in the amount of $0.4 million.
Financial income for the quarter was $0.4 million.
Income tax for the quarter included income tax benefit resulting from the amortization of deferred tax liability related to intangible assets and a tax benefit related to equity-based compensation expenses in the total amount of $0.2 million.
We had no tax provision for the quarter excluding these items.
The net loss was $1.8 million, including equity-based compensation expenses of $1.7 million, amortization of intangible assets of $0.4 million and tax benefit in the amount of $0.2 million.
Non-GAAP net income excluding these items I've just described was $0.1 million.
GAAP loss per share for the quarter was $0.08.
The negative impact of the equity-based compensation expenses on the EPS was $0.08.
The negative impact of amortization of acquired intangible assets was $0.02.
The positive impact of the tax benefit on the EPS was $0.01.
And the non-GAAP earnings per share, excluding these items I've just described, was $0.01.
Please see the current report on Form 8-K that we filed with SEC this morning for a full reconciliation of the non-GAAP presentation to the GAAP presentation.
Now turning to the balance sheet.
Our accounts receivable at the end of the first quarter of 2018 increased to $15.9 million compared to $13.4 million at the end of the fourth quarter of 2017, representing a level of 51 days of sales.
Inventory decreased from $9.4 million at the end of the fourth quarter to $8.4 million representing a level of 53 days.
Our cash and marketable securities decreased by $5.6 million during the first quarter and were at the level of $123.6 million as of the end of March 2018.
Our cash and marketable securities position during the quarter was affected by the following: $3.4 million of cash was used from operations, representing mostly working capital changes; $0.4 million of cash was used for investment activities, mostly the purchase of property and equipment; $1.2 million of cash was used for repurchase of approximately 100,000 shares of our common stock at an average price of $12 per share; $0.2 million of cash received from exercise of options by employees; and $0.8 million was amortization and changes in market value of marketable securities.
Now I would like to provide you with our projections for the second quarter of 2018.
Our second quarter projection on U.<UNK> GAAP basis, including the impact of equity-based compensation expenses and acquisition-related amortization expenses are as follows: revenues are expected to be in the range of $29 million to $32 million.
We expect our gross margin to be in the range of 47% and 50%.
R&D expenses are expected to be in the range of $8.5 million to $10.5 million.
Operating expenses are expected to be in the range of $15.5 million to $17.5 million.
Financial income is expected to be in the range of $0.35 million to $0.45 million.
Provision for income taxes on a non-GAAP basis is expected to be approximately $0.1 million.
And the shares outstanding are expected to be between 24 million shares to 24.5 million shares.
Our second quarter projection include approximately $0.4 million of amortization of intangible assets.
And our second quarter projections also include the following amounts forecasted for equity-based compensation expenses.
Cost of goods sold includes approximately $0.1 million.
R&D expenses include $0.6 million to $0.8 million and operating expenses include $1.5 million to $1.7 million.
And now we'd like to open up the line for questions and answers.
Operator, please.
<UNK>, so thanks for the question.
So with respect to the annual guidance that we provided in the Analyst Day, so just for everyone, it was between $11 million to $16 million for the year.
We're kind of at the midpoint around this, $13.5 million.
So as you correctly mentioned, so right now, we do see a little bit of underperformance both in Q1 and Q2, given kind of the correction that is happening in the market and also some of the product launches that are relatively new and not necessarily generating the volume that we've expected.
But I think that with our current design pipeline and the new products that we expect to contribute to our second half results, we do believe that we will continue to see a gradual ramp at a much stronger pace than what we are ---+ what we have seen in Q1 and also the trendline to Q2.
We're still standing behind kind of these guidelines of the range of $11 million to $16 million.
However, we do believe that probably it will be right now, based on the best guess that we have and we need to see exactly kind of how the market recovers, probably like at the middle of that range.
So if we said $11 million to $16 million, so probably I would say, like, right now, $11 million to $14 million.
But this is kind of our best guess right now.
And right now when we look at kind of the bigger picture, we also are not seeing any reason to change the annual guidance as a whole, so from that aspect.
Sure.
So with respect to the split between smartphones and non-smartphone, it will vary by quarter.
So as you can understand, we have been diversifying and winning a lot of new designs outside of the smartphone space.
But in addition, we've also kind of strengthened, again, the smartphone position both with the Samsung design wins and now we've announced 2 additional China ones and we ---+ in the pipeline we have some more.
So I would want to say that it will probably kind of be towards kind of 60-40 or something like that when we look at it.
We believe that we will have some other end product segments that will be kind of big contributors from kind of smart speakers, tablets, kind of IoT type of devices that will kind of ---+ will be able to generate kind of higher growth or skew that ratio between kind of smartphones and non-smartphone applications.
But my best guess would be roughly this type of split.
So I think that what we said in the previous call was a decline rate of kind of 15% and above.
I think that kind of Q1 was kind of 16%.
I would say, kind of, based on the Q2 guidance, you can kind of interpret that we expect actually Q2 to be a little bit kind of above that trend, so less than 15%.
But kind of, overall, we still see the picture as kind of 15%, maybe 15% to 20% annual decline.
Nothing that we can see that kind of changes that picture.
Sure.
Rajvi, thanks for the question.
So with respect to gross margins, we do anticipate and we did anticipate over the last couple of years that we will see a gradual gross margin expansion that will result from the product mix.
And as these growth initiatives become a more dominant part of our revenues, and they are generating a much higher gross margins in our corporate average, we will see this gradual increase in the overall corporate gross margin.
Right now ---+ and based on what we're seeing is that we ---+ for the first time, we see that the growth initiatives are covering 50%, 5-0 percent of our total revenues.
And we believe that this is kind of one of the biggest drivers in generating an upward type of a gross margin result.
When we look at kind of the mix of product inside our new products, all of them are coming at ---+ on an average basis, of course, there are bits and pieces here and there, but for the most part, each and every part of this growth initiative is generating a much higher gross margin than our corporate average, and in a way kind of cordless is the lagger here with respect to margin.
And we believe that, as we look into the second half and into next year and at the profile of the business, hopefully, will be more skewed towards these growth initiatives, as there is, we can view it in an optimistic way that we could get margins to expand gradually towards kind of 49% or 50% and perhaps next year even higher.
Sure.
So SmartHome Q2, so maybe if we start with Q1.
So Q1 was actually kind of pretty strong mainly because of both ULE and home gateways.
In Q2, we do see some weakness.
It stems mainly from certain gateway products that are shifting from manufacturer A to manufacturer B.
And there is like this time lag.
So for the same operators, we're in a way exchanging between 2 manufacturers and this is kind of causing this kind of delta here of one quarter.
But we do expect that to be recovered in the second half of the year.
And on the SmartHome front, as we're today selling to only a few customers that also has an impact on the way our ---+ the revenues are based and in a way kind of certain weakness with one customer or big customer could definitely impact kind of the quarterly performance.
But I would say that as we're acquiring today many more customers on the SmartHome frontier, so we will start having a much more diversified portfolio of customers that will help us in terms of kind of seeing perhaps seasonal trend in the future.
But for now, I would say that beyond kind of the certain hiccups of last year having sold into a major operator in the first half of the year, this is, of course, kind of impacting the comps also in the first half of this year.
And I would say that once we roll out this new service provider, we will have a lot more product shipping, and I think that, that will kind of help us with respect to seeing kind of a more kind of gradual increase also going into next year.
So I hope that color's helpful.
It was great to hear about the service provider win in Europe.
So I wonder, <UNK>, maybe if you could just offer some comments around what you're seeing in terms of adoption of ULE.
What seem to be the drivers.
Where it is being adopted and what seems to be the gating factor where it's not being adopted right now.
And then maybe just the overall addressable market as you see it.
And then I've got a follow-up.
Sure.
Thanks, Charlie.
Thanks for the question.
And so with respect to what we seen in SmartHome services, so we say when we first built our DHX portfolio of DECT ULE product, the main consideration was just connectivity and the battle was around interference reband, better range, cost of the total solution, et cetera.
And for that we thought that, ULE had some kind of fairly interesting characteristics, such as the best range in the industry.
It is known kind of ISM.
It is a licensed spectrum and in a way kind of offers a collision-free spectrum, which we believe is vital and of the utmost importance, especially when we're speaking about devices that are pretty much passive.
This is not a device that you hold in the palm of your hand and control, but rather this is a device that is hooked to a ceiling or a wall and it's supposed to kind of generate sense and generate data.
So this was the trend line that we saw about 5 years ago.
When we entered the domain, I would say that for the first selection and maybe even for the second selection, these are still kind of the key criterias, and this is kind of the battle of the standards, if you will, between ULE and proprietary stand.
There are Zigbee, Z-Wave, other kind of short-range wireless.
But as we cross 2019 and when we see that SmartHome services is really not just about the connectivity and just about trafficking data, it's really about creating an infrastructure that will enable all kinds of modalities to pass over the air, guaranteeing kind of the range, the interference free, the ability to do in addition to data, voice sensing, voice control automation, visual sensing, video communication or streaming, audio streaming, et cetera, et cetera.
And we believe that a lot of these devices that are today sold as like a door magnet or a smoke detector are actually going to integrate a lot more feature and functionality to make them much more powerful with respect to their detection and their ability to actually make decisions or actually open additional channels, not just a data channel.
And all of that bodes very, very well for what we have to offer with ULE and in addition to that, as you also kind of heard from my prepared comments with SmartVoice.
So that combination is today driving a lot of interest across Europe and also right now overseas.
Great.
And then, as I recall at CES, you guys demonstrated a module for SmartVoice that offered a very low cost potential end product.
I wonder if you could give us an update on that product in terms of the level of interest and any adoption that you may be seeing.
Yes, sure.
So I think you're referring to a reference design that we showed that combined both SmartVoice and ULE.
So ULE as the connectivity, but SmartVoice as voice sensing.
And this product today is in a proof-of-concept stage to evaluation phase with a number of leading OEMs both in the U.<UNK> and also in Europe, mainly in the service provider market, but not just ---+ and we see a very good potential for that ---+ for these type of devices.
We believe that they are creating a new market vertical for a smart assistant that are battery powered, that are fully portable, that give you full home coverage that are not today dependent on kind of the WiFi coverage or the WiFi spectrum that is available to add another device at home, but rather enjoy all the ingredients that we can provide by ULE, which is ---+ was created for this type of voice and audio transaction.
So we do see a very strong potential and right now it is in POC and evaluation phases with a number of Tier-1, very large Tier-1 customers or service providers.
Suji, thanks for the question.
So with respect to the size of the telco, I would say it's of similar size to the one that we won last year.
And we believe that here the same characteristics will apply.
The ability to actually serve SmartHome services via a broadband gateways that basically incorporate today our technology and the ability to add a variety of different sensors and actuators and do all of that.
It's fairly low cost of deployment and self-install without the ability of any installer.
So all of that, we believe, in the future will reduce significantly the cost of deployment.
And to that part, will make these services available for consumers at much lower cost and we believe that together with additional value-added services like I mentioned before, could really create kind of the killer app and have all the stimulus for much wider consumer adoption.
This is correct.
Yes.
So sure ---+ so on the SmartVoice segment, we're talking about designs outside of the smartphone.
So we're seeing like solid traction on the tablet front.
We're seeing solid traction on the hearable front, smart speaker sound bars.
These are the areas.
And as I've said before, so on the kind of IoT, so the combination of connectivity and smart assistant.
So on all of these front, we are seeing a good traction.
And I would say that perhaps as we kind of go along into kind of next year, we're probably also going to see some interest coming from kind of the automotive market at the beginning, maybe mainly in the aftermarket product.
Thank you.
During the second quarter, DSP Group will participate in the Jefferies Technology Conference on May 9, in Beverly Hills and in the Cowen TMT Conference on May 30, in New York.
Thank you for dialing into the call today.
| 2018_DSPG |
2016 | LQDT | LQDT
#Thanks, <UNK>.
Good morning, and welcome to our Q3 earnings call.
I'll review our Q3 performance and provide an update on key strategic initiatives.
Next, Mike <UNK> will provide more details on the quarter.
Finally, <UNK> <UNK> will provide our outlook for the current quarter.
Liquidity Services reported Q3 results above our guidance range in both the top and bottom lines, driven by strong volume and velocity of sales across our commercial and government client base, strong buyer demand, and a more efficient operating environment.
We also benefitted from the growth of new fee-for-service offerings with both commercial and government clients.
We exited the quarter in a strong financial position to pursue our growth initiatives, with approximately $130 million in cash and zero debt.
I am proud of the results our team achieved this past quarter, serving our customers with a high level of quality and service, while continuing to manage the transformation of our business.
This past quarter, we worked diligently to ready the launch of our first marketplace on our new LiquidityOne e-commerce platform in the coming months, which will expand our addressable market, while offering new capabilities and services to sellers and buyers.
Our willingness to invest in our business is a direct function of the significant growth opportunities we see ahead to leverage our knowledge, network of customers, and emerging capabilities.
The growth of our commercial and municipal government business remains the focus of our long-term strategy.
In addition to championing our significant transformation efforts, our team continues to win in the marketplace, by offering solutions with better service, scale, and results.
Our message is resonating with clients, as we signed over 33 new commercial accounts this past quarter.
Adjusted for the divested Jacobs Trading business, our commercial and municipal government business collectively recorded its highest GMV results in six quarters.
Our energy vertical grew 22% year over year in Q3; and our industrial, retail, and municipal government verticals all grew GMV in the double digits year over year on a comparable basis in Q3.
Our large and growing buyer base and comprehensive marketing programs continued to deliver strong results for our sellers.
For example, on behalf of a global electronics manufacturer, we completed the online auction of late-model surface-mount test equipment, located in Malaysia.
The sale drew 41 qualified bidders from 15 countries, resulting in over $2 million in sales proceeds, a result that was 36% higher than the client's initial expectation.
In closing, we are in the midst of a significant investment program to develop a more diversified, scalable business, and drive innovative solutions for our customers.
We recognize the uneven growth and visibility that accompanies the transformation of our business.
However, these long-term investments will enable us to capitalize on the need for our platform, data, and services, as our clients cope with macro trends in globalization, the growth of e-commerce, and sustainability.
Liquidity Services is committed to driving innovation and significant value creation for our customers and shareholders as we execute our long-term growth strategy.
Now let me turn it over to Mike for more details on Q3 results.
Thanks, Mike.
Good morning, everyone.
As our third quarter results reflect, our focus on growth in our commercial business and operating efficiency is proving to be successful in establishing a foundation for long-term growth.
We are attracting a growing number of client programs and projects, complemented by an increase in buyer demand.
We've made changes in our approach with sales and account service teams and the ability to deliver solutions and results to our seller clients across our marketplaces.
We are excited by the traction we are showing ahead of the rollout of our LiquidityOne marketplace platform and the new service offerings it will then enable.
We still anticipate an uneven road ahead in the short term, as we face [complex] transitions and macro conditions, in addition to project-based volatility, as experienced this quarter.
Looking ahead, our fourth-quarter outlook reflects a seasonal decrease in activity across our marketplaces, in addition to the less-favorable product mix and increasing product costs of our DoD surplus contracts; the effect of soft commodity pricing in our [scrap] marketplace; uncertainty of the timing and speed of recovery in the energy sector; and lastly, the variability in the timing and mix of property we receive from large client projects in our industrial, energy, and retail programs.
As we complete our fiscal-year 2016 and look towards fiscal 2017, we expect our business to continue to reflect periods of uneven financial performance, due to the project-based aspect of our business and the changing mix of our DoD contracts.
As we move towards the implementation of our new e-commerce marketplace platform, we will continue to have increased costs associated with our LiquidityOne platform rollout.
In the fourth quarter, we expect the LiquidityOne expense to approximately be in the range of $1 million to $2 million.
On to guidance.
We are expanding the financial measures included in our guidance to give shareholders additional information.
Management's guidance for the next fiscal quarter is as follows.
We anticipate GMV in the fourth quarter to range $155 million to $170 million.
We expect GAAP net income to be in the range of negative $6.5 million to negative $3.5 million and GAAP diluted EPS to range from negative $0.20 to negative $0.10.
We estimate non-GAAP adjusted EBITDA to range from a negative $4 million to a negative $1 million and non-GAAP adjusted earnings per diluted share to range from a negative $0.14 to a negative $0.05.
This guidance assumes that we have diluted weighted-average shares outstanding for the quarter of approximately 30.7 million.
We will now take your questions.
Let me give that some context.
I believe we have guided on the LiquidityOne milestone to be the fourth quarter of our fiscal year, so that would be the three months ending September 30.
That is still the target.
Our business model benefits from three things ---+ one, more volume on the platform, which is ultimately an activity metric; two, a higher rate of return achieved on assets, that incremental price ---+ or value creates operating leverage; and third is velocity.
As our buying demand improves, things may tend to sell sooner in the marketplace.
And when those three things come together, it creates operating leverage.
Additionally, we have taken measures over the last few quarters to continue to drive efficiencies in the business from an operational-throughput and cost-management perspective.
So I think all of those are factors when you look at the outperformance.
And some of the prepared comments referenced ---+ we had a nice pull-through of velocity of asset sales in the June quarter, which is better than expected.
And I can add to what <UNK> just said.
The deals that we had, that we expected when we gave guidance where we're going to be in the fourth quarter, many of them came, actually, in June; and it was a good sign for us, for numerous reasons.
One was that we had buyer demand coming in earlier than we expected, even in advance of setting up an auction.
And part of what that created was this higher demand and push ---+ it created better pricing for us in the deals that we were selling.
So the fall-through that we experienced was higher than we would have anticipated.
So that's part of the reason that you see better bottom-line performance incrementally [right] from a fall-through perspective than you would have on the top line.
So that's part of it.
And the other is that, of course, we're aligning our costs and our fixed expenses on a certain level, warehouse expenses and so forth.
And when we get this acceleration, especially on these kind of project-based deals, we just had, again, better fall-through on that.
So those are just some of the reasons why we end up with that disconnect, albeit it's a good disconnect to have.
So let me do my best in answering your question without answering your question, which is guidance for 2017 (laughter).
So I'll first start by saying that we are in the process, like we are every ---+ at this time of year, and really doing the deep dive on 2017.
So with that said, we've indicated that 2017 will continue to be a transitional year for us, with a lot of expenses, but also transitioning as we roll out different marketplaces [a lot of] initiatives.
That being said, yes, the third quarter, as I mentioned in my opening comments, gives us some comfort that we're getting traction that we can see what we can do in our non-DoD business.
But that still has a ways to go.
We have made operational improvements.
We have addressed in our infrastructure costs ---+ for example, in our energy sector.
Now we see some beginnings of good activity for us in the energy sector.
And will that play out.
We have to wait and see, right.
One quarter doesn't necessarily make the trend.
We have a seasonal low coming in Q4, so it's hard to benchmark from there.
And lastly, I would say that as we get some comfort around the traction, we know that going forward we need these commercial businesses, including our state and municipal business, to continue its growth, its double-digit growth, the rest of the commercial businesses, which are commercial [capital] assets, which includes our industrial business and our energy business, and also on the retail front, to continue to expand, grow, and grow its current client base, because we know we're going to have the headwinds next year from both DoD contracts.
One is the [stock] contract that comes off and goes into the new contract starting in October, with little to no transition, and the wind-down on the surplus contract, which we're now almost at the end of selling through over the next quarter or two, selling through, the remainder of the CV3 contract pricing.
And we're going to be at some point in 2017 into a full CV3 ---+ sorry, CV4 standalone contract.
Just to supplement those comments ---+ in terms of the competitive landscape and how we're positioned, we're very pleased with the embrace of our solutions.
We've not only leveraged the liquidity and asset-disposition capabilities that we uniquely provide ---+ many of the notable transactions are global, fortune-500 companies with assets in different regions that are trying to trap a [local] base for very high-value assets.
And those move the needle.
And we saw that in June, as far as contributing to strong top- and bottom-line growth.
Our pricing for these services, as well as the sales channels, has been very well received.
Our [take] rates are mid-teens and higher.
So we believe the brand and solution is well positioned in the marketplace with the large local companies.
We're doing more to help clients outsource reverse supply chain activities.
We've seen OEM clients give us more, as they try to hollow out costs and narrow their focus to original equipment design and branding.
So we're seeing good top-line take rates and market-share expansion and strong positioning relative to alternatives in the reverse supply chain.
So we're a sixteen-year-old company, and this is the first sort of end-to-end business platform transformation we've ever done.
So we are not going to rush the process.
We are going to do it methodically.
We're going to do it in a very disciplined way to ensure that for the next several decades, we're positioned with a modular, extensible, cloud-based infrastructure that can bring clients reliability and security, and our clients and buyers a great customer experience.
So we're doing staggered releases to manage feedback from the marketplace and allow us to refine the product that we bring to the marketplace.
I would say the exciting thing for us is the restart of the Company in terms of the user experience, the features and services that we're providing.
So [we turned] management services are part of what we talked about ---+ retail supply chain, OEM customers and retailers looking for not only the ability to monetize assets but the ability to track and manage where these returns are coming from, [building to] refurbish and add value to the item, to move them in multiple channels.
So we believe that on a bundled-service basis, there's a lot to add to the core liquidation marketplace [for] retail supply chain.
We're also tapping into new verticals, which are high-value verticals, with the ability to use our platform as a disruptive, more efficient way to allow sellers and buyers to transact.
We realize that the traditional way of selling has been more of a direct, person-to-person selling or live-auction experience.
And we believe we're on the front end of taking that experience to more of a platform-based discovery of products, with the appropriate services to get buyers comfortable that they can discover and find and buy high-value assets.
So those are areas that will take shape as we move through fiscal 2017.
And we're going to do it with a focus on quality and reliability, not necessarily just speed.
And in parallel, we're running our as-is business with our legacy systems and platforms.
And that's why I noted we were pleased with our ability to straddle both the current state and work on our future-state initiatives in this past quarter.
And <UNK>, just to add a little more color.
There's ---+ the services that we're ---+ and I don't want to get ahead of ---+ as we go doing the marketing [slashes] and so forth ---+ but we're looking kind of across the board.
If you take our state and municipal business, they have a business model that they've been very successful doing.
And part of LiquidityOne is to see how we expand their sales process, their delivery process, and their capability to maybe non-state and municipal businesses.
How do we do that for their type of clients but in a different ---+ call it a different vertical, right, a different sector.
And those capabilities, and being able to take the best of what we do in the different businesses and giving that capability to the other businesses that we have is also a critical aspect of it.
Everybody is thinking ---+ doing their day-to-day to deliver the results and deliver on their clients and continue to serve their clients.
But I think our business leaders also have an eye on the future and how they're going to take advantage of the LiquidityOne capabilities and how strategically we can use our current capabilities, our future platform, to think beyond what maybe we do today and offer services that we think are going to be very valuable in the marketplace.
Well, I'd like to make a followup to make sure that the math is consistent on service-revenue growth.
I would reiterate that the strategy is to bundle services around the core marketplace transactions.
We have clients that are asking us to do more for them, to track and manage assets as well as provide certain data discovery around where these assets are coming from, their identity.
It is fascinating to us that a lot of the product that's returned at the stores, OEMs leave it to the retailers to manage.
And they really have no idea what the volume or source of those returns are.
So we're trying to provide visibility to that.
We believe that over time, the service-revenue streams are attractive, a high-margin opportunity, and further integrate clients into our business model.
So I would say no major change in the current quarter versus the March quarter, but something that we'll continue to talk about as we move forward.
Well, we're talking about the DoD contract.
We must remember, independent of the pricing, we have seen some secular changes in the volume and mix of property coming through the surplus and scrap programs.
And throw in there that commodity prices for things like copper and aluminum have been down 50-plus percent year over year.
So that has really little to do with our pricing model and has a lot to do with what is in the supply chain that's being referred to us, and how these commodity-driven categories are being priced in the marketplace.
So that's certainly been a headwind for the Company.
We've talked about it the last several quarters.
In addition, we have new pricing.
Now, we always deal with change in the scope of work and change in what we get paid to do that scope of work in not only the DoD but in other situations.
And so it's incumbent upon us, <UNK>, to make sure that we're managing our costs and that we're holding both the client and our teams to the detailed scope-of-work plan.
In some cases, we'll be looking to manage costs by having either the seller take on more responsibilities that we're no longer responsible for, or even the buyers.
So that is one way to mitigate the change in the price or cost of goods sold under those contracts.
And we'll work through that in the coming year.
And we believe we have a lot of experience in doing that and can manage through that.
But we don't control commodity prices.
We don't control whether we're being given high-value or low-value properties.
That's really something that's a cyclical issue with DoD supply chains.
So let the take your first question.
As we said, I guess, in our opening remarks, the main driver for exceeding the third-quarter guidance was due to some of these project deals being brought forward.
But there was also some outperformance from a buyer-pricing perspective that allowed us to make, as I indicated, better fall-through in the quarter on those particular projects.
So I think [there's a good bit] I'm not sure that I would look at that and say, well, then that's ---+ if you push it forward, then there's no trend.
Projects are, by their nature, lumpy.
We don't look at this one quarter to the next quarter to the next.
We look at it in the long run, or in the medium term, how these things are progressing.
So especially with the seasonality in the fourth quarter, I would say that it's hard just to look sequentially and say, well, I'm going to plot this to that next quarter to the next quarter.
And as I said, it gives us ---+ the takeaway, I think, is that it gives us comfort that there is healthy potential there, evidenced by what we can accomplish in our third quarter.
We need to get through to a fourth quarter that's typically seasonally lower than other quarters, and then going to the next year.
But we're still going to have the lumpiness of projects, and a project can easily fall from a July to a June.
And I don't think it necessarily impacts the trend one way or the other, at least in my mind.
As to your second question ---+ do you mind repeating yourself.
Yes.
I think the energy vertical, which we've commented on a few times, that's a big vertical.
It's something where people react to sharp changes with hesitation, how they make decisions.
There's a new normal I think that's slowly being embraced by sellers and buyers in that vertical, and we're seeing some flow and liquidity as a result.
I think it will be potentially healthy, potentially a good upside for the Company in the future.
You know, we did see in the energy vertical, the consignment business was relatively healthy.
Again, that vertical is much smaller than it was 18 months ago, but we structured that business.
We continued with the investments in sales and the operating team so that when things turn around, we can take advantage of it.
And this is ---+ we had a good quarter, not only on the project-based business, but in the consignment business and energy.
And I think that's a good sign.
But let's get through the seasonal fourth quarter and then see how the trend picks up or continues or not as we go into next year.
You also, I think, asked about the industrial business.
And again, that's probably lumpier than the energy business from that standpoint.
So I don't know that the macro conditions on the industrial business have that big of an effect, certainly not as much as in our scrap DoD business or our energy business.
So it's more about operational effectiveness for us on the industrial business.
It's getting out there and just growing from a volume perspective both our consignment but also our [project] business.
And again, that's going to be lumpy.
That business is quite international, so the fourth quarter has a particular effect in Europe, for example, from the third to the fourth quarter.
So there's a lot of factors in there.
I don't know if I'm giving you enough color, but that's kind of where we are.
| 2016_LQDT |
2015 | FL | FL
#The continuity of the role has been probably one of the smoother things.
Ken handled his exit in the beginning of the transition as the consummate professional that he is.
Ken and I had worked hand in hand for a long time.
The new plan was a continuation plan.
The team continues to execute at a high level.
From the business point of view, we continue to make great progress and I don't see necessarily any surprises there, <UNK>.
The biggest surprise that I've had so far is that the CEO role doesn't come with 26 hours in a day.
There's a lot of things that when Ken and I were working together, Ken handled some, I handled some.
And now I'm trying to be a good leader across the business and could use a couple more hours in the day.
I'll have to figure that out.
His teammates try to ---+.
Pitch in and help, absolutely.
---+ pick up some of those hours.
You had a bunch of questions so let me try to go back to the first one.
We don't see price point growth slowing down in the back half, certainly.
I think that the customer, as long as there's great value in the product, they've proven that they're willing to pay the price.
And that's across the various buckets that you talked about.
If you're talking under $100, the consumer there has to see the right value associated with the price.
From $100 to $150, really the wheel house of getting towards that beginning of the premium end, there has to be value for the price.
And when you get up to the higher price points, the people that create those shoes do a great job of limiting distribution and the number of pairs in the marketplace.
So, there is a scarcity model that exists that the consumer that gets those shoes feels really fortunate that they got them and they clearly, to this point, have shown they're willing to pay the price.
Our team does a nice job, <UNK>, with each launch, with each product that they look at, they look at the cadence of other products before it, the products that are coming after it from a launch perspective and they seem to be right more times than not with the quantities that we put into the marketplace.
The real opportunity lies in maximizing the value for the customer across all of those price points.
And together with our vendors we're doing that.
That's what we really focus on.
And our merchants are making sure that they have compelling product across the price points so that we don't leave anybody behind.
We can't do that, <UNK>, but I have a feeling that you're already in line somewhere for them.
No, you're not, Bernie.
Sorry to interrupt, but we're still on 34th Street.
We'll still have that sweet sound of the sirens behind us.
The footwear choices of all of the artists and athletes certainly have a bearing on what our customer chooses to wear.
With social media as active as it is today, they know what whoever is performing tonight wherever is wearing.
The fact that the Yeezy shoe got some press today in the Wall Street Journal tells you that things are shifting.
But our consumer is really driven by the moment.
Our vendors do a great job of helping manage those moments by bringing great products to bear in the marketplace, sometimes with fewer pairs than we'd like to see, sometimes with more pairs than we'd like to see.
But they manage that pretty well.
I think as the athletes and the artists continue to change their footwear choices, our customers react to that and certainly our buying team reacts to that, as well.
I think that's all we have time for.
We appreciate your participation on our call today.
We look forward to having you join us on our next call which we expect will take place at 9 AM on Friday, November 20, following the release of our third-quarter and year-to-date earnings results earlier that morning.
Thanks again.
Good-bye.
| 2015_FL |
2017 | PSB | PSB
#Thank you.
Good morning, and thank you for joining us for the Second Quarter 2017 PS Business Parks Investor Call.
I'm Ed <UNK>, CFO of the company, and with me today are <UNK> <UNK>, President and Chief Executive Officer; and <UNK> <UNK>, Chief Operating Officer.
Before we begin, let me remind everyone that all statements other than statements of historical fact included in this conference call are forward-looking statements.
These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond PS Business Parks' control, which could cause actual results to differ materially from those set forth in or implied by such forward-looking statements.
All forward-looking statements speak only as of the date of this conference call.
PS Business Parks undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
For additional information about risks and uncertainties that could adversely affect PS Business Parks' forward-looking statements, please refer to the reports filed by the company with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K.
We will also provide certain non-GAAP financial measures.
Reconciliation to GAAP of these non-GAAP financial measures is included in our press release, which can be found on our website at psbusinessparks.com.
Now I will turn the call over to <UNK>.
Thank you, Ed, and thank you all for joining us this morning.
First, I will discuss the company's results for the quarter, along with updates on investments, then JP will provide details on operations and markets and Ed will finish by giving financial specifics.
We have another outstanding quarter on nearly all metrics.
We continue to see robust market fundamentals and great execution by our operations team.
The company's total NOI growth was 5.3%.
And despite the move-out of the 200,000 square foot industrial tenant in Northern California, Same Park occupancy is a solid 93.7%.
Demand remained strong throughout the West Coast, Texas and Florida as we benefit from the infill locations of our park concentration.
Unemployment improved in all of our markets, leading to healthy customer demand and expansions within our own customer base.
Landlord-friendly markets help us maintain low transaction costs, which were $3.22 per square foot on leases executed during the quarter.
There were no acquisitions during the second quarter as cap rates for industrial and flex product remain compressed, and assets are being sold with in-place market rents and high occupancy.
We continued to search for value-add opportunity.
We had one small asset sale in our Dallas market totaling $2.1 million with a $1.2 million gain.
It was a non-core single-story office building in our flex and industrial portfolio.
I'm happy to announce that Highgate at The Mile officially opened on June 1.
As you know, I've been giving you updates on this project for 2 years.
It is a 395-unit luxury mid-rise family building located in Tysons, Virginia.
Leasing began in May, and our leasing success has exceeded expectations.
In the first 10 weeks of operation, we've executed deals on 75 apartments or 19% of our units.
Our rates are within pro forma, and I could not be happier with the initial success of this $117 million asset and our operating and development partner, Kettler.
In summary, we had a great quarter and first half of the year, and we expect this momentum to continue for the balance of the year due to our portfolio, team and strategy.
Now I will turn the call over to JP.
Thanks, <UNK>.
Led by an expanding U.S. economy, solid job growth, low unemployment and healthy demand from small businesses, our teams completed 2 million square feet of leasing in the second quarter with rent growth of 3.2%.
I will take you through second quarter statistics by market, beginning in Washington Metro.
Nothing much has changed in D.
C.
in the last 6 months.
The private sector economy is still active but GSA and government contractors are not.
Leasing economics are not favorable to landlords and the overall market occupancy in suburban D.
hovers at approximately 85%.
Having said that, our D.
team was busy and signed 130 leases, totaling 465,000 square feet.
Sequentially, Same Park occupancy in Q2 increased 20 basis points to 89.4%, aided by strong retention of 76%.
In order to secure some of this renewal business, we had to reduce incoming rents to current market, and thus rents declined 9.6%.
Finally, in Washington Metro, I mentioned on the last call that a large GSA user was scheduled to move out during the second quarter.
At this point, it appears it will be staying through September.
This tenant generates approximately $300,000 per quarter.
In terms of production, the Southern California team was focused and signed 179 leases, totaling 403,000 square feet.
Blended SoCal occupancy dropped 110 basis points to 94.9% as we lost one 30,000 square foot industrial customer in Los Angeles.
Subsequent to quarter end, we re-leased that space with 14% rent growth.
Strong demand from our core users helped us grow rents overall in Southern California by 5.1%.
Moving to another strong market.
In South Florida, we capitalized on strong user activity to increase occupancy 40 basis points to 98%.
We completed 350,000 square feet of leases in 89 transactions with rent growth of 3%.
Retention was 75%, thanks to us locking down some key renewals.
In Texas, we signed 346,000 square feet in 65 transactions.
Favorable economic conditions helped us grow rents in Austin over 14% and 6.3% in Dallas.
In Austin, where demand and tour volume is strong, occupancy was 94.2% and with retention at 59%.
Dallas occupancy was 90.3% during the quarter.
In Northern California, we capitalized on strong market fundamentals.
Leasing volume was 332,000 square feet, comprising 104 deals.
Northern California was 94.9% occupied with 14.4% rent growth.
Regarding the 200,000 square foot industrial space in San Jose we took back in April, we have completed our market-ready improvements and are actively marketing the space with good activity.
Market conditions in Seattle remain very solid.
And aided by limited new construction and healthy demand, we operated our real estate at 98.2% occupancy in Q2, signed 94,000 square feet and grew rents 15.7%, continuing to reach new peaks, especially in Kent Valley.
Looking into the second half of 2017, I remain focused on improving occupancy in D.
and Dallas, expanding our growing existing customer base and extracting favorable lease terms in our other markets.
We have 2.7 million square feet, approximately 10% of our portfolio, expiring in 2017, and I can't wait to attack these opportunities.
Now I'll turn the call over to Ed.
Thank you, JP.
FFO for the second quarter of 2017 was $1.55 per share compared to adjusted FFO of $1.36 per share in the second quarter of 2016, an increase of 14%.
The growth in FFO was driven by Same Park NOI, combined with lower interest expense and preferred equity distributions.
Same Park NOI growth of 5.2% was driven by a 4.5% increase in revenue, tied to higher effective rents as rent spreads on executed deals increased 3.4% in the first 6 months of 2017 and 5.3% for all of 2016.
Comparatively, Same Park occupancy increased modestly.
Same Park operating expenses were up 2.9% due to higher property taxes, utility costs and compensation expense.
For the 6 months ended June 30, 2017, the company incurred $23.4 million in total capital expenditures compared to $14.5 million in the same period of 2016.
$5.6 million of the increase relates to costs incurred on the company's recent acquisition in Rockville, Maryland as we complete the repositioning of the asset and prepare space for occupancy.
The balance of the increase incurred in our Same Park portfolio and was driven by transactions executed in 2017 as well as costs incurred on leases executed in late 2016.
Year-to-date, Same Park transaction costs per square foot are $3.06 on executed deals, consistent with the $3.05 per square foot incurred on all transactions executed in 2016.
For the 6 months ended June 30, 2017, the company's dividend payout ratio was a strong 71.9% compared to 67.2% for the same period of 2016.
The company generated free cash of $21.9 million for the first 6 months of the year compared to $24.9 million in the same period of 2016.
The decreases relate to the 13.3% first quarter increase in the common dividend.
As <UNK> noted, our multifamily development commenced operations during the second quarter and is nearing final completion.
Through July, the balance outstanding on the $75 million construction loan the company provided the joint venture is $61.9 million.
We anticipate funding the balance over the next few months as the project is completed.
With operation commencing, we reported an equity loss from the ---+ on the unconsolidated joint venture of $382,000 during the quarter.
The primary driver of the loss were operating expenses incurred in connection with the commencement of leasing and property management activity.
We will now open the call for questions.
Nothing unusual, <UNK>.
Our in-place contractual rent increases are just over 2.5% on average across the portfolio.
Nothing unusual.
Yes.
<UNK>, only on like maybe some of the new leasing and renewals that JP referenced and that are in the package by market.
<UNK>, no, we haven't seen anything specifically from a regulatory standpoint.
What we have seen is small businesses are confident right now.
They're growing.
They're expanding, maybe 2,000 or 3,000 square feet at a time, but I think they feel good about the business environment and maybe their prospects going forward.
So ---+ but from a regulatory standpoint or any governmental involvement, no, we haven't seen anything specifically.
Well, I think, <UNK>, we recognize that the balance sheet is in very good position right now.
We've got no debt outstanding other than a very ---+ relatively small balance on the line of credit.
So there's significant capacity within the balance sheet right now.
That being said, for a significant transaction we would certainly consider issuing equity, but we also recognize the capacity that is in ---+ embedded in the balance sheet today.
<UNK>, I think the modest decline from Q1 to Q2 was tied to some first quarter payroll burden cost and then a little bit higher cost in the first quarter on the LTEIP, just the way the accounting for that plan works.
But again, a relatively modest change from Q1 to Q2.
I would say that the Q2 number, it's roughly, all-in, about $2.4 million, is a good run rate going forward.
Nothing more than kind of consist ---+ consistent with what's in the second quarter.
Yes.
I think if you look at kind of where our secondaries are trading, the deal that we did in the fourth quarter of 2016 at 5.2% is trading today pretty much on ---+ at par on a strip basis.
So if you look at that as an indication of where we could potentially issue preferred today at 5.20%, I would still tell you that it certainly brings into play the opportunity to redeem the 6% that were redeemable in May of this year.
So certainly, I would say that, that is something that we're looking at very closely.
Yes, we are actively marketing it, and the space looks great.
There's very little supply available.
And we have activity, but nothing that I'm ready to talk about right now.
But I'm real confident in our ability to lease that space.
And when we do, we'll see a nice rent pop from the outgoing customer there.
So feel good about that piece of opportunity right now.
Yes, it's going to be solid.
I mean, to be honest, it's going to be very solid, so we'll see.
I mean, we're being very selective on the credit.
We're being very selective on the type of use.
So we have an incredible piece of real estate that we're being very selective with.
So we may be more patient and wait for the right user.
As you know, the demand in the economy in Northern California is very strong.
So ---+ and we anticipate our ability to push rent significantly.
But all that comes into play with factors like credit and term and everything else.
So we'll just have to wait and see, but I'm confident about the rent increase there.
Yes, sure.
In terms of looking forward a little bit, I don't see material change in that mark-to-market.
With an occupancy rate in the general suburban market of 15 ---+ or sorry, 80% to 85%, there's not a lot of pricing power for landlords to be able to drive rents.
And until we see that pricing power drive rent, that's when I think that mark-to-market will start to deteriorate a little bit.
But we do have, as I mention consistently, the smaller spaces, especially below 5,000 square feet, there's more activity.
The challenge is when you do a 30,000 square foot renewal that's coming off a 5- or 10-year lease, I mean, you have to meet the market, right.
And so that's what we're having to do.
And unless there's some dynamics that push the occupancy up to 90% in those suburban markets, so us and our competitors can sort of get some pricing power.
We still are faced with some rent write-downs to keep that occupancy.
Yes.
I think we are positive on '17 and '18.
And as I mentioned earlier, especially Northern California and Seattle, very robust demand, limited supply, very low vacancy.
Can we keep growing rents in the high teens, low 20s in those markets.
No.
Each quarter-over-quarter, no, I don't think that's sustainable forever.
And it may fluctuate quarter-to-quarter depending on a big deal we do or a renewal or something.
But yes, I like the dynamics in those markets, and because of that, I like our ability to push rents.
Having said that, we've pushed rents.
As I think I mentioned in the last call, Northern California rent growth has been over 15% or around 15% for the last 9 quarters.
So we are definitely capturing that rent growth and I expect it to continue.
But again, it may fluctuate from quarter-to-quarter in both Seattle and Northern California.
Yes, Gene, as I mentioned in my prepared comments, that really is tied to some of the costs that we are incurring in repositioning our asset in D.
C.
in Shady Grove ---+ at Shady Grove.
So we spent roughly, year-to-date, about $5 million on that.
We've indicated in the past that we'll spend about $10 million in repositioning and leasing that up.
So I would expect that we'd incur the balance of that probably over the remainder of this year and maybe a little bit into next year.
Yes.
We wouldn't expect, on a blended basis, for that number to vary widely.
Thank you, everyone, for joining us this morning, and we look forward to talking to you in the future.
Take care.
| 2017_PSB |
2015 | OFG | OFG
#Correct.
So for the 4.9% ---+ and then we layered in future loan origination profiles, and yield rates, and securities income.
Things like that.
And that's what bumps it up to 5%.
<UNK>, very good point.
I think you are doing the job that I should have been doing in the first place to explain this.
This is not a stress test.
This is a credit shock, one-time, very conservative treatment.
That's why we put ---+ it's an immediate impact of the projected two-year cumulative losses: one-time, with no consideration to future earnings, and a static balance sheet.
So exactly ---+ it is not DFAST, exactly.
It's a little bit more severe, just to illustrate what impact it would have on our tangible book value at the end of the day, even after considering the acute scenario, and give you an idea what it would be.
Yes.
We are ---+ as you know that we don't ---+ we haven't disclosed the DFAST, because we are not required to.
But I think if you layer in these provisions and things like that, all I can tell you at this point in time is: by doing that exercise, we are not even planning internally to release the allowances and boost our earnings.
So we are, in fact, increasing the allowances in the context of economy.
So I would ask you to look at it from that perspective and verify your numbers.
But at this point in time, I think what we are disclosing is purely an analysis of what the shock results would be.
I also think, <UNK>, that the analysis reflects also the effect of us having 33% of our portfolio under purchase accounting and the benefit of that.
So we are trying to make sure that everybody understands that we have a good excess capital cushion, given our credit risk profile and given the dynamics here in the Puerto Rico economy.
Yes.
And as I mentioned earlier, we feel the municipal exposure ---+ we feel very comfortable with that exposure.
We know the loans, and we manage them as we have done in the past.
So we just don't feel that that should be commingled with the rest of the central government and public corporation exposures.
So if you exclude that, really, the Puerto Rico government exposures relative to ---+ for OFG is predicated basically on PREPA.
I will say a couple of things, and then I will let <UNK> add.
But from our perspective, we look at repurchase as part of a capital management strategy.
We also recognize that things here in Puerto Rico ---+ in the market we participate in, things have become a lot more uncertain.
And so we are cautious at looking at all the repurchase.
Certainly, the pricing also is very attractive.
So we are just, from that perspective, continuing to look at repurchase as part of a capital return to shareholders and capital management and would like to evaluate them as the opportunities occur.
Not to our knowledge.
It is complete separate jurisdiction.
They are called autonomous.
So it's municipal autonomous.
And they are separate.
The loans that we have, they are secured.
They are secured with a lien on property taxes, and they are secured with escrow monies that are escrowed out for those loans that are outside of the reach of the central government and the municipalities both.
So they can't go after that money.
When the stock is trading so deep below book value, there is really no currency to do anything strategic.
So certainly that's not out of the table, but it's certainly a ---+ moved into the more longer-term scenario.
So that's how we view it.
Well, yes.
At the beginning, back in 2014, when lower prices came down, it did have an impact.
And we saw it late in the year and maybe early part of this year.
But remember, also, that there have been two gas tax increases in the last 12 months.
So some of that reduction in oil prices has been absorbed by increases in the gas tax to be able to ---+ the government was trying to get a bond issue out that never occurred.
So that's ---+ I think that the reduction in oil prices has taken its effect in the Puerto Rico economy.
And I'm not sure there's going to be any additional benefit from that.
<UNK>.
No, <UNK>.
I think we would stick to the 32%, with the low side of the range as 29% to 34%.
Well, thank you all for being in the call today.
We will be in New York next week on the KBW community conference.
And looking forward to continuing the discussions and the dialogue regarding Oriental's results and our outlook.
In mid-September we are scheduled to be at a Credit Suisse conference, also in New York City.
And our preliminary date for reporting third-quarter results is Friday, October 23.
So thank you again, and have a great day and a great weekend.
| 2015_OFG |
2015 | NTAP | NTAP
#Yes, Lou.
I'm not going to get into a granular level of specific there.
But really the $40 million of the 14th week was in software and was in the service revenue line.
So it was all there.
And in fact, you can see it on the deferred revenue side of the fence.
So deferred revenue was down pretty substantially in Q1 on a year-over-year basis, and we haven't seen that kind of decline, really in quite some time.
If you take $40 million out of that, which is the deferred component, you get back to a number that we're not thrilled about but that's a lot closer to those types of a sequential decline we've seen before.
So what we expect to happen is obviously that 14th week doesn't occur again in Q2.
We go back to a 13th week.
We won't talk about 14th week again for six more years from now.
So we're going to look at those pieces.
It obviously means that the amount of revenue of $40 million was shared between software and hardware, and the share was $18 million and $25 million respectively.
That's not going to occur again in Q2.
All right.
Thanks, Lou.
Okay.
So if I think about deferred being software entitlements and service revenue, on a year-over-year bases in Q2 I would expect those things to go up.
They're not going to go up dramatically, they're not going to be reflective of the 14th week because there will be no such thing, okay.
On the product revenue side, and I think the real question is what's going to happen with product revenue, on a sequential basis (multiple speakers) expected a pretty reasonable increase in product revenue.
Why is that.
That is because at the time we came to the end of Q4, we did not have a pipeline on the product revenue side of the fence and we had to rebuild that pipeline.
What we're seeing and what we're doing as we build up the guidance for Q2 is that we're going to see some return on the product revenue side, and that's reflected in the guidance that we pulled out there.
As you know, we don't guide below the overall revenue line for a quarter.
All right.
Thanks, <UNK>.
First of all, I think we have a strong portfolio of technologies that are relevant to the modern architectures within our customers.
In some cases, it is developing core technology.
In other cases it is qualifying our technology for emerging use cases within our customers, what we call solutions development.
I think that is all well underway.
And we feel good about the portfolio we have.
We are also constantly looking at the evolution of our customers' perspective on the IT landscape, their requirements for data management.
And we'll always be on the look out for M&A tuck-ins where they make sense, have strategic fit, have the right financial criteria associated with them.
And we have a disciplined way of scanning the landscape and discussing with our customers their choices ahead of them and for us.
All right thanks, <UNK>.
Next question.
We are, as a percentage of our install base, we are about 15% of the total install base.
And remember, the install base is growing.
And last quarter we were at 11% of the install base.
So pretty good sequential growth.
Thanks, <UNK>.
Okay.
So <UNK>, why don't I just get started.
So second quarter is when we generally see the government, the US government I should say, tic in.
So our bottom-up includes our expectations from the US fed.
It includes our view of contracts that are taking shorter, longer or sideways in terms of the time to land them.
And as you know, we have a very strong presence there and a very good business condition overall and value proposition for them.
So the second quarter will include a US public sector element to it, a federal fiscal year end element to it.
We plan on all of those.
We look at risks or opportunities to those as we build that bottom-up guidance.
I think to answer your question in terms of the discussions we have with our customers, I've actually had several meetings with customers from all different parts of the world, and I'm just headed out to Asia Pacific as well.
I think the things that encourage me are the breadth of discussions we have and the adoption of multiple products in our portfolio by the enterprise customers that we work with.
I think they are expanding the range of things they are doing with us, and we are excited and encourage strong growth in terms of the number of customers, enterprises buying multiple products from us for broad sets of use cases.
Thanks, <UNK>.
I would say that if you were to look at two dimensions of new workloads being captured, I think the first one is new to NetApp customers where Cluster Data ONTAP has given us a footprint that we didn't have before.
And as we said in our commentary, that has seen strong growth, up triple digits, 225%.
And so that's a measure of the competitiveness of Clustered ONTAP in net new to NetApp environments.
Within existing customers, the preponderant majority of Clustered ONTAP sales have been to new footprints.
As we mentioned, the percentage of our install base that has migrated from their legacy 7-mode environments to Clustered ONTAP has been small.
Let me answer first.
The perspective I'm taking is a broad perspective looking at all aspects of the business, both the operating model of the Company as well as the opportunity to optimize our capital structure to maximize returns to shareholders.
Then my quick clarification on the 303 million.
This is what we've done based upon the first 10 days in the quarter.
So we have not in the past and don't in the future plan to project out what we'll buy over the quarter.
It is really based upon first 10 days, what happens last quarter, and how that falls in.
But then really just the first 10 days of buying.
Thanks, <UNK>.
We've had a strong start to the year in the European theater with all of our parts of Europe doing very well year on year, both ---+ especially with FX being accounted for.
So that's a reflection of both the leadership team in Europe as well as the value proposition for Clustered ONTAP.
Some of the key features that our European customers were waiting for were made available to them in 8.3, and that is now translating into results from the capacity investments as well as the product readiness.
Within APAC, we continue to monitor the situation in China.
Of course, our China business is a small business and hasn't been affected by the changes in China.
But we are evaluating the impact of the Chinese economy for the rest of the Asia Pacific theatre.
Thanks, <UNK>.
The focus for our E-series business is on the branded customer business and it is about building a pathways to market through our more traditional routes to market, resellers, system integrators and service providers.
I think we feel good about the progress we've made.
We think we feel good about the relationships that we have with enterprise and service provider customers who look to buy directly from us or through our reseller model.
So we feel that the acquisition does not materially affect that business.
Thanks, Andy.
When we look at that, so there's sort of two or three sets of use cases within our existing customers.
One is competitive displacement, or new workload growth.
We are certainly seeing a strong set of trajectory around that.
The second is replacing 7-mode for a workload that could have run on 7-mode where they choose to go to a new architecture.
That certainly happens as part of our footprint.
And then the percentage of those where you have a workload that is running on an old 7-mode system that now gets essentially upgraded and converted to a Clustered ONTAP system.
The last one is the small percentage of the total.
Thanks, <UNK>.
Thank you.
I'd like to conclude by saying I'm excited about honored to lead NetApp through the industry transition.
I want to extend my thanks to the entire NetApp team for your hard work and for your support as we create opportunity for NetApp during this transition.
We are taking action to better address the trends in the storage market and will manage our portfolio of solutions to target the requirements created by those trends.
Our strategy resonates with partners, enterprises and service providers.
And we are making investments to insure we are engaging in more customer conversations and opportunities.
Those investments are yielding results that position us for a successful future, but we have more work ahead of us.
We are committed to enhancing shareholder value and plan to return to our target operating model in the second half of this fiscal year.
Our focus on cost structure, stock buyback program and dividends are important demonstrations to this commitment and to our confidence in our future.
Thank you all for joining us, and I'll talk with you again on our next earnings call with a further update on how we're evolving the business to deliver greater value to customers and shareholders.
| 2015_NTAP |
2017 | MRK | MRK
#Thank you, Rob, and good morning, everyone
This morning I'll provide highlights on the performance of Global Human Health for the second quarter
And my comments will be on a constant currency basis
Global Human Health delivered another solid quarter
Worldwide sales of $8.8 billion grew 2% with contributions from launched products including KEYTRUDA, ZEPATIER, and BRIDION as well as our vaccine portfolio more than offsetting the continued impact from LOEs
We also had another strong quarter outside of the U.S
with growth of 8%
I'll highlight a few of our key franchises and product launches, starting with KEYTRUDA
We continue to build our leadership position in immuno-oncology, as we execute on the great opportunity we have with the launch of KEYTRUDA
In the second quarter we added to our momentum with four new indications in the U.S
and an additional indication in Europe
Sales grew to just over $880 million, a very significant increase over prior year
In the United States, KEYTRUDA sales continued to build across multiple indications with lung cancer now contributing to roughly half of the sales
Sales in the fourth quarter – or sales in the second quarter also reflect favorability of approximately $40 million due to the timing of customer purchases
In first-line lung cancer, KEYTRUDA is the only approved anti-PD-1 therapy
And we've seen a strong adoption of KEYTRUDA as monotherapy in high PD-L1 expressive populations
And KEYTRUDA has quickly become standard of care in that setting
While still early days for the KEYTRUDA/ALIMTA combination, feedback from oncologists has been positive following the FDA approval in mid-May
In fact, the combination was added to NCCN guidelines a couple of weeks ago as a recommended therapy in first-line non-squamous lung cancer regardless of PD-L1 status
We've also start to see a greater contribution from lung cancer outside of the U.S
KEYTRUDA is now approved in the first- and second-line lung cancer settings in more than 60 countries
We continue to achieve reimbursement in more markets
And we're seeing a steady increase in patients being tested for PD-L1 status
In addition to momentum in Europe, we've also seen strong uptake in both first- and second-line lung in Japan
That follows our launch in the first quarter
Outside of lung cancer, KEYTRUDA continues to be the leading anti-PD-1 therapy in metastatic melanoma in the United States and in many markets around the world
We've also seen strong launches across bladder cancer, head and neck cancer and classical Hodgkin lymphoma as well as early interest in MSA-high (sic) [MSI-high], the first tumor agnostic indication
We are excited about the continued growth of KEYTRUDA across indications
We believe our breadth of approved and future indications across tumor types will continue to establish KEYTRUDA as a foundation for the treatment of cancer
In addition, we are very much looking forward to collaborating with AstraZeneca in oncology as announced yesterday
We believe LYNPARZA can be a very important product in different indications over time
And the combination of our proven commercial success in oncology launching KEYTRUDA, with AstraZeneca's strong experience, will enable us together to make this product a tremendous success
Moving now to JANUVIA
Global sales for the JANUVIA franchise were $1.5 billion, a 7% decline, primarily driven by the U.S
In the second quarter, we saw solid volume growth of 3% in the U.S
But we also saw continued pricing pressure as we've discussed before
There was also lower inventory levels being held in the channel
JANUVIA continues to maintain DPP-4 leadership and to be a preferred add-on after metformin
We look forward to the opportunity to broaden our diabetes portfolio with the SGLT2 inhibitor monotherapy and in combination with JANUVIA, partnered with Pfizer
That has a PDUFA date at the end of this year
Moving now to our Vaccine business
Sales of $1.4 billion grew 11% due to strength in GARDASIL and approximately $70 million of sales from the terminated joint venture with Sanofi
In the United States, GARDASIL continues to see good underlying demand with very strong first dose coverage rates
But we're starting to see some impact from the transition from a three-dose to a two-dose regimen
GARDASIL sales outside of the U.S
grew this quarter, primarily driven by the JV termination
Moving now to Hospital and Specialty
Successful launches of ZEPATIER and BRIDION more than offset declines in CUBICIN, REMICADE, and ISENTRESS
ZEPATIER sales reached nearly $520 million, driven by strong underlying demand in the U.S
, Europe, and Japan
We will continue to focus on expanding ZEPATIER's utilization globally, but recognize that uptake may be impacted by the ongoing decline in overall patient volumes in many markets and increased competition
BRIDION had another good quarter with growth of more than 40%, driven by strong demand across ex-U.S
markets and the continued success of the launch in the U.S
remains the largest opportunity for BRIDION moving forward
In closing, we drove solid performance across many products this quarter, delivering growth despite a more than $800 million headwind from loss of exclusivity
We continued to execute well on our product launches
And we look for additional opportunities across our broad portfolio to drive growth through the remainder of 2017. With that I'll turn the call over to <UNK>
Good morning
So if you look at JANUVIA, the IMS-2X (22:37) volume growth in the U.S
It was about 3%
However, it's not as strong growth as what we experienced last year, where it was about 4.5%
I've been saying for a couple years now that each year, the pricing pressure gets a little bit harder than the year before
And this year is harder than last year
And I expect next year will be harder than this year
It's not discontinuous
It's just continuous pressure that builds in the channel, particularly in the United States
As we look forward, we're excited about the SGLT2 and the SGLT2 combination with JANUVIA
I believe that JANUVIA will continue to be the first choice for add-on therapy after metformin
And I think that will remain the case around the world
But a lot of patients still don't get to their HbA1c goals even with metformin plus JANUVIA
So there are many patients where they look to add on an additional oral agent, of which the SGLT2 sometimes are the right product to add
Therefore, I believe having a combination with an SGLT2 with by far the market leader in the DPP-4 class will be a competitive advantage for us
And that's why we look forward to launching that with a PDUFA date in the United States later this year
So with regard to first-line lung cancer, a couple things are important
First of all, we are certainly seeing a strong uptake overall
And in the United States, KEYTRUDA is now the leader in terms of market share in first-line lung cancer
With regard to the combination with ALIMTA, we're certainly starting to see some uptake
But it's still too early to give any specific market share for that portion of the business
But as I mentioned on the call with NCCN recommendation and reimbursement, we think that will continue to be helpful
So we are very pleased right now
About half of the sales for KEYTRUDA in the U.S
are in first-line lung
And that was the largest increase in terms of a percent of our sales
So we continue to believe that KEYTRUDA will be a mainstay for the treatment in lung cancer first-line
And this is <UNK>
So I feel very good about our position in first-line lung cancer today
And if you look at the data that we have, not just as a monotherapy but also in combo with ALIMTA, it's very, very strong
And if you think about the utilization, it's not just in academic centers for treatment of first-line lung
It's also in the community-based physicians
There, they're very comfortable using chemotherapy
So I think the combination of KEYTRUDA plus chemotherapy with the strong efficacy data that we have will continue to be a very strong position for us
Obviously we have to see what data comes out and what the results would be
But as <UNK> said, the bar is very high with the data we have
And I feel good about our position in lung today and as we move forward
And then, Tim, this is <UNK>
So anecdotally, we're hearing very positive comments
And we're hearing the comments on 021G not just from academic centers and physicians, but also in the community-based area
And the key is that we have an approved FDA indication and we have NCCN recommendation
So I don't have data yet to support anything other than what we're hearing from the field
But everything we're hearing is positive at this point
And I would expect that the combination will be used increasingly more often as we move forward
Yeah
Good morning
So if you look at first-line lung
First, let me give you a sense of testing
Right now in the United States we believe that more than three-quarters of patients are being tested
If you look at Europe, we believe that it's two-thirds of patients are currently being tested, where a country like the UK is about 90%, Germany is about 65%
So there's no doubt that we are seeing on a global basis, including Japan, significant increases in testing
And it's really becoming standard of care to test patients for their status
With regard to first-line lung, we are the leader right now in first-line lung for new patient starts
And we have about a 26% overall share, which is higher than any of the other products in first-line setting
And the majority of it I believe is based on -024, because we're just in the midst of launching the 021G results
Okay
So let me talk about MSI-high just a bit, Tony
So first of all, we're really working hard to increase the awareness for MSI testing and the value of KEYTRUDA across the tumor types
And after the June approval, there's certainly health care professional awareness that were hearing
But it's too early to see that translate into sales
It's really been detected across a lot of different cancer types
Some that are uncommon, like biliary tract cancer
And some that are very common, like colorectal cancer
If you look, MSI-high, it really is an established biomarker
And it's used often in something like colorectal cancer or endometrial cancer
But it's not really done in many of the other tumor types
So we have still a lot of work that we have to do to educate the importance of testing for those other tumor types
And I would expect over time that this will continue to be an interesting and important indication
But it's going to take time to build, frankly
| 2017_MRK |
2016 | BDX | BDX
#In terms of the R&D spend you should assume that we will continue to spend the Medical Device Tax as it is suspended and think about that going into next year.
You don't start a program and finish it in one quarter.
These things will continue.
As I was mentioning, this is an acceleration of the strategy that we have and we've seen some really attractive opportunities to accelerate that strategy both on the Life Sciences and on the Medical side.
You were mentioning microbiology in your question and we said that is one of the areas in terms of the automation that we felt with the opportunity that we're seeing for that platform globally that we could extend that platform.
We had finished the technology feasibility, so we felt really good about it and so <UNK> took the opportunity to do that.
On the other side, <UNK> had a series of opportunities in the Medication Management area where he could accelerate his programs around Medication Management including the informatics piece of that strategy.
There was some opportunity to get some technology from the outside which we took advantage of.
So we were very happy that these things came together in that way.
We think it positions us well going forward.
I just want to be clear, <UNK>.
I referenced the fourth-quarter margin or the investment as about 7.5%.
That's not the new normal.
I think going forward you would still think about R&D as a percentage of revenue in the 6% to 6.5%.
But fourth quarter is a bit of an anomaly that it's a bit of a catch-up.
It's a bit of a catch-up and there's a little bit of one-time in there is what I was indicating with my opportunistic comment.
Sure.
When we think about emerging markets obviously we start with Asia and within Asia we start with China and we're looking at healthcare spending in China and how that is unfolding.
What we're seeing is consistent spending in China.
We break that down then to look at business by business, what's happening on the capital side of things, as they are purchasing that's more of an impact obviously on the Life Sciences side than on the Medical side.
And then we go back and look at the Medical piece in two ways, of course, what's the opportunity for core growrh and then as <UNK> was talking about earlier all the product registrations that we have for China and other marketplaces from the CareFusion acquisition.
So that's China number one.
Number two, we're looking at India as a growth driver.
And that has, the last two years that has picked up and been a good growth driver for us.
Now there's pluses and minuses in India.
We're seeing good fundamental demand there with the burgeoning middle class.
We're expanding our distribution in India, so we will take that into account.
There are some headwinds in India in terms of tariffs that have been put in place.
So we make sure that that's not any significant impact.
So I would say we still find it as a very attractive marketplace for us.
In Middle East and Africa, of course, we're much more careful about what's going on in Saudi Arabia.
We follow what the government funding is.
In this case, of course, the funding was not just in healthcare but it was a significant change linked to the price of oil that we saw.
So the way we're thinking about that is price of oil staying where it is, which means on the low side which says that they are going to fund their healthcare but it's not a big expansion of healthcare.
That was going on in the first half of the year.
That's not happening now.
But they have to continue to provide care.
That's what we're thinking about there.
In Africa we talked about the CD4 business and some of the shift in the guidelines we've seen.
We believe we've seen the majority of that impact that's really driven by PEPFAR, not the entire marketplace, so it's a segment of that market.
So we will watch how that evolves as <UNK> said.
Then Latin America is, you know, is a mixture for us.
Mexico is doing well.
Brazil is doing okay, is what we would say, and we watch the economy there and what's happening from an inflationary standpoint and, of course, funding.
But the other countries in Latin America are contributing quite nicely.
So that's how we build it up.
Sure.
<UNK> will take that.
Hi, <UNK>, this is <UNK>.
So I wouldn't say this is the bolus of them.
The numbers that we cited are certainly less than half of the products that we intend to have registered outside.
We obviously started with those products that we have the data available for that didn't need to have additional data generated.
And we're in existing formats that those markets would accept.
Take, for example, as we think about pumps, in some cases we need to do translation and get the language done first and that's an R&D program to get that ready.
Some of the markets require infusion sets to be adapted a bit for local practices.
And so what you saw come through first are obviously those products that meet the needs of specific geographies.
We have the data ready and we move forward and submit right away.
So most of those also tend to be on the consumable side as I shared earlier, which as why as you think about FY17 we would expect those synergies to really be focused within our MPS business because that's where those more simple medical devices that are more universal in nature in terms of how they fit in with the healthcare system, that's where they tend to be focused.
As <UNK> mentioned, we think about it in 10s of bps, not in dramatically higher than that.
Again just to put things in perspective we are really pleased with the performance and outlook.
Even that we've gotten as early as in FY16, of course, as we had said CareFusion was a 3, 3.5 at best growth business as a standalone.
We're holding at our 4.5% to 5% growth for the segment overall.
and as you know when you take a 3% grower and a nearly 5% grower you don't get within the range that we're sharing.
And so we're already we see some good performance this year already as a result of the two companies coming together.
We think some incremental improvements on that in FY17, specifically within the MPS business in that 10s of bps as <UNK> described.
The other thing is also to keep in mind is that some geographies take a lot longer.
So China, although it's a market that we are filing registrations in, once you file a registration in China it's a three-year process.
You can't get into certain markets that fast.
Typically more of the European, Latin America, Southeast Asia markets are those geographies that you can actually get into within an 18-month window.
So that's where you will see us enter in first.
Those aren't necessarily as large as some of the markets like China which will be later on in our three-year outlook horizon.
Okay, this is <UNK>.
Listen, thank you all for your questions and comments on the call.
We look forward to briefing you at the end of next quarter.
Thanks very much.
Thanks everyone.
Thank you.
| 2016_BDX |
2016 | LQDT | LQDT
#Sure.
Well, we've highlighted that LiquidityOne is a multidimensional project.
It involves people, process and underlying IT systems.
The process work is internal to the company, unlikely that you would see that.
We will be introducing a product, a marketplace platform implementation in the summer.
And you'd certainly be able to see that.
In terms of how we operationalize LiquidityOne, I think we'll be able to introduce new lines of business and new self-service capabilities that will just be another pathway for clients to work with us.
We'll leverage our buyer network, our marketing and merchandizing skills and the valuation services that we provide.
So that's something that we're planning to manage.
And I think we'll have more flexible, adaptable system and the ability to use our marketplaces even of service to drive sales channels for significant industry verticals over time.
And that will be something that I think will be visible over time as we take that to market.
Well, this is <UNK>.
You can imagine tax rate is dependent on a lot of variables.
What we would expect going forward is a tax rate similar to our first quarter tax rate of just under 30%.
So looking forward that's what I would assume for the time being.
As we see mix-changes or adjustments between foreign and domestic taxes, we would adjust accordingly.
But the 29%, 30% is what you should look forward to this year through the end of this fiscal year.
So, I think we observe macro trend in growth of online, retail and omni-channel retail.
The increased complexity there requires help in the reverse supply chain.
And what clients are wanting is a scale level so that we can help them track and manage products across all of their locations, provide the pre- and post-sell logistics, gathering assets physically, being able assess value, refurbish assets and also be able to take those to the right sales channel for maximum value.
I think that's where we provide the full one-stop shop solution for large manufacturers who are typically controlling their intellectual property, their designs and are looking to limit their investment in after-sales support.
So we feel that that's a growth opportunity.
We have a number of really strong case studies and reference clients to grow in that direction.
We're excited about extending our platform throughout that supply chain.
And the opportunity is to reduce complexity in how the vendors in the retail supply chain have to deal with product that is either returned or unsold or has to be removed from sales channels of their partners and also to protect their brand in that secondary marketplace.
So that's a key trend for us.
I think also the ability to reduce transportation costs, reduce waste is another key driver for why people choose Liquidity Services.
I think just the level of reliability ---+ we're a company that has the ability to deploy multiple pricing models, fully dedicated service teams, to work with clients just about any environment.
And we continue to grow our buyer base.
I mean, we have lots of competitive sales channels to drive recovery for our clients.
And that can range in anywhere from export markets, B2B markets and even B2C channels.
So, we're well positioned to help that retail supply chain, reduce the inefficiency and uncover new avenues of revenue and return.
| 2016_LQDT |
2015 | AMED | AMED
#Thank you, <UNK>.
Welcome to the Amedisys fourth-quarter conference call.
This morning I am pleased to announce we reported fourth-quarter revenue of $301 million, adjusted EBITDA of $23 million, and earnings per share of $0.27.
For the full year we reported revenue of $1.2 billion, EBITDA of $74 million, and earnings of $0.73 per share.
As many of you know, this is my first conference call as CEO of Amedisys.
Most recently, I served as Vice Chairman of Alignment Healthcare and also as Chief Strategy, Innovations, and Corporate Development Officer at Humana, with prior stops at Tenet Healthcare, the advisory board, and McKinsey.
Throughout my career I have spent quite a bit of time focused on how to provide efficient and effective clinical care to the Medicare and Medicare Advantage population.
It has become clear to me over the years that home health and hospice are essential to serve our most complex and fragile patients.
Not only in terms of providing effective quality care at lower cost, but also because of the patients' overwhelming preference to remain at home.
That's why I am here.
In the early part of 2014, I was asked by the Amedisys Board to lead a consulting effort to perform a strategic review of the Company.
I can definitely say that Amedisys was in a much different place at the time.
The Company was losing money and had recently announced a large settlement with the Department of Justice, putting a strain on the balance sheet.
My main concern, though, was that these events would result in real deterioration and damage in employee morale.
What a difference a year makes.
2014 has seen a remarkable turnaround for Amedisys.
Operations have stabilized thanks to the great work of <UNK> <UNK>, <UNK> <UNK>, our field and corporate leadership, and the entire Amedisys team.
Difficult decisions were made to close or consolidate underperforming care centers, cut costs, and refocus internally on core operations.
Looking back, these decisions have paid off tremendously.
Since being named CEO a little over two months ago, I have taken the opportunity to visit extensively with Amedisys team members, both in the field and here at corporate.
I spent most of the last month on the road visiting and listening to all of our regional leaders and their teams.
I visited 12 states, 21 care centers, and have met with over 700 employees.
To date, what I have seen is an increasingly confident group of people, passionate and committed to delivering superior home health and hospice care.
My job, along with the rest of the management team, is to provide our people with the tools and support to deliver care effectively and distinctively.
Our team members are excited and looking forward to our next steps, a stark contrast to what I saw only a year before.
It also appears that healthcare payors and providers, including CMS, are increasingly recognizing the value of providing care in the home.
With the recent goal announced by CMS to transition towards outcome-based payment versus the traditional fee-for-service model, I truly believe that Amedisys is uniquely positioned to capitalize on these big longer-term opportunities.
All while maintaining very healthy operation under today's reimbursement models.
Much of the hard work and the low-hanging fruit of our turnaround has been harvested.
We will generate future incremental value by focusing on more efficient care delivery, new business line growth, margin preservation, and return on human capital.
The last two months have been very educational.
We are still in early stages of forming our strategic vision, but my travels around the Company have been very encouraging.
Team members from all over the country have identified large pockets of untapped value.
Over the next few months, we will be refining our plan and stress-testing these ideas to extract that value.
We will provide updates as our thinking solidifies.
In the near term, we will be focusing on top-line growth and continuing to improve the efficiencies of core operations.
We will also be looking to capitalize on tuck-in M&A opportunities that help us to capture and solidify market share and are accretive to earnings.
I am confident at this time next year our conversation will be about continuing to streamline and grow our core operational performance past the industry standard, as well as reviewing our various strategies for new growth.
Finally, I would like to thank all of the Amedisys team for the great work you are doing on a daily basis, delivering care at home to those who need it most.
Also, thank you for welcoming me as your new CEO.
I am truly excited about all of the opportunities that lie in front of us.
With that, I will turn the call over to <UNK> <UNK> for an operational update.
Thank you, <UNK>.
For the quarter, revenue was $301 million and earnings were $0.28 per share on a GAAP basis and $0.27 on an adjusted basis.
For the year, we generated $1.2 billion in revenue and earned $0.40 per share on a GAAP basis from continuing operations.
There were numerous adjustments detailed in our press release, the majority of which related to our restructuring efforts in the first half of the year.
Adjusting for these items, we earned $0.73 per share.
EBITDA for the quarter was $23 million with a margin of 7.6%, compared to $7 million, or 2.2%, for the fourth quarter of 2013.
In our segment results, we will be focusing on year-over-year comparisons.
In home health, revenue was $240 million.
Same-store Medicare admissions and re-certifications were 2%, and revenue per episode was up $10.
Same-store non-Medicare revenue was up 26%, while admissions were up 22%.
Home health gross margin of 42.1%, an improvement from 39.4%.
Cost per visit was $86, down $4.
Most of this decrease was due to a shift in clinicians from salaried to pay per visit at the beginning of the year.
And hospice revenue was $61 million, same-store ADC fell 3%, and admissions were up 2%.
Revenue per day was up 1%, roughly in line with the rate increase for Medicare effective in the fourth quarter.
Hospice gross margin was 46.4% and flat relative to last year.
We saw an increase in cost of service per day, driven mainly by increased pharmacy costs.
Consolidated G&A expenses decreased $13 million year-over-year on an adjusted basis.
A majority of these savings were achieved through restructuring of our portfolio and other G&A efficiency initiatives announced earlier in the year.
Total capital expenditures came in at $12 million for 2014, significantly below our expectations at the beginning of the year.
We ended the quarter with $8 million in cash on the balance sheet.
Cash flow from operations for the quarter was $41 million, excluding the second DOJ payment of $36 million.
This compares to $8 million at the same period last year.
For the year, cash flow from operations, excluding the DOJ settlement and related fees, was $90 million, compared to $102 million in 2013.
It is important to note that 2014 cash flow includes negative cash flow from operations in the first quarter followed by three strong quarters of cash generation.
Additionally, 2013 benefited from a $42 million reduction in accounts receivable, causing DSO to fall 10 days.
At the end of 2014, DSO was down again to 29.4 days.
This is an all-time low for our company and down three days since the beginning of the year.
Outstandings under our revolving credit facility at the end of the quarter were $15 million.
While we drew on the revolver in order to make our second DOJ payment, we were able to reduce our debt balance by $33 million during the quarter and $79 million during the course of 2014.
Our total leverage ratio is 1.5 times, down from a high of 3.2 times at the end of the first quarter.
Our operational and working capital improvements have driven significant free cash flow, resulting in a stronger balance sheet and additional flexibility to operate our business.
While we are not providing guidance at this time, we are optimistic about the core operations run rate in 2015.
However, the first-quarter run rate will be impacted by a number of factors.
As <UNK> mentioned, there are going to be some turbulence from the weather impacts across the country.
We have an estimated $2 million increase in payroll taxes that will hit the first quarter.
Merit raises that we gave in December of 2014 will impact the first quarter by about $1.6 million, and two less hospice days of revenue in the first quarter will have an impact of $1 million; and some typical seasonality.
With all that being said, we are optimistic about the rest of the year.
This concludes our prepared remarks.
Operator, please open the call for questions.
Well, there's several parts of that question.
Let me take the first part.
What we are really telling you is that while we are optimistic about the core operations run rate in 2015, there is some things that are essentially nonrecurring or they are unique to the first quarter that is going to impact the run rate as you look at it coming into 2015.
And we mentioned those.
It is weather; it is payroll taxes; it is merit raises.
It is hospice having two less days in the quarter and the typical seasonality that comes out of the fourth quarter into the first quarter related to [lupus] and things like that.
So that is one part of the equation and that is we are optimistic about 2015, but the first quarter probably not going to be the run rate for the rest of the year.
Now from an organic growth standpoint, maybe, <UNK>, you want to address that issue, or <UNK>.
Sure.
I think we are feeling quite good about the year in terms of what we have seen initially in the first couple months minus the weather.
We feel that the core operations are performing very well.
It's just we are seeing some traditional lumpiness that we normally see in the first quarter when we back in ---+.
When we went back and looked at this, we said okay, we think things are going to trend very well, but I think we were a little concerned about the straight division that was being done out there by the analyst community.
This is <UNK>.
I think what we are seeing, we are ---+ anxiously every week we look at the numbers and what we have been seeing, I think, is some very positive trends in terms of admissions.
Starting to see more positive trends in terms of ADC, but ---+ so we are cautiously very positive about this.
We like ---+ Jim Robinson has taken control of this.
He has built a new team; the team is performing.
There has been some trimming and consolidating that is just being finished up, so we feel very good about it.
They've got a clear vision; it's a very focused team.
And so we are monitoring it very, very closely, but we like what we are seeing thus far.
Although I think what is important is, when we get updates from our managed care folks, we are asking them to aggressively still move forward and to get as many contracts as possible.
And I think they have been getting positive contracts in terms of our contracting ability, so we have a good team there.
There still is more to do there, but I think a lot of the big stuff has come in.
And it's an area we like, so we want to be the choice for managed care.
I came out of that background and we have good relationships there.
And we want to be the solution there, particularly as Medicare Advantage outpaces traditional Medicare growth we want to be there.
No.
What we are doing is we have actually been working quite hard.
We've implemented AMS3 at 15 care sites and the schedule ---+ when I first came in and looked at the schedule, it was very, very aggressive in terms of getting it rolled out in a two-year timeframe.
We started to look at the difficulty with implementing AMS3 plus preparing for ICD-10.
We can control our implementation on AMS3 and we can't control when ICD-10 is going to go.
So our feeling is we want to make sure we get that right.
We also want to see ---+ we have some fixes to do in terms of AMS3 and we also want to see what the impact has been in the 15 centers we rolled out.
This is <UNK>.
A couple things I can mention.
If you look at Q3 and Q4, we had an adjustment to the cap in Q3 of about $1.5 million and that had an impact on the gross margin.
That is probably not recurring, so we are sitting at $2.8 million in cap liability at this point.
Second initiative that I think you mentioned was pharma costs and that's primarily related to the change that CMS made almost a year ago in Part D, partly to adjust for those kinds of issues and working toward national contracts, etc.
, that will probably help with that issue.
So those are the two pieces that you were thinking about from that standpoint.
I think it was minimal because the cap liability didn't change from Q3 to Q4.
It was $2.8 million in Q3 and $2.8 million in Q4, and the accrual between ---+ the accrual for the quarter is simply the change in that cap liability.
The only real significant change that has occurred over the last year or so was the two care centers that we had that dramatically improved their operations through additional admissions and, therefore, reduced their cap liability in Q3.
And that benefited us from about $4.3 million down to about $2.8 million and it stayed there in the fourth quarter.
So long-winded way of saying no accrual in the fourth quarter.
Sure.
That's a great question and I am going to give you a strategic answer versus a specific answer.
We have been studying that.
Obviously, when you see a new segment of business coming in that is growing at the rate this is ---+ and we look at the traditional margins compared to traditional Medicare ---+ we have been spending quite a bit of time understanding what the drivers would be so that we could get the margins equal to traditional Medicare.
Now, we are working through a lot of this strategy.
Currently, as you know, that is not the case, but we have been working on a strategy ---+ on a managed care strategy that fundamentally looks at the needs of managed care in terms of utilization, in terms of staffing mix that we think can get us competitive from a margin perspective.
So it will mean some changes to operations in a certain way.
We're going to have to do things a little differently in managed care, but we know they are driven largely by outcomes and costs, so we think we can participate there largely being very aggressive on utilization and then staffing mix.
So that's what our thinking is and we also are going to be looking at other lines that way.
We think there's a big play potentially in the senior living space and then we've got to go take another look at Medicaid, considering the growth, particularly managed Medicaid.
Sure.
So I came out of an M&A background, obviously Humana, running corporate development, so we did a tremendous amount deals there.
We've got a very good core team here in the finance area and we've got a great guy in Kris Novak, who is running this process right now.
I think the key thing is we are back looking at deals and we are looking at really interesting deals.
What we are going to try to do is be very conservative, I think, initially.
So what we want to do is we want to make sure that there's tuck-ins that are accretive, that are in the market, that are additive, that come under good management teams, and are in home health or in hospice, so that we can get these under our belt, understand how these things are working.
I think that is where we are going to focus.
As we get better at this, we will start to look more expansively and look at some of these other deals that are out there that can take us into new geographies where we feel we need to be playing.
And then the other thing is we need to start ---+ the third bucket we are looking at is capabilities.
I am quite convinced there is going to be a post-acute world where we are going to have to have more tools as we want to take on risk in bundling, which I think will come back.
There will be a 2.0 version of this.
So I think we will want to think about that as well.
But initially we have got our folks digging in, knocking on doors, being as proactive as possible within our own geographic market structure.
And obviously, looking at our balance sheet, it is in the right kind of shape to be back in the acquisition game.
We have a leverage ratio, as we mentioned, of 1.5 times and that will probably come down with cash flow this year.
So we're going to be prudent about how we spend that capital, but we are in a great position to be a player back in that arena again as we go forward.
(multiple speakers) Just let me add, we will have to bulk up our team and Kris knows that.
He is working too hard already.
Yes, this is <UNK>.
We haven't because we talked a little bit about the first quarter and also I just arrived.
So I have been here for about 2.5 months and I am, frankly, not comfortable at this point; gotten my hands around what's going on with 2015.
I feel very, very good about the core operations and the wind we have at our back in terms of the core operations.
There is a little bit of lumpiness in this first quarter, as we alluded to, and so ---+ I do want to get a plan put together.
Clearly, we will articulate this plan to you all, but I do want to make sure that we get the plan right, get our employees' heads around it, get buy in, start to do the math in terms of where we think we are going to need to go from the plan, particularly for the new businesses we are starting to look at.
So I want to make sure we have an ability to do that and structure the organization properly to implement the plan well.
So that is where we are and that is why we aren't issuing guidance.
I think as we work through 2015 and we get comfortable with the circumstances, we will take another look at that issue, but no prognostication at this point as to when we may or may not do that.
I think that's not.
I think we ---+ as I said in my statement, I think we took advantage of a lot of the low-hanging fruit from a G&A perspective.
I think there's more there, so we are going to go back in and we see some pockets where we can potentially create some more efficiencies.
But we do have to grow and we are putting a lot of effort into that.
There are new business lines that are very exciting, so we want to make sure we participate there.
And there's some things that I think we need to do on the people side, which I mentioned to my comments, in terms of strengthening our people and our clinicians.
And then our processes, which we are dealing with; I think we can take some things out of our processes that are currently a little wasteful.
At this point we're looking at everything, so I think there is ---+ if the plans, which obviously on capitated plans, managed care plans, and Medicare Advantage, some of our partners out there do like to work in narrow networks.
And for those folks that do, we will obviously work with their designated provider, so that is quite clear.
We understand how to do that.
I think the key for us is to be as flexible as possible.
Some of them aren't there yet in terms of ultra-narrow networks, but this is an area that ---+ once again I was at Humana for five years so I understand how that's done.
And I think we want to be prepared.
Also, I think ACOs are going to start to emerge in a serious way where we are going to want to have much more conversations with ACOs who will be very narrow networks.
We have got some plans around it, so we understand the importance of it.
Right.
I think the one thing we have to do, as we look towards building a managed care strategy, is what can we do that differentiates ourself from the rest of the industry.
Right now I think it's relatively undifferentiated, so I think there is a big opportunity here for us.
Great.
Thank you, operator, and I want to thank everyone who joined us on our call today.
We appreciate your interest in our company.
I want to thank our employees for what has been an incredible year and we look forward to updating you on our next quarterly earnings call.
Thanks, again.
Take care.
| 2015_AMED |
2017 | MMM | MMM
#Thanks, <UNK>, and good morning, everyone
I'll start on slide 5. As <UNK> mentioned, GAAP earnings for the quarter were $2.58 per share
Since we had several moving parts this quarter, I thought I would take a moment to cover each item to make our underlying second quarter performance as clear as possible
As <UNK> mentioned, we continue to execute our plans in Q2 to strengthen the company for the future
During the quarter, we made incremental strategic investments of $178 million; $39 million was growth related and $139 million related to portfolio and footprint actions
For the second half of the year, we anticipate another $0.20 to $0.25 per share impact from incremental strategic investments, largely footprint related
These actions drive greater productivity from our manufacturing and supply chain base and will improve our service to our customers
Looking ahead, we expect footprint actions to be, at a minimum, an expense of $0.10 per share in 2018. This expectation includes benefits from actions implemented in 2017. In addition, we had divestiture related activity in the quarter which added $0.57 to GAAP earnings per share, of which $0.54 relates to the identity management business
Taking into account these items, underlying earnings were $2.25 per share, up 8.2% year-on-year
Please turn to slide 6 for a recap of our quarterly sales performance
We posted good organic growth in the quarter of 3.5%, with volumes up a solid 3.8%
Selling prices were down 30 basis points year-on-year due to a couple of factors
Strong volume growth in electronics had a negative impact on price, and we saw less price growth in Latin America as currencies were more stable versus the U.S
We continued to actively manage the portfolio in Q2 and divested some non-strategic businesses which reduced sales by 100 basis points
Foreign currency translation decreased sales by another 60 basis points
All in, second quarter sales, in U.S
dollars, increased 1.9% versus last year
In the U.S
, organic growth was 1.9%, led by a mid-single digit increase in Industrial
Our Health Care and Safety and Graphics businesses delivered low single-digit growth in the quarter
The Consumer business was down 1% organically in the U.S
in Q2, impacted by continued channel adjustments in the office market
Asia Pacific led the company with organic growth of 10% in Q2. All business groups within APAC posted strong growth in the quarter, including a double-digit increase in Electronics and Energy and high single-digit growth in each of our other four business groups
Organic growth was 17% in China/Hong Kong and 8% in Japan
Excluding our electronics related businesses, China/Hong Kong grew 12% and Japan was up 4%
Moving to EMEA, organic growth declined 2% in Q2, with a similar result in West Europe
This area experienced fewer billing days versus last year due to the timing of the Easter holiday
Through the first half of the year, EMEA grew 1% organically, led by our Safety and Graphics and Industrial businesses
Finally, Q2 organic growth in Latin America/Canada was 4%, with all businesses posting positive growth
Health Care led the way, up high single-digits and Consumer grew mid-single digits
At a country level, Mexico continued to deliver strong organic growth at 8%
Brazil was up 6% while Canada grew 3%
We continue to generate broad-based growth across the globe, giving us confidence in our full-year expectations, which <UNK> will discuss later
Please turn to slide 7 for the second quarter P&L highlights
Company-wide second quarter sales were $7.8 billion with net income of $1.6 billion, up 23%
On a GAAP basis, second quarter operating margins were 28%, or 24.3% year-over-year excluding the previously mentioned impact from incremental strategic investments and divestitures
Let's take a closer look at the various components of our margin performance in the second quarter
Gains from organic volume growth and productivity contributed 60 basis points to operating margins
Lower raw material costs net of selling price changes added another 10 basis points
Foreign currency net of hedge gains brought margins down 50 basis points in the quarter, while higher year-on-year pension and OPEB expense decreased margins by 30 basis points
Finally, incremental strategic investments reduced margins by 2.3 percentage points and divestiture related activity benefited margins by 6 percentage points
Let's now turn to slide eight for a closer look at earnings per share
Second quarter GAAP earnings were $2.58 per share, including a net earnings benefit of $0.33 per share from the combined impact of gains on divestitures which were partially offset by incremental strategic investments and non-repeating lost operating earnings
Excluding these items, our operating EPS was $2.25, up 8.2% year-on-year
The combination of organic growth and productivity contributed $0.08 per share to Q2 earnings
Business transformation continues to have a positive impact on our productivity efforts
Foreign currency, net of hedging, reduced pre-tax earnings by $0.05 a share
Our Q2 tax rate was 26% versus 29.6% in the prior year, which increased earnings by $0.12 per share
The lower tax rate was driven by favorable geographic profit mix, our supply chain centers of expertise, and ongoing strategic tax initiatives
For the first half of the year, our tax rate was 25%
We now expect the full-year tax rate to be in the range of 26% to 27% versus a prior range of 26% to 27.5%
Finally, lower shares outstanding and higher interest expense together had a net $0.02 positive impact to EPS
Please turn to slide 9 for a look at cash flow
We continue to generate solid operating cash flow as a company, which allows us to consistently invest in the business and return cash to shareholders
Second quarter free cash flow was $1.3 billion, up $378 million year-on-year
Free cash flow conversion was 85% in the quarter
And for the full year, we now anticipate free cash flow conversion to be in the range of 95% to 100%, versus 95% to 105% previously
The adjustment to the high end of the range is primarily due to the gain on sale of identity management
Second quarter capital expenditures were $302 million, and for the full year we continue to anticipate CapEx investments in the range of $1.3 billion to $1.5 billion
During the quarter, we paid $701 million in cash dividends to shareholders and also returned $494 million to shareholders through gross share repurchases
In the first half of the year, we repurchased $1.2 billion in stock and now expect full-year repurchases to be in the range of $2 billion to $3.5 billion versus $2.5 billion to $4.5 billion previously
Let's now review our performance by business group
Please turn to slide 10. Industrial, our largest business group, continued its strong growth delivering second quarter sales of $2.7 billion, up 3.8% organically
Industrial's growth was once again broad-based across all geographic areas and nearly all businesses
Advanced materials led the way with low double-digit growth in the quarter
The automotive and aerospace solutions business grew mid-single digits in the quarter as we continue to grow the market
Our Heartland businesses within Industrial, all posted positive organic growth in the quarter
Industrial adhesives and tapes grew mid-single digits, and abrasives and automotive aftermarket, each grew low single digits
On a geographic basis, organic growth was led by Asia Pacific and the U.S
Industrial delivered second quarter operating income of $523 million with an operating margin of 19.2%
Adjusting for incremental strategic investments, operating margins were 21.5%, down nearly 200 basis points year-on-year
Half of the decline was due to foreign currency with the remainder from mix and select pricing actions to drive volume growth
Looking ahead, we expect operating leverage in the business to improve in the second half of the year
Please turn to slide 11. Second quarter sales in Safety and Graphics were $1.5 billion with organic growth of 3.2%
Organic growth was led by our personal safety business which again delivered high single-digit growth in the quarter
We continue to experience strong demand for our personal safety solutions across the world with particular strength in Asia Pacific, up double digits, followed by high single-digit growth in the U.S
In transportation safety, we continue to take actions to improve the portfolio
In Q2 we finalized the sale of the identity management and tolling businesses and announced the exit of electronic monitoring
For almost 80 years, 3M has pioneered industry-leading solutions to improve road safety and mobility
We continue to focus on the rapidly changing trends in transportation safety and mobility including the connected roadways of the future
Finally, Q2 organic growth in our commercial solutions business was flat while the roofing granules business declined, primarily due to tough year-on-year comps
Geographically, Safety and Graphics grew organically in all areas led by a 9% increase in Asia Pacific
Second quarter profits in Safety and Graphics more than doubled year-on-year to $852 million, boosted by divestiture gain
Adjusting for these items and strategic investments year-on-year, operating margins were 27.1%
Please turn to slide 12. Our Health Care business generated second quarter sales of $1.4 billion
Organic growth was 2.5% year-on-year
Organic growth was led by a double-digit increase in drug delivery systems followed by food safety which was up high single-digits
Our medical consumables businesses which represent the largest segment within Health Care, posted 3% organic growth in Q2. Health Information Systems was flat year-on-year and delivered sequential improvement
Looking ahead, we expect organic growth to improve in this business throughout the balance of the year as our contract pipeline continues to build
Oral care was flat in Q2 with the first half of the year up 2%
Geographically, Health Care was led by high single-digit organic growth in both Asia Pacific and Latin America/Canada
grew 3% and EMEA declined mid-single digits
We saw a notable strength in China/Hong Kong and Latin America which were both up double digits in the quarter
Health Care's operating income was $412 million and operating margins were 28.6%
Adjusting for strategic investments year-on-year, operating margins were 30.6%
Please turn to slide 13. Electronics and Energy continued to lead our company with second quarter organic growth of 8.4%, resulting in sales of $1.2 billion
The electronics side of the business grew 15% organically, as our team continued to drive increased penetration on many OEM platforms
For example, our Novec specialty fluid grew high teens as we continue to see strong demand for its many applications
Demand strengthened across most market segments in consumer electronics and we continue to benefit from favorable year-on-year comps
Our energy related businesses were down 3% organically with electrical flat while telecom declined
On a geographic basis, organic growth was led by a double-digit increase in Asia Pacific which is where our electronics business is concentrated
Latin America/Canada grew slightly, U.S
was flat while EMEA declined
Second quarter operating income for Electronics and Energy was $301 million with operating margins of 24.8%
As you can see, Q2 was another strong quarter for our Electronics and Energy business
Please turn to slide 14. Second quarter sales in Consumer were $1.1 billion with organic growth of 0.7% which was an improvement versus recent quarters
We continue to see positive organic growth in three of our four consumer businesses namely home improvement, home care, and consumer health care
As expected, our stationery and office supplies business was again impacted by channel inventory reductions in the U.S
office retail and wholesale channels, although these growth headwinds were lower in Q2 versus Q1. We expect to see these channel adjustments continue, but to have less of an impact in the back half of the year
We are seeing a good return on accelerated investments in some of our key category defining brands
For example, our Command damage-free mounting products posted strong double-digit growth and we also delivered good growth in Scotch-Brite cleaning products
Geographically, organic growth in Consumer was led by Asia Pacific and Latin America/Canada, both up high single-digits
This growth was partially offset by declines in the U.S
Finally, operating income was $195 million with an operating margin of 17.2%
Adjusting for strategic investments year-on-year, operating margins were 22.2%
Please turn to slide 15 and I will now turn the call back over <UNK>
Good morning, <UNK>
Yeah, Andy, in the case of pricing both for the quarter and for the year, we're not – if I think about 3M's business model, where we take technology, use that to create value for the customers, that ultimately creates our fundamental pricing power
That hasn't changed
That remains strong
For the second quarter, we saw price down 30 basis points and as you mentioned we saw it down approximately 40 basis points in the U.S
On a global basis, what we're seeing, Andy, is two main things that have changed from first quarter are strong growth in electronics which was much more of a price down that the other businesses that we saw that strong volume growth there contributed to more negative price growth in Asia Pacific
And then in Latin America, where we often see price growth often driven by a weakening currencies against the U.S
dollar, we saw much more stable currencies there versus the U.S
dollar, so some of the corresponding price growth we see didn't materialize
The core price growth and this gets into what we saw in the United States
Core price growth, we traditionally see somewhere between 30 basis points and 50 basis points of core price growth
, we see ourselves now tracking to the low end of what we've been expecting for price growth
We expect it to be closer to flat for the total year in the U.S
And we are taking in some markets selected price adjustments to gain market share, to accelerate volume growth
Some examples are our Industrial business and our Consumer business
Yeah, <UNK>, you know as well as I do, it's a competitive world
We're constantly working to, how can we gain the market share that we think our products should be having? In this kind of competitive world, we keep looking for – where are there opportunities where price could have been a barrier for us taking market share? And in a couple of businesses I mentioned, Industrial and Consumer as well as Electronics in Asia, we look for where there are those opportunities
Partly how I think about this, <UNK>, we're also through our investments to accelerate growth as we're investing more dollars to commercialize many of our existing product lines
In some of those cases we looked at where are there opportunities where price – our current price position could be a barrier to us reaching the maximum market share potential that we felt we could attain
And we're making those selected adjustments
I do think we are at probably the peak of the price declines that we've taken to do that
I don't see much further downward pressure from the momentum we've had
And if anything, I see the second half of the year with some uptick in that pricing
Yeah, <UNK>, I think the fair way to characterize it is, these are 3M decisions we're making not responses we're making in the market
These are 3M driven actions
I'll talk broadly on returning cash to shareholders and then go into specifically what you're asking on the dividend, and the share repurchases
So you know for us, <UNK>, returning cash to shareholders is a priority and we do it both through dividends and we do it through share repurchases
On the dividend front, we've reached a point where we think our dividend payout ratio is in the zone that we want it to be, and future increases in our dividend over time, we expect to be very similar to what we anticipate for earnings per share growth
So in the coming years, we expect our dividend to grow in line with earnings over time
On the share repurchase front, that's more dynamic for us, and you've probably heard me say this before, we have a two-fold strategy there
We do maintain a consistent presence in the market with a base level of repurchases, and then we augment that with opportunistic buyback based on relative value
We continually assess the market valuation through our own analysis, comparing it to how the stock is trading, and over time, we've found that to be a good risk-adjusted basis to be creating value
Now, in the case of lower purchases, both for the quarter and for the year, we adjusted the full-year range down based on where we stand through the first half of the year
The market has been strong and we're exercising discipline
And we anticipate that there will continue to be opportunities in the future to effectively deploy capital to maximize those returns
I would also add that our allocation of capital to share buyback is also influenced by other demands on capital such as M&A
There's a bit of a wait and see on that, <UNK>, that we still plan to be putting significant capital into share repurchases
We have announced our planned acquisition of Scott Safety, which we anticipate to happen in the second half of the year
But as you know, this type of market, there can be dynamics, so we are keeping our options open for the second half of the year
Rob, you can think of our growth investments this year in two big components
One is our investments in growth, and that's the minority part of the investment and it's aligned with what we originally guided back in December about an incremental $100 million that we anticipate to be spending in growth investments
There's a number of core product platforms we have that we're investing in commercialization dollars in some cases that can be advertising, merchandising, in some cases it can be people involved in adding people in the actual selling process of our products
And we anticipate that that will add 50 basis points to 100 basis points to our growth for the total year, and that's factored into our guidance now
And through the first half of the year, Rob, we're seeing our growth and our expenditures on that front tracking very much in line
But that's the minority of our total strategic investments
The more significant thing on strategic investments for us in 2017 is the actions we're taking in optimizing our manufacturing supply chain footprint
And that aligns with what we shared in March of 2016 when we laid out our five-year plan
And in optimizing our footprint and our manufacturing base, we anticipated over a period of the next few years we'd be investing between $500 million and $600 million, in some cases closing manufacturing sites and shifting manufacturing and expanding manufacturing in our more efficient sites, ultimately to reduce our total manufacturing footprint, to improve efficiency and to improve our ability to service our customers
Most of what you're seeing under strategic investments fits under that strategy
We took a number of actions in the second quarter, and in terms of the return, the way we've quantified that there's a couple ways I can quantify that for you, Rob
One is, by 2020 we anticipate that this will increase our operating income annually between $125 million and $175 million
That's one way for you to think of it
Another way is that we anticipate that this will be greater than a 30% return on investment for the investment that we're taking on this footprint optimization
For the raw materials, the $0.10 to $0.15 that we anticipated of benefits at the beginning of the year, there's been puts and takes as we go along on the raw material side, but so far we're still seeing ourselves in that range of $0.10 to $0.15. I'd say, the potential were, in the last couple of years were we could go past that number, I don't see that is a very high probability
I see this in this range, maybe $0.10 being a little towards the bottom end of that range based on what we're seeing in the raw material markets today
On the pricing front, I don't know what to repeat, but other than there have been these isolated places where we've taken action
In the second half of the year, we expect a more normal price growth for 3M as we've put in plan some actions to be bringing price back to a more normal level that we've historically experienced in 3M
So I don't see much changing on that front from our original guidance, <UNK>
On the strategic investment around growth, when we started the year we said that we expected that to be an incremental $0.10 expense and we continue to expect it to be that incremental $0.10. We're not increasing that number any further
And then on the price growth, Well, I'd say it is a more normal range, I do think it'll still be to the lower end on price growth in the second half of the year, approaching in the positive zone, but not up to the whole 30 basis points to 50 basis points that we normally are getting for core price growth
Yeah, when it comes to the comps, there's a couple of different things going on
One, like for instance our Electronics and Industrial, both of those, I agree with you, we're going to have slightly tougher comps in the second half of the year
In the case of Consumer and in Health Care, both of those will be seeing easier comps
I wouldn't call it a big statement on our fact that we're seeing an improving economy
We're seeing a fairly stable economy outlook for the balance of the year
Our move in the organic growth range to now would be 3% to 5% and take us confidence in our ability to maintain the growth trajectory even with the tougher comp that we'll be facing, primarily in the fourth quarter
Yeah
<UNK>, if I think about the different quarters, as you're talking about Q1, Q2, we did see core underlying margin expansion once we strip out the gains in the strategic investments in Q1. And in Q2, we're more or less flat
So that's mathematically much of what's describing what you're seeing there on that EPS differential between Q1 and Q2. As we dissect that a little deeper, <UNK>, where did we not see some of the margin expansion we had seen in the past, and what does that mean for the second half of the year? Our Industrial business is one of those businesses where we didn't see as much leverage as we have seen in the past
And as we look to the second half of the year, we're expecting for the total year that we're going to be seeing 50 basis points at a minimum, possibly higher, of year-on-year margin expansion, stripping out the gain and strategic investment impact, so if we get to the underlying 50 basis points or slightly higher
Some of the reasons that will drive added leverage in a business such as Industrial, we do see that improved pricing that I talked about earlier
We do see improved results from our productivity programs, and probably some added belt-tightening going on
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Understood
And then just my second and last question would be around the growth outlook in the EMEA region
I think a lot of companies this earnings have talked about a disconnect of the good soft data not necessarily translating into hard orders or sales
Should we think about your first half overall organic growth in the region of 1%? That is a good placeholder of what you expect for the second half? And maybe just any update on how you're seeing business in Europe in recent months?
Joe, thanks for asking that question
There's different types of actions a company like us, like 3M can take
Sometimes an action where we enter into a restructuring where we're reducing the size of our workforce, that can be a much faster payback
And you've seen actions like that that we've done and see very fast payback
When it comes to optimizing our manufacturing and supply chain footprint, those paybacks take time to materialize
We don't start seeing benefits, Joe, until we actually have the manufacturing site closed that we've chosen to action, and have the new manufacturing going on in a new location
That takes time to happen
It takes time to work with work councils, with employee organizations, it takes time to, in some places re-qualify that product if we're moving
It can many times be several quarters before we – from the point we announce it until we've actually physically made the change and start realizing those benefits
So this is different, and this is why this one takes longer to get happen
Still a very important part of our strategy though to be by 2020 getting to those savings that we're projecting
Well, I can't speculate on whether there will be more M&A activity that will happen because those we announce once we have clear line of sight that they'll actually happen
But in terms of the footprint side, we'll still be seeing the negative impact in absolute terms in 2018 on our margin and on our EPS
We expect in 2019 to become positive, and then by 2020 to be the full amount
As far as the M&A and what that might do in 2018, I think it's too early for me to speculate on that piece
No, nothing has changed on that front
Absolutely not
| 2017_MMM |
2017 | COTY | COTY
#Good morning, and thank you for joining us.
On today's call are <UNK> <UNK>, Chief Executive Officer; and <UNK> de <UNK>, Executive Vice President and Global Chief Financial Officer.
I would like to remind you that many of our comments may contain forward-looking statements.
Please refer to our press release and our reports filed with the SEC, where we list factors that could cause actual results to differ materially from these forward-looking statements.
All commentary on organic net revenues reflect the comparison of Legacy-Coty and the P&G Beauty Business on a combined net revenue basis at constant currency in both the current and prior year periods, excluding the impact of acquisitions other than the acquisition of the P&G Beauty Business.
In addition, except where noted, the discussion of our financial results and our expectations reflect certain adjustments as specified in the Non-GAAP Financial Measures section of our earnings release.
You can find the bridge from GAAP to non-GAAP results in the reconciliation tables in the earnings release.
I will now turn the call over to <UNK>.
Thank you, <UNK>, and welcome, everyone, to our fiscal 2018 first quarter earnings call.
Q1 was a much better quarter.
We saw strong growth in Luxury, continued positive momentum in Professional and a reduced net revenue decline in the Consumer Beauty division.
We delivered significant improvement in profits, driven by better gross margin performance and strong financial discipline on the cost structure.
We also continued making meaningful progress in our merger integration and I\
Thank you, <UNK>, and good morning, everyone.
Q1 was a much better quarter with all key metrics, revenues, growth and operating margin and operating cash flow making progress.
Before further elaborating on our results, let us start with our integration plan.
After an enormous amount of work by our very dedicated team, I am thrilled to announce the successful exit of the third and final stage of our Transition Service Agreement with P&G in the ALMEA regions following our exits from North America in May and Europe in July.
This is an important moment for the new Coty as we now have control of our data, processes and systems.
With TSA behind us, we will now work on the completion of the integration to fully leverage the simplified and optimized infrastructure, continue to stabilize the combined business and build on some of the momentum we are seeing across the portfolio.
As <UNK> already mentioned, we significantly increased our efforts on the cost structure as part of our existing synergy program with many ongoing initiatives, from significantly strengthening cost control measures on expenses, consolidating commercial office facilities to gain scale and efficiency and deploying a number of global centers of excellence teams to help optimize our local operations, including the streamlining of our field sales force.
Some of these initiatives, in addition to the continued execution of our growth strategies across our business lines, have already led to tangible signs of progress during the first quarter, when our overall profitability made good progress even though the bulk of our synergies from the P&G Beauty merger have yet to be achieved.
Our focus now is on driving consistent profitable growth across our business while maintaining a very strong cost discipline in order to achieve our ambition of best-in-class operating margin.
Indeed, it is fair to say reaching best-in-class operating margin is what is driving our business decisions.
Now, onto our results.
First quarter net revenues were $2.2 billion, a 107% increase versus last year, largely attributable to the acquisition of the P&G Beauty Business, while our organic net revenues declined 2%.
Adjusted gross margin was 61.6%, representing a 280 basis point improvement year-over-year, the fourth consecutive quarter of increase, driven by supply chain and procurement synergies as well as our acquisition strategy.
A tight financial discipline allowed us to generate an adjusted operating income of $195 million, well above Coty stand-alone, with a 17% growth resulting in a 9% adjusted operating margin.
The increase is even more pronounced if we take into account that the inherited business from P&G was loss-making in Q1 prior year.
This improved operating profit performance is good evidence that we are taking our operating margin ambition very seriously.
Interest expense of $66 million reflects higher debt balance incurred as part of the financing of the P&G Beauty, ghd and Younique transactions.
Our effective tax rate of 27%, in line with expectations, result in an adjusted net income for the quarter of $76 million or an equivalent adjusted earnings per share of $0.10, ahead of expectations.
We continue to achieve strong working capital improvement to free up cash to deleverage the business.
Our averaging ---+ our average working capital was negative for Q1 and we believe there are still some more working capital improvement to come.
During the quarter, we also continued to return cash to shareholders, paying $94 million in dividends.
I'd like to add a few additional details to our performance in our 3 divisions.
First, in Luxury, our gross margin in the first quarter has improved thanks to accretive innovation and good productivity improvement in the supply chain.
This, combined with a strong emphasis on our cost structure, delivered an adjusted operating income of $90 million, roughly in line with the prior year, while absorbing the losses of the inherited P&G business.
We are positive about the momentum as our investment behind innovation and new marketing campaigns began to bear fruit this year.
Our Professional division revenues grew moderately with the gross margin slightly improving and an adjusted operating income of $17 million.
The level of profitability has been impacted by the ghd seasonality, Q1 being the lowest quarter of the year from a revenue standpoint.
Despite the revenue challenges in Consumer Beauty, adjusted operating income increased 54% to $88 million, resulting in a 9% adjusted operating income margin due to structural improvement in our gross margin as well as the continued success of Younique, which maintained double-digit top line growth while continuing to be accretive to overall margins.
Finally, as said before, we continue to focus on pursuing rationalization, whether via divestiture or discontinuation, of 6% to 8% of the combined portfolio, which we expect to announce by the close of fiscal 2018.
This initiative should help to improve our revenue growth trajectory over time.
To conclude, this quarter has put an important milestone behind us with the successful TSA exit.
We are now focusing on building our new foundation to match our ambition of being a serious challenger and delivering best-in-class operating margin.
As <UNK> said, we aim to deliver improved net revenue growth trends for the remainder of the year as well as a healthy operating margin improvement over the balance of the year with a more pronounced positive impact in Q4 thanks to synergies delivery and favorable base comparison.
Thank you.
We will now open the call for questions.
Thanks for the question, Joe.
Let me start by reiterating what <UNK> said, which is that our long-term focus is on achieving best-in-class sustainable operating margins.
And this is in line with our investment thesis that we referred in our roadshow at the time of the merger.
And this is how we are making business decisions.
Now, it's fair to say, as you know, that we have inherited a business which was smaller in revenues, but not in SG&A and, therefore, smaller in operating margin than our expectation at the time of the roadshow.
And because of this, when you combine also with the business challenges that we have faced last year and our better visibility into the aspect of the business that we have now since we exit the TSA, we believe that it will take us longer to get to the $1.53 even with our objectives of best-in-class operating margin of higher teens.
Yes.
And let me reinforce that reaching high teens as the best-in-class operating margin is our primary objective and our announced synergies are one of, if not the most important, milestone to get there.
Let me also add to what <UNK> has just said and as we have said in the previous calls, that in order to achieve our EPS targets, we may also use different levers over time, including our balance sheet for strategic accretive M&A.
And as you know, it's very difficult to put a precise timetable on an M&A agenda.
Joe, so that's a lot of questions.
So let me try to take one after the other.
So first, on the cost structure, so we told you that we will make this issue a top priority, and we have.
This quarter, the management team has put in place a number of initiatives to deliver meaningful sustainable expense and cost management result as part of our synergy program, which is expected to lead to a healthy improvement in our adjusted operating income over time.
So what we have done is to significantly strengthen our cost control measures on expenses.
We have also taken some measures to consolidate some commercial office facilities to gain scale and efficiency, as I said in the script, and also deploying a number of global center of excellence teams to help optimize our local operations, including the streamlining of our sales force.
So some of these initiatives have already led to tangible signs of progress in the first quarter and we are going to make some further progress in the year to come, and overall profitability will make good progress even though, as we said before, the bulk of our synergies from the P&G Beauty merger have yet to be achieved and are more second half of the year skewed.
It's also fair to say that I'm not sure that the Q4 was a good benchmark.
Q4 results reflected certain nonrecurring costs that were not included as onetime.
For example, there were a number of Coty employees who were not fully dedicated to the integration, but who worked somehow on the integration part time, and we did incur some costs related to supporting the TSA exit.
So now, all of this is over because we have successfully exited all the TSA and now we can really focus on driving the business going forward.
Okay.
I'll answer all your question in more or less the order you asked me, okay.
So, regarding the outlook, we expect to continue to deliver on the previously announced synergies.
We're going to finalize on the streamlining of our brand portfolio and relaunch several of the key brands.
And I'll get to the relaunching in a second.
Now, if we take all these programs together, we aim to deliver improved net revenue growth trends for the remainder of the year, as I said, with an organic second half top line roughly comparable to prior year, which means roughly flat.
And when I look at the different programs that we're doing, clearly we have an improvement in the revenue trends of Consumer Beauty.
That is part of the objective that I just discussed.
And within Consumer Beauty, we have a couple of relaunches which are quite important.
The first one is the COVERGIRL, which we just announced in October.
And I mentioned an early very positive sign of reaction from the market on COVERGIRL.
But we also have the relaunch of Clairol.
On Clairol, we just launched a product called Color Crave, which is a hair makeup product, which we launched off the classical shelf reset windows with the U.<UNK> retailers.
And clearly, we expect to gain some shelf space with this product once it's able to go in the normal shelf, plus we are going to also launch a second big innovation on Clairol in the second half of fiscal '18 and, therefore, we expect these 2 relaunches to help us improving the net revenue trends of Consumer Beauty.
Looking at the shelf space, I think it's important to remind that the shelf space decisions that impacted us were made prior to our acquisition of the P&G Beauty Business, and the impact of those decisions continue to impact our results today and will continue for a while because we need to annualize those decision the second half of 2018.
And you know that not all the retailers redo their shelf at the same time.
But based on encouraging conversations that we had with retailers regarding the restaging of the COVERGIRL and Clairol and other various brands, and also sharing our innovation pipeline, we believe that we should retain most of the space for our key brands.
And the last question, I think it was e-commerce.
E-commerce is important for us.
It's an area of focus for me and for the business.
I already mentioned this in previous calls.
And we don't disclose e-commerce sales, but I can confirm that we're growing at a healthy above-the-market rate in both our Consumer Beauty and Luxury division, although from a low base.
I hope that I have answered all your questions.
Talking about retail color, I think there is a couple of things.
One of the things that I did mention in the past is this category has been always treated very, very functionally by everybody and I think this needs to be treated more as a beauty category.
Now, this transformation is not immediate.
And regarding our brand, Clairol, this has been a brand that didn't receive a lot of investment attention for many years, and I did refer to this brand in the past as a neglected brand.
So from our point of view, we have a much stronger pipeline.
I did mention one of the launches that happened in the last few months and I did kind of give you a preview that there's going to be a big launch coming in the second half of '18, but I believe that we have a very strong pipeline which covers both the functional and the beauty area, or the beauty part, of this brand and this category.
And I think that our plans are strong and that's why we believe that, over time, we will be able to recover lost ground on this brand and really come back to much more positive performance.
So I believe that the experience in the store and innovation are both part.
And clearly, you have the communication, so the positioning.
This brand also requires a bit of a different way of communicating to consumers, and we are working also on the relaunch from that point of view coming in the second half of '18.
Looking at Consumer Beauty, which is what you mentioned, as I said, because we're doing all this, we believe that we have a solid strategy in place and we are excited about the relaunches of several of our Consumer Beauty brands.
And that's why we aim for the net revenue trends to improve over the year.
But as I said, it will still take time for a full recovery of Consumer Beauty.
So on the M&A front, what I would say is that, for the time, clearly, there are some opportunities, but for the time being, our main objective is to make sure that the new Coty is delivering its ambition of best-in-class operating margin on an organic basis.
And we are really focusing on deleveraging the business.
So that's the current priority, that's what we're currently working on.
What you should also think about is that Younique, at one point in time, is going to come on the like-for-like basis.
We are going to anniversarize the partnership with Younique and that is clearly a tangible sign that, first, we are shifting the portfolio, the growth profile of the portfolio.
And this is clearly going to impact positively in the second half of the year.
Look, full recovery, as I said, we are defining as 2018 as a year of stabilization and that's why we believe that our sales in the second half will be roughly comparable with previous year, roughly flat.
And in terms of category growth, we believe that we are exposed more or less to around 2% of growth.
So over time, we expect, of course, to generate a similar level to the category growth and then, over time, to grow share as well and become overperforming versus the market that we are exposed, but we're not going to put a time line behind this path.
What is important is, for us, that 2018 is giving us signs, is making us confident about stabilizing the business so that we can, therefore, take it from there and go to the next step.
Yes.
And to complement on that, <UNK>, when we speak about full recovery, we are already seeing some pockets of growth and we have already 2 legs out of 3 that are growing.
The Professional Beauty business is already growing since a couple of quarters.
You have Luxury that is having a very good momentum and we have commented on that and we see this momentum is continuing.
Now, as <UNK> said, what we need is to focus on Consumer Beauty and here also we see some good signs.
So the full recovery means that the 3 divisions will be in a much better shape and able to fight back.
So that's what we mean by full recovery.
So taking your first question, <UNK>, in terms of rollout of COVERGIRL.
Yes, there will be some inventory destocking in the coming quarter, preparing for the arrival of all the new products, the new packaging, the new visuals on the shelf.
And in terms of how we are implementing this launch, there will always be some part of the brand that will have the new innovation pipeline, which will be in and out, which means it's going to be a cut, right.
And then the rest will probably be more of a phase-in.
And you can understand why, depending on cost and inventory and on implementation as well.
And in terms of your second question was about Burberry and regards to the inventory and when we expect some sales.
As you can imagine, we only became the owner of Burberry, so we are in the process of understanding the level of stock that is in the market, so we're not able to make any comments about it.
And so we expect to prepare our plans, which we're already preparing, which will be strong plans.
And at some point, clearly, we will start recording sales.
But I don't have a visibility to give you about the exact month when we will be able to do that because exactly of the questions you ask on the stock.
Regarding the third question, <UNK>, do you want to take the one about the 6% to 8%.
Yes, so the 6% to 8%, as we said, we are going to finalize this by the end of this fiscal year, this fiscal year 2018.
And so we did not comment about the profitability so far of these brands and the potential EPS impact.
The only thing that we said so far is that we intend to target and to offset any earnings dilution from this portfolio rationalization with the acquisition that we have made, Younique, ghd, and the Burberry Beauty license.
But we did not yet comment on any timing on that.
Thanks, <UNK>, for the questions.
So regarding the restage of COVERGIRL.
As you can imagine, it's a complicated restage.
We have over 60,000 doors in the U.<UNK> -just in the U.<UNK> -where COVERGIRL is distributed.
So it's a complex one.
But so far, everything that we are preparing is absolutely being prepared very well, and it's going in the right direction.
And yes, we're going to have an inventory reduction, as I said before in my previous answer, because that's what we're going to do to ensure that the arrival of all the new products, the new packaging, will feed faster and will phase faster into the beauty bars, the walls.
And what I can tell you why we're confident is, look, since we announced the restage with the new positioning the reaction has been truly, truly positive.
I mean, we did something in terms of the positioning that is absolutely relevant.
And when we talk about freedom of self-expression, when we talk about creating an evolution of you with makeup, but this is truly having the right reaction.
But the one that makes me more confident is reaction of our retailers, the customers, our partners.
They are also the ones that are telling us that the way we are preparing this is absolutely superior to anything that has been done before by Coty.
And I guess also they have visibility over what they see in the market from other brands.
And this reaction makes me confident, of course, that we're going to have an increased productivity once we're able to bring the new SKUs and the new visuals in the stores as well.
Your second question, I think, was about e-commerce in Professional Beauty.
And look, yes, I did mention healthy growth above-market rate in Consumer Beauty and Luxury, because that's really very good.
In Professional Beauty, we also have a growing e-commerce business.
It's smaller, because, as you can imagine, Professional Beauty is mostly focused on salon professionals -so hairdressers, manicurists and so on.
But there has been some shift as well because some of the channels are blurring.
So we're working actively in this area as well.
And you mentioned an app to look at how you look and, therefore, being able to look at yourself, you choose the right shade and so on.
We have something absolutely like that on our brand Clairol, which is going very well, because it's absolutely one of the new way that consumers are want to engage with brands, and we have absolutely some of this technology as well.
Yes, so actually to answer your first question.
So that was really mainly related to the Burberry acquisition and to the related cost of this transaction.
So that's really mainly Burberry related.
Yes, I think your second question, <UNK>, was about the net working capital already negative, which is very good.
This is a strong achievement, and we're very proud.
And we're also confident that we have a bit more to go on net working capital, and we keep working on it.
I think, as we said, we're still at the beginning of our journey.
And we're putting in place a series of ideas and actions to improve this.
So I think there is a bit more to come.
Yes, and to give a little more color about that, <UNK>.
So, as you know, we have $500 million synergies on the working capital.
We have achieved roughly 1/3 of that so far, so it is still 2/3 to come.
And this was mainly by using the levers of payables.
which is on a more long-term basis.
We also have to work on our inventory level.
So I think it is fair to say that we still have some margin for improvement in working capital.
And in Q1, what we achieved is, on average, a negative working capital, but we plan to continue on that topic.
Clearly, there is still I'm quite positive about our cash flow generation.
Yes, so I can ---+ so thanks for the questions, Steph.
So I can start to answer the first one, and then I will leave <UNK> for the second part of the question.
So you are absolutely correct.
So the like-for-like is going to include our M&A at one point in time, at the time of the anniversary.
So for Younique, it's clearly going to impact Q3 going forward.
So on this, that is absolutely correct.
It's going to impact 2 months of Q3 and then the full Q4.
Yes, I think your second question regards ---+ it's more of a quarterly outlook, which we really don't do.
What I can tell you is ---+ as we said, is ---+ we're going to ---+ we want to ---+ we aim to see an improved net revenue growth trends for the remainder of the year.
And in the second half, our top line, we aim to be roughly flattish or comparable to the previous year.
Now when you look at the healthy margin improvement which we aim to have over the balance of the year, this is where we aim.
we expect to have a more pronounced impact in Q4 given the lower base of last year.
And the impact of the synergy also in Q4.
So that's the combination of the 2.
That's the reason why we mentioned with a more pronounced impact in Q4.
On the margin, yes.
So <UNK>, on your first question, which is the destocking in Q2.
This ---+ sorry, this refers mostly to clearly some of the activities and the relaunches we're doing in the Consumer Beauty division.
And it's true, we will have some destocking, but we still expect the net revenue trends of Consumer Beauty to improve as a trend over the year and in the next quarters, starting from Q2.
Regarding your second question, which is more of a question about the U.<UNK> mass channel, you mentioned color cosmetics.
Mass channel is a really important channel for all the beauty players, and there has been some shift clearly in the way the consumers shop brands, e-commerce, specialty stores and so on.
But there will always be a place for products with a strong value proposition, so for beauty brands with this characteristic.
And so our focus is truly to build closer partnership with the retail customers and ensure that we create an amazing consumer experience in store and online.
So this means right assortment, it means faster innovation, it means ---+ yes, yes, speed to market and so on.
So that's where our focus is, and we're working with our retail partners to really bring back up the traffic in store through doing this.
One of the things that we did recently is this new concept store in New York called the Story, which is sort of experiential playground, in which we test a lot of the digital innovation around color cosmetics in this experiential store.
And what we're trying to do is to see if some of these ideas, because now we have the learnings of consumer interacting there, can go back to the classical standard retailing environment.
So we are really working well to try to change this.
And so on your last question.
We usually don't give a split within SG&A between our fixed cost structure and our brand investment.
And actually, we are seeing a decrease in Q1 fiscal '18 versus the level of Q4 fiscal '17, even if I don't think the last quarter was a good benchmark.
What I can share with you is that what you should anticipate in Q2 is to have an increase in the overall level of SG&A.
Not so much because of the cost structure, that should keep on declining, but much more behind the A&CP and the level of support because, of course, we're entering into a very heavy season.
And it's very important that we fuel the top line momentum.
So you should expect in the second quarter some increase in this overall line.
Thanks <UNK>.
So great question.
So ---+ actually, it's a good opportunity for me to reiterate that our investment thesis is still very valid.
So our investment thesis is that there is usually a direct relation between gross margin and EBIT across the FMCG industry, but in beauty industry, and what we want to demonstrate is that we should have ---+ we should be in a position to achieve best-in-class operating margin.
Why.
Because the level of investments that we currently have on our business is, according to us, roughly the right level of investment.
There might be some difference between quarters here and there, between geographies, between segments.
But overall, at Coty Inc.
boundaries, the level of investment that we have is about to be the right one, which means that the overall level of synergies of $750 million should fall bottom line.
This represents roughly between 700 and 800 basis points of operating margin.
That's where we see the best-in-class operating margin.
Over time.
As I mentioned, <UNK>, we have really 2 divisions, Luxury and Professional Beauty, that have been growing for quite a while.
So the key focus area of attention is Consumer Beauty.
The confidence in Luxury and in Professional Beauty comes from having seen the performance of our brands in the market.
I mentioned in my script that the launch of Gucci Bloom and the launch of Tiffany had been successful so far.
But it's not just these 2 new product launches, we're seeing market share growth in Hugo Boss and Marc Jacobs Daisy and several other brands.
So overall, our portfolio, both in terms of the classic pillars in Luxury and also the innovation it brings to market, that includes philosophy, is performing quite well.
And of course, that gives us confidence.
When I look at Professional Beauty, the growth that we're having in hair, which is 1 of the 2 categories that we're working in Professional Beauty, is actually positive and has been positive now for several quarters.
And this is the bulk of our business.
This is where we believe we are growing market share, especially in color, which is the core part of Wella Professional.
And we expect to have this positive momentum and performance to continue because of the strength of our brand, but also the strength of the capabilities that we have in the Professional business, in the Professional service business.
And regarding Consumer Beauty, it's really, first of all, there are some excellent results that we're seeing especially, in ALMEA, and so I mentioned Mexico, Australia, Brazil.
But we also have some others ---+ Bourjois continues to grow market share, both in Europe but also in Russia, Middle East.
We have Rimmel having market share growth in several countries.
So there are several examples that clearly give us this confidence of improving trends.
But as I said, Consumer Beauty will take time for a full recovery.
This is clearly the largest division we have.
We have faced some challenges.
We continue to face some challenges, and that's why we're going to continue to implement all our actions to implement the recovery.
No.
So as we said, we don't give any split within the brand investment and the fixed cost structure.
What I can tell you is that we made some significant progress on our cost structure, and I think the results are very telling about this.
What is also true to say and what I've mentioned in one of the previous questions is that Q2, going forward, is usually a quarter where you put more money behind our brands in order to further fuel the top line, because it's clearly a quarter of a lot of activities and a very high season.
But, clearly, when you compare Q4 and Q1, our overall SG&A has gone down very significantly on the back of cost structure decline and tight financial discipline.
What is also fair to say is that some of the investments that we deliberately made in Q4 are yielding results.
Some of them were in the Luxury division, and this has clearly paid off when I see the top line momentum that we start to see in Q1 and that's what we're targeting to see also in Q2.
So <UNK>, Younique is clearly an acquisition, a very strategic acquisition that we are very pleased with.
And it continues to grow double digits.
So the performance that we mentioned at the time of the acquisition continues to be true.
Now that is clearly under the partnership with us.
In terms of additional KPIs that you asked, there is one that is very telling, which is the sign-ups or the basic recruitment of presenters.
And right now, we are approaching 100,000 presenters totally, overall, with over 100,000 presenters that joined us in Q1 2018 alone.
So, I guess, I think combining the net revenue double-digit growth and the growth of the presenters, that clearly makes us satisfied with the performance.
In terms of the role that direct selling can play within Coty, I think that we have made, what I will call, a very strategic and successful acquisition with Younique.
We are very satisfied with it.
And I believe direct selling has clearly a role to play within Coty given the growing size of Younique.
But the other reason why I believe that this is so relevant is because of the direct link between the presenters and the consumers.
And this is very, very relevant in the current market where individualized and customized approach to consumers is a big trend.
And having 100,000 presenters who are our brand ambassadors, who talk to millions of consumers out there on a daily basis, almost on an individual basis, because sometimes they do parties with ---+ we throw parties with few people, but most of the time is individual basis, to me is also key to the performance that we are seeing in Younique.
| 2017_COTY |
2017 | PRA | PRA
#Good morning, everyone.
Welcome to the conference call to discuss ProAssurance's results for the third quarter of 2017.
These results were reported in a news release issued on November 6, 2017, and in the company's quarterly report on Form 10-Q, which was also filed on November 6.
These documents are intended to provide you with important information about the significant risks, uncertainties and other factors that are out of the company's control and could affect ProAssurance's business and alter expected results.
We also caution you that the management expects to make statements on this call dealing with projections, estimates and expectations and explicitly identifies these as forward-looking statements within the meaning of the U.S. federal securities laws and subject to applicable safe harbor protections.
The content of this call is accurate only on November 6, 2017.
And except as required by law or regulation, ProAssurance will not undertake and expressly disclaims any obligation to update or alter information disclosed as part of these forward-looking statements.
The management team of ProAssurance also expects to reference non-GAAP items during today's call.
The company's recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts.
Now as I turn the call over to Mr.
Frank O'Neil, I'd like to remind you that this call is being recorded and there will be a time for questions after the conclusion of prepared remarks.
Thank you, Brendan.
On our call today are Chairman and CEO, Stan <UNK>; <UNK> Freidman, the President of our Healthcare Professional Liability Group; Chief Financial Officer and Executive Vice President, Ned <UNK>; and Mike <UNK>, the President of Eastern, our Worker's Compensation subsidiary.
Stan, will you start us off please.
Thank you, Stan.
We did see an increase in gross premiums written in the quarter in our Specialty P&C and Lloyd's segments.
But I want to caution against reading too much into the increase in Specialty P&C for reasons <UNK> will discuss shortly.
Gross premiums in our Workmen's Compensation segment were down only slightly, which in that competitive line represents a real accomplishment.
Retention across all of our lines of business remained strong, which we believe shows that our insureds see value in the suite of coverages and the services we are providing.
And that carries over to the success in our coordinated sales and marketing efforts, which produced approximately $3 million of new business in the quarter, topping $12 million for the year.
All 3 of our segments saw quarter-over-quarter growth in new business as well.
Our consolidated current accident year net loss ratio was 84.1%, an increase of 4.7 points over third quarter 2016.
And our calendar year net loss ratio was 3.6 points higher than last year's third quarter, both of those increases being driven by strong related losses in the Lloyd's segment.
We did recognize $32.3 million of net favorable development, and you'll hear more about that in our segment discussions.
The story in our investment-related results continues to be much the same as in prior quarters.
The quarter's net investment result was up about 27% over the last year to $27.9 million.
That is primarily due to increases in the earnings from our unconsolidated subsidiaries, which were up substantially, $4.2 million in this year's third quarter versus a loss of $3.3 million last year.
Partially offsetting those earnings was a 6% or $1.5 million decline in net investment income due to lower interest rates and the smaller size of our portfolio due to our capital management activities.
Summing all this up, net income for the quarter was $29 million, $0.54 per diluted share.
Operating income for the quarter was $24.3 million or $0.45 per diluted share.
At September 30, our book value was $34.65 per share, up $0.24 since the end of the second quarter of this year and up $0.87 per share or approximately 2.5% since year end.
Finally, at the end of the quarter, we held approximately $264 million in unpledged cash and liquid investments outside our insurance subsidiaries.
Frank.
Thanks, Frank.
Starting at the top, I'll note, gross premiums written increased quarter-over-quarter, but the vast majority of the increase had to do with the timing of renewals, both last year and this year.
As we have said, as ProAssurance writes larger policies, we expect the overall trajectory of premiums to be positive, but there will be some variability along the way.
That was the case this quarter where some policies that were processed in the fourth quarter last year renewed and were processed this year in the third quarter.
It makes the comparisons a bit difficult, and I want to caution against reading too much into that as a trend.
We called out another example in the news release.
We had a onetime bump in premiums from tail premiums that were paid because a group of policyholders transitioned their coverage in a shared risk arrangement, in essence terminating one ProAssurance policy and beginning another one with us.
We did write $11.4 million of new business in the Specialty P&C segment, up from $10.1 million last year.
There was some growth in every line in this segment.
And importantly, $1.9 million came from our health care facility line, underscoring the effectiveness of our broker outreach and our increasing success in that important growth area of our business.
Premium retention for physicians was again 90% in the quarter, level with last year and up 1 point from third quarter 2016.
Year-to-date, retention is also at 90%, also up 1 point from the first 9 months of 2016.
Pricing on renewing physician business, something we believe is a key benchmark for us and a key indicator of market strength, was 2% higher for the quarter and for the year-to-date.
Our loss ratios, both current year and net, were essentially unchanged quarter-over-quarter.
Favorable net loss reserve development in the segment was $30.1 million, basically unchanged compared to last year.
The expense ratio at 22.8% and the combined ratio at 85.2% were also essentially level with the prior year quarter.
All of this underscores the relative stability of the overall loss trends that we're seeing for this segment.
Frank.
Thank you, Frank.
The Workers' Compensation segment operating results were $2.6 million for the 3 months ended September 30, 2017, a $2.2 million increase from $332,000 in the third quarter of 2016.
The increase was driven by higher net earned premium, a decrease in the net loss ratio and underwriting expense ratio and an increase in the operating results of our segregated portfolio cell business.
Gross premiums written decreased slightly, down less than 0.5% to $59.7 million for the 3 months ended September 30, 2017, compared to $59.9 million for the same period in 2016.
However, gross premiums written have increased 4.5% year-to-date in 2017.
New business writings were $9.2 million during the quarter compared to $6.8 million in 2016, and audit premium was approximately $700,000 in the third quarter of 2017 compared to $1.5 million in 2016.
Renewal pricing decreased 5% in the quarter, reflecting continued price competition and loss cost reductions in some of our core operating states.
Premium retention was 87% for the third quarter, driven by improved retention results across all Workers' Comp product lines.
Premium retention was especially strong in alternative markets at 92% in the third quarter of 2017 compared to 88% for the same period in 2016.
We were pleased to renew the available alternative market program and wrote one new program in the third quarter of 2017.
The decrease in the third quarter 2017 accident year loss ratio reflects overall favorable trends in claim closing results.
Through September 30, 2017, we successfully closed 50.5% of 2016 and prior claims, reflective of the short-tailed nature of our Workers' Compensation business model.
Favorable reserve development was $2.3 million in the quarter compared to $1.8 million in the third quarter of 2016, primarily related to alternative market business, but also includes approximately $400,000 in both periods related to the amortization of purchase accounting fair value adjustments.
The decrease in the 2017 underwriting expense ratio primarily reflects the increase in net earned premium, a 1.1 point reduction in intangible asset amortization and the continued impact of our focus on effectively managing operating expenses, partially offset by an increase in underwriting acquisition expenses.
The 2017 combined ratio of 92.8% includes 1.3 percentage points of intangible asset amortization and 0.8 percentage points of a corporate management fee.
From a strategic perspective, we were extremely pleased to close the renewal rights transaction with Great Falls Insurance Company during the quarter.
This transaction provides us with further geographic diversification, the foundation for New England expansion, increased scale in our small business book and the ability to expand our broad Workers' Compensation product line to this market.
We are also extremely pleased to welcome the talented Great Falls employees and their valued agency partners to the ProAssurance family of companies.
The New England Region will continue to operate from its current location in Auburn, Maine.
Thank you, Frank.
That material event is, of course, the preliminary loss estimates from the 3 hurricanes that hit Texas, the Southeast U.S. and much of the Caribbean.
As we disclosed in the news release in October, we estimate our 58% share of the Syndicate's net pretax losses to be $7.5 million.
That number is net of reinstatement premiums which are written and earned during the period, and it is also net of reinsurance.
The estimated storm-related losses were the primary driver of a 66.5 point increase in the current accident year loss ratio.
Those losses also drove the net loss ratio increase, which was 47.8 points higher than a year ago.
Excluding the storm-related effects on the segment, we continue to believe that normalized loss trends will continue as the Syndicate writes new business and the existing book matures.
That is the loss side of the equation.
On the premium side, gross premiums written increased by $2 million quarter-over-quarter.
There is a component of new business in that increase and also some benefit from $1.4 million of reinstatement premiums, which represents additional premium payable to the Syndicate to restore coverage limits that were exhausted as a result of reinsured storm-related losses.
Underwriting and operating expense were up by approximately $500,000 in the quarter, but the rate of increase is slowing as operations mature.
With the moderation in expense growth and the increase in earned premiums over last year's third quarter, the expense ratio declined 1.7 points.
All in all, we see the Syndicate's continued underwriting discipline as the best course of action in this competitive market.
We often say that you can sometimes make the most money by not writing a piece of bad business.
Duncan Dale and his team are continuing to underwrite carefully, selecting those risks that they believe will prove to be profitable in the long term.
That marries well with our underwriting philosophy and is within our expectations.
We're confident that we are creating long-term value with permanent capital at Lloyd's.
In addition, the dedication to profitable underwriting is increasing the value of Dale Underwriting Partners, which is a key part of the Syndicate's business.
And our minority ownership in that back-office service is yet another vehicle for value creation.
Frank.
Thanks, <UNK>.
Stan, some final thoughts for you before we take questions.
Thanks, Frank.
Our vision for the future remains intact and encouraging.
We're positioned to not only grow our business, but retain those risks we write with the dedication of our employees and distribution partners.
We hear quite often that their commitment to excellence is why so many of our insureds forgo the tempting lure of the lowest price and choose the ProAssurance promise of real, long-lasting value.
We've built a strong foundation, and we are now expanding on it, growing an enterprise that continues to give me great confidence in our future.
Frank.
Thank you, Stan.
Brendan, that concludes our prepared remarks.
And so we're ready to take questions, please.
(Operator Instructions) Our first question comes from Greg <UNK> with Raymond James.
So a couple of questions for you with your results.
And I certainly appreciate <UNK>'s comments around the Specialty PC segment and some unusual anomalies that affected the top line in the third quarter.
Perhaps we could step back and you could provide us perspective of when you take through the anomalies that happen in any given year, what you think the underlying growth rate of that business looks like on an annual basis perhaps.
Sure.
The marketplace right now, as we've talked about and as you know, is still quite competitive.
And what we've really been looking at and if you look at it over probably the course of the last couple of years is more or less offsetting our losses due to retention with new business production.
And that is generally, I think, where we see things right now.
Quarter-by-quarter, it varies.
But over the course of the year or so, that's about what we're ---+ what we believe that we're able to do.
And we have a great emphasis on developing opportunities for good new business.
But at the same time, a competitive market does take business away from us.
And we've been able to get our retention ratio up a little bit this year as you've noted.
But at the same time ---+ and we've also been able to do better on ---+ in terms of the rate change being in the low positive territory.
But the ---+ even 10% loss and 90% retention ratio still creates a big challenge to replace that with new business.
So I'd say long answer, but basically flat is kind of what I see right now.
And should I infer that because there was some, I don't want to call it pull forward, but some fourth quarter business that ramped to the third quarter that we should see, everything else equal, the fourth quarter possibly being down.
Is that the right way to look at it.
I think other than new business that may offset it, and again, constantly trying to generate that, yes, basically there was a shift of some policies that ---+ new business policies that were effective in the third quarter of 2016.
But due to the complexity of the policies and issuance and everything else, they got issued and processed in November of last year.
So they got into the fourth quarter and now they renewed on a timely basis.
So yes, I think that shift is likely unless offset by new businesses this quarter.
Yes, perfect.
I understand completely.
I wanted to shift gears and also have you talk about the Lloyd's business.
And I'm just curious ---+ and maybe, Stan, this would be appropriate for you to comment on as well.
What did you learn about the performance of the Lloyd's business in the third quarter this year that ---+ and specifically around the catastrophe exposure that might have surprised you are or maybe was favorable to your expectations.
And then this is an additional question around the Lloyd's business.
As we think about this and the specialty nature of Dale's operation, should we view this as somewhat of a sidecar type of business where you might put extra capital in that might be allocated to more property-related type of exposures if cap pricing affects the U.S. property insurance market.
Yes, I would just second Stan's comments.
Certainly, there ---+ we expect that there will be opportunities in the property reinsurance market in particular that Duncan and his team will be able to take advantage of in the way of rising rates, and we stand behind that.
But it's not a clinical kind of view of it.
As Stan said, this is a long-term view.
It's not just a matter of moving capital from one bucket to other.
It has to make sense business-wise, and we're very confident that Duncan and the team there will be evaluating all of that very carefully.
Ned.
I don't have anything to add to that, Stan.
If you read [Best] this week, you saw a variety of opinions ranging from the expected pricing on property renewals to go up without hesitation.
You have others saying that they're not certain what will happen to it.
And within the organization, we have a plethora of opinions about what will happen.
We'll wait until the January 1 renewals and see.
But we're not in a position to tell you of what's going to happen.
There are a variety of opinions around about it, <UNK>, as I'm sure you've seen even more than even I have about it.
I'll say this personally ---+ and I'm often wrong, but never in doubt.
Personally, I'll be surprised if prices soften any.
And that's a change from last long-term period.
Sure.
<UNK>, no, I don't think there's anything to be read into that other than reserving it as the business seems to deem and really looking at ---+ as we have said it number of times, looking at the Lloyd's historical averages to be conservative until the Syndicate has developed its own experience.
And the mix of business shifts from quarter-to-quarter, and that drives the loss ratio more than anything else.
Still see things, I guess, the same way that I did last quarter.
I'm very pleased to see the overall plus 2% and holding at that level for us at least.
Certainly can be influenced by the effect of large account renewals or other factors like that.
But generally in the marketplace, still seeing some level of stability, no less competition, but a little bit more stability in pricing than seen over the past 2 years.
And that's about as optimistic as I want to get about it, but it is somewhat more optimistic than maybe what I saw a year or 2 ago.
<UNK>, there are really 2 things that fall into that.
The tax credits that we invest in flow through that line item.
And those are an expense as we amortize those off and the benefits from those tax credits are seen in the tax line.
Other than that, it is a variety of the investments that we have made in limited partnerships and other funds that by nature of the structure of those funds and our ownership of those funds, we carry as investments in unconsolidated subsidiaries.
And by the nature of those, there's just a lot of volatility there.
It's really returns on our private equity investments.
Yes.
Mike.
If you look at the premium writings at the end of 2016, they were about $13.6 million.
We did write some premiums at the end of the third quarter as a result of the transaction closing on 9/18.
And for the most part, because it's a small business book, that those premium writings kind of relatively equal as you look out over the 4 quarters.
So we expect a really good reception from the Great Falls employees and agency partners to the transaction, and we expect that to proceed forward with good solid renewal retentions.
And Mike, as I recall, you've told me there's not much seasonality in that book.
Yes, I had indicated earlier.
It books pretty consistently on a quarterly basis.
The market conditions were challenging in the quarter, obviously, if the rate's being down 5%.
Just to comment on that, I mean, we've really looked at that closely.
We've had really positive rate over the last 5 years of about 7.2%, and our frequency continues to go down.
So we are seeing the broader industry trends with respect to rate adequacy as a result of frequency reductions.
So we still think we're pretty well positioned there.
We like the quality of our book of business and the rate adequacy.
I think what we have built, though, strategically will help us as we go out into the future.
We've built the Eastern Specialty Risk high hazard business.
We added the Maine transaction.
And keep in mind, Pennsylvania is our only mature state of our 19 core operating states.
So we still think we have some runway to grow in each of our other regions.
So I think it was more of an anomaly.
We're actually pretty pleased with the new business in the quarter.
One question I have with Lloyd's.
I think you're still talking about Lloyd's as an investment today.
How should we think about ---+ at what point do you foresee it becoming more of a, I guess, core part of the business rather than simply an investment.
Is that something we're still talking more 3 to 5 years kind of in terms of the time frame.
It's Ned.
Yes, I think it's probably the outer end of that realistically.
The focus today is on establishing all the infrastructure that's needed to run the Syndicate.
You may recall that we partnered with a third-party service provider called Asta that provides a lot of the back-office operations.
Over time, we take in those operations.
And I think it will be after ---+ sometime after we stand up the Syndicate fully on its own that we really began to see it more as a core to the organization.
And that's probably the tail end of that 3- to 5-year time horizon is what we're talking about.
And in the MPL space, are you seeing any changes in the competitive environment, or are you seeing any of your competitors, I guess, struggle more than they have been in the past.
Or is it really just pretty steady all around.
Yes, sure.
This is <UNK>.
I think with the exception of some very small players in the market, I think the competition is pretty stable, I'd say.
We have some of the larger national or regional competitors still, obviously, like us trying to modify what we're doing in the way that health care continues to evolve and doing more with larger groups and doing more with facilities and so forth as compared to the past.
We see some of the smaller competitors really, I think, trying to struggle to remain relevant, fighting very high expense ratios and the continued reduction in the number of physicians who are in private practice and making their own insurance decisions.
And then we've seen a few very small players start to run into some financial difficulty.
But these are very isolated cases and don't seem to be a trend right now.
There just seems to be 2 or 3 of them going on at the same point in time for totally unrelated reasons.
It's Ned.
The losses were kind of spread between the property and the property reinsurance/cat book of business at the Syndicate, and we have booked our best estimate for that.
And I would say that, that best estimate is like at a 70% to 80% confidence level.
And we will just have to watch.
But certainly depending upon how losses emerge, and as you know, it can take a long time in these situations for losses to emerge, and we'll see what happens.
But we're very confident, very comfortable with the estimate that we've put out.
Yes, I think what we've talked about in the past is that rather than take a view on the value of our stock, we have a very objective way that we evaluate stock buybacks.
And we look at how long it takes to recoup any dilution in book value that's caused by buying our stock above book value.
And we've got a return period of about 3 years that establishes that price.
And so we did not hit that price during the quarter.
<UNK>.
It's <UNK>.
No, really nothing that I would consider unusual there.
We just try to evaluate each quarter the way that we see it and ---+ based on what we have in the data, and in terms of ---+ as we've you said over the past couple of years, trying to be a little bit more responsive on a quarterly basis as opposed to waiting until the end of the year to do a more thorough evaluation.
So nothing that I would say is out of the ordinary this quarter.
And one thing when you look at it on the consolidated basis, you may recall that in the third quarter of last year, we had just under $3 million of adverse development at Lloyd's, and from a comparative standpoint, that was essentially just flat ---+ 0 this year, I think $100,000.
So that's also impacting at a consolidated level.
Thank you, Brendan, and thanks to everyone who participated on the call today.
I think we will speak with you next in February when we announce results for the fourth quarter.
Thank you, and goodbye.
| 2017_PRA |
2015 | TREX | TREX
#Well, a couple things ---+ if you just looked at the volume, it would be up roughly 16%.
When you look at some of the changes we made, we did make a change in our pricing for our Transcend monochromatic, and the price difference between the monochromatic and the exotic actually narrowed.
So we have a very strong presence at the high end of our product offering.
And what we've been able to do is to successfully interest our customers in trading up to the next level.
In some cases it's from Select to Enhance.
In other cases it's up to the Transcend.
And we continue to focus on that as a strategy.
We think that's the best value for the consumer, and that's the best value for Trex.
Thanks, <UNK>.
Thank you.
What is behind that expectation is this: five years ago we introduced Trex Transcend, and Trex Transcend eliminated the primary dissatisfier among people in the composite customer base.
Those two dissatisfiers were staining and fading.
Subsequent to our introduction, the marketplace has essentially copied the technology, and thereby raising the overall quality for the entire composite segment.
And so the whole consumer base that we deal with has a higher level of confidence in composites than they did before, which is breaking down their resistance and their bias toward wood.
So what we see is that composite decking is taking share from wood decking, and Trex is taking share within the composite segment.
So we've got a number of forces at play.
The economic tailwind is beginning to blow; the share of composites as a percentage of total decking is rising; and Trex's share within that composite category is rising.
So we've got a perfect storm blowing favorable winds right now.
So that process continues.
And I stand by my original expectation.
Well, we now sell in, I'm told, 45 countries in total, up a couple from our last phone call.
It is the fastest-growing part of our business.
It is meaningful to us.
It is certainly beyond the point that we ---+ we would never walk away from it.
I'll let my CFO decide when SEC rules require that it be broken out separately.
But it won't be long at the rate that it's growing.
Let me just divide some precise clarification.
They will be installed in the first half.
They will start operating in the second half.
So the three extra product lines are now on-site, and installation is actively underway.
So the bottom line is nothing has changed from what I said before.
His effective retirement date is June 30.
And in some future date, we will talk more about it.
Well, the land purchase is to provide ---+ we are going to need it for the opportunities that we see on the horizon in our specialty products, but not limited exclusively to pellets, necessarily, or even at all necessarily for pellets.
We've got a lot in the pipeline, which I referred to earlier.
We are going to need that land.
The pellet business is going as advertised.
We are developing the market.
We have a selection of customers.
We are in production.
We are selling what we are making.
And I think that's about all the color I want to provide.
<UNK>, do you want to add any more color to that.
No, I think we have said before that this first line was going to be split between R&D and building the market.
We continue with that.
We are backing off the R&D at this point as we are moving to install those new lines.
And having those additional lines will enable us to actually cast a wider array of products at the market and be able to service those larger customers that need greater volume than what we can get off the one line.
It is our strategy to have people move toward the higher end.
We offer the good, better, best because that was part of our dealer conversion strategy.
You have to have an opening-price-point product.
But what we find is having an opening price point helps us add dealers.
But when the customer walks into the dealer and sees the wide array of product, they still have a bias.
And they will spend the extra money on our higher-end products.
So by raising the price of our monochromatic, really what happened is it drove people toward the exotics, as <UNK> mentioned earlier.
The strategy has worked out exactly as our marketing department said it would.
<UNK>, do you want to add to that.
I think when you look at what we've done, this is a win-win for everybody in the chain.
You make more money on the higher-margin items.
The dealers make more money.
The distributors make more money.
And the consumer gets better value by moving to the Transcend exotics.
So everyone in the chain that's touching this product is better off as they move to the exotic platform.
Well, thank you.
The past eight years have been very successful, and our business in 2015 is progressing just as we have planned.
Everyone at Trex is galvanized to continue our winning track record and engineering what's next in outdoor living.
I can tell you that I'm looking forward to my last earnings call next quarter.
I really enjoyed answering your questions.
And we will be back with you and <UNK> and I in August.
That's all for now.
Thanks very much.
Goodbye.
| 2015_TREX |
2018 | SCSC | SCSC
#Thank you, and welcome to ScanSource's earnings conference call for the quarter ended December 31, 2017.
With me today are Mike <UNK>, our CEO; and Gerry <UNK>, our CFO.
We want to welcome Matt Dean, our new General Counsel, who is also joining us on the call.
We will review our operating results for the quarter and then take your questions.
We've changed our supplemental financial information this quarter and provided a CFO commentary instead of presentation slides to accompany our comments and webcast.
The CFO commentary is posted in the Investor Relations section of our website.
Certain statements made on this call, including our expectations for sales and earnings for our third quarter 2018 will be forward looking statements.
These statements are subject to risks factors identified in the earnings release that we put out today and in ScanSource's Form 10-K for the year ended June 30, 2017, as filed with the SEC.
Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.
ScanSource disclaims any duty to update any forward-looking statements to reflect actual results or changes in expectations, except as required by law.
We will be discussing both GAAP and non-GAAP results during our call and have provided reconciliations between these amounts in the CFO commentary and in our press release.
These reconciliations can also be found on our website and have been filed with our Form 8-K.
Mike <UNK> will now begin our discussion with an overview of our results.
Thanks, <UNK>, and thank you for joining us today.
We reported outstanding results for our second quarter highlighted by record quarterly net sales, 10% organic sales growth and higher profitability.
Both net sales and non-GAAP EPS exceeded the high end of our forecast range, and our quarterly net sales surpassed $1 billion for the first time.
Our net sales for the quarter increased 14% year-over-year, driven by strength in our Worldwide Barcode Security and Networking segment, including higher big deals in North America from customers in our federal business and the areas of mobile computing, POS systems and physical security.
The higher big deals include large federal deals that closed during the quarter that we originally expected to close in the September quarter.
Our International business also contributed strong sales growth, up 17% year-over-year, driven by excellent results from our point-of-sale and barcode customers in Europe and in our Network1 customers winning new business in cybersecurity and networking solutions in Brazil.
In addition to our impressive top line growth, our non-GAAP operating margin increased to 3.4%.
We continue to make excellent progress on our 2018 growth initiatives.
Momentum in mobile computing solutions in all of our geographies continued, with outstanding growth and strong customer demand.
As an example, as part of a multiyear rollout, we helped a customer deploy over 2,000 rugged mobile devices to a national retail chain for a solution that enables more accurate inventory tracking and management processes.
Similarly, we had another strong quarter of double-digit growth in video surveillance solutions.
Our value-added model includes developing solutions and understanding how to help our customers grow their business.
A recent example is an existing customer in our North American point-of-sale and barcode business who is in the middle of deploying a $20 million video surveillance solution for a major national retailer.
Historically, our customer only provided the mobile computing and scanning products to this end-user retail customer.
With the help and expertise of our networking and security team, these customers had success in selling a more comprehensive solution that included a multiyear video surveillance solution.
This multi-vendor multi-business unit retail solution was designed and delivered by our experts working with our customers, and it represents net new growth for all of us in the channel.
POS Portal's growth is driven by retail and hospitality solutions that include payment devices, software and services.
This business has seen significant new opportunities for growth with customers due to the value-added services we have developed.
Our team provides a variety of fee-based services that include device configuration and design, quality assurance of the solution and sales expertise to assist our customer with driving profitable revenue at the end of the day.
This quarter, we worked with a customer focused primarily on selling payment solutions and successfully deployed 1,100 new payment devices to a pool supply company with 300-plus stores.
As part of our communications business growth plan, we have on-boarded over 50 new customers to 2-tier distribution.
In moving their business to ScanSource, these customers will benefit from best-in-class configuration and quote tools and advice from our solution teams on how to better deliver additional value-added fee-based services.
Another growth initiative, our Intelisys sales agent channel, had another record quarter, with 22% year-over-year sales growth and an increase in percentage of new deals driven from our world-class roster of cable and cloud solutions.
In the month of December, our carrier and cloud business reached a new industry milestone with supplier billing surpassing $1 billion on an annualized basis.
Contributing to that success were our platinum level partners that achieve $1 million in monthly recurring revenue.
During the last year, we added 7 new platinum partners.
We are helping agents and VARs build their cloud and carrier services practices through programs and educational offerings such as our Cloud Services University, Advanced Commissions Programs and opportunities for VARs to partner with the most successful and experienced agents.
In November, we held a successful global partner conference in Greenville, South Carolina, where our headquarters is, focused on growth and solutions for our customers.
Over 1,400 customers from 25 countries attended, including our Intelisys agents and POS Portal ISOs.
At our conference, we had the opportunity to survey customers for more insight into developing the right solutions and tools to help our customers grow their business.
With that, I'll turn the call over to Gerry to discuss our financial results in more detail and our outlook for next quarter.
Thank you, Mike.
For the quarter, we delivered both strong sales and non-GAAP operating income and EPS growth.
Net sales increased 14% year-over-year, while our non-GAAP operating income grew even faster, up 18%.
Both our net sales of $1.03 billion and our non-GAAP EPS of $0.90, exceeded the high end of our forecast range.
Our second quarter results reflect a lower tax rate from U.S. tax reform and our non-GAAP EPS includes a 7% ---+ sorry, $0.07 per share benefit from lower tax rates.
Our GAAP operating income just decreased 4% year-over-year from increased expense for the change in fair value of contingent consideration and higher intangible amortization.
Second quarter GAAP diluted EPS of $0.31 was below our forecasted range due to a onetime $6.7 million tax reform charge in the December quarter, which had a $0.26 unfavorable impact on GAAP diluted EPS.
Consolidated net sales increased 14% to over $1 billion.
The dollar impact on sales due to foreign currency translation was positive $14 million and the POS Portal acquisition added $20 million to net sales.
Organic net sales increased 10% year-over-year, driven by strength in the Worldwide Barcoding, Networking and Security segment, including higher big deals in North America.
Gross profit dollars increased 15% year-over-year from higher sales volumes and the addition of POS Portal.
Our second quarter 2018 gross profit margin was 10.9%.
Our gross margin declined from the previous quarter's gross margin of 11.5% due to a higher mix of big deals, which typically have lower margins.
The gross margin was up slightly from the prior year period from the addition of our higher-margin POS Portal acquisition.
SG&A expenses increased $7.9 million from the prior year quarter to $75 million for the second quarter of 2018.
This increase reflects the addition of POS Portal and higher employee costs, including accelerated investment in our recurring revenue business to support our opportunities for growth.
Our second quarter 2018 non-GAAP operating income was $34.7 million or 3.4% of net sales compared to $29.6 million or 3.3% of sales in the prior year quarter.
We have a $97 million contingent consideration on our December 31, 2017 balance sheet, reflecting the present value of expected future earn-out payments for acquisitions.
For the second quarter of 2018, we recorded expense for the increase of fair value of contingent consideration of $6.9 million.
For our third quarter fiscal year 2018 forecast, we estimate the change in fair value of contingent consideration to be an expense of approximately $3.4 million, principally related to the Intelisys acquisition.
Our effective tax rate was 61% for the second quarter 2018, reflecting $6.7 million recognized for a onetime tax reform charges.
These charges included the estimated impact of the transition tax on undistributed foreign profits, and the remeasurement of deferred tax assets and liabilities.
Excluding these charges, the effective tax rate for the second quarter would have been 28%.
For the third quarter fiscal year 2018 forecast, we are using a 30% effective tax rate, which reflects a blended rate for our fiscal year ending June 30.
For fiscal year 2019, we currently estimate the effective tax rate to range between 25% to 26%.
We expect minimal cash repatriation fee in the United States over the next year.
We consider our current overseas cash balances to be operating cash used for working capital.
We expect to use the savings from lower tax rates to accelerate investments to grow our organic business.
It will give us greater flexibility as we execute our capital allocation plan, which includes organic growth, our first priority; strategic acquisitions, our second priority; and share repurchases as the third priority.
Now shifting to the balance sheet.
Cash from operations consumed $47 million this quarter, including higher accounts receivable from strong sales late in the quarter and the timing of accounts payable.
We expect to generate operating cash flow during the remainder of fiscal year 2018 from operating income and lower working capital investment.
Our inventory turns increased to 6.2x from 5.8x last quarter and 6x the previous year.
DSO, excluding Intelisys came in at 60 days, which is in line with current trends.
Our balance sheet remains very strong and continues to provide us with the ability to execute our capital allocation plan.
At December 31, 2017, we had cash and cash equivalents of $35 million and debt of $361 million.
Our net leverage totaled approximately 2.4x trailing 12 months adjusted EBITDA, and ROIC was 13.3% for the second quarter 2018.
We repurchased no shares in the quarter and have approximately $100 million remaining under our share repurchase authorization.
Now turning to our forecast.
We expect net sales for the third quarter fiscal year 2018 to range from $860 million to $920 million, and GAAP diluted earnings per share to range from $0.44 per share to $0.50 per share and non-GAAP diluted earnings per share to range from $0.67 per share to $0.73 per share.
The midpoint of our forecast range reflects organic sales growth of approximately 5%.
The typical mix of sales in the March quarter normally brings a higher gross margin for the quarter, so our forecast assumes a gross margin that is a little over 11.5%.
As I mentioned earlier, we're assuming a 30% effective tax rate for our third and fourth quarters of fiscal year 2018.
For fiscal year 2019, when we'll have a full year impact of tax reform, we anticipate the tax range ---+ the tax rate to be in the range of 25% to 26%.
I'll now turn the call back over to Mike for closing comments.
Thanks, Gerry.
For the quarter, we achieved strong organic sales growth and improved profitability.
We are executing our strategic plan that includes growth initiatives for solution selling at higher margins.
We're driving our business to sell total solutions with a deep understanding of our customers' needs.
We're pleased with the momentum of our business and the progress we're making.
So now, we'd like to open it up for questions.
This is Gerry.
I think, the answer to that is, yes.
We have these 6 initiative that we've been focused on, and we expect those things to continue to generate those same sorts of sales.
Well, I think, what we'd say is ---+ it's Mike.
<UNK>, I think what we would say is that we're executing our plan and what that includes as we indicated and there's really sitting down and spending more time with our customers than we ever have in the past, understanding what they need from us.
And I think, we're seeing that result in better execution by our team on meeting demand from customers, not necessarily from the market itself, but from our customers.
So just like you survey VARs, we always have, but I would say our engagement with our customers, <UNK>, is different today than it was a year ago from understanding better.
What it is they need, so they can sell, we'll work on a solution, which means what we used to sell you plus more.
That's right.
That's exactly it, <UNK>.
That's not our view.
We have not heard that from our customers from the marketplace.
I certainly didn't understand why an investor would ask the question.
And we believe that it's our job to maintain our margins in a competitive marketplace and we believe that that's not what will happen to our markets at this time.
That is not our belief.
<UNK>, this is Gerry.
So we're forecasting, but that's still our goal, this mid-3.5, right.
But the guidance for the third quarter is going to be down, right.
The third quarter is our toughest quarter for us to forecast, but we also expect there will be a bit of a rebound in the fourth quarter.
Yes.
I think the answer ---+ the way I would answer that is, we've continued to invest ahead of the curve.
And so in our prepared remarks, we talked a bit about investing certainly in our recurring revenue business.
We've been investing in other places as well.
And so I think that's part of why we're not quite where we wanted to be because we see there is opportunity for growth and we're trying to take advantage of that.
Yes.
We have never talked about those publicly.
I mean, we certainly are very metric or very formulaic-driven company when it comes to share repurchases and comes to making tradeoffs between investments.
And so it really is in that order, as we described on the call, that its organic growth and then potential acquisitions, and then share repurchases.
So if we see there is more opportunity on one of those than the other, then we'll certainly head in that direction.
Right.
So we're expecting that we will be cash flow positive for the year.
And what gives us the encouragement there is, if you look at our cash flow statement, we've got a fair amount of money tied up for the 6 months ended in accounts receivable and again we talked about that being timing related.
We're also working on reducing our working capital investment, which obviously will generate some cash.
So that's what encourages us.
Yes, Chris, this is Mike.
I'll take that one.
I think the big opportunity still ahead of us is to accelerate the ability for a, let's call them, a traditional ScanSource channel partner VAR to adopt the idea of adding recurring revenue services and programs and offers from Intelisys, really strong list of carriers and cable companies and cloud companies.
We announced a couple of times during this year that we were having these events, we call them Super 9s.
And one of them was to specifically organize around a group of about 50 ScanSource VARs that had not been involved previously with Intelisys.
So we held that event to really design and improve the concept for a program that would allow us to scale.
So I would say, we've learned a lot especially in the last 12 months about, what we believe, it takes to identify the right kind of VAR company that is ready to add some of the services from Intelisys.
And so we believe we understand that process and we need to scale it.
Now with some of the, I guess, commentary that Gerry was referring to where we said, we were going to accelerate some of our investments in our recurring revenue business.
So we've had to add additional channel managers, for example, in the field to make contact with these customers and give them more information about how to do this.
And I think what we really see ahead of us is there is this big opportunity from the cloud to really connect VARs to our Intelisys offers, because one of the lesser understood aspects of the Intelisys offers is from the cloud perspective versus the traditional carriers, which sell wire and wireline opportunities.
So I think, as our, for example, is our unified communication VARs need cloud solutions.
Intelisys opportunity is staring right in the face.
And I think, we expect to see that accelerate through rest of 2018 and into 2019.
That's a long answer, but that's kind of where we are.
Thanks.
This is Mike.
I'll try that one.
I think in general, we don't have any significant constraints.
One of the things that we benefited from over the years is having a balance sheet in a margin profile that allows us to take larger positions in inventory when we see it as an opportunity.
And whenever we see pending or possible shortages, we believe with our strong relationships with our suppliers and vendors that we're in a better position than our competitors.
So I would say there is no demand that we can't meet today because of supplier shortages.
Yes this it Gerry.
Yes, it is down slightly.
We had a couple of things happen there that didn't go exactly the way we expected.
So it is down slightly from that $110 million.
Thanks for joining us today.
We expect to hold our next conference call to discuss the March 31 quarterly results on Tuesday, May 8, 2018.
| 2018_SCSC |
2015 | GRMN | GRMN
#Thank you.
Thanks, everyone, for attending today.
Appreciate it.
Take care.
| 2015_GRMN |
2016 | THS | THS
#Josh, this is <UNK>.
It's a great question and we've had conversations here about should we slow down the integration.
What we've seen is that really the challenges on the sales front are where we perhaps took it too slow.
So our approach coming into it on the sales team was to first do no harm.
And so our goal was to make sure that we didn't lose customers as part of this transition.
And we are very pleased that, in fact, the customers have been quite positive about the program, the execution.
And on the systems side the transition of the plants to TreeHouse SAP has been transparent to them.
We have not heard a single comment from the ones we have done thus far and touchwood we expect it to continue that way.
The thing that we didn't do is we didn't start driving the sales team towards the growth that was there.
And so that was where we lost some of the opportunities or left things on the table that we could have picked up and this transition allows us to do that.
So as far as integration tasks remaining, the big piece of it is really the TSA and continuing to carve out each of those plants that we've acquired and bring them onto our systems.
And that will continue at the pace and on track that we have just because it's going quite well, we haven't had impact to customers or to the operational teams and we need to get it done by the end of January in order to comply with the TSA that we have with ConAgra.
So that part will continue.
And I think the rest of it and bringing the teams together, in every case where we have unified the customer service organization or the condiments team as we get things together and provide certainty to the teams we see better performance.
And so this allows us to continue that.
So we've done three plants thus far.
We have not seen ---+ we track each of the metrics, so our fill rates, the service levels, etc.
we track those regularly with each transition and have a full team on-site to do that.
In many cases, we are working with the same teams that ConAgra worked with a few years ago to go through the same transition and without exception they have all been incredibly complementary of this.
To be perfectly honest, we had a lot of nervousness from our legacy Private Brands about this transition because they had been through some really rough transitions.
And as you say SAP is not always heralded with a lot of enthusiasm, but I would say at TreeHouse people, we know what we are doing, we've done this before and we've been able to do it without impact to customer or two operations.
And we fully are committed to having a team that continues to do that.
And so we've got folks in our next plant today getting ready for the transition at the end of this month, teams are trained and customers are notified and we are taking orders right now on the new system.
So we feel good about it.
Every single one of these is different, which is why the team enjoys what they do and is incredibly engaged on making sure that this works for customers.
Hey, Josh, this is <UNK>.
It's all about the top-line volume and establishing not just simply shipments but programs on an ongoing basis with several dozen of the largest customers who account for a disproportionate share of our growth opportunities and our profitability.
And those programs will first lead to better promotional and merchandising opportunities, but then they will go beyond that to joint business planning, to innovation as you've seen in coffee, as you've seen in aseptic broth programs and so that is the issue.
I would point out as <UNK> mentioned at the syndicated channels now, particularly in categories like snacks, are not the definitive data ---+ their data does not define the totality of the market.
So we will continue to see growth outside of those channels, in particular on the premium and the better-for-you products.
In a nutshell that's it.
I thought was we would start the year with a negative year-over-year volume trends in Private Brands which we did and by the fourth quarter we would be leveled out.
I think we are going to finish just slightly lower than being leveled out.
And 2017 and 2018 were based on our projection for 2016 as a base.
So basically that this was going to be a relatively flat year, we may be down slightly in 2016.
So that's where a bit of the miss is.
But that would be the new base is being down just slightly.
It's not that big a miss, <UNK>, in terms of exactly how we had because we were progressing better in the margins.
So from an operating income standpoint we weren't that far off.
We mentioned in the first few quarters how we had I think eight straight months of year-over-year improvement in margin despite the sales shortfall.
But we didn't quite get to the sales number we were hoping for and at this point I think we will be down slightly as opposed to flat to our expectations.
I don't have as good of data on that.
But I would say it was probably slightly more intensified in the Private Brands because it got so much wheat and durum-based products and those commodities were pretty favorable for a good part of this year.
So I think their pricing has a little bit more competitive.
I think you'll see the same dynamic will be on top of those price changes as we go into next year.
And I don't expect it to be an issue, it was just an observation in terms of what's happening on the price mix.
That's right.
This is <UNK>.
I think that it is implied in the customer communications but it's not been a direct request or demand.
And what we see is if you look at the full array of the top several dozen growth-related customers and the various categories that we have, we had to create centers of gravity that were located in individual aisles.
So condiments now has when you break, get into it it's got dozens of product categories that everybody used to sell as a part of the whole thing.
Now they've got a dedicated business team and you can offer not a mayonnaise program, not a mustard program but in fact a condiments business plan and that will be the big benefit.
Operator at this point we will take two more calls.
I think it's primarily executing better against plan.
As I said as I look through the list I'm not seeing lost business to competitors in private label.
What we seem to be seeing is lost business to either branded activity or just plain not getting the same activity we get in the past in terms of what we are trying to accomplish with our particular product on the shelf.
And we believe the renewed and more focused sales effort will help drive that incremental sales volume we need to be more effective.
We will look at all of our categories.
I think we've always done that.
Frankly, we said in the past if you look at the legacy business the canned soup was not necessarily all that attractive.
And pickles is a base category that shows little growth.
And I think the Private Brands brought to us a lot of categories, some of which look like pickles or canned soup and others that have the opportunity to look more like a coffee.
And so each portfolio has its pluses and minuses.
And just as we look at plants, as we look at infrastructure, we look at product categories we will evaluate all those to see what fits best in our portfolio and what might not fit best.
But at this point we don't have any decisions made.
This is <UNK>.
Let me put this in context.
The next President of the Company will be the fifth and we have over the last decade had an evolution that as in every instance the incoming President has refined and improved our strategies and that includes the one, Chris, who just left.
What we would expect in a new President coming in is someone who understands the current strategy, understands the marketplace and then begins to develop an understanding of our capability and our organization and finds ways to grow this business in the marketplace that faces us.
And we know that that marketplace has evolved in extraordinary ways from the time we started with pickles and non-dairy creamer powder and now have a leading position in over 26 product categories, 23 of which we are first and the other three a close second.
So it will be someone who is capable of managing a business of this size.
I think we will find extraordinary interest, both within the Company and without.
And we will improve in every instance.
Yes, so that's a great question and I can certainly wax poetic about it for a long time but I will keep my answer brief.
I think it is certainly true that we see our customers periodically shift their approach to private label and how they use it in the store, in some cases as a profit driver and a growth engine and in other cases as a brand price fighter.
But what you see, especially if you look outside of the typical scan data that you see in Nielsen and IRI, you see a lot of the growth in the retail market right now is in places like Aldi and Trader Joe's that have a disproportionate focus on private label.
And so I think the consumer trends towards private label persist and their willingness to try new products and to find ways to save money in order to be able to spend on other experiences or items will remain.
So we feel pretty good about that.
And while I think you will continue to see changes in how retailers think about the role of private label in their store, the real underlying growth pattern is really towards those who have used it as a strategic differentiator to fight against both competitors and online retailers.
And I think that will be the core to their success and ours.
Thanks everyone.
We'd like you to note that our annual Investor Day is scheduled for Monday, November 14.
It will coincide with the Private Label Manufacturers Trade Show in Rosemont, Illinois.
Registration closes tomorrow.
Contact <UNK> for details if you'd like to attend.
And we hope to see all of you at our new TreeHouse booth on the convention floor that week.
Thank you again.
| 2016_THS |
2016 | FSLR | FSLR
#Good afternoon.
Sure.
So there's absolutely no doubt that the competition doesn't sit still.
And they're endeavoring to improve their product at the same time as we are.
However, if you go back to late 2012 through today, the rate of change of our efforts versus the competition is clearly significantly higher.
And this is something we'll spend some time on at the Analyst Day.
But we have clearly been improving the relative value proposition, improving the margin entitlement, improving yield, energy density, across all markets.
And we've been doing so at a higher rate of change than our competition.
I can't speak to what they're going to do in the future, but we believe that we have a lot of opportunity in front of us in terms of continuing to drive our road map, and we'll talk a lot about that at our Analyst Day.
So on the PPA pricing, I don\
So in terms of the way we think about it, we have always had a very deep pool of investors that we have tapped for to monetize the assets.
Those investors' expectations in terms of return, we've seen variations over time, but the amplitude of those variations has been relatively mild.
And we've also always been relatively conservative in terms of what we've baked into our modeling in terms of what we could achieve in the marketplace.
So the way we think about it is, it's obviously a critical element to our development process, and so we spend a lot of time making sure we're in touch with the market, making sure we're in touch with our customers, making sure we have a sense of what's happening out there.
And we certainly recognize it as an exposure if we didn't pay close attention to it.
But we feel like, and we've demonstrated over the last several years, that we understand the market, and we know how to price our products so that we have the ability to monetize effectively.
So it's sort of yes, it's a big issue and it's a big risk, but that's core to succeeding in our business.
And so managing that risk and understanding that risk is core to what we do.
And there was a second question.
TetraSun.
We'll have more comments about TetraSun at Analyst Day.
So as it relates to pricing power, it all relates to energy density.
And what we've been trying to communicate over the last few calls and we've demonstrated the advantages that we have, not only here in 2015, but where we're going into 2017 and beyond.
And obviously, we're pricing forward with that type of advantage.
So when you think about the spectral response advantage, the temperature coefficient advantage, which ultimately drives to an energy density advantage upwards of high single to low double digits advantages.
So we have quite a bit of pricing power relative to technology.
We have the advantage of the First Solar bankability and strength, and the quality and reliability and willingness to stand behind our product over the long run.
So I think that does translate into significant value in the marketplace.
As it relates to the second to last question ---+ I'm trying to remember what the last question was ---+ the cost of capital assumptions, we're not going to get into specifics around that.
It varies by region.
So as we think about what our cost of capital assumption is in Japan, it's dramatically different than what it is in the US, which is dramatically different than what it is in India.
I wouldn't say that we're assuming any significant changes relative to the current environment.
We believe it will be relatively stable, maybe slightly higher in some regions, but we don't go into the specifics of what that assumption is by region.
| 2016_FSLR |
2017 | SXT | SXT
#Good morning.
I'm Steve <UNK>, Senior Vice President and Chief Financial Officer of Sensient Technologies Corporation.
I would like to welcome all of you to Sensient's conference call to discuss 2017 first quarter financial results.
I'm joined this morning by <UNK> <UNK>, Sensient's Chairman, President and Chief Executive Officer.
Yesterday, we released our 2017 first quarter financial results.
A copy of the release is now available on our website at sensient.com.
During our call today, we will reference certain non-GAAP financial measures, which we believe provide investors with additional information to evaluate the company's performance and improve the comparability of results between periods.
These non-GAAP financial measures remove the impact of restructuring costs, currency movements and other costs, as noted in the company's filings.
Non-GAAP financial results should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available on the Investor Information section of our website at sensient.com and in our press release.
We encourage investors to review these reconciliations in connection with the comments we make this morning.
I would also like to remind everyone that comments made this morning, including responses to your questions, may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
Our statements may be affected by certain factors, including risks and uncertainties, which are discussed in detail in the company's filings with the Securities and Exchange Commission.
We urge you to read Sensient's filings for a description of these factors.
Please bear these factors in mind when you analyze our comments today.
Now we'll hear from <UNK> <UNK>.
Thanks, Steve.
Good morning.
Sensient reported adjusted earnings per share of $0.82 in the quarter, an increase of 9% from last year's first quarter result of $0.75.
Foreign currency reduced adjusted EPS by $0.01 in the first quarter, and in local currency, adjusted EPS grew 11%.
Revenue was up 1% in local currency with Color reporting high single-digit growth and Asia Pacific reporting mid-single-digit growth.
Adjusted operating income increased by 10% in local currency, driven by strong results from both Colors and Flavors & Fragrances.
Colors operating income was up 9% in local currency on strong performances across the group.
Flavors & Fragrances operating income was up more than 5% in local currency, with most of the group's businesses showing solid growth.
Flavors & Fragrances operating margin was up 150 basis points over last year's first quarter results and Sensient's operating margin increased 130 basis points to 16.2%.
Foreign currency translation reduced both revenue and adjusted operating income by approximately 1% in the quarter.
Color had another very strong quarter with revenue and operating income increasing 7% and 9%, respectively, in local currency.
The Cosmetics business continues to perform well, reporting double-digit growth in local currency for both revenue and operating income in the quarter.
The Food Color's business generates strong profit growth due in part to double-digit sales growth of natural colors in North America.
Both the Pharma and Inks businesses also improved solidly over last year's results.
The group's operating margin remained solid, improving to 22.5% in the first quarter.
Our Cosmetics business continues to see strong demand from makeup, lipstick and other personal care products.
Cosmetics has a strong innovation program which allows us to develop solutions for a wide range of applications, including makeup, skin, nail and hair care and hair colors.
Our success in Cosmetics was broad based, with growth in every region of the world.
In the Food & Beverage markets, we expect to see strong interest in natural colors for some time.
In 2016, approximately 75% of all new product launches, both in the U.S. and globally, featured natural colors.
Many of the world's largest food companies, including some of the largest food retailers, have announced their intention to use natural colors in their products.
We expect these conversions to take place gradually and consistently over the next few years.
Thus far, much of the near-term conversion activity has been driven by local and regional manufacturers for private label brands.
Sensient is the market leader for food and beverage colors, and we have developed proprietary technologies that allow our customers to offer natural products without compromising on the appearance or affecting the taste of their product.
We are uniquely positioned to lead the conversion to natural colors because of our investments in new technologies and our applications expertise.
Flavors & Fragrances had a very good quarter, reporting local currency operating income growth of 5%, with an operating margin of 15.4%.
The operating margin improved 150 basis points from last year's first quarter, and this is the fourth consecutive quarter in which the group's operating margin increased by at least 100 basis points over the previous year's result.
Revenue was off by approximately 4% in local currency, principally related to culling of low margin and nonstrategic projects.
Flavors & Fragrances has made significant progress over the past few years, with many of the group's businesses delivering profit growth and margin improvement.
In the first quarter, most of the group's businesses reported higher profits with several achieving double-digit profit growth.
Likewise, we saw operating margin improvement in most of the group's businesses.
We were able to deliver these strong results even though we are still in the process of transitioning production out of the last of the facilities to be impacted by restructuring.
We incurred additional costs from the first quarter related to the extended transition, and we expect some of these costs to continue into the second quarter.
We completed the sales of one of our European savory ingredient facilities and our European Natural Ingredients business, which primarily sold dehydrated vegetables in the first quarter.
These businesses produced products that did not align with our strategy of selling flavors rather than ingredients.
They were dilutive to the group's operating profit margin and each had heavy working capital requirements.
These divestitures will eliminate approximately $30 million of revenue on an annual basis, and they represent the last of the significant culling actions that we had discussed with you.
As we previously forecasted, most of the revenue impact will occur in 2017.
The Asia Pacific results were off this quarter, primarily due to order timing and product mix.
We have been investing in the Asia Pacific region, and we expect to generate strong growth in these markets.
Last year, we opened a new R&D center in Singapore, adding personnel and technical capabilities that allow us to work more closely with customers and to sell more products that align with our strategies in Colors and Flavors.
We are also expanding local production capabilities throughout the region to reduce cost and to shorten lead times.
Overall, the first quarter results of the company were in line with my expectations.
Color continued to deliver strong results and Flavors & Fragrances overcame some challenges with production cost and had a very good quarter.
For the year, I still expect Color to deliver high single-digit profit growth and Flavors & Fragrances to deliver mid- to high single-digit profit growth with margin improvement of between 100 and 200 basis points.
I also expect Asia Pacific to recover and achieve high single-digit and perhaps double-digit profit growth for the year.
We are maintaining our adjusted EPS guidance for the year.
Adjusted EPS growth will approach or exceed 10% in local currency terms.
We still think the strong dollar will have an impact on adjusted EPS results for the year, and we are maintaining our adjusted EPS range of $3.35 to $3.45.
We're off to a good start for 2017, and I'm very optimistic about the company's future.
Steve will now provide you with additional details on the first quarter results.
Thank you, <UNK>.
Sensient reported revenue of $341.4 million in the quarter compared to $342.5 million in the first quarter of last year.
Operating income was $24 million in the quarter compared to $47.5 million in last year's first quarter.
The operating income results include restructuring and other costs of $31.3 million in the quarter and $3.3 million in the comparable period last year.
Excluding the restructuring and other costs, adjusted operating income was $55.3 million and $50.9 million in the first quarters of 2017 and 2016, respectively.
Foreign currency translation reduced both revenue and adjusted operating income by about 1% in the quarter.
Diluted earnings per share from continuing operations were $0.30 in the quarter compared to $0.69 in the comparable period last year.
Restructuring and other costs reduced earnings per share by $0.53 in this year's first quarter and by $0.06 in last year's first quarter.
Adjusted earnings per share were $0.82 in the quarter and $0.75 in the comparable period last year.
Foreign currency translation reduced adjusted EPS by $0.01 per share in the first quarter.
In local currency, adjusted earnings per share grew 11%.
As <UNK> mentioned earlier, we completed the sales of one of our savory ingredient facilities and our European Natural Ingredients business in the first quarter.
We recognized noncash losses on both transactions, and these losses account for most of the $31 million that we reported as restructuring and other costs in the quarter.
Cash flow from operations was $37.6 million in the first quarter compared to $46.2 million in last year's comparable period.
The first quarter cash flow was reduced by higher incentive payments and a smaller reduction in inventory in our Natural Ingredients business compared to the first quarter of last year.
Capital expenditures were approximately $10 million in the first quarter, and we still expect capital expenditures to be between $60 million and $70 million for the year.
We repurchased approximately 155,000 shares during the first quarter.
Our balance sheet remains strong.
Adjusted-debt-to-adjusted EBITDA was 2.4 at the end of the quarter.
We plan to keep debt levels in line with an investment-grade profile to maintain the flexibility for capital expenditures, dividend payments, share repurchases and acquisitions.
We will continue to take a balanced, prudent and long-term approach to our capital allocation strategy, which includes evaluating share repurchases and acquisitions on an opportunistic basis.
Thank you very much for your time this morning.
We'll now open the call for your questions.
Sure.
So when I go back to the original guidance for the year and what we've communicated, we've talked about flat revenue in Flavors for 2017.
The idea there being we would have a ---+ an impact from culling, which would offset the growth that we would expect to get organically and, therefore, we'd net out at about 0.
So that was kind of the concept.
Now as I noted in the lead in here with my opening comments, we did take out the next big part, say, effectively Part 2 of 2 of culling.
The big chunk of that culling took place with the sale of that production site and the sale of that business in Europe.
Those 2 combined would represent about $30 million of annual revenue.
So the idea here is that, that would be a big last chunk of culling.
Some of that would bleed into 2018, the first quarter of 2018.
I thought we would be able to sell that last facility at the start of the quarter.
We were not able to.
We were able to sell that at the end of the quarter, at the end of March.
And so therefore, a little bit of that culling impact will bleed into Q1 of 2018.
So that's just some background piece.
What we had talked about after 2017, where again we would anticipate net-net flat revenue, we would then expect ---+ as we get into 2018 and beyond, we would strive internally and our goal and expectation would be mid-single-digit top line growth in Flavors.
And so what could I point to, to the second part of your question, that would demonstrate our ability to actually do that, is that, again, I'll note the businesses that are effectively through restructuring showed very good growth and it was fairly broad based.
Some of these businesses were in Europe, some were in the Americas, some of the traditional flavors types, but we also had a good top line growth in Fragrances.
So I see very good growth.
I think that, again, the further we get away from restructuring, I think the better we get towards that internal goal of mid-single-digit top line growth.
Well, I think for Part 1 of your question, I think we\
Yes, I would certainly say we're open to a lot of different possibilities here.
Obviously, Flavors in the context of the strategic change, the organizational stage, the restructuring, that would've been a tougher thing to try to buy and then integrate into the business.
But I think that's clearing up and so certainly, there remains a possibility within the world of Flavors & Fragrances that there could be something that could fit nicely into our portfolio.
I would anticipate that would really be on the basis of a technology play, a smaller company that we would pursue.
I think across Color, you could really consider that in a lot of the different segments, perhaps less so on Food Colors than you could see on, say, Pharma or Inks or Cosmetics or another one of those divisions.
But M&A moves in cycles.
In my opinion, we are, perhaps, at the peak of that cycle.
And as with all cycles, they reach a trough.
And when a trough is reached, there are deals to be made and there are assets to be picked up at discounted prices.
I think what I had seen, and in my opinion, there is a distinct possibility that a company could very much overpay for an acquisition.
And you look at our balance sheet, we're 2.4 debt-to-EBITDA.
Well, if you overpay and that thing doesn't work out, your 2.4 may become 5.4 before you know it, and now you've got a different problem.
So we're being very thoughtful and very disciplined about this.
It's got to fit within the strategy that we have.
I would not anticipate making a market share-related acquisition because I think, in our case, we would wind up overpaying for something like that.
And so I think to some degree, it's a matter of when is the right time and do you have something that fits in.
And that something could be, as I think I hopefully have expressed here, could have been ---+ could really fit into any one of our businesses very nicely.
But Food Color is probably the least ---+ the lowest of the probability on that scale.
Yes, I would say this, we have been very much ---+ number one, I think in any year that I could either see now or even into the future, I think CapEx will always be #1 for us.
There's no purer form of investment.
There's no higher return to be gained, in my opinion, for this business than making efforts on investing in ROI projects around the company.
Despite, perhaps, some thoughts out there in the market that companies are not investing in ROI projects, I think that's totally false for us.
Any ROI project that I can get my hands on, I'd love to and I'd love to make those investments, assuming we can ---+ we had a good business plan.
So I think that's going to continue to be #1, and that's really, for the long term, benefit of the company financially and operationally.
I think that makes a lot of sense.
Number 2 for us has really historically been our dividend, and we pay that out on a fairly disciplined scale, a payout ratio of 35% to 40%.
I'd like to keep that in the cards, moving forward.
I think that's been a successful program and it's been an efficient way to return to many of our shareholders.
But I think the other piece then is, all right, is it debt.
Is it acquisitions.
Or is it ---+ well, debt or acquisitions, essentially.
So I think for us ---+ sorry, repurchasing.
Where we've been is I felt that for many years, the stock was undervalued so we started buying back at $40.
And I suppose at the end of the day, we might have been on to something there.
We've done pretty well with that program.
Before that, we had paid down our debt as a company to very ---+ I think we got to about 1.2 debt to EBITDA, and we did that really ahead of the financial collapse of '08 and '09.
And so I think what we've been reasonably good or ---+ at making these types of predictions about the market and where we think it's going.
And so therefore, as I go back to my M&A comments, I would predict that there's going to be an opportunity, maybe in not-too-distant future where the M&A world does move out of its peak pricing and doomed into more of a trough situation, and that could be where you see us not buy any stock at all, lever up to an even higher than 2.5 ratio in the interest of capturing value in terms of M&A.
So I think we, as a company right now, at 2.5 or 2.4 leverage, we've been kind of hovering in that area.
That's probably about right because it gives us the flexibility to lever up for an acquisition, which may come in the near future, but it certainly allows us to continue on course with our repurchasing program beyond meeting our CapEx and dividend needs of the company.
So that's kind of where I am at 100,000 feet.
If I'm wrong and the M&A stays at a peak for the next 5 years, I suppose that would be a historical anomaly big time; in which case, you may see us continuing to buy back more stock.
So does that kind of get at where you're going here.
Yes, so 2 things on that.
I think, number one, what would give people confidence.
Well, we did this in Color, we did this in Flavor.
And in fact, we've even exceeded those expectations in Color.
I think on Flavor, as we move towards our expected 20% operating profit margin, I think we've demonstrated, and certainly in the last year, an accelerated version of that.
We've demonstrated our ability to grow this margin through the improvements that we have decided before.
Product mix, taking out costs, culling; these 3 factors, I think, have come together to bring us where we are today.
So then the natural question then that comes, all right, with culling essentially over at the end of this year, a little bit of bleed into 2018, that leads effectively still improvements in product mix and taking out additional costs.
As I look at the Flavor Group, I see both throughout the entire world.
There's definitely more opportunities to take out cost from that business.
There's definitely more opportunities to improve our mix in that business.
And I think the mix is always ---+ that's the one that people would ---+ I mean, okay, yes, you can take out costs but really, can you be successful selling the better mix of these products.
And there, I would have to point to the many businesses in the Flavor Group right now which operate at that level of profitability; that at or near 20% operating profit margin.
To me, that's a very strong indication that we have a path.
We've achieved that path for many businesses.
And that ---+ so for the remaining businesses, we certainly have a benchmark internally, but I think we've had a set of actions.
And in particular, for those businesses that have not experienced a restructuring hit, where we have demonstrated an ability to really improve that mix very, very strongly and find that part of the market, the underserved part of the market that's less competitive than, say, dealing with a massive multinational where you may have 3 or 4 key competitors.
I think that's a huge part of the story.
And I think that is what we've said really for a few years now, those themes and that execution.
And I think we continue to stay on track with that.
And we continue to stay on track with that because it's working.
And so I would suggest that as we move into 2018 and you see an improvement in the top line for Flavors, that's going to have a very nice impact.
I think you're going to continue to see more costs coming out.
Restructuring is part of it, but as you then optimize that plant further, there's always more opportunities to take out some of those costs.
There are certainly opportunities within raw material and transportation costs that can be addressed as well.
And so these get us to a path, very strong path of the 20%, I think.
Yes, so I would say this, I think, certainly, there ---+ I would anticipate Asia Pacific, as I recommitted to in the opening monologue, achieving the top line growth of high single-digits that we talked about at the beginning of the year.
We think that is certainly still achievable.
Yes, there's certainly ---+ there's a little bit of a timing piece here that ---+ in Q1, we were only at about mid-single-digit top line growth.
So I think with respect to the timing, yes, I think you're going to see an uptick throughout the remainder of the year that would then net us out to where we expected to be for Asia Pacific overall.
So I feel very good that we have good continued growth prospects in Asia Pacific.
I feel very good committing to those numbers again to you and to the rest of the investors because I do see a lot of opportunities in Asia Pacific, and we've made a lot of investments there to get there.
But this is really kind of a phasing issue, which then ---+ not unlike a different phasing issue we have in Flavors.
So let me just kind of transition over to Flavors because this fit with your earlier question and then Mike <UNK>'s earlier questions about Flavors.
And so <UNK>, I know you're on the line too, so you'll certainly want to hear this piece.
But as we look at Q2 and as we look specifically at guidance and you look specifically at Flavors, one thing I just want to kind of reiterate or certainly make a little bit more clear.
I think as you all recall, last year Q2 2016, we had the sale of the onetime import rights, and that was a $0.04 benefit, which went entirely to the Flavor Group.
So to the extent you have that in your Q2 2017 baseline, that would suggest that your Q2 consensus is too high.
And so this gets into a little bit of phasing as you look at Flavors and as you look at how this will come together to deliver what I told you we would get to for the year.
We have effectively a $0.04 difference here in terms of where we see our Q2 and where you have our Q2 from a consensus standpoint.
I think the difference is certainly that $0.04 related to that onetime sale.
And I think I've probably been a little bit confusing, so you can blame me on this.
I could have been a lot more clear about that one.
I think that $0.04 moves from Q2, mostly to Q3, but also to Q4.
But obviously, we're maintaining our guidance for the year.
So I think this is really just a difference in phasing.
Again, you can blame me.
It's probably my fault.
I have not been as clear as I could be.
But as you look at that for Q2, then at $0.87, we are up almost 12% on EPS.
So just ---+ if you could take a look at that and if there's any questions, I'm happy to take those now or later in this call.
But the other thing, if I could get ---+ draw this to your attention, that all came from Flavor.
So when Q2 results come out for Flavor, you will see a decline year-over-year in operating profit because we will not have that onetime sale again in Q2 of this year.
That doesn't mean Flavors is not doing well.
That would mean Flavors is still very much on track for the year and for the quarter.
But I just wanted to make sure I was very clear because, again, I don't think I was as clear as I could have been in the last call or even referencing this last year Q2.
I agree 100%.
Yes.
All right, let me answer the first part.
I think it's specific to FX and this can be helpful.
We estimated on the last call in February that we would have a roughly 10% EPS impact just related to FX.
$0.10.
$0.10, right.
And so as we look at that now a couple of months ---+ 2 months later, if we were to look at the entire year, we would say it's probably closer to about $0.05 now.
So what that would then spell is that you could see us potentially at the higher end of our EPS range.
But I would say this, we've seen these types of movements in the past, and so I want to continue to confirm our range because we don't know where the FX may go in even another month or 2 from now.
In my opinion, we've been very, very close on our estimates, at least in the last 3 years on this one.
So $0.10 estimate in February.
We're probably at about $0.05 today, but I am not 100% confident at what that rate will be for the year.
So I'd like to kind of keep the range there.
Yes, I think I was very pleased with many, if not most, of the businesses and the top line that they were able to achieve in the local currency measurements.
Yes, let me ---+ Steve loves this kind of stuff.
Let me turn this one over to him for a minute.
No, it's a good catch, <UNK>.
So there are 2 things going on in the ---+ on the receivable line.
You'll recall, we did that accounts receivable securitization.
I think right at the beginning of the fourth quarter last year.
So that removed about $40 million of receivables.
And so when you look at the comparisons for March of this year to March of last year, you do see them down, and a lot of it is that securitization that we did.
But I would also point out, you're right, we were better in collections and so our days ---+ even ex that item, our days improved a little bit.
But that's the main difference you see on the balance sheet.
Another thing you'll see in some of the other accounts, you'll see some of those came down and some of those are those assets that were held for sale that <UNK> talked about, the savory ingredient facility and the Natural Ingredients in Europe.
That removed about $30 million from the balance sheet as well.
Yes, so on the payables, I'll just turn to the balance sheet that you're looking at.
The main thing going on there is as some of our capital projects related to the restructuring wind down, we're essentially paying off some of those payables and not replenishing because the capital projects are finishing and not being replaced by others.
And then there are other accruals related to the restructuring that result in some of the liabilities coming down.
That's ---+ and again, as those activities wind down and that's interesting there.
Yes, and on kind of an annual basis, <UNK>, we had really good cash flow and free cash flow ---+ well, free cash flow and cash flow from operations in 2016.
I would expect to have a very good year in 2017 as well on that.
So whether we're talking about receivables and payables and inventory and now, obviously, an improvement in operating profit, I think each of these are going to spell very nice improvement cash flow from ops.
And then as CapEx continues to trend in the sort of the $60 million to a $70 million, as you'll know historically, that's a little bit lower than we've been, we would pick up some benefit on free cash flow to the business.
I think that's right, yes.
Okay.
That will conclude our call today.
Thank you all very much for your interest.
I hope we were able to address all your questions.
If not, as the moderator said, please feel free to give us a call after the call concludes.
Thank you.
Okay.
Thank you.
| 2017_SXT |
2017 | ABM | ABM
#Yes, no problem, <UNK>.
So from an organizational standpoint, we completed the 2020 organizational realignment last year, so we're now benefiting from the full run rate of the organization.
And as we look at each quarter going forward, obviously it's going to be less and less that impact because we took some of the actions middle of last year, so Q1 is benefiting from a year-over-year quite significantly, and that will tail off as we progress through the year.
So we're still aligned; there might be some timing issues in terms of where we're capturing those savings on the year-over-year basis, but we are aligned with the guidance range as we laid out at the end of the year, which was effectively $8 million to $10 million in the first half, and $10 million to $12 million in the second half.
The second half is really going to be critical as we ramp up our procurement efforts and some of the standard operating procedures that <UNK> spoke to in his prepared remarks, those are really back-half loaded.
So that's something that we're keenly focused on implementing early on, so we can capture those savings in the second half.
Yes, and I would just want to reiterate, it's early on, right.
We just closed out the first quarter, everything is on plan and on our expectation.
And the one thing I think you see that this Management team is committed to is not getting ahead of ourselves.
We don't want to overpromise and under-deliver, so we feel really good about where we are right now, and again, pleased with how we are starting but we're not ready to raise guidance just yet.
Sure, so the finalization of the actual settlement hasn't yet been approved by the court, but we expect the capital impact to occur in late Q2 and Q4.
And then the tax deductibility to lag a little bit because, ultimately, how we're going to submit to our tax and the actual payment, there's a little bit of a lag.
So the net cash outflow is roughly $70 million on an after-tax basis.
But again, there's going to be timing differences associated when we actually settle it with plaintiff and the class, and then when we recognize the benefit from a tax perspective.
So a little hard to quantify per quarter what the net is going to be, but effectively over the long term it's a $70 million outflow.
So, within B&I, and I believe you're referring to parking, so within B&I parking, that is typically our ---+ more of our lock base business, so it will have more proportional lease versus managed.
Because the Aviation parking, that's more of a managed or a fixed-cost type of contract.
So B&I will have more volatility as it relates to the parking segment or service line within the overall B&I portfolio as it relates to parking.
So we haven't seen a dramatic shift between one to the other.
I think it's consistent with where we've operated lease versus parking in fiscal 2016, and we expect that proportion to continue going forward.
Yes, so, and we don't look at service line anymore, so we don't look at janitorial specifically.
We are looking at how we are going to sell within the industry group.
And I think that's going to be the key because each of our industry groups have put together their targets, and they're just more focused than they've ever been.
So, like in the education market, rather than looking at all 50 states, we may be focusing on just a handful of states, 10 to 12 states where we know we have some density already, we have a tremendous resume.
Again, it's more of a strategic look.
So I think when you think about emerging industries, we talked about the fact that it could grow at possibly double the rate of some of the other industry groups, and I think that's because we have a unique expertise.
You think about high tech; we're in just about every firm in Silicon Valley and Austin and all the hot spots.
So we think with that density and with the focus now in those particular areas, we will see oversized growth as compared to historic.
You bet.
Good morning.
Sure.
So, tags were in line with our expectation on a relatively difficult comp year over year.
And as you can imagine, Q1 of our fiscal year as it relates to tags can be highly influenced by weather, specifically snow removal and the markets that get impacted.
So from a year-over-year perspective, we had a pretty mild winter compared to last year, so we were in line with our expectation, and slightly up year over year.
So we were able to overcome that difficult comp with, again, laser focus on tags.
That continues the trend and the momentum that we saw the latter half of last year, in terms of our operators really focusing on tags and really penetrating that.
So we're very pleased with the year-over-year, and we continue to think that that's going to be a focus area for us going forward.
Yes, and I think especially, you know how focused we are on margins.
And tags, they perform at a much higher margin rate, so when you think about a project manager on site and what they are thinking about day to day, outside of making sure the customer is happy and managing your labor well, they're thinking about how do we sell tag work, because we know it's more profitable.
So it continues to be a major focus for the firm.
Yes, so from an organizational standpoint, we continue to benefit from some overhead opportunities within both on a corporate level, and that would be primarily HR and IT related.
And as <UNK> alluded to, we're just kicking off a project with Salesforce, so our excitement around what that can do for the business to operationalize a lot of the standard operating procedures and customer facing, that's a lot of emphasis within the Company.
In addition, we do also have a big emphasis on building out our sales team, specifically within the Technical Solutions business, but also looking at, as these industry groups have their strategic priorities and go-to-market strategies, where there's pockets of additional salespeople to help support that growth, we're still looking at opportunities to fill those roles.
Sure, I could take that.
So again, it's early on, right.
So it's just been a few months in this format, which we would say is solution selling, right.
Because prior to this, we were selling by service line, right.
And now we're going into clients and saying we could do more services, we can do more things, we're thinking about you as a client.
And that doesn't happen overnight and that doesn't happen just because you put yourself in a new structure.
You really have to be prescriptive about that.
And one of the things we've done to help on that is we formed what we're calling our center of excellence.
And within that center of excellence, we have a whole sales initiative which really, for our sales teams in our industry groups, gives them a format on structure on how to sell.
We're using salesforce as our sales platform, and monitoring how we're looking at our pipeline, how we are looking at our responses, so it takes a while.
It's a longer journey culturally to start thinking about clients not by service but by solution.
But I'm really excited about the progress we made and some of the things that are being rolled out across the industry groups in terms of how we're going to get traction, again, getting that extra value with our clients because they think we are thinking about them holistically rather than just being a service provider.
So it's a protracted basis, but we're on track for what our expectations were internally.
Yes, so we haven't seen a real impact in a negative way in the macro environment.
I think, again, we look industry group by industry group.
And one of the areas, our healthcare group, right now is, with everything that's going on with the Affordable Care Act, it makes our healthcare clients take a little bit of a pause.
Because whenever you have something kind of foundational happen within an industry, before people will make bigger decisions, they want to see how it's going to affect them.
So, picture a hospital system thinking about how they're going to move forward with their service levels, their facilities, you may want to pause a little bit right now, right, and see how this is all going to flesh out over the next few months.
So it hasn't hurt us yet, but again, it's, for us, industry by industry.
In terms of the big macro environment, we've not seen any effects yet.
Thanks, everyone.
Thanks for participating and asking those questions.
We are excited that you're interested and engaged in what we're doing.
And just want to remind you, we've shaped up our vision of the future, which is to be the clear choice in the industries that we are serving, through our people, through engaged people, and that is the vision of ABM.
And we know clearly how we are going to get there.
We're going to get there by making a difference every day, every person.
And it's an exciting time at ABM, and we're just all energized on performing.
We are thrilled that we're off to a good start for this year, and everyone's rallying around making this our best year ever.
So, thank you.
| 2017_ABM |
2015 | CTXS | CTXS
#Sure.
At a high level, the role of the committee is around operations and capital.
And really, what that means is working closely with management on the next phase of our growth and evolution.
I think we're all very much aligned in terms of opportunities to grow efficiencies, to grow shareholder value and we will be working on the best way to do that.
I think it is really that simple.
Sure.
I think the biggest reason is that we are seeing incrementally better progress over the last several quarters.
We are moving in the right direction on a number of these things.
And then, the primary headwinds that we have called out, whether it is ByteMobile or the Cloud service providers or others, should abate as we look into the second half.
The answer is both.
To this point, it is been very much an install base play where we have very close relationships with customers around the conversation that occurs around app and data delivery.
So it is a very natural incremental and adjacent conversation to have with them.
In terms of new customers and while we have a huge base, they are still many, many new customers that are out there for us.
We see that on the Mobile side, the primary vector there is through the Workspace Cloud and making the XenMobile capabilities available through Workspace Cloud through our partners that really specialize in the small and mid-market segments.
So that would be where we would see incremental opportunity going forward especially as Workspace Cloud really reduces the technical skills required to stand up a full workspace environment that includes the ability to deliver Windows apps and desktops, Linux apps and desktops, mobile apps and all the data that goes with them as well.
That's where we see potential green field for the business going forward.
Thanks for the question and the kind comment.
There is no timeline, as you know, on these kinds of processes.
You cannot define them by time.
They have to be defined by outcome and a successful outcome, finding the right successor.
The committee is just getting started and we are talking about, I'm not on the committee, but talking about what the profile might be, et cetera.
In the meantime, while I appreciate everyone's remarks and congratulations, I can promise you I am intensely passionate about what we are doing and driving forward, whatever time that takes, because I want the Board to have plenty of time.
I think one of the things that I learned from the last search is that the amount of time that it took and I ended up obviously retaining my role.
But it does show that succession is a tough and difficult process that you have to be very thoughtful about and we do not have any time constraints on it.
<UNK>, I agree with you.
I think that we're obviously focused on growing the business and a lot of the headwinds that have prevented that in the last four or five quarters are things we are working to move away.
So I'm happy with that progress.
In terms of the overall contracts, we have seen a bit more of a shift towards longer term arrangements.
It is not tremendous but I called that out in deferred revenue.
We've seen this for a few quarters now and all the growth in long-term deferred revenue is simply related to customers that want to engage in multiple years of license updates or maintenance contracts or in some cases, term licenses.
We will manage the whole subscription evolution with Citrix Workspace Cloud, et cetera, towards more of a consumption but at this point, we really believe those are addressing net new markets more than a transition market.
That's certainly the way to think about it in the short-term.
Not rapidly.
Yes.
I think <UNK> can give you some data.
But clearly, relative to Q1, closing large deals was much simpler and more straightforward than in Q1 in the midst of the restructuring.
We've seen a lot of settling down in the sales in the field organization.
As a reminder, in Q2 we still had some of that restructuring work going on in certain countries that require up to three or more months of notice.
So we are delighted with the strategic end of the business that is the seven and above figure deals that we were able to close.
<UNK> specifically, when we talk about that, it is referring to the larger transactions.
Not across the entire board, but of the large transactions, the average transaction size increased between 5% and 10% year on year and north of 40% sequentially.
I think it is a difficult one to forecast exactly the timing of the transactions because they are predicated on a handful of extremely large companies doing data center buildouts and largely related to new services that they are rolling out.
And so, it does track that fairly closely.
The strategy of our business has been to continue to expand largely the Enterprise and that's the area that continues to grow.
And so, the volatility of this becomes less and less overall.
We work very closely with these partners to make sure we understand their requirements.
In a some cases putting together unique capabilities as required and that helps us stay out in front of the road map.
Sure, <UNK>.
I think it is both.
It is obviously we'll engage with customers if there's opportunities to take an existing customer and migrate them to a more holistic solution that includes mobile and data and some things like that will obviously drive that.
But as you would imagine, a lot of the focus is on addressing net new customers or what would be net new seats and opportunities inside of existing customers.
It is got to be both.
We haven't really broken that out since we're of the annual look that we do on our Analyst Day.
But in general last time, it was in the mid 70%s.
NetScaler is down year on year for the reasons that we referenced earlier, largely driven by the SSP segment.
I'm sorry, we call it service provider segment and the Enterprise segment grew.
That's the way to think about NetScaler.
No, we actually haven't broken that out in the past.
We will have to hold that until we get further into the process.
Again, we haven't broken that out in the past and so, I would just caution you to wait until we get further down in the process.
I think at Synergy we talked about GoToMeeting in the context of being one of our product lines.
It is not actually a bundled into for example XenMobile.
ShareFile is part of XenMobile.
We are very proud of GoToMeeting and what we have done to build that brand and that business.
And I think that what we have seen is that in that marketplace on the Enterprise side, it is really a marketplace that has dominated by Microsoft with Lync and Skype for business and certainly Cisco has some products in that area.
We feel that GoToMeeting has its core and its strength in SMB markets and premium SMB markets and verticals which is really not very synergistic with our Enterprise delivery infrastructure business.
So our perspective has changed on it as we look at where we should be investing more and less.
And as we have said on the prepared comments, we think that the potential for value creation with the GoTo family can be greater if it is operated without the constraints of an Enterprise software business model.
SaaS-based models like especially in the GoTo area will operate at half of the operating margin that we need as an Enterprise software Company.
That constrains that kind of business at a time when it needs investment and to drive growth in what is a very competitive market.
So that's our thinking on it and why we are looking at the strategic alternatives.
<UNK>.
Operator, I think we have time for one more question.
Thank you, <UNK>.
Okay, looks like we are at the top of the hour so I would really like to thank everyone for joining us today and we look forward to speaking with you again in three months.
Thank you, everyone for the very kind words of support and confidence in us as we continue to transform the Company, write the third chapter of Citrix and write it around our core competencies and assets in a culture that sets us apart.
Thank you very much.
| 2015_CTXS |
2015 | SCVL | SCVL
#Thank you.
I appreciate your listening in today and we look forward to talking to you about our third quarter results in November.
Thank you.
| 2015_SCVL |
2018 | ALOG | ALOG
#Thank you, <UNK>.
Following a respectable Q1 performance to start our fiscal 2018, Q2 delivered another gratifying quarter.
Three of our business segments expanded and delivered at or above our expectations.
Ultrasound, Security and Motion Controls are ensconced in this position and are establishing themselves as legitimate growth opportunities.
In the case of Ultrasound, the growth is occurring despite some historical drag from businesses we exited or reduced in the restructuring of 2017.
In other categories facing near-term market challenges, i.
e.
CT and MR and medical side, our revenues still met our expectation.
In between this stratification is our Montr\u0102\u0160al operation, which remains a productive, stable business.
All in all, Q2 was gratifying.
On behalf of shareholders and our Board of Directors, I recognize and I thank our employees for the Q2 results.
At half time in our fiscal year, the momentum is evident somewhat in the revenue column, and clearly in the earnings column.
Specific to some milestone achievements, we have delivered prototypes in our Security business, both the TSA under the previously announced contract with American Airlines, and Rapid Scan primarily for the O.
U.S. carry-on markets.
In Ultrasound, the improvements are broad based across products and geographies.
As the strategic alternative process matures, we have elected to not provide guidance for the balance of fiscal 2018, neither will we be taking questions at the conclusion of our remarks.
Realizing this is not standard course, we will not take your patience for granted.
I now turn the microphone of over CFO, Mike <UNK>, who will provide details on our financial performance for Q2 and year-to-date, after which our remarks are concluded.
Thank you, <UNK>, and good evening everyone.
Please turn to Slide 5 in our financial highlights for the second quarter of fiscal 2018.
Revenues in the second quarter were $129 million, down 2% compared to Q2 of last year, but better-than-expected in all 3 of our business segments.
I will walk you through our segment performance a bit later.
GAAP operating margin at 12% was 5 points higher than Q2 of 2017 through the effectiveness of our expense reduction efforts taken during last year and also due to onetime events in Q2 of 2017 related to our Oncura Vet business, including $10.4 million of asset impairment charges and an $8.2 million contingent gain.
Similarly, non-GAAP operating margin of 15% was about 2.5 points higher than Q2 of 2017 and our reduced operating expenses.
GAAP EPS is $0.52 per share, down $0.07 per share due to a onetime tax expense in Q2 of this year as a result of the Tax Cuts and Jobs Act, which was a $0.51 per share impact on our GAAP EPS.
Excluding this onetime tax expense and an $0.11 per share charge related to the Oncura Vet business in Q2 of '17 that I mentioned earlier, GAAP EPS would have been up $0.33 per share compared to the same quarter last year, primarily resulting from our operating expense improvement.
Non-GAAP EPS was $1.27 per share, up $0.28 per share compared to Q2 of 2017, again driven by our improved cost structure in 2018.
Please turn to Slide 6 for our second quarter financial results.
As I mentioned, revenue was down 2% in the quarter, about $2.5 million lower than Q2 of fiscal year 2017.
I will provide some color on that a bit later.
Our GAAP operating expenses decreased by about $7 million in Q2 of '18 versus Q2 of '17.
This includes the asset impairment charge of $10.4 million and the $8.2 million of contingent gain in Q2 of fiscal year '17 related to Oncura.
Excluding these onetime items, GAAP operating expenses were down close to $5 million in Q2 of this year compared to Q2 of 2017.
Non-GAAP operating expenses were also significantly lower in Q2 of '18 compared to the prior year, decreasing by close to $4 million, a 9% reduction, again as a result of our improved cost structure.
Similar to our performance in the first quarter of this year, we generated close to $3 million of incremental non-GAAP operating income even with the $2.5 million drop in revenue as compared to Q2 of 2017.
In the tax area, you will see our GAAP effective tax rate for the quarter is at 60.7%.
This higher GAAP tax rate was driven by a $6.5 million onetime transition tax we incurred in Q2 of this year as a result of the Tax Cuts and Jobs Act.
We expect our non-GAAP tax rate to be in the low to mid-20s for the full fiscal year of 2018.
Please turn to Slide 7 and our operating performance by segment.
Our Medical Imaging revenues totaled $63 million, down 12% compared to the second quarter of 2017 but better-than-expected.
The primary driver of the decrease relates to the sourcing decisions by CT OEM customers which was expected.
We also experienced lower revenue in MR that was offset by another strong quarter in Motion.
Non-GAAP operating margin for Medical Imaging was down about 5 points compared to the second quarter of last year on the lower CT revenue impact and slightly higher operating expenses.
In Ultrasound, our revenues were $44 million, an increase of 8% for the quarter over last year, and our core Ultrasound business was again up mid-teens on a quarterly comparison to the prior year.
Continued growth in North America and in Europe were key drivers to another strong quarter for the Ultrasound business.
Non-GAAP operating margin for margin for Ultrasound at 13% was up 15 points as compared to the second quarter of 2017 and the higher revenue mix and much lower operating cost.
Our Security and Detection revenues totaled $22 million, up 18% in the second quarter compared to the same quarter of last year, primarily driven by the timing of our airport check baggage screening systems, and to a lesser degree, impacted by a onetime payment, a recovery from a customer of our Rapid DNA systems of about $1 million.
Non-GAAP operating margin in Security and Detection was up about 5 points, with the primary driver about 4 points being the dropdown of the $1 million recovery payment.
I will move on to Slide 8 and our year-to-date results.
Revenue was down about $17 million on a year-to-date basis.
However, generating about a 1-point revenue gross margin in fiscal year 2018 compared to the prior year.
Excluding the onetime charges in 2017 that I noted earlier, GAAP and non-GAAP operating expenses are down about $13 million as a result of our improved cost structure.
You may recall that as we entered fiscal year 2018, we expected to achieve cost savings of about $24 million for the year as compared to fiscal year 2017 as a result of our initiatives, so we are on target for these savings through the first half of this year.
Our year-to-date GAAP effective tax rate of 50.8% for the first half of 2018 again reflects the $6.5 million transition tax expense taken in Q2 of this year, which was a $0.51 per share impact on GAAP EPS on a year-to-date basis.
Non-GAAP EPS at $2.01 per share is up $0.60 per share on a year-to-date basis on our improved profitability for the first half of the year as compared to the first half of fiscal year 2017.
Please turn now to Slide 9.
We generated $21 million in operating cash flows for the quarter, and from a capital allocation standpoint, we spent about $1 million in capital expenditures.
Our cash and investment balance is $202 million as of the end of Q2 of this fiscal year.
That concludes our remarks.
As <UNK> noted earlier, we realize that this is not the standard course.
We thank you for your patience, and we thank you for your interest in Analogic.
| 2018_ALOG |
2018 | MSCC | MSCC
#Okay.
Thank you, <UNK>.
I'd like to start off with some key takeaways for today.
And then I'll hand it over to <UNK> to discuss the financial details.
First, bookings and outlook remained strong for 2018.
We performed well in our seasonal first quarter and expect continued success as we benefit from ramping data center markets, an improving aerospace defense environment led by another strong year in satellite, a continuing contribution from our industrial end markets and a constructive outlook for the late year return in the bottomed out communications market.
Second takeaway.
We are focused on execution.
With favorable tailwinds in 2018, we are diligently executing our plan, growing market share, driving organic growth and delivering industry-leading profitability.
Our third takeaway.
We are making excellent progress towards our operating margin target.
We came in ahead of plan in OpEx savings.
We're on a clear path to exceed our long-term operating margin target of 35%.
In Q1, operating margins reached 32.2%, up 170 basis points from Q1 a year ago.
As results of revenue growth and improved operating efficiencies, revenue growth and improved margins on those revenues will drive increasing free cash flow generation, which we plan to use for acquisitions, delevering and share buybacks.
Lastly, this is our Q1 earnings call for fiscal 2018 and will be our sole topic of discussion.
With that, I'm going to turn the floor to <UNK> to discuss the financial results.
<UNK>.
Thank you, Jim.
In the first quarter of 2018, we reported net sales of $468.7 million, up 7.6% from the $435.5 million we reported in the first quarter of 2017.
Our recent Vectron acquisition contributed approximately $8.5 million in net sales to the quarter.
Excluding Vectron, year-over-year net sales increased 5.6%.
For the first quarter of 2018, we reported GAAP gross margins of 61.6% and non-GAAP gross margins of 63.2%.
GAAP gross margin is inclusive of the effect of inventory charges related to the closure of a nonstrategic operation and noncash purchase accounting charges from our acquisition.
Next quarter, we expect our non-GAAP gross margins to be between 61.6% and 62.8%, reflecting a full quarter of lower margin Vectron contribution at the outset and a lower core Microsemi mix.
Our forecast reflects strengthening broadband gateway and semi cap revenues, which are our lower margin products, coupled with a seasonally lighter pattern for our data center products, which are our higher gross margins products.
We expect gross margin improvement in subsequent quarters, driven primarily by stronger data center and aerospace and defense mix.
Margin improvement and earnings accretion over the next year from the Vectron acquisition will be more back-end loaded as it involves the consolidation of an overseas fabrication facility.
GAAP operating margin for the first quarter of 2018 was 12.7%.
Included in GAAP operating results were amortization of intangible assets of $50.3 million and stock-based compensation of $25.6 million.
We forecast stock comp to be approximately $26.3 million next quarter.
Related to income tax, on December 22, the Tax Cuts and Job Act legislation was enacted into law.
This new tax legislation contains several changes that will impact the company, including the permanent reduction of the U.S. federal corporate tax from 35% to 21%, effective January 1, 2018, as well as a onetime U.S. transition tax on earnings of certain foreign subsidiaries that were previously tax deferred.
After evaluating the impact of the tax law ---+ tax legislation on our overall GAAP and non-GAAP effective tax rates, we do not expect our non-GAAP rate of 7.5% to adversely change in fiscal 2018.
The tax legislation also includes changes that will not be effective for Microsemi until our fiscal year 2019, including new taxes on certain foreign-sourced earnings at a combined effective rate of 10.5%.
In fiscal year 2019, we expect our non-GAAP rate to increase in the range of 200 to 300 basis points.
In fiscal year 2018, we expect our cash taxes paid to be in the range of between $10 million and $14 million, inclusive of the aforementioned transition tax and higher projected income.
GAAP net income for the first quarter of 2018 was $47.9 million or $0.40 per diluted share, up $0.23 from $0.17 in the first quarter of 2017.
Non-GAAP selling, general and administrative expense was $56.5 million or 12.1% of sales compared to $61.4 million or 14.1% for the first quarter of 2017, and $58.9 million or 12.4% of sales for the fourth quarter of 2017.
We expect, in the second quarter of 2018, that SG&A will increase by $1.3 million to $2.3 million due to a full quarter of expense from Vectron.
Non-GAAP research and development expense was $89 million or 19% of sales compared to $82.3 million or 18.9% for the first quarter of 2017, and $87.3 million or 18.4% of sales for the fourth quarter of 2017.
We expect R&D expense for the second quarter to increase from $3.5 million to $7.5 million, primarily due to a full quarter of expense from Vectron and key product [takeouts].
Non-GAAP operating income and operating margin for the first quarter of 2018 were $150.8 million and 32.2%, respectively.
This is inclusive of a partial quarter of expense related to Vectron.
This compares to operating income margin of $132.7 million or 30.5% for the first quarter of 2017, and $160 million or 33.7% for the fourth quarter of 2017.
Our non-GAAP operating margin has improved 170 basis points in our year-over-year first quarter results.
For the first quarter of 2018, we recorded $20.9 million in non-GAAP interest and other expense and expect non-GAAP interest and other expense in the second quarter of approximately $22 million due to acquisition-related borrowing and a 25 basis point increase in LIBOR, whose effect was partially offset by the Term Loan B repricing we completed in the first quarter that reduced TLB interest by 25 basis points.
Non-GAAP net income for the first quarter of 2018 was $120.1 million or $1.01 per diluted share.
Our diluted share count for the first quarter of 2018 was 118.9 million, and we expect share count of 119.6 million for the second quarter of 2018.
For the first quarter of 2018, depreciation expense was $13.8 million, and amortization expense was $15.2 million.
We expect amortization expense to decrease approximately $8 million in the second quarter of 2018.
As you may recall in the first quarter of 2018, we recorded $7 million in incremental amortization expense due to the write-off of an in-process research and development intangible related to the PMC acquisition.
EBITDA for the first quarter of 2018 was $163.5 million or 34.9% of revenue.
EBITDA increased $20.2 million or 14.1% from the $143 million reported in the first quarter of 2017.
At the end of the first quarter of 2018, accounts receivable were $276 million, with a DSO of 49 days.
Inventories were $270.7 million and a days of inventory of 123 days.
Cash used for capital spending was $9.9 million in the first quarter of 2018 compared to $10.6 million in the prior year first quarter and $17.6 million in the fourth quarter of 2017.
Next quarter, we expect CapEx to be approximately $20 million.
We are forecasting our fiscal year 2018 capital spending to be $85 million.
We generated operating cash flow for the first quarter of $65.3 million.
Free cash flow was $55.4 million.
These amounts reflect payments for acquisition-related restructuring and severance costs of approximately $7.6 million.
We ended the first quarter with a debt balance of $1.94 billion at a blended interest rate of 4.0%.
We increased debt by $130 million for the purchase of Vectron, which was offset by a subsequent debt repayment of $20.2 million during the first quarter.
At quarter end, our net leverage was 2.7:1.
This week, we further reduced our debt balance by an incremental $20 million.
Our best estimate of the end market percentage breakout of net sales for the first quarter was approximately: aerospace and defense, 27%; communications, 35%; data center, 22%; and industrial, 16%.
Now for our business outlook.
Microsemi currently expects net sales in the second quarter of fiscal year 2018 of between $477 million and $502 million and expects non-GAAP diluted earnings per share of between $0.93 and $1.07.
With that, I will turn the call over to <UNK>.
Yes.
Certainly, we're not going to break out exactly what costs we're going to be taking out.
But it is delayed, or I should say it is a few quarters from now.
And so it will kind of weigh on the gross margins as we move forward, as we described in our prepared remarks.
Okay.
I'm going to start with the last one first.
As far ---+ concerning the Broadcom FTC investigation.
We ---+ I'm not going to comment on an ongoing investigation other than the fact that it's quite obvious that if some companies can't compete on features and performance, they will rely on other tactics.
And I, for one, welcome the FTC investigation.
Second, satellite, then I'll turn the other one over to you, the geopolitical, to you <UNK>.
Satellite really is a driver.
It's extremely strong.
We have a stronger backlog that we've ever had.
Started back in September quarter and continues to gain momentum.
And just as a reminder, it's one of our highest-margin products and longer lead time products.
So it helps give us extreme confidence in our backlog.
<UNK>, you want to go geopolitical.
Sure.
And as it relates to space, I'm assuming that's what, <UNK>, you were referring to.
It's ---+ I think last quarter, we said 3 of the previous 4 quarters were positive book-to-bills.
This is atypical for space.
Usually, it's all booked in 1 quarter.
It's now 4 of 5 quarters where we have positive book-to-bill.
And one quarter that was not was really just right at 1 to 1 or just under.
So we're definitely seeing, I'll say, increased activity in space, and a lot of this is more government-driven.
It is viewed as a frontier, one, for offensive means, but certainly defensive means.
And there are some definitely some well-known exploits that can happen with respect to GPS.
A few other things, and there's a lot of activity that's happening to go mitigate and defend against some of those threats.
So certainly, North Korea is certainly adding fuel to that fire, if you will.
And so I think we're going to see a nice positive trend in space in particular for the next couple of years.
Thank you, <UNK>.
Yes.
It's pretty easy to explain.
If you think about it, so early adopters are mainly high-performance computing focused.
And so if you look at those compute notes, there's a nice little uptake that's happening there.
On the storage side, which is where we would typically benefit, I think that the cost benefit, maybe that analysis has been delayed a little bit given some of the other distraction and activities that we've had.
But don't anticipate that that's going to last too long.
And so it's definitely going to happen, and we anticipate it happening in the second half.
Yes, certainly.
Across the whole balance sheet, we have the additive impact of the Vectron being added in.
That would include receivables, inventory, et cetera.
In terms of their turns, we do believe we will be able to aggressively address that and get their turns down over time.
You'll notice, though, as the combined days of inventory, we actually improved from last quarter, I believe it was 7 days.
Thank you, <UNK>.
Yes.
That's a good question.
So we're definitely seeing the broadband gateway business pick up considerably.
We're seeing other parts.
There's good activity going on.
And last quarter, we talked about the RFP process happening in China more from an infrastructure standpoint, which will be some of that high-margin business pickup for us.
That activity is moving along nicely.
And It's going to pan out here in the second half of the year.
Hey, Charlie, the word <UNK> told me is that the outlook is dramatically improving.
Just to give you a little <UNK> <UNK> color.
Okay.
Let me just jump in the front.
Vectron, if you dial in another about $20 million, you won't be far off.
Defense, we're seeing strengthening in defense.
And the 10% hike is still yet to come.
Our early mention, we mentioned it last quarter, was the strength of foreign military sales.
That's pretty much an accelerator.
And the real reminder to everybody is our content growth in the defense space.
Even during the mighty sequestration, we invested heavily in FPGAs and clocks and ICs across-the-board and worked with the end customers.
And we historically had mid-single-digit growth with defense.
But as this hike starts to come to play and the foreign military sales increase, I see it more towards the high end of our 6% to 8% growth, maybe even a little stronger.
Yes.
So if we look at timing, there's definitely ---+ if I watch [what] some of the newer devices that are planned for ---+ that enable those high-speed applications, we're actually supply-constrained on those.
If you look at the whole business, we were seeing ---+ of silicone timing in particular, we're seeing a nice little uptick in clock management.
If I look at kind of the backhaul, mid-haul sector, if I try to narrow down the network on that, there's a lot of activity.
But we're seeing some schedules being put in place, but it hasn't quite translated or it's not going to quite translate in the March quarter.
But we're definitely seeing it tee up for the second half.
Yes, certainly, <UNK>.
What our goal ---+ and we talked about it in the prepared remarks is we're on our path to the 35% operating income.
So by definition, as a percentage of revenue, you're going to be seeing OpEx come down.
That may include certain quarters where it nominally will increase in order to support the business, but we're driving to the 35%.
Yes.
Just to [be sure].
Thanks for joining and have a great day.
| 2018_MSCC |
2016 | GEO | GEO
#We only talk about the ones that are in the public domain, obviously.
The one I can talk about is the Ohio opportunity, and that procurement process has yet started for a single facility.
But we believe there will be other opportunities around the country similar to that.
I think so.
I think the trend line for us and our industry is more ownership opportunities.
That's what <UNK> just expressed moments ago about what our growth was last year.
And I think the ownership business model will continue to grow and we'll probably see less of the managed-only facilities.
And, in part, I think that's going to be attributable to the aging of the governmental sector facilities, which are 50, 60, 70, 80 years old and will need to be replaced.
And the private sector has the ability to provide the financing for those facilities and obviously provide the operation, as well as the financing and development of those facilities.
So, I think the turnkey package will play very favorably as states consider how to use their scarce resources.
The decision is too often one in which they have to decide between corrections and the educational system as to where to put their capital resources.
And I think the private sector provides them with an opportunity to place most of their capital resources in the educational sector and deferring to the private sector to provide the development, financing and operation of correctional facilities in the future.
Yes, it is.
As I think <UNK> said, last year we were at approximately 24,000 people under that monitoring program and today we're at 44,000 and project it to go possibly to the upper limit of 57,000.
In 2017 it's probably about the same as 2016, so another $275 million to $300 million.
And it should complete, for the most part, in 2017 because the facility opens, I think, in the fall of 2017.
So it might be a little less but I would say $240 million to $275 million.
I think at the state level, California probably is in the headlines more so than any other state with regard to possible sentencing reform.
I think they're still trying to formulate what it is that they want to do because they've already sent about 30,000 Level 1 offenders to the counties, and the counties are fairly full at this time.
At the federal level, the BOP recently released, I think, several thousands inmates, approximately 6,000 and may release approximately the same number over a two- or three-year period.
So, these reforms are going on but they are fairly modest and they don't seem to have impacted us in any meaningful way.
The BOP in particular, we received our pro rata reduction, but increasingly the BOP contracts are fixed price and they are not subject to census sensitivity because of that.
<UNK>, we don't disclose the revenue related to that facility.
We don't typically disclose what the occupancy or what the EBITDA level is of our individual contracts.
We've provided the revenue, I think is about $50 million on an annualized basis.
We believe this program has been very critical to the current Democratic Administration, and will be supported by a Republican Administration.
So, there is bipartisan support of this program because it kind of means if you eliminated that program, anybody who comes across the border as a family is okay to stay.
And I think there's very little support for that concept.
No.
We're comfortable, as we said, historically running between 4.5, 5 times leverage.
And I think for the quarter we'll end up with about 4.8 or 4.9.
We'll continue to monitor the markets.
There is still good demand for our notes and our debt so, as the time is appropriate, if we need to, we will go and consider taking out the existing notes that are called this February, the ones that are at 6-5/8% coupon.
So, it would just be a matter of monitoring the market and our capital needs and moving accordingly based on that.
Thank you for your questions and we look forward to addressing you on our next conference call.
| 2016_GEO |
2018 | COLB | COLB
#Thank you, Charlotte.
Good afternoon, everyone, and thank you for joining us on today's call as we review our fourth quarter 2017 results, which we released before the market opened this morning.
The release is available on our website, columbiabank.com.
We achieved record net income of $112.8 million for full year 2017.
It was a challenging year, and we're pleased with the outcome.
During the fourth quarter, we reported net income of $15.7 million, which includes the expenses related to Pacific Continental acquisition and the deferred tax asset remeasurement charge following the passage of tax reform legislation.
<UNK> will provide more color regarding this adjustment in his comments.
On November 1, we closed our acquisition of Pacific Continental Bank and are delighted to have the talented bankers of Pacific Continental join our team.
Integrating Pacific Continental into our financial statements largely explains the significant changes in loans and deposits as of year-end.
Loans increased $1.9 billion to $8.4 billion and deposits are up $2.2 billion to $10.5 billion.
System conversion planning has been ongoing for some time and we're confident that we'll deliver a smooth transition for our new customers.
The system conversion date is set for March 12, 2018.
On the call with me today are <UNK> <UNK>, our Chief Financial Officer and Chief Operating Officer, who will provide details about our earnings performance; and Andy <UNK>, our Chief Credit Officer, who will review our loan activity and credit quality information.
I'll conclude by providing a brief update on business conditions.
Following our prepared comments, we'll be happy to answer your questions.
It's important that I remind you that we'll be making forward-looking statements today, which are subject to economic and other factors.
For a full discussion of the risks and uncertainties associated with the forward-looking statements, please refer to our securities filing and, in particular, our 2016 SEC Form 10-K.
At this point, I would like to turn the call over to <UNK> to talk about our financial performance.
Okay.
Thanks, <UNK>.
Loans increased $1.9 billion or 28.4% during the quarter due to the acquisition of Pacific Continental and $378 million in combined loan origination.
Offsetting this somewhat was a decline in revolving line utilization from 48.2% last quarter to 45.9% this quarter.
That equates to about an $87 million impact.
In addition, prepayment and payoff activity was $9 million higher in the fourth quarter as compared to the third quarter, which is about a $9 million impact.
New production for the fourth quarter was predominantly centered in C&I and commercial real estate and construction loans.
Term loans accounted for roughly $260 million of the total new production, while new lines represented $117 million.
The mix of new production remained granular in terms of size: 24% of new production was over $5 million, 28% was in the range of $1 million to $5 million, 48% was under $1 million.
In terms of geography, 47% of new production was generated in Washington, 36% in Oregon and 4% in Idaho.
C&I loans ended the quarter at $3.4 billion, up $642 million or 23.5% from the previous quarter and of course, that includes the Pacific Continental acquired loan.
New production was $151 million this quarter versus $115 million last quarter but was somewhat offset by higher prepayments in this portfolio.
Industry segments with the highest C&I loan growth in the quarter, including the acquired loans, were the dental book, professional services, health care and social services, construction, and of course, the ag, forest, and fish portfolio contracted about $31 million, representing the seasonal nature of that portfolio.
Commercial real estate loans ended the quarter at $3.8 billion, up $1 billion during the quarter or approximately 35.4%, again, including the acquired loans.
Property types where we saw the most growth was office, retail and manufacturing.
Commercial and multifamily construction loans ended the quarter at $372 million, up $158 million or 73.8% from the prior quarter.
And again, this includes the acquired loans.
Health care, warehouses, manufacturing and multifamily was where we saw growth.
On the credit side, the company had a provision for the allowance for loan and lease losses of $3.3 million as compared to a provision recovery of $648,000 in the prior quarter.
This included a provision of $4.1 million for the originated portfolio, $1.9 million for the Pacific Continental portfolio.
Offsetting these provisions were releases from the West Coast and Intermountain portfolios, which combined was $1.25 million, and a release of $1.5 million from the purchase credit impaired portfolio.
As of December 31, 2017, our allowance to total loans was lower at 0.91% as compared to 1.1% last quarter and 1.13% as of December 31, 2016.
This ratio, of course, is impacted by our acquisitions of West Coast, Intermountain and Pacific Continental as those loans were acquired at fair value.
Embedded in those valuations is approximately $36 million of discount.
Approximately $24.5 million is associated with the Pacific Continental portfolio.
For the quarter, nonperforming assets increased $35.5 million, with $19.1 million in nonperforming assets coming due to the Pacific Continental acquisition.
The increases were largely in the commercial portfolio and the commercial real estate portfolio.
The nonperforming assets to total asset ratio increased to 63 basis points, up from 45 basis points last quarter.
This increase is primarily due to one large maritime credit, so we describe it as situational rather than systemic.
In summary, it was an interesting quarter that provided some mixed results.
Past dues came in around 28 basis points.
NPAs were up a bit from 45 to 63 basis points.
However, our impaired asset-to-capital ratio remained steady at 20%, and we also enjoyed net recoveries for the quarter.
I will now turn the call back to <UNK>.
Thanks, Andy.
We expect the Northwest to continue growing faster than the national economy, but tight labor markets are creating headwinds.
The region continues to enjoy steady [immigration].
However, the cost and availability of housing is slowing the pace of growth in the labor pool relative to demand and putting upward pressure on wage rates.
Tight labor markets surfaced as the primary concern for Northwest business owners we surveyed during the fourth quarter.
Survey results also revealed that confidence about business conditions remained positive, yet business owners still remained uncommitted to large capital expenditures and expressed limited appetite for additional debt.
It'll be interesting to see how loan demand responds following tax reform.
We do expect tax bill will increase capital spending, not by a large amount in the short term, but continually over time.
The Northwest has a concentration of businesses that produce capital equipment and software for commercial applications.
So higher levels of capital spending will certainly increase economic activity in the region.
As pointed out earlier by <UNK>, tax reform will reduce our tax burden going forward.
We plan to use future tax savings to raise our minimum wage rate to $15 per hour and expand our employee training and development programs.
We believe the increased minimum wage will make an immediate positive impact on the financial well-being of our nonexempt employees, and expanding training programs will help prepare employees for future career opportunities.
We also intend to use allocated tax savings towards the accelerated implementation of new technologies that enhance our capacity to serve our customers.
Increased community support is part of our plan as well.
One component of this effort will be increasing the funding of the bank's nonprofit employee-direct giving program.
This program helps those in need in communities where we do business.
At this point, we expect roughly 65% to 70% of our tax burden to fall to the bottom line.
In closing, we're certainly pleased to be ranked 11th on the 2018 Forbes annual list of America's best banks.
Our fourth quarter dividend of $0.22 per common share will be paid on February 21 to shareholders of record as of the close of business on February 7.
This dividend constitutes a payout ratio of 96% for the quarter and a dividend yield of 1.95% based on the closing price of our stock on January 24.
This concludes our prepared comments this afternoon.
As a reminder, <UNK> <UNK> and Andy <UNK> are here with me to answer your questions.
Now, Charlotte, we'll open the call for questions.
Just a follow-up on the margin holding up well comment.
Just kind of ---+ if you can engage with that a little more color on the environment that you're assuming within that and maybe a little more detail on the margin.
Sure.
As we've talked in the past, there's a lot of different variables that play into what the margin's going to do.
If the yield curve is flat under our simulations, that's not as beneficial to us.
But when we look at where we were at from a stand-alone, pre-Pacific Continental point of view, we've done a pretty good job of talking about loans with floors, the repricing characteristics within our portfolio.
And what we've seen now that we've combined the 2 companies is that the ---+ our asset sensitivity is slightly less, but it's still very much asset sensitive in our view.
When we look at loans that are supported by floors ---+ in-the-money floors, on a combined basis, it's right at $900 million of in-the-money floors.
$458 million roughly, so about 51% of those will come off their floors in the next 25 basis points of rate movement.
That's, I guess, one of the factors that I'm looking at.
The wild card's what happens with deposits.
We're looking at our marketplace and it appears that so far people are remaining, I guess, diligent in their pricing and we're not seeing a shift in the market.
There's certain places where we'll see some pressure.
Our cost of funds did go from 5 basis points to 8 basis points during the quarter.
That's simply a product of bringing the Pacific Continental activity on and higher level of certain types of deposits that carry a little higher price, but that's certainly something that we had incorporated into our model and doesn't cause us any concern or causes to pause.
Okay.
So it sounds as if you're fairly positive ahead of PCBK, and it moderated a bit but still flat to up is kind of the expectation.
I would say ---+ I typically tend to ---+ if we went back to the transcripts over the years, I think that this is as positive as I've been on the margin the last couple of quarters.
And I would say that I haven't tempered my thoughts around the resiliency of the margin from where I was at a quarter or 2 quarters ago to where we're at now that we've closed the Pacific Continental deal.
Great.
And then just one on the credit side.
You mentioned the maritime credit ---+ the size of that or any other detail that you could offer.
I assume, that's a legacy credit.
Yes, it's a COLB credit that goes back many years.
A large portion of their operation, actually, while they're headquartered here in the Northwest, occurs down in the Gulf and contracts that they had associated with the oil industry finally came to maturity.
Obviously, the activity down there has not sustained itself, so they were unable to get new contracts.
Some of that was mitigated by hurricane relief actions, but the net result is that things are pretty tough down in the Gulf.
This is our only borrower with activity down there.
And unfortunately, it didn't go well.
It represents about $17 million of exposure to Columbia.
Okay.
And then if you look at the NPA total in general, and maybe this is more specific to the PCBK portfolio, but anything lumpy in there or more headed that's quicker for resolution, now that you've got your hands around it.
We still have the large ag credit from several quarters ago.
And I think that when you add that with the maritime credit, you're looking at a big chunk, almost 45% of our NPAs, give or take ---+ a little less than that, I guess.
And both of those are going to be long-term workout.
So we've got some smaller stuff that will resolve itself, but we don't have anything that will be immediately impactful.
Well, the growth rates that I think make sense to think about are mid-single digits.
Yes, it's ---+ the pipeline's down a little bit.
Part of it's ---+ we had a lot of relatively high production in the fourth quarter, $378 million of production.
About $30 million of that was accelerated based off of initial language in the tax reform package.
And so we had some private bond ---+ private activity bond issuers that were concerned that, that vehicle is not going to survive tax reform and proactively accelerated their borrowing needs.
So that pulled a little bit of the pipe from Q1 into year-end that was about $30 million.
It's ---+ I think our production folks do a really good job of building existing relationships and also going out and finding new ones.
And so, I guess, we're not concerned about their ability to do that.
We are seeing some increased competitive pressures and that certainly impacts totals.
We're seeing some of the large national banks continue to move down market, where they haven't been real aggressive before.
I think they're looking at small business as a way to augment some things that are churning in their consumer areas.
And then some of the large credit unions continue to move upmarket and do things we've never seen them do before, and with structures that, quite honestly, banks wouldn't do.
So that's creating some headwinds for us as well.
And that's why when you asked about our expectation and outlook, we're thinking mid-single digits as opposed to the high single digits.
Yes, let me ---+ we have a reconciliation in the back of the earnings release.
Yes, I think the biggest thing you're going to see there is the correction of our premium amortization that was about a little over $1.7 million.
And that stems from, if you think back to ---+ I believe it was 2014, when we changed how we calculate our prepayment fees and the amortization of premiums on our mortgage-backed securities, that that's our service provider that does the calculation for us.
They're off 1 decimal place when they created that algorithm back in 2014.
They caught us this quarter, notified us late in the quarter and we made that adjustment.
So I think that's what you're seeing as that nuance between the reported NIM and the operating NIM.
If we think about just the coupon, because it takes out all the ---+ all of the income noise and everything.
So if we're just looking at what we're writing it at for a note rate, the portfolio, I believe, was at 4.64% at quarter-end and our new production in the quarter was, I want to say, at 4.67%.
Let me find my report here.
So that's something that ---+ yes, the portfolio production during the quarter was, yes, 4.67%, the portfolio's at 4.64%.
So that's something that we've been swimming upstream against for several years during the low rate environment was to get the new origination rates above the portfolio rates.
And so I think that's a positive, and that's another reason, I guess, to tag on to Jeff's question as to why we're more optimistic about the resiliency of the NIM as well.
Matt, the conversion, it actually is in March.
Yes, so I wouldn't say that it's ---+ I mean, we feel really good about that.
We've implemented 60% of the saves.
The majority of that's in compensation.
That's also because that's where the majority of the estimates were ---+ or the saves were going to occur.
The timing, I don't know that we'll see a lot of reduction in that or implementation of new cost saves during the first quarter, maybe right at the very end given the mid-March timing conversion.
What we'll see is early second quarter, once we're beyond the conversion, we'll start winding down some of that activity and then we'll accelerate the rest of the cost saves.
And I would say, there might still be a few trailing in post second quarter, but by the end of the second quarter, we're going to have the vast majority of those in place.
Yes.
I ---+ it was probably ---+ the reason ---+ I'm hesitating for 2 reasons.
First, I'm trying to stall because somebody is doing construction on the outside of the building, and I'm not sure if you can hear that or not.
The second reason is, I'm thinking about where we implemented that ---+ or where we closed in the second month of the quarter and it was probably 15 to 30 days post-closing where we saw some of the initial cost saves come in.
So to your question, it would've been later in the quarter, most of them starting mid-November time frame.
I think that it continues to improve.
I think that's why I caged it with the short term.
In the past, I've just said, kind of, where I thought the range would be, because we kind of keep it fairly ---+ doesn't move a lot from one quarter to the next and the next.
But I do think that we'll continue to see some improvement once we get everything fully integrated and realize the additional cost savings.
Yes, I think ---+ I want to clarify that I think it's the opposite.
We expect 65% to 70% of the reduced tax burden will fall at the bottom line.
And about 30% to 35% of it will be utilized for the initiatives that have been mentioned.
And the reason we put the percentage in their is we don't give guidance in terms of earnings, but you all have your models and that will give you the opportunity to take where your current view is on our overall earnings and factor in what we think we're going to be able to have fall to the bottom line.
One thing to keep in mind ---+ I was just going to say, one thing to keep in mind as well is in July, the Durbin amendment will take effect and impact our interchange revenue.
That will start in February.
Yes, we'll have to have business plans for some of the technology, for example, and those will take time and so the expenses will drop in over time.
Well, the before tax amount on an annualized basis is $10 million.
Yes, just give me a sec.
It went from 48.2% to 45.9%.
And some of that is related to the seasonal nature of some of our businesses, like ag.
And then, we saw a contraction in the finance company book, specifically the mortgage warehouse lines that we do.
There just seemed to be a decrease in activity at the end of the year.
And then one of our larger clients raised a fair amount of capital in the public markets and used that money, and they're now redeploying that money in an acquisition.
So we expect some bounce back in the finance company activity in the first quarter.
Sure.
While we've continued to have a strong interest in M&A as part of our go-forward strategy, there's essentially going to be no change in our process for evaluating opportunities, starting first with compatible cultures and comparable risk appetites.
We prefer to stay in our existing footprint, but are prepared to consider new markets in the West, but that would be on an exception basis.
Again, we're looking for, primarily, end-market candidates that we can partner with and continue to deepen our presence here and grow.
Are you referring to the tax benefit that we're reallocating.
Okay.
We considered the savings overall to fall 30% to 35% of what the benefit will be and we approached it on the basis essentially of really trying to stay very compatible with the things that run through our culture, which is employees, customers, communities and the choices we made in that regard include the $15 minimum wage.
And as I mentioned, that goes into effect February.
On the technology side, we're looking at integrating our distribution channels and building out our digital capabilities, and we're upgrading a number of our products that we have particularly as it relates to online and mobile and with our corporate platform for treasury management.
So dollars are earmarked for projects that fall in that particular area.
And again, as I mentioned, the business cases need to be fully vetted before we make our selections, but we have the priorities established and are prepared to go forward.
And then with regard to our community-based giving, we've identified ---+ we've got a nonprofit employee-directed fund that will contribute to and allow our employees to make decisions on how they support communities that they're doing business in.
So the timing of that will be probably in the second quarter when some of that expense filters through on the community side, and it will be accelerating on the technology side probably in the third quarter.
Yes, that's been pretty stable.
We haven't seen widespread changes in our marketplace and we actively track deposit pricing and DDA attrition as ways to hone in on what's going on.
We're holding the course for now, but we're ready to respond if necessary.
We have dialogue with our large depositors on an ongoing basis.
We're prepared to make some situational adjustments if it makes sense.
We're also positioned with product that we can roll out for select customer groups rather than reprice entire customer segments.
So if deposits start to move, we think that we have some strategies on the shelf that we can execute.
But for the time being, we're not seeing widespread movement in deposit pricing.
You bet.
What we're doing on the CFO search is, we have a very disciplined process and we're committed to take the time required.
We're still in the search.
Both <UNK> and I feel very well supported by our team members who have stepped up to help us distribute the workload.
So we feel that we're well positioned to continue the search as we are.
And if you know of anybody, let me know.
Okay, thank you very much.
Good afternoon, everyone.
| 2018_COLB |
2015 | VSAT | VSAT
#<UNK>, just to clarify one of <UNK>'s questions there.
Let's go back to when we announced the settlement and one of the reasons why we took the settlement, took was to accelerate some of the R&D spending.
So the issue of the recurring royalty being in our EBITDA, one of the things we said was we're going to spend a large percentage of that on accelerated R&D to try to create value for that.
That's worth what we think more than what the settlement could have been in the future.
So I just wanted to clarify that.
Good point.
Thanks.
This is <UNK>, and I can probably scope that up to you.
If you look at the FY14 spend, we thought as we went into 2015 it was a little bit less.
Some of it pushed out into 2016.
So probably looking at FY14, maybe increasing it by 5% to 10% based on that might be a good range.
I think it's hard to say that here's how much that increase because of that, because you've got other things in the (inaudible).
So the idea, though, is that we accelerate this settlement and it would give us the ability to create more value for our shareholders by investing that money in R&D advances than to hang on it ---+ onto it right now.
We're not giving that out separately, you guys.
But they are doing really well and they definitely made a meaningful mark into the margins for the quarter.
I think I can give you directionally.
<UNK> talked about and I talked about in the context of the Government segment, the strong backlog base going into the year.
And we also talked about in 2015 that we had a year-over-year down-take in revenues but we had a really good margin improvement due to the service base growing.
If you take that in consideration of a growing backlog going into 2016, and I think that we'll see the Government, in the government space grow.
From Commercial EBITDA, just as <UNK> and I both ---+ and <UNK> touched on, is that's the segment that we make the investments in.
So as well as add onto that the down-take in NBN as we start to wrap that up.
We'll see a little bit, I think, of year-over-year transitionary in that segment.
And then the Satellite Services is just going to continue to grow strongly.
We also ---+ let me add to that.
It's <UNK>, again.
We're also increasing our R&D investments in our Government segment as well.
I don't think you're going to see EBITDA grow as quite as fast as revenue in that segment this year.
Yes, it's cyber-security, aviation.
Our global mobile piece of that business.
Both of those, we're [making] investments.
They're not in there yet because that's not deployed yet.
But they're in the backlog.
We're going through aircraft-type certification, which is probably the long pole in the tent.
So that could be probably next calendar year before we see that in service.
Somewhere around the end of this calendar year to next calendar year.
We won't make commitments to any of our customers that we don't feel are backed up by Eutelsat.
They are aware of the issues.
We're jointly coming up with ways that we can (technical difficulties) to airline customers service that they will like and that we can fulfill.
I think Eutelsat's very interested in growing that market with us.
So it looks promising.
The way we look at it is that the bandwidth economics, the way you can project to an end user the capabilities of an in-flight Wi-Fi system, are really dominated by the economics of the satellite system itself, not the antenna.
That's really a very second-order issue.
When you're increasing bandwidth efficiencies by a factor of 10 or 100 on a satellite, the fact that you can make an antenna or 40% or 80% better is not really the driving factor.
So, basically what we've done is come up with ---+ we have a set of antenna products, we have KU-only antennas, we have KA-only antennas and we have hybrid KA-KU.
Depending on the antennas that our customers choose, we can provide them a service that is the best available in any given geographic area using ---+ with access to the resources that the antennas can support.
So in some cases we have agreements to use, for instance, Inmarsat with KA band.
We've been doing work with Inmarsat Wi-Fi in some areas where that's the best available satellite.
In the areas where we have ViaSat 1, we use that.
Areas where we can use Eutelsat, we'll use.
Wherever the best available one is.
In general, the high end of KA is going to be way better than that high end of KU.
The high end of KU may be a little better than the low end of KA, depending on the specific satellites.
There is some overlap in there.
In some cases we will draw on KU, in some cases we will draw on KA.
It's going to really be dependent on the geographies where airplanes or mobile terminals dwell, where they spend most of their time.
We want to be able to use ---+ take advantage of the best available resources.
And so far most satellite operators, to the extent they have bandwidth available, they're fine with selling us bandwidth to use for our customers in their coverage areas.
Does that answer your question.
Yes.
What we've done so far is we've tried to do a good job of matching our customer demands, what we have demand for with what we will go out and purchase in the market.
And we don't feel like we need to go off and speculate and acquire large amounts of bandwidth way in advance on multiyear contracts in order to get the lowest bandwidth price because all the bandwidth pricing that we can get is much higher than the bandwidth pricing we could make in the regions that we provide coverage, or where our KA partners are.
So, that's really our source of competitive advantage.
It's not really speculating or making long advance purchases in bandwidth.
Great.
Thanks a lot, everybody.
We appreciate your time, and look forward to talking to you next quarter.
| 2015_VSAT |
2017 | UFCS | UFCS
#Good morning, everyone, and thank you for joining this call.
Earlier today, we issued a news release on our results.
To find a copy of this document, please visit our website at ufginsurance.com.
Press releases and slides are located under the Investor Relations tab.
Our speakers today are Chief Executive Officer, <UNK> <UNK>; <UNK> <UNK>, our Chief Operating Officer; and <UNK> <UNK>, Chief Financial Officer.
Please note that our presentation today may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
The company cautions investors that any forward-looking statements include risks and uncertainties that are not a guarantee of future performance.
These forward-looking statements are based on management's current expectation, and we assume no obligation to update them.
The actual results may differ materially due to a variety of factors, which are described in our press release and SEC filings.
Please also note that in our discussion today, we may use some non-GAAP financial measures.
Reconciliations of these measures to the most comparable GAAP measures are also available in our press release and SEC filings.
At this time, I'm pleased to present Mr.
<UNK> <UNK>, Chief Executive Officer of UFG.
Thanks, <UNK>.
Good morning, everyone, and welcome to the UFG Insurance Third Quarter 2017 Conference Call.
Earlier this morning, we reported a net loss of $0.72 per diluted share, operating loss of $0.73 per share and a GAAP combined ratio of 118.1% for the third quarter of 2017.
This compares with net income of $0.48 per diluted share, operating income of $0.41 per diluted share and a GAAP combined ratio of 100.9% in the third quarter of 2016.
The third quarter results were impacted by 3 powerful hurricanes that caused devastation in Texas, Florida and Puerto Rico.
These storms caused much more than economic damage.
They displaced families and caused tremendous stress and uncertainty for everyone affected, and we hope for a speedy recovery for all those impacted by Harvey, Irma and Maria.
I\
Thanks, <UNK>, and good morning, everyone.
As <UNK> indicated, we had further deterioration in our core loss ratio in the third quarter of 2017 driven by an increase in the number of large losses in our commercial auto line of business.
Much of this deterioration between the second and third quarter 2017 is due to strengthening of prior year reserves.
This reserve strengthening is partially due to bodily injury loss inflation, which we and the industry are experiencing.
There were also a number of catastrophe claims from the 3 hurricanes in the third quarter, which contributed to the increase in the commercial auto loss ratio.
In the third quarter of 2017, we had 17 large commercial auto claims compared to 10 large commercial auto claims in the third quarter of 2016.
Year-to-date, we had 45 large commercial auto claims as compared to 21 large claims in the prior year-to-date.
This increase in a number of severe commercial auto losses is the primary reason for the deterioration in the core loss ratio.
Many of these commercial auto losses occurred on policies with umbrella coverage, which increased our loss ratio on our other liability line of business this quarter as well.
On Slide 10 of our deck, we have provided a breakdown of the geographic distribution of the large commercial auto claims received year-to-date.
As <UNK> also touched on, we have not been diligent enough in all regions pushing the approved rate increases in our commercial auto line of business.
Moving forward, all of our regions and branches will be more aggressive with our rate increases for this line, especially in our marginally performing accounts.
They will also continue to review and non-renew our underperforming accounts.
Some other initiatives we continue to work on include having our loss control reps focus their efforts on accounts with significant auto exposure.
These efforts include ensuring that insureds have acceptable hiring practices, driver screen practices, vehicle use policies and vehicle maintenance policies and ensuring that they are being followed and enforced.
Our new analytics department also continues to assist us by providing pricing and acceptability guidance on our commercial auto book, as well as business intelligence insights to assist underwriters in making better acceptability and pricing decisions.
We are confident that with continued rate increases and these initiatives, we will return our commercial auto book back to our desired level of profitability.
Moving on market conditions.
We continue to experience competitive market conditions during the quarter for both renewal and new business.
Renewal pricing on larger accounts is flat to down slightly, and pricing on smaller accounts is flat to a small percentage increase.
Overall, average renewal pricing change for commercial lines increased slightly driven by commercial auto; but pricing varying, depending on the region and the size of account.
Commercial auto and commercial property rate increases continued to be in the mid- to upper-single digits, with negative rate changes for our workers compensation line of business.
Overall, average renewal pricing increased slightly for personal lines with increases in the low-single digits.
All regions continued to aggressively address our poor-performing accounts through nonrenewal or large pricing increases.
Premium and policy retention remained strong at 84% and 81%, respectively, during the third quarter of 2017.
Our success ratio on quoted accounts decreased 5% from the prior quarter to 28%.
This decrease was largely driven by a significant drop in the success rate of our specialty division due to a large increase in quote requests for this division in September.
As we continue to address the deterioration in our auto book of business, our expectation is that premium and policy retention may be negatively impacted.
With that, I'll turn the financial discussion over to <UNK> <UNK>.
Thanks, Mike, and good morning.
For the third quarter 2017, we reported a consolidated net loss of $17.9 million or $0.72 per diluted share compared to consolidated net income of $12.4 million or $0.48 per diluted share in the third quarter of 2016.
Through 9 months 2017 year-to-date, consolidated net income was $5 million or $0.20 per diluted share compared to $37.9 million or $1.47 per diluted share in the same period of 2016.
The decrease in quarter-over-quarter and year-over-year net income is primarily due to deterioration in our core loss ratio and elevated catastrophe losses previously discussed by <UNK> and Mike.
Consolidated net premiums earned increased 3.8% in the third quarter 2017 as compared with 2016, and total revenues increased 2.5%.
Year-to-date, consolidated net premiums earned and total revenues both increased 3.8% as compared with 2016.
As <UNK> mentioned, during the third quarter, we reached a definitive agreement to sell our life subsidiary.
Throughout our press release and 10-Q this quarter, we have classified the results from our life subsidiary as discontinued operations and the results from our P&C business as continuing operations, as required by accounting guidance.
Just looking at continuing operations, we reported consolidated net loss of $0.77 per diluted share and $0.01 per diluted share in the third quarter and year-to-date 2017, respectively, as compared to net income of $0.45 per diluted share and $1.45 per diluted share in the same period of 2016.
Net premiums earned from our continuing operations grew by 6.8% and 6.6%, respectively, in the third quarter and year-to-date 2017 as compared to the same periods in 2016.
As we have discussed in our prior conference calls, our expectation for premium growth in 2017 is 4% to 6%.
With the initiatives that we are aggressively pursuing in our commercial auto line of business, we expect our premium growth will slow in the fourth quarter of 2017 and as a result, meet these expectations.
We experienced unfavorable reserve development of $3.2 million in the quarter compared with $700,000 unfavorable development in the third quarter of 2016.
Year-to-date in 2017, favorable reserve development was $38 million compared to $27.1 million in the first 9 months of 2016.
The development impact on net income for the third quarter and year-to-date in 2017 was a decrease of $0.08 and an increase of $0.96 per diluted share, respectively, compared to an increase of $0.02 and $0.68 per diluted share in the same periods of 2016.
Looking at reserve development in more detail, in the third quarter of 2017, the majority of the unfavorable development was from 2 lines: other liability and commercial auto, which was partially offset by favorable development in workers compensation.
Year-to-date 2017, the majority of the favorable development is from other liability lines and workers compensation, partially offset by reserve strengthening in our commercial fire and allied and commercial auto lines.
The combined ratio in the third quarter 2017 was 118.1% compared to 100.9% for the third quarter of 2016.
Year-to-date 2017, the combined ratio was 107.6% compared to 99.5% for the same period of 2016.
Removing the impact of catastrophe losses and reserve development, our core loss ratio deteriorated 8.9 percentage points in the third quarter and 7.7 percentage points year-to-date 2017 as compared to 2016.
The primary driver of the deterioration in the core loss ratio is an increase in the number of severe commercial auto losses as previously discussed.
Referring to Slide 9 in our slide deck on our website, we've provided a detailed reconciliation of the impact of catastrophes and development on a combined ratio.
Return on equity was 0.7% year-to-date 2017 compared to 5.5% in 2016.
The decrease in return on equity as compared to the same quarter last year was primarily due to the net loss for the quarter.
Our return on equity, excluding unrealized investment gains, was 0.9% for 2017.
During the third quarter, we declared and paid a $0.28 per share cash dividend to stockholders of record on September 1, 2017.
We have paid a quarterly dividend every quarter since March of 1968.
Also during the third quarter of 2017, we remained active with our share repurchase program.
During the third quarter, we've repurchased 205,291 shares of our common stock at an average price of $41.89 and a total cost of $8.6 million.
And year-to-date through September, we've repurchased 701,899 shares of our common stock for a total cost of $29.8 million.
We purchase United Fire common stock from time to time on the open market and/or through privately negotiated transactions as the opportunity arises.
The amount and timing of any purchases will be at management's discretion and will depend on a number of factors, including the share price, general economic and market conditions, and corporate and regulatory requirements.
We are authorized by our Board of Directors to purchase an additional 2.2 million shares of common stock under our share repurchase program, which expires in August of 2018.
And with that, I will now open the line for questions.
Operator.
Want to take that, Mike.
This is Mike <UNK>.
Yesterday, we were looking at a 10-year total for the results of the assumed business, including this year.
And I think our ---+ I don't have that with me, but I think our underwriting profit on that business for the last 10 years was around $60 million.
So it's been very profitable.
It's our most profitable segment but it does have a lot of volatility to it.
So when you have years like this year or the year of the Japan earthquake and tsunami, you have bad results in those years.
But over the long run, it's definitely a good segment to be in.
Yes, this is Mike again, <UNK>.
We're gaining momentum.
I think <UNK>'s comments, he said that maybe not all regions were on board, but I think we've corrected that in the last quarter.
Some ---+ our analytics group has done a nice job of getting us solid metrics on what we're achieving on commercial auto rate.
Going back for the last 3 months, July, this is overall rate increases across all regions.
July was 4.8%, August was 6.0%, September was 8.0%.
So nice momentum being gained there as everybody is getting on board with those rate increases.
I think the market continues to firm.
So I don't think we're at the top yet.
I think we can get north of 10% in that line going forward, so that's encouraging.
The other thing I would say is rate will certainly help, and probably the fastest thing we can do to improve the loss ratio, but we have to do more than that to get it where we want it.
So we continue to work on the other areas that we mentioned as well.
One thing that's really going to help, in our slide deck, we showed breakdown of large losses by region.
And you can see our West Coast has really contributed more than their fair share of large losses.
We did get a fairly large rate approval through the California Insurance Department this quarter, so that will help things out there as we go forward as well.
And I think some positives finally coming through and some trends that are encouraging.
<UNK>, this is <UNK> <UNK>.
I just wanted to kind of reiterate one of the things Mike said that for UFG, rate alone will not cure this.
We know we have to let some of our poor-performing accounts go.
So all of our regions absolutely have the message that we're not looking to grow in this area and we have to ---+ price something up, and you lose it, that's a win.
And, <UNK>, maybe one more comment along those lines.
So our policy account in auto is up, but our unit count is down.
And one of the things that we've found with our analytics business intelligence: some of our larger accounts, the accounts with larger fleets, were our most unprofitable accounts.
And I just think there's a tendency on those large accounts to over credit them from an underwriting perspective.
Bigger accounts tend to get more credits.
A lot of times on the auto, there's not good fundamental reasons why those credits should be applied.
It's just ---+ they're larger accounts just because they have more units, not because they have ---+ they're not a better account because they don't necessarily have safety programs or driver training or better driver screening.
So those are the types of things you really have to look at when applying credits and not size of the account.
And I think, unfortunately, in the past, some of those large accounts got credits just because they were large accounts.
So I think we're making progress there, too, as we tend to focus more on the accounts with fewer units but more profitable, more adequately priced.
This is <UNK> <UNK>.
We've kind of mentioned before, we developed a capital committee as part of our board.
And we'll obviously just have to wait for our life insurance deal to close, which we hope we'll do sometime early in 2018.
And at that time, our capital committee will, I think will look at ---+ we continue to look at outside acquisitions, but maybe slightly less aggressively than we have in the past.
<UNK> mentioned our track record of paying dividends.
We would consider even a special dividend, more share repurchases depending on kind of where our stock price is.
So I think we'll take a multipronged approach to putting those funds to use or returning some to the shareholders.
I'll let Mike handle that one.
Yes, this is Mike <UNK>.
I would say it's too early to know the impact yet.
I don't think it would be anywhere near as significant as the Harvey, Irma, Maria exposure.
But as a fourth quarter event, and we have not gotten updates from the reinsurer ---+ the companies that we reinsure yet to have a good feel for that.
In general, we try to, I guess, minimalize reinsurance exposure to U.S. cats because we have that exposure on the primary side.
So Maria would came mostly from our Puerto Rican exposure, which we don't have any on the primary side.
So not to say that we won't have any, but we do try to kind of watch U.S. exposure to any kind of cat business because we have it on the primary side already.
That's a tough one.
I hope not.
We always think that we've been diligent in getting caught up, but a lot of this came, obviously, from the commercial auto line.
So we'll ---+ more to follow, but we hope that we've got everything in the third quarter that belongs there.
This is Mike <UNK>.
I'll try to tackle that one.
And I think probably the big transformational pieces that we think will come with this is just better analytics, insight, better access to data from our underwriters and decision-making.
Of course, we think productivity gains will come.
There'll be more things automated, less manual entry, more straight through process.
But while we really think the advantages will come to UFG, the things that will really help transform our business are the ability to make better underwriting decisions and improve the profitability through better use of data.
I don't think that's probably anything that we're willing to talk about at this time.
There is a fairly long time frame on this project.
We would not expect to implement the first states for a couple of years.
And probably, by the time the whole project is wrapped up, it'll be more like 5-year time frame.
Part of the ---+ it's not just the policy processing.
So it's also the data structure, analytics and access to that data for the underwriters.
So I don't think it's anything that we'd want to talk about, quantifiable numbers yet.
This now concludes our conference call.
As a reminder, a transcript of this call will be available on the company website at ufginsurance.com.
On behalf of the management of UFG, I hope you all have a great day.
| 2017_UFCS |
2017 | RYN | RYN
#Thank you and good morning.
Welcome to Rayonier's investor teleconference covering fourth-quarter earnings.
Our earnings statement and financial supplement were released yesterday afternoon and are available on our website at Rayonier.com.
I would like to remind you that in these presentations we include forward-looking statements made pursuant to the Safe Harbor provisions of federal securities laws.
Our earnings release and Form 10-K filed with the SEC list some of the factors that may cause actual results to differ materially from the forward-looking statements we may make.
They are also referenced on Page 2 of our financial supplement.
Throughout this presentation, we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental materials.
With that, let's start our teleconference with opening comments from <UNK> <UNK>, President and CEO.
<UNK>.
First, I'll make a few overall comments before turning it back over to <UNK> to review our financial results.
Then we'll ask <UNK> <UNK>, Senior Vice President of US Operations, to comment on our US timber results.
I'll discuss our New Zealand timber results, and following the review of our timber segments, <UNK> <UNK>, Senior Vice President, Real Estate, will discuss our real estate results.
Overall, we're pleased with our fourth-quarter and full-year results.
The strength and diversity of our portfolio allowed us to significantly exceed our forecasted adjusted EBITDA guidance, and our nimble approach to both operational and capital allocation decisions facilitated progress against several strategic initiatives during the course of the year.
In the fourth quarter, we achieved adjusted EBITDA of $52 million versus $48 million in the prior-year quarter.
Softness in our southern timber segment and reduced land sales were more than offset by improved performance in the Pacific Northwest and New Zealand timber segments.
Our southern timber segment results reflect lower pulpwood prices, primarily due to geographic mix and lower volumes due to our decision to defer planned harvest levels by 500,000 tons in response to unfavorable market conditions in certain areas.
Our real estate results, excluding the gain on the previously announced large disposition, were below the prior-year quarter, due to the sale of fewer nonstrategic timberland acres, although partially offset by a sale in Washington at a high per-acre value and the receipt of a deferred payment on a prior land sale.
Our Pacific Northwest timber segment benefited from favorable pricing and increased harvest volumes from our recent Menasha acquisition, while our New Zealand timber segment continued to perform well, based on the strength of both domestic and export markets.
With that, let me turn it back over to <UNK> for a brief review of our financial results.
Thanks, <UNK>.
Let's start on Page 5 with our financial highlights.
Sales for the quarter totaled $221 million, while operating income was $62 million and net income attributable to Rayonier was $48 million, or $0.39 per share.
On a pro forma basis, net income was $6 million, or $0.05 per share.
Our pro forma net income for the quarter excludes a $43 million gain from a large disposition.
Fourth-quarter adjusted EBITDA of $52 million was above the prior-year quarter, primarily due to significant outperformance in our New Zealand timber segment and improved results in our Pacific Northwest timber segment, which were partially offset by reduced harvest levels in our southern timber segment and fewer acres sold in our real estate segment.
As a reminder, adjusted EBITDA on our real estate segment excludes the impact of the previously announced large disposition that we closed during the quarter.
On the bottom of page five, we provide an overview of our capital resources and liquidity at year-end, as well as a comparison to prior periods.
Our cash available for distribution, or CAD, for the year was $144 million, compared to $117 million in the prior year.
A reconciliation of CAD to cash provided by operating activities and other GAAP metrics is provided on page nine of the financial supplement.
We closed the quarter with $86 million of cash and roughly $1.1 billion of debt.
Our net debt of $976 million represented 23% of our enterprise value, based on our closing stock price at quarter-end.
Note that these figures exclude $71 million of cash proceeds from large dispositions that are currently held by LKE intermediaries and therefore classified as restricted cash.
I'll now turn the call over to <UNK> to provide a more detailed review of our US timber results.
Thanks, <UNK>.
Good morning.
Let's start on page 10 with our southern timber segment.
Adjusted EBITDA in the fourth quarter of $21 million was $2.6 million favorable to the third quarter and $4 million unfavorable compared to the same period in the prior year.
Fourth-quarter harvest volume was 195,000 tons favorable compared to the third quarter, but 126,000 tons lower compared to the same period in the prior year, due to deferred harvest in response to softer market conditions.
Fourth-quarter pine pulpwood prices of $15.83 per ton were 9% below third-quarter prices and 13% below the same period in the prior year.
The drop in price was largely due to geographic mix, although excess supply from extended dry weather and hurricane salvage along the East Coast also contributed to price declines in certain areas.
Pine sawtimber prices of $26.75 per ton were 2% above third-quarter prices, but flat compared to the same period in the prior year, as changes in geographic mix balanced out modest price fluctuations in different areas.
During 2016, we deferred 500,000 tons of harvest volume in response to weaker market conditions.
We will continue to monitor local market conditions, including the impact from the recent explosion at the IP Cantonment mill to assure that we are driving the best long-term value across our entire portfolio.
Now moving to the Pacific Northwest timber segment on page 11, adjusted EBITDA in the fourth quarter of $7 million was $4 million favorable to both the third quarter and the same period in the prior year, due primarily to higher harvest volumes.
Fourth-quarter harvest volume of 356,000 tons was 48% higher as compared to third quarter and 13% higher from the same period in the prior year.
The Menasha acquisition, which we closed in May 2016, was a primary driver in our ability to increase harvest volumes.
Delivered pulpwood prices of $39.60 per ton were relatively flat compared to third-quarter prices and 12% unfavorable to the same period in the prior year.
The decline in prices relative to the prior-year quarter was due to the increased availability of residual chips on the open market.
Delivered sawtimber prices of $74.97 per ton were 2% unfavorable to third quarter and 13% favorable to the same period in the prior year.
The trend of increasing grade prices relative to the prior year is due to improving export and domestic markets, combined with an increased contribution from our newly acquired Menasha properties, which generally command a higher sawtimber price due to the heavier mix of <UNK>las fir.
Now <UNK> will review the New Zealand timber segments.
Thanks, <UNK>.
Page 12 shows results in key operating metrics of our New Zealand timber segment.
We continue to be pleased with the operating performance of our New Zealand timber segment, which delivered another strong quarter.
Adjusted EBITDA in the fourth quarter of $18 million was $5 million favorable compared to the third quarter and $11 million favorable compared to the prior-year quarter, primarily due to increased domestic and export product prices.
Harvest volumes in the fourth quarter were generally comparable to both the prior quarter and the prior-year quarter.
Export sawtimber prices increased 7% compared to the third quarter and 19% compared to the prior-year quarter, primarily due to strong demand from China, while domestic sawtimber prices as measured in New Zealand dollars increased 3% compared to the third quarter and 18% compared to the prior-year quarter as a result of strong local demand for construction materials.
When factoring in the rise in the New Zealand dollar to US dollar exchange rate, domestic sawtimber prices in US dollar terms increased 30% compared to the prior-year quarter.
In our trading segment, fourth-quarter volumes increased 30% and average prices increased 14% compared to the prior-year quarter, also due to strong demand from China.
I'll now turn it over to <UNK> to cover real estate.
Thank you, <UNK>, and good morning, everyone.
As highlighted on Page 13, our real estate segment delivered strong financial results in 2016, while maintaining discipline in our land sales program and focusing on properties with meaningful premiums to timber land values.
Excluding large dispositions, real estate sales for the year totaled $92 million on 36,000 acres sold at a weighted average price of $2,580 per acre.
This compares to 2015 sales of $87 million on 33,000 acres, equating to a weighted average price of just over $2,600 per acre.
Fourth-quarter highlights include the sale of 84 acres of unimproved development property in Florida for just over $39,000 per acre.
This was a unique property in a strong market area with high visibility and road frontage.
As part of our unimproved development strategy, we worked with a developer over a period of more than two years to secure the development rights in order to unlock the value on this property.
In the rural category, we closed a number of smaller sales which collectively totaled approximately 500 acres at an average price of $2,750 per acre.
In the nonstrategic and timberland categories, sales totaled 900 acres, including one significant transaction of 816 acres in Washington, for roughly $6,500 per acre.
During the quarter, we also received a deferred payment of $4.7 million from a prior land sale that was contingent on a regulatory permit.
I'll now turn the call back over to <UNK>.
Thanks, <UNK>.
Page 15 shows our financial guidance by segment for 2017.
As we look to 2017, we continue to see overall positive momentum in our timber segments, as well as attractive opportunities to augment value in our real estate segment.
While the US South continues to face some obstacles to near-term price growth, longer-term trends remain positive and we're optimistic that a resolution of the softwood lumber dispute will ultimately drive increased lumber production in sawtimber demand in the US South.
Further, we continued to enjoy more favorable supply/demand conditions in some of our key markets relative to broader US South market averages.
In 2017, we expect harvest volumes in our southern timber segment will be between 5.3 million tons and 5.5 million tons and adjusted EBITDA will be between $93 million and $98 million.
In our Pacific Northwest timber segment, we expect an increase in harvest volumes to a range of 1.3 million tons to 1.4 million tons for 2017 as we realize the full-year impact of the portfolio repositioning moves we made in the second quarter of 2016.
Coupled with steadily improving prices in the region, we anticipate 2017 adjusted EBITDA in the Pacific Northwest of $28 million to $31 million.
In our New Zealand timber segment, we anticipate harvest volumes of 2.4 million tons to 2.5 million tons and continued strong pricing dynamics, which we expect will yield 2017 adjusted EBITDA of $64 million to $68 million.
On a combined basis, our three timber segments are expected to yield 2017 adjusted EBITDA of $185 million to $197 million, which represents an expected increase of 7% to 14% relative to 2016 actual adjusted EBITDA from our timber segments of $172 million.
Our real estate strategy remains focused on unlocking the long-term value of our HBU, rural, and development property portfolio.
Following an extraordinarily strong 2016, we expect to sell fewer acres in 2017.
Overall, we expect real estate will contribute adjusted EBITDA in 2017 of $52 million to $60 million, although we continue to expect that quarter-to-quarter results will be lumpy.
Other key elements of our 2017 guidance, including depletion expense, interest expense on a non-cash basis, CapEx, GAAP taxes, and minority interest are summarized on page 15 of the financial supplement and on Page F of the earnings release.
Note that the increase in expected depletion expense is largely attributable to the increased depletion rate in our Pacific Northwest timber segment following the Menasha acquisition.
The expected increase in GAAP taxes and minority interest expense are both related to the anticipated increase in income from our New Zealand joint venture.
Despite increased GAAP taxes, we generally expect that our cash taxes will remain relatively small.
In total, we anticipate 2017 consolidated adjusted EBITDA of $220 million to $240 million and pro forma net income of $39 million to $45 million.
I'll now turn the call back to <UNK> for closing comments.
Thanks, <UNK>.
2016 was a very busy and productive year for Rayonier and I wanted to take a moment to recap some of the key milestones we achieved in executing on a number of our strategic priorities.
In March, we completed the recapitalization of our New Zealand joint venture.
Through this recapitalization, we were able to increase our stake in the JV from 65% to 77% and refinance $235 million of New Zealand dollar denominated from a rate of 6.5% to a rate of 3.3%.
We also completed this recapitalization at a time when the New Zealand dollar/US dollar exchange rate was at a five-year low and thus further reducing the effective cost of this refinancing to an equivalent of $155 million.
The New Zealand operations have enjoyed outstanding performance over the past year and we believe we are well positioned to capitalize on strong market conditions in the future.
In May, we completed a series of unique transactions that serve to meaningfully reposition our Pacific Northwest portfolio.
We acquired 61,000 acres of highly productive, well-stocked timberland with an average age of approximately 22 years and we simultaneously sold 55,000 acres of primarily pre-merchantable timberland with an average age of approximately 13 years.
Through these transactions, we were able to rebalance the age class profile of our Pacific Northwest portfolio, gain access to high-quality domestic markets in western Oregon, increase our mix of <UNK>las fir, and significantly increase our near-term harvest potential in the region.
We classified the 55,000-acre sale as a large disposition, for which we are excluding the adjusted EBITDA impact from our results.
Such large dispositions are intended for capital allocation purposes, which was certainly the case in this instance where the sale funded roughly half the acquisition cost.
We financed the remaining portion of this acquisition with a new term loan through the Farm Credit System at an average fixed rate, net of patronage payments and interest rate swaps, of approximately 2.8%, and despite an increase in leverage to facilitate this acquisition, we maintained our investment-grade credit ratings.
In November, we announced changes to our legacy pension plan, as well as organizational restructuring designed to right-size our finance and IT organizations.
We expect these two initiatives will generate annual cost savings of approximately $5 million and will serve to further flatten our organizational structure and improve efficiencies.
Also in November, we announced another large disposition of 62,000 acres of timberland in Alabama and Mississippi for $120 million.
Like our Pacific Northwest divestiture, this transaction was designed to generate capital for redeployment into assets that we feel offer a better long-term value proposition for the Company.
Over the course of the year, we engaged in very active portfolio management effort in which we acquired 111,000 acres for $366 million and sold or committed to sell 117,000 acres of large dispositions for $250 million.
We believe these moves improve the quality of our timberland portfolio and will add significant long-term value for our shareholders.
In 2016, we also broke ground on Wildlight, a 261-acre mixed-use development project north of Jacksonville.
We're very pleased with the market interest we've seen for this project and we expect our first sales from this project in 2017.
We remain optimistic about the long-term value creation that this project will have on our surrounding 24,000 acres of ownership.
As previously announced, we will be consolidating three regional offices and relocating our headquarters into a newly constructed office building in Wildlight this summer.
We're very excited about this change and believe it will generate significant efficiencies, improve communication, and reinforce our One Rainier culture.
In addition to executing on a number of initiatives that will deliver long-term value to our shareholders, we're also very pleased with our overall financial performance in 2016.
Over the past two years, we've focused on creating a spirit of teamwork and a culture of accountability and excellence throughout the organization, and I believe these efforts are beginning to show up in our financial results.
We finished the year with adjusted EBITDA of $240 million, relative to initial guidance of $185 million to $210 million, and while clearly some of the variables that contributed to this outperformance were outside of our control, I believe that the culture we are reinforcing within our organization has resulted in greater coordination and collaboration, allowing Rayonier to be more nimble and proactive as our markets change.
We demonstrated this nimbleness and long-term value focus last year when we decided to defer 500,000 tons of harvest in the fourth quarter, due to market softness in certain regions.
So overall, we're very pleased with not only our financial results in 2016, but also the actions our employees are taking to build long-term value of our portfolio.
In summary, we continue to actively seek out ways to improve both our organization and our portfolio.
Our capital allocation strategy and operational philosophy are both intended to be nimble, flexible, and opportunistic.
As we've demonstrated over the past year, we will shift our priorities as needed to capitalize on the best available opportunities to maximize long-term value for our shareholders.
I'd like to now close the formal part of our presentation and I'll turn the call back over to the operator for questions.
Hello, <UNK>.
This is <UNK>.
I'd say the weather dynamics of the continued extreme drought that we've seen from these [logging] conditions through much of the southeast and then the impacts of the Hurricanes Hermine and Matthew, there was a lot more supply than we'd normally see during this quarter, and that's resulting in some lower pulp wood pricing and we've really seen that across the south.
There are some markets that did a little better than others.
We won't get into that because it's a little more operational for our teams, but really the geographic mix of our harvest accounted for over 50% of our price variance in the pulp wood in particular.
And then, 15% of our total pulpwood volume that we harvested in the fourth quarter was hurricane salvage at a much reduced price.
So while the pricing was down considerably, there were some offsetting factors there, and the remainder was really due to south-wide some pricing issues that we've seen just due to that oversupply of the La Nina.
We did expect ---+ we ended our hurricane salvage and believe everyone else has also by this time, so as we resume harvesting in some of the areas we deferred from Q4, we think that the pricing should improve as we go into the next quarter.
Yes, we have, particularly in the fourth quarter, and really where we've seen a response in the sawlogs has been where the export market has started to create pressure.
So we've seen several new customers open up shop along the East Coast and (inaudible) were up over 75% year over year, according to the last TimberMart South report, and our removal suggests that.
And we've most recently seen export markets open up 80 miles inland from the coast.
So where we've seen that increased pressure from export markets, we're seeing that also relay into some pricing on the domestic side.
It's a small percentage right now.
I don't have that number handy.
We can get back to you with that.
<UNK>, it's <UNK>.
Good morning.
It's high-quality timberland property in the state of Washington, good operability and access, and it was a quality piece of property.
It happened to be sort of not contiguous to some of our other holdings, and we had a lot of interest in it over the last year or so and just made a deal that really worked.
And <UNK>, just to be clear, it includes in effect value for the underlying HBU characteristics of the land, so you've got valuable timber, but also valuable underlying zoning, and that's why you put those two together, you get that strength and that price.
I think the CapEx that we articulated last year, the initial guidance, we came in below that, and so we generally think our run rate is in that range of $60 million to $65 million.
I think we did have some deferred CapEx in the fourth quarter that's going to spill over into next year.
But I wouldn't say that there's anything that's really driving changes to it.
It's just really more timing.
One of the things I'd say, just to add, that on the silviculture side is we did have some timing around planting, so, as <UNK> said, we'll have some of that move into the next year.
And also with that deferred harvest, we just had some slowdown in potential when we would be doing some site prep.
And a lot of it gets back to that same ---+ those same weather patterns that have impacted inventories have pushed out timing on those things.
I think we're continuing to see an active land market, <UNK>, and at the same time, though, however, I'd say that we're being increasingly targeted as to how we think about that, and as we've talked about before in a lot of our investor visits, there is a very diverse buildup of inventory across the US South, and we pay particular attention to those relative buildups in inventory and we try to target acquisitions in areas that we think have had less of a build in inventory.
So there's a lot of activity, but I'd say that we're being pretty targeted in terms of how we approach it.
<UNK>, we tend to look at it more in a local market sense and we're not in every single region, but we spend a lot of time looking at growth drained yields and the buildup of those inventories relative to existing manufacturing capacity.
So, one of the statistics that we have included in our work looks at the change between 2005, the peak of the last housing start, and the end of 2014 and looks at the build in inventory across different regions of the US South as defined by TimberMart-South.
And to give you a sense of the absolute range, at the high end of the range you've got one market in northern Mississippi where you've had a 37% build in inventory and at the low end of the range, north Florida, you have had actually a decline in inventory of 4%.
So that just gives you a sense of the relative magnitude across the South of those.
But we, again, tend to look more at the individual markets and are focused less on the broader kind of macro set of conditions.
So there's a few things going on.
There's lots of moving parts with respect to the export market, and the first thing is we look back to 2016, recognize that one of the impacts in China as it relates to both US and New Zealand demand is that China dramatically decreased the supply of domestic wood coming out of the northeastern part of the country, up against the Russian border.
So you had a little bit of a supply shock to the market.
That was one factor.
Two, we had very little inventory build through the Chinese New Year last year, and so that created a fair bit of momentum for the balance of the year, and as the year progressed, we saw increased consumption across those markets.
So you really had kind of the triple effect of less supply domestically, a lack of build in inventory, and improved consumption, and all three of those things together powered a pretty strong domestic ---+ or pretty strong export condition that affected both markets.
Overlaying that, you've got changes in lumber import patterns.
The lumber imports from British Columbia, which is a large supplier, were reduced this last year while they pushed more wood into the United States, and so that had an impact on the market.
And going forward, we expect some of that to flip around, where we would expect more lumber from British Columbia trying to flow into China over this next year as it relates to the softwood lumber agreement resolution.
But, just recognize there's lots of moving parts in the context of that market.
The inventories in China jumped a fair bit during this first part of the Chinese New Year.
Some of that was a function of northern China, where you had some pollution-related stoppage of all industrial activity, and so the inventories in that part of the country jumped quite a bit.
The inventories in the rest of the country to the south, I'd say, are pretty stable, and combined with high consumption rates, we remain pretty positive about those.
So, we'll be watching that as the next month or so progresses.
This is the time of year where you really see the impact from that Chinese New Year inventory build.
I generally expect it would pick up a little bit from that, <UNK>.
We've said that we expect a transition more towards a sawlog mix over the next several years.
That's based on thinning decisions that we made a decade ago, and so we do expect that that mix will continue to transition more towards a grade mix over the next few years, and so I would expect it would pick up somewhat from that.
But, again, we're going to continue to be judicious about where we're harvesting and what we're harvesting to sort of best capture the market opportunity that we see.
Yes, to continue to transition to that type of ratio.
We're not really a direct party in that.
I think others who are closer to it can probably speak more accurately to it.
I think that the expectations that we've had all along that we really won't see meaningful change until the middle of the year continue to be the case.
The delay in getting the US trade representative confirmed is probably factoring into some of that, but I think we continue to expect that we'll see some form of duty imposed during the second quarter and that that's going to eventually bleed into sawlog values, particularly in the US South, where we believe that part of the country has the most room to respond.
With respect to the IP mill, our team is monitoring the developments around there and working with the customer to try to ship the volume as we are able.
They are a significant customer to us in that area.
I saw the recent report yesterday about them bringing it back up in Q2, so with our deferrals of volume that we had in 2016 in other market areas, that'll allow us to adjust harvest plans if necessary, but we're really in the early stage of trying to understand when they will come back up.
We continue to really look at it more at a regional level and less at an individual market.
You've got a very big spread across the South from a stumpage pricing standpoint between the lowest to the highest market of roughly 2X, and so you really have to look at it market by market.
We continue to believe that the factors associated with the gradual recovery in US housing is going to play a role.
<UNK> touched earlier on the margin impacts of export markets in those regions that supply export conditions, and then we've continued to see strong demand from the pulp and paper side of our demand flows from pulpwood.
So, we continue to see this as a steady-as-she-goes improvement over the long term.
I would just add to that we are still seeing the impacts of the softwood lumber dispute and more wood coming in from Canada, and so I think everybody has been pretty cautious around the near-term prospects for an increase in sawtimber prices, but still positive on the longer-term outlook.
And I think we'll have to wait and see what happens with the softwood lumber dispute and then how that translates into lumber prices and sawtimber demand and ultimately sawtimber prices.
The volume change is really driven by the portfolio repositioning that we did there.
Recall that we had anticipated stepping down volume in the Pacific Northwest over a period of years to about 1 million tons.
Following the portfolio repositioning that we announced in Q2 last year, we effectively said that we were going to be able to harvest much closer to our sustainable yield over the near term.
And so, 1.3 million to 1.4 million tons is our general expectation of harvest levels over the next three to five years.
The bulk of the savings were fairly immediate in nature.
That said, we didn't see a $5 million reduction in year-over-year corporate expense, and there are really a few elements that, first, not all of those cost savings are going to show up in that corporate segment.
Some of those cost savings were either segment-level costs or G&A costs that get allocated back to the segment.
So, for example, most of the IT cost savings would fall into that category.
Second, our estimate of the pension expense savings at the time we announced the pension freeze last year was relative to our then-current pension accounting assumptions, really putting it on an apples-to-apples basis.
As we've updated our pension assumptions for 2017, that expense has come up due to changes in return at discount rate assumptions.
That said, it would've come up even more but for the pension freeze, so I think it's still fair to say that we've realized those cost savings relative to what pension expense would have otherwise been in 2017.
We're just not seeing the full amount show up in corporate on a year-over-year basis.
Lastly, we have some one-time expenses assumed in 2017 related to our office move and some IT transition costs, which are offsetting some of those year one savings.
So I guess that's a long way of saying the cost savings are there; they're just not showing up as a $5 million year-over-year decline in our corporate-segment operating income.
You'll see more of it show up in our consolidated SG&A.
The CapEx guidance that we provide is generally all maintenance.
We don't bake any acquisitions into that.
I'd have to get that conversion ratio.
It's different by market.
It's different in the South versus the Northwest.
Measurements ---+ units of measuring wood are different in different regions, so it's not a simple question.
I think so much of it has to do with how quickly mills are prepared to ramp up production.
I know in our discussions with a number of sawmill customers, including those that have purchased mills in recent years, what they've been focused on really initially is kind of getting production stabilized at a one shift level before they are prepared to make a call to add a shift.
And so, I think a lot of those companies have been working in that capacity.
And I think a second thing to recognize is that you've got labor issues in terms of being able to just very quickly add shifts.
I think that in most of the markets that we are talking about, the ability to get incremental wood supply into those mills as they add hours or add shifts is probably less of an issue than it is to get labor to add capacity.
And so, I think that's going to be something that may act as a governor on the rate of change in overall southern lumber production.
Certainly we're seeing the same stuff that you are in terms of the anticipation of some potential retroactive duty application and the impact that that's perceived to be having in terms of market flows, but recognize that there's a ripple effect going back to the stump and so it will be a little longer before we see that than, say, you would if you had direct lumber manufacturing capacity that was competing against those flows of lumber on a day-to-day basis.
It's dynamic.
I think at some level we ---+ as you see a rising interest-rate environment, that rising interest-rate environment is predicated on an inflationary environment, which is in turn predicated on higher production ---+ or product pricing.
And so as we see more inflation impacting the price of the products, we expect that that's going to play into the rise in interest rates.
We certainly look at it more from ---+ we factor that in as we think about hurdle rates, but we're also looking at it from the perspective of our alternative uses of capital.
We're always, when we look at acquisitions, understanding how our own timber is trading at the time on an imputed discount rate and we compare that to what we think the market clearing discount rate is on any particular transaction.
<UNK>, do you want to add anything to that.
No, I think that's a good characterization of how we think about it.
It probably depends on who you're talking to.
I mean, everybody is going to process a little bit differently, and recognize, too, that a big impact ---+ this really kind of boils down to how you think about discount rate and hurdle rate, and it's not only reflective of your cost of capital and alternative uses of capital, but it's also reflective of the flows of capital.
And what we've seen is that there's been continued interest in the timber asset class from a capital flow standpoint and that has tended to have a dampening effect on cap rates in the sector as people have pushed money into this sector from a flight to quality and just a general conservative investment perspective, so you've got some offsetting things at play there.
This is <UNK>.
I'd like to thank everybody for joining us today and please contact me with any follow-up questions.
Thanks.
| 2017_RYN |
2017 | L | L
#Thank you, Crystal.
Good morning, everyone, and welcome to the Loews call.
A copy of our earnings release, earnings supplement and company overview may be found on our website, loews.com.
On the call this morning, we have our Chief Executive Officer, Jim <UNK>; and our Chief Financial Officer, <UNK> <UNK>.
Following our prepared remarks this morning, we will have a question-and-answer session, which will include a selection of questions submitted via email by our shareholders.
Before we begin, however, I will remind you that this conference call might include statements that are forward looking in nature.
Actual results achieved by the company may differ materially from those made or implied in any forward-looking statements due to a wide range of risks and uncertainties, including those set forth in our SEC filings.
Forward-looking statements reflect circumstances at the time they are made.
The company expressly disclaims any obligation to update or revise any forward-looking statements.
This disclaimer is only a brief summary of the company's statutory forward-looking statements disclaimer, which is included in the company's filings with the SEC.
During our call today, we might also discuss non-GAAP financial measures.
Please refer to our security filings and earnings supplement for reconciliation to the most comparable GAAP measures.
In a few minutes our CFO, <UNK> <UNK>, will walk you through the key drivers for the quarter.
But before he does Jim <UNK>, our CEO, will kick off the call.
Jim, over to you.
Thank you, <UNK>.
Good morning, and thank you for joining us on our call today.
I'd like to start out by discussing Loews' recently announced entry into the packaging industry.
As you probably know by now, a few weeks ago, we signed an agreement to acquire Consolidated Container Company, or CCC, for $1.2 billion.
The company is a leading rigid plastic packaging manufacturer based in Atlanta, Georgia that makes containers for stable end markets such as beverages, motor oil, laundry detergent and dairy products.
The acquisition of CCC will add a new industry to Loews' already diverse portfolio of businesses and provide a great foundation for expansion through organic growth and bolt-on acquisitions.
We've been analyzing the packaging industry for quite some time, getting to know it well and looking for the right deal, and we believe we found it.
CCC is an outstanding company that checks all the boxes for Loews' criteria.
First of all, the size of the investment meets the Goldilocks test.
The $600 million check is just right, allowing us to feel comfortable about making add-on investments down the road.
Aside from the size of the investment, the other check boxes are the fragmentation of the industry, the opportunity for add-on investments, their defensive position in consumer end markets, strong cash-on-cash returns and a highly qualified management team.
Consolidated sector is the ---+ of the packaging industry is attractive to us for a number of reasons.
The rigid plastic packaging sector is somewhat recession resistant in that its products are used primarily for nondiscretionary consumer items.
And while there are evolutionary changes in the business, we believe it's unlikely that this sector will be subject to major technological disruption.
CCC is the largest national player in the small- to medium-volume segment of this industry, with 59 manufacturing facilities across the U.<UNK> either co-located or close to their customers, a distinct advantage in minimizing transportation costs.
The company has long-term client relationships with little turnover in its customer base.
Over the last several years, CCC has focused on customers who have small but growing brands that have been challenging traditional incumbents in various product classes such as Seventh Generation cleaning products and Persil laundry detergents.
A data point that will come as no surprise to our shareholders is that we especially like the steady cash flow characteristics of this sector.
We anticipate near double-digit, cash-on-cash returns on our investment.
CCC's free cash flow will, for the foreseeable future, be used either to pay down debt or to finance acquisitions.
Finally, and most importantly, CCC has a strong and experienced management team with a track record of operational excellence.
As I've said before, we kicked a lot of tires in this process, and we have yet to come across a management team as ready for prime time as CCC's.
We look forward to working with its CEO, Sean Fallmann, and his team to profitably grow the company.
The acquisition of CCC will be financed with approximately 50% cash and 50% debt at the CCC level.
For Loews, this is a relatively small acquisition that allows us to continue to retain substantial liquidity at the parent company.
After the close, Loews will still have approximately $5 billion of cash and investments.
We expect the transaction to close later this month and will include partial quarter financial results for the Loews Packaging Group in our second quarter earnings release.
As far as this quarter goes, I'm happy with our results and the progress of each of our subsidiaries.
Our CFO, <UNK> <UNK>, will now provide more details.
Over to you, <UNK>.
Thank you, Jim, and good morning.
For the first quarter, Loews reported net income of $295 million or $0.87 per share, up from $102 million or $0.30 per share in last year's first quarter.
I will call out the key drivers of our $193 million year-over-year quarterly earnings improvement.
These are also set forth on Page 12 of our earnings supplement.
The supplement is available by webcast and has been posted to the Loews IR website.
In summary, CNA had an excellent quarter and contributed the bulk of our net income, accounting for approximately 80% of the total.
Similarly, CNA drove our year-over-year increase, with Boardwalk Pipeline, Loews Hotels and parent company investments also contributing.
Diamond Offshore was the main earnings drag this quarter, given the ongoing difficult conditions in the offshore drilling market.
Turning to the details.
CNA's substantial increase in net income came on the back of strong net investment income, a lower retroactive reinsurance charge than in the prior year, a significant turnaround in realized gains and good underwriting results in its core P&C business, with especially favorable results in specialty and international.
As a reminder, in the first quarter of last year, CNA's results were depressed by 3 items: realized investment losses, which reduced our net income by $17 million; losses on LP investments, which reduced our net income by $7 million; and a retroactive reinsurance charge, which reduced our net income by $74 million.
The charge was related to the transfer of the company's asbestos and environmental pollution liabilities to National Indemnity in 2010.
Taken together, these 3 items lowered CNA's contribution to our first quarter 2016 net income by $98 million.
Conversely, in this year's first quarter, CNA posted realized investment gains, not losses, which benefited our net income by $20 million.
CNA's LP investments returned 3.8%, benefiting our net income by $54 million.
And while CNA booked a noncash retroactive reinsurance charge again this year, it was far smaller than last year's, reducing our net income by only $12 million versus last year's $74 million.
So on a year-over-year basis, these 3 items accounted for $160 million of the $174 million increase in CNA's contribution to our net income in Q1 2017.
Away from these items, CNA showed improved results from current accident year P&C underwriting and from the Life & Group segment, offset in part by a lower level of favorable prior year development.
Beyond CNA, our year-over-year earnings improvement was driven by Boardwalk, Loews Hotels and parent company investments, offset by earnings declines at Diamond.
Boardwalk's contribution to our net income increased year-over-year by 19% or $6 million, as revenues were up from recently completed growth projects as well as favorable market conditions for the company's storage and parking & lending services.
Boardwalk's excellent performance was highlighted by its net revenues being up 7% and EBITDA up 11%.
Loews Hotels also had a good quarter, with net income of $10 million.
During the quarter, the company booked a gain on the sale of the JV property and wrote down its equity investment in another non-Orlando JV property.
These 2 onetime items netted to add $6 million to Q1 2017 net income.
Setting aside these items, net income at Loews Hotels increased $1 million year-over-year.
The main downdraft in the quarter was from Diamond Offshore as the depressed conditions in the offshore drilling space continued.
Diamond's contribution to our Q1 net income declined from $43 million last year to $12 million in this year's first quarter.
This $31 million negative swing was largely attributable to 2 factors: Diamond received a onetime demobilization fee last year that increased Diamond's contribution to our Q1 2016 net income by $13 million; and Diamond's contract drilling revenue declined 10%, excluding this demobilization fee, primarily due to fewer revenue-earning days.
It is simply not possible for Diamond management to reduce expenses enough to compensate for the significant revenue declines it has experienced.
Turning to the parent company.
Net investment income was strong in Q1 2017 as alternative investments and equities, including gold-related equities, drove $59 million of pretax investment income.
In comparison, the parent company portfolio generated a loss in last year's first quarter as favorable results from gold-related equities were more than offset by unfavorable results from alternatives and other equities.
Let me explain briefly the bump-up in our corporate expenses in the first quarter.
Two items, expenses related to acquisition activity and the timing of bonus accruals, accounted for the lion's share of the increase.
We expect to have additional acquisition-related expenses in the second quarter.
As for bonuses, we will be accruing them ratably throughout the year this year, so this is simply a timing difference.
Loews continues to maintain an extremely strong and liquid balance sheet.
At March 31, the parent company portfolio totaled $5.6 billion, with 2/3 in cash and short-term investments and the remainder in fixed maturities, marketable equity securities and a diversified portfolio of limited partnership investments.
The parent company portfolio will decrease by just over $600 million upon the closing of the Consolidated Container transaction in May.
During the first quarter, we received $559 million in dividends from our subsidiaries, $546 million from CNA and $13 million from Boardwalk.
Dividends received from CNA included a $2 per-share special dividend, which itself totaled $485 million.
We had no share repurchase activity during the first quarter.
I will now hand the call back to Jim.
Thank you, <UNK>.
Before we open the call to questions, I want to summarize our thoughts on CCC.
Loews does not often make acquisitions at the holding company level.
We have certainly looked at a lot of deals and industries over the past several years, but none have completely fit our criteria until now.
Our goal is and has always been to create long-term shareholder value through responsible capital allocation.
I believe that CCC gives us the platform for the type of growth that we've been looking for.
Now back to <UNK>.
Thank you, Jim, and thank you, <UNK>.
Crystal, before we open up the call to questions from participants, we wanted to take one question from shareholders that was emailed in.
The question is, "Jim, how did you think about the Consolidated Container acquisition versus buying shares of Diamond, which is trading at 20-year lows.
Has your view on the secular versus cyclical challenges at Diamond changed.
"
So no, our views on the secular versus cyclical challenges at Diamond haven't changed.
And this is not ---+ the purchase of CCC was not an either/or decision vis-a-vis diamond Offshore.
When the CCC acquisition closes, we'll still have close to $5 billion of cash on our balance sheet.
Rather, we saw this as ---+ we saw CCC as an attractive investment for Loews Corporation.
It's the exact opposite in many ways of Diamond.
It's totally noncyclical compared to the extreme cyclicality of Diamond Offshore.
It seems to us to be a platform for growth.
And with respect to Diamond, even at today's very low market price for Diamond, Loews still has $1 billion of exposure to the offshore drilling industry.
So from a portfolio perspective, we're very comfortable with our exposure to and the upside potential for Diamond Offshore, and we're also happy to have a new subsidiary that has all the possibility that I spoke about in my remarks just a few minutes ago.
Great.
Thank you, Jim.
Crystal, we'd like to hand it back over to you so that you could give participants on the call instructions for asking questions.
No, we've ---+ they're good to go for us as soon as they close.
There'll be some minor things that have to be done just to make sure that we can account for CCC properly as a public company.
But otherwise, they are fully loaded and ready to go under the Loews banner.
Look, what I have said publicly is that we're acquiring CCC at just over 8x EBITDA and that we foresee that we will have close to double-digit cash-on-cash returns in the first year from the investment, both of which, we think, is very compelling for us.
Yes.
Not initially.
As I said in my remarks, we see this as a great platform for us to make additional investments in the space.
And no, we don't have any additional investments teed up at this point in time.
I should say no, the management of CCC doesn't have any investments teed up at this point in time.
No, we're not frozen at all.
So we can still buy back shares.
We can still ---+ if we find it by yet another leg to the stool, we have ---+ as I said, when the dust settles from this transaction, we'll have close to $5 billion in cash, which for us is a very comfortable cash position that doesn't constrain us in any way in terms of our quest to allocate capital to build long-term shareholder value.
I think if I had to say it, it was the strength of the stock market.
Our results are correlated to the stock market and also to gold prices, because we have a not very large but somewhat volatile investment in gold securities.
So the team ---+ first of all, we like very much the team at CCC.
We think they've ---+ they're very strong.
They're very professional.
They know their space.
They know their competition.
And so, as I said, they are really ready for prime time.
We have ---+ in terms of compensation, we have agreements in place with the management team that is designed to align our interests exactly with their interests.
So to the extent that our earnings and the value of the enterprise grows over the next 3 to 5 years, Loews shareholders will benefit, as will the CCC management team.
I don't want to go into any of the specifics because that, I think, will be seen as a projection.
And as you know, we don't like to give projections.
Just rest assured that we think that the goal is entirely reasonable.
It would be great for Loews if it's achieved, but we think it is very much achievable.
Well, the operations are doing well at Loews Hotels.
I would say ---+ I would just point out, however, Orlando, which is a major business within Loews Hotels, is doing extremely well and, as you know, recently opened some additional rooms.
I would point out that the Loews Miami Beach, which was also a major driver of Loews Hotels, was under renovation, and that renovation concluded in the second half of the year, into the first quarter of this year.
So that put a bit of a damper on some of the results.
But net-net, doing well.
Being pursued aggressively, being very selective, attempting to work with attractive partners in many of those circumstances to be able to find the right opportunity and earn the right return, sort of smart capital effective growth.
And so that's what we're doing.
So hopefully, we'll have things to talk about before too long.
Great.
Thank you, Crystal.
Thank you, Jim and <UNK>.
And as always, thank you all for your continued interest.
A replay will be available on our website, loews.com, in approximately 2 hours.
That concludes the Loews call.
| 2017_L |
2017 | BMY | BMY
#Good morning, everyone
I'm really pleased that we just finished another strong quarter
Our non-GAAP earnings per share was $0.74, which is a 7% increase over last year
And we grew our revenue by 6% with double-digit growth across our key growth drivers
Now, before I go into more detail, we all know that a competitor announced data this morning that is clearly important to the market
So let me make a few comments
First, our CheckMate 227 is a first-line, non-small cell lung cancer program, not just one trial, investigating several important scientific questions
In study 227 we have at least three discrete opportunities for success
We will be able to evaluate the combination of Opdivo plus Yervoy, we will evaluate Opdivo plus chemo in PDL-1 negative patients and we will be available to evaluate Opdivo plus chemo in all comers
Additionally, as you know, we are testing two cycles of chemo with the combination of Opdivo and Yervoy
It's also important to recognize that MYSTIC trial and CheckMate 227 are very different trials
First, the dose and schedules are different
In 227, we believe we have optimized the dose and the schedule
Second, the trial sizes are very different
227 enrolled over 2,200 patients, with 1,200 patients in the PDL-1 positive portion alone
In contrast, MYSTIC enrolled roughly 1,100 patients in all comers, and its primary endpoint was evaluated in a subset of that population
While the MYSTIC results are important data and we look forward to seeing more, it's very difficult to read across trials
So let me now get back to our results this quarter
Globally, Opdivo sales were very strong
In the U.S
Opdivo delivered strong performance in an increasingly competitive market
Shares in the second-line lung cancer market remained stable, and we saw continued strong performance in other tumor types, with oncology trends in head and neck cancer
Internationally, we delivered very strong growth, as we leveraged broad reimbursement and strong commercial execution to drive continued adoption in our key markets
We also saw important progress from a regulatory and from a clinical perspective
Earlier this month, we announced results from CheckMate 238, which was stopped early as Opdivo demonstrated superior recurrence-free survival in the adjuvant setting of melanoma versus Yervoy, the current standard of care in this setting
This is another successful registrational trial with Opdivo, and it's an important validation of our strategic approach to moving treatment earlier in the adjuvant setting, which we are exploring across tumors
In Europe, Opdivo achieved two important approvals, one in head and neck cancer and one in advanced bladder cancer
In the U.S
, the FDA accepted for Priority Review our application for second-line hepatocellular carcinoma, the most common type of liver cancer, and we have a PDUFA date of September 24. You saw that we just filed the sBLA for four-week dosing for Opdivo monotherapy and we look forward to making that dosing available to patients and physicians
ASCO is always an important Meeting for us
From my perspective, there were two key themes at this year's Meeting
First, we saw the emergence of the next wave of immune-oncology agents that have the potential to complement validated mechanisms, such as PD-1 and CTLA-4. Assets like LAG-3 and IDO underscore the potential of our R&D pipeline and our expertise in this area
Second, it was clear that translational research in biomarkers are likely to play a critical role in identifying which patients will benefit most from different therapies or regimen
This work is important because we know that the unmet need in cancer remains high and that there are many patients we are not reaching
And we believe our pipeline of I-O assets positions us well to bring forward the right medicine or regimen for the right patient at the right time
Looking forward over the next 12 months or so, we have important data readouts expected from our portfolio, including in renal cancer, HCC, small cell lung cancer and, of course, non-small cell lung cancer
Outside of oncology, execution also continues to be strong
Eliquis delivered 51% growth, continuing to expand its lead in the expanding NOAC class
Our hepatitis C regimen was approved and recently launched in China, making it the first regimen of its kind in this important market
Orencia product sales remains strong, having again delivered double-digit growth
We also saw continued progress in our diversified portfolio from a regulatory and from a clinical perspective
We've made good progress on FGF21, where we are in discussion with health authorities about our registrational program which we intend to start by the end of this year
Orencia received approval for psoriatic arthritis in the U.S
and in Europe, and we expect 2018 to be an important year for our immuno-science pipeline, with potential data readouts for the T2 and the BTK programs
Finally, following our IP settlement with Merck earlier this year, together with our partner owner, we've just taken additional legal action against a number of companies with commercialized PD-L1 products
As we've said before, we have established a strong IP position with respect to anti-PD-1 and anti-PD-L1 that we will vigorously defend
Similar to the Merck action, we are seeking financial remedy, and not to reduce patient access to these medicines
As the innovators in this field, we have made significant investments in developing the science of IO, and we are proud of the transformative benefits it is bringing to cancer
As I look back at the first half of the year, I'm very pleased with the execution across the company
We've reported strong sales performance and we have seen good progress from a regulatory perspective and from a clinical perspective
Looking ahead, I see tremendous opportunity for us to continue our growth and I am confident that we are very well-positioned for the long term
And with that, I'll turn it over to Charlie
Thank you
Chris, this is <UNK>
Let me just start and then I'll ask Tom to give you any other comments
I think many of the – of course, it's very difficult to speculate on any comparison of the two studies because we don't know really a lot about the data that was communicated today
With respect to the design of the study, first of all, as you mentioned, size is really important
Second, we should remember that the studies include two different medicines, both in terms of the PD-1 and PDL-1 and in terms of the CTLA-4. Dose and schedule are extremely important
And also, as we've said already, you have to remember that 227 really is a program and gives us the ability and optionality to look at multiple combination strategies in different patient populations
But let me ask Tom to give you more comments about that
So this is <UNK>
Thank you
I'll try to cover some of your points at a high level, and then I'll ask Charlie to make some comments on guidance and the rest of the year, and Tom and <UNK> to give you some perspective on dosing
So first of all, let me say, our performance in the second quarter and actually in the first half of the year is very strong
Commercial execution continues to be very, very strong and trends are good across products and across geographies
So we see good momentum
Obviously there is a degree of uncertainty in lung cancer, but here the U.S
, similarly we are at the beginning of our launch of hepatitis C in China
So those are trends that are a little more difficult for us to comment
But, overall, I would say we feel we are in a really good position from a commercial execution perspective
With respect to dosing, I think that, as Tom was mentioning, we are working really as a priority to continue to optimize the schedule of our assets across indications, across lines of therapy, in combination
And what you've seen with 227 is really a lot of work that went into the finding of that dose
Similarly, we've been working on the four weekly dosing for Opdivo monotherapy
And I'll have just Charlie first, and then Tom and <UNK>, give you more comments about that
Tim, this is <UNK>
First of all, I would say we've said all along that we have optionality with our statistical plan
We don't really see a need to make any change there
And with respect to the time lines for the study, the primary completion, as you said, is the first quarter of next year
We do have an opportunity for an interim on OS by the end of this year
<UNK>, maybe if I can add a couple of comments there
I think these developments that Tom articulated for you are really important for us because we've discussed this before
And when you think about our strategic priority, advancing that early pipeline, in oncology and outside of oncology is clearly a very important priority for us
So I'm personally very pleased that we are working between now and the end of the year to start a number of registrational programs
We mentioned FGF21 outside of oncology
Tom mentioned LAG-3, the two IDO programs and nivolumab is another important program
I'm very pleased we are seeing the beginning of a number of registrational programs that are going be really important for us as a company
And even more broadly, I think what we've discussed today is how we are advancing a very broad program in lung cancer which continues to expand and advance
The second pillar is how we are moving forward with a broad number of short-term opportunities for Opdivo and Yervoy within oncology beyond lung cancer
And the third pillar is really the new pipeline
And I think you are seeing that we're making very, very good progress across every one of those three areas
Okay
<UNK>, let me ask <UNK> to start and give you some data on Q2 U.S
For the 214, by the end of this year that is an interim analysis
You may be referring to the final analysis
And let me ask Tom to give you an answer to your question, to your third question
Geoff, why don't we start with <UNK> to give you some perspective on your more commercial questions
And then Tom will address your CTLA-4 question
Thank you, Tom
Again, we just completed another strong quarter
I am very pleased with execution across the company
As you've seen, we've delivered strong sales performance and we are continuing to make good progress from a clinical perspective and from a regulatory perspective
Looking ahead, as I said at beginning, I see tremendous opportunity for us to continue to grow and I am very confident that we're well-positioned for the long term
So thanks, everyone, and have a good day
| 2017_BMY |
2016 | DAN | DAN
#There was a $25 million pricing action, that benefited the EBITDA, that partially offset the supplier transition warranty cost that I mentioned.
That would not be one-time.
That pricing action continues into the future.
Right.
We haven't typically provided content per vehicle kind of data, and don't really have that at my fingertips to give that to you.
No, there is incremental content.
I can tell you that, <UNK>.
<UNK> is telling me no, so I guess no.
(laughter) Look, I like your effort.
Thank you.
We're certainly ---+ this is <UNK> speaking.
We're not looking for it to improve, quite frankly, in 2016.
We're just hunkered down there, doing everything we can to keep the cost base as minimal as possible.
So I think the improvement we expect is going to be post-2016.
Not significantly.
Okay.
Thank you again, everyone, for joining the call.
Just a quick summary, from my standpoint anyway, there's no question that we had a bit of a difficult year in the Commercial Vehicle group, largely due to currency in the Brazilian market.
But the group is certainly stable now, and improving every day.
However, I'm sure it's not lost on anyone that three of the four business units performed exceptionally well, and continue to perform at a very high level.
Even that, with some very challenging end markets, which will naturally improve some day.
Now, after six months at Dana, I would say I'm very excited about Dana, and our prospects, and frankly, achieving our guidance as we presented not only in January, but we reiterated today.
So thank you very much for your support, and joining the call.
Have a great day.
| 2016_DAN |
2016 | VMC | VMC
#Well, it was a combination of the two.
We saw shipments get impacted in coastal Texas with weather, extreme weather, and some timing of projects, it's one of our higher-priced ---+ it's healthy pricing in that one, so that was geographic, and then you saw some substantial base jobs and shot rock jobs, particularly in Florida, so you put all those together was just under a percent.
Yes, I think what we've seen is the growth in recent activities weakened just a little bit.
Longer-term, our backlogs are growing, the pipeline has strengthened, employment levels and other factors point to sustained growth.
And at any given time that activity at different geographies will vary pretty widely, but if you look at the leading indicators, the Dodge Momentum Index, ABI, they point to a renewed pace of growth in 2017 and beyond.
And then just the simple fact that you've got single-family construction growing at the pace it's growing will pull non-residential up, and that we'll see that coming.
Our shipments to private non-residential work in the quarter were still pretty healthy, so they can vary market to market, but I think we've all probably called the death of non-residential spending prematurely several times now.
Even if we see a little bit of weakness in near-term start indicators with our customers and then the data we look at, we're seeing just as much if not more, strength in the longer-term pipelines.
We still see growth across all of the individual segments we are talking about, with the one thing that surprised us being slow kind of jumps out is really public infrastructure spending.
So, again, the outlook there is strong, but we haven't seen as much in public infrastructure as we would've expected so far this year.
All of the fundamentals are there, but the spending hasn't been quite where we would have thought it would have been.
On the infrastructure piece, it's really just now you're starting to see the big capital projects, water airports, those kind of projects if you look at tax receipts in our markets, they are all at or near all-time highs, so it's going to happen.
It's just a matter of timing, and I think the local governments making the decision to go forward with the capital projects, but you'll see that come on in 2017 and probably more in 2018.
It's a little bit of, I'm going to call it a little bit of conjecture from us, <UNK>, but we at least hear some comments about just ---+ I'm going to call it overall election cycle uncertainty.
Putting some near-term brakes on public infrastructure spending in some places.
But again, as <UNK> said, some of the spending on things like sewers and water infrastructure is not even really discretionary.
If you're going to build as much new residential as we're building, you are going to have to build new water, so it's really a question of timing in our view, but it's one area that so far in 2016 we haven't seen the kind of growth we would have expected.
Well, <UNK>, I'll jump in and say as the CFO that we can't comment on the third quarter yet, but in the spirit of that question, one thing I'd note is you know, if May had the same kind of shipping rate trends that we had seen in June and April, we would probably have a very different feel to this call and results.
We wouldn't be asking some of these questions, so as <UNK> said, it's not uncommon to have some variability in shipping rates week-to-week, month-to-month in a business that's all outdoors.
But again, we haven't seen anything from our view that would indicate any kind of deceleration or anything that would take us off long-term trend.
This is still a business with solid outlook for 2016, strengthening visibility for 2017, and in our view, multiple years of growth ahead of us.
I think, <UNK>, we'll keep up with that number, but let me give you a couple of important reminders.
Our core CapEx spending, as a portion of that $400 million is about $275 million, so think about that as core operating maintenance capital, and then there's another $125 million in that number that's essentially growth capital.
Non-M&A growth capital.
So our CapEx outlook, both now and through the balance of the recovery, remains unchanged.
We have not seen anything in the marketplace conditions, and I'd underscore this, that would cause us to put brakes on our own capital spending or on our pursuit of M&A.
Again, our view on the business and its outlook, if anything, is probably strengthening, so nothing from a external market condition point of view that would cause us to adjust our capital spending.
Yes, <UNK>, obviously we had healthy price in the quarter, and that will continue, but I thought our folks did a really nice job with their operating costs, particularly with a little bit lower volumes and they continued to not only leverage the volume but also just improve on the key operating efficiencies and disciplines that drive the profitability of the business, so it was a combination of the two.
To answer your question on diesel, total diesel was an impact of about $7 million.
Thanks, <UNK>.
I think we have over 2 million shares left on the authorization, so I'd say it's not a question of authorization.
Our path on share repurchase I would call unchanged.
As we've said before, we'll continue to return excess cash to shareholders at this point in the cycle, primarily through share repurchase.
We'll remain opportunistic in doing so, as opposed to give any particular commitment to a certain level of repurchase activity in advance.
But again, our basic approach to capital allocation remains unchanged, and as such, we may continue to repurchase shares as another way to return capital to shareholders.
Good morning, <UNK>.
Well, it will be all over the place, obviously with large projects.
Let me give you a little bit of a view on some large projects, and put a little flavor on that.
So if you look at Virginia, for example, I mentioned northern Virginia, the route 66 projects will be probably 6 million tons, I-85 ---+ and that job will actually go in 2017.
I-85 in southern Virginia is over 800,000 tons, but you'll see some of that in 2016 but a lot has it pushed into 2017.
And in North Carolina, the I-85 widening, it's probably 1.2 million tons, and those will see a little bit of that in 2016, but a majority of it in 2017.
The northwest corridor in Atlanta is 1.5 million, and that's the widening of I-75.
It's 1.5 million tons, and that will probably do a little more, we'll probably get 700,000, 600,000 tons in 2016, so it will be all over the place.
Again, as <UNK> said earlier, it's going to be a matter of timing.
The good news is the contractors and our customers want to get the work done, they are going to press to get it done, because they have visibility and know what's coming in 2017, and so they've got to get this off their books so they can free their crews up and go on to other projects.
So the desire is there, it's just a matter of will they have the crews in the fourth quarter and will the weather allow them to do it.
I don't think there's anything unique about it except for ---+ very similar to last year.
I would underscore what I just said about the contracts and desire to get it done.
They are pressed even more in 2016 than they were in 2015 to get this work done because there's so much work coming for 2017.
You'll see, both on the commercial side and highway side, so the desire is there, and the third quarter is always healthy, but depending on weather, the fourth quarter can be great too.
We'll just have to wait and see.
Sure, <UNK>.
I think we still say 60% as our long-term as in through the entire recovery and expansion cycle number, but that's a multi, multi-year view.
We've obviously been doing better than that of late, sometimes substantially better.
I think for the balance of the year, I'm not sure we see a much different trajectory than we've been on so far this year in terms of incrementals.
Some of that in a very short period of time, if you took an individual month or maybe an individual quarter, can be influenced by the mix of price and volume in our growth, but overall, our teams continue to do a great job.
Again, I come back to something <UNK> said in his remarks.
You know, the work is there.
The demand is there.
Importantly, <UNK>, to your question, the profitability is there, core profitability in our business maybe running a little ahead of our plan.
So what we come down to for 2016 is really a question of timing of the shipments and how much gets done this year versus next.
But again, the work is there, the demand is there; importantly, the profitability is there, and we see that trend continuing.
First of all, as <UNK> said, you've got a lot of well-known funding and budget issues.
Although they did reaffirm the highway spending in Illinois, on one hand the positive, and they also cut the tollway spending in half which will cost us about $700 million in the state for next year.
I think the positive side of that is you're still seeing growth on the private side, and as <UNK> said, this is a very good business for us, and we have a very, very strong market position.
And our teams up there have done a great job of improving their unit margins, even with some falling volume.
Some of that volume also, <UNK>, is we were at two very large jobs, one at O'Hare and one the tollway, that we were working on last year.
And those are starting to wind down, so some of that's just, again, timing of projects, but overall it's a strong market for us, and an important market, and one that I think our folks have done a nice job improving.
They're still out there.
We've got a number of them, as <UNK> said in his comments, that we're working on, when they will close is always each one separate, each one is timing.
But you always have to be disciplined about what you are buying and what you are paying, and what the unique synergies that we have for Vulcan are, and how do we leverage those.
So it's there.
We're hard on that trail, and we've got a number of them in the pipeline.
And only thing we would add to your question, which we also addressed in our comments, is if anything we're pushing harder on opportunities, particularly those that fit us strategically.
We're going to stay disciplined on valuations, obviously, but we've worked hard to be in a position where we now have the financial capacity to really do good deals where they exist, to make the right ongoing capital investments in our business, and to return some capital to shareholders.
So we can balance all those things, and we certainly have the financial flexibility to pursue M&A- led growth.
All that said, we're going to stay really disciplined about it.
I think that the story, as you said in Texas, was the coastal piece of it.
Weather was a big impact.
Let's face, coastal Texas was underwater for more than a month, and so that impacted.
We also had, as <UNK> says, timing on large projects.
We had the Grand Parkway and some big energy projects we are working on last year.
We've worked some of that work off, there's still some in the pipeline.
Golden Pass, Beaumont LNG, so you'll see some of those tons come back next year.
It's hard to tell what's going on in residential and non-residential with the weather pattern we had in the second quarter, probably some softening in Houston.
But behind that, you've got huge increases in highway spending.
We've seen some of that in 2015 and 2016, but you're going to see more of that in 2017 and 2018 and 2019.
And nothing, <UNK>, if we summed up, the visibility is not great because the weather is so bad in a quarter where you have volumes drop to 30% in one market.
It's hard to get a lot of visibility with that kind of drop, but as you look at it you've got strengthening public spending that should offset potentially some weakening private spending.
We haven't seen that weakening elsewhere in Texas yet by the way.
The little bit we've seen around Houston, we've not seen spread to the rest of Texas.
And finally your question about price impact or impact on logistics out of our quarry in Mexico, I don't think anything I'd call material anyway---+
Well, I think you have to remember, the quarry in Mexico, we ship to some 17 or18 port facilities all the way around from Brownsville all the way around to Jacksonville, Florida, so where you might have some temporary softening and timing in projects on the coast of Texas, you've got the southeast and Florida, and those markets picking up substantially, so there's a lot of flexibility in that overall business, and I think we think we're fine with it.
Again, on pricing, which is just really a mix issue, not a fundamental underlying price issue, I don't think we would expect these kind of declines we saw in the second quarter and in future quarters, so I don't see anything that I would try and model in on pricing.
I think the good news there is everybody is talking about it.
Both presidential candidates, you've got a number of people in Washington concerned about the country's infrastructure.
They all know it's an issue, and they also understand that it is stimulus if we do it correctly.
So like I said, we have a five-year bill, but we still have a degraded highway system, and that bill is not going to improve that grade.
So it is an issue.
Now what's going to happen, we don't know even what's going to happen with the election, but it is an important issue, and one that people are putting out there in front of everyone.
<UNK>, it's <UNK>, because I may have made the comments.
Just to add to that.
My comments weren't reflective on the nature of the dialogue around future infrastructure spending, which we actually, as <UNK> said, see quite positive at a federal level, state level, and local level across many geographies.
It's more just a negative tone, and some degree of uncertainty, that would seem to affect private investment levels.
You'll know more about this than us, but you may have seen some of that in second quarter GDP data.
And we probably have some customers who, on balance, just give a negative tone out there, particularly on the private side, are a little more reluctant than they would be in a different time to add their own additional capacity to make their own big capital investments, whether that's new equipment, or land for development, or larger staffs.
So I wouldn't want to make it too big a deal.
What's interesting to us is just this disconnect, if you will, between the tone you hear in the middle of an election cycle, which is really negative, and what we see in our own business which, frankly, is pretty positive but nothing ---+longer-term, the dialogue around higher levels of public infrastructure spending particularly on road infrastructure and other infrastructure we are pretty excited about.
I think that the ---+ first of all, the labor issue, yes, we're seeing shortages with our customers, whether it's ready mix truck drivers, or finishers, or carpenters on residential, so there are labor constraints out there, and it is a bottleneck for our customers and therefore for us.
I think they are working through it.
We've been on this theme for now about a year, and that's actually good news, because it means it's growing and growing faster than they can fill the ranks, and the work isn't going to go anywhere; it's just a matter, again, of timing.
On your question about normal, it wouldn't change our view of normal, but as we've discussed many times before, these bottlenecks, whether they are labor or others, that some of our customers face, they probably do constrain on the margin the rate of growth or the rate of recovery, keeping us for now in the 7%, 8%, 9% rate as opposed to something that the underlying demand would justify being higher.
Flip side is, it can create a generally positive pricing climate, but it may make for a longer recovery at a slightly slower rate, like that 7%, 8%, 9% rate, as opposed to something that would get up into the sustained double digits for a very long period of time.
As you look out towards the second half of the year, and the price of diesel last year versus the price of diesel this year, it is probably not going to be a big cost advantage going forward.
I think there was ---+ as I said earlier, our folks are doing a really good job of concentrating on our own operating efficiencies that we can control.
Volume coming back will help that, so I feel pretty good about our cost and our ability to take incremental revenues to the bottom line.
As far as capital projects, they are all over the place.
Some as simple as replacement of mobile equipment, screens and crushers, usually when you do plant capital, it's a combination of both replacement and process improvement to get more throughput or reduce downtime, which helps on your cost, obviously other than just like-for-like replacement.
On the growth side, we've got a number of facilities who are working on, our distribution network both rail and blue water.
All of them are different stages of completion, and then we've got a number of Greenfield projects that we're working on at different stages in completion.
Only additional color I might add is, while we not have the same tail winds from diesel moving forward, we should be beginning to work out of a period where we had elevated repair maintenance costs earlier in the recovery.
So we're hopeful those trends will offset each other a little bit, some more work to do there.
Just a reminder, we've got a lot of fixed costs yet to leverage in this recovery.
So as <UNK> said, we're pretty proud of what our teams did, and particularly as an example in a quarter without much volume growth, and still with very uneven production schedules due to weather challenges.
To control your costs in a quarter like the one we just finished, is a good sign of the right disciplines, so we have a pretty positive outlook about our margin performance looking forward.
They will come on line at different stages next year, and they will both be more efficient, both particularly in fuel.
Also, they have less draft and more tonnage capacity so we'll see improvements, cost-wise, with those ships as they come on line, and we'll be excited to get those.
Probably a little early to talk about it specifically, though.
That may be something that's more a 2017 item.
Probably a little too early to talk about it, specifically, but they are good investments.
Both.
Primarily bolt-on.
I mean, those are some of our best returns, and it proves the efficiencies in the overall franchise, but ---+ and it's healthy.
And then as far as new markets, we did that 18 months ago in New Mexico, and where we have a path to a number one or a number two position we'll look at new places.
If not, we probably won't.
You said it well.
We like aggregates.
Thank you.
Sure.
I talked about California.
That they were going to lose a little bit of funding, but there are a number of ---+ three bills in particular that would add between $3 billion and $7 billion, and they have to address their roads.
And then the local impact, which is in total, if they all pass, would be $2 billion a year, so Texas is one of the fastest growing highway markets.
We saw a 30 in our markets in Texas, in just the highway legs alone.
In 2016 we'll see an improvement of over 30%, state as a whole improvement of over 20%.
And a lot of that will go in 2017 and then you'll have improved funding again in both 2017 and 2018.
That will go up about 15% or 20% in 2017, and then there's another over $2 billion that comes on to Texas in 2018.
Georgia basically doubled their highway funding.
That passed a year ago, and we'll see a little bit of that in 2016, as I said earlier, a majority will come in 2017 and 2018.
North Carolina has improved their funding, as has Florida, as has South Carolina, as has Virginia.
There are bills being discussed in Alabama and probably won't be addressed until 2017.
I'd tell you a similar story in Tennessee, where it needs to be addressed, and they have not.
It won't happen in 2016; hopefully it will happen in 2017.
So as I said, a lot of our states have marked improvement in funding.
The vast majority of that, except for Texas, will flow through in 2017 and 2018.
So we're really looking forward to this, and this is a real bright part of our future.
You bet.
Good morning.
I think the average price, as I've said earlier, was healthy in spite of some geographic and product mix issue.
Probably one of the bigger impacts in the quarter was on that was just the mix issue was coastal Texas, as <UNK> said volumes were down 30%.
It's a very ---+ it has healthy pricing, and so that had a little bit of an impact but overall, the environment for pricing across our footprint remains healthy, it's strong.
Throughout the entire construction segment pricing is moving up, and that's driven by demand increases, and it is also driven by the visibility of what everybody sees coming in 2017 and 2018.
Just to give it a little more color, if it helps, I think our average selling prices, if you take all of the moving pieces and adjust as best you can on a like-for-like basis, probably would have been $0.03 or $0.04 higher than what we reported.
Again, a lot of that is having a big decline in coastal Texas.
At the same time, that is accounting for some of our southeastern markets which have good pricing, too, growing pretty quickly.
So on a total like-for-like basis, if you look at geographic issues and if you look at some of the product mix issues, our rate of price growth year-over-year would have been a little closer to eight than what we reported.
But I wouldn't let any of that distract you from what <UNK> said, which is the core pricing outlook and climate remains positive, given where we are in the recovery.
And I'd also just remind you prices went up pretty healthily in those very same markets that were volume-challenged ---+ so Virginia, Illinois, California, Texas ---+ those are all markets that have had good pricing in margin improvement, not just in this quarter, but for the last few quarters.
No.
I don't think it's more.
I think that it's just a piece of it.
So part of it is going to be the large projects, as we said earlier.
Part of it, just across the entire market segments, it's going to be the contractors and can our customers get the work done in the time that they have.
So we talked about labor shortages, you have those and those are an issue, So it about both timing of large projects, our customers' ability to get work out, and then how many days do we have of construction in the fourth quarter.
All that will go together to really see how the year turns out.
But I'll remind you, this is exactly what we saw in 2015.
Well first of all, in the quarter, pricing was a combination of ---+ the mix impact was both geographic, which was Texas, and then mix.
So we had some large base work in the southeast, and we also had some large shot rock projects in Florida.
And while they may have an impact on price, it has a overall positive impact on profitability, because you've got to sell those mix of products.
Some of them are cheaper to make, and so the price of the margins ---+ while the price may be lower, the margin is very healthy, and you need to sell the full product line to maximize profitability in our operations.
On your question about highway construction, and coming highway construction, that really plays into our hand in that it is a really healthy mix of what our plants produce.
It has a combination of base in fines because it's new construction, and it has asphalt rock, it has concrete rock, so it gives the full flavor of everything we produce, and just pushes the overall profitability up.
When you think about it geographically, we really like the ---+ particularly, well, we like it now, and we like it longer-term the breadth and positioning of our particular geographic mix.
These trends we're seeing and where we see the growth and the nature of the increased public spending that we commented on earlier, if anything, these should give us tail winds from a geographic mix point of view.
We're well-positioned against where the growth is coming.
Over and beyond that, on aggregates, it also fits into our hand with our asphalt business.
So we have very strong positions in a number of states with asphalt, which is a lot more public- driven, so all of the spending on highways will help that business.
You're welcome.
Thank you for your interest in Vulcan Materials, and we look forward to talking to you this quarter and over the balance of the year.
And I would like to thank our employees for all of their hard work and the things they do to make this Company great.
Thanks.
| 2016_VMC |
2017 | COHR | COHR
#So in terms of materials processing, as I mentioned already in the prepared remarks, we saw a lot of activity across a lot of applications.
In general, this is new capabilities that are being delivered into the market.
And I would say some of it is also due to renewed focus on the part of our new team members in Europe.
If you look at the traditional applications, the bread-and-butter applications, they are doing okay.
It is a lot of these advanced applications that are really driving the business, where the value add for the laser tool is quite high.
Thanks, <UNK>.
<UNK>, thanks for your question.
No change.
We did announce $30 million of synergies on the November 9 call, post the transaction.
We announced a number of actions that represented about 80% of that $30 million number, in terms of skewing between the restructuring costs or the costs associated with obtaining those synergies.
As you said and I will echo again, they are front-loaded, with synergies coming later on.
So no change in that overall perspective.
Thank you.
We have seen some positive trends in all three markets, but for different sub-markets.
In China, there has obviously been a lot of investment around the EMS supply chain, whether it is for advanced products like ELA, or some of these ultra-fast products, to cutting and marking lasers.
So a lot of activity in China for the EMS.
In Europe, we've seen some good work around component technologies that feed the materials processing market.
And in the US, it has been a combination of automotive and medical device manufacturing.
So while collectively, there has been a lot of positive movement, it is geographically specific in terms of activities.
I'm sorry, <UNK>.
We actually have a pretty substantial business where we sell laser components to other companies that manufacture either lasers or systems.
And these can be diodes, fibers, connectors, other things.
That business has actually been quite strong in Europe.
The majority of them are exported, and probably much of is going to China.
Sure.
<UNK>, if you recall, again, I think was last quarter or the quarter before, we talked about the fact that, with some very nominal investments, particularly around optics fabrication, that we could increase output from ---+ the customer here is an important one to us in the industry.
So we've made that accommodation.
Yes.
Thank you, Emily.
I want to thank everyone for their participation today.
Obviously we are very excited about the results, more excited about the future.
We look forward to talking to you in a few months.
| 2017_COHR |
2016 | KLIC | KLIC
#Yes, no problem.
Yes, I think based on what the, at least the various publication what we are seeing, it seems like there is definitely a lot of interest and some traction that is taking place within ---+ certainly within the memory players.
We certainly are very interested to gain further traction with our memory customers that's coming from either the OSATs and IDMs.
Both of those, and hopefully to get into more of the volume-type of repeat purchase order for our multiple sets of machines, purchase orders.
And that's something that we are continuing to work with.
There's a lot of different end applications that our customers are currently looking at, and once our machine to go through a qualification process for different type of memory type of, including the high-bandwidth memories or game console memory chips.
Well, I would say that it's a balanced view because, as you can see in the past, historically, we are able to manage our costs pretty effective if we need to.
Our aim here is not to really provide some kind of a guidance on our breakeven level, but I prefer not to go through some extreme cost-containment measures, but allow our team to basically to really leverage off the budget they have to pursue business opportunities.
So there are ways to tighten our belt if we need to and we certainly have done so in the past.
But I think the $115 million to $120 million in terms of how we actually guide the cost structure ---+ it is a balanced approach.
Just one second.
Cash generated is about $6 million for the last quarter.
Well, I think we believe this market is ---+ depending on the solutions that we're pursuing for each of the flavors that we are actually pursuing.
It's about probably $120 million or so or higher in each of the solutions.
But we think there is ---+ it is now just trying to taking traction.
And the size of the market ---+ it really depends on the adoption rate from our customers.
For this particular year, since it is just starting out, I would say from our perspective, we set our budget fairly conservatively from what we want to achieve.
So I don't ---+ just to answer your first question, it will have large tracking revenue but it's not going to be a significant level of revenue compared to the rest of the Company.
But the key is actually we need to be well-positioned if the track ---+ if basically adoption takes place, and then it's really the 2017 year that we need to be prepared for.
Yes.
That's the Wire Bonding business is really what we refer to as our core business; so, yes, the pickup in terms of volume and the revenue guidance is mainly from that business.
Well, I think there is going to be a small portion of it, but especially, the fact that the machines that we will be, in terms of we are able to recognize revenue on these machines, the fall-through is quite good because the fact that we have expensed these machines already.
So the fall-through on the net income is going to be quite high.
But the top line revenue is also still a majority coming from Ball Bonding, and to a smaller extent, the Wedge Bonding business.
Let me just add a little bit to that.
For APMR, we are still going to integration process and we set a reasonable budget for them for this year.
We are expecting more growth that comes from the subsequent year from this year.
But I can say that there are actually a lot of interest in terms of their solutions on the Mass Reflow side.
So the nice challenge is the fact that we need to ramp and be more scalable, while addressing the fact that they mainly sell in different currencies and where the KNS side do sell in US dollars and source in US dollars.
So there's some integration-related activities that we need to finish for the rest of the year.
But the team is working well together with us in terms of the integration process and we expect great things from that acquisition.
You are welcome.
Well, I would say if you look at the trends and we are seeing some steady pick-up in terms of demand coming from <UNK>na.
And late in the quarter, we are seeing basically from Taiwan as well.
So <UNK>na, as you look at ---+ I look at our top 10 list, basically our ---+ we sell through a distributor in <UNK>na, but (inaudible) most of the top OSATs in <UNK>na and they are steadily investing.
We're also seeing some steady investments coming from second-tier OSATs as well in <UNK>na.
So the fact that <UNK>na wants to be a leader in 10 years' time, I would say there's exceptionally, definitely increased investments in diverse ---+ a lot of different players on demand.
Sure, sure.
Our normal seasonality, as you know, December quarter is typically the lowest quarter.
But we have seen the past five years sometimes the second quarter would be lower.
And the fact that people don't like decisions until after <UNK>nese New Year.
But this year, we are seeing priorities.
We have seen basically ---+ base POs from our customers earlier on.
So that's why we were able to actually guide a little higher.
So it's a little different than previous years for that culture.
Well, we are seeing some inquiries and we are expecting some of the LED players to further invest in this area so it seems like it's an up trend.
The question then is, it's all about pricing and how do we actually maintain our market share space.
As mentioned in the past, LED is generally about 5% or less.
But we are selective in terms of the customers we serve and we are seeing some bigger players inquiring that they're building the new plants and capacity and we will selectively participate in this.
So we're ---+ in terms of outlook, I think ---+ this current quarter could be higher than 5%.
No problem, Steve.
Well, <UNK>, we don't guide past the current quarter.
But we have provided roughly what the size of that market was, which Joe just mentioned.
And the Advanced Packaging size is probably $250 million and it could grow at a fairly high CAGR ---+ the chart on that could grow as much as 40% CAGR over the next several years.
The question is really the adoption of ---+ by our customers, and I did mention in terms of this current year, we are actually just trying to at least get a position in there so that in the long term, we could be at least a 30% player in the market that we are serving.
We are talking about Advanced Packaging.
And the Thermo-Compression ---+ when I mentioned the four flavors, it's really ---+ there are two flavors are the Thermo-Compression Bonders, <UNK>p-to-Substrates, <UNK>p-to-Wafer; and then there are two other flavors, which is Fan-Out Wafer-Level Packaging and that doesn't use Thermo-Compression Bonder, and High Accuracy Flip chip, which also does not use TCB.
I think it is a good question.
We have different models that we run on our corporate ---+ we run a five-year corporate model, and there is actually scenario where it could actually be ---+ it could grow to a reasonable size.
So really again, it really depends on our customers basically adoption of this.
But one thing for sure, in our opinion, is that the traditional of the core business, while it is mature, it is not going away anytime soon.
The question is really Advanced Packaging could be a meaningful contributor in terms of revenue as well as bottom line to our business.
This is where we're cautiously optimistic.
We are obviously, after this current quarter, we hope there will be a ramp in terms of the Q3 and Q4.
But that's something that we have to look at one quarter at a time.
But we are always ready.
We are pretty flexible, as you know, with flexible manufacturing.
So we're ready.
If the demand is there, we will definitely try to capture as much as we can.
CapEx is actually generally ---+ we're low ---+
Sure.
Let me address that.
The topic of capital allocation is regularly discussed at the management level as well as the Board level and this is something that we review almost on a quarterly basis.
So while we actually are open to continuing with the share repurchase program, the question, then, is really to address the cyclicality of the business, in terms of broadening the business revenue streams that we believe is actually a higher priority at this point in time.
But I think, even if we want to actually increase the size of the program, just keep in mind, if we are actually borrow a ---+ basically a number of onshore in the US, we have to pay that back at some point.
So we still need US dollars to eventually service that debt.
So we are very cognizant just to ensure that our cash, then, onshore in the US, will need some cash flow sources to meet that.
So that's something that we are continuing to analyze and also update on a quarterly basis, basically.
| 2016_KLIC |
2017 | CYTK | CYTK
#Good afternoon, everyone, and thanks for joining us on the call today.
<UNK> <UNK>, our President and Chief Executive Officer will kick us off with highlights from the quarter.
Then, Andy <UNK>, our SVP and Chief Medical Officer, will provide updates on VITALITY-ALS and VIGOR-AL<UNK>
<UNK> <UNK>, our EVP of Research and Development, will then provide an update on CK-2127107 or CK-107 and the ongoing and planned clinical trials in this program.
<UNK> will also provide an update on the safety development program for omecamtiv mecarbil.
Pete <UNK>, our new SVP and Chief Accounting Officer, will then provide a financial overview for the quarter; and <UNK> will wrap things up with additional corporate updates, prospectives and upcoming milestones before we open the call for questions.
Please note that portions of the following discussion, including our responses to questions, contain statements that relate to future events and performance rather than historical facts and constitute forward-looking statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995.
Examples of forward-looking statements may include statements relating to our financial guidance and goals, our strategic initiatives, our collaborations with Amgen and Astellas, clinical trials and the potential for eventual regulatory approval of our product candidates.
Our actual results might differ materially from those projected in these forward-looking statements.
Additional information concerning factors that could cause our actual results to differ materially from those in these forward-looking statements is contained in our SEC filings, including our most recent 10-K and 8-Ks.
We undertake no obligation to update any forward-looking statements after this call.
And now I will turn the call over to <UNK>.
Thank you, <UNK>, and thanks again to everyone for joining us on the call today.
This is our first quarterly earnings call since our CFO, Sharon Barbari, announced her plans to retire.
Before I formally introduce Pete <UNK>, I'd like to personally thank Sharon for her partnership with me and her tremendous contributions to the company over the past 12 years.
Sharon has been a key member of our executive team and provided expert leadership and oversight to our finance, IT and facilities groups.
She brought a highly-valued strategic perspective to guide our accounting, budgeting, forecasting, corporate development and R&D activities, and she solidified a sound operating and financial foundation on which we have advanced our R&D activities and emerging commercial development plans.
Under Sharon's stewardship, we have effectively managed our cash and other resources and institutionalized appropriate controls to ensure we are good stewards of investors' risk capital, while we also raised even more capital from strategic partners than we did from equity investors.
We wish Sharon the very best in her upcoming retirement, and we're pleased that she has agreed to consult with us on special projects moving forward.
I'd now like to introduce you to Pete <UNK>.
Pete joined Cytokinetics recently as our Senior Vice President and Chief Accounting Officer.
We're thrilled to have Pete join the team as he brings abundant expertise and experience in biopharmaceutical public company accounting and corporate finance as well as cross-functional R&D operations and commercial planning from his career that spans over 35 years.
Pete joins us most recently from Pain Therapeutics, where he served as Chief Financial Officer for 15 years, and prior to that, he held Senior Accounting Operations and finance positions at COR Therapeutics through its acquisition by Millennium Pharmaceuticals.
We're very pleased to have Pete now join us as a member of our senior executive team.
You'll be hearing from him in just a moment.
Moving now to highlights from the quarter.
We began 2017 in a strong position and ended the quarter even stronger having added to our financial resources while also advancing our multiple muscle biology programs and executing well on our regulatory and commercial readiness plans.
VITALITY-ALS and VIGOR-ALS continue to make good progress.
The last patients enrolled have completed their 24-week visits, and we're proceeding towards last patient, last visit projected to occur in the second half of the year.
Moreover, nearly all patients completing VITALITY-ALS are choosing to continue into the open-label extension trial.
We also advanced our innovative collaboration with Origent Data Sciences, and we look forward to contributing data from VITALITY-ALS to Origent's machine learning model that may ultimately help accelerate future clinical trials in ALS by providing predictive algorithms and potential efficiencies in the conduct of trials.
Andy will have more to say about that.
Notably, we also recently opened Cohort 2 in our Phase II clinical trial of CK-2127107 or CK-107 in adolescent and adult patients with SMA, which we're conducting in collaboration with Astellas.
We anticipate that Cohort 2 will enroll more quickly than Cohort 1, and we remain on track to report results in the second half of 2017.
Next, GALACTIC-HF, the Phase III cardiovascular outcomes clinical trial of omecamtiv mecarbil in high-risk patients with heart failure conducted by Amgen in collaboration with Cytokinetics has proceeded with continued site activation and patient enrollment occurring around the globe.
Things appear to be on track in these early days.
And finally, during the quarter, we sold Royalty Pharma a 4.5% royalty on potential future worldwide sales of omecamtiv mecarbil for $100 million, $90 million in cash and $10 million of which was in Cytokinetics common shares.
We have exercised our option under our collaboration agreement with Amgen to co-invest in the Phase III development program for omecamtiv mecarbil in exchange for an increased royalty of up to 4% on increasing worldwide sales of omecamtiv mecarbil outside Japan.
As we have explained, co-investing at this highest possible level affords Cytokinetics the right to co-promote omecamtiv mecarbil in institutional care settings in North America with reimbursement by Amgen expected for certain sales force activities.
A joint commercial committee will lend oversight to the commercialization program, and a joint commercial operating team would then be responsible for the day-to-day commercial activities relating to omecamtiv mecarbil.
We look forward to working with our colleagues at Amgen to advance commercialization planning.
As you'll hear the team elaborate, momentum continued across our programs, and we're enthusiastic about our progress and prospects for the balance of 2017.
With that, let me now turn the call over to Andy, and he'll update you on tirasemtiv.
Thanks, <UNK>.
As <UNK> mentioned, in the past quarter, we continued conduct of VITALITY-ALS and enrollment of patients into VIGOR-ALS, our open-label extension trial of tirasemtiv for patients who have completed VITALITY-AL<UNK>
We are pleased to report that greater than 90% of patients who complete VITALITY-ALS are choosing to enroll in VIGOR-AL<UNK>
We believe that VIGOR-ALS may complement VITALITY-ALS and generate additional safety and outcomes data to support the potential registration of tirasemtiv for the treatment of patients with AL<UNK>
During the first quarter, the data safety monitoring committee convened to review unblinded safety and efficacy data from VITALITY-AL<UNK>
Afterwards, they recommended we complete the trial without any changes to its conduct.
The last patient now has proceeded through the 24-week visit, which is when the primary endpoint SVC is measured, allowing us now to plan database locked data analysis and reporting.
We expect results from VITALITY-ALS to be reported in the fourth quarter of 2017, hopefully to occur at the ALS/MND Annual Meeting in Boston December 8 through 10.
Additionally, in collaboration with Origent Data Sciences, we announced the advancement of our research collaboration to prospectively validate Origent's machine-based learning model to predict the course of ALS disease progression using baseline data from VITALITY-AL<UNK>
As a reminder, this collaboration is funded by a grant from The ALS Association to Origent and is designed to enable the first prospective validation of their predictive model in a clinical trial for AL<UNK>
Previously, the Origent models, predicting both function and survival of ALS patients, have been validated retrospectively using placebo data from earlier clinical trials, including our Phase II trial BENEFIT-AL<UNK>
In this next phase of the collaboration, Origent will seek to prospectively validate existing predictive models for a variety of measurements, including the ALSFRS-R as well as the respiratory, gross, fine and bulbar subscores, SVC and survival using baseline data from VITALITY-AL<UNK>
Screening and baseline data from placebo patients will be provided to Origent, and their predictions will be made in the absence of access to the subsequent outcomes of these patients.
After Origent's predictions are completed, the outcomes will be given to Origent to enable comparison of actual data as to previously escrowed predictions.
We remain hopeful that the predictive algorithms generated by this collaboration may ultimately accelerate clinical trials in patients with ALS by allowing randomization in many fewer patients to placebo, supplemented by so-called virtual control arms based on these models.
Now I will turn the call over to <UNK> to provide an update on CK-107, our next-generation fast skeletal troponin activator, as well as an update on omecamtiv mecarbil.
Thanks, Andy.
The most significant development relating to CK-107 was the recent start of Cohort 2 of the Phase II clinical trial underway in adolescents and adults with SM<UNK>
As you'll recall, this clinical trial is designed to assess the effect of CK-107 on multiple measures of muscle function in both ambulatory and non-ambulatory patients with SM<UNK>
The decision to proceed to Cohort 2 followed a review of data from the Cohort 1 by the Data Monitoring Committee.
As <UNK> mentioned, we expect this cohort to enroll more quickly than did Cohort 1 since investigator sites are now up and running and we have since added sites in Canada.
We also have had support from Cure SMA as well as the Muscular Dystrophy Association getting the word out through their constituents' communication channels.
We look forward to reporting results in the second half of the year and if this hypothesis-generating trial generates positive data, potentially to advancing CK-107 to a Phase III clinical trial in patients with SMA under our collaboration with Astellas.
We are encouraged by the enthusiasm within the SMA community for nusinersen or SPINRAZA and believe potential treatment with CK-107 could allow SMA patients to live a longer and more functional life, thereby, amplifying muscle force, power and stamina despite residual muscle weakness and dysfunction.
Since CK-107 has a different mechanism of action, we believe it may prove complementary to SPINRAZA and potentially further improve muscle function and physical performance in these older patients still confronting an unmet need.
Of note, we recently presented a poster containing preclinical data regarding CK-107 at the MDA Scientific Conference in Arlington, showing that it improves muscle function in mouse models of SMA similar to types 2, 3 and 4.
These mouse models exhibit significant nerve dysfunction and muscle atrophy as well as a decrease in maximum muscle force production.
In 2 different mouse models, CK-107 increased skeletal muscle force production relative to placebo in response to neuronal stimulation at low- to mid-range stimulation frequencies, indicating a calcium-sensitizing effect of CK-107 in the skeletal muscles of these mice and suggesting that CK-107 may be a viable drug candidate to improve muscle function in patients with SM<UNK>
Moving to the other clinical trials under our collaboration with Astellas.
Astellas continued to enroll patients in COPD in a Phase II clinical trial of CK-107 during the quarter and progressed plans to conduct a Phase Ib clinical trial to assess the effects of CK-107 in elderly adults with limited mobility.
We anticipate dosing for this trial to begin in this second quarter of the year.
Finally, during the last quarter, we continued plans to initiate a fourth clinical trial of CK-107, this one in patients with ALS, which we will conduct at Astellas's expense under our collaboration.
We'll have more to say about this trial as we get closer to the study start in mid-2017.
Switching to our cardiac muscle program.
Amgen continued to work around the world to activate centers and enroll patients into GALACTIC-HF, the Phase III cardiovascular outcomes clinical trial of omecamtiv mecarbil.
Currently, start-up activities are well underway with regulatory approvals obtained in the great majority of countries where the trial will be conducted and its enrollment as planned.
At our first Investigators Meeting at the American College of Cardiology or ACC last month, we were pleased to see great enthusiasm for the trial among its investigators, and we continued to hear statements regarding the urgent need for new approaches to treat patients with heart failure with systolic dysfunction from the podium during several scientific presentations.
Also at ACC, additional results from COSMIC-HF were presented in a poster by Tor Biering-Sorensen from the Brigham & Women's Hospital.
The results represent the first direct echocardiographic evidence in humans that increases in the contractility of cardiac muscle underlie the improvements in overall cardiac function observed in COSMIC-HF.
Specifically, this analysis showed that omecamtiv mecarbil improved myocardial deformation, which is a measure of myocardial contractility that has been positively related to cardiovascular outcome.
In addition to other results previously reported, these findings from COSMIC-HF represent another positive signal of improvement in cardiac function potentially related to improved overall cardiovascular outcome.
We look forward to extending this finding in the second Phase III clinical trial we plan to conduct in parallel with GALACTIC-HF, which will examine the effect of omecamtiv mecarbil on exercise tolerance and cardiac function.
This clinical trial will be conducted by Cytokinetics in collaboration with and primarily funded by Amgen.
We are engaged in clinical trial planning activities and will have more to say about that trial later this year.
Finally, we remain on track to report results of the ongoing Phase II clinical trial of omecamtiv mecarbil in Japan in Q3.
This trial, which is mostly focused on safety and pharmacokinetics, is expected to inform the potential participation of Japanese investigational sites in GALACTIC-HF later this year.
So with those updates, I'll now turn the call over to Pete to provide an update on our financials.
Thanks, <UNK>.
As our press release contains detailed financial results for the first quarter of 2017, I'll refer you to that public statement for the details on our P&L and balance sheet.
I'll touch here on our cash, some details regarding our revenues and our spending on R&D.
<UNK> commented earlier that we added $100 million to our balance sheet during the first quarter from the Royalty Pharma transaction.
That deal generated $90 million in cash and $10 million from the sale of common stock.
We ended the quarter with $257.2 million in cash, cash equivalents and investments, which represents over 24 months of going forward cash burn based on our 2017 financial guidance.
Revenues for the first quarter of 2017 were $4.2 million compared to $8.4 million during the same period in 2016.
These revenues included $1.4 million of license revenues and $2.7 million of research and development revenues from our collaboration with Astellas, $0.9 million from our collaboration with Amgen and $0.3 million in research and development revenues from our collaboration with The ALS Association.
We paid Amgen $1.3 million out of the $40 million we will co-fund in the Phase III development program of omecamtiv mecarbil.
That $1.3 million payment offsets research and development revenue in the statement of operations.
Revenues for the same period in 2016 were comprised of $4 million of license revenues and $3.7 million of research and development revenues from our collaboration with Astellas and $0.6 million of research and development revenues from our collaboration with Amgen.
Our first quarter 2017 R&D expenditures totaled $19.3 million.
From a program perspective, for the first quarter, approximately 84% of our R&D expenses were attributable to our skeletal muscle contractility programs, which include both expenses associated with tirasemtiv and CK-107, 12% to our cardiac muscle contractility program and 4% to other research activities.
Finally, our G&A expenses include both traditional administrative expenses as well as internal and outside services focused on commercial readiness.
And with that, I'll turn the call back over to <UNK>.
Thank you, Pete.
I'd like to close with additional updates regarding our commercial readiness and research activities.
During the quarter, we continued our readiness activities in preparation for positive data from VITALITY-ALS and potential filing approval and commercialization of tirasemtiv, both in the U.<UNK> and Europe.
Firstly, we met with market asset specialists representing Germany, France, Italy, Spain, and the U.K. to gain insights into the elements required in an orphan drug value proposition to support health technology assessments and potential payer reimbursement.
Similarly, we continued market research with payers to benchmark reimbursement approaches to novel mechanism orphan therapeutics.
We also conducted market research with patients to inform packaging decisions and recently initiated a process to secure distribution and potential early access partners.
As you may imagine, there are multiple work streams proceeding in parallel to ensure we are readying for commercial launch pending positive results and marketing authorizations.
We're also planning for success with CK-107 in adult and adolescent patients with SM<UNK>
While SMA treatment is rapidly changing with the recent approval of SPINRAZA, we believe there will still be a prevailing unmet need to improve muscle function, power and stamina in these patients.
As such, we're conducting market research with patients, payers and specialty pharmacies to explore potential commercial formulation options for CK-107 in SM<UNK>
And as we prepare for commercialization of our lead drug candidates, we also have exciting research underway, and we're looking at potential next-generation muscle activator approaches in partnership with Amgen and Astellas as well as also independently.
We anticipate having more to say about these ongoing research programs potentially proceeding towards development later in the year.
In summary, our activities across the breadth of the company continued to advance well during the first quarter of 2017.
We remain optimistic about our prospects for the balance of the year, across our diverse portfolio of novel mechanism muscle biology directed drug candidates.
As always, our focus continues to be on the patients who desperately need new therapies to treat their severe and devastating diseases of impaired muscle function and weakness.
Now let me recap our expected milestones for the remainder of 2017.
For tirasemtiv, we expect results from VITALITY-ALS in the fourth quarter of 2017, and we expect to continue to enroll patients who complete VITALITY-ALS into VIGOR-ALS, our open-label extension trial, throughout 2017.
For CK-107, we expect data from a Phase II clinical trial in patients with SMA during the second half of 2017.
We expect Astellas to continue enrollment in a Phase II clinical trial of CK-107 in patients with COPD in 2017.
We expect Astellas to begin a Phase Ib clinical trial of CK-107 in elderly patients with limited mobility during the second quarter, and we expect to begin a Phase II clinical trial of CK-107 in patients with ALS in mid-year 2017.
For omecamtiv mecarbil, we expect continued enrollment of patients with chronic heart failure in GALACTIC-HF, our Phase III clinical trial of omecamtiv mecarbil throughout 2017, and we expect data from a Phase II clinical trial of omecamtiv mecarbil in Japanese patients with chronic heart failure, that to occur in Q3 2017.
And lastly, for preclinical research, we expect to continue our research activities under joint research programs with each of Amgen directed to the discovery of next-generation cardiac muscle activators and with Astellas directed to the discovery of next-generation skeletal muscle activators as well as we expect to advance our own proprietary programs.
And operator, with that, we're now open to ---+ the call to questions.
Sure.
So I'll start.
I'll turn it over to Andy and then also to <UNK>.
With regard to your first question, we haven't commented on the early termination rate other than that which we said occurred during the open-label period, which mirrored what we saw during the first 2 weeks of BENEFIT-AL<UNK>
So we're pretty encouraged by that.
Otherwise, we haven't yet commented on that, and we will do so after we have more of a grasp of this study through to last patient, last visit.
With respect to your second question, CK-107 in ALS, yes, I think your assumption is a good one.
As we've stated already, this will be a study of roughly the same timeframe duration as was the BENEFIT-ALS study and will be primarily focused on respiratory function, inasmuch as we think over a shorter duration study like that, that's the most sensitive measure of this mechanism of action, and over longer periods of time, as we might then proceed in Phase III, we'd be able to assess for other parameters of muscle strength and muscle function.
So Andy, I'll just turn to you.
Is there anything more that you'd add to that.
I don't think I would, no.
Okay.
So that's an answer, I think, to questions 1 and 2, and maybe I'll turn it over to you, <UNK>, for an answer to question 3 about the kinds of endpoints we'll look at with regard to elderly subjects with limited mobility.
Yes.
So on that study, we'll be looking at muscle strength and fatigue ability by sort of repetitive leg extensions, so essentially looking at the amount of work that the patient can do in a fatiguing exercise.
But we'll also be looking at other things such as walking time, stair climb tests and some scales of physical function that have been used in this population for quite some time.
It's a good question.
We are increasingly going to be sharing updates on some of the things we're doing from the standpoint of commercial readiness as I think it's especially important that investors know that we're preparing for success not only with respect to some of the market access and market research I spoke to but yes, also with regard to manufacturing.
There are still certain things that we need to be doing that we haven't yet done, but through the second half of this year, we expect to be conducting those activities, making those registration batches and having everything up on stability so that we could be enabled to proceed through to potential NDA and MAA filings in the 2018 timeframe to support potential commercialization as would follow.
I'll turn to you, <UNK>, to see if there's anything else you want to elaborate with regard to that.
I think just the main point I'll make is that we've been manufacturing this at the scale that we would manufacture it commercially to support our clinical trial.
So the transition of commercial delivery of API would primarily be focused on just doing more batches at the same scale.
But as <UNK> mentioned, we still have work to do there in order to get through the ---+ what are the required regulatory steps for commercial API manufacturing.
We're engaging with regulatory authorities regarding what should be expected from a conventional CMC type of dialogue at this stage.
And we're trying to ensure that we're maximally ready, so we can proceed, on the basis of potential positive data to VITALITY-ALS, promptly in 2018.
And again, there are certain things we still need to do, but I think the good news is this is a small-molecule manufacturing.
And we are looking at conventional cost of goods.
We're looking at conventional scales with validated manufacturing parties with whom we have quite ample experience, and we're preparing for what could be a standard set of filings in that regard.
Yes.
The other ---+ we are doing echoes in these patients, but one has to recognize it's a much smaller study than COSMIC.
So we're not powered to see the same kinds of changes that we saw in COSMIC, but we'll be mostly looking for changes in injection time, which was our most sensitive measure.
So they see all the data, and they see all of it in an unblinded fashion.
There is not a formal interim analysis for either overwhelming success nor for futility, but they do have the ability to recommend, for example, that the study be terminated if they felt it needed to be for 1 of the 2 reasons.
They just said continue on.
When you say progression, you mean progression to milestones relating to the outcomes.
Yes.
So the fact of the matter is, with regard to the conduct of studies with ALS, we have quite abundant data to look at where the baseline characteristics across many studies tend to be more alike than different.
And based on public databases and placebo groups in those studies ---+ and sadly the difference between the placebo group and the treatment group in those studies is not very notable given that, historically, so many things have failed in AL<UNK>
We can learn a lot about what to anticipate from the standpoint of progression of different assessments and map that into our planning and design for VITALITY-ALS, which we did.
We are still blinded, as you know, with respect to who received drug and who received placebo, but I think it's fair to say that we are seeing in the aggregate blinded data the kinds of outcomes that we would expect to see for a study of this duration.
And if anything, maybe fewer certain endpoints, which could be meaningless or could be encouraging.
Yes.
Good questions.
So both at the AAN but I'll also comment on learnings from our attending a Cure SMA organized workshop, a patient-centered drug development workshop with FDA that occurred in the week prior.
Clearly, we're very impressed with the uptake of SPINRAZA, and it looks like it's making a meaningful impact around the globe, both for patients who are paying for it and in the early access program in those other countries.
But as we are learning, it is still primarily being used in certain centers and for mostly type 1 infants and children.
What we learned in particular at the Cure SMA organized meeting with FDA from investigators, patients and caregivers is there remains still a very significant unmet need and interest with respect to potential drugs that would have effects in muscle strength and alleviate some of the dysfunction associated with muscle weakness.
That was perhaps the most pronounced thing that we heard over and over from patient and caregiver testimonies, and I think the FDA heard that very loudly and clearly.
That was echoed by comments we received at our Investigators Meeting at AA<UNK>
And I think there is still a very profound need that we hope we may address with CK-107 as we'll start to learn from this hypothesis-generating study with CK-107 hopefully with results due later this year.
So we continue to believe that CK-107 would play a meaningful role alongside of both SPINRAZA but also other approaches that are being pursued by AveXis and Roche and where none of those approaches would have the ability with this being an oral therapy to potentially impact muscle weakness the way we hope CK-107 will.
Certainly, we can speculate about what might be correlations between vital capacity and other endpoints that we will be assessing also in this trial.
Obviously, that's speculation given we're still blinded to the data.
But maybe, Andy, I'll turn it to you and then, <UNK>, if you want to add afterwards.
Well, I think if we can see a similar slowing in the decline in vital capacity that we did in BENEFIT-ALS but that continues for a much longer period of time, 4x as long, because recall BENEFIT-ALS was 12 weeks long, and VITALITY-ALS is 48 weeks long, then I think there is the opportunity to see what BENEFIT-ALS was too short to show, and that is there may also be concurrent slowing of the decline of respiratory scores on the final 3 questions of the ALS functional rating scale that assess shortness of breath or dyspnea; orthopnea or the inability to lay flat and breathe comfortably; and respiratory insufficiency, which involves the institution of assisted ventilation from noninvasive to invasive.
So those are all things that we are intending to look at as secondary endpoints and one would imagine should be affected by slowing in the rate of decline of SVC and as we published actually and may have more to say about these explorations later.
When we've looked at the placebo data from the EMPOWER Phase III study of dexpramipexole, it's very clear that those with a slower decline in vital capacity take longer to reach certain critical outcomes like the use of assisted ventilation.
Wonderful.
Thank you, operator, and also thank you to all of our participants who joined us on the teleconference today.
Thank you for your continued support and for your interest in Cytokinetics.
Operator, with that, we can now conclude the call.
Thanks very much.
| 2017_CYTK |
2016 | IVR | IVR
#It was throughout the quarter.
Not necessarily all at once, but I would say generally earlier in the quarter going when we took off most of the swaps and sold most of the assets.
And basically, driven by the share repurchases that occurred, really in the fourth quarter and into the first quarter we were still repositioning the portfolio.
I think where we are, given our level of assets, we are hedged appropriately here.
Yes.
And I don't anticipate it's putting on a lot of long-duration assets.
Thanks.
I appreciate everyone dialing in today and we'll talk to you next time.
| 2016_IVR |
2015 | LAMR | LAMR
#I'll let <UNK> hit that one.
We had a lot of expenses in the last year's third and fourth quarter because we were putting all of the legal structure in place and putting a new charter.
We had a shareholder vote to approve the transition, so there was a lot of legal and accounting fees that hit the back half of last year.
Those are done.
So yes, we will be benefiting, and that was part of the benefit that we received in Q3.
So, automated buying and next steps ---+ to put it in a little bit of perspective, there are some large advertisers, as I mentioned, that have dipped their toe into our automated buying platform.
Our live partner today is Vistar, and I think both on our end and on the customers' end, we are viewing these buys as sort of still in the beta phase.
But they are actual contracts, and dollars are changing hands, so that's a good sign.
The next step for us is to broaden the platform and engage with other automated vendors, and we have begun that process.
There are a couple of others that bring different capabilities to the table and can execute buys for our customers that more meet what certain customers want, in terms of measurability and real-time accountability for the buy.
So that's the next step.
We probably ---+ sometime in the next 60 days, 90 days, we will be announcing a couple of other partners on the automated platform side.
It's not specifically tied to automated executions.
It's more tied to the demand that our local general managers are seeing out there.
As I've said many times, we are a bottom-up organization.
And if our folks in the field see sufficient demand and believe they can sell additional digital units, then we will put them out there.
Sure.
On telecom, I really wouldn't expect 23% up.
I think that was an anomaly.
A little bit of the law of small numbers ---+ they are only 3% of our book.
And we did have a major buy, particularly in the Northeast, that drove that number.
But it's an encouraging sign.
We have fielded many questions on calls and at conferences as to whether there is a secular trend going on in telecom's use of outdoor.
And this should be encouraging to suggest that, like any other customer, they're going to come in and out, and at the end of the day, they view us as useful in their marketing campaigns.
Now, automotive is 6% of our book, and in Q3 was up 2%.
Sure.
We do anticipate a kick from political in Q3 and Q4 of next year.
Last year, in 2014, it was about $2 million a quarter, and it resulted in about 0.5% increase in our pro forma top line.
So, we didn't have that this year.
We should have it next year.
The phenomenon is, as you mentioned, we get direct political advertising, number one; and that shows up as a category.
But number two, typically we also get a little boost from our other categories who don't want to buy into all that clutter on other media.
So, we should look forward to a little bump for 2016 from political.
Sure.
What we're expecting organic for Q4, as I mentioned, is up 2% to 3%.
And right now paste and fold were trending towards the upper end of that.
On same board digital, as I mentioned, for Q3 we were down 2.6%.
But as we break it out monthly, each month got better from July on.
And in October, the same board digital performance was up 2.6%, which again, is very encouraging and gives us confidence going into next year that we can accretively deploy about 150 units.
Yes, so, in the summer months ---+ July, August, September ---+ we experience a little softness on the digital front.
Keep in mind, this is not the whole digital platform.
The whole digital platform is up high-single digits because we have added capacity during the year.
This is same board performance, and I'm encouraged that it's turned ---+ it's turned positive.
Great, and thank you, Katie, and thanks, everyone, for listening.
We will be at the Wells Fargo conference next Tuesday presenting.
And then we will talk again in 2016.
| 2015_LAMR |
2017 | POWL | POWL
#Thank you, <UNK>, and good morning, everyone.
Thank you for joining us today to review our 2017 fourth quarter and year-end results.
I will make a few comments, and then I will turn the call over to <UNK> for more financial commentary before we take your questions.
2017 presented Powell with a mix of both operational accomplishments and performance challenges across many of our key customer markets.
The spirit of Powell is demonstrated immediately after the landfall of Hurricane Harvey.
Several of our U.S. and Canadian facilities teamed up to assist key customers, whose critical Gulf Coast operations have been paralyzed by flood-damaged equipment.
Powell's capacity-sharing and supply chain capabilities were highlighted during this crisis, which showcased the strength of our front-end engineering, manufacturing and electrical service teams.
Notably, we were able to turn around certain projects in days, which otherwise would have taken weeks or months.
This collaboration was across the board.
Our employees, customers and suppliers pooled resources to get these devastated facilities back up and running quickly without jeopardizing safety.
As a result of Hurricane Harvey, we lost 8 to 10 days of production at our Houston factories.
This negatively impacted our results for the quarter.
However, we are very proud of the response by our employees who mobilized the help, those whose homes were damaged, both through donations and hands-on rebuilding efforts.
We are also proud of our employees' response to our customers.
Powell came through these storms as a team.
We were able to generate goodwill with our employees as well as goodwill with our customers and suppliers.
I would like to personally thank each and every employee for their courageous efforts during Harvey and our collective recovery.
This crisis epitomized our can-do spirit of who we are, a world-class producer that embraces complexity through our custom engineered solutions.
After 70-plus years in business, it's in our nature to make it right for our customers and employees.
Overall, 2017 proved to be a challenging year.
Price and volume were definite headwinds for Powell, resulting in a drastically reduced backlog and working through uneven production loads across most of our facilities.
Despite slower and anticipated market activity, we are awarded a respectable number of projects of their scope and scale was and continues to be significantly smaller than in the past couple of years.
We did, however, deliver on several successful internal initiatives during 2017.
Continuing the efforts that we started in 2016, we further strengthened the utilization and optimization of our business systems, improved scheduling and manufacturing efficiencies and improved collaboration between our functional teams.
Our confidence to deliver the most complex of projects on time and on budget for our customers has never been higher.
In keeping with our commitment to innovation, we developed and launched several new strategic products in 2017, with the goal of looking for ways to boost operational efficiency, reduce costs and further improve cycle times.
Powell released its first wave of intelligent, sensor-based monitoring products this year, which give our customers realtime data on the health and status of their electrical systems.
We launched both new and redesigned products for our medium and low voltage ANSI and IEC product lines.
Benefits of these newer designs include reductions in equipment footprint, reduced weight and designs that support better efficiency and manufacturing and increased electrical and safety performance for our customers and their facilities.
And finally, we aggressively attacked new energy code requirements being adopted in North America.
These new requirements significantly increased the energy efficiency and will require new designs for prefabricated electrical substations in the U.S. and Canada.
Now let's look ahead to 2018.
As we enter the first quarter, I'm pleased to report that trends and customer activity have modestly improved when compared to 6 and 9 months ago.
The competitive pricing pressures we experienced throughout 2017 have somewhat subsided.
A stronger economy and more stable upward trending energy prices are bringing new planning development work for the custom electrical distribution systems that are ideal for Powell.
We see customer momentums slowly building for the funding of higher quality jobs ranging up to $3 million, large and progressive upgrade that have been postponed over the past 2 years.
In addition to improved market conditions, we have started to drive order quality by leveraging the confidence in our execution and improved cycle times as well as a slight shift toward more selective opportunities during the bidding process, which will improve the quality of our backlog over time.
If current customer activity continues to gradually increase throughout fiscal 2018, we expect to show a year-over-year order improvement from 2017, which should position Powell for an improved fiscal 2019.
Powell remains a financially healthy company.
And relative to our weaker backlog, our teams have continued to perform well and delivered solid project execution.
We will, with measured optimism, accept any tailwinds to help us along the way.
And although modest, our recent volume, activity and quality indicators suggest we may have finally seen a turning point toward a more stable market environment in fiscal 2018.
With that, I'll turn the call over to <UNK>.
<UNK>.
Thank you, <UNK>.
Revenues decreased by $30 million (sic) [$30 million] to $90 million (sic) [$95 million] in the fourth quarter fiscal '17 compared to the fourth quarter fiscal '16.
Compared to last year's fourth quarter, domestic revenues decreased by $36 million to $63 million and international revenues decreased by $1 million to $32 million.
The decreases are the result of the decline on our pricing backlog as we complete existing projects and continue to see lower demand from our customers in our core oil, gas and petrochemical markets.
Gross profit as a percentage of revenues decreased to 11% in the fourth quarter of fiscal '17 compared to 20% in the fourth quarter of fiscal '16.
Gross profit decreased by $15 million to $11 million.
This decline in gross profit was primarily due to lower revenues, market price pressures and the underutilization of our manufacturing facilities.
Selling, general and administrative expenses decreased by 12% or $2 million to $15 million in the fourth quarter of fiscal '17.
However, SG&A as a percentage of revenues increased to 16% due to lower revenues.
In the current quarter, we've recorded a benefit for income taxes of $1 million.
In the fourth quarter of fiscal '17, we recorded a loss of $5.1 million or $0.45 per share compared to income of $5.5 million or $0.48 per share in the fourth quarter of fiscal '16.
New orders placed in the fourth quarter of fiscal '17 totaled $112 million compared to $91 million last quarter and $111 million a year ago.
Order backlog at year-end totaled $250 million compared to a backlog of $233 million at the end of the third quarter and $291 million at the end of last year's fourth quarter.
For the 12 months ended September 30, 2017, revenues decreased 30% or $169 million to $396 million compared to fiscal '16.
We entered fiscal '17 with a weak order backlog and depressed market conditions, and continue to experience lower demand from our core oil and gas petrochemical customers.
Gross profit as a percentage of revenues decreased to 13% compared to 19% in fiscal '16.
Gross profit was negatively impacted by reduced production volumes, resulting in under-absorption of our manufacturing facility costs and competitive price pressures.
Gross profit was negatively impacted by an increased volume in municipal transit projects, which typically yield lower margins due to market competition.
In addition, we experienced execution challenges on certain municipal transit projects.
Selling, general and administrative expenses decreased 18% or $13 million to $62 million in fiscal '17 compared to fiscal '16, primarily due to cost-reduction efforts that we took in fiscal '16 in response to our adverse market outlook.
SG&A as a percentage of revenues increased to 16% in fiscal '17 compared to 13% in fiscal '16, primarily due to lower revenues.
In fiscal '17, we incurred $1.3 million in separation of restructuring costs, as we continue to reduce our overall cost structure to better align our cost with anticipated production requirements.
In fiscal '16, we incurred approximately $8.4 million of separation costs due to the restructuring of our senior management team and reductions in our workforce.
We recorded an income tax benefit of $7.4 million in fiscal '17 compared to the income tax provision of $2.3 million in fiscal '16.
The effective tax rate for fiscal '17 was 44% compared to an effective tax rate of 13% for fiscal '16.
The effective tax rates for both fiscal '17 and '16 were favorably impacted by the lower tax rate in the U.K. as well as the utilization of net operating loss carryforwards in Canada that were fully reserved with the valuation allowance.
In fiscal '17, we recorded net loss of $9.5 million or $0.83 per share compared to net income of $15.5 million or $1.36 per share in fiscal '16.
The reduction in income compared to the prior year was primarily due to depressed market conditions and competitive price pressures.
For fiscal '17, cash provided from operating activities totaled $37 million.
Investments in property, plant and equipment was $3.6 million.
At September 30, 2017, we had cash, short-term investments and restricted cash of $120 million compared to $98 million a year ago.
Long-term debt, including current maturities, was $2 million.
As <UNK> mentioned, we entered our fiscal '18 with moderate signs of market improvement when compared to 6 months ago in the terms of price pressure, project quality and order volume.
While it is unclear whether these positive trends are sustainable, if current customer activity continues to gradually increase throughout fiscal '18, we will end the year with a stronger backlog, which will position Powell for an improved fiscal '19.
However, by entering fiscal '18 with a weak backlog, both in terms of volume and quality, we will need to continue to manage production gaps in many of our facilities.
And as a result, we expect to report a net loss for fiscal '18.
Despite the challenges we face from an earnings perspective during fiscal '18, we will continue to focus on managing our cost structure and maintaining our strong balance sheet.
At this point, we'll be happy to answer your questions.
So <UNK>, we talked about it hitting about 2 weeks\xe2\x80\x99 worth of production at the 3 Houston-based facilities.
All 3 facilities were hit.
The facilities themselves came through the storm pretty well.
We did have a number of employees with some pretty traumatic stories, and we worked pretty hard together as a team to get everybody back to work, and then our supply base.
And then we had some facilities and customers that were hit.
So we did a good job recovering revenue.
I looked at some of the incoming needs against some of the ---+ all the moving and shaking, puts and takes and things that were going on to try to recover.
It was in excess of a $1 million hit, and ---+ but hard to come up with an exact number.
<UNK>, I'm sorry, you cut out.
Can you repeat your question.
So it's hard to say we're at the bottom of the revenue side.
If you'll recall, last couple of quarters, one of the big headwinds in '17 were shifts in our loadings.
And that really Q3, if I look at Q3 last year, really had a lot of customers come and move production schedules on us.
And our ability to respond in a really tough market was extremely hard.
It always is hard in a project business.
So that, I think, still continues today, maybe slightly to a lesser degree as we end Q4.
It's still a concern.
And the overall quality of the backlog, as we talked about, the overall volume and things that were just really tough, competitive price still tough now, but some of that's still in that backlog.
And if things move around or shift, it will impact us going forward.
Market-wise, as we hit the end of Q4 and kind of start the Q1, base business definitely improved up off the bottom, pricing slightly better than it was 6 to 9 months ago.
So that bodes well, but the key is to hopefully maintain that.
My concern in the near term is just still a lack of larger projects.
So base business is up off the bottom.
We're seeing some good health there, but still not a lot of 10 million-plus-type opportunities.
Although, as I commented, we are seeing some things in the engineering houses that could bode well for late this year or into '19 if they become funded.
Yes.
The actual impact, Pete ---+ well, first of all, good morning, but the actual impact is unknown.
GE is a significant customer to Powell.
Since the acquisition of the medium voltage line some 10-plus years ago, I think, today, we've got a very solid relationship with GE.
And they are a big channel for us in the commercial market, not so much in the heavy industrials and oil and gas core market balance to Powell, but what the actual impact will be, what is carried over, how would they expect, it's something we are watching closely.
And as ABB takes control of that unit, we've got an ongoing relationship with them as well on other business.
So we'll see come midyear when they through all their due diligence.
I guess, my answer on the pricing, because knowing ---+ folks might be listening in, it's off the bottom, and it's more than a point.
I'll let <UNK> add some comments.
From a cycle standpoint, it is on the front end only.
I wouldn't expect to see the blend in the backlog for another 4 or 5 months before we see how it comes out of the backside, but my expectation is it will come out as good or better operationally.
Pete ---+ <UNK>, I guess, the only thing I would add to that is the backlog that we currently have in place today will substantially be completed by the end of our second quarter.
The work that we're booking today is what we're dependent upon as far as the third and the fourth quarters.
And so this kind of goes back to <UNK>'s question as well.
We do expect to see a first ---+ second half over first half improvement, but it is all based on what's yet to come relative to orders.
Well, again, like you guys, we're looking for the correlation and the matching as well.
It does seem, in the last quarter, from my own visits around some of the engineering houses around the world, there is funded FEED activity, that process where they're hiring the engineering houses to design the projects.
They go through a lot of cost reductions before they get funded.
So if some of these projects are being designed, initially, it seems very large.
I guess, I would believe they're going to get whittled down depending on what happens to oil and what everybody believes.
But it's a first refreshing sign to see some of these houses hiring engineers and doing more than what ifs and actually scoping out some jobs that could bode very well if oil does support those fundamentals in the future.
Well, at this point in time, <UNK>, this is <UNK> <UNK>, the ---+ from a cash perspective, we do need to be cautious from the standpoint that as the market rebounds and our revenues begin to rebound, we will need to have some reserves to fund working capital.
In a project business, a lot of our cash over the last year came from reductions in working capital, which will need to be replaced once we see the volume improvements.
From the ---+ but from beyond that, we are looking as to how we can improve the business long-term from a growth and strategic perspective.
We have taken the valuations of different opportunities, but we are being selective from an acquisition standpoint to make sure that what we do is a strategic value that complements what we do and where we want to go across the world.
From a share repurchase standpoint, yes, we did one a couple of years ago.
It has been discussed from time to time with our board.
But at this point in time, there are no plans for a share repurchase.
Put it this way, that we've had discussions to say that ---+ who are relatively active, it all depends on a reference point.
Yes.
<UNK>, this is <UNK>.
So I've just completed my first year in the role of CEO.
And certainly, those discussions for me with the board have been had.
We continue to have them.
We're involving the management team and as well as some others in the company to talk about what geographic and strategic areas we've been talking about for the last couple of years makes sense and talking about what we should do in '18, '19 and '20 going forward.
So there are active discussions, but that's kind of all the further we've gotten to this point.
Well, we couldn't agree more with you.
And so part of the process, by looking at where do we really think it, and as <UNK> said, strategically enhances the technology side of where we think we really play nice, the project side, geographically, where should we expand our footprint, both important future avenues for Powell that we talk about.
And we'll see how the next couple of quarters will go.
But as <UNK> said, we're also very focused in the short term, making sure that we can ---+ if this is truly a turnaround, and the market can sustain on its base business that we stay focused on the operation.
I think that's, certainly, a need in '18.
Thank you, Doug.
During 2017, the teams across Powell worked hard to fine-tune our operations to prepare for the next level of market expansion, and we have built a solid company that is supported by streamlined infrastructure and by workforce of highly skilled, energetic and empowered people.
While we will continue to monitor our operating costs, we plan to continue to invest in our workforce, our facilities and our research and development programs, and to target opportunities that could advance Powell's geographic footprint or enhance our strategic capabilities.
Rest assured, Powell's foundation is solid, and we look forward to a future of not just returning to our previous level's performance, but exceeding it.
Thank you, again, for your interest in our company, and we look forward to speaking with everyone next quarter.
| 2017_POWL |
2015 | TTC | TTC
#Thank you, <UNK>.
Thanks for your patience too with what went on this morning.
Yes, good question, <UNK>.
At this point, we would probably characterize that just as you said a sense of it.
We will get more specific results as we wrap up the season and are able to look back at some industry results and so on.
With that said, I think it is our sense given the retail demand that I talked about just a minute ago that our marketshare is moving in the right direction with categories like walk power mowers and residential riders.
We think our marketshare will move in the right direction this fall with our new snow thrower offerings that I mentioned earlier.
We have a very strong position in the landscape contractor arena and marketshare is certainly very sound in the larger categories like the zero-turn riders.
Newer offerings in the spreader/sprayers clearly we are taking share there, but that is largely because we are entering a new category, but there is a lot to be excited about there as well.
And as I mentioned in the formal remarks earlier, we have some new features coming on that large category of the zero-turn riders in the third quarter that will be very exciting for our customers and for the channel.
Our sense is that is positive moving in the right direction and the same thing on the commercial side.
That is made up of different productlines, if you will.
We think the new hybrid fairway mower is certainly helping us in that category.
The new sprayer systems that we are bringing on are helping us in those categories.
And then last, I would just say with the acquisition of BOSS, and BOSS is a terrific company, it is a terrific addition to the portfolio, some of the new products they introduced at the truck show last quarter have been very, very well received.
So the combination of expecting a good preseason demand from the channel and end users will be accelerated by the new product offerings they have.
So I think all in, <UNK>, there is a lot to be encouraged about.
We will have more precision around that later in the season.
Well, first off, I would say that micro-irrigation is already an important part of those locales.
With that said, there is still a lot of acreage that is not micro-irrigated and is using other systems from probably to flood being the most inefficient.
So clearly, that as the regulatory environment changes, that will create opportunity.
If you are a farmer there and are only going to get so many acre feet of water then the ability to use that more precisely to maximize your productivity is going to matter.
I don't if it will be slow, but it is clearly moving in the right direction and as we have said before on the micro-irrigation side of the business, it is the right end of the continuum to be on.
We just need to manage water more precisely and these products do it better than any other.
I would say actually our marketshare in North America is somewhat higher than our worldwide share.
There are certain markets where we just don't have a strong presence; we continue to work on that.
We have ---+ North America would be one of our stronger markets; Western Europe, we opened the Romanian plant a few years back to give us a stronger presence in Eastern Europe.
We have talked about China in the past.
But the US actually would be, of the group, probably the strongest.
Well, I guess I would start off with, obviously, we understand what the Street does.
That is ultimately up to the Street, if you will.
I think the starting point for me would be we always ask our investors to look at the Toro Company kind of on an annual basis just because of the nature of larger quarters and smaller quarters and that kind of variability.
Things move back and forth.
To what degree will snow demand be earlier or later, we have the new factor of the BOSS snow products in the portfolio and managing channel demand and all of that.
So I think it is really saying right now at this point we will see what happens in the quarter, but we have sustained our annual number and we believe we are on track to do that and we expect a pretty good, as evidenced by that, a pretty good fourth quarter with the addition of BOSS now.
Probably the biggest impact to our gross margin overall is FX and what you are going to see is that is more heavily weighted toward the professional side of our business than the residential side.
I think that is probably the item that you need to factor into.
As I said earlier, it has turned out to be a more significant headwind than we had originally anticipated.
I think we would say they clearly are meeting, maybe exceeding our expectations.
When you bring something that is a newer technology, you are never quite sure.
Obviously, you do a lot of market research and voice of the customer, but you are still never quite sure.
This is a great platform that leverages less than 25 horsepower diesel with a hybrid technology and it is a combination of its fuel efficiency, coupled with that true hybrid drive system that I think customers are liking.
Some customers are more focused on the green aspects.
I think we are seeing that in Europe and that may be stronger than anticipated demand.
You always have the question when we bring out new products will they wait a while before they try it, see how it is, see how it performs.
That hasn't happened here; customers embrace this wholeheartedly.
So there is a lot to be excited about with this new product.
| 2015_TTC |
2018 | OGS | OGS
#Good morning, and thank you for joining us on our fourth quarter and year-end 2017 earnings conference call.
This call is being webcast live, and a replay will be made available.
After our prepared remarks, we would be happy to take your questions.
A reminder that statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Acts of 1933 and '34.
Actual results could differ materially from those projected in any forward-looking statements.
For a discussion of factors that could cause the actual results to differ, please refer to our SEC filings.
<UNK> <UNK>, ONE Gas President and Chief Executive Officer, has some brief opening remarks before I review the company's financial results, and then turn it back it over to <UNK> for the regulatory update.
<UNK>.
Thanks, <UNK>, and good morning, everyone.
The natural gas industry spends billions of dollars each year toward the integrity and safety of our systems.
In the case of ONE Gas, we have invested $1.3 billion since we became a publicly traded company in 2014, and more than 70% of these capital expenditures were spent to improve our asset safety and reliability.
We are pleased that there was an acknowledgment by the authors of the Tax Cuts and Job Act of 2017 that 2 business models exist in the U.S: one being a nonregulated model and the other being a regulated model.
This recognition created a targeted solution of tax reform that allows a utility to continue investing in critical infrastructure, while at the same time passing the benefit of lower cost to the customer through the reduction of federal taxes collected.
Now that the tax reform legislation is final, we look forward to working with our regulators to ensure our customers' benefits from the lower tax rate, and we'll continue to stay the course with our 20-plus year asset replacement plans.
We realize tax reform has generated questions and <UNK> will elaborate on the impact to ONE Gas in his remarks.
<UNK>, I'll turn it back over to you for the review of our financials and to discuss tax reform.
Thanks, <UNK>.
Beginning with our financial results.
In the fourth quarter, net income was $47.1 million or $0.89 per diluted share compared with $42.3 million or $0.80 per diluted share for the same period last year.
Results were positively impacted by new rates, which includes the effect of our recent rate filings in Kansas and Texas, and higher volumes from transportation customers in Kansas and Oklahoma.
Operating costs for the fourth quarter decreased $3.3 million compared with the same period last year.
And the capital expenditures increased $30 million compared with the same period last year.
For full year 2017, net income was $163 million or $3.08 per diluted share compared with $140 million or $2.65 per diluted share for 2016.
Excluding the onetime items related to adoption of the share-based compensation accounting standard, Accounting Authority Order in Kansas and tax reform that we quantified in our earnings release, our 2017 diluted earnings per share would have been $2.95 or $0.13 lower than our reported results.
Our full year results benefited from new rates in Texas and Kansas.
The impact of weather normalization mechanisms, which offset warmer-than-normal weather this year; higher volumes from transportation customers in Kansas and Oklahoma; and residential customer growth in Oklahoma and Texas.
We averaged 14,000 more customers in 2017, which is an increase of approximately 0.7% compared with 2016 and is comparable with the growth we have experienced over the past 10 years.
In 2017, our capital spending remained predominantly focused on maintaining the safety and reliability of our systems, and capital expenditures increased $47.4 million compared with 2016.
We also continued to spend capital to support customer growth and make investments in technology to improve efficiencies and manage cost.
Last month, the ONE Gas Board of Directors declared a dividend of $0.46 per share, an increase of $0.04 or 9.5% compared with the previous dividend of $0.42 per share.
We expect the average annual dividend increase to be 7% to 9% between 2017 and 2022, with a targeted dividend payout ratio of 55% to 65% of net income.
Also in January, we announced our 2018 earnings per share guidance of $2.96 to $3.20 per share, which includes a $0.04 per share contribution of the share-based accounting standard we adopted in 2017 with an expected earned ROE of 7.3%.
The decrease in expected ROE to 7.3% in 2018 from the 7.9% earned in 2017 primarily relates to 3 factors.
As we have previously indicated, we expect 2018 to have less impact from new rates than we experienced in previous years resulting in incremental regulatory lag from our capital investments.
Additionally, our rate base will increase in 2018 as we expect slightly higher capital spending and experience the effects of tax reform.
Finally, tax reform actually increases regulatory lag as the net after tax impact of investments and expenses that are not included in our cost of service is greater.
We expect our ROE to improve in future years as we normalize the impacts of tax reform through our regulatory filings.
At December 31, 2017, our current authorized rate base, defined as the rate base established in our latest regulatory proceedings including full-rate cases and interim rate filings, was approximately $3.2 billion.
With additional investments in our system and other changes in the components of our rate base that have occurred since those regulatory filings, we project that our rate base in 2018 will average approximately $3.4 billion.
Considering our expectations for capital expenditures over the next 5 years and the impact of tax reform, we forecast that our rate base will grow 6% to 6.5% annually from 2017 to 2022.
Before turning the call back over to <UNK> to provide our regulatory update, I'd like to spend a few minutes discussing the financial impact of the Tax Cuts and Jobs Act of 2017.
Being a 100% regulated entity, the new tax act does not impact the long-term growth profile of our company.
The new federal tax rate of 21% will benefit our customers as the income tax expense component of our cost of service will be lower.
The accelerated capital expensing provisions and the limitation of interest deductibility are not applicable to us.
In 2018, tax reform will reduce our cash flows as the rates we collect from our customers will begin to reflect the lower federal tax rate.
Longer term, the loss of bonus depreciation will accelerate the timing of when we start paying cash taxes.
After utilizing our net operating loss carry forwards, we forecast our cash taxes to be approximately $15 million in 2019, increasing to approximately $30 million by 2022.
Additionally, the reduction in the federal tax rate to 21% resulted in a revaluation of our accumulated deferred income taxes that will also benefit our customers.
We are working to determine the amounts of these regulatory liabilities that will be refunded each year, but expect to return approximately $400 million to our customers over the next 25 to 30 years.
We anticipate that the reduction in operating cash flows, combined with the return of regulatory liabilities recorded in conjunction with tax reform, will increase our estimated financing needs through 2022 by approximately $150 million to $200 million.
Our balance sheet as of December 31 is well positioned with a long-term debt-to-equity ratio of 38% and can support this incremental financing need.
While our cash flows will be lower, the reduction in deferred taxes and the return of these regulatory liabilities to customers will lead to faster rate base growth as indicated in our 5-year guidance.
We are committed to maintaining our A level credit rating and a portion of the projected financing needs may include equity.
We do not have any equity needs forecast for 2018.
However, we do not anticipate continuing our annual $20 million share buyback program.
And now I'll turn it back over to <UNK>.
Thanks, <UNK>.
I'd like to give you a brief regulatory update followed by a summary on tax reform from a regulatory standpoint.
So starting with Oklahoma, in mid-March, we plan to file the second annual performance-based rate change application since the general rate case that was approved in January of 2016.
As with the prior annual filings, we will update our cost of service and rate base amounts.
The performance-based rate mechanism will also allow us to incorporate the impact of tax reform in our rates.
We anticipate that process to be completed later this summer.
Now on to Kansas.
In November, the Kansas Corporation Commission approved Kansas Gas Service's request for interim rate relief under the Gas System Reliability Surcharge rider for $2.9 million.
Rates became effective in December.
Also in November, the Kansas Corporation Commission approved the settlement agreement regarding KGS' application seeking approval of an accounting authority order associated with the cost incurred at its 12 former manufactured gas plant sites.
We are expecting to file our next general rate case in Kansas by July 2018 based on a 2017 test year.
The impacts of tax reform will be reflected through our final cost of service.
Turning to Kansas legislation matters.
On February 8, an amended version of Senate Bill 279 regarding the Gas System Reliability Surcharge mechanism passed out of the Kansas Senate Utilities Committee, and is expected to be heard by the full Senate today.
The amendments to the bill were drafted by Kansas Gas Utilities in response to feedback from the Kansas Corporation Commission staff.
In its current form, Senate Bill 279 proposes to expand the scope of safety-related capital investments that qualify under the GRS statute.
In addition, the cap on the surcharge would be increased to $0.80 per residential customer per month from $0.40.
Concerning tax reform, we supported our regulators' efforts to ensure our utility customers receive the benefits of changes in our rates due to the tax reform.
In each of our service areas, we are currently working with our regulators to address the impact of the Tax Cuts and Jobs Act on our rates.
We have received or expect to receive accounting orders requiring us to establish a separate regulatory liability for the difference in taxes, including our rates that have been calculated based on a 35% statutory income tax rate and the new 21% statutory income tax rate.
The establishment of this regulatory liability will result in a reduction to our revenues beginning in the first quarter 2018, offset by a reduction in our income tax expenses.
The amount, period and timing of the return of these amounts to our customers will be determined by our regulators in each of our jurisdictions.
As <UNK> described, the results of tax reform will reduce our cash flows, but this will not change our business strategy or capital investment plans.
We will continue to focus on being a premier natural gas company by investing in our systems to safely deliver natural gas to our more than 2.2 million customers.
In 2018, we expect to spend $375 million on capital expenditures, and we expect to spend $375 million to $415 million per year between 2018 and 2022.
We've targeted more than 70% to be spent on system integrity and pipe replacement projects.
We believe a risk-based approach to analyzing our distribution systems creates the safest and most reliable system that our customers and regulators expect.
In 2018 and beyond, we will continue to make safety our top priority.
We'll spend capital prudently, and maintain our focus on controlling cost through efficiencies.
In closing, I would like to thank our more than 3,500 employees for their hard work and achievements over the past year and as they continue to deliver safe and reliable natural gas to our more than 2.2 million customers.
Operator, we are now ready for questions.
Thank you for joining us this morning.
Our quiet period for the first quarter starts when we close our books in early April and extends until we release earnings in early May.
We'll provide details on the conference call at a later date.
Have a great rest of your day.
| 2018_OGS |
2015 | AYI | AYI
#<UNK>, that goes back to <UNK>'s question earlier.
It's really our tiered solution strategy approach and as we get a better base of data and our ability to more effectively collect that information, particularly as we think about these holistic solutions and how they come together; again, building owners will care less and less about the pieces and parts.
What they will care about is do all of these things work together, are they smart and are they simple for me to use and can I use them in a way that helps me optimize whatever I'm doing.
If it's a retailer, can I optimize my associate productivity, or enhance the retail environment for consumers.
If I'm a university, can I make my university safer and so on and so forth.
I believe that we will be able to give better information around our tiered solution strategy as we go forward.
It's just that we are in our infancy.
We're trying to slice and dice the historical data so that we can have a base with which to compare.
We're working hard to create the portfolios internally that will then allow us to sell those as holistic solutions and we'll be able to record those.
It's rough right now.
It's really a guesstimate, but when we look at that, when we look at the data that we have, it tells a compelling story and when we think about the hit rate that we have, when we tell folks who are interested in these holistic solutions, their interest and what they are focusing on and the opportunity to look at it as a total cost of ownership is very robust.
And our hypothesis is that we will see more improved margin profile from those kinds of things, but it's really early in the game.
Favorable trends.
But we'll be able to do that probably down the road, certainly not over the next couple of quarters though.
Yes.
<UNK>, I'll turn that over to you.
Our growth rate is above the market growth rates that we are experiencing.
As you all know, lighting lags.
So while leading indicators are ---+ such as Architectural Billing Index, vacancy ---+.
Correct.
And we also have the added benefit of renovation activity.
Again, it's a huge install base that's out there and it's been converting very slowly.
As Acuity becomes better and better at fishing in that pond, we think it allows us to (technical difficulty) components that will allow us to outgrow the overall growth rate of the market.
I think that the mid to upper single digit range for lighting over the last quarter ---+ it is probably closer to upper ---+ is probably a fair reflection of what the marketplace is.
And again, we're collecting data, <UNK>, as you are, from various sources to help us triangulate and compute that, and yet our growth rate continues to be above that.
I would add that, <UNK>, if you look at our growth rate, clearly, we are seeing the secular benefit of the move to LED.
LEDs tend to sell at a higher price point per fixture than the traditional fixture, so that's helping the industry and us from a top-line growth.
That secular trend, as <UNK> commented, the renovation retrofit over the last several years just continues to accelerate.
Obviously, again the LED technology being a catalyst for that, but there's the desire to be green, desire to be sustainable, the energy savings regulations.
We've talked about California Title 24, other factors that are driving that and then as you mentioned the cyclical ---+ I would say the minority of our growth now would be the cyclical recovery.
While we're seeing a recovery in nonresidential construction and maybe a bit more in residential construction, I would say that's a minority of our growth versus the secular trend of moving to LED and this renovation retrofit opportunity of converting this very large install base.
We estimate the install base at over $300 billion indoor and then you add to that all of the outdoor and all we have to do is drive around and look up and you recognize how few of the outdoor lights have converted to LED and similar when you look around in buildings.
So huge, huge opportunity and we're beginning to see that conversion rate pick up and that secular trend I think is the bigger driver of our growth for the industry and certainly for us, but we are seeing the cyclical recovery and as we talked about, it is good to hear what you are seeing in other industries, that will continue.
Sure, I think over the last year, maybe 18 months, our view was that our business was probably 50-50 new construction/renovation.
Our expectation is that, as new construction comes back, that mix will shift a little bit towards new construction.
But to be clear, we have become very skilled at fishing in that renovation pond, so we would expect to continue to see that grow as well.
It's just that, as <UNK> pointed out, some of the new construction activity may move, may shift that mix just a little bit.
So does it become 60/40.
It wouldn't surprise me, but we are going after it all in that regard.
And then remind me, the second question was.
Sure.
And it may be different for Acuity than others because again of the renovation ---+ the relationship that we have with our key electrical distributors around renovation.
So that number is probably a two thirds/one third number.
We're just kind of guessing here a little bit, 70/30, something like that new versus stock and flow, or I should say a more specification project business versus stock and flow.
That would be my guess and truly it's a guess.
Yes.
Understand that, in the SGA area, we are a pay-for-performance environment and so the performance that the Company is performing to today is really upper quartile performance and so the incentive compensation is upper quartile.
This quarter, compared to the year-ago quarter, we probably booked close to 3 times the amount of accrual for incentive compensation.
When I think about the fourth quarter last year, we had a very solid fourth quarter and so the accrual was higher than it had been in the typical ---+ or the previous quarters ---+ because the performance was more consistent with a low accrual number.
Anyway, we earned the bonus last year, accrued it in the fourth quarter.
My guess is is that this year we'll see some of that leverage coming forward.
In other words, we won't be booking ---+ we will probably be booking a consistent number for incentive comp, but on a higher level of revenues.
The other thing that I would point out is we continue to reinvest back in the business.
As we've talked about the tiered solutions approach, the investments that we're making to really drive a capability in tier 3 and tier 4 takes skill sets and resources that we haven't had in the past and so we are investing there.
We took a streamlining action in the first quarter of this year and we've been adding back different skill sets to help us drive that.
I think what's particularly important is the variable contribution margin that we earned this quarter.
It was above what we would like to provide, if you will, sort of a directional capability.
Variable contribution in the upper 20%s is a number that we are comfortable with, but yet we continue to outperform that, or have outperformed that and our objective is to always do that.
So you will see leverage in the SDA area as we go forward.
Certainly, in the 2016, 2017 period we would expect to see that.
But be clear.
We are investing in our business.
We are a human capital-intensive business primarily.
This year, our CapEx is up a little bit more than what it has been by historical trends and that's primarily because we are running out of space and we've done some things to expand our technical capabilities from a physical plant perspective.
But you'll continue to see us leverage the SDA as we go forward.
Well, the answer is we are aggressively each quarter looking to bring every nickel we can of incremental profitability to the bottom line, but we're doing that while appropriately balancing reinvestment back into the business.
And so while we are very proud of the incremental margins that we have generated this year, we still expect to not only drive improvements there, but we do expect to invest back into the business.
As we go forward, when we think about future years and the out years, as we drive these tiered solutions approach more into tier 3 and to tier 4, we would expect our variable contribution margins to improve because the overall margins in those tiers ---+ our expectation is that they will be higher.
Early indications are suggesting that to be true, but again we are very early in this game.
That's a great question.
Our revenue mix and our growth was reasonably broad-based.
Some of the geographies where we may have not ---+ where we were below our average I don't believe was a difference between LED and non-LED.
It was just that some of those markets from what we can tell were just a little bit slower.
When you think about the two coasts, it's clear that the adoption of LED is moving forward nicely, but we have had great successes in Mid-America, vis-a-vis LED.
If you were to talk to various distributors in those markets, I think that they would tell you that their LED-based luminaire business is growing and growing nicely.
So I don't perceive it to be a huge difference.
I do think that some of the energy-savings codes that some states have promulgated facilitate a more rapid, if you will, renovation opportunity and typically if folks are looking at alternatives, they are going with LED.
The amount is very de minimus.
You will see in the 10-Q that the amount of shipments related to this is less than $300,000, so a very immaterial amount.
So it should not have a material impact on the revenue growth going forward.
Thank you, everyone, for your time this morning.
We strongly believe we are focusing on the right objectives, deploying the proper strategies and driving the organization to succeed in critical areas that will, over the longer term, deliver strong returns to our key stakeholders.
Our future is very bright.
Thank you for your support.
| 2015_AYI |
2016 | ITGR | ITGR
#As it applies to our cardiac rhythm management customers, we've obviously seen a substantial reduction in the first half, but it levelized in the second quarter.
Our projections would be is that we would see that stability into the second half of the year.
I don't portend to be able to predict the cardiac rhythm management market seasonality right now, given the level of changes and also obviously that one of our significant customers is going to be going through an acquisition event.
So we're being very cautious with what our plans are in this area given those realities so that we don't overstep and get ahead of ourselves.
So it's just a very unusual period of time for those clinical market acquisitions in these transitions stages and large platforms launching, so we're just going to plan conservatively and call it flat.
Yes, <UNK>.
Yes, we can.
We do think that the free cash flow will still be taking out the impact of the Nuvectra transaction, the free cash flow will still be in the range of $120 million to $150 million.
Well, I think for cardiac rhythm management is we have very closely engaged all the customers to get a much deeper understanding.
We traditionally have billed to [Con-bons] for customer polls, and it is somewhat opaque to us to understand their inventory positions of components, finished goods, and purchase sales projections.
But due to the fact that we missed on multiple occasions predicting what that demand is, out of necessity it had to engage in much more deeper conversation with our customers to plan appropriately, apply more aggressive risk factors, so that we don't keep underestimating and trying to put ourselves in a position of having to achieve something that is beyond our customer's requirements.
The second factor ends up being, with only six months left of the year a fairly sizable portion of the remainder of the year has already been triggered from a purchasing standpoint.
We have much better visibility for the balance of the year.
So, as you know there is with one of our significant customers is a company going through an acquisition event here is we're being very cautious.
We are conservative, so that we don't overestimate their demands during a period of time which is going to be a big change for them as a Company.
So going into 2017, we have a lot more analysis to do to look at the long-term trends.
We have a very good idea of what programs we are qualified in, so we understand the long-term revenue drivers.
But it's very hard to understand the timing of those program launches, which can be frustrating in providing revenue guidance, because are very dependent on our customer's FDA and CE mark approval milestones to be able to generate revenue out of them.
So for the rest of 2016 we've got pretty good visibility and we're being conservative.
But for 2017 we're really not prepared to really talk to it yet until we get a lot more analysis done.
I think we would expect to see that, given the abilities the combined organizations together.
And also the current product portfolio that is launching through our current customer.
But is ---+ we're going to wait until the demand pulls through and shows our actual results before we get bullish on it.
Yes, thank you.
I'd like to remind everyone that you can access the audio and the slide visuals on our website at Integer.
net, and they will be accessible for the next 30 days.
As always, thank you for your continued support and interest in Integer.
Thank you.
| 2016_ITGR |
2015 | IRDM | IRDM
#Yeah, we see most all the ---+ right <UNK>, we see materially lower warranty costs related to our OpenPort product.
That product is performing really well and our repair costs are down.
So, we get a benefit from that.
There is a being cost of equipment.
Please see the OpenPort benefit in the area of $5 million year-over-year.
| 2015_IRDM |
2017 | GEO | GEO
#Our available bed capacity would increase by those 3,000 beds, so it will go from the 5,000 to the 8,000.
Well, the project is supposed to start November 1, I believe.
That's the current expected start date, and it is a fixed-price contract, I believe, from day one, so there's not a ramp up, per se.
And I think we've guided historically about $70 million to $75 million in net revenues to GEO on an annualized basis.
So we've adjusted for that in our numbers in the fourth quarter.
There's not a financial ramp up, but there is an actual prisoner ramp up that will take place over several months.
But we are paid the same flat rate as <UNK>, said day one.
That's right.
Okay.
I'd like to say hello to any of the CEC employees that may be listening and welcome them to the GEO Group and look forward to working with you.
And thank all the listeners to today's conference call, and we thank you very much for participating and look forward to addressing you at our next call.
| 2017_GEO |
2017 | APEI | APEI
#Thank you, Brian.
Good evening, and welcome to American Public Education's discussion of financial and operating results for the third quarter of 2017.
Presentation materials for today's conference call are available via the webcast section of our website and are included as an exhibit to our current report on Form 8-K furnished with the SEC earlier today.
Please note that statements made in this conference call and in the accompanying presentation materials regarding American Public Education or its subsidiaries that are not historical facts may be forward-looking statements based on current expectations, assumptions, estimates and projections about American Public Education and the industry.
These forward-looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from such events and statements.
Forward-looking statements can be identified by words such as anticipate, believe, seek, could, estimate, expect, intend, may, should, will and would.
These forward-looking statements include, without limitation, statements regarding expected growth, amount and nature of anticipated charges, expected registrations and enrollments, expected revenues, expected earnings and plans with respect to recent, current and future initiatives, investments and partnerships.
Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described in the risk factor section and elsewhere in the company's annual report on Form 10-K and quarterly reports on Form 10-Q and the company's other SEC filings.
The company undertakes no obligation to update publicly any forward-looking statements for any reason, unless required by law, even if new information becomes available or other events occur in the future.
This evening, it's my pleasure to introduce Dr.
<UNK> <UNK>, our President and CEO; and Rick <UNK>, our Executive Vice President and Chief Financial Officer.
Now I'll turn the call over to Dr.
<UNK>.
Thanks, Chris, and good evening, everyone.
I'd like to start with Page 2 of our slides.
I am pleased to report tonight that consolidated revenues and earnings per share for the third quarter of 2017 were higher than we anticipated.
This outperformance was driven primarily by higher-than-expected net course registrations at APUS.
Although APUS experienced a year-over-year decline in net course registrations during the third quarter of 2017, the rate of decline lessened compared to the rate of the previous 3 quarters.
Net course registrations by new students at APUS declined 5% and total net course registrations declined 4% compared to the prior year period.
In the third quarter, net course registrations by returning students also declined by 4% year-over-year.
The overall decline in net course registrations by new students at APUS was largely driven by a 20% year-over-year decline in net course registrations by new students utilizing Federal Student Aid or FSA.
In addition, net course registrations by new students utilizing veterans benefits, or VA benefits, declined 6% year-over-year.
These declines were partially offset by a 2% year-over-year increase in net course registrations by new students utilizing Military Tuition Assistance, or TA, and a 10% year-over-year increase in net course registrations by new students utilizing cash and other sources.
In July of 2017, the first course pass and completion rate of undergraduate students using Federal Student Aid at APUS continued to improve and reach this highest level since the year 2011.
We believe that the continued increase in this measure of student persistence is an indication that the course enhancement and retention initiatives we have launched over the last few years appear to be improving student success.
For the 3 months ended September 30, 2017, or the summer term of 2017, total enrollment at Hondros School of Nursing, or HCN, increased approximately 11% year-over-year, driven by 58% year-over-year increase in new student enrollment.
On a same campus basis, excluding the Toledo campus, which opened in January of 2017, new student enrollment increased 17% year-over-year in the summer term.
Although HCN continues to be confronted with certain regulatory and compliance risks, which are more fully described in APEI's 10-Q filed earlier today, we are pleased by the continued turnaround in student enrollment at HCN.
Moving on to Page 3.
Although the path to enrollment stabilization may be volatile at times, we are pleased that the rate of decline in net course registrations at APUS lessened in the third quarter compared to the rates of decline in the second quarter and over the last 3 quarters.
Tuition Assistance utilization by military students can be difficult to predict, particularly during the months of September and October when the Department of Defense adjusts the allocation of its TA budget around its fiscal year-end.
In the third quarter of 2017, net course registrations by students utilizing TA at APUS were above our expectations.
We believe the year-over-year increase in net course registrations by new and total students utilizing cash and other sources was attributable to increased activity by students from our strategic and corporate partners.
Furthermore, we believe that favorable prior year comparisons and our overall efforts to stabilize enrollment helped to lessen the decline in net course registrations by students utilizing Federal Student Aid.
In summary, the team at Hondros College of Nursing has made great strides with respect to improving the institution's curriculum, opening the new Toledo campus and increasing student enrollment.
Among the top goals going forward are to continue improving student success, to focus on increasing NCLEX pass rates and to obtain alternative accreditation.
APUS plans to continue deploying strategies and initiatives aimed at increasing enrollment of new college-ready students, while continuing to improve conversion in student persistence rates.
At the same time, we will remain focused on affordability and further improving the student experience.
We believe these qualities, combined with existing and future workforce-focused initiatives, will enable us to reach our long-term goals.
At this time, I will turn the call over to our CFO, Rick <UNK>.
Rick.
Thank you, Wally.
American Public Education third quarter 2017 consolidated financial results include a 0.7% decline in revenue to $73.3 million compared to $73.8 million in the prior year period.
The decrease during the period is attributable to a 3.3% decrease in revenue in our APEI segment, partially offset by a 24.6% increase in revenue in our Hondros segment when compared to the prior year.
In the third quarter, our APEI segment revenue decreased to $64.9 million compared to $67.1 million in the prior year period.
The decline in APEI segment revenue is primarily attributable to a decrease in net course registrations.
Hondros segment revenue increased to $8.4 million in the third quarter compared to $6.7 million in the same period of 2016.
The increase in Hondros segment revenue was primarily due to an increase in student enrollment and an increase in revenue per student resulting from a change in program mix and other factors.
On a consolidated basis, cost and expenses decreased 10.5% to $65.7 million compared to $73.4 million in the prior year period.
Please note that the prior year period included a $4.0 million loss on the abandoned development of a new student registration engine in our APEI segment and a $4.7 million impairment charge resulting from the reduction of the carrying value of goodwill in our Hondros segment.
For the third quarter, consolidated instructional cost and services expense, or ICS, as a percentage of revenue increased to 39.2% compared to 38.4% in the prior year period.
Our ICS expenses for the 3 months ended September 30, 2017, were $28.7 million, representing an increase of 3.1% from $28.4 million for the 3 months ended June 30, 2016.
The increase in ICS expenses was primarily the result of increases in employee compensation expenses in our Hondros segment and an increase in classroom subscription services expense in our APEI segment, partially offset by decreases in professional fees and instructional materials expense in our APEI segment.
Selling and promotional expense, or S&P, as a percentage of revenue increased to 20% of revenue compared to 17.8% in the prior year period.
Year-over-year, S&P costs increased 11.4% to $14.6 million compared to $13.1 million in the prior year.
The increase in S&P expenses was primarily the result of an increase in advertising expenses and marketing support materials expense in our APEI segment.
General and administrative expense, or G&A, as a percentage of revenue increased to 23.5% from 23.2% in the prior year period.
Our G&A expenses increased 0.7% to $17.2 million compared to $17.1 million in the prior year.
The increase in G&A expenses was primarily related to increases in employee compensation costs, including costs related to the retirement of the APUS president, partially offset by decreases in bad debt expense in our APEI segment.
Bad debt expense for the 3 months ended September 30, 2017, was $1.2 million or 1.6% of revenue compared to $1.6 million or 2.2% of revenue in the prior year period.
The decrease in bad debt expense was primarily due to changes in student mix, changes in admissions and verification and other processes.
In the third quarter of 2017, we reported income from operations before interest income and income taxes of $7.6 million compared to $0.4 million in the prior year period.
Our effective tax rate during the quarter was approximately 43%.
The higher effective tax rate is primarily due to changes in the apportionment of state taxes and adjustments related to taxes paid for 2016.
In the third quarter, we reported net income of $4.3 million or $0.27 per diluted share compared to net income of $0.3 million or $0.02 per diluted share in the prior year period.
Total cash and cash equivalents as of September 30, 2017, were approximately $166.3 million compared to $146.4 million as of December 31, 2016.
Capital expenditures were approximately $6.5 million for the 9 months ended September 30, 2017, compared to $9.7 million as of September 30, 2016.
Capitalized program development costs were approximately $3 million for the 9 months ended September 30, 2017, compared to $1.5 million as of September 30, 2016.
Depreciation and amortization was $14.2 million for the 9 months ended September 30, 2017, compared to $14.6 million as of September 30, 2016.
Going on to Slide 5, fourth quarter 2017 outlook.
Our outlook for the fourth quarter of 2017 is as follows.
APUS net course registrations by new students are expected to decrease between 12% and 8% year-over-year.
Total net course registrations are expected to decrease between 8% and 4% year-over-year.
For its fall term, which is the 3 months ended December 31, 2017, new student enrollment at Hondros increased 29% and total student enrollment increased 23% year-over-year.
Excluding the new Toledo Campus, on a same campus basis, new student enrollment increased approximately 4% year-over-year.
As Wally indicated, we are pleased to see continued growth in new and total student enrollment at Hondros College of Nursing.
For the fourth quarter of 2017, we anticipate consolidated revenue to decrease between 5% and 1% year-over-year.
Net income for the fourth quarter of 2017 is expected to be in the range of $0.29 to $0.34 per fully diluted share.
As a reminder, APUS began accepting applications for 2 applied doctoral programs in strategic intelligence and global security with the first cohorts beginning in January 2018.
We expect to incur related start-up costs ranging from approximately $0.4 million to $0.6 million during the remainder of 2017.
In conclusion, we are pleased with the enrollment performance of Hondros and the continued improvement in persistence rates at APUS and we remain optimistic about our enrollment stabilization efforts.
Our goal is to stabilize enrollment while strengthening student outcomes and preparing them for the changing demands of the workplace.
Now we would like to take questions from the audience.
Operator, please open the line for questions.
I went over this a little bit last quarter, <UNK>.
So since the services have pretty much not moved and held to a 30-day registration process for TA, we don't get the lengthy insight into that.
So if we have a quarter where we have to give guidance and only have one month of the actual, you might imagine that without the November drops and then really not having much of a runway into December, we have to be fairly conservative.
And so I would tell you that we're trying to work with the current enrollments we have with TA.
And they could bounce back or they may not.
So we're going with a number that we think we can achieve.
I don't know that that's the case.
I just know that they are not approving the TA request until it's 30 days before the course starts.
Yes, exactly.
I mean, it's just that ---+ we ---+ the way the academic year works for Federal Student Aid, those students can register for up to 5 months.
And so any of our students can register for up to 5 months out, but we won't see approved TA request for anyone that registers more than 30 days out.
And for some of the automated systems, they're actually not even allowed to enter the system until the 30th day before the class starts.
Sure.
We talked about it on our last call that we were going to do a pilot of about $1 million in extra advertising cost for the third quarter.
And we ---+ preliminarily, we like that outcome.
So from a spend perspective, we're going to try to spend it our 20% in the fourth quarter and that's what we have the number at.
When we make decisions to do incremental spend, the last thing we're going to spend it on is traditional TV and radio advertising.
We don't use lead aggregators.
We do our own lead generation internally.
So we have a pretty sophisticated SEO operation internally.
And so we look at word combinations and search terms that we believe if we put extra money in, we won't distort the cost of our normally bid keywords.
And we're really focused on student profiles that we think will persist better long term.
So that's where we spend our money.
Well, we have been very focused for a number of years now in improving the quality of our FSA students.
And in improving the quality, we want to reduce the percentage of students who start with us and fail.
So we put in an admission's assessment.
We put in ---+ change the way we disperse our funds because we also wanted to drive down bad debt because we find that the students who fail basically leave early and don't repay their loans.
And we've had to do all of this through an academic lens versus anything such as a geo-targeting, which is not allowed.
So it's been a very slow and laborious process.
But part of it is just exacerbated by the fact that our tuition is so low, students can borrow much more than the tuition and there's very little we can do to stop that.
And so what we try to do is to find ways to make sure that we have students whose primary goal is to succeed as a college student.
Well, at 43%, right up there at the top, so we're looking for relief.
The 43% is a bit of an outlier and we don't expect it to maintain at that level.
But even at 39%, 40%, it would be helpful.
Yes, I think the individual changes related to corporations not being able to deduct the cost and tuition for their employees.
I think it's a little too soon.
I don't know that that's as big of an impact as if employees have to record that tuition reimbursement as income.
So until we get more clarity on that as they go through the negotiating sessions, <UNK>, I think it's too soon to tell.
I mean, the only good news is that ---+ well, what would be really interesting would be to see if under where the employees might have to declare that as income.
Would they include government reimbursement such as tuition assistance in the same category.
I think usually they make exceptions for the military since they typically tend to be paid less.
So I would hope that would be carve out, but we'll see.
Yes.
I mean, we've ---+ we submitted our self-studies.
We've had our visits and we're in process to come before the ---+ I think, it's the Board of ABHES for approval in January.
And we believe that we're on a path to do that successfully.
So we'll see.
Well, we certainly will have ongoing costs because we're going to launch the programs in January.
We've got our first cohort.
I think the date that will set the enrollment for that first cohort is some time in the middle of this month.
So we're certainly not expecting to breakeven in the first quarter, even the first half of next year.
And I think where the breakeven point is just depends on the enrollments.
We're not doing ---+ I don't know if we've given clarity on this.
We are not going monthly starts in the doctoral program.
There's just not going to be as much of a demand.
So we're doing 3 starts a year.
And like I said, I think the breakeven point will probably be fairly dependent on the enrollments we have in January and May, which are our first 2 starts.
Sure.
We had always planned on expanding Hondros.
We thought that there was an unmet need in the State of Ohio, and Toledo was our first choice for location.
We were delayed by a couple of years because of the delay by the Department of Education in approving our change of ownership.
But in the ---+ one of the things that we identified pretty quickly in the Toledo market was that there were 9 schools with PN programs only and no schools with ADN or RN programs.
Not no schools, but those 9 schools did not have those programs.
There was also an unmet need from the State of Michigan, which is pretty close to Toledo.
And so when we opened Toledo, even though our normal plan for a Hondros start-up is to start students in the PN program, graduate them and then start the ADN program.
There was so much demand in that marketplace for ADN students that after one quarter, we started an ADN class.
So not only is the facility meeting or exceeding our expectations in PN enrollments, it's far exceeding our expectations in ADN enrollments because we really had not planned on ADN enrollments at all for 2018.
So really we're responding to the needs of the marketplace and I think we've been very successful so far.
Thank you, operator.
That will conclude our call for today.
We wish to thank you for listening and for your interest in American Public Education.
Have a great evening.
| 2017_APEI |
2015 | GILD | GILD
#<UNK>, I will answer the first question.
We have Phase 2 data.
W had discussions with FDA.
They've accepted our plan so it will be two studies.
One will be, as we call it, a single variable experiment where we compare 9883 to dolutegravir in the background of F/TAF.
And the other one will be a double variable experiment.
We'll compare the two single tablet regimens, Triumeq versus 9883 F/TAF single-tablet regimen.
We hope to enroll the study by the end of this year ---+ start enrollment ---+ so it's all fast-forward.
<UNK>, it's a good question.
We're scrambling right now because I don't have that one in front of me.
It's a fairly recent invention from Gilead.
So, I think it is pretty far out there.
But we will get that number out for you as soon as we can.
Correct ---+ well, 2030.
But you're correct, it is going to be an STR because of the amount of API, the active pharmaceutical ingredient, in that table is, in fact, going to be one of the smaller StRs available.
Mari, it's small, a single tablet regimen.
<UNK>, I'm not sure clinically it will have any advantages.
It had some slight advantages in vitro with systems.
On the first question, we still see, as you recognized in the chart, very high levels of restrictions still through F0 and F1 patients.
And we see this in a formal way in the contracts that we're working with.
But we also see it qualitatively when we talk to doctors where, dependent on insurance company, doctors, I think in some case, don't even bother to write prescriptions because they know they're going to be rejected.
And we do see the rejection rates and some of them are quite high.
But I think we just need to keep encouraging our partners to try and treat earlier and consider treating less sick patients.
And I think as we see these patient flows ---+ and this is pretty much the same answer I gave last time, as well, I'm afraid ---+ but as we see patients flows begin to stabilize and become more predictable, that does work better with the payers and the PBMs' models.
Again, I hope that will encourage them to consider treating people early.
And, of course, finally, they do get much better value, especially for the less sick GT1 patients if they treat for eight weeks.
So we hope all of that will continue to encourage them.
But it is a bit frustrating, I agree with you.
<UNK>, the second part of your question is would the label update from our competitor allow us to go back in the contract.
And I would say that's really not the philosophy here.
I think people who are choosing between us and the competitor have to make decisions on behalf of the plans, their ability to pay and the patients that they want to treat.
And it would really be up to them to look at the level of access that they want to give because, frankly, the 2016 contracts are all in place.
Those have been negotiated and the payers, we've left it up to them to determine the level of access that they would want to give to us versus them, and, as <UNK> pointed out, also the level of access they are willing to give to patients with lower fibrosis scores.
I'm sure every new data set that comes out allows them to rethink a position, but from where we are right now I don't see any major changes occurring.
Maybe I could just add, <UNK>, we are very happy, as I mentioned in the script, there's plenty of real world data sets coming out, and really do, I think, hopefully, give payers the confidence that investing in relatively expensive medicines is worthwhile because of the cure rates and the tolerability and safety profile.
The more real-world data sets that come out, I hope that will be encouraging.
And, finally, yet again I'd say the opportunity to say that Gilead believes in making sure that prescriptions are in the hands of physicians and their patients and not forced upon them by exclusive contracts.
So, all of that we hope will encourage perhaps a rethink.
We are very busy behind the scenes.
In fact, we just had a conference here locally last week with a number of partners that we're working with.
We have a program called Focus.
We have partners with about 100 different external organizations across, I think, 18 cities so far across the US.
And the objective here is increasing diagnosis with various programs around screening and then, importantly, linkage to care.
There's a whole list of programs that we've been hearing about their initial work.
One of the things that is quite surprising, I think, to everyone is that the levels of prevalence, albeit in fairly high targeted areas, have been way higher than people anticipated.
Roughly double, in fact, the numbers that people have expected.
As for the DHSS question, I can't really comment on that.
But there is a lot of work going on out there.
And because, I think, of the simplicity of the treatments and the very high levels of SVRs we are seeing, people are getting more encouraged to address the problem.
The slide you're looking at the top right-hand corner, is the fibrosis scores.
I just want to emphasize the title on the top here.
This is intent to treat, so essentially this is prescriptions that are written but not necessarily filled.
And what we do know is that, although it suggests that half the scripts are F0 through F2, we know that a lot, probably the majority, of those F0 through F1, at least, are not being filled, certainly by some of the payers who are easy to identify.
In the F2 area, it's a borderline situation.
We know this quantitatively.
But, again, we also know it qualitatively through our sales force and our interactions with physicians where it's still quite hard work to get F2 patients through the prior authorization process, and time-consuming and bureaucratic.
So, so it's a situation that's frustrating for everyone.
As I said in my comment just a couple minutes ago, I think that as we see treatment flows becoming more predictable, as we see more real-world data with the products building a higher level of confidence that SVR rates and safety profiles are good, that we hope that payers will start to relax criteria around fibrosis scores and other patient characteristics that we've seen acting as barriers to treatment.
We will continue, as we have done and will do, to talk closely with our payer partners, and try and encourage them to treat more people and reduce these barriers to treatment.
Thanks, <UNK>, it's <UNK> <UNK>.
Just to be clear, when we thought about this product, we thought about it being a better alternative medically for patients of genotypes 2 through 6.
And that includes some patients in the United States but a vast majority of patients who fall in that category are, of course, outside the United States, with Harvoni maintaining as place in genotype 1, particularly because, as <UNK> is alluding to, we have such a very strong safety data set now on Harvoni, including over 600,000 patients who've been treated with sofosbuvir now in various forms, the fact that we have the eight-week option for patients which provides quite a savings for the appropriate patient, and, as we've seen very high cure rates in real-world settings of that eight-week regimen.
So, I do think there's going to be some patients who would benefit from the shortening of duration, not having to go to 24 weeks, in some cases, not having to have ribavirin in other cases, and allowing us to then have a very good option for those patients 2 through 6.
I don't think there's a big warehouse effect of patients waiting for that but I do think this provides a very important option for patients who would want a pan-genotypic option, and for doctors who may not be able to genotype as effectively.
So, I think it's a very important breakthrough for us and will allow us to continue the longevity of the franchise, more so than provide any sort of bolus effect upfront.
I guess there's an implication that we've been out making offers.
I don't think the market really changes all that much dynamically in terms of M&A activity.
So, I cant tell you if people's expectations have changed based on valuation changes.
But I've seen these cycles go up and down over the years, and when there's a deal to be put together and it's timely, it can be done.
So, I don't think it changes the overall outlook for M&A at all.
I think, from my perspective, it's about the same as it was at the beginning of the year.
Hi, Phil, thanks.
First of all, I'd say you see the same data that I see with the weekly scripts.
What you don't see is the non-retail sector, perhaps.
And you may not see what we call NV Rx which is the new to brand, which is essentially the new starts data.
I think that we're fairly confident we've now seen a flattening out of the trend of patient new starts in the US.
As I said earlier, I said a couple times now, we saw a very strong first quarter which really was reflecting the warehousing of patients waiting for Harvoni in the US.
And Harvoni was such a step change for GT1 patients.
But we've had a fairly flat two quarters in terms of patients starting on sofosbuvir products.
In quarter four last year, just to put it in perspective ---+ and Harvoni was already launched then, by the way ---+ we saw about 45,000 patients being treated.
Then we had this big bolus in quarter one, about 70,000 patients.
In quarter two we saw about 62,000 and in quarter three we've estimated about just around 60,000.
So, it's flattening.
And when you add the retail and the non-retail together.
And as I said, as we go into quarter four, I think we can expect that to be fairly stable as we go into next year.
Having said that ---+ and again, from my prepared remarks ---+ I emphasize that we are doing a lot of work across the country and around the world to work with governments and other stakeholders to really try and encourage earlier treatments, more screening, and so on, so that we can extend this hepatitis C business for many years.
And we think that's going to be the case because even now we've treated just a tiny fraction of the diagnosed patients and hardly touched the undiagnosed area in terms of volume and potential.
So, we are very confident of the future.
But 2016 I think will be a more stable year in the US.
I think it is going to be patients working through the system.
But I think we're fairly optimistic that over time, and it may take a little bit longer time than shorter time based on what we've seen so far, those fibrosis scores another patient characteristics which would represent barriers to start treatment will be relaxed somewhat.
And it's self-fulfilling, in a sense, that predictable and stable patient flow works with the business models of the payers.
I think they will start to feel more comfortable about relaxing constraints.
So, gradually we should start to see more patients coming through.
We have to be fairly specific by country.
Looking at Europe in aggregate doesn't necessarily paint the picture.
So, let me just talk you through quarter three what's been happening I think in Europe.
We've seen early launch markets like Germany begin to stabilize at lower levels but more consistent levels.
And that's a parallel somewhat to what we saw in the US.
So, that would be Germany and France, being the early launch markets.
We're then seeing markets which have high prevalence and ambitions to treat a lot of patients, like Spain and Italy, really starting to address their warehoused patients in quarter two, and starting to go into quarter three.
And we've seen, I would suggest, somewhat of a spike in those countries.
And we would expect those going forward to come down to lower levels but more consistent levels.
And then we started to see new markets like the UK coming on stream during quarter three.
A confusing aspect in quarter three in Europe is because there's a very high level of vacations in July and August, not just for patients but for treaters and wholesalers and so on.
So, there's assumed moving parts there.
Going forward I would expect Europe to start to flatten out and stabilize somewhat.
But, of course, as I said, there's different dynamics country by country.
And I mentioned in the script a couple of the smaller countries who haven't even launched yet but we will be launching in the next quarter.
I'll answer the first question, which is the 8-week regimen.
Our estimate is about 40% of GT1 patients in the US, which is similar to last quarter, have been on the 8-weeks regimen.
That hasn't changed too much.
If you look at just the epidemiology and look at the GT1 patients who would qualify for 8 weeks, that's more like 70% of those.
So, I hope that answers that part, and I'll hand you over to <UNK>.
<UNK>, I would say the answer to the 48-week is there won't ben an announcement.
The FDA ---+ we have agreement with FDA.
The endpoint in that study is [HVP3] hepatic venous pressure gradient.
And FDA felt that the 48-week data would really not suffice for approval but we needed 96-week data.
Now, of course, there could be the possibility of some spectacular result like prevention of SEAs or something like that.
Or the opposite, also.
There could be surprise about harm, in which case the DSMB could make the recommendation to either stop the study or unblind it.
But I think that's unlikely.
This is <UNK> <UNK>.
As I said earlier, the contracts have been finalized for 2016.
That always happens earlier in the year.
In fact, we're already starting to talk a little bit about 2017 with the payers.
And they have a range of options.
Much like they had in the past, they can choose what level of rebate they would want to have based on their ability to open up access.
I think 2015 was a bit of a shock to the system with the warehoused patients and, as <UNK> implied, next year we think will be a much smoother base from which we can then try to impact the growth of the overall market.
So, they will have options based on how they negotiate with their clients to open up access or not for next year.
That will be an ongoing discussion with them and within their internal groups, as well, as the data emerge on this.
So, we feel very positive about this in the long term and it sometimes just takes data and time for these things to work themselves out.
No, we're not putting that number out there for the gross to net.
I think one thing, to focus on what <UNK> had said earlier, what we are seeing is a trend toward shorter therapy.
So, a lot fewer use of the 24-week option for patients and then a lot of the 48-week option for those patients.
That is a real benefit driving the costs down by bringing in shorter care to the patients, as well.
So, that's what you would expect as the more sick patients in those categories work themselves through.
You also had a question about competitors coming to market.
We feel very strongly about our position in the market.
We feel very strongly about the value that we've been able to bring and, importantly, the safety database that we have that will give us a very strong position in the market regardless of who comes in in the future.
<UNK>, our thoughts for the triple combination HCV regimen is two-fold.
First of all, we're going to do one study ---+ and we still have to talk about all the details ---+ that will explore the utility of the triple combination regimen to be a universal salvage regimen.
So, whatever you have failed before, whether it's [non-nukes, PIs or NS5As].
There's triple combination nation regimen, will provide a universal salvage possibility.
And the second thing we're exploring is eight weeks duration of therapy in various patient populations.
And, again, we're working with the FDA for all the details of that.
We haven't decided, the final decision has not been made, but those are our two-pronged approach.
And then the other question.
<UNK>, you asked about the VA tailwind and unfortunately we're not able to share any details about prescribing habits or business in the VA, so I can't help you.
<UNK>, I'll answer the first question.
We are not exploring a six-week duration regimen anymore.
And the reason is simply that our experience has been that it works for a subset of patients but not for broader patient populations.
If you look at [seervodics] or treatment-experienced patients, then the response rate (inaudible) are not as high as they should be.
And I want to remind you, you'll notice that the response rate, if you just get 90%, people won't accept that anymore.
It really has to be 95% or more and we're not seeing that across a broad patient population with six weeks of therapy
That was the previous question, <UNK>.
Changing genotypic PI together with velpatasvir, together with sofosbuvir, the triple, is going to be a universal salvage regimen and potential universal eight-week duration therapy.
That's what we're thinking.
But not six weeks
<UNK>, I think your second question was about what Express Scripts might do.
Obviously it's up to Express Scripts to figure out what they want to do, given where they are.
The national formulary where there's exclusivity for the Viekira Pak, of course, is about 15% of the covered lives of Express Scripts.
Obviously we're open to discussions any time they want to call us.
But I have no idea what their thoughts would be, I have no idea how the label would impact their business at all.
That's up for them to decide medically what's the right thing to do for their patients, of course.
<UNK>, I would like to add something.
The six-week duration treatment would still be two prescriptions.
It's not possible to package 42 tablets into a bottle and have that be one prescription.
That's another reason why six weeks is not as appealing.
Eight weeks is also two prescriptions.
Let me just talk a little bit about the HIV franchise.
Actually, one of the encouraging pieces of news in the US is that 8 out of 10 patients now are receiving a single tablet regimen, which I think demonstrates that the concept of single-tablet regimens is really very well-established now.
Triumeq has been doing well on its launch, and has been taking some market share from Gilead, although 7 out of 10 patients new to treatment are receiving a Gilead product and 6 out of 10, roughly, are receiving a Gilead single-tablet regimen.
The conversation in HIV, having been focused somewhat on third agents over the last few years, we feel now is going to come strongly back to the backbone of these HIV single-tablet regimens.
Really up until next week Truvada has been well-established as the standard of care backbone in these single-tablet regimens.
But as of the 5th of November, our PDUFA for TAF, or F/TAF-based regimens, that changes, and F/TAF will be the standard of care backbone for single-tablet regimens going forward.
With the launch of Genvoya next week, we are very confident that we will see a major milestone in the upgrading of HIV treatment.
And, as <UNK> said earlier, because patients are living longer with HIV, have a lifetime of therapy, this is a major improvement for patients and a compelling data set that we are launching both for patients naive to treatment and for switched patients.
And with switched patients it takes time to get patients to switch and it won't happen by itself, but the commercial organization and the medical affairs organization and Gilead are very well-prepared and very motivated and very excited about the launch.
So, we are very confident.
We start enrollment at the end of this year.
Assume six-month enrollment, 48-week endpoint.
That's middle of 2017.
6, 2 months to write it up and submit, and then another 12, 10 months for review.
So, that gets us roughly into mid 2018 timeframe
Thank you, Candace.
And thank you all for joining us today.
We appreciate your continued interest in Gilead.
And the team here looks forward to providing you with updates on future progress in future earnings calls.
Thanks.
| 2015_GILD |
2015 | ALE | ALE
#Well, I feel pretty good about the demand nominations; given the amount of buffeting that the industry has taken throughout the early part of the year.
So we feel very good about the nominations at this point.
With respect to going off into the winter, <UNK>, I don't have any additional reconnaissance with regards to that.
We do work closely with our industrial customers in their operations with our engineers and the like.
We watch market signals as well.
I feel pretty good about domestic fuel consumption in autos.
Down there in the Great Lakes where most of this fuel goes, there's no sign of weakness there at all.
And so I am hopeful that they will have weathered this sort of glut of iron ore, if you will, and also steel importation illegally that the Federal Trade Commission is getting on now.
We've won a few of those battles up here and ultimately that they can get on with their operations and getting them back to normal.
I am also encouraged that they are looking at sort of taking that technology and looking at investments where they can to improve their pellet quality and products that they use.
For the tariff remediation.
I don't know.
Those are long-winded, <UNK>, in nature.
Each one is individual in nature.
Each complaint that gets filed has its own runway that it goes on, so some of the complaints that have been resolved here more recently were from a year and a half or more ago.
Some are going to get resolved sometime during the winter months.
The Trade Commission works on an individual basis on each one of those and it's very difficult to predict how they will map out on a runway basis.
I'll take the United States Steel questions first, <UNK>.
We don't have any additional information than what U.S. Steel has released at this point in time about their scheduled return to production with the lines that they idled at U.S. Steel Minntac and at Keetac, but certainly their demand nominations for the fall would signal that they are planning to ramp up here and we feel very good about that.
With respect to how relatable these temporary idlings are to past history, I think you potentially recall the 2009 economic collapse of the US economy, or global economy.
In that particular instance, the industry was down from May through the December time period and then it sprung back and recovered nicely.
There are other periods of history where the industry has cycled up and down.
This industry produces about 40 million tons per year.
They have cycled on average between 35 million and 40 million tons, so it's not a highly irregular cycle at this point in time.
The amount of steel dumping, of course, is sort of new in this particular case, so I think that affects their situation more than anything else at this point.
With respect to Essar Steel, construction again with the trades on the ground has reached 550 full-time people working there, that is substantial.
That is significant.
That really reflects sort of peaking towards peak of construction at this point in time, and so they have really ramped up significantly.
They are going to work right on through the winter at this point in time to finish up the project.
Their financing difficulties are behind them as well and we fully expect that they will commence some operation in 2016.
And as I have expressed many times, starting up a taconite facility is not like turning on a light switch in your bedroom.
It takes time to ramp up these large pieces of operation and then integrate them all.
So we expect to ramp up in 2016 and ultimately, as they move off into the later year, enhanced or near full production.
Good morning, <UNK>.
This is <UNK>.
First, I want to say, as we've kind of indicated, we will be providing more information on U.S. Water Services and ALLETE Clean Energy later this year as they trip the required segment reporting rules.
The customer growth is as we expected, but we had high expectations here.
As we indicated, U.S. Water had revenue of about $120 million last year and we expect it to grow organically between 10% and 15%.
So it is meeting our expectations.
We have high expectations, so they are off to a very good start under our ownership.
Yes.
That is a good rule of thumb, that $0.03 per million tons, and the way you have outlined it would fit with that general rule of thumb.
And of course, that's before any other cost mitigation, but it is after selling in the wholesale market.
Yes, I think that's a good rule of thumb.
I think that our view and I think their view as expressed ---+ all the steelmakers expressed this ---+ more temporary than longer lasting.
There are some broader macro factors again with iron ore pricing and steel dumping that affect them all.
Each of them have their own individual circumstances that they have worked through, but I would say our view and their view is more temporary in nature than long term.
You know, we have not disclosed that type of detail historically.
I would take the trend and the direction as a very positive thing of returning to service, confirmation, affirmation of temporary versus more long lasting.
Obviously they have got to ramp these facilities back up again.
As I suggested to you and others, it is not as simple as a light switch in a bedroom, so you have to take time to ramp them all back.
But I take the trend as a very positive thing for the industry.
Those earnings will be taxed closer to the statutory rate, which is in the 40% range.
We have not disclosed that, but I will say you can look at our shares outstanding at the end of the second quarter and we currently have no plans to issue any additional significant equity other than through modest amounts through our employee and dividend reinvestment plans.
Well, if you run through the math, the MDU fee is currently estimated at between $20 million and $25 million pretax.
You run it through the math it's probably approximately $0.25 to $0.30 a share.
So you can take that away from our $3.20 to $3.40 and our guidance does reflect, though ---+ in addition to that $20 million to $25 million, it reflects the recent taconite nominations.
It reflects the ceasing of operations at Mesabi Nugget earlier this year.
It reflects the impact of the FERC ROE complaints, both at ATC and MISO, some of which the charges we have taken are related to prior years.
And it also includes some storm damage costs for a severe weather event we had in July near Brainerd, Minnesota.
We are still assessing those costs.
They will be several million dollars.
We are assessing what will be capitalized and what will be charged to operating and maintenance expense, but all those events and items are reflected in our updated guidance.
That would be the math and it's the result of the items that I listed.
Yes, that's correct.
Cliff's United Taconite temporary idling is really the major impact resulting in the 90%.
No, other than what they have signaled.
They are looking to see a reduction in steel dumping and an increase in ore pricing, like everybody else, macro.
On a micro level, of course they are working with their customers and other off-takers who would be interested in their pellets, both existing and the new type of quality pellets that they are producing.
Their mines are all in pretty good shape.
As Lourenco Goncalves has suggested many, many times, their focus is Minnesota, all of their operations in Minnesota, and focusing on the iron ore business.
So some of the distractions that have sort of impacted Cliffs over the last several years have also been alleviated a bit.
Lourenco's focus is on Minnesota or operations.
I think that is well ---+ bodes well for Northeastern Minnesota.
And the fact that they are interested in these technology leaps, if you will, or taking their pellets to a new level of quality I think bodes well for application in a variety of settings, both blast furnace and also with the sort of DRI-type electric arc style furnaces.
So I am actually feeling pretty good about Cliffs in the longer term, <UNK>.
Obviously all of them are working through these sorts of fuel dumping and low ore pricing challenges that they are facing at the moment.
I will, sure.
So with respect to ATC and their FERC ROE complaints, approximately $1.1 million pretax or $700,000 after-tax year-to-date ---+ that is a year-to-date number ---+ is related to prior years.
And that was mainly reflected in the first quarter.
With respect to the additional MISO charges Minnesota Power will incur, approximately $1.5 million, or $900,000 after tax, is related to the prior year and that was reflected in the second quarter.
Sure.
Our strategy for a Minnesota Power rate case remains unchanged.
As we've stated, our strategy is to improve Minnesota Power's return on equity over time through cost containment and load growth; remain committed to that plan.
Temporary deviations in industrial sales don't impact that.
We, as we have talked, have no indication other than to believe those are temporary and it seems like some current events are demonstrating that.
So we are actively managing our costs and we will have more to report on that as we move through the next 12 to 18 months.
Certainly we look forward to load growth both at Essar and PolyMet.
Well, it would not be material for that short period of time, and I'm going to use our rule of thumb that we provide, about $0.03 per million tons.
UTAC produces just under 5 million tons, so you could take $0.03 times 5 million tons would roughly give you the zone of $0.15 for the year.
And then pro-rata that, divide that by two months or whatever, you can kind of get the ---+ it gets to be pretty small.
That is true, <UNK>, and it is complicated and somewhat difficult to explain.
It's not new.
This has been ---+ accounting has been this way for quite some time.
What is different here in this quarter is the size of it, and that's why we felt the need to really provide some color and to talk about it.
And the reason it's bigger ---+ and it is timing, as you indicated, and it is a result of what you indicated ---+ but the reason it's bigger this quarter is that we have more earnings that are taxed at a higher rate.
And earlier we talked about the MDU transaction tax closer to the statutory rate; that is the reason.
And the overwhelming majority of those earnings are in the second half of the year, which creates this somewhat of a timing difference as we record to our effective rate estimated for the full year.
So it is a little bit of an anomaly in the second quarter here, primarily just the result of timing because some of our ---+ most of our higher tax earnings are back-end weighted.
I hope that helped.
Thank you for that question.
First of all, if you looked at our regulated and operating and maintenance expense for the first six months of the year, it has decreased approximately $8 million, despite a $2 million required increase attributable to a maintenance service agreement with our Bison 4 wind facility that went into service at the end of last year.
Now about half of that, or $4 million, was a charge we took last year for the non-recurring EPA settlement liability, but the rest we are beginning to see some of the work we have done.
It's lower salaries and wages, some lower maintenance, and other miscellaneous expenses.
So while not tremendously large at this point, we are beginning to see the trend downward already, so we're happy with the progress we are making.
It will take time for some of these cost containment efforts we're doing.
And I mentioned a minute ago over the next 12 to 18 months and that's what we can expect.
It will come across a broad spectrum of expense items here at Minnesota Power, but I wanted to point out that you are beginning to see, albeit somewhat small, but it's trending down in the right way.
Thanks for that question and good morning.
This is <UNK>.
First of all, we are very excited about U.S. Water, and Al had mentioned how much we just really believe in the nexus between energy and water.
I will say this: we expect organic revenue growth there of between 10% and 15%.
As well it is a somewhat fragment of market, so it has the opportunity to do some bolt-on acquisitions to fill a strategic need.
That could be geographic.
It could be product line.
It could be things like that.
So we're excited about it and I think you will see growth on both fronts.
<UNK>, this is Al.
I would like (technical difficulty) an additional comment.
In the last 24 hours of course the clean power plant has gotten the most airplay ---+ greenhouse gas, carbon, and climate change.
But certainly, just from a regulatory stringency perspective ---+ drought, water reuse, and conservation, sort of all of that ---+ when I think of the EPA and the U.S. Water's Active America, when I think of state regulations in California and Colorado with respect to water consumption or reduction in water consumption, it just implies to me and speaks to me about, first of all, the nexus of energy and water.
Secondly, that the water, and use of water, reuse of water, and wastewater are going to become enormous issues in the next few years.
We certainly are going to look at both the organic side and also looking at rollup acquisitions in the industry, you bet.
As you know, or may not know, our U.S. Water Services has a national presence predominantly, but there are a few geographic areas that we would like to have a more significant presence in.
I can't name those today, but we are certainly looking at those.
And, yes, the acquisitions would be much smaller than the initial acquisition of U.S. Water.
They are more on the smaller regional and local size entities.
Well, we feel very good about what ACE has accomplished so far, <UNK>, as expressed.
I think the [build-to-own] transfer competency that has been added to ACE with the MDU project; we don't view that as one-off at all, kind of a one-off deal.
We think that's a great competency and a great add to their playbook.
Certainly if you look at the Clean Power Plan as delivered yesterday by the Obama administration, certainly biased towards enhanced renewable production across the country, all forms; biased even further in that way than natural gas even, if you look at the rule as it sits in the last 24 hours.
So we see many more opportunities that way for ALLETE Clean Energy to be involved in both acquisition of projects, in building of projects, and growing in the renewable space.
So we think it is well-positioned at this point in time.
As far as size and mass, no way to predict that just yet as well, but we see it as very much complementary to what we are doing.
It is going to be heavily involved in what I would call reoccurring revenues and power purchase agreements.
It makes sense for the long term, so nothing emergent; we haven't changed our views in that regard either and we see lots of opportunities ahead for ACE across the country.
Again, ACE, like U.S. Water, is also spread across the country.
We will be careful and selective and disciplined, as we have been right along, with our acquisitions, but we see the United States as being fertile ground.
Renewables as being fertile ground; EPA or CPP as being the enabler to help ALLETE Clean Energy grow further.
We expect to report segment information for ALLETE Clean Energy and U.S. Water Services later this year.
Whether that will be Q3 or Q4, work in progress still.
It will be when it trips; the required rules around segment reporting will be the driver.
Simply stated, and generally, if it is more than 10% of certain metrics, which you are going to have to give me a little leeway here, I believe they are assets, revenues, and net income are the three.
I may not have that exactly right.
Well, there is.
Well, thanks again for joining us, everyone.
We are very excited about ALLETE's progress broadly and we will look forward to catching up with you and meeting with you along the way here as the year courses towards the end of the year.
Thank you very much.
| 2015_ALE |
2016 | RMD | RMD
#Absolutely.
<UNK>, we'll give an update next quarter as we really start to roll that out.
The point I was making on this call is that we've now got the quality to a level that we like, and that we are launching it now not only to the US, but our global sales forces over the coming quarter.
And as you know, the sale cycle on POCs is an S-curve, and you start to ramp that up this quarter, but we'll give an update in 90 days as to the progress on that.
Thanks for the questions, <UNK>.
There are two factors involved in SG&A.
One is the absorption of some of the acquisitions we've made, and that has contributed to the SG&A.
And in addition to that, as you noted, we're launching two new masks in Europe, and we plan to launch them in the Americas.
And these things that we prepare for, we've done them many times, but you do prepare for them in terms of the marketing promotional and capabilities, and so on.
So, those two factors of the acquisitions and the preparations for new product launches were both factors in the SG&A.
I'll take the second part of that, and I'll hand it to <UNK> for the first part of that and the broader GM review, and what's going on there.
With regard to pricing, we haven't seen anything out of the ordinary in pricing.
There's obviously ---+ we don't break it out in detail here, but what I'd say is we've seen what we've seen traditionally in year-on-year price deltas.
In our US and other markets.
Throughout the whole CB process, it's been very visual and open, as to what the new prices will be, and we've been working with our customers as soon as prices were announced six months ago, not as they start to go into play during this July-August-September quarter.
So, pretty steady as she goes, in terms of historic price deltas there.
<UNK>, do you want to provide a little more color for <UNK> with regard to what's happening there with GM.
Sure.
So even though the product mix continued to be unfavorable for us, it's certainly moderating.
That headwind has definitely moderated in this quarter, which is good.
The other thing, also ASVs, which is a pretty big headwind, our ASVs returned to a growth trajectory, and that's helping us on the product mix piece of this.
It's not a headwind now.
The biggest component there, I think, has been driving through on the margins being manufacturing and procurement, and really getting some traction on those cost-out programs.
We've been running all the time, but it's becoming more evident because of that product mix moderating.
So, that's working through.
As you know, the first 12 months, we couldn't really work on it.
We were concentrating or focusing on just meeting demand.
But as we have worked through the last 12 months, we've been really able to ratchet up that program, and the team has done a great job working through on the various cost-out programs, particularly for the platforms.
And that's definitely now flowing through on the gross margin.
I guess the other one, obviously, the Brightree acquisition is a meaningful contributor, as well.
Some of these headwinds are perhaps turning into tailwinds, so we are seeing that come through on the gross margin.
The Brightree growth in that low to mid teens, low teens area.
Good solid double-digit growth.
It's 80% to 90% plus recurring revenue there, <UNK>, so the Brightree business is a very solid and strong recurring revenue business.
It's providing incredible value to providers, automating the process flows for inventory management, clinical informatics management, revenue cycle management, in terms of ensuring payment, and also even managing physician scripts.
So, when you think about the synergistic value, if you'd like, between a customer who's operating on ResMed's Air Solutions for patient engagement through myAir and physician engagement through AirView, and now HME engagement through Brightree, there are many of those workflows that you can look to if you are removing costs from the front end of patient engagement and the back end of inventory management, that there can be synergies in saving those costs for the HME provider.
So, we're working with all our customers who use both Air Solutions, Brightree, and particularly those who use both, to really help them garner those savings in their own operating costs, to improve their own P&L, and free up more of their own cash flow, to then reinvest in better patient care and drive adherence rates up, of the likes of what we have seen in the myAir study and the U-Sleep study, where we were able to achieve 80%-plus adherence rates.
That is a win for the patient obviously, but it's also a win for the physician getting the patient on therapy, and to the provider, in terms of keeping that sleep apnea patient on good therapy and ongoing resupply.
Thanks for the questions, <UNK>.
And both of those, actually, over to <UNK> <UNK>, our President and COO.
Thanks, <UNK>.
The R&D increase largely has been around bringing the acquisitions in, and the engineering work that we want to do, to make sure quality is right and really synchronizing the roadmaps and making sure everything's on track.
We're committed to innovating in our industry, and we see the R&D program continuing apace.
We've got a lot more things on our roadmap than what we can actually do, and a lot more plans and ideas, and anything we can invest sensibly into the R&D program, we will.
Onto your other question regarding Curative, you're asking about any differences from how the early integration program went.
We were really encouraged with Curative and its position in the Chinese market.
The whole Chinese economy has had some interesting developments and changes, and things going on like anti-corruption trials and stuff like that have made the market continue to be interesting.
We still see a huge opportunity there, just in terms of the number of untreated patients.
Both in obstructive sleep apnea, and also in the number of untreated COPD patients, in the standard of care there.
We're making great progress on the integration program.
We're very happy with the role of a few key players that we've got in China at the moment.
We've got Justin Leong, who is heading up our Asia growth markets group, and Jason Sun, who has remained as the CEO of the Curative subsidiary.
Together, they are bringing together the team of Curative and ResMed, and we're the major player in treating sleep disorder breathing and long-term ventilation in China, and we've got lots of good plans to further develop that.
Thanks for the questions, <UNK>.
Clearly, we've got some really good early data from the control product launches of F20 in Europe, and in the US markets in these controlled product launches, where we've had customers looking at the product, and putting it on patients, seeing how the set-up goes for a provider, and working with physicians so that they can see the change of care.
The F20 is a fabulous full face mask, one of the best I've seen that ResMed has produced.
And I think, as you look over the next number of quarters, this thing is going to be a real winner for us.
To your second part about upgrading our gross margin guidance, I'll let <UNK> go into that in more detail, but at a high level, yes, there's a combination of ASV, as <UNK> said earlier ---+ ASV has turned from a headwind now to tailwind.
Mask growth is at its nadir here, as we transition from two-year-old mask product to brand-new mask product, and both of those tailwinds, in terms of positive GM contributions.
<UNK>, any further color on that for GM.
We try to look at that and try to factor that in.
As you know, on gross margins, it's always hard to predict, because you've got ASP movements, FX, product mix, geographic mix, what we do in manufacturing procurement, what happens with how the acquisitions scale, so we put all that in.
I guess we are getting more confident in the range there on the margin.
Certainly, we saw some really good improvements on the margin in Q1.
Clearly we look to build on those.
In terms of product mix, to the extent, though, that the mask growth accelerates, and we think these masks will be successful, and we do think we'll get share back with these masks, and clearly that's going to be supportive of the gross margin.
And then it depends on relative mix of devices versus masks and so on.
Certainly the expectation is those new masks will be supportive of the gross margin.
You'd have to think that.
Thanks for the question, <UNK>.
I'll take the second part, and hand the first part to <UNK>, to talk about some of the features of the F20.
Yes, with regard to pricing, we work very carefully with our customers in each of the 100 countries we are selling to, and each market we launch into.
This is some very innovative technology in these multiple mask technologies that we're bringing to market, and we are certainly working with customers to understand that value, and ensure the price appropriately in line with that value.
So, I see it rolling in, as we traditionally have, with our mask launches at appropriate pricing, that takes account of the value but also takes account of the realistic nature of the markets in which we are selling in the healthcare world.
<UNK>, do you want to take the second part.
Or the first part.
These masks are really about comfort and seal, and ease of use.
Our early testing ---+ all of our mask development programs are heavily involved with working with patients, and trying ideas, and working through, it's derivative, it keeps going.
We believe the F20 and the M20 have really superior seal and that they just don't leak, and that they're more comfortable and easy to use than earlier masks.
To your question of cannibalization, the market will fall out as to what are the preferences, and people will have to develop their preferences over time for that.
So, that will all take some time to fall out, but we are extremely excited about the response that we've already had on these masks.
What I'd add on there is if there's any cannibalization, there's cannibalization of some of our competitors' positions in full face and nasal.
We will not only keep growing the market, as we are with Dr.
Oz, and reaching out to get new patients in, but I think we will be taking some good share in these categories, as we launch this amazing new mask technology.
It was still up.
We are not going to break it out in detail, but what I said earlier I'll say again, which is the sleep market is growing mid to high single digits, where the devices are growing at mid single digits, masks scoring at high single digits.
We held share in our sleep devices.
Thanks for the question.
With regard to mask growth, revenues and volume, we don't break out pricing deltas.
What we acknowledged in the prep remarks, and I'll say again, we lost some share in masks in the quarter.
If masks are growing at high single digits in the US market, and we're growing at 0 or 1, then we losing some share.
We're very confident with the new masks we are launching today ---+ yesterday in Europe and over this quarter, we plan to launch them again in the US, and beyond in global markets, that we will get back to not only strong market but above market growth, as I alluded to earlier.
These are great masks that will move us up there.
So, we're seeing good market growth of mid to high single digits in masks and there's always price declines to play in there, so you've got low double-digit growth in volumes of masks in the market, that really hasn't changed from Q4 to Q1.
It is more about the product lifecycle of our two-year-old masks and the brand-new ones that are just coming to market.
Yes, clearly, we have a very large investment in the infrastructure with healthcare informatics and Air Solutions.
There's a much more direct relationship between the informatics and the connected care, and the value we provide to the device growth.
We've seen that very strong for now eight quarters since the launch of Air Solutions, AirSense 10 and AirCurve 10.
There is a connection to masks, clearly it's often linked, when you think about it, all the way through to resupply programs.
We have ResMed Resupply, we have Brightree Connect, and we have a number of offerings in the US market.
A number of different offerings for customers in EMEA and APAC, where the go-to-market models that are different.
We are engaging patients better than ever.
Patients are signing up to understand things like myAir, and as part of that, we are absolutely contacting patients to let them know when it's time for a new mask, and to push them through the system.
And so I do think that ---+ different markets of the world, there is different ways of doing that.
You are going to see, as you look forward over FY17, FY18, and beyond, a lot more interplay, not only between the informatics and device, informatics and the masks but also informatics and chronic disease management.
Keeping these patients out of hospital and providing holistic value to the healthcare system, by what we can do.
I'll take the second part, and the first part of it to <UNK>.
Sales of the Astral in terms of its use, it's pretty broad.
It's different in every market in the world.
In Germany, it's far more used as a life support ventilator and in the life support ventilation side.
In the US, it's split between Duchenne Muscular Dystrophy, neuromuscular disease and COPD.
With the changes in reimbursement that have been announced recently, and have been ongoing for a year plus in the COPD side, we've actually been focusing, since we have no entrenched sales in this field, saying to the customers, do you want non-invasive ventilation like an AirCurve 10, S, ST, bi-level type product or do you want Astral.
And for which types of patients would you choose this, working with physicians and providers to do that.
So, we're really partnering with our HMEs and with the physicians, to make sure and keeping the whole context of the healthcare economics that are involved, to make sure the right therapy goes on the right patient, and that it's sustainable over time.
So that's how we look at NIV, as well as LSV for neuromuscular disease and COPD.
As for the field safety notice, <UNK>.
Just a small bit of background on it.
We'd had a small number of reports of degraded battery performance, and there continues to be no adverse health effects from the degraded performance.
There were very clear mitigations for patients around it.
We felt it was the right thing to do, to put out the field safety notice, and alert ventilator-dependent patients and their caregivers about the issue, how they should mitigate the risks, and where appropriate, how to arrange for replacement battery.
It's a rolling replacement program.
It is proceeding well, and we are communicating closely on an ongoing basis with the customers for this.
We have to manage the patient populations very, very carefully, of course, with this type of device.
The program is running along to plan at this stage.
So, I'll take the first part, and I'll give the second part of the question to <UNK>.
The time to the full rollout, one thing, we're obviously very open here on a public conference call, but we don't want to give full indication to our competitors as to the date, the time, and the hour of launch of the F20 in each of the specific country markets.
I've talked broadly to the fact that we've launched in Western Europe yesterday.
This is available across major countries in Western Europe already, and that our plan is to launch into the Americas, and the US specifically this quarter.
But I don't really want go into any more granularity than that, for competitive reasons on this call, <UNK>.
But I can tell you this thing is going to take off, and it's going to be a very valuable mask as it rolls to each of those countries as we launch it.
<UNK>, do you want to, have a breakdown of the acquisition versus organic growth question.
Sure.
We mentioned that earlier, <UNK>.
Organic growth in revenue for us was 3% this quarter.
<UNK>.
We've broken down and given more details in terms of revenue, but we haven't gone down line by line, or segmentation out in terms of the acquisition.
So, we would prefer to keep it that way.
I will say ---+ in the 8-K on Brightree, for example, which is the largest acquisition by far, the ratios are not inconsistent with historical, so that will give you at least a sense of it.
<UNK>, I think the government has regularly looked at their spending in all parts of healthcare, whether it is in pharma or different areas of med tech.
Clearly, this is something that is important to make sure that the government's money is invested well.
There are 40 million to 60 million Americans who suffer from sleep apnea, and we've only got, who are suffocating, we've only got 6 million of them on therapy.
We need to get to the other tens of millions, and it needs to be done appropriately and economically.
We are partnering with every government where we do business to make sure that we can appropriately and economically diagnose and treat those patients, and keep them out of the hospital care system, because it's much less expensive to have a patient safely breathing at home, than badly breathing and needing to visit the ICU or CCU.
No, because there's basically positives and negative, right.
So it's going to be, in absolute terms, it's going to be, as I said, on top of that range.
We said I think 70 to 100, and it's toward the top of the range in terms of basis point contribution.
But then you have the impacts from ASP declines, you have negative impacts from product mix still flowing through.
But we had good contributions, very strong contribution from manufacturing and procurement improvements, and then also Brightree.
They are the four big elements that are flying in on the gross margins.
So it's a mix situation that you end up with.
Yes, absolutely, yes.
6% was the EMEA and APAC constant currency growth.
Yes.
Thanks a lot, Maryama.
In closing I want to thank the now more than 5,000-strong ResMed team from around the world for their commitment to changing the lives of millions of patients with every breath.
We remain focused on our long-term goal of improving 20 million lives by 2020, literally by giving a product that helps a patient who was suffocating or couldn't breathe before, breathe afterwards.
Thanks for your time today, and we'll talk to you again in 90 days.
<UNK>.
| 2016_RMD |
2016 | OGS | OGS
#Thanks, <UNK>.
Good morning everyone, and thank you for joining us today.
Yesterday the ONE Gas Board of Directors declared a dividend of $0.35 per share unchanged from the previous quarter and we increased it to $0.35 from $0.30 per share.
This dividend is consistent with the company's guidance for 2016 and its expected 55% to 65% dividend payout ratio.
As we indicated in our most recent guidance we expect the average annual dividend increase to be 8% to 10% between 2015 and 2020.
Now on to the first quarter results.
Net income for the first quarter 2016 was $64.7 million or $1.22 per diluted share compared with $60.4 million or $1.13 per diluted share for the same period last year.
New rates in Oklahoma and Texas positively impacted results.
This includes the approved rate case in Oklahoma this past January and approvals for GRIP and cost of service filings in Texas.
Residential customer growth in Oklahoma and Texas also contributed to our results but were offset by lower volumes due to warmer weather in our service territories.
Weather was 18% warmer than the same period last year, with total residential gas sales volumes down 14%.
Total volumes delivered were down 9% but our high percentage of fixed charges and weather normalization mechanisms mitigated the impact, with the warmer weather having less than a 2% impact to net margins.
Operating costs for the first quarter were slightly lower compared with the same period last year.
Outside services, IT expenses and fleet-related costs decreased but were mostly offset by higher employee related costs.
Capital expenditures for the first quarter were approximately $75 million compared with $55 million for the same period last year.
With the warmer and drier weather this first quarter, we were able to compete more system integrity and construction projects.
We still expect capital expenditures to be approximately $305 million in 2016, with more than 70% targeted towards system integrity and replacement projects.
We ended the first quarter with a total debt to capitalization ratio of 39% and do not anticipate any equity needs in our five year financial plan.
ONE Gas generated operating cash flow, before changes in working capital, of $121 million in the first quarter and ended the quarter with approximately $53 million of cash and cash equivalence and no borrowings under our $700 million credit facility.
In the press release we reaffirmed our net income range of $127 million to $137 million or approximately $2.40 to $2.60 per diluted share.
At March 31, 2016 our current authorized rate base, defined as the rate base established in our latest regulatory proceedings including full rate cases and interim rate filings is approximately $2.7 billion.
Considering additional investments in our system and other changes in the components of our rate base that have occurred since those regulatory filings, we project that our rate base in 2016 will average approximately $2.9 billion with 43% of that being a rate base in Oklahoma, 31% in Kansas, and 21% in Texas.
And now I will turn it over to <UNK> <UNK>, ONE Gas President and Chief Executive Officer.
<UNK>.
Thanks, <UNK> and good morning everyone.
ONE Gas is solely focused on leading the industry as a safe dependable provider of natural gas to our customers, an important component of our strategy and why we reinvest in systems and facilities.
As you know may have noticed in our press releases, we have quite a bit of regulatory activity to highlight on this call.
So let me get started with Kansas.
Yesterday afternoon Kansas Gas Service filed a request with the Kansas Corporation Commission or KCC for a total increase in base rates of $35.4 million reflecting system investments and operating cost necessary to maintain the safety and reliability of its natural gas system.
After considering recoveries from GSRS filings and other adjustments, the impact to 2017 operating income as filed will be approximately $30 million.
Since the last general rate Kansas Gas Service has invested $230 million in its systems and its facilities.
This request would increase the average residential customer's natural gas bill of $4.34 per month.
The filing is based on a 10% return on equity and a 55% common equity ratio.
For every 25 basis point change to our requested ROE it would result in a change of approximately $2.1 million.
The filing represents a rate base of $903 million compared with $826 million included in the existing base rates plus previously approved GSRS eligible investments.
The company's filing also includes a proposal of a cost of service adjustment, or COSA, mechanism that would reset rates annually based on a review of the previous year's financial results.
The proposed rate mechanism is intended to reduce the need to file four rate cases thereby saving cost associated with these traditional rate cases.
Since the KCC has 240 days to consider Kansas Gas Service's filing, new rates will be in effect in January 2017.
Now on to Texas, Texas Gas Service reached a unanimous settlement agreement for its Galveston and south Jefferson County service areas for an increase in revenues of $2.3 million.
This following included a request to consolidate these two service areas into a new Gulf Coast service area.
Final approval was received this morning and new rates will become effective tomorrow.
On March 30, 2016 we filed a rate case requesting an increase in revenues of 12.8 million for the El Paso, Dell City and Permian service areas.
The filing also included a request to consolidate these three service areas into a new West Texas Service area.
If approved new rates are expected to be effective October, 2016.
We plan to file a rate case in the Central Texas jurisdiction which includes the City of Austin on or before June 30, 2016.
This filing is also expected to include a proposal to consolidate the South Texas service area with the Central Texas service area.
In the Texas filings I just mentioned they include the request of consolidation of certain service areas.
The intent of consolidation is the service areas is to gain an administrative efficiencies that will benefit our regulators, the company, and our customers, who will benefit from the lower expenses involved in rate case filings.
Finally I would like to close by thanking our employees for what they do every day in delivering natural gas to our customers.
The foundation of our company's strategy is having a high performing workforce, and I appreciate their hard work.
Operator, we're now ready for questions.
Hey, good morning <UNK>.
We're just fine.
That's right.
<UNK>, if you remember we have ten jurisdictions down there right now.
And the one that just got approved that consolidated too, so we would be down to nine.
And so our strategy is that as we roll through and do rate cases, we continue to look for opportunities to consolidate the different jurisdictions.
So it effectively spreads the operational expenses over a wider area as opposed to just one single jurisdiction the way we have it now.
So the plan is to take a look at our opportunities as we have rate filings.
No, it does not.
It still follows the same regulatory structure where we have COSAs and GRIPs and then by the rules under those different mechanisms, you come back after certain periods of time to actually file a full blown rate case.
So the cadence is going to be just the thing.
Certainly, <UNK> ---+ this is <UNK>.
Certainly on the fleet aspect of it, it is lower fuel cost year-over-year.
So some of our fleet rungs on CNG and we have seen the decrease in gas prices for CNG as well, that's the primary part behind the fleet.
Some of the other cost-savings candidly while the weather was warmer and so we didn't move as many volumes, that also then frees up our labor force to do other projects that we might otherwise have to outsource to third parties at different points in time.
So while it took away some revenues and also saved us some expenses through the quarter.
Yes, we would expect that to be the case.
That's correct.
You're exactly on the right track of thinking that nine new dollar highs in the quarter.
Yes, you should use the price on the day that it hit the new dollar high.
Thanks <UNK>.
Hi.
Really there is kind of two pieces of that <UNK>, and the first part was as we spun out the company we stood up all of our IT operations, so all of that stuff basically got done the first year in 2014.
Then we turned the efforts of our IT resources group over to implementing field enablement type projects what we call tough bucks in our trucks for our system guys and so that's what we have maintained our assets with.
So that all got rolled out last year and that has been all in schedule.
And like you said, I don't have a quantification number for you but all of that is going toward making us more efficient operating company and that will continue.
Well, we feel like it is time to introduce that concept in Kansas, <UNK>.
As you know we have those same type of mechanisms.
They are called something a little bit differently in Oklahoma, and we actually do call it a COSA in Texas.
We think it's time to talk to the regulators again about the benefits of that because it gets you into systematic filings which are normally lower in ask, so you have less rate shock to the customers.
You also get the benefits of a smaller expense around those filings.
And so we know that that's something that has been done in other states and some states don't have it still but we felt like it's time for it in Kansas.
Same here, <UNK>.
| 2016_OGS |
2015 | CY | CY
#So on the buyback, we've secured a financing commitment from Credit Suisse for $400 million.
So we can move quickly.
But we will be very opportunistic in our buyback.
So what you'll see us doing is in the open market, buying shares when we think the stock is undervalued.
And I think you'll see that happen over multiple quarters here.
I'd like to reemphasize that same theme, both on buyback and on acquisition.
We're happy with where we are and we're not going to modify our behavior.
We're going to be measured in things we do in both arenas.
And then to answer your question on the automotive, so for this quarter, the industrial and automotive was 54% of total revenue and last quarter, it was 52%.
A year ago was 49%.
Thank you for the question.
Cypress and Spansion had different inventory policies when we came together.
Spansion had much larger inventory in both dollars and days than Cyprus.
During our discussions for a merger, we decided to maintain Cypress' inventory policy.
We have four methods of write down of inventory, and they all are intended not to let inventory balloon or stuff the channel.
So we did a write down of inventory at the merger.
We got rid of everything that was suspect, old enough that we might have to put more money into it to ship it, obsolescent, et cetera.
We went down to our inventory level of six months.
So basically at Cypress, if anything is six months old and one day, it goes away.
And it's a write-off in that period.
So all of our numbers always include that.
Therefore, the inventory we kept between the companies is the good stuff.
And therefore, we expect in terms of that value inventory, to sell all of it.
But we don't want six months of inventory.
Our entitled level for days of inventory is 68 days, 65 days to 68 days.
And that's a measured number that we've got from studying companies we consider to be best-in-class and Cypress history.
So let's call that two-thirds of a quarter.
We've got a little bit over a quarters worth of inventory burn off, so that we get down to the lean inventory that we believe is right.
We believe high velocity inventory, short lead times, high on-time delivery.
So old Cypress, for example, closely times the 4.3 weeks and delivers 99% on-time to that lead time of 4.3 weeks.
Internally, our inventory ---+ excuse me, our lead times internally are about 3.8 weeks.
So we're even better than that.
Spansion inventory is now coming down through the seven weeks.
It will come down to four weeks.
That will take us a year.
We're improving on-time delivery.
And that action is what will get our inventory down to where we want it to be.
So from your perspective, you won't see anything except for one thing.
We're running our fabs below the replacement rate for our sales at 60% utilization, and that utilization will take some points off of gross margin until the second half of next year.
That's correct.
Raji, let me clarify one thing.
There was $30 million of synergies in the quarter.
On an annualized basis, it was $120 million.
And the $21 million of COG synergies was an annualized number.
And with regard to overall synergies, let me give you the data.
Our total synergies since the beginning of the deal, as of the end of Q3 were $120 million annualized cost reduction.
And the number we've said we've actually raised one time, the number we said to the Street is that we plan to get to $160 million total when all is said and done.
We've been saying that we will achieve the $160 million total in Q4 of 2017.
That's been our position up to this point.
Today we believe we're going to pull that in by a year.
And we will get to $160 million total in synergies from the $120 million we have achieved so far by Q4 2016.
So Q1 is typically down for us, <UNK>.
And right now we have very little visibility into Q1.
We're struggling with the visibility into Q4.
So it's hard for us to make a commitment on Q1.
But I would expect us to at best be normal seasonality in Q1, at this point
It's typically down about 3%.
I'm sorry.
Let me clarify.
Q1 is typically down 6%.
So our dividend is sacred.
We've said that forever.
We're paying $0.11 dividend, which is yielding about 5% right now.
You'll see that continue.
Right now, we're going to be opportunistic with where our stock is.
If the stock continues to trade where we think is undervalued, then we'll be buying back.
If we think that there is an opportunity that we could increase the dividend long term, we may consider that.
But right now, our focus is going to be on the buyback.
Our normal seasonality for Q4 is down 3%.
At the midpoint of our guide, we've got it down 5%.
At the low end of the guide, it's about 8.5%.
And then I just said Q1 is typically down 6% to 7% from Q4.
They'd start to kick back up.
Q3 is typically up about 3%.
Q2 is up about 7% over Q1.
Sorry to do that in reverse order, but 7% in Q2, 3% in Q4 ---+ sorry, Q3.
This is <UNK> <UNK>.
The segments that we really see a lot of growth in right now are Automotive.
Even though the revenue is out in the future, but we're getting a lots of award wins now.
We've still see some opportunities in consumer, with wearables and whatnot, with our PSoc and our CapTouch.
And then Industrial has been off a little bit and Communication worldwide has been off a little bit.
Big picture, we're looking at the last quarter and we've got good data and good capability to analyze data.
And it's real hard to find a company, a market, or a geography where we're getting hammered.
It's like it's down a few percentage points across the board.
Sure.
This is T.
J.
When we first announced and we did a preliminary synergy plan, we announced $130 million.
And that was conservative.
We wanted to make our number, obviously.
We then did a synergy plan ---+ I'm looking here at a document called Rev 12.
So we beat the crap out of it and got a lot of detail in it.
We have a senior manager running, so it's run as if it were a department that has got tight management to it.
And then we thought $130 million, went to $160 million, and we were prepared to commit $160 million to the Street, which is where we're at now.
Having said that, in our plan, we were supposed to be at $90 million at the end of Q3.
And we're at $120 million.
That is $120 million annualized cost reduction cumulative since the beginning, or basically that dividend by four per quarter.
We were supposed to be at $90 million and we're at $120 million.
So we're ahead of plan.
There are reasons for it.
I will give you one example.
When the companies got together, there were 72 total sites, way too many buildings scattered all over, two pair of sales offices, et cetera.
We have a plan to close 27 buildings.
And typically, you've got to negotiate.
Sometimes you get hung with a building, you have to pay the rent for a while until you get rid of it, et cetera.
We've actually been able to close down 25 of those 27 sites, and we will close down the last one or two next quarter.
So we did a really good job on the real estate part, and that sets one of the reasons for the acceleration.
Also, in our synergy plan, we started out with 8,116 people together.
And the plan was by the second quarter of next year to go to 7,068 people, down 1,048 people.
And as we speak today, we're down 1,049.
So we've executed on the headcount reduction plan.
We're in effect, done.
And we've got that done by Q3 2015.
That said, we'll probably drift a little bit ahead of plan, but I don't have a quantification for that and it's not a huge number.
So we've been executing more quickly toward the $160 million total, which I now said will happen in Q4 of 2016 instead of Q4 of 2017.
Okay.
Well, I've been on the Board for 33 years, so I'll answer that question.
We borrowed money, emphasize that, borrowed money to buy back stock.
That's the purpose for the money.
That's what it's going for.
And we borrowed money because the stock is very undervalued.
You take any metric you want, you go look, and the stock is undervalued.
We will take that much stock out of the market.
The only variable is the execution of it.
And by that I mean our second goal is to get as many shares out of the market as we can for the budget that we have to spend.
And therefore we may slow down if the stock pops upward and speed up if the stock goes down.
But bottom line, we're undervalued.
We borrowed money to buy back stock.
We're going to take that stock and run it upward later and make a profit on that, and that's our goal.
And that is not going to be perturbed by other things that pass by.
So for example, if we get to a point where we have to stop doing managed purchases in the market, because of some, let's say, M&A activity, we will likely turn on a 10B5 program to plow through that barrier to keep our buyback going while we're working on that merger.
The buyback is a commitment.
The Board's behind it.
And we're going to execute on it.
And <UNK>, let me add that if you look at the gross leverage, we're going to go from 1.9 times to 2.8 times after taking down the $400 million.
And we drive that down very quickly.
And that's on an LTM basis as of Q3.
If you look forward into 2016 and 2017, we drive that down drastically with the strong cash flow that comes out with the synergies that we're going to recognize.
So we have plenty of capacity to go get additional debt, if we needed it.
Yes.
So DCD will be up quarter-on-quarter.
The other divisions will be down slightly.
Our emerging tech we expect will be up, as well.
But the DCD will be driven by strong growth in the USB and the Type-C adoption, as well, and the turn back on of the track pad business that we saw softness in Q3.
Let me go back and give a higher level abstraction of what <UNK> said.
We have start-ups, we call them emerging technology division, or ETD.
We have the Type-C, which is a small division within Cypress.
But in effect, Type-C plus our startup, as I mentioned earlier.
Both of those will move forward, because they're plowing new ground.
The bulk of the Company's revenue ---+ and by that I'm talking about 80% of it ---+ is in our other two divisions, Memory Products Division and Programmable Systems Division.
They're both roughly comparable, and also our geographies are roughly comparable.
So the comment I made earlier, it looks like a few percent nick across-the-board is really what applies.
There's nothing that stands out one way or the other.
<UNK> <UNK> runs manufacturing for the corporation.
He came from the Spansion side.
He is managing the transfer into fab 25, which is a world-class, low cost outfit.
<UNK>, where are we at on that transfer.
We currently are ramping into production, going through our customer quals.
Made silicon, made it work, working on reliability, giving it to customers, waiting for them to say go.
I expect them to be hyper growth.
They've been growing very nicely.
Our foundry business is ramping.
Deca and giga are both ramping, as well.
I think if you look forward, you should see 2X type growth on those divisions.
Now it's off a small number, but we're very excited about where that business is growing to.
And we've seen them ramping with their customers currently.
We're going to be looking, instead of 50%, at low 40s up to the second half of 2016.
With regard to OpEx, our model is 30%.
We're going to, during that period of time, probably beat that by 2 percentage points, get to 28%.
So that's where we'll be.
And then in the second half of 2016, we'll ramp our fabs and start moving the gross margin north, also based on the new products we'll start to ramp by that time, as well.
I will ask <UNK> <UNK>, the EVP of that division, to talk about fingerprint, which appears nowhere in our numbers.
Hello.
This is <UNK>.
So just a quick update on the fingerprint.
As you know, we are still working with IDEX as our partner to enter the fingerprint market.
Where we are in the market today, we have actually successfully sampled a few of the OEMs.
We're going through their side of the qual.
When I say sampled, it is to a first order, even retrofitted phones.
That's going into the qual.
And then we will ramp when they ramp, based on the next few months of design and activity.
But the solution is ready.
The customers know it.
And now we're going through the next steps in the funnel.
And that is upside.
We have chosen to prepare our plans and make our forecast assuming that's upside, because that is such a volatile market.
And the cell phone business, as you well know, you can get locked out when you didn't expect it, or you can get in and then have your prices go to the point you can't make any money.
But that product, which works well ---+ a couple of engineers trapped me outside my office the other day, and I stood in the hallway and rolled my fingerprint, three of my fingerprints into the phone, and watched it recognize my fingerprint.
At every weird angle I could put my finger at, it still worked.
We got a product and we'll see how it goes.
If it happens, it's upside.
You explain gross margin in terms of almost a chess game.
And you make this move and you get something, you make that move and you get something.
A lot of gross margin is more about training for a marathon.
You just run a lot of miles every day for a long time and it gets better.
To look at the components that don't warrant a discussion at our level is like a chess move.
Let me ask the division manager for the Memory Products Group, <UNK> <UNK>, to describe the components in your spreadsheet that you will beat on for the next three years to improve gross margin and flash.
So what T.
J.
---+ this is <UNK> <UNK>.
was referring to was a spreadsheet of literally hundreds of line items that we monitor.
If you look at what kind of categories they go into, first is pricing.
We set pricing strategies and we sell on value.
So there is many components related to that, whether it's to the end customer or the distribution partners or the contract manufacturers.
There's a large component of cost reduction.
And cost reduction takes many forms.
I'm not talking about headcount or labor.
I'm talking about reducing each and every component of the manufacturing cost, getting more efficient, getting higher yields, testing things and guaranteeing their quality more efficiently.
There are grassroots initiatives we call world-class costs that go down to the individual level deep into the organization, and there's literally hundreds of those.
And then, of course, another large component is new products.
So replacing old product revenue with higher, more valued products.
And they all weight pretty equally.
So to sit and talk about it, we could sit and talk for hours on that topic, when you get into the fine detail.
We have answered the last question.
We've had a good quarter, $0.17.
We're ahead of ourself, our plan on the integration.
And we thank you for calling in.
Good day.
| 2015_CY |
2015 | ITRI | ITRI
#Thanks, <UNK>.
So yes, <UNK>, we're not in a position to give full guidance on 2016.
But we have commented on the fact that we do see stronger than average growth in 2016, really as a result of the already-booked contracts, and the other contractual commitments not yet in our formal backlog.
So this was the discussion about, not only did we see a significant buildup of our total Company backlog, but that we have visibility to shipments in North America, and places like Consumers and Duke not yet fully in backlog, to other European shipments with companies like ERDF and GRDF, in which there is visibility beyond the backlog, which we see deploying and committed in 2016.
So we would definitely characterize 2016 as an above-normal growth year.
And we will also start to see some real benefit from the restructuring in 2016.
Okay, I will let <UNK> comment on the tax rate, and then I will come back with that mix question.
On the tax rate ---+ and I believe what I just said in the discussion part of the call was that we expect to see some modest upward pressure from the 37% that we had forecast, or that we had guided to earlier, as a full-year effective tax rate.
What that means is that we will see a lower rate in the second half of the year than we have experienced thus far.
And without being too precise on it, let me say the second half of the year, the way we look at it, should be somewhere below 30%.
Why is that.
It's because of the dynamics of improving profitability, particularly in Germany and France, where we have deferred tax assets that are fully impaired.
So if you understand that where we have losses in Germany and France today, we get no credit for that, because the deferred tax assets are covered by valuation allowances.
To the extent we get income there, we get an actual benefit of having no tax levied on those profits.
So that's what's happening, as we see it, in the second half.
A better operating result in Germany and France that is heightened by a favorable tax effect, pushing our tax rate down in quarters two ---+ quarters three and four, below 30%.
And Phil, did you want to ---+.
Sure.
On that mix, <UNK>, we're not in a position to provide full detail.
I will give you just a little bit of color on that, which is, the first thing that is taking us towards that mid-teens EBITDA target is this goal that I've stated of high-single-digit EBITDA in electricity by the end of 2016.
That's $40 million of low-margin exits in 2014, $50 million of exits.
So electricity grew significantly year on year.
That's even with the removal of a fair amount of low-margin revenue that we are taking out of the mix.
So we have an overall mix improvement, by strategically exiting some markets where we were not making our targets.
At the same time that we are taking out $40 million worth of cost, and as we see an increase in the focus in shift to the North American products that are already in backlog that have higher margin.
At the same time, we are consolidating some facilities, which help with our overall efficiency, which really helps us to improve our performance in a number of different areas.
And we are investing in sophisticated products to drive to this higher-margin area.
So yes, it is a range, a balanced range of revenue growth, again, visibility in backlog, and attractive areas, as we exit lower margin areas, reduce cost and continue to invest in higher-margin products in the future.
Yes, <UNK>, it's very fair.
Our intent here, as we get this business really established in the way that we see it internally, that we would provide more visibility about the separate financial metrics of the software and services business.
It's both something that we intend to manage aggressively, and that we need to present to you more transparently, in terms of how it affects our overall business.
To the question of the ---+ do we see growth against that $200 million baseline, yes, it is growing.
As we are focusing more on providing this solution up to and including managed services, and even data services beyond that.
So we see the growth opportunity as being faster than overall total Company revenue growth.
In terms of an update for that total targeted plan, it's ---+ in the 2017, 2018 time frame, we really see the opportunity to realize that growth target.
I would say that's a bit more long-dated, to get that straightened out.
So those are, yes, slightly higher costs, to go after some very desirable business, by the way.
We've talked about this, that Jordan Water, and a number of these opportunities we are going after, are solid-state water meters ---+ I mean communicating meters, where we have made investments in advanced technology, that are really going to drive the business forward.
And revenues are ---+ as we have said, are down slightly.
So as we return to revenue growth in 2016, that operating leverage, we think, will straighten itself out.
I think we have provided all of the answers to the questions, everyone in the queue.
So we thank you for your participation today, and we look forward to seeing you, and speaking with you, in the upcoming weeks.
Thanks very much.
| 2015_ITRI |
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